Opinion
D071638
11-30-2017
VIVIAN RICH, Petitioner, v. THE SUPERIOR COURT OF SAN DIEGO COUNTY, Respondent; SEAN M. PARK et al., Real Parties in Interest.
Fidelity National Law Group and Kevin R. Broersma for Petitioner. No appearance for Respondent. Stephen F. Lopez APC and Stephen F. Lopez for Real Parties in Interest.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Diego County Super. Ct. No. 37-2014-00039328-CU-OR-CTL) THE COURT: ORIGINAL PROCEEDING in mandate. Katherine A. Bacal, Judge. Petition granted. Fidelity National Law Group and Kevin R. Broersma for Petitioner. No appearance for Respondent. Stephen F. Lopez APC and Stephen F. Lopez for Real Parties in Interest.
This writ proceeding is related to an appeal we decide concurrently in Park v. Bank of America, N.A. et al. (Nov. 30, 2017, D070502) [nonpub. opn.] (Park v. Bank of America). The case arises from a wrongful foreclosure action filed by Sean M. Park and Michelle Park against certain banks, the trustee of a deed of trust, and Vivian Rich. In the trial court, the defendants filed demurrers. The trial court sustained demurrers filed by the banks and the trustee without leave to amend because the Parks' action against them was barred by claim preclusion (res judicata)—namely, a judgment of dismissal entered against the Parks in their prior district court action for wrongful foreclosure of the same property.
The Parks did not sue Rich in the district court action. But they did sue her here, in state court, alleging claims for cancellation of instruments and quiet title because she purchased the subject property from the foreclosing bank.
Rich demurred, asserting issue preclusion; i.e., that the Parks had already litigated in the district court—and lost—the issue of whether there was a wrongful foreclosure of their property. However, believing that only a party to the district court action could assert issue preclusion here, the trial court overruled Rich's demurrer.
Sean M. Park appealed from the judgment of dismissal entered after the court sustained the banks' demurrers, and Rich filed a petition for a writ of mandate, challenging the order overruling her demurrer. We stayed further proceedings in the trial court concerning Rich, issued an order to show cause why the relief sought in Rich's petition should not be granted, and ordered that Rich's writ petition would be considered concurrently with Park's related appeal.
By separate opinion issued this date, we affirmed the judgment in Park v. Bank of America on claim preclusion grounds. Here, we grant Rich's petition for a writ of mandate because the Parks' action against her is barred by issue preclusion.
FACTUAL AND PROCEDURAL BACKGROUND
The material facts in this case are largely the same as those in Park v. Bank of America and will not be repeated. Relevant specifically to Rich, in February 2016 the Parks amended their operative complaint to substitute Rich for a fictitiously named defendant. The Parks sued Rich because she "apparently subsequently purchased the property from the foreclosing parties." The Parks have limited their claims against Rich to (1) cancellation of instruments, and (2) quiet title.
Rich demurred on several alternative grounds, including issue preclusion. She argued that the Parks had already litigated and lost the issue of wrongful foreclosure in their prior district court action, Sean M. Park, Michelle Park v. Wells Fargo Bank Home Mortgage et al., No. 10-CV-1737-LAB (WMC) (the District Court action). However, the trial court believed that only one who was a party (or in privity with a party) in the District Court action may assert issue preclusion here. Accordingly, the court overruled Rich's demurrer because the Parks did not sue Rich in the District Court action.
In DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813 (DKN Holdings), the California Supreme Court held that "unlike claim preclusion, issue preclusion can be raised by one who was not a party or privy in the first suit." (Id. at p. 824.) Citing DKN Holdings, Rich filed a writ petition in this court, asserting the trial court erred in refusing to sustain her demurrer on issue preclusion grounds.
Given the plain language in DKN Holdings, supra, 61 Cal.4th at page 824, the Parks concede the trial court's reason for overruling Rich's demurrer was erroneous: A nonparty may raise issue preclusion against one who was a party in the prior case. Nevertheless, the Parks contend the court reached the correct result, albeit on erroneous grounds. Specifically, the Parks contend issue preclusion does not apply because the judgment in the District Court action was not "on the merits", and policy considerations make applying issue preclusion inappropriate in this case.
DISCUSSION
I. THE COURT SHOULD HAVE SUSTAINED THE DEMURRER ON ISSUE
PRECLUSION GROUNDS
"[I]ssue 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." (DKN Holdings, supra, 61 Cal.4th at p. 825.)
Here, the trial court erred by rejecting Rich's issue preclusion defense on the ground Rich was not a party to the District Court action, because the defense "can be raised by one who was not a party or privy in the first suit." (DKN Holdings, supra, 61 Cal.4th at p. 824.)
In their informal response to Rich's writ petition, the Parks state that Rich is in privity with the banks because she is a successor in interest to the subject property. However, because Rich has asserted only the defense of issue preclusion and not claim preclusion,, we do not address whether the Parks' action against Rich is also barred under claim preclusion principles. (See generally DKN Holdings, supra, 61 Cal.4th at pp. 824-825 [discussing differences between issue preclusion and claim preclusion].)
Moreover, not only is Rich entitled to invoke issue preclusion against the Parks, the court erred in not sustaining her demurrer on that ground. The judgment against the Parks in the District Court action collaterally estops the Parks from suing Rich for quiet title or cancellation of instruments. Such causes of action are precluded because the Parks' claims here are based on the contention that Rich does not have good title because the banks had no authority to conduct, and improperly conducted, the foreclosure sale that preceded her purchase. However, the Parks unsuccessfully raised the same factual contentions regarding the propriety of the foreclosure sale in their District Court action, which the court dismissed with prejudice. Thus, the Parks' state court action against Rich is barred by issue preclusion because: (1) the district court judgment is a 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. (DKN Holdings, supra, 61 Cal.4th at p. 825.)
The Parks contend issue preclusion does not apply because the judgment in the District Court action was not "on the merits." However, under United States Supreme Court authority, a dismissal under Federal Rules of Civil Procedure, rule 12(b)(6) (28 U.S.C.) for failure to state a claim upon which relief may be granted is a judgment on the merits. (Federated Dep't Stores v. Moitie (1981) 452 U.S. 394, 399, fn. 3; Stewart v. U.S. Bancorp (9th Cir. 2002) 297 F.3d 953, 957.) Such a dismissal is on the merits because in ruling on the motion, the district court analyzes the facts and legal claims to determine if the plaintiff has stated a cause of action. (Stewart, at p. 957.)
Undesignated references to rules are to the Federal Rules of Civil Procedure.
Moreover, under California law, an order sustaining a demurrer meets the criteria for a final judgment for purposes of issue preclusion. (Border Business Park, Inc. v. City of San Diego (2006) 142 Cal.App.4th 1538, 1565.) By the same reasoning, the federal court analogue to a demurrer—a motion to dismiss under rule 12(b)(6)—is also a judgment on the merits for issue preclusion purposes.
Additionally, by its own terms, the district court's order shows the court rejected the Parks' wrongful foreclosure claims on the merits. For example, addressing the fifth cause of action under the Real Estate Settlement Procedures Act (12 U.S.C. § 2601 et al.), the district court noted that the defendants raised several fatal problems with that claim; the Parks' own exhibits showed the lenders complied with the law. The district court stated that the Parks' other arguments failed because they meandered "from one grievance to another" with "conclusory" legal arguments "too divorced from the facts of this case to be very helpful" and which "harp[] on points that have no bearing on the [c]ourt's adjudication of the actual claims before it."
After considering several specific theories of recovery the Parks alleged, the district court stated it would "not address each of [Parks'] claims, or each of the [banks'] arguments for dismissal, because [the court] finds that [Parks'] arguments are at best misguided and at worst downright frivolous." The district court added, "There is no argument that Defendants make that [the] Park[s] overcome[]."
The Parks also contend that as a policy matter, issue preclusion should not bar their action against Rich because wrongful foreclosure law is a developing area of law that now recognizes the validity of their claims. The Parks cite cases, decided after the district court dismissed their action, which they contend show claims the district court dismissed as being frivolous now have merit. Citing Greenfield v. Mather (1948) 32 Cal.2d 23 (Greenfield), the Parks contend res judicata should not be applied "so rigidly as to defeat the ends of justice or important considerations of policy." (Id. at p. 35.)
These policy arguments fail, however, because the language in Greenfield, supra, 32 Cal.2d 23 upon which the Parks rely has been limited by more recent California Supreme Court authority. In Slater v. Blackwood (1975) 15 Cal.3d 791 (Slater), the Supreme Court held that notwithstanding any contrary language in Greenfield, there is no intervening-change-in-law exception to res judicata:
"'In every instance where a rule established by case law is changed by a later case the earlier rule may be said to be "mistaken". . . . Such "mistakes" or "injustices" are not a ground for equity's intervention. So to hold would be to emasculate, if not wipe out, the doctrine of res judicata because the doctrine is most frequently applied to block relitigation based upon contentions that a law has been changed. Our courts have repeatedly refused to treat the self-evident hardship occasioned by a change in the law as a reason to revive dead actions . . . .'" (Italics in original.) (Slater, supra, 15 Cal.3d at pp. 796-797.)
It is true, as the Parks note, that changes in the law can lead to seemingly arbitrary and unwarranted distinctions in the treatment accorded similarly situated parties. (See Slater, supra, 15 Cal.3d at p. 797.) However, in Slater the Supreme Court determined that "'[public] policy and the interest of litigants alike require that there be an end to litigation.'" (Ibid.) The Slater Court concluded that the result urged by the plaintiff in that case (and, by a parity of reasoning, the result urged by the Parks here) would call into question "'the finality of any judgment and thus is bound to cause infinitely more injustice in the long run that it can conceivably avert in this case.'" (Ibid.) This is because "[t]he consistent application of the traditional principle that final judgments, even erroneous ones [citations] are a bar to further proceedings based on the same cause of action is necessary to the well-ordered functioning of the judicial process. It should not be impaired for the benefit of particular plaintiffs, regardless of the sympathy their plight might arouse in an individual case." (Ibid.)
In addition to citing Greenfield, supra, 32 Cal.2d 23, the Parks also contend their public policy argument is supported by Kerner v. Superior Court (2012) 206 Cal.App.4th 84, Zevnik v. Superior Court (2008) 159 Cal.App.4th 76, In re Harmon (9th Cir. 2001) 250 F.3d 1240, Lucido v. Superior Court (1990) 51 Cal.3d 335, and Danko v. O'Reilly (2014) 232 Cal.App.4th 732.! However, these cases are materially distinguishable: Kerner involved an attempt to bind a nonparty who was not in privity to a factual determination made in some other case. (Kerner, at p. 126.) Zevnik involved how issue preclusion should apply when a trial court renders a decision on alternative grounds. (Zevnik, at pp. 83-84.) Harmon involved issue preclusion, not claim preclusion, where a default judgment was entered. (Harmon, at pp. 1247-1249.) In Lucido the court considered whether issue preclusion bars prosecuting a defendant for indecent exposure when, at a probation revocation hearing before trial, the court found the prosecution failed to prove a violation of probation based on the allege offense. (Lucido, at p. 348.) Danko involved adding an alter ego judgment debtor where a prior motion to do the same was expressly denied without prejudice. (Danko, at p. 741.) --------
Moreover, there are compelling policy reasons for applying issue preclusion principles in this case. In Sean M. Park's related appeal, Park v. Bank of America, we affirmed the judgment dismissing the Parks' claims against the foreclosing lenders, loan servicers, and trustee. The Parks concede that Rich's only connection to this case is she purchased the subject property after foreclosure from those lenders. Thus, the success of the Parks' cancellation of instruments and quiet title action against Rich is necessarily based on the underlying liability of those defendants. But as a result of the judgment in the District Court action and the appellate decision in Park v. Bank of America—those defendants have been judicially determined to have not wrongfully foreclosed on the subject property. Thus, to allow the Parks to proceed against Rich in this case would be the epitome of vexatious and spurious litigation that res judicata is designed to preclude.
DISPOSITION
Let a writ of mandate issue directing that respondent superior court vacate its order overruling petitioner's demurrer and enter a new order sustaining petitioner's demurrer without leave to amend. The stay entered on February 10, 2017, is vacated effective upon issuance of the remittitur. Petitioner is entitled to costs.
NARES, J. WE CONCUR: McCONNELL, P. J. AARON, J.