Opinion
NOT TO BE PUBLISHED
Santa Barbara County Super. Ct. No. 1120178. Zel Canter, Judge
Richard R. Bredlau & Associates, Richard R. Bredlau, Law Offices of Richard C. Loy and Richard C. Loy for Plaintiffs and Appellants.
Minehan, McFaul & McLinn and Thomas M. Fitch for Defendants and Respondents.
COFFEE, J.
A faulty water heater is installed in a rental home and allegedly leaks carbon monoxide, causing injury to the tenants who live there. They file a damage action against the landlord, alleging personal injury. The landlord cross-complains for unpaid rent and for indemnity against the contractor who installed the water heater. Landlord and tenant proceed to binding arbitration on the issues of unpaid rent and personal injury. The landlord prevails.
The contractor is not a party to the binding arbitration. The tenants dismiss the action without prejudice, so they may refile against him. The trial court issues an order stating that collateral estoppel bars appellants from bringing any claims against the contractor. We conclude that collateral estoppel does not apply and reverse the trial court's order barring appellants from proceeding against respondents. We affirm its denial of a motion to vacate the dismissal.
FACTS
Pamela K. Stableford and the Pamela K. Stableford trust (collectively Stableford) owned a house on 2732 Stowe Road in Los Olivos that she rented to appellants Barr Ross, Helena Ross and their minor daughter.
Appellants moved into the house in December 2002, paying a monthly rent of $2,200. In February 2003 they allegedly discovered a carbon monoxide leak in the house and stopped paying rent the following month. In May, Stableford filed an unlawful detainer action against them. Appellants remained in the house without paying rent until January 2004. At that time they owed approximately $24,200 in unpaid rent.
Before Stableford's purchase of the property, the prior owners informed her that the garage had been converted to a living space, but they had not obtained permits for the construction. After buying the house, Stableford remodeled it further without obtaining the required permits. Among the changes made, she replaced the hot water heater in the garage living space. The hot water heater, washing machine and gas powered dryer were enclosed in a closet within the converted room. A roof vent was "improperly configured" and there was no vent to the exterior of the house.
Appellants contacted the gas company, who "red tagged" the water heater on March 4 and March 10 "because it was not venting properly." Appellants notified Stableford of these developments and she subsequently served them with a 3-day notice to pay rent or surrender possession.
Respondents are the contractor, H. Charles Gandolfo, Gandolfo Construction, Inc., and the subcontractor, Danny Benarth, who installed the water heater.
Complaint by Appellants
Appellants filed a damage action against Pamela K. Stableford, and several doe defendants, alleging causes of action for breach of contract, wrongful eviction, negligence, retaliatory eviction, intentional infliction of emotional distress and negligent infliction of emotional distress. They also alleged that they suffered personal injuries caused by the faulty water heater.
Appellants claimed that Stableford knew, or should have known, that the configuration of the hot water heater constituted a dangerous condition and unreasonable risk of harm, of which appellants were unaware. They claimed that Stableford failed to take steps to make the condition safe or to warn appellants of the dangerous condition. As a result, appellants were exposed to carbon monoxide which leaked from the hot water heater into the living room.
Appellants alleged that they began experiencing symptoms consistent with carbon monoxide exposure. As to the minor, the complaint alleged that she experienced a racing heartbeat, headaches, "flu like" nausea without fever, loss of consciousness, blurred vision, severe fatigue, muscle pain, insomnia, loss of concentration and depression.
Appellants asserted that they stopped paying rent because the premises were "wholly or partially uninhabitable" and they had suffered injuries due to Stableford's negligence. Appellants alleged that their eviction was unlawful because it was in retaliation for their requests for repairs; their contact with the gas company; filing a complaint with the county building department; and for notifying the County of Santa Barbara that the remodel had been performed without permits.
Cross-Complaint by Stableford
Stableford filed a cross-complaint against appellants for breach of contract, recission and cancellation of lease. She named doe defendants, indicating she would seek leave to amend once she ascertained their identities. Stableford alleged that the doe defendants were "legally responsible in some manner for the events and happenings referred to herein and caused injury and damage proximately thereby to Cross-Complainant as alleged herein."
The court approved the parties' stipulation to amend Stableford's cross-complaint substituting respondents for the doe defendants. Stableford alleged that respondents negligently installed the water heater and requested indemnity should she be found liable. Respondents answered, denying liability, and moved to continue the trial because they had recently been brought into the action. The trial court denied their motion and severed the amended cross-complaint (claim for indemnity) from the main action.
Stipulation to Arbitrate
At a readiness and settlement conference on September 13, 2004, appellants and Stableford stipulated to resolve the complaint and cross-complaint by binding arbitration. Respondents were not present in court or parties to the stipulation. The agreement was placed on the record.
The stipulation was reduced to writing and signed by Stableford and Helena Ross individually, and as the minor's guardian ad litem. Barr Ross did not sign the document. Appellants and Stableford entered into a "high/low" agreement. If the award was in favor of appellants, Stableford agreed to pay a minimum of $20,000 and a maximum of $300,000, through her insurance company. If the award exceeded $300,000, the award would be reduced pro rata to equal $300,000. If the award was in favor of Stableford (on her cross-complaint for unpaid rent and cancellation of lease), appellants agreed to pay a minimum of $8,000 and a maximum of $18,000.
Appellants and Stableford stipulated that the awards would be sent to the attorneys and that the matter would be "terminated by way of a Release and Dismissal (with prejudice) following issuance of a settlement draft in accordance with the arbitration award. No judgment [was] to be taken by or against any party, and the arbitration award [was] not to be filed with the Court, unless a petition [was] filed per [Code of Civil Procedure, section] 1285 et seq." It was agreed that neither side would seek punitive damages.
Appellant Barr Ross was not physically present in the court room. The court questioned his wife, Helena Ross, who indicated that she agreed to binding arbitration on his behalf as well as their child.
Binding Arbitration
The parties selected C. David Serena of Judicate West to serve as the arbitrator. Appellants argued that their eviction was retaliatory and Stableford was liable for personal injury. Stableford denied their contentions and claimed she was entitled to unpaid rent.
Serena awarded Stableford the sum of $17,497.43 in unpaid rent. He issued a 12-page document entitled "Judicate West Decision." As to the personal injury claim, he indicated that he heard lay witness and expert testimony and considered documentary evidence. Serena concluded that appellants had not been exposed to unsafe levels of carbon monoxide and found that their testimony concerning their medical conditions was not credible. He stated that "[o]n the other claims in this Arbitration, [Stableford] [is] discharged, and the claims of [appellants], are dismissed."
Stableford settled her claims against respondents and dismissed with prejudice her cross-complaint against them. She filed a case management conference statement reciting the terms of the settlement.
Post-Arbitration Case Management Conference
After the arbitration was completed, appellants substituted in new counsel and filed doe amendments naming respondents. Appellants filed a supplement to their case management conference memorandum requesting that the court reopen the arbitration to take further evidence of the minor's personal injuries. Appellants stated that the minor had been examined and tested by a neuropsychologist who concluded she has suffered permanent brain damage.
The trial court did not respond to appellants' claims. It indicated that the conference was necessary only to determine whether resolution of the matter had complied with fast track rules. "[T]he only purpose for it being on the court's calendar is to make sure that arbitration occurred. Arbitration did occur. There was an award. As far as I know that's the end of the story. Dismiss, make a motion to dismiss."
Appellant's Dismissal of Stableford with Prejudice
In January 2005, counsel for appellants filed a request for dismissal of their complaint with prejudice as to Stableford only. Attached was a letter from appellants' counsel to the clerk of the court, indicating that the complaint should only be dismissed as to Stableford, but the cause of action against respondents should be preserved. By March, both parties had executed mutual releases.
The letter, dated January 3, 2005, read, "Please do not dismiss the entire complaint. [¶] The purpose of this letter is to indicate that the Request For Dismissal signed by me [counsel for appellants] January 3, 2005, is not meant to dismiss the entire complaint, Barr Ross, et. al. v. Pamela K. Stableford, et. al. . . . Only dismiss [appellants'] action against [Stableford]. The Doe Amendments to the Complaint were filed against other parties and it is not the intention of our request for dismissal to dismiss any actions against H. Charles Gandolfo, Charles Gandolfo Construction, Inc., and Danny Benarth."
Appellants Dismiss Entire Complaint without Prejudice
On August 11, 2005, appellants dismissed the entire action without prejudice. Appellants' counsel attached a letter addressed to the clerk of the court. It read, "Please dismiss the entire Complaint without prejudice." (Emphasis in original.) "[Appellants] are now the only parties who have appeared and have not been dismissed. It is the intention of [appellants] to refile the action as to the minor . . ., so the dismissal without prejudice shall not act as a retraxit. All of the cross-complaints have previously been dismissed so [appellants] have the right to dismiss the action by themselves. [¶] . . . [¶] It is our intention by this dismissal without prejudice to dismiss any remaining actions by [appellants]. Since the only Cross-Complaint and amendment thereto was dismissed this current dismissal should take all further matters off calendar."
Motion to Vacate Dismissal without Prejudice
On October 19, 2005, respondents moved to set aside or vacate appellants' August 11, 2005, dismissal without prejudice and to reenter a dismissal with prejudice. Respondents also requested that the court issue an order barring each appellant "from ever bringing another action on the facts litigated therein."
Attached to the motion was the declaration of respondents' counsel, Thomas Minehan. He stated that respondents never consented to appellants' filing a dismissal without prejudice, and that respondents were never formally served with a summons and complaint. Minehan alleged that it was his understanding that the "entire complaint . . . was to be litigated to its conclusion at binding arbitration." He indicated that respondents had been greatly prejudiced by entry of the dismissal without prejudice, especially in light of the attorney's letter to the clerk indicating an intent to bring an action on behalf of the minor.
Appellants filed opposition. Attached was the declaration of Cheryll Smith, Ph.D., a neuropsycholgist experienced in brain injury rehabilitation. It was Dr. Smith's opinion that the minor has a permanent brain injury caused by carbon monoxide exposure. Also attached was the declaration of Thomas H. Milby, M.D., who declared that the minor suffers from memory and balance problems, confusion and visual disturbances.
Dr. Smith declared that the minor had undergone a Positron Emission Tomography (PET) scan was which showed abnormalities in her brain. Dr. Smith declared that the minor is "significantly disabled" and "is demonstrating impairments in all left cerebral hemisphere functions, with patchy impairment in right hemisphere functioning" and her symptoms are consistent with carbon monoxide poisoning.
Hearing on Motion to Vacate Dismissal Without Prejudice
On December 7, 2005, the trial court heard argument on respondents' motion to set aside the dismissal without prejudice and re-enter a dismissal with prejudice. Respondents' counsel argued that a significant issue was that appellants had filed a doe amendment although they had been aware of respondents' identities for over one year. Appellants' counsel indicated that they had been substituted in after the binding arbitration. At that time they checked the court record and found that all unserved parties had not been dismissed and concluded they had the right to add respondents.
The court denied the motion. Without addressing the parties' arguments, it instructed respondents' counsel to "[p]repare an order with findings in it. I don't want. . . findings of fact and conclusions of law, just that the Court finds as I've done here. [¶] . . . [¶] [I]t went to arbitration. The arbitrator made findings of fact, and you're stuck with it. That's res judicata."
The formal order issued January 10, 2006, read, "GOOD CAUSE having been shown to the satisfaction of the Court, Plaintiffs BARR ROSS, HELENA ROSS, and [the minor], are, by application of res judicata principles, forever barred from bringing any subsequent legal action as against H. CHARLES GANDOLFO, GANDOLFO CONSTRUCTION, INC., and DANNY BENARTH, on the claims set forth in this action (Santa Barbara County Superior Court case [N]o. 1120178), which claims were fully litigated on the merits by Plaintiffs BARR ROSS, HELENA ROSS, and [the minor] at the November 3 and 4, 2004 binding arbitration before arbitrator C. David Serena. [¶] The court denies the motion to vacate plaintiffs' dismissal without prejudice and enter the dismissal with prejudice." Respondents filed a pleading entitled "notice of entry of the order determining res judicata bar to future claims of appellants as against respondents." The record on appeal does not contain a judgment of dismissal.
DISCUSSION
Res Judicata Effect of Binding Arbitration
The trial court's order is invalid because it granted relief to respondents who did not participate in the binding arbitration proceedings, and the order was entered after the case had been voluntarily dismissed.
In addition to this appeal, appellants filed a petition for writ of mandate in case No. B189558, challenging the trial court's order dated January 10, 2006. We deferred a ruling on the writ petition pending consideration of the instant appeal. In a separate order, filed concurrently with this opinion, we denied that petition as moot.
Appellants argue that the court improperly applied principles of res judicata to determine that future claims asserted by the minor against respondents were barred. They contend the court lacked jurisdiction to make such an order after the complaint against respondents had been dismissed without prejudice. Appellants also claim that the court erred by failing to hold a minor's compromise hearing to determine if the settlement terms were fair to the minor.
"The doctrine of res judicata precludes the relitigation of certain matters which have been resolved in a prior proceeding under certain circumstances." (Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 556.) "The doctrine has two aspects. It applies to both a previously litigated cause of action, referred to as claim preclusion, and to an issue necessarily decided in a prior action, referred to as issue preclusion." (Ibid.)
Traditionally, the following elements had to be met for application of the doctrine: 1) the issues in both proceedings are identical; 2) the issue or claim must have been actually litigated and decided in the first proceeding; 3) the decision in the former proceeding must be final and on the merits; and 4) the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding. (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341.)
Our Supreme Court has established that "a private arbitration award, even if judicially confirmed, can have no collateral estoppel effect in favor of third persons unless the arbitral parties agreed, in the particular case, that such a consequence should apply." (Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 834.)
The Supreme Court indicated that its "holding is narrowly circumscribed. Nothing in our decision imposes or implies any limitations on the strict res judicata, or 'claim preclusive,' effect of a California law private arbitration award. (See e.g., Thibodeau v. Crum (1992) 4 Cal.App.4th 749, 756-761 [unconfirmed award in private arbitration between homeowner is res judicata barring homeowner's identical claim against subcontractor]; Sartor v. Superior Court (1982) 136 Cal.App.3d 322, 327-328 [confirmed private arbitration award in favor of architectural firm is res judicata barring homeowner's identical causes of action against firm's employees].)" (Vandenberg v. Superior Court, supra, 21 Cal.4th at p. 825, fn.2.) The court also cautioned that its opinion did not address the preclusive effect of a private arbitration award in subsequent litigation between the same parties on different causes of action. (Ibid.)
The Vandenberg court indicated that "reasonable parties [to an arbitration] would hesitate to agree that the arbitrator's findings in their own dispute should thereafter bind them in cases involving different adversaries and claims. . . . Most often, the effect would be to burden whichever party lost the arbitration, while affording no corresponding benefit to either arbitral party." (Vandenberg v. Superior Court, supra, 21 Cal.4th at pp. 832-833.) When collateral estoppel is invoked by a nonparty, it does not serve to protect "one who has already once prevailed against the same opponent," but allows the nonparty to "gain vicarious advantage from a litigation victory won by another." (Id. at p. 833 [insured who lost in private arbitration brought suit against insurers; nonmutual collateral estoppel not available to insurers, who were not parties to arbitration].)
An exception exists when a nonparty's liability is "derivative" of one of the arbitral parties. (Richard B. LeVine Inc. v. Higashi (2005) 131 Cal.App.4th 566, 576.) In those circumstances, a decision in favor of a party precludes a subsequent action against a nonparty. (Sartor v. Superior Court (1982) 136 Cal.App.3d 322 [homeowners' arbitration with architectural corporation barred homeowners' subsequent lawsuit against the corporation's employees, based on the identical issue]; Brinton v. Bankers Pension Services, Inc., supra, 76 Cal.App.4th 550 [private arbitration between investor and officer of a brokerage firm barred a subsequent lawsuit concerning the identical claim, brought by investor against brokerage firm itself].) Parties who have been said to have derivative liability for the purposes of collateral estoppel are "master and servant, principal and agent, and indemnitor and indemnity." (Bernhard v. Bank of America (1942) 19 Cal.2d 807, 812.) Whether the lawsuit is brought against the servant or the master, the action against one is res judicata as against the other. (Id. at p. 813.)
Respondents rely on LeVine to argue that their liability was derivative of Stableford's liability. Levine was a partner in a medical partnership. After his death, his wife succeeded to his position. The partnership then informed its accountant that it had chosen to change its method of allocating the partner's income. LeVine objected to the reallocation and entered into arbitration with the partnership to resolve her tort allegations against the partners.
The arbitrator decided in favor of the partnership, and LeVine filed a tort action against the partnership's accountant. Levine was precluded from proceeding against the accountant because the accountant's liability was dependent upon the commission of an underlying tort by the partners, a claim that was decided adversely to Levine in the prior arbitration. (Richard B. Levine, Inc. v. Higashi, supra, 131 Cal.App.4th at p. 573.)
The foregoing cases concerning derivative liability do not apply to the facts before us. Stableford hired respondents to install a water heater. They were not her agents or employees, but an independent contractor and his subcontractor, hired to perform a specific task. Respondents cannot claim that their relationship with Stableford constitutes derivative liability.
Respondents were not parties to the binding arbitration; they cannot claim derivative liability; and the issue of respondents' alleged negligence was not litigated or decided in the arbitration. Accordingly, the minor is not collaterally estopped from bringing a personal injury action against respondents.
Dismissal Without Prejudice
The dismissal at issue is appellants' August 11, 2005, dismissal of their entire complaint without prejudice. By letter attached to the dismissal, appellants indicated to the clerk that they intended to refile the action as to the minor.
An action may be dismissed with or without prejudice, upon written request of the plaintiff to the clerk, filed with papers in the case, or by oral or written request to the court at any time before the actual commencement of trial. (Code Civ. Proc., § 581, subd. (b)(1).) Once trial commences, the plaintiff has no further right to a dismissal without prejudice, unless all the parties agree or the court so orders on a showing of good cause. (Id., subd. (e).) A voluntary dismissal of an entire action deprives the court of both subject matter and personal jurisdiction, except for the limited purpose of awarding costs and attorney's fees. (Mossanen v. Monfared (2000) 77 Cal.App.4th 1402, 1409.)
"The right of a plaintiff to voluntarily dismiss an action before commencement of trial is not absolute. Code of Civil Procedure section 581 recognizes exceptions to the right; other limitations have evolved through the courts' construction of the term 'commencement of trial.' These exceptions generally arise where the action has proceeded to a determinative adjudication, or to a decision that is tantamount to an adjudication." (Harris v. Billings (1993) 16 Cal.App.4th 1396, 1402.)
Respondents make no argument that the arbitration constituted a trial or that it was tantamount to an adjudication. They assert, instead, that appellants were attempting to avoid an unfavorable arbitration award. Harris established that a party is not entitled to a voluntary dismissal without prejudice "within the judicial arbitration setting" merely to avoid an unfavorable award. (Harris v. Billings, supra, 16 Cal.App.4th at p. 1402 .)
Appellants, however, were not involved in a judicial proceeding, but a private arbitration. Their dismissal was not an attempt to obtain a stay or continuance, but to be permitted to adjudicate their claim against respondents. Appellants dismissed their action without prejudice prior to commencement of trial and the trial court's jurisdiction expired with the dismissal.
DISPOSITION
We reverse the trial court's ruling that appellants are barred from bringing any subsequent legal action against respondents. We affirm its denial of respondents' motion to vacate appellants' dismissal without prejudice and enter the dismissal with prejudice. Costs on appeal are awarded to appellants.
We concur: GILBERT, P.J., PERREN, J.