Production Supply Co., Inc. v. Fry Steel Inc.

• Decision Date: 05 February 1996
• Docket Number: No. 95-30009,95-30009
• Citation: 74 F.3d 76
• Parties: PRODUCTION SUPPLY CO., INC.; Production Supply Co. of Washington, Inc., Plaintiffs-Appellants, v. FRY STEEL INC.; Cadwalader, Wickersham and Taft; Fry Steel Co., improperly named as Fry Steel, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 76

74 F.3d 76

PRODUCTION SUPPLY CO., INC.; Production Supply Co. of Washington, Inc., Plaintiffs-Appellants, v. FRY STEEL INC.; Cadwalader, Wickersham and Taft; Fry Steel Co., improperly named as Fry Steel, Inc. Defendants-Appellees.

No. 95-30009.

United States Court of Appeals Fifth Circuit.

Feb. 5, 1996.

Eric A. Holden, New Orleans, LA, for Plaintiffs-Appellants.

C. Lawrence Orlansky, New Orleans, LA, Thomas More Flanagan, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, LA, for Defendants-Appellees.

Appeal from the United States District Court For the Eastern District of Louisiana.

Before REYNALDO G. GARZA, JOLLY and DUHE, Circuit Judges.

DUHE, Circuit Judge:

Production Supply Company, Inc. (PSC) and Production Supply Company of Washington, Inc. (PSCW) appeal the dismissal of their malicious prosecution action against Fry Steel Company (Fry) and Cadwalader, Wickersham and Taft (Cadwalader). Appellants seek recovery for harm allegedly sustained as a result of Fry and Cadwalader's commencement and maintenance of a civil action against them in California state court. Because Appellants raised a similar claim in the California action, the district court held that the malicious prosecution claim was barred by res judicata. We affirm.

BACKGROUND

I. The California State Action

Fry sued PSC and PSCW in California state court seeking money damages for steel products sold by Fry to Sharp Steel, claiming that Appellants had guaranteed Sharp Steel's obligations. A year and a half after filing the California suit, Cadwalader began to represent Fry. A lengthy and contentious period of discovery followed. Eventually, Fry dismissed its suit voluntarily without prejudice pursuant to California law.

Shortly after the dismissal, Appellants instituted proceedings against Fry and Cadwalader in the California Superior Court under section 128.5 of the California Code of Civil Procedure, which provides sanctions for bad-faith litigation. Appellants sought a monetary award, including attorneys' fees, on the grounds that "the lawsuit, actions and tactics ... were frivolous, harassing, and conducted in bad faith." After hearing oral argument, the Superior Court ruled in favor of Fry and Cadwalader on these issues and denied the section 128.5 motion. PSC and PSCW did not appeal this decision.

II. The Louisiana Federal Action

Upon denial of the section 128.5 motion, PSC and PSCW sued Fry and Cadwalader in

                the Eastern District of Louisiana for malicious prosecution.  Fry and Cadwalader moved to dismiss for failure to state a claim upon which relief can be granted, Federal Rule of Civil Procedure 12(b)(6), asserting that the parties' earlier litigation of the same alleged harm and conduct barred this later-filed action under the doctrine of res judicata.   Applying California law, the district court held that res judicata precluded relitigation of the claim raised in the malicious prosecution suit.  Accordingly, the district court granted the motion to dismiss and entered judgment in favor of Fry and Cadwalader
                

DISCUSSION

I. Standard of Review

A district court's ruling on the application of res judicata is reviewed de novo. See E. & J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280, 1287 (9th Cir.1992).

II. Res Judicata

"A federal court asked to give res judicata effect to a state court judgment must apply the res judicata principles of the law of the state whose decision is set up as a bar to further litigation." E.D. Systems Corp. v. Southwestern Bell Tel. Co., 674 F.2d 453, 457 (5th Cir.1982). Because Appellees argue that the California state court judgment precludes this malicious prosecution lawsuit, we must look to the res judicata law of California.

Under California law, res judicata bars a claim when: (1) the prior litigation resulted in a final judgment on the merits; (2) privity exists between the parties in the prior action and the present action; and (3) the present action or proceeding relates to the same primary right as did the prior action. See Cal. C.C.P. Sec. 1908(a)(2); Busick v. Workmen's Comp. Appeals Bd., 7 Cal.3d 967, 974, 500 P.2d 1386, 104 Cal.Rptr. 42 (Cal.1972). Finality and privity are clearly established and not disputed in this case. Therefore, we need only address whether the malicious prosecution claim concerns the same primary right as the section 128.5 adjudication.

Under the "primary right" theory, "the underlying right sought to be enforced determines the cause of action. In determining the primary right, the significant factor is the harm suffered." Takahashi v. Board of Education, 202 Cal.App.3d 1464, 1474, 249 Cal.Rptr. 578, 584 (Cal.Ct.App.1988), cert. denied, 490 U.S. 1011, 109 S.Ct. 1654, 104 L.Ed.2d 168 (1989). Only one primary right exists when two actions involve the same harm to the plaintiff, even when different legal theories and remedies are available for that particular harm. Eichman v. Fotomat Corp., 147 Cal.App.3d 1170, 1174-75, 197 Cal.Rptr. 612 (Cal.Ct.App.1983). Consequently, "numerous cases hold that when there is only one primary right an adverse judgment in the first suit is a bar even though the second suit is based on a different theory ... or seeks a different remedy...." Crowley v. Katleman, 8 Cal.4th 666, 881 P.2d 1083, 1091, 34 Cal.Rptr.2d 386, 394 (Cal.1994).

Our inquiry, therefore, must be whether the section 128.5 and malicious prosecution actions address the same harm to PSC and PSCW. Section 128.5 allows litigants to seek a monetary award for damages incurred "as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay." Cal. C.C.P. Sec. 128.5(a). ¹ " 'Actions or tactics' include, but are not limited to, the making or opposing of motions or the filing and service of a complaint or cross-complaint.... 'Frivolous' means (A) totally and completely without merit or (B) for the sole purpose of harassing an opposing party." Cal. C.C.P. Sec. 128.5(b). Thus, section 128.5 compensates the injured party for the harms resulting from frivolous or dilatory actions.

In federal court, Appellants brought a malicious prosecution claim. "Malicious prosecution" generally provides redress when an action is brought without probable cause and is initiated with malice. Bertero v. National General Corp., 13 Cal.3d 43, 50, 529 P.2d 608, 614, 118 Cal.Rptr. 184, 190 (1974).

"The malicious commencement of a civil proceeding is actionable because it harms the individual against whom the claim is made, and also because it threatens the efficient administration of justice." Id. The individual suffers a particular harm: being "compelled to defend against a fabricated claim which not only subjects him to the panoply of psychological pressures most civil defendants suffer, but also to the additional stress of attempting to resist a suit commenced out of spite or ill will, often magnified by slanderous allegations in the pleadings." Id. at 50-51, 529 P.2d 608, 118 Cal.Rptr. 184.

To determine whether the section 128.5 proceeding and malicious prosecution claim targeted the same harm, we look to Appellants' pleadings in the respective actions. In the California state action, PSC and PSCW alleged that Fry and Cadwalader's actions were "frivolous, harassing and conducted in bad faith," and that they "should be compensated for being the victims of a joint Cadwalader-Fry vendetta." Likewise, the federal malicious prosecution complaint charged that Fry and Cadwalader "commenced and continued [the California lawsuit] for the purpose of harassment and intimidation" and that the plaintiffs "suffered extensive damages" as a result of that same conduct.

Although malicious prosecution and section 128.5 claims can address different harms, in this case the specific harm alleged in the malicious prosecution complaint is identical to the harm that was previously adjudicated in the section 128.5 proceeding. Therefore, we hold that the malicious prosecution claim is barred by California's res judicata doctrine.

Appellants argue that different primary rights are at stake because distinct procedures and remedies underlie the two theories of liability. However, these differences are irrelevant under California's "primary right" analysis. Courts must focus on the similarity in the harms alleged in the first and second proceedings, not the differences in procedures and remedies. "[I]f two actions involve the same injury to the plaintiff and the same wrong by the defendant, then the same primary right is at stake even if in the second suit the plaintiff pleads different theories of recovery, seeks different forms of relief and/or adds new facts supporting recovery." Eichman v. Fotomat Corp., 147 Cal.App.3d 1170, 1174-75, 197 Cal.Rptr. 612 (Cal.Ct.App.1983); see also Busick v. Workmen's Comp. Appeals Bd., 7 Cal.3d 967, 975, 500 P.2d 1386, 1392, 104 Cal.Rptr. 42, 48 (Cal.1972) ("Violation of one primary right in the instant case constitutes a single cause of action even though two mutually exclusive remedies are available.").

In addition, Appellants' characterization of the section 128.5 motion as a "procedural rule" does not automatically bar the application of res judicata. The proper inquiry is whether the proceeding resulted in a final judgment on the merits. See Cal. C.C.P. Sec. 1908(a)(2). The California court made a determination on the merits of the claim after the parties briefed the issue, submitted evidence in support of their position, and presented oral argument. A claim adjudicated pursuant to section 128.5 "is dispositive of the rights of the parties," and therefore, operates as a final judgment on the merits. Imuta v. Nakano, 233 Cal.App.3d 1570, 1580, 285 Cal.Rptr. 681, 687 (Cal.Ct.App.1991). Thus, there is no reason why res judicata principles should not apply.

PSC and PSCW further argue that section 128.5 is only an additional remedy and can never preclude a later suit for malicious prosecution. Appellants rely...