Owens v. Kaiser Foundation Health Plan

• Decision Date: 26 March 2001
• Docket Number: No. 99-56466,99-56466
• Citation: 244 F.3d 708
• Parties: (9th Cir. 2001) CHRISTOPHER OWENS; CYNTHIA HUTCHINS,Plaintiffs-Appellants, v. KAISER FOUNDATION HEALTH PLAN,INC., a California corporation,Defendant-Appellee
• Court: U.S. Court of Appeals — Ninth Circuit

Page 708

244 F.3d 708 (9th Cir. 2001)

CHRISTOPHER OWENS; CYNTHIA HUTCHINS,Plaintiffs-Appellants, v. KAISER FOUNDATION HEALTH PLAN,INC., a California corporation,Defendant-Appellee.

No. 99-56466

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted March 8, 2001

Filed March 26, 2001

[Copyrighted Material Omitted] David G. Spivak and David L. Ross, Ross, Rose & Hammill, LLP, Beverly Hills, California, for the plaintiffs-appellants.

James A. Breslo, Seyfarth, Shaw, Fairweather & Geraldson, Los Angeles, California, for the defendant-appellee.

Appeal from the United States District Court for the Central District of California William D. Keller, District Judge, Presiding. D.C. No.CV 97-04898-WDK

Before: Arthur L. Alarcon, Melvin Brunetti, and Michael Daly Hawkins, Circuit Judges.

ALARCON, Circuit Judge:

Appellants Christopher Owens and Cynthia Hutchins appeal from the district court's order dismissing their Title VII action against Kaiser Foundation Health Plan, Inc. ("Kaiser") based on the doctrine of res judicata. We affirm because we conclude that the application of the doctrine of res judicata is not barred merely because they did not receive "right to sue" letters from the Equal Employment Opportunity Commission ("EEOC") until after their earlier action had been dismissed with prejudice.

I

Appellants are African-Americans who were employed as regional chartroom clerks in Kaiser's facility in Downey, California. Kaiser relocated the facility from Downey to Ontario, California in February, 1994, at which time Appellants' employment was terminated. Thereafter, Appellants filed discrimination charges with both the EEOC and the California Department of Fair Employment and Housing, alleging that Kaiser failed to relocate them to another facility because of their race.

On February 14, 1995, Appellants filed an action in California state court against Kaiser, two individual supervisors, and Appellants' union, asserting causes of action for breach of implied-in-fact contract, breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, and fraud. The Defendants removed the action to federal court. Kaiser moved to dismiss the action based on federal preemption and the applicable statute of limitations. Appellants stipulated to a dismissal. The court dismissed without prejudice on June 19, 1995. On November 3, 1995, Appellants amended their charges of discrimination with the EEOC, adding allegations of hostile work environment and racial discrimination.

On November 22, 1995, Appellants filed a second action in state court against the same Defendants. They alleged the same causes of action, with the addition of a claim for breach of the duty of fair representation. The complaint alleged that Kaiser filled positions "with less qualified non-Blacks" and that this action was not based on seniority, "but was instead arbitrary and discriminatory against several African American employees . . . ." Defendants again removed the action to federal court and Kaiser moved to dismiss. Appellants did not file a response to Kaiser's motion. The district court, noting that no opposition had been filed and that Appellants' attorney had failed to respond to the court's repeated inquiries, dismissed the action with prejudice on October 25, 1996.

On April 4 and May 9, 1997, respectively, Owens and Hutchins received their "right to sue" letters from the EEOC. Shortly thereafter, they filed a pro se action in federal court solely against Kaiser, alleging that their terminations were unlawfully based on race. Kaiser moved to dismiss the action for failure to state a claim. The district court granted Kaiser's motion, and dismissed the complaint with leave to amend.

Appellants, now represented by counsel, filed an amended complaint on May 12, 1998 alleging that Kaiser had violated Title VII. Specifically, they alleged that Kaiser permitted a "racially discriminatory and hostile work environment" and that their terminations were "the result of racial, color, and cultural discrimination." The district court denied Kaiser's motion to dismiss the amended complaint for failure to state a claim. Kaiser filed its answer on August 31, 1998, and discovery commenced. The court stayed all proceedings from November 9, 1998 to January 13, 1999, however, in order to investigate whether Appellants' attorney was licensed to practice law.

On May 10, 1999, after discovery had resumed, Appellants moved to file a second amended complaint seeking to add claims for harassment and discrimination under state law. On May 20, 1999, before the district court had ruled on Appellants' motion, Kaiser moved to file an amended answer to assert res judicata as an affirmative defense and for judgment on the pleadings based on that doctrine. Kaiser argued that the court's dismissal with prejudice of Appellants' previous action barred any further action by Appellants based on the same underlying facts. The district court granted Kaiser's motion to amend its answer, denied Appellants' motion to amend their complaint as moot, and dismissed the action based on res judicata. Appellants filed a timely notice of appeal. We have jurisdiction pursuant to 28 U.S.C.S 1291.

II

Appellants contend that the district court abused its discretion by permitting Kaiser to amend its answer to assert res judicata as an affirmative defense. They contend that Kaiser's motion was untimely, submitted in bad faith, and prejudicial. We review the district court's decision to permit Kaiser to amend its answer for an abuse of discretion. Islamic Republic of Iran v. Boeing Co., 771 F.2d 1279, 1286 (9th Cir. 1985). "A district court may abuse its discretion if it does not apply the correct law or if it rests its decision on a clearly erroneous finding of material fact." Bogovich v. Sandoval, 189 F.3d 999, 1001 (9th Cir. 1999) (quoting United States v. Plainbull, 957 F.2d 724, 725 (9th Cir. 1992)).

A district court "shall grant leave to amend freely `when justice so requires.' " Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (en banc) (quoting Fed. R. Civ. P. 15(a)). We have stated that "this policy is to be applied with extreme liberality." Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990); see also Griggs v. Pace Am. Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999) (noting that inferences should be drawn "in favor of granting the motion"). In determining whether leave to amend is appropriate, the district court considers "the presence of any of four factors: bad faith, undue delay, prejudice to the opposing party, and/or futility." Griggs, 170 F.3d at 880.

Appellants contend that Kaiser acted in bad faith because Kaiser failed "to offer a plausible explanation for their delayed res judicata application." We disagree. Kaiser offered substantial competent evidence to explain the delay. Kaiser substituted counsel shortly after Appellants filed their first amended complaint, and offered evidence that new counsel had not represented Kaiser in the prior action and was not aware that the prior action had been dismissed with prejudice. Moreover, Kaiser's new counsel offered a credible explanation for his belated discovery that Appellants' action was barred by res judicata: He researched the procedural history of the action in the course of determining whether to oppose Appellants' motion to file a second amended complaint. Immediately upon learning of the availability of the res judicata defense, Kaiser moved to amend its answer. The district court did not clearly err in finding that Kaiser did not act in bad faith.

Appellants also contend that they suffered prejudice when Kaiser was permitted to amend its answer. This assertion also lacks merit. The amendment caused no delay in the proceedings and required no additional discovery. See Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 986 (9th Cir. 1999) (stating that "[a] need to reopen discovery and therefore delay the proceedings supports a district court's finding of prejudice from a delayed motion to amend . . . ."). Appellants do not dispute that permitting Kaiser to amend its answer did not require Appellants to incur substantial additional litigation expenses. Nonetheless, Appellants argue that they were prejudiced because they incurred substantial litiga-tion expenses before Kaiser moved to amend its answer. Appellants cite no case holding that prejudice should be measured by litigation expenses incurred before a motion to amend is filed. While we agree that delaying assertion of an affirmative defense for the purpose of forcing a party to incur unnecessary expenses would demonstrate bad faith, there is no evidence that Kaiser acted with such a purpose. Appellants have failed to demonstrate that the district court clearly erred in finding that Kaiser's amendment was not prejudicial.

Appellants further argue that the district court abused its discretion because Kaiser unreasonably delayed the filing of its motion to amend. As discussed supra, Kaiser moved to amend as soon as it became aware of the applicability of the res judicata defense. Assuming arguendo that Kaiser had unreasonably delayed the filing of the motion to amend its answer, "[u]ndue delay by itself . . . is insufficient to justify denying a motion to amend." Bowles v. Reade , 198 F.3d 752, 758 (9th Cir. 1999). We conclude that the district court did not abuse its discretion by permitting Kaiser to amend its answer.

III

Appellants alternatively contend that Kaiser waived its right to assert the doctrine of res judicata by failing to raise it as an affirmative defense in its answer or in its prior motions to dismiss. We review this issue de novo. Kern Oil & Ref. Co. v. Tenneco Oil Co., 840 F.2d 730, 735 (9th Cir. 1988). In prior cases "[w]e have liberalized the requirement that defendants must raise affirmative defenses in their initial pleadings." Magana v....