Opinion
MEMORANDUM DECISION GRANTING MOTION FOR INJUNCTION AGAINST DEFENDANT AND COUNTERCLAIMANT LEE INVESTMENTS LLC FROM PROCEEDING WITH REQUEST FOR ARBITRATION OR OTHER ADJUDICATION OF THE COMPLAINT FOR RESCISSION OF USF&G BEFORE THE WORKERS' COMPENSATION APPEALS BOARD (Doc. 826)
OLIVER W. WANGER, District Judge.
Plaintiff and Counter-Defendant United States Fidelity & Guaranty Company (USF&G) and Counter-Defendant American Specialty Insurance Services (American Specialty) move for the issuance of an injunction barring Defendant and Counter-Claimant Lee Investments LLC dba The Island (Lee) from pursuing arbitration or other adjudication of USF&G's complaint for rescission before the California Workers' Compensation Appeals Board. USF&G and American Specialty move pursuant to 28 U.S.C. § 1651 and 28 U.S.C. § 2283, on the ground that the injunction is necessary to protect or effectuate the judgment issued in this action by the District Court. This motion is joined by Aon Risk Services, Inc. of Central California (Aon). The motion is opposed by Lee on the merits.
On March 1, 2007, following an extended jury trial, a "Partial Judgment on Jury's Verdicts Upon Multiple Claims Involving Multiple Parties (Fed.R.Civ.P. 55(b))", (Doc. 681), was entered:
This case was tried before a jury commencing January 29, 2007, and concluded upon the return, by the jury, of its verdicts on February 26, 2007. The case involves more than one claim for relief, including counter-claims and third-party claims and involved multiple parties. The parties have reserved, by written stipulation and order: USF&G's alter ego claims against Richard K. Ehrlich, an individual, et al., the determination of the amount of attorneys' fees and interest claimed by USF&G; and the claim of Aon Risk Services Inc. of Central California Insurance Services (Aon') for relief based on the tort of another. All other claims of the parties were adjudicated by the jury, including USF&G's claim for rescission based on fraud; all claims of Lee Investments LLC, dba The Island, a California limited liability company. Any claims as to Diane Conley have been determined by the parties' stipulation.
Due to the prior delay in, complexity and contentiousness of this litigation, to avoid uncertainty and inconsistent verdicts, there is no just reason for delay and partial judgment should now therefore be entered.
Based on the jury's written verdicts returned in open court February 26, 2007, the following verdicts were rendered:
A. The jury's verdicts finding in favor of USF&G on its claim for rescission finding fraud and intentional concealment; finding against Lee on all Lee's defenses of statutory waiver, common law waiver, estoppel, unreasonable delay, wrongful conduct, and awarding USF&G restitution damages in the amount of $875, 034.99.
B. On Lee's claims against USF&G, American Specialty and Aon, finding in favor of USF&G, American Specialty, and Aon and against Lee on all Lee's claims for fraud/intentional misrepresentation; concealment; conspiracy; negligent misrepresentation; and negligence. Finding against Lee and in favor of Aon on Lee's claim for breach of an oral contract against Aon. Finding in favor of USF&G, American Specialty and Aon and against Lee on all their defenses to Lee's claims based on fraud of Lee; negligent misrepresentation by Lee; estoppel against Lee; wrongful conduct by Lee; common law waiver against Lee; as to Aon against Lee due to Lee's intentional tort as superseding cause; as to Aon, no unreasonable delay by Lee; and in favor of Aon and against Lee on Aon's defense of assumption of risk.
C. On all Aon's claims against Lee, finding in favor of Aon and against Lee on Aon's claims for intentional misrepresentation, negligent misrepresentation and that Lee was 100% comparatively at fault; in favor of Aon's claim of negligence against Lee; that Aon was not negligent. Finding in favor of Aon and against Lee on all Lee's affirmative defenses to Aon's claims, including fraud, negligent misrepresentation, estoppel, no wrongful conduct by Aon; no common law waiver by Aon, no unreasonable delay by Aon.
Accordingly, on each of these claims and defenses, JUDGMENT IS ENTERED AS FOLLOWS:
1. In favor of USF&G and against Lee for rescission and USF&G shall recover from Lee restitutionary damages of $875, 034.99;
2. Against Lee on all Lee's defenses to USF&G'S claims for rescission;
3. Against Lee on all its claims and in favor of USF&G, American Specialty and Aon against Lee and in favor of USF&G, American Specialty and Aon on all their affirmative defenses to Lee's claims;
4. In favor of Aon on all its claims and against Lee; and against Lee in favor of Aon on all on [sic] Lee's affirmative defenses to Aon's claims; and
5. USF&G, American Specialty and Aon shall recover costs of suit.
Also on March 1, 2007, a "Stipulation and Order Regarding Issues To Be Determined By The Court" was filed, (Doc.682):
The parties hereto, by and through the undersigned, hereby stipulate and agree that the Court, acting without a jury, will hear and decide the following issues:
1. Whether any of Aon's claims against Lee are barred by applicable statutes of limitations;
2. Whether any party is entitled to, and the extent of the reduction in damages, if any, arising from the affirmative defense of failure to mitigate;
3. Whether USF&G is entitled to restitution of any amount in light of Aon and Lee's contention that USF&G did not actually incur the costs or expenses associated with Ms. Conley's injury (i.e. whether USF&G is the real party in interest);
4. The amount, if any, of restitution that USF&G is entitled to recover from Lee for fees, costs and expenses paid allegedly to defend Lee in the Worker's Compensation proceeding (and whether USF&G is the real party in interest in relation to this restitution);
5. The amount, if any, of punitive damages to which Lee is entitled if the jury makes the necessary factual determinations;
6. If applicable, the amount of damages, if any, Lee suffered and is entitled to recover against any liable party under their fraud, negligent misrepresentation, and negligence claims.
7. If applicable, the amount of damages, if any, Aon suffered and is entitled to recover against Lee under their fraud, negligent misrepresentation, and negligence claims;
8. If applicable, the amount of damages Lee suffered and is entitled to recover from Aon for breach of oral contract.
The parties understand and agree to waive their Seventh Amendment right to a jury trial on these issues.
Lee filed three post-trial motions: (1) a motion for new trial; (2) a motion for judgment pursuant to Rule 50(b), Federal Rules of Civil Procedure; and (3) a motion to vacate partial judgment or jury verdicts upon multiple claims involving multiple parties or to alter or amend the partial judgment pursuant to Rules 59(e) and 60(a) & (b), Federal Rules of Civil Procedure. All of these post-trial motions were denied by memorandum decisions filed on March 18, 2008.
Certain technical and nonsubstantive changes were made to the Partial Judgment in the Memorandum Decision issued in connection with Lee's motion to vacate the Partial Judgment or to alter or amend the Partial Judgment.
On March 30, 2007, Lee filed a Notice of Appeal from the Partial Judgment. (Doc. 728). On April 18, 2007, an "Order on Request of Parties for Temporary Stay of Appeal Pending Entry of Final Judgment of District Court, " (Doc. 770), was filed:
A bench trial to determine additional issues and damages to complete trial of the action was scheduled for April 4, 2007. That trial was held April 4 through April 7, 2007, and the parties are submitting supplemental authorities and the matter will be finally submitted for decision as of April 30, 2007.
Lee has timely filed and served three post-trial motions in the District Court: 1) a Motion to Vacate or, in the Alternative, to Alter, Amend [sic] the Judgment; 2) a Motion for Judgment as a Matter of Law; and 3) a Motion for New Trial, following the entry of the Partial Judgment on Jury Verdicts. These motions are scheduled to be heard April 30, 2007.
The parties have stipulated and the Court believes that it would be most prudent and would conserve the time, resources and serve judicial economy, for a partial stay of the appeal to be entered pending entry of final judgment following the jury and bench trial on the first and second phase issues.
Respectful request is made that the Court of Appeal enter an interim stay of the appeal in this case of the Jury Verdicts and Partial Judgment pending entry of the Judgment on the issues to be tried to the Court without a jury.
On May 17, 2007, the Ninth Circuit issued an Order stating that "[t]he district court's order challenged in this appeal did not dispose of the action as to all claims and all parties" and that "appellant shall move for voluntary dismissal of this appeal or show cause why it should not be dismissed for lack of jurisdiction." On September 17, 2007, Lee's appeal of the Partial Judgment was dismissed by the Ninth Circuit for lack of jurisdiction. (Doc. 814).
The Court trial conducted on April 4-6, 2007 was fully briefed and proposed findings of fact and conclusions of law and objections thereto submitted by May 2, 2007.
A. overning Standards.
28 U.S.C. § 1651(a) provides that "[t]he Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law."
28 U.S.C. § 2283 provides that "[a] court of the United States may not grant an injunction to stay any proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." Here, the injunction is sought "to protect or effectuate" the Partial Judgment entered by this Court on March 1, 2007.
This exception in the Anti-Injunction Act is known as the relitigation exception. Merle Norman Cosmetics, Inc. v. Victa, 936 F.2d 466, 468 (9th Cir.1991). As explained in Brother Records, Inc. v. Jardine, 432 F.3d 939, 942-943 (9th Cir.2005):
This exception is grounded in the well-recognized concepts of res judicata and collateral estoppel, '... and is intended to prevent the harassment of successful federal litigants through repetitious state litigation[.]'... Thus, the exception permits a district court to enjoin state court litigation if that litigation is barred by the res judicata effect of the district court's earlier judgment.
"[A] decision whether to enjoin a state court proceeding pursuant to the narrow exceptions to the Anti-Injunction Act is committed to the discretion of the district court." Bechtel Petroleum, Inc. v. Webster, 796 F.2d 252, 253 (9th Cir.1986). "Doubts as to the appropriateness of an injunction should be resolved in favor of permitting the state courts to proceed in an orderly fashion to finally determine the controversy." Id. "We take the view that a complainant must make a strong and unequivocal showing of relitigation of the same issue in order to overcome the federal courts' proper disinclination to intermeddle in state court proceedings. If we err, all is not lost. A state court is as well qualified as a federal court to protect a litigant by the doctrines of res judicata and collateral estoppel.'" Id. As explained in Blalock Eddy Ranch v. MCI Telecommunications Corp., 982 F.2d 371, 375 (9th Cir.1992):
In determining whether the injunction... falls within the scope of the relitigation exception, we first examine whether there could be an actual conflict between the subsequent state court judgment and the prior federal judgment. If such a conflict is possible, then the district court could properly enjoin the state court proceedings... However, even if no actual conflict is possible, the injunction could still be proper if res judicata would bar the state court proceedings.
See also G.C. and K.B. Investments, Inc. v. Wilson, 326 F.3d 1096, 1107 (9th Cir.2003).
The essential issue in resolving this motion is the effect of the Partial Judgment entered pursuant to Rule 54(b), Federal Rules of Civil Procedure.
Rule 54(b), Federal Rules of Civil Procedure, provides:
Movants argue that an injunction under the relitigation exception applies to a partial judgment under Rule 54(b).
Movants cite Rutledge v. Scott Chotin, Inc., 972 F.2d 820 (7th Cir.1992). Rutledge brought a suit for personal injuries under the Jones Act, 46 U.S.C. App. § 688, and general maritime law after his claims had been dismissed by the Illinois state court on grounds of forum non conveniens. The District Court granted summary judgment in favor of defendants and enjoined Rutledge from seeking reinstatement of the state court action. The Seventh Circuit held:
In this case, Chotin's motion for summary judgment had previously been granted on COUNTS I and II, but COUNTS III and IV remained outstanding. Judge Mihm had not yet entered a final judgment on COUNTS I and II under Fed.R.Civ.P. 54(b) at the time Rutledge filed his motion to reinstate in the state court. Judge Mihm did, however, enter a final judgment on COUNTS I and II under Rule 54(b) simultaneously with his order of injunctive relief.
A federal court may employ the relitigation exception to § 2283 in order to protect a final judgment entered under Rule 54(b). Donelon v. New Orleans Terminal Co., 474 F.2d 1108, 1113 (5th Cir.1973). In Donelon, the Fifth Circuit stated that the injunctive order was granted after the court made the partial summary judgment order final under Rule 54(b), but both orders appear to have been entered on the same day. We see no reason for requiring that the district court direct entry of final judgment under Rule 54(b) by a separate order. Since the order directing entry of final judgment on COUNTS I and II was included within the injunction order, Judge Mihm's injunctive order was appropriate... as an order to protect or effectuate a final judgment.
972 F.2d at 824-825. See also Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d § 4226, p.550.
Movants argue that the Partial Judgment bars Lee's attempt at relitigation because the Partial Judgment is res judicata. Movants cite Continental Airlines, Inc. v. Goodyear Tire & Rubber Company, 819 F.2d 1519 (9th Cir.1987), and Acuna v. Regents of University of California, 56 Cal.App.4th 639 (1997).
In Continental Airlines, after a serious accident involving a Continental DC-10 aircraft, Continental filed two suits, one state and one federal. In state court, Continental sued McDonnell Douglas Corporation (MDC) and Sargent Industries, supplier of escape slides. In federal court, Continental sued Goodyear and B.F. Goodrich, each of which had supplied one of the two blown-tires. MDC unsuccessfully attempted to remove the state court action to federal court. When removal was denied for lack of subject matter jurisdiction, MDC filed a federal declaratory judgment action in which it named Continental, Sargent, Goodyear and Goodrich as defendants, basing jurisdiction on diversity. All federal actions were consolidated. Proceedings in Continental's remanded case continued independently in state court. In early 1985, MDC sought summary judgment in its federal action. At the same time, Continental moved to dismiss or stay MDC's federal action in favor of the state litigation. The District Court denied Continental's motion to dismiss and granted partial summary judgment in favor of MDC, ruling that MDC's exculpatory clause was enforceable under California law and effective against Continental's negligence and strict liability claims as to loss of the aircraft. The partial summary judgment did not reach Continental's fraud or breach of warranty theories of recovery or its passenger indemnification claims. Later in 1985, the District Court also granted partial summary judgment to the parts manufacturers on the basis of its holding that MDC's exculpatory clause barred any action against them for damage to the airplane. On motion by MDC and the parts manufacturers shortly before the state trial was to begin, the District Court certified these partial summary judgments as final for appeal under Rule 54(b). The state court correctly held that these judgments, because certified as final, were res judicata for purposes of the state jury trial. Nevertheless, Continental pursued and prevailed on its fraud/breach of warranty claims for damage to the aircraft, which state court judgment was on appeal in the higher California courts. During the trial, the parties settled passenger indemnity claims. Only the loss of the aircraft remained at issue. 810 F.2d at 1521-1522. On appeal to the Ninth Circuit, Continental challenged appellate jurisdiction, on the ground that the Rule 54(b) certification of the judgments was an abuse of discretion because the requirements of Rule 54(b) were not met and the purpose of the certifications was to generate a res judicata effect. Id. at 1524. After concluding that the Rule 54(b) certification was proper, the Ninth Circuit held:
This case raises the question, which we believe is novel in this circuit, of whether a 54(b) certification may be awarded for the purpose of procuring res judicata effects elsewhere. At least two circuits have suggested it may... Continental would have us hold that a judgment's res judicata effect is an improper consideration in determining whether to certify it for appeal under Rule 54(b). This we decline to do. Because a Rule 54(b) ruling in fact has res judicata ramifications, which are potentially very important, it would be unsound and ineffectual to hold that the district courts may not consider this factor in deciding for or against certification.
We do not wish to encourage the district courts to use their 54(b) powers to promote a race to judgment or to snatch from the state courts' a dispute properly litigated there... But we would be reluctant to adopt a rule that, in the circumstances of complex parallel state and federal litigation, the district court must either become inactive or incur the risk of wasting its efforts. We hold that an otherwise permissible 54(b) certification designed to produce res judicata effects in another forum was proper under the circumstances.
Id. at 1525.
In Acuna, Acuna applied for a tenured position at UCSB. After his application was denied, Acuna filed suit against the Regents and individual University employees in state court alleging violations of the FEHA based on race, ethnicity, and age, employment discrimination based on Acuna's political views and speech, and age discrimination under the ADEA. The action was removed to federal court. The Regents moved to dismiss the state causes of action as barred by the Eleventh Amendment. Acuna filed a cross-motion to remand the FEHA causes of action to state court. The District Court remanded the FEHA causes of action and retained jurisdiction over the ADEA claim. Acuna amended the federal complaint to include causes of action for race and ethnic discrimination under Title VII. The District Court granted summary judgment for the Regents on the Title VII causes of action. Acuna proceeded to trial on the ADEA claim and was awarded damages and attorney's fees against the Regents. Because the ADEA claim did not permit general or punitive damages, the District Court entered judgment for the individual employees under the ADEA claim because they had no personal liability under the ADEA. In the state court action, the Regents and employees were granted summary adjudication on the cause of action for speech discrimination as barred by the statute of limitations. Acuna then filed an amended complaint alleging causes of action for race, ethnic and age discrimination in violation of the FEHA which were identical to the Title VII claims but sought damages under the FEHA. The Regents/individual employees were granted summary adjudication on the FEHA claims as barred by the federal summary judgment. The state trial court stayed the action on the age discrimination claim until the federal ADEA action was tried. Thereafter, the Regents were granted summary judgment on the FEHA age discrimination claim on the ground that it was barred by the federal judgment against the Regents. The Court of Appeal affirmed the trial court's rulings that the federal judgments barred Acuna's state law claims because they arose from the same primary right. Id. at 648-649.
The Court of Appeal further ruled:
Appellant asserts that the federal summary judgment was an interlocutory order and not final. We disagree. "[A] judgment or order, once rendered, is final for purposes of res judicata until reversed on appeal or modified or set aside in the court of rendition."....'....
Id. at 649-650.
Movants argue that the Ninth Circuit's dismissal of Lee's Rule 54(b) appeal of the Partial Judgment for lack of jurisdiction does not invalidate the Partial Judgment, citing Tripati v. Henman, 857 F.2d 1366, 1367 n.1 (9th Cir.1988):
We note that a pending Rule 59 motion deprives a case of finality for appellate jurisdiction purposes - indeed, this was the reason we remanded action #1 for consideration of the motion... This observation does not suggest, however, that a pending Rule 59 motion deprives the judgment of finality for preclusion purposes. See 18 C. Wright, A. Miller, & E. Cooper, supra, at 4432, p.299 (it is clear that definitions of finality cannot automatically be carried over from appeals cases to preclusion problems'). The policies served by the finality requirement are very different in the two instances. In the case of appellate jurisdiction, the requirement ensures that appellate courts do not waste time reviewing cases whose outcome might change. By setting the point of finality' after the disposition of the Rule 59 motion, we save trial courts and appellate courts from duplicating each other's work. In the case of preclusion, the finality requirement ensures that parties have a full opportunity to litigate a claim before they are barred from asserting it again. The claim has already been fully litigated by the time a Rule 59 motion is pending; the considerations of economy underlying preclusion militate in favor of setting the point of finality' sooner rather than later.
Lee argues that the Partial Judgment entered under Rule 54(b) is not final and cannot be res judicata. Lee cites Coopers & Lybrand v. Livesay, 437 U.S. 463, 467 (1978): "Federal appellate jurisdiction generally depends on the existence of a decision by the District Court that ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" Lee acknowledges that a final judgment may be entered pursuant to Rule 54(b) that disposes of less than all claims in a pending action or against less than all of the parties if the District Court makes "an express determination that there is no just reason for delay." Lee then sets forth the standards governing Rule 54(b) certification and argues that the Court should not certify the Partial Judgment under Rule 54(b) at this juncture.
Lee's position is baffling. The Partial Judgment was entered and certified by the Court under Rule 54(b). Lee's arguments that certification now would be improper are simply wrong. The Partial Judgment's purpose was to conclude this seemingly endless litigation over insurance coverage. However, as explained in Moore's Federal Practice 3rd, § 54.28[1]:
A district court has the power to enter a Rule 54(b) judgment with respect to an order that: (1) finally disposes of one or more but fewer than all of the claims for relief; or (2) finally disposes of all of the claims asserted by or against one or more but fewer than all of the parties... Rule 54(b) does not and cannot relax in any way the statutory requirement of finality, and by its own terms establishes the minimum unit of disposition. Both requirements are jurisdictional prerequisites to the exercise of the district court's power. If the court enters judgment under Rule 54(b) on an order that is either nor final or does not dispose of at least one claim for relief or all of the claims by or against at least one party, the judgment is beyond the power of the district court, and the court of appeals must dismiss any appeal from the judgment, unless there is some independent basis for appeal of the order.
Lee contends that a Partial Judgment that is not reviewable cannot be the basis for claim preclusion. Lee cites Moore's Federal Practice 3rd § 131.30(2)(c)(i):
Generally, a ruling that is not appealable cannot be the basis for claim preclusion. Thus, such interim rulings as a finding of liability without determination of the appropriate relief, or denial of a summary judgment motion, cannot be the basis for application of the claim preclusion doctrine. Although the concept of a final judgment for purposes of claim preclusion parallels in many respects the requirement under 28 U.S.C. § 1291 for appeals only from final decisions' of district courts, the analogy with appealable orders and judgments cannot be carried too far. The Supreme Court has construed the term final decision' to embrace some collateral orders the effect of which cannot be rectified on appeal from final judgment. Furthermore, 28 U.S.C. § 1292 provides for appeals of certain interlocutory orders. Even though such matters are appealable, ' they could not be the basis for claim preclusion.
The Ninth Circuit dismissal of Lee's appeal from the Partial Judgment for lack of jurisdiction simply means that the Court of Appeal found that the existence of undecided claims prevented entry of judgment.
Lee argues that, because subject matter jurisdiction in this action is based on diversity, the Court must apply the preclusion law to the Partial Judgment that the California courts would apply. See Giles v. General Motors Acceptance Corp . 494 F.3d 865, 884 (9th Cir.2007), citing Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508-509 (2001).
In Semtek, a plaintiff, whose claims under California law had been dismissed by the District Court in California as barred by the California statute of limitations, brought an action in Maryland state court asserting similar claims under Maryland law. The Maryland state court dismissed plaintiff's action on res judicata grounds. The Supreme Court held that the claim preclusive effect of the federal diversity court's dismissal was governed by the federal rule that in turn incorporated the forum state's law of claim preclusion. In so ruling, the Supreme Court cautioned:
This federal reference to state law will not obtain, of course, in situations in which the state law is incompatible with federal interests. If, for example, state law did not accord claim-preclusive effect to dismissals for wilful violation of discovery orders, federal courts' interest in the integrity of their own processes might justify a contrary federal rule. No such conflict with potential federal interests exists in the present case. Dismissal of this state cause of action was decreed by the California federal court only because the California statute of limitations so required; and there is no conceivable federal interest in giving that time bar more effect in other courts that the California courts themselves would impose.
"The doctrine of res judicata applies only to judgments and orders that are final in the sense that no further judicial act remains to be done to end the litigation. Intermediate determinations, such as rulings on motions and interlocutory orders, are not conclusive." 7 Witkin, California Procedure, Judgment, § 363, p.985. "A judgment or order may be final in nature, but it does not become res judicata until it is final in the other sense of being free from direct attack. Hence, while an appeal is pending or, though no appeal has yet been taken, the time for appeal has not expired, the judgment is not conclusive." Id ., § 364. ""California and federal law differ in their definition of finality for purposes of res judicata. The pendency of an appeal precludes finality under California law, but, under federal law and the law of many other states, the pendency of an appeal does not alter the res judicata effect of an otherwise final judgment."...'...." Nathanson v. Hecker, 99 Cal.App.4th 1158, 1163 n.1 (2002), quoting In re Bellucci, 119 B.R. 763, 768-769 (E.D.Cal.Bkrptcy 1990).
Relying on this authority, Lee contends that the Partial Judgment is not res judicata to the WCAB proceeding and, therefore, "the parallel state action by definition does not seek to relitigate issues that were already finally adjudicated in the federal system and the relitigation exception of the AIA does not apply." This assertion is incomprehensible. The issues surrounding issuance of the insurance policy have been fully litigated and jury verdicts entered. Lee sought a jury trial, and only when the jury decided every issue against Lee, now seeks to avoid the effects of the trial following which the Partial Judgment was entered. It will be the height of judicial waste to permit Lee to yet again, a fourth time, seek to relitigate the issues, going backward to an administrative hearing.
Movants respond that the finality of the Partial Judgment is not determined by state law. They cite Sosa v. DIRECTV, Inc., 437 F.3d 923 (9th Cir.2006). In Sosa, DIRECTV sent thousands of demand letters alleging that the recipients had accessed DIRECTV's satellite television signal illegally and would be sued if they did not quickly settle DIRECTV's claims against them under the Federal Communications Act. Plaintiffs, including Sosa, filed an action in the California Superior Court, referred to as the Blanchard case, alleging that the letters constituted extortion and violated California's unfair business practices statute. DIRECTV filed a motion to strike under California's anti-SLAPP statute, which was granted by the state court. Sosa appealed. Thereafter, Sosa filed an action in the District Court against DIRECTV, alleging claims for violation of RICO based on extortion and mail fraud. DIRECTV filed a motion to dismiss, alleging that Sosa failed to state a claim under RICO and that Sosa's claims were barred by various abstention doctrines and the Noerr-Pennington doctrine. The District Court granted DIRECTV's motion to dismiss solely on the Noerr-Pennington doctrine. Sosa appealed the dismissal to the Ninth Circuit. After the federal action was dismissed but before the hearing on Sosa's appeal, the California Court of Appeal affirmed the anti-SLAPP ruling and the California Supreme Court denied review. DIRECTV argued to the Ninth Circuit that it need not address the merits of the District Court's dismissal because, under the doctrine of res judicata, the state court decision in the Blanchard case precludes the District Court case. The Ninth Circuit held:
Like the federal courts, California courts recognize the rule that where parallel litigation is pending in different tribunals, the first case to reach final judgment is accorded preclusive effect, regardless of the order in which the cases were filed.... California and federal law differ, however, with respect to when a judgment rendered by a trial court becomes a final judgment' for res judicata purposes. Under California law, ... a judgment is not final for purposes of res judicata during the pendency of and until resolution of an appeal.'... The judgment in the Blanchard litigation is now final, because there has been a decision on appeal as well as the denial of review by the California Supreme Court.
In contrast, [i]n federal courts, a district court judgment is "final" for purposes of res judicata.'... This is so even during the pendency of an appeal... Moreover, [a] federal [district court] judgment is as final in California courts as it would be in federal courts.'....
437 F.3d at 928. Because the District Court reached the merits and entered judgment before the Blanchard plaintiffs had exhausted their appeals and because of the differing rules governing the finality of state and federal judgments, the Blanchard state case could not be given preclusive effect. Id.
Movants also cite Lumpkin v. Jordan, 49 Cal.App.4th 1223 (1996). Lumpkin filed suit in state court against the Mayor of San Francisco, alleging employment discrimination on the basis of religion in violation of the FEHA. The state court action was removed to the District Court, the City was added as a defendant, and a claim for deprivation of the right to exercise constitutionally protected religious beliefs in violation of 42 U.S.C. § 1983 was alleged. The District Court granted summary judgment for the Mayor and the City on all claims, except for claims based on the FEHA over which the District Court declined to exercise supplemental jurisdiction. The state FEHA claims were dismissed without prejudice to refiling in the state court. Lumpkin appealed the summary judgment ruling to the Ninth Circuit. While that appeal was pending, Lumpkin filed his FEHA claims against the Mayor and the City in state court. The Mayor and the City successfully demurred on the ground that the summary judgment ruling was final under federal law and operated as collateral estoppel on the issue of Lumpkin's removal for religious belief. The Court of Appeal affirmed, ruling that all of prerequisites for the application of collateral estoppel were satisfied, i.e., the parties were in privity; the federal summary judgment was a judgment on the merits, and the federal court's ruling on summary judgment, even though appealed, is final under the federal rule. Id. at 1230-1231.
Movants argue that Semtek is not controlling because Semtek had nothing to do with the finality of the federal decision.
The fact that the Ninth Circuit dismissed Lee's appeal from the Partial Judgment for lack of jurisdiction does not preclude application of the relitigation exception. The Partial Judgment is now final on all issues related to the insurance contract. The jury rendered its verdicts and all post-trial motions directed to the jury trial and the jury's verdicts have been decided.
Movants argue that the injunction should issue because a determination by the WCAB of the claim preclusive effect of the Partial Judgment entered on the jury's verdicts does not provide an adequate remedy. Movants point to this Court's extensive familiarity with this case, having litigated it for over nine years, presided over a five-week jury trial and entered the judgment on the jury's verdicts, and having considered all of the issues in numerous pre-trial and post-trial motions. Movants contend that the claim preclusive effect of the Partial Judgment is determined under federal law. Finally, Movants note that the issue of claim preclusion in the WCAB proceedings, if allowed to go forward, is determined initially by an Administrative Law Judge or, potentially, an attorney arbitrator, whose experience may be limited to workers' compensation matters. Movants contend:
A determination of res judicata by a workers' compensation arbitrator, whose experience may be solely as an applicant's attorney in workers' compensation matters, is extremely unlikely to involve practitioners with extensive knowledge or experience in the application of federal res judicata law. Although the WCAB arbitration process does provide judicial review through a writ process, such determinations are made based upon extremely relaxed standards, such as whether the decision was not based on substantial evidence... Further, the WCAB arbitration process, which involves privately paid arbitrators, is not designed to provide the level of trial testimony and consideration of legal issues of a federal jury trial. Indeed, the arbitrator's fee is subject to a review process if the time spent is believed to be excessive... Determination of res judicata by the WCAB does not provide an adequate remedy to protect this Court's judgment.
Lee responds that the WCAB is competent to address all issues related to workers' compensation insurance, including the validity of policies, interpretation of their provisions, and fraud in their procurement. Lee contends that the WCAB is a constitutional court authorized by the California Constitution. It is not a court. It is an administrative tribunal where the right to jury trial is not afforded. Although WCAB proceedings are not overseen by judges with life tenure, their proceedings are subject to oversight by the California Courts of Appeal and the California Supreme Court.
Lee argues that, even if authorized under the AIA, the permanent injunction sought by Movants should not be granted. Lee contends that the injunction should not issue because California has a substantial interest in its workers' compensation scheme. This rings hollow, after nine years and Lee's voluntary election not to actively pursue the state administrative proceeding, but rather to seek huge tort damages remedies in the federal litigation. Lee cites Daewoo Electronics Corp. of America, Inc. v. Western Auto Supply Co., 975 F.2d 474, 478-479 (8th Cir.1992):
The fact that an injunction may issue under the Anti-Injunction Act does not mean that it must issue. The injunction must be an otherwise proper exercise of the district court's equitable power. Accordingly the district court below found that Western Auto would suffer irreparable harm if injunctive relief were not issued because it would face relitigation of claims already adjudicated in its favor. Daewoo, however, argues for a higher standard. Daewoo argues that before the district court exercised its equitable power to enjoin a state proceeding, it should have found that Western Auto was threatened with great and immediate irreparable injury that cannot be eliminated by his defense to the state court proceeding." Goodrich v. Supreme Court of South Dakota, 511 F.2d 316, 317 (8th Cir.1975)(citing Younger v. Harris, 401 U.S. 37, 46... (1971).
In Goodrich, an attorney admitted to practice in South Dakota brought an action under 42 U.S.C. § 1983 alleging that the state's disbarment procedure violated his constitutional right to due process. We found that the principles of federal-state comity required that this higher standard be meet before the district court could enjoin the state disbarment proceeding. We noted that as a general rule courts of equity, in the exercise of their discretionary powers, should refuse to interfere with or embarrass state court proceedings except in extraordinary cases where the threat of harm is severe and imminent. Goodrich, 511 F.2d at 318. Inherent in our reasoning was the understanding that the state has a strong interest in protecting the standards of its bar and in adhering to its disbarment procedure.
In contrast to Goodrich, no similarly important state interest is at stake here. The injunction in this case does not threaten the authority of the New Jersey judiciary or state law. Neither does the injunction challenge the processes by which New Jersey compels compliance with the judgments of its courts. New Jersey has no interest in the action enjoined by the district court beyond that of adjudicating a wholly private dispute. Accordingly, considerations of comity do not require the district court to apply the Goodrich standard here... Rather than interfere with New Jersey's interests, the injunction will promote judicial economy and protection of parties from harassing, duplicative litigation, interests which the federal and state courts share.
Lee cites Tucci v. Club Mediterranee, S.A., 89 Cal.App.4th 180, 189-190 (2001), a choice of law case, for the proposition that California has a substantial interest in the welfare and subsistence of disabled workers. In S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341, 354 (1989), the California Supreme Court held that the purposes of the workers' compensation act are several:
It seeks (1) to ensure that the cost of industrial injuries will be part of the cost of goods rather than a burden on society, (2) to guarantee prompt, limited compensation for an employee's work injuries, regardless of fault, as an inevitable cost of production, (3) to spur increased industrial safety, and (4) in return, to insulate the employer from tort liability for his employees injuries.
Lee, reiterating its position that the WCAB has exclusive jurisdiction over the rescission issue and noting that USF&G agreed to comply with California statutory scheme by issuing workers' compensation insurance in California, argues:
California's interest in its workers' compensation scheme raises the standard that the Insurers must meet before being entitled to an injunction. This is a hurdle the Insurers cannot meet as it is within the interests of comity and federalism to permit the state courts to continue to refine and control their policies in this area free from the interference of the federal courts.
Lee's argument is based on abstention principles. Lee's motion to dismiss on abstention grounds was denied by Judge Coyle in 1999.
Lee argues that the injunction should be denied because Movants have an adequate remedy at law. Lee cites Aristud-Gonzalez v. Government Dev. Bank for Puerto Rico, 501 F.3d 24 (1st Cir.2007). In Aristud-Gonzalez, an employee of the Government Development Bank for Puerto Rico brought a Section 1983 suit against the Bank, charging that he had been deprived of his payroll manager position based on his political views in violation of the First Amendment. After the District Court dismissed the Section 1983 action, Aristud brought a new lawsuit in the Puerto Rico Superior Court, again alleging political discrimination in violation of the First Amendment. The Bank moved the District Court for an injunction on the ground that the Superior Court action was an attempt to relitigate matters foreclosed by the federal judgment. The District Court denied the injunction because res judicata and collateral estoppel defenses could be asserted in the Superior Court proceedings and, therefore, there was no irreparable injury and an adequate alternative remedy existed. The First Circuit affirmed:
Some overlap exists between Aristud's two lawsuits but we have no intention of pursuing the issue - and for the same reason as the district judge. True, a federal court can issue an injunction to protect its judgment; this is a conventional ground for equitable relief and an explicit exception to the Anti-Injunction Act..., which otherwise limits the ability of federal courts to derail state litigation.
However, the protect the judgment' category covers more than one type of case. For example, ancillary injunctive relief is common where a defendant has failed to comply with a prior injunction... Injunctive relief incident to an interpleader action is also common - the whole purpose being to avoid inconsistent results in separate lawsuits....
By contrast, the need for an injunction barring a new lawsuit, where relief is sought solely on the ground that the claim has already been litigated in a prior action, takes more justification..., and injunctive relief based on issue preclusion would be even rarer. Yes, the judge in the prior case knows the scope of his own litigation, but the judge in the new case has the advantage in assessing its scope. And res judicata in both its forms turns on the relationship between the two lawsuits.
Accordingly, many judges would take the view that, absent unusual circumstances, res judicata is just another defense that ought to be asserted in the new lawsuit; and judges are even more likely to take this view where, as here, the res judicata question is itself subject to debate and might not yield an all or nothing answer. We ourselves have said that substantial justification should be provided for such intervention....
No doubt some cases will call out for preemption: considerations might be the number and frequency of new suits, whether they are obviously barred by res judicata, the burden imposed by re-litigation in a far away or unfriendly venue, improper motivations for the new suit or suits and the extent to which the res judicata issue turns on judgments that are clearly better able to be made by the first judge. Courts have adverted to such concerns to inform their discretion.
This case has nothing that leaps out as a reason for taking the res judicata issues away from the local court - let alone reasons so compelling that we would think that the district court had abused its discretion. The bank criticizes the district judge for failing to spell out his calculations; but the considerations so plainly supported a decision to leave the matter to the local court that no one needed further explanation and the appeal, although not technically frivolous, is hopeless.
The district judge spoke both of a lack of irreparable injury and of an available remedy of urging res judicata defensively in the new lawsuit. The bank says that the defense against the new lawsuit will cost time and money and that this counts as irreparable injury; it does not address the adequate remedy issue but conceivably could argue that it would cost more to litigate in the new case.
Courts sometimes treat the cost of further litigation as an important equitable consideration, sometimes say it is not irreparable injury, and sometimes disregard irreparable injury as a requirement where someone seeks to re-litigate a previously decided issue. Possibly there is some pattern to this contrariety of statements; not all litigation expenses are the same in magnitude or certainty or symmetry as between alternative forums.
In all events, Puerto Rico courts are an alternative forum and any assumption that it would cost less to decide the res judicata issue in the district court is unsupported. If the res judicata issue can be easily resolved, the local court can do that. And, to the extent that res judicata has some application but does not end the local litigation, only one court need tackle the problem rather than two.
Lee argues that nearly every factor listed in Aristud-Gonzalez favors denying Movants' injunction. Lee contends that there is only one prior lawsuit, which was not initiated by Lee; the WCAB proceeding is not barred by res judicata or collateral estoppel because the Partial Judgment is not final; and there is little burden on Movants defending the action before the WCAB because they consented to WCAB jurisdiction when they sold workers' compensation insurance in California. Lee contends:
[I]t was the insurers, not Lee who initiated the second action. If anyone has a complaint, it should be Lee. It was, and is, entitled to a prompt and efficient resolution of the issues before the WCAB and it has instead been dragged, kicking and screaming, for years in this federal proceeding. Accordingly, there are no improper motivations for the WCAB action. Any additional cost in continuing dual federal/state litigation is minimal in light of the costs the parties have incurred to date. The cost of complying with state law in finishing the WCAB action cannot serve as the basis of irreparable harm to a workers' compensation insurer and broker.
Lee's revisionist assertion that it was dragged kicking and screaming into the federal litigation is categorically belied by the record. Although Lee did join Diana Conley's initial motion to dismiss, Lee did not join in her subsequent motion for reconsideration and filed counterclaims in this action and moved for summary judgment in 2001. Lee did not even seek arbitration before the WCAB until 2006.
Lee further opposes the requested injunction on the ground that Movants have unclean hands. Lee asserts:
USF&G, by machinations in the WCAB, led Lee to believe that attorney Giesler was hired by USF&G to serve as primary counsel for Lee in the WCAB proceedings. As the primary counsel, Giesler should have protected Lee in those proceeding [sic] and kept Lee and its independent counsel appropriately informed regarding conflicts of interest between Lee and USF&G which would have required an intervention of independent counsel in the WCAB proceedings. Because Lee did not receive a single correspondence from Giesler or his firm and because Giesler told Lee's counsel, James Sherwood, that the WCAB proceedings were stayed, Lee was under the reasonable impression that the WCAB stayed its proceedings. Otherwise Sherwood would have taken every opportunity to advance Lee's interest in those proceedings. Due to Giesler's apparent loyalty to only one of its clients, USF&G, he took no action to protect Lee and prosecute the action before the WCAB.
Moreover, USF&G intentionally subjected Lee to economic duress by compelling Lee to remain in federal court, and for several years, even paid Lee's defense costs in federal court, only to stop paying fees near the time of expert discovery. USF&G's action were performed for the purpose of it advancing its own interests above that of its insured Lee. USF&G's actions were taken in bad faith and USF&G should be denied equitable relief it seeks due to its unclean hands.
Lee asserts that the Court should deny the injunction on purely legal grounds but that, if the Court reaches the issue of USF&G's actions, Lee requests "a full evidentiary hearing before a permanent injunction is issued." Lee does not identify any unresolved evidentiary issues that require such a hearing.
With regard to the disqualification of Mr. Giesler, Lee filed a motion for disqualification on September 22, 2007 (Doc. 271). The motion was opposed and argued and denied on the record by the Court from the bench on November 14, 2006 (Doc. 363).
Movants argue that the injunction should issue because allowing the arbitration to go forward will violate Movants' Seventh Amendment rights by relitigating a jury's determinations of fact.
Movants cite Lytle v. Household Mfg., Inc. 494 U.S. 545 (1990). In Lytle, the plaintiff filed an action under Title VII and 42 U.S.C. § 1981, alleging that defendant had terminated his employment because of his race and had retaliated against him for filing a charge with the EEOC by subsequently providing inadequate references to prospective employers. Plaintiff requested a jury trial on all issues triable by a jury. The District Court dismissed the Section 1981 claims on the ground that Title VII provided the exclusive remedy and conducted a bench trial on the Title VII claims. It granted defendant's motion to dismiss the discriminatory discharge claim pursuant to Rule 41(b) at the close of plaintiff's case in chief and entered a judgment for defendant on the retaliation claim after both parties had presented all their evidence. The Court of Appeals affirmed but noted that the dismissal of the Section 1981 claims was apparently erroneous because Title VII and Section 1981 remedies were separate, independent and distinct. Nonetheless, the Court of Appeals ruled that the District Court's findings with respect to the Title VII claims collaterally estopped plaintiff from litigating his Section 1981 claims because the elements of a cause of action under the two statutes are identical. The Court of Appeals rejected plaintiff's claim that the Seventh Amendment precluded affording collateral estoppel effect to the District Court's findings, reasoning that the judicial interest in economy of resources overrode plaintiff's interest in relitigating the issues before a jury. The Supreme Court reversed:
We decline to extend Parkline Hosiery Co. ... and to accord collateral-estoppel effect to a district court's determinations of issues common to equitable and legal claims where the court resolved the equitable claims first solely because it erroneously dismissed the legal claims. To hold otherwise would seriously undermine a plaintiff's right to a jury trial under the Seventh Amendment.
494 U.S. at 555. Relying on Lytle, Movants argue:
This Court should similarly preserve this plaintiff's right to trial by jury by not allowing those same issues to be relitigated by an arbitrator and administrative law judge. Further, allowing Lee to proceed in the WCAB may be futile because any determination by the WCAB cannot have res judicata effect because previously determined by a jury. A [sic] noted by the Lytle Court, collateral estoppel cannot be used to deny a plaintiff his right to a jury trial.
Movants also cite Hughes v. Atlantic Pacific Construction Co., 194 Cal.App.3d 987, 1003 (1987), holding, inter alia :
[S]ince a workers' compensation proceeding gives an employer no right to a jury trial, were it applied in the case at bench, the res judicata doctrine would deny the defendant its constitutional right concerning a key issue upon which liability turns.
See also Kelly v. Trans Globe Travel Bureau, Inc., 60 Cal.App.3d 195, 202 (1976):
A jury trial is not available to the employer in the workers' compensation case. If a determination of scope of employment in that proceeding is deemed collaterally to estop the employer from denying the scope of employment when a third person asserts it as a basis for vicarious liability of the employer, the employer is denied his California constitutional right... to a jury trial on a key issue on which his liability turns.
Movants assert that "[t]hose courts undoubtedly would be more likely to deny collateral estoppel or res judicata effect where the party already had a jury trial."
Lee apparently misunderstands Movants' Seventh Amendment argument because Lee refers to cases upholding workers' compensation statutes against challenges based on the contention that the statutory scheme does not provide a right to jury trial. Movants contend that "[u]nder controlling precedent, once the jury has reached a decision, a party cannot undercut that determination through subsequent relitigation by a judge, let alone by an arbitrator or administrative judge."
On October 20, 2008, Lee filed a "Notice of Claim of Unconstitutionality of State Law, " (Doc. 848), contending that Movants claim that the Workers' Compensation Act unconstitutionally denies them a right to a jury trial, and giving notice as required by Rule 24-132(b), Local Rules of Practice:
It is undeniable that the change of emphasis from the federal action to the WCAB proceedings did not occur until Mr. Jamison and other attorneys associated with Dowling, Aaron & Keeler, Inc., entered the case on April 7, 2005 before the transfer of the action from Judge Coyle's docket to Judge Wanger's docket on December 19, 2005. Yet, Lee asserted numerous tort claims in the federal action for which it sought substantial monetary recovery. Richard Ehrlich is reported to have said he will never pay a penny of the judgment in his lifetime. Lee's strategy is delay and convolution to keep the federal judgment from having effect and being enforced.
The sole purpose of the WCAB arbitration is to decide the exact issue that has been fully litigated after an extended jury trial to final Partial Judgment in the federal court. There is no constitutional right to have such an administrative decision made by an arbitrator of what has already been fully tried to verdict and final judgment before a federal jury. There has to be a way to stop this and enter a final appealable judgment in this case.
CONCLUSION
For the reasons stated:
1. Movants' motion for injunction against Defendant and Counterclaim Lee Investments LLC from proceeding with its request for arbitration or other adjudication of USF&G's complaint for rescission before the Workers' Compensation Appeals Board is GRANTED;
2. Counsel for Movants shall prepare and lodge a form of order that reflects the rulings made in this Memorandum Decision within five (5) days following the date of service of this decision by the Court's Clerk.
IT IS SO ORDERED.
When an action presents more than one claim for relief - whether as a claim, counterclaim, crossclaim, or third-party claim - or when multiple parties are involved, the court may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only if the court expressly determines that there is no just reason for delay. Otherwise, any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities.
If, at any time in an action to which neither a State nor any of its officers, agencies, or employees are a party, any party draws in issue the constitutionality of any state administrative regulation of general applicability, that party shall immediately file a notice with the Clerk identifying the regulation in issue and setting forth in what respects its constitutionality is questioned. Thereupon, or sua sponte, the Court shall serve a copy of that notice on the Attorney General of the State and on all other parties. If the party required to file such a notice fails to do so, every other party shall file and serve such notice, provided that as soon as a notice is filed and served, all other parties are relieved of this obligation.
Lee's notice is meritless; Movants do not challenge the constitutionality of the Workers' Compensation Act.