Intri-Plex Technologies, Inc. v. Crest Group, Inc.

• Citation: 499 F.3d 1048
• Decision Date: 27 August 2007
• Docket Number: No. 05-55923.,05-55923.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Parties: INTRI-PLEX TECHNOLOGIES, INC., Plaintiff-Appellant, v. The CREST GROUP, INCORPORATED, a Delaware corporation, e/s/a Crest Ultrasonics Corporation, d/b/a Crest Ultrasonics Corporation, Defendant-Appellee.

499 F.3d 1048

INTRI-PLEX TECHNOLOGIES, INC., Plaintiff-Appellant, v. The CREST GROUP, INCORPORATED, a Delaware corporation, e/s/a Crest Ultrasonics Corporation, d/b/a Crest Ultrasonics Corporation, Defendant-Appellee.

No. 05-55923.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 10, 2007.

Filed August 27, 2007.

John A. Belcher, Law Offices of John Belcher, Pasadena, CA, for the plaintiff-appellant.

Marcus J. Kocmur (argued), Douglas B. Large, Archbald & Spray LLP, Santa Barbara, CA, for the defendant-appellee.

Appeal from the United States District Court for the Central District of California; A. Howard Matz, District Judge, Presiding. D.C. No. CV-05-00716-AHM.

Before: B. FLETCHER and M. MARGARET McKEOWN, Circuit Judges, and RONALD M. WHYTE,^* District Judge.

BETTY B. FLETCHER, Circuit Judge:

Intri-Plex Technologies, Inc. (Intri-Plex) appeals from the district court's order granting the defendant Crest Ultrasonics Corp.'s (Crest)¹ motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

FACTUAL AND PROCEDURAL HISTORY

Appellant Intri-Plex manufactures computer disk drive components called "baseplates."² Compl. ¶ 1. Intri-Plex sells finished baseplates to manufacturers of component parts for computer disk drive assemblies. Appellee Crest manufactures and sells ultrasonic cleaning equipment, including hot air dryer consoles, which are used by manufacturers in the computer disk drive industry. Intri-Plex purchased hot air dryer consoles with HEPA air filters and replacement filters from Crest and installed one of these consoles in its Goleta, California, facility. Crest warranted to Intri-Plex that the equipment supplied to it would be defect-free.

In May 2002, Intri-Plex's customers contacted Atlantic Mutual Insurance Co. (AMI), Intri-Plex's insurance company, regarding corrosion problems with the finished baseplates they received from Intri-Plex in April and May 2002. The corrosion was caused by defective air filters supplied to Intri-Plex by Crest. KR Precision Public Company Ltd. (KRP) is an Intri-Plex customer. KRP welded Intri-Plex's corroded finished baseplates into its suspension assemblies, and once attached, it was not possible to repair or replace the corroded baseplates without damaging the KRP product. This resulted in the recall of finished baseplates manufactured, distributed, and shipped by Intri-Plex as well as compensation to KRP for the damaged suspension assemblies.³

In June 2003, AMI commenced a subrogation action against Crest by filing a complaint in California superior court. In its complaint, AMI alleged, "The terms of the INTRI-PLEX insurance policy assign to plaintiff[AMI], to the extent of its payment, all rights, claims or causes of action of its insured against any parties legally or equitably responsible for these losses. Under California law, plaintiff is subrogated to the rights of its insured [Intri-Plex] against the defendants named in this action." AMI Compl.¶ 14.⁴ AMI also alleged that it compensated its insured, Intri-Plex, for losses caused by Crest's defective product:

Under the terms of its insurance policy, plaintiff compensated its insured [Intri-Plex] for economic losses and other damages caused by the defendant's defective . . . Hot Air Dryer and replacement . . . HEPA Filters. Under the terms of its insurance policy, plaintiff paid for the identification, recall, and return of finished baseplates manufactured, distributed and shipped by INTRI-PLEX from its Goleta, Santa Barbara, facility . . . and for suspension assemblies manufactured by KRP . . . incorporating finished baseplates manufactured by INTRI-PLEX.

Id. ¶ 14. AMI asserted eight causes of action: breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, breach of oral and written contract, general negligence, negligence-failure to warn, negligence-concealment of material fact, strict liability in tort, and equitable indemnity.

In February 2004, Intri-Plex negotiated and filed a stipulation for a protective order relating to use of its proprietary documents and test results in the litigation between AMI and Crest. After AMI reached a settlement with Crest, California superior court dismissed AMI's action with prejudice on December 1, 2004.

On January 28, 2005, Intri-Plex filed a complaint against Crest in the United States District Court for the Central District of California. Intri-Plex asserted the same factual allegations and causes of action against Crest as AMI asserted against Crest in its state court action. For example, Intri-Plex alleged that it "received partial indemnity from[AMI] for the identification, recall, and return of finished baseplates manufactured, distributed and shipped by [Intri-Plex] from its Goleta . . . facility . . . and for suspension assemblies manufactured by KRP . . . incorporating finished baseplates manufactured by [Intri-Plex]." Compl. ¶ 14. Intri-Plex also alleged that it sustained some losses for which it was not insured, "including unsaleable inventory, deductibles and other losses, not covered by the [AMI] policy." Id.

Crest filed a motion to dismiss for failure to state a claim upon which relief could be granted, on the basis that Intri-Plex's action "improperly attempts to split a cause of action in pursuit of a claim that has previously been litigated and dismissed with prejudice and is, therefore, barred by the doctrine of res judicata." Def.s' Mot. to Dismiss at 1-2. Crest concurrently filed a request for judicial notice of (1) AMI's state court complaint, (2) Intri-Plex's stipulation regarding the protective order in state court, and (3) AMI's request for dismissal of its state court complaint with prejudice. Intri-Plex opposed the motion to dismiss.

The district court took Crest's motion to dismiss under submission without a hearing. On June 1, 2005, the district court granted Crest's motion to dismiss on the ground that Intri-Plex's complaint was an impermissible splitting of a single cause of action and therefore barred by res judicata. The district court also held that Crest did not waive the splitting defense because:

nothing before the Court indicates that any party, besides Intri-Plex itself, had knowledge of the additional claims that Intri-Plex seeks to raise. The complaint is devoid of any mention of the AMI action and is similarly devoid of any allegation that Crest settled the claim with AMI with knowledge of Intri-Plex's remaining claims against it.

Order Granting Def.'s Mot. to Dismiss at 4.

DISCUSSION

Standard of Review

We review de novo the district court's dismissal for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). See Decker v. Advantage Fund, Ltd., 362 F.3d 593, 595-96 (9th Cir.2004). All well-pleaded facts in the complaint are accepted as true and construed in the light most favorable to the nonmoving party. See id. at 595. Res judicata claims are reviewed de novo. Manufactured Home Communities, Inc. v. City of San Jose, 420 F.3d 1022, 1025 (9th Cir.2005) (citation omitted).

Generally, a court may not consider material beyond the complaint in ruling on a Fed.R.Civ.P. 12(b)(6) motion.⁵ Lee, 250 F.3d at 688. However, "[a] court may take judicial notice of `matters of public record' without converting a motion to dismiss into a motion for summary judgment," as long as the facts noticed are not "subject to reasonable dispute." Lee, 250 F.3d at 689 (citation omitted); see also United States v. Ritchie, 342 F.3d 903, 908-09 (9th Cir. 2003).

Since this is a diversity action the law of the forum state, California, applies. See, e.g., Homedics, Inc. v. Valley Forge Ins. Co., 315 F.3d 1135, 1138 (9th Cir.2003).

I. The district court properly dismissed Intri-Plex's suit as an impermissible attempt to split a cause of action barred by res judicata.

A. Splitting the cause of action

To determine the preclusive effect of a state court judgment, federal courts look to state law. Palomar Mobilehome Park Ass'n v. City of San Marcos, 989 F.2d 362, 364(9th Cir.1993). Res judicata "precludes parties or their privies from relitigating a cause of action that has been finally determined by a court of competent jurisdiction." Rice v. Crow, 81 Cal. App.4th 725, 734, 97 Cal.Rptr.2d 110 (2000) (internal quotation marks omitted). Since an insured—here, Intri-Plex—and its subrogated insurer—AMI—are privies, see Ferraro v. S. Cal. Gas Co., 102 Cal.App.3d 33, 42, 162 Cal.Rptr. 238 (1980), the privity requirement is met here. AMI's dismissal of its California superior court complaint with prejudice is a final judgment on the merits. Rice, 81 Cal.App.4th at 733-34, 97 Cal.Rptr.2d 110. The only disputed issue is whether Intri-Plex's action against Crest is the same cause of action—seeking to vindicate the same "primary right"—as AMI's action against Crest in state court.

The district court properly dismissed Intri-Plex's suit as an impermissible attempt to split a single cause of action. Intri-Plex partially subrogated its rights to AMI. Intri-Plex disputes this and claims that AMI "was acting as a partial subrogee of KR Precision, which was the only entity which received Atlantic Mutual funds." Pl.'s Br. at 6 (emphasis in original). Not only is this a misunderstanding of subrogation,⁶ but it contradicts Intri-Plex's own complaint, which alleged that AMI was its insurance carrier and that "Plaintiff received partial indemnity from [AMI] for the identification, recall, and return of finished baseplates manufactured, distributed and shipped by Plaintiff . . . and for suspension assemblies manufactured by KRP . . . incorporating finished baseplates manufactured by Plaintiff." Compl. ¶ 14.

Thus, it is clear that (1) Intri-Plex had an insurance policy with AMI and (2) pursuant to the insurance policy, AMI paid for loss that Intri-Plex sustained as a result of Crest's defective air dryers and...