Daewoo Elecs. Am. Inc. v. Opta Corp.

• Decision Date: 27 November 2017
• Docket Number: No. 14-17498,14-17498
• Citation: 875 F.3d 1241
• Parties: DAEWOO ELECTRONICS AMERICA INC., a Florida corporation, Plaintiff-Appellant, v. OPTA CORPORATION, a Delaware corporation registered to do business in California; T.C.L. Industries Holdings (H.K.) Limited, a Hong Kong corporation; TCL Multimedia Technology Holding Limited, a Cayman Islands Company; TCL Corporation, a Shenzhen, China, corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

875 F.3d 1241

DAEWOO ELECTRONICS AMERICA INC., a Florida corporation, Plaintiff-Appellant,

v.OPTA CORPORATION, a Delaware corporation registered to do business in California; T.C.L. Industries Holdings (H.K.) Limited, a Hong Kong corporation; TCL Multimedia Technology Holding Limited, a Cayman Islands Company; TCL Corporation, a Shenzhen, China, corporation, Defendants-Appellees.

No. 14-17498

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 16, 2016 San Francisco, California

Filed November 27, 2017

Perry Clark (argued), Law Offices of Perry Clark, Palo Alto, California, for Plaintiff-Appellant.

Laurence Sandell (argued) and Reece Nienstadt, Mei & Mark LLP, Washington, D.C., for Defendants-Appellees.

Before: Jay S. Bybee and N. Randy Smith, Circuit Judges, and Leslie E. Kobayashi,^** District Judge.

Dissent by Judge Bybee

OPINION

N.R. SMITH, Circuit Judge:

When it is necessary for a federal district court with diversity jurisdiction to determine the preclusive effect of a prior decision by a different federal district court sitting in diversity, the second court must apply preclusion principles according to the law of the initial court's state. See Semtek Int'l Inc. v. Lockheed Martin Corp. , 531 U.S. 497, 508–09, 121 S.Ct. 1021, 149 L.Ed.2d 32 (2001). Under New Jersey's traditional res judicata doctrine, a claim asserting breach of a contractual guarantee of a third party's debt does not preclude later alter ego and successor liability claims to collect the debt directly from entities related to the debtor. Further, although New Jersey's procedural joinder rules may require such claims to be joined in a single action, New Jersey law declines to impose these rules on other courts. See Paramount Aviation Corp. v. Agusta , 178 F.3d 132, 142 (3d Cir. 1999) ; Mortgagelinq Corp. v. Commonwealth Land Title Ins. , 142 N.J. 336, 662 A.2d 536, 537, 540–42 (1995). Because the district court failed to apply New Jersey law correctly, we reverse.

I. BACKGROUND

Underlying this case are the unpaid debts of GoVideo (a non-party) for the purchase of DVD players from Plaintiff-Appellant Daewoo Electronics America Inc. (Daewoo). Daewoo brought the present action to recover this debt from four entities affiliated with GoVideo: TCL Corporation (TCLC), TCL Industries Holdings Limited (TCLI), TCL Multimedia Technology Holding Limited (TCLM), and Opta Corporation (Opta).¹

GoVideo operated a consumer electronics business in which it owned patents on electronics technology, bought DVD players from manufacturers (made pursuant to GoVideo's patents), and sold those players to third-party retailers. From October 2003 through April 2005, Daewoo manufactured DVD players that it sold to GoVideo on credit. Shortly after this arrangement began, (on December 4, 2003) Daewoo, TCLI, and Opta entered into a guaranty agreement.² Under that agreement, TCLI and Opta guaranteed the payment of obligations to Daewoo up to $5 million for the products Daewoo shipped to GoVideo. The agreement provided that it was to "remain in force for the 12 month period from the date of [its] execution." The agreement also specified that it was governed by New Jersey law.

During 2004 and 2005, GoVideo had substantial operating losses. As a result, beginning in late December 2004, GoVideo stopped paying for the DVD players it was receiving from Daewoo. As of June 2005, GoVideo owed Daewoo $7,775,670.98. In November 2005, GoVideo brought suit in the United States District Court for the District of New Jersey against Daewoo for breach of contract and other claims based on allegations that Daewoo manufactured defective products for GoVideo. Daewoo asserted counterclaims to collect the unpaid debts GoVideo owed for DVD players. In April 2007, after GoVideo had abandoned its claims, the district court entered default judgment on the counterclaims, awarding Daewoo $8,385,168.84 (the amount of the debt, plus interest).

Unable to collect from GoVideo on this judgment, Daewoo filed suit in May 2008 against TCLI and Opta, in the United States District Court for the District of New Jersey, seeking to enforce the guaranty agreement. In August 2010, the district court granted Defendants' motion for summary judgment in the guaranty action. Applying New Jersey contract law, the court found that the effective date of the guaranty was December 4, 2003; that such date was "clear on [the] face" of the agreement; and that the guaranty expired by its terms on December 3, 2004, twelve months from that date. Because the default judgment against GoVideo arose from debt incurred starting on December 23, 2004—after the guaranty expired—the district court held that TCLI and Opta never had an obligation to pay this debt under the guaranty.

In March 2013, Daewoo brought the present suit against Opta, TCLM, TCLC, and TCLI in the United States District Court for the Northern District of California, asserting California state law claims for (1) actual fraudulent transfer, (2) constructive fraudulent transfer, (3) alter ego liability, and (4) successor liability. Defendants moved to dismiss based on the res judicata effect of the guaranty action. Judge White from the Northern District of California rejected the res judicata argument, holding that the actions were not sufficiently related so as to arise from the same transaction or occurrence. Instead, these California claims for relief relied on entirely different facts. Daewoo later voluntarily dismissed its claims for fraudulent transfer.

The case was reassigned to Judge Chhabria in April 2014. Shortly thereafter, Judge Chhabria sua sponte ordered the parties to brief "whether this lawsuit is barred in whole or in part under the doctrine of res judicata," based on the summary judgment in the guaranty action. Defendants then moved, under Federal Rule of Civil Procedure 12(c), for judgment on the pleadings based on res judicata. In ruling on the motion, the district court found that most of the facts on which Daewoo bases its present claims were available to Daewoo during the period that the guaranty action was pending. Thus, the court held that, because Daewoo could have asserted the present claims at the same time it brought the prior action, Daewoo was barred from bringing those claims in the present action. Daewoo now appeals.

II. STANDARD OF REVIEW

We review de novo the district court's ruling on a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). Lyon v. Chase Bank USA, N.A. , 656 F.3d 877, 883 (9th Cir. 2011). Dismissal under Rule 12(c) is warranted when, taking the allegations in the complaint as true, the moving party is entitled to judgment as a matter of law. Id . We also review "questions of choice of law" de novo, Paulsen v. CNF Inc. , 559 F.3d 1061, 1072 (9th Cir. 2009), but review for clear error the "factual findings underlying [the] choice of law determination," Zinser v. Accufix Research Inst., Inc. , 253 F.3d 1180, 1187 (9th Cir. 2001).

III. DISCUSSION

In short, the summary judgment ruling of the federal district court in New Jersey on Daewoo's prior breach of contract claim (based on the guaranty agreement) against Opta and TCLI does not preclude Daewoo from bringing the present alter ego and successor liability claims against Opta and TCLM.³

Semtek International Inc. v. Lockheed Martin Corp. , 531 U.S. 497, 121 S.Ct. 1021, 149 L.Ed.2d 32 (2001), provides the framework for our analysis.⁴ Under Semtek , "federal common law governs the claim-preclusive effect of a dismissal by a federal court sitting in diversity." Id. at 508, 121 S.Ct. 1021. However, in these circumstances, federal common law requires that we determine the preclusive effect of the prior decision by reference to the law of the state where the rendering federal diversity court sits.⁵ Id. Because we must determine the preclusive effect of the judgment in the guaranty action, rendered by the United States District Court for the District of New Jersey sitting with diversity jurisdiction, Semtek mandates that we turn to New Jersey state preclusion law.

The parties do not dispute that we begin with New Jersey law for the preclusion question; they disagree as to how that law operates. Their arguments concern two state law doctrines: (1) New Jersey's version of traditional res judicata, and (2) New Jersey's "entire controversy doctrine." We address the application of each doctrine in turn.⁶

A. Res Judicata

Because there is not substantial overlap of the facts material to proving, first, the breach of contract claim in the prior guaranty action and, second, the alter ego and successor liability claims in the present action, the two actions do not grow from the same transaction or occurrence, and res judicata does not apply. For res judicata to apply, "[ (1) ] the judgment relied upon must be valid, final and on the merits; [ (2) ] the parties in the two actions must be either identical or in privity with one another; and [ (3) ] the claims must grow out of the same transaction or occurrence." Olds v. Donnelly , 291 N.J.Super. 222, 677 A.2d 238, 243 (N.J. Super. Ct. App. Div. 1996), aff'd , 150 N.J. 424, 696 A.2d 633 (1997). Only the third element is genuinely in dispute.

Therefore, we turn to whether Daewoo's alter ego and successor liability claims grow out of the same transaction or occurrence as the claim on the guaranty contract. To answer that question, we must consider four factors:

(1) whether the acts complained of and the demand for relief are the same (that is, whether the wrong for which redress is sought is the same in both actions); (2) whether the theory of recovery is the same; (3) whether the witnesses and documents necessary at trial are the same (that is, whether the same evidence necessary to maintain the second action would have been sufficient to support the first); and (4) whether the material facts alleged are the same.

Culver v. Ins. Co. of N. Am. , 115 N.J. 451, 559 A.2d 400, 405 (1989) (internal citations...