Opinion
F073228
10-16-2017
SANDSTONE MARKETING, INC., Plaintiff and Respondent, v. WARREN FELGER et al., Defendants and Appellants.
LaMontagne & Amador and Eric A. Amador for Defendants and Appellants. Thornton Law Group, Douglas V. Thornton, and Robert W. Branch for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 12CECG01891)
OPINION
APPEAL from a judgment of the Superior Court of Fresno County. Kristi Culver Kapetan, Judge. LaMontagne & Amador and Eric A. Amador for Defendants and Appellants. Thornton Law Group, Douglas V. Thornton, and Robert W. Branch for Plaintiff and Respondent.
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Brothers Warren and Forrest Felger (the Felgers) appeal from a judgment of the Fresno County Superior Court entered on December 3, 2015, in favor of Sandstone Marketing, Inc. (Sandstone).
In an earlier lawsuit (the First Action), Sandstone prevailed on its breach-of-contract claim against Felger Farms, a general partnership, and Mt. Whitney Farms, a limited liability company. Thereafter, in the case underlying this appeal (the Second Action), the court concluded the Felgers, as general partners of Felger Farms, were jointly and severally liable for the judgment in the First Action.
On appeal, the Felgers contend Sandstone was barred from bringing the Second Action for two reasons. First, Sandstone did not join the Felgers as parties and serve them with process in the First Action. Second, prior to the Second Action, the court denied Sandstone's motion to amend the judgment in the First Action to add the Felgers as alter egos of the judgment debtors. Alternatively, the Felgers contend the original breach-of-contract claim in the First Action had to be relitigated in the Second Action. For the reasons set forth below, we reject these contentions and affirm the judgment.
FACTUAL AND PROCEDURAL HISTORY
I. The First Action.
On June 20, 2008, Sandstone entered into an agreement to purchase melons from Felger Farms and Mt. Whitney Farms. On September 19, 2008, Sandstone sued Felger Farms and Mt. Whitney Farms, alleging they failed to cultivate the melons in the manner required under the contract. In turn, Felger Farms and Mt. Whitney Farms sued Sandstone, alleging it owed them money under the contract. The court consolidated these lawsuits. Via pretrial discovery, Sandstone learned the Felgers were Felger Farms' sole partners and Mt. Whitney Farms' sole members. Neither was joined as a defendant or served with process. Nonetheless, the Felgers "managed and directed the prosecution and defense of the claims and fully participated in the litigation of the First Action." In addition, at the time of the First Action, Warren Felger was a practicing attorney.
Following a trial, the jury determined Felger Farms and Mt. Whitney Farms breached the implied covenant of good faith and fair dealing, rendered a verdict in favor of Sandstone, and awarded $230,685 in damages. Sandstone was also awarded $237,252.94 in costs and attorney's fees. The judgment was entered on February 14, 2011. A writ of execution on the judgment was issued but eventually returned unsatisfied.
We affirmed this judgment on June 24, 2013. (Mt. Whitney Farms, LLC et al. v. Sandstone Marketing, Inc. (June 24, 2013, F062505) [nonpub. opn.].)
Pursuant to Code of Civil Procedure section 187, Sandstone moved to amend the February 14, 2011, judgment to add the Felgers, inter alia, as alter egos of Felger Farms and Mt. Whitney Farms. On June 9, 2012, following a hearing, the court denied the motion, finding Sandstone failed to prove fraud, injustice, or an otherwise inequitable result would arise from recognizing Felger Farms and Mt. Whitney Farms as separate business entities.
We affirmed this ruling on August 5, 2014. (Mt. Whitney Farms, LLC et al. v. Sandstone Marketing, Inc. (Aug. 5, 2014, F065715) [nonpub. opn.].)
II. The Second Action.
On July 19, 2013, Sandstone sued the Felgers, alleging they were jointly and severally liable for the judgment in the First Action as the general partners of Felger Farms and/or the alter egos of Mt. Whitney Farms. In response, the Felgers moved for summary judgment. On March 27, 2015, following a hearing, the court granted the motion in part, finding res judicata barred Sandstone's alter ego claim.
Sandstone appealed from the judgment after the order granting summary judgment. On August 2, 2016, in accordance with the parties' written stipulation, we dismissed the appeal.
Prior to trial, the parties submitted briefs concerning the scope of the issues. The Felgers asserted res judicata and/or Code of Civil Procedure section 369.5 barred Sandstone from bringing the Second Action; alternatively, if the court allowed the case to proceed, Sandstone needed to prove once again Felger Farms breached the June 20, 2008, agreement. On the other hand, Sandstone maintained it simply had to demonstrate (1) the Felgers were the general partners of Felger Farms; and (2) the judgment in the First Action, and the partnership obligation for which the Felgers were alleged to be jointly and severally liable in the Second Action, stemmed from the same, previously litigated, breach-of-contract claim. On October 2, 2015, following a hearing, the court sided with Sandstone:
"A Ninth Circuit case discusses the scope of trial issues in the context of an Arizona law that is very similar to [the California Revised Uniform Partnership Act (Corp. Code, § 16100 et seq.)]. (Valley Nat. Bank of Arizona v. A.E. Rouse & Co. (9th Cir. 1997) 121 F.3d 1332, 1336 (Rouse).)
"In its discussion of partnership law, the court in [Rouse] noted that (as in California) partners are liable jointly and severally for all partnership debts and can be sued in successive actions for the same claim. However, that does not mean that a judgment against the partnership, or against an individual partner, can be enforced against partners who were not parties to the action. (Rouse, supra, 121 F.3d at pp. 1336-1337.)
"The bank in [Rouse] acknowledged that it neither named nor served the Wyoming partnerships [in its action] against the partnerships and the guarantors but argued that the default judgment against the partnership could be enforced against the Wyoming partnerships and the guarantors because the guarantors had notice of the suit (as individuals) and could have defended the partnership but chose not to. In making this argument, the bank relied on Restatement Second of Judgments, section 60, which provided, in relevant part:
"(1) A judgment in an action by an injured person against a partner upon an obligation or liability incurred in the course of partnership business: [¶] . . . [¶]
"(b) [I]f in favor of the injured person: [¶] . . . [¶]
"(ii) renders the property of the partnership subject to execution to satisfy the judgment but is not otherwise binding on a partner who was not a party to the action unless he controlled or participated in controlling the defense of the action, or was given notice of an opportunity to defend the action.
"The appellate court found the bank's reliance on the Restatement misplaced: 'What the drafters of the Restatement meant when they suggested that an unnamed, unserved partner who participates in a defense of the partnership may be "bound" by a judgment against the partnership is that such a partner may be collaterally estopped from relitigating decided issues in a subsequent litigation , not that the partner's participation in the defense of the partnership somehow converts a judgment against the partnership into a judgment against the partner.' (Rouse, supra, 121 F.3d at p. 1337, boldface & italics added.) [¶] . . . [¶]
"California law is structured to permit the partner being sued for an uncollectible partnership debt to raise any applicable defenses to enforcement that are personal to the partner, such as the fact that the partner was not a partner during the relevant time period the obligation was incurred. (§ 16306.) Or the partner might argue that he or she filed a statement of disassociation and that he or she is thus not liable. (§ 16704, subd. (c).) Or the partner might be a limited partner. (§ 16306, subd. (c).) [¶] . . . [¶]
"In DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813 (Faerber), . . . three individuals acting on behalf of a company entered into the commercial lease on behalf of the company [and] were jointly and severally liable under the specific terms of the lease. One of the individuals later sued the landlord for fraud and other causes of action concerning the lease, and the landlord cross complained. Although the cross complaint named all three lessees, it was served on only the plaintiff (one of the individuals). After a bench trial, the court rejected all of the individual's claims and awarded over $2.8 million on the landlord's cross complaint. Then shortly before the statement of decision in the first case was filed, the landlord sued the other two individuals for breach of the same lease. One of the individuals sued in the second suit demurred, arguing that because the landlord's rights under the lease had been adjudicated in the first action, the
second lawsuit was barred by the rule against splitting a cause of action. In opposition, the landlord argued that California law permits separate actions against parties who are jointly and severally liable. The trial court sustained the demurrer without leave to amend, and entered judgment for the individual, and [the] court of appeal affirmed. (Id. at pp. 818-819.)
"The California Supreme Court found no conflict between the doctrines of claim preclusion and joint and several liability. Parties who are jointly and severally liable on a contract may be sued in separate actions. Judgment in the first action doesn't bar judgments in later actions, even when they allege the same claim of wrongdoing, as long as the suits are against different parties. (Faerber, supra, 61 Cal.4th at pp. 819-820.)
"The Court noted that the rule that parties who are jointly and severally liable can be sued in separate actions arose from situations where not all the parties potentially liable can be joined in a single suit that would determine the total amount of their shares liability. California and nearly all the other states have passed statutes (such as § 16306) that would ameliorate the harshness of the compulsory joinder rule. (Faerber, supra, 61 Cal.4th at p. 820.)
"One of the principles relied on by the Court was the one in the Restatement Second of Judgements [sic], section 49, that a judgment for or against one obligor does not result in a merger or bar of the claim that the injured [party] may have against other obligors on the same claim, but [the Court noted] that the injured party (the plaintiff) ordinarily may not re-litigate issues decided against him in the first action. (Faerber, supra, 61 Cal.4th at p. 822.) The main difference between the situation in [Faerber] and here is that in [Faerber] the co-obligor sued in the second lawsuit was not a party to the earlier proceeding and did not participate in it in any way, and of course there is no discussion of what the effect would have been had the co-obligor controlled the underlying litigation that had produced the judgment. If the co-obligor in [Faerber] had controlled the litigation against the first individual, the co-obligor would have been collaterally estopped concerning issues litigated against him in the first case.
"Here, both Warren Felger and Forrest Felger participated in the first litigation on behalf of Felger Farms. Because of that, they cannot raise defenses as co-obligors to the partnership debt - in other words, they cannot re-litigate the entire case. As unnamed, unserved partners who participated in a defense of the partnership, they can be collaterally estopped from relitigating decided issues in a subsequent litigation, meaning this lawsuit. (See Rouse, supra, 121 F.3d at p. 1337.) All Warren
Felger and Forrest Felger can do in this lawsuit is raise defenses to the partnership debt personal to themselves as partners.
"Again, these would include defenses that persons admitted as partners into existing partnerships are not personally liable for partnership obligations incurred before that person's admission as a partner. (§ 16306, subd. (b).) Likewise[,] [l]imited partners are generally not liable. (§ 16306, subd. (c).) And partners who've successfully disassociated themselves from the partnership are not liable. (§ 16703.) But because they participated in the prior litigation on behalf of Felger Farms, they cannot re-litigate the entire case. At trial, Sandstone will have to prove that the same claim is at issue and that Warren Felger and Forrest Felger are/were both general partners of Felger Farms at the relevant times. Demonstrating that they participated in the prior action on behalf of Felger Farms is also necessary to show that they cannot re-litigate the entire case."
Unless otherwise indicated, subsequent citations refer to the Corporations Code.
We reformatted the citations in the quoted text to conform to the general rules of citation outlined by the California Style Manual. (See generally Cal. Style Manual (4th ed. 2000).) No substantive changes were made.
In view of the court's ruling on the scope of the issues, the parties agreed to a bench trial on the following stipulated facts:
"A. Warren Felger and Forrest Felger each held a 50% interest in Felger Farms, a California general partnership, and Warren Felger and Forrest Felger each held a 50% interest in Mt. Whitney [Farms].The parties' written stipulation also stated:
"B. In February 2011, after a jury trial in the First Action . . . , the Judgment was entered in favor of Sandstone and against Felger Farms and Mt. Whitney [Farms], for damages in the amount of $230,685.00, and which, inclusive of costs and attorneys' fees, totalled [sic] $467,937.94 at the time the [j]udgment was entered. . . .
"C. The claim at issue in . . . this action, seeking judgment against Warren Felger and Forrest Felger as general partners of Felger Farms, is the same as that for which Felger Farms was found liable, along with Mt. Whitney [Farms], in the First Action.
"D. On January 9, 2014, Sandstone obtained a Writ of Execution . . . issued against Felger Farms and Mt. Whitney [Farms], in the amount then due on the [j]udgment. . . . On August 8, 2014, the Writ was returned to the Court wholly unsatisfied."
"E. Warren Felger represents that he was prepared to testify at the trial in this action that, if Forrest Felger and he had been named and served as defendants in the Underlying Case in their capacity as partners of Felger Farms, as counsel, he would have requested a special verdict allocating liability between Felger Farms and Mt. Whitney [Farms], and further represents that he would testify that the requested allocation would be based upon his proposed testimony that Felger Farms performed melon-farming operations on only one of the two fields at issue in the First Case, and Mt. Whitney [Farms] performed melon-farming operations on only the other field, with each field comprising a substantial amount of acreage. Warren Felger further represents that he was also prepared to testify at trial that because Forrest Felger and he were not so named or served, he did not litigate that allocation issue at the First Action or seek such a verdict. In so stipulating, Sandstone does not stipulate to either the admissibility or truth of such proffered testimony."
In a statement of decision filed on November 17, 2015, the court concluded the Felgers were jointly and severally liable for the judgment in the First Action:
"General partners are liable jointly and severally for all partnership obligations unless otherwise agreed by the claimant or provided by law, except that a partner is not personally liable for partnership obligations incurred before he or she became a partner. (§ 16306.) A general partner who has disassociated from the partnership remains liable for obligations incurred before disassociation (§ 16703, subd. (a)), but not obligations incurred after disassociation, unless certain circumstances apply which are not relevant here (since no one is claiming disassociation).
"A partnership may sue and be sued in the name of the partnership. (§ 16307, subd. (a).) A judgment against a partnership may not be satisfied from a partner's assets unless there is also a judgment against the partner. (§ 16307, subd. (c).) Section 16307, subdivision (d), delineates how a judgment creditor of a partner can levy against the assets of a partner to satisfy a judgment based on a claim against the partnership. One way is if a judgment was obtained against the partnership and a writ of execution . . . has been returned unsatisfied.
"The joint and several liability for partnership debts can be enforced in successive actions for the same claims. 'Unnamed, unserved partner(s) who participate() in a defense of the partnership may be "bound" by a judgment against the partnership' because that partner may be collaterally
estopped from re-litigating decided issues in a subsequent litigation. (Rouse, supra, 121 F.3d at p. 1337.)In a footnote, the court criticized paragraph E of the parties' written stipulation:
"California law is structured to permit the partner being sued for an uncollectible partnership debt to raise any applicable defenses to enforcement that are personal to the partner, such as the fact that the partner was not a partner during the time the obligation was incurred. (§ 16306.) Or the partner might argue that he or she filed a statement of disassociation and that he or she is thus not liable. (§ 16704, subd. (c).) Or the partner may actually be a limited partner. None of those defenses are implicated in this case.
"Parties who are jointly and severally liable can be sued in separate actions. A [j]udgment in the first action does not bar judgments in later actions, even when they allege the same claim of wrongdoing, as long as the suits are against different parties. (Faerber, supra, 61 Cal.4th at pp. 819-820, italics omitted.) One of the principles relied on by the Court in [Faerber] is the Restatement Second of Judgments, section 49[,] which states that a judgment for or against one obligor does not result in a merger or bar of the claim that the injured [party] may have against other obligors on the same claim. However, the Court in [Faerber] noted something particularly relevant here: an injured party ordinarily may not re-litigate issues decided against him in the first action. (Faerber, supra, at p. 822.) The main difference between the facts of [Faerber] and the instant case is that in [Faerber] the co-obligor sued in the second lawsuit was not a party to the earlier proceeding and did not participate in it in any way. Presumably[,] if the co-obligor in [Faerber] had controlled the litigation against the first individual, the co-obligor would have been collaterally estopped from re-litigating issues decided against him in the first case.
"Here, the Felgers participated in and controlled the first litigation on behalf of Felger Farms. Therefore, they cannot raise the defenses as co-obligors to the partnership debt - in other words, they cannot re-litigate the entire case. As unnamed, unserved partners who participated in [the] defense of the partnership, they can be and are collaterally estopped from re-litigating decided issues in a subsequent litigation, meaning this lawsuit. As a result, based upon the stipulated facts, the Felgers are liable for the [j]udgment in the First [A]ction in full."
"In the Stipulated Facts, Warren Felger attempts to add additional 'facts' to which he states he would have testified. These 'facts' are inadmissible as Warren Felger is not under oath and the parties agreed to a trial on stipulated facts; not testimony. Mr. Felger could have had a trial and testified but he did not and cannot now argue about what he would have testified to had he chosen to do so. Therefore, Paragraph E is stricken as it is not a stipulated fact and is beyond the scope of the agreed trial."The judgment was entered on December 3, 2015.
See ante, footnote 5.
The Felgers filed a motion for new trial, which was denied by operation of law. (See Code Civ. Proc., § 660.) They appealed from the denial. On August 2, 2016, in accordance with the parties' written stipulation, we dismissed the appeal.
DISCUSSION
A partnership is "an association of two or more persons to carry on as coowners a business for profit . . . ." (§ 16101, subd. (9); accord, § 16202, subd. (a).) It is "an entity separate and apart from the partners of which it is comprised, and it is the partnership entity which owns its assets, not the partners." (Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 424; accord, §§ 16201, 16203.)
In general, "all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law." (§ 16306, subd. (a).) However, "[a] judgment against a partnership may not be satisfied from a partner's assets unless there is also a judgment against the partner." (§ 16307, subd. (c); see id., subd. (d)(1) ["A judgment creditor of a partner may not levy execution against the assets of the partner to satisfy a judgment based on a claim against the partnership unless . . . [¶] . . . [¶] . . . [a] judgment based on the same claim has been obtained against the partnership and a writ of execution on the judgment has been returned unsatisfied in whole or in part."]; see also Ahart, Cal. Practice Guide: Enforcing Judgments and Debts (The Rutter Group 2017) ¶ 3:34, p. 3-19 ["[A] creditor may not automatically collect partnership debts from a general partner; ordinarily, a creditor must first obtain a judgment against the partner individually, holding the partner liable for the partnership's debt."].) Furthermore, "[a] judgment against a partnership is not by itself a judgment against a partner." (§ 16307, subd. (c).)
"Except as otherwise provided in subdivision (g) of Section 16306, an action may be brought against the partnership and any or all of the partners in the same action or in separate actions." (§ 16307, subd. (b).)
This exception does not apply here.
I. Sandstone was not required to join the Felgers as parties in the First Action.
The Felgers assert "Sandstone's failure to name and serve [them] in the First Action barred its [S]econd [A]ction against them." (Italics omitted.) They state:
"Because Sandstone knew that [the Felgers] were the partners of Felger Farms during the pendency of the First Action, yet failed to name and serve them as defendants in that action, it should not have been allowed to bring this [S]econd [A]ction against them."We reject this argument in view of the plain language of section 16307, subdivision (b).
"The fundamental task in construing a statute is to ascertain and effectuate the intent of the Legislature." (County of Fresno v. Malaga County Water Dist. (2002) 100 Cal.App.4th 937, 941.) "In determining the Legislature's intent, a court looks first to the words of the statute." (People v. Snook (1997) 16 Cal.4th 1210, 1215.) "When looking to the words of the statute, a court gives the language its usual, ordinary meaning." (Ibid.) "If there is no ambiguity in the language, we presume the Legislature meant what it said and the plain meaning of the statute governs." (Ibid.) " 'We review de novo questions of statutory construction.' " (Coker v. JPMorgan Chase Bank, N.A. (2016) 62 Cal.4th 667, 674.)
As previously noted, section 16307, subdivision (b), added by Statutes 1996, chapter 1003, section 2, expressly authorizes a plaintiff to sue a partnership in one action and the partners in another. One cannot reasonably infer from its language that a plaintiff must join partners as parties in an action against a partnership. (See People v. Shabtay (2006) 138 Cal.App.4th 1184, 1190 [statutory construction rendering a provision nugatory must be avoided].)
The Felgers cite Promotus Enterprises, Inc. v. Jiminez (1971) 21 Cal.App.3d 560 (Jiminez) for the proposition "a partner sued in a second action may not be deemed liable for a judgment obtained against only the partnership in a prior action, when he was not served in that action." Jiminez is inapposite because it predates section 16307's enactment by over 20 years. Moreover, in contrast to the instant case, the plaintiff in Jiminez initiated the first action against both the partner and the partnership, but the former was not served with process. (Jiminez, supra, at p. 562.) The partner remained unaware of the first action until he was served with process in the second action. (Ibid.)
While the Felgers acknowledge the explicit wording of section 16307, subdivision (b), they nonetheless insist this provision, as well as section 16307, subdivision (c) (see ante, at pp. 10-11), should be construed to compel a plaintiff like Sandstone to obtain a judgment against a partnership and a judgment against individual partners in a single action. "We will not speculate that the Legislature meant something other than what it said. Nor will we rewrite a statute to posit an unexpressed intent." (Morton Engineering & Construction, Inc. v. Patscheck (2001) 87 Cal.App.4th 712, 716.)
The Felgers also point to Code of Civil Procedure section 369.5, subdivision (b), which reads:
"A member of the partnership or other unincorporated association may be joined as a party in an action against the unincorporated association. If service of process is made on the member as an individual, whether or not the member is also served as a person upon whom service is made on behalf of the unincorporated association, a judgment against the member based on the member's personal liability may be obtained in the action, whether the liability is joint, joint and several, or several."According to the Felgers, this provision required Sandstone to join them as parties in the First Action. This is another strained interpretation. Code of Civil Procedure section 369.5, subdivision (b), provides that a partner "may" be joined as a party in an action against the partnership. (Cf. Code Civ. Proc., § 389, subd. (a) ["shall" used in statute governing joinder of necessary and indispensable parties].) "Generally, for purposes of statutory interpretation, 'shall' is mandatory and 'may' is permissive." (Estate of Miramontes-Najera (2004) 118 Cal.App.4th 750, 758.) That the Legislature chose to use "may" instead of "shall" in Code of Civil Procedure section 369.5 is significant. (See Hicks v. E.T. Legg & Associates (2001) 89 Cal.App.4th 496, 507 [" ' "It is a well recognized principle of statutory construction that when the Legislature has carefully employed a term in one place and has excluded it in another, it should not be implied where excluded." ' "].)
The Felgers cite Fazzi v. Peters (1968) 68 Cal.2d 590 (Fazzi) for the proposition former Code of Civil Procedure section 388 "required the joinder as a party and personal service upon a partner in that capacity, before a judgment establishing personal liability could be obtained." (See Cal. Law Revision Com. com., Deering's Ann. Code Civ. Proc. (2015 ed.) foll. § 369.5, p. 365 [Code Civ. Proc., § 369.5 restates former Code Civ. Proc., § 388 without substantive change]; see also Fazzi, supra, at pp. 597-598, fn. 7.) This is inaccurate. In Fazzi, the California Supreme Court "simply reaffirm[ed] the seemingly self-evident proposition that a judgment in personam may not be entered against one not a party to the action" (Fazzi, supra, at p. 591) and found former Code of Civil Procedure section 388 "was never intended to abrogate that principle" (Fazzi, supra, at p. 594) "in the case of partnership defendants" (id. at p. 595). The high court never concluded joinder under that statute was compulsory.
II. The superior court's denial of Sandstone's motion to amend the judgment in the First Action to add the Felgers as alter egos of Felger Farms did not bar the Second Action.
Next, the Felgers assert "[r]es judicata barred Sandstone's [S]econd [A]ction against [them]." (Italics omitted.) They specify:
"Sandstone's [Code of Civil Procedure s]ection 187 [m]otion was, in effect, an action against the [Felgers] seeking to establish their liability for the [j]udgment in the First Action, and that action was resolved against Sandstone; yet it still brought this second lawsuit seeking the exact same thing.""Whether the doctrine of res judicata applies in a particular case is a question of law which we review de novo." (City of Oakland v. Oakland Police & Fire Retirement System (2014) 224 Cal.App.4th 210, 228.)
"We have frequently used 'res judicata' as an umbrella term encompassing both claim preclusion and issue preclusion, which we described as two separate 'aspects' of an overarching doctrine. [Citations.] Claim preclusion, the ' " 'primary aspect' " ' of res judicata, acts to bar claims that were, or should have been, advanced in a previous suit involving the same parties. [Citation.] Issue preclusion, the ' " 'secondary aspect' " ' historically called collateral estoppel, describes the bar on relitigating issues that were argued and decided in the first suit. [Citation.]" (Faerber, supra, 61 Cal.4th at pp. 823-824.) "To avoid future confusion, we will follow the example of other courts and use the terms 'claim preclusion' to describe the primary aspect of the res judicata doctrine and 'issue preclusion' to encompass the notion of collateral estoppel." (Id. at p. 824.)
In this instance, the Felgers are invoking claim preclusion. "Claim preclusion 'prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them.' [Citation.] Claim preclusion arises if a second suit involves (1) the same cause of action (2) between the same parties (3) after a final judgment on the merits in the first suit. [Citations.] If claim preclusion is established, it operates to bar relitigation of the claim altogether." (Faerber, supra, 61 Cal.4th at p. 824, italics omitted.)
"To determine whether two proceedings involve identical causes of action for purposes of claim preclusion, California courts have 'consistently applied the "primary rights" theory.' [Citation.] Under this theory, '[a] cause of action . . . arises out of an antecedent primary right and corresponding duty and the delict or breach of such primary right and duty by the person on whom the duty rests. "Of these elements, the primary right and duty and the delict or wrong combined constitute the cause of action in the legal sense of the term . . . ." ' [Citation.]" (Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 797-798.)
" 'In California the phrases "causes of action" is often used indiscriminately . . . to mean counts which state [according to different legal theories] the same cause of action . . . .' [Citation.] But for the purposes of applying the doctrine of res judicata, the phrase 'cause of action' has a more precise meaning: The cause of action is the right to obtain redress for a harm suffered, regardless of the specific remedy sought or the legal theory (common law or statutory) advanced." (Boeken v. Philip Morris USA, Inc., supra, 48 Cal.4th at p. 798, italics omitted.) " '[T]he "cause of action" is based upon the harm suffered, as opposed to the particular theory asserted by the litigant. [Citation.] Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief. "Hence a judgment for the defendant is a bar to a subsequent action by the plaintiff based on the same injury to the same right, even though he presents a different legal ground for relief." [Citations.]' Thus, under the primary rights theory, the determinative factor is the harm suffered." (Ibid., italics omitted.)
Here, claim preclusion did not apply because Sandstone's motion pursuant to Code of Civil Procedure section 187 and the Second Action did not involve the same cause of action. "[A]lter ego conduct [i]s a separate and distinct harm from [a partnership's] breach of contract." (Wells Fargo Bank, N.A. v. Weinberg (2014) 227 Cal.App.4th 1, 7 (Weinberg); accord, Danko v. O'Reilly (2014) 232 Cal.App.4th 732, 751.) " ' "A claim against a defendant, based on the alter ego theory, is not itself a claim for substantive relief, e.g., breach of contract . . . , but rather, procedural, i.e., to disregard the [business] entity as a distinct defendant and to hold the alter ego individuals liable on the obligations of th[at] [entity] where the [business] form is being used by the individuals to escape personal liability, sanction a fraud, or promote injustice." ' [Citation.]" (Weinberg, supra, at pp. 7-8.) While Sandstone's Second Action sought redress for Felger Farms's breach of contract on the theory the Felgers were jointly and severally liable (see § 16306, subd. (a)), its motion to amend the judgment in the First Action to add the Felgers as alter egos "sought a remedy, not for breach of contract, but for [the Felgers'] exercise of control over [Felger Farms] that deprived [the movant] of the ability to collect the judgment against the [partnership] for breach of contract" (Weinberg, supra, at p. 7). Accordingly, we reject the Felgers' depiction of the Second Action as "a blatant repetition of the [Code of Civil Procedure s]ection 187 [m]otion." III. Issue preclusion barred the Felgers from relitigating whether Felger Farms breached the June 20, 2008, agreement.
In violation of California Rules of Court, rule 8.204(a)(1)(B), the Felgers present a separate argument that is not listed "under a separate heading or subheading summarizing the point . . . ." Thus, we decline to address it. (See, e.g., Citizens Opposing a Dangerous Environment v. County of Kern (2014) 228 Cal.App.4th 360, 380, fn. 16; Silverado Modjeska Recreation & Park Dist. v. County of Orange (2011) 197 Cal.App.4th 282, 314, fn. 24; Sierra Club v. City of Orange (2008) 163 Cal.App.4th 523, 542.)
Finally, the Felgers assert "Sandstone was required to prove the merits of its [breach-of-contract] claim . . . ." (Italics omitted.) They allege:
"[W]hile section 16306 expresses a general rule making partners liable for partnership obligations, section 16307 makes a judgment against the partner himself a prerequisite to such liability . . . . [¶] . . . [¶]We agree a judgment against a partnership cannot be satisfied from a partner's assets unless there is also a judgment against the partner. (See ante, at p. 10.) However, we disagree with the Felgers' suggestion the court merely "rubber stamp[ed]" the judgment in the Second Action. The record shows Sandstone did not join the Felgers or serve them with process in the First Action, but the Felgers nonetheless "managed and directed the prosecution and defense of the claims and fully participated in the litigation of the First Action." (See ante, at p. 2.) After considering the parties' briefs concerning the scope of the issues in the Second Action, the court reviewed Rouse and Faerber, noted the degree of control exerted by the Felgers in the original lawsuit, and indicated the Felgers "can be collaterally estopped from relitigating decided issues in a subsequent litigation . . . ." (See ante, at pp. 4-7.) Then, following a trial on stipulated facts, the court determined (1) the Felgers were precluded from relitigating whether Felger Farms breached the June 20, 2008, agreement; and (2) the Felgers, as general partners of Felger Farms, were jointly and severally liable for the judgment in the First Action. (See ante, at pp. 7-10.) We review de novo whether the court properly applied issue preclusion. (City of Oakland v. Oakland Police & Fire Retirement System, supra, 224 Cal.App.4th at p. 228; Roos v. Red (2005) 130 Cal.App.4th 870, 878.)
". . . [F]or the [Felgers] to be liable for the [j]udgment against Felger Farms [in the First Action], section 16307, subd. (d)(1) required Sandstone to obtain a judgment against the [Felgers], 'based on the same claim' as the one against Felger Farms. Yet in this [Second] [A]ction, the trial court imposed a judgment against the [Felgers] based upon the former [j]udgment, without any consideration of the merits of the underlying claim. This procedure was contrary to law."
"Issue preclusion prohibits the relitigation of issues argued and decided in a previous case, even if the second suit raises different causes of action. [Citation.] Under issue preclusion, the prior judgment conclusively resolves an issue actually litigated and determined in the first action. [Citation.] There is a limit to the reach of issue preclusion, however. In accordance with due process, it can be asserted only against a party to the first lawsuit, or one in privity with a party. [Citation.]" (Faerber, supra, 61 Cal.4th at p. 824, italics omitted.) "In summary, issue preclusion applies (1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party. [Citations.]" (Id. at p. 825.)
It is undisputed the question of whether Felger Farms breached the June 20, 2008, agreement was actually litigated and necessarily decided in the First Action. The jury determined Felger Farms breached the implied covenant of good faith and fair dealing and rendered a verdict in favor of Sandstone. The judgment was entered on February 14, 2011, and affirmed on appeal. It is also undisputed "[t]he claim at issue in the [Second] [A]ction . . . is the same as that for which Felger Farms was found liable . . . in the First Action." (See ante, at p. 7.) The remaining concern is whether issue preclusion can be asserted against the Felgers, who were not parties in the First Action. We answer in the affirmative.
We do not rely on Rouse, a nonbinding Ninth Circuit decision (see Elliott v. Albright (1989) 209 Cal.App.3d 1028, 1034), to reach this conclusion. (See Davey v. Southern Pacific Co. (1897) 116 Cal. 325, 329 ["If right upon any theory of the law applicable to the case, [a ruling or decision] must be sustained regardless of the considerations which may have moved the trial court to its conclusion."].)
As noted, issue preclusion can be asserted against either a party in the previous case or one in privity with that party. (Faerber, supra, 61 Cal.4th at p. 825.) The concept of privity " 'refers "to a relationship between the party to be estopped and the unsuccessful party in the prior litigation which is 'sufficiently close' so as to justify application of [issue preclusion]." ' [Citation.]" (California Physicians' Service v. Aoki Diabetes Research Institute (2008) 163 Cal.App.4th 1506, 1521.) "Notions of privity have been expanded to the limits of due process. [Citation.] 'In the context of [issue preclusion], due process requires that the party to be estopped must have had an identity or community of interest with, and adequate representation by, the losing party in the first action as well as that the circumstances must have been such that the party to be estopped should reasonably have expected to be bound by the prior adjudication.' [Citation.]" (Id. at p. 1522.) " ' "A nonparty should reasonably be expected to be bound if he had in reality contested the prior action even if he did not make a formal appearance. Thus, [issue preclusion] has been applied against nonparties who had a proprietary or financial interest in and control of, a prior action. [Citations.]" ' " (Id. at p. 1523; see id. at pp. 1523-1524 ["While control over the prior action is commonly present in applications of [issue preclusion], it is not essential: 'preclusion can apply even in the absence of such control.' "].)
Likewise, Code of Civil Procedure section 1908, subdivision (b), added by Statutes 1975, chapter 225, section 1 (see Amendments, Deering's Ann. Code Civ. Proc. (2014 ed.) foll. § 1908, pp. 16-17), reads:
"A person who is not a party but who controls an action, individually or in cooperation with others, is bound by the adjudications of litigated matters as if he were a party if he has a proprietary or financial interest in the judgment or in the determination of a question of fact or of a question of law with reference to the same subject matter or transaction; if the other party has notice of his participation, the other party is equally bound."This provision codifies Restatement of Judgments, section 84, which, in turn, has been endorsed by our state courts. (See, e.g., Dillard v. McKnight (1949) 34 Cal.2d 209, 216; Krofcheck v. Ensign Co. (1980) 112 Cal.App.3d 558, 566-567; Vanguard Recording Society, Inc. v. Fantasy Records, Inc. (1972) 24 Cal.App.3d 410, 416; McRae v. Bates (1961) 196 Cal.App.2d 510, 513-514.)
As the sole general partners of Felger Farms, the Felgers had sufficient proprietary and financial interest in the First Action. By their own admission, they "managed," "directed," and "fully participated in the litigation of the First Action"; in fact, Warren Felger was then a practicing attorney. (See ante, at p. 2.) Since the Felgers actually controlled the First Action, they were bound by the adjudication of the litigated breach-of-contract claim.
The Felgers contend they were entitled to relitigate the breach-of-contract claim pursuant to Code of Civil Procedure section 992. This provision is part of the statutory scheme governing joint debtor proceedings. (See Code Civ. Proc., § 989 et seq.) The scheme "applies only when the alleged joint debtor was named or joined as a party and a joint liability cause of action was stated against it, but it was not served with summons." (Meller & Snyder v. R & T Properties, Inc. (1998) 62 Cal.App.4th 1303, 1310; accord, Brenelli Amedeo, S.P.A. v. Bakara Furniture, Inc. (1994) 29 Cal.App.4th 1828, 1840; McRae v. Bates, supra, 196 Cal.App.2d at pp. 513-514). It has been established the Felgers were not named or joined as parties in the First Action. Therefore, Code of Civil Procedure section 992 is inapplicable. Finally, to the extent the Felgers insinuate issue preclusion cannot operate in a case implicating partnership law, we find authority to the contrary. (See, e.g., Krofcheck v. Ensign Co., supra, 112 Cal.App.3d at p. 566 ["[T]he general rule denying privity solely by virtue of partnership status does not preclude applicability of res judicata rules to partners who are otherwise subject thereto. [¶] As our Supreme Court said in Dillard v. McKnight, supra, 34 Cal.2d at page 216: 'Of course, there are situations where persons neither parties nor privies to parties to an action may be bound by a judgment. The rule is stated in section 84 of the Restatement of Judgments . . . .' "].)
Given our disposition, we need not address the Felgers' argument regarding prejudicial error.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to Sandstone Marketing, Inc.
/s/_________
DETJEN, J. WE CONCUR: /s/_________
LEVY, Acting P.J. /s/_________
GOMES, J.