Yates v. Nimeh

• Decision Date: 18 May 2007
• Docket Number: No. C07-0798 BZ.,C07-0798 BZ.
• Court: U.S. District Court — Northern District of California
• Parties: Royal YATES, Plaintiff(s), v. Kinan NIMEH, et al., Defendant(s).

486 F.Supp.2d 1084 Royal YATES, Plaintiff(s),
v.
Kinan NIMEH, et al., Defendant(s). No. C07-0798 BZ. United States District Court, N.D. California. May 18, 2007.

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Laurence F. Padway, Law Offices of Laurence F. Padway, Alameda, CA, for Plaintiffs.

Robert T. Sullwold, James A. Hughes, Sullwold & Hughes, San Francisco, CA, for Defendants.

Syed Zaidi, Hicksville, NY, Pro se.

ORDER DENYING DEFENDANTS' MOTIONS TO DISMISS

ZIMMERMAN, United States Magistrate Judge.

Before me are defendants' motions to dismiss plaintiff's complaint for failure to state a claim upon which relief may be granted or, alternatively, for lack of subject matter jurisdiction.¹ For the reasons

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set forth below, defendants' motions are DENIED²

The lone claim remaining against defendants alleges a state law claim for breach of fiduciary duty — a claim plaintiff describes in his opposition as "essentially a state law claim for churning."³ The investment account that was allegedly churned by defendants is the same account that was the subject of a prior case adjudicated before me.⁴ On February 23, 2007, plaintiff acknowledged payment of $297,173.35, representing compensatory damages plus interest, as partial satisfaction of the judgment.⁵ See Yates v. GunnAllen Financial, et al., C05-1510 BZ, Civil Docket No. 190.⁶ The punitive damage award is on appeal.

Defendants argue that plaintiff's latest suit must be dismissed pursuant to the "single satisfaction" rule, which California follows.⁷ The narrow issue before me is whether California's single satisfaction rule bars plaintiff from seeking punitive damages from these defendants based on their alleged involvement in the underlying fraud for which plaintiff has been made whole.⁸

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Neither party cited case law directly on point, and I am aware of no controlling California precedent.⁹ "A federal court should apply state law as it believes the highest court of the State would apply it." Palmer v. Stassinos, 419 F.Supp.2d 1151, 1155 (N.D.Cal.2005) (citing Jones-Hamilton Co. v. Beazer Materials & Servs., Inc., 973 F.2d 688, 692 (9th Cir.1992)); see also Cunningham v. Connecticut Mut. Life Ins., 845 F.Supp. 1403, 1411 (S.D.Cal.1994) ("If state law is unclear, the federal court is required to determine how state law will be construed if the question were before the state's highest court.").

I conclude that under California law plaintiffs suit is not barred by the single satisfaction rule. First, it appears that only the complete satisfaction of a judgment will bring the single satisfaction rule into play. See McCall v. Four Star Music Co., 51 Cal.App.4th 1394, 1398-99, 59 Cal.Rptr.2d 829 (1996) ("where fewer than all of the joint tortfeasors satisfy less than the entire judgment, such satisfaction will not relieve the remaining tortfeasors of their obligation under the judgment."). Inasmuch as the punitive damage judgment has not been satisfied, the single satisfaction rule, if applicable at all, must be applied with caution.¹⁰

Indeed, California courts emphasize that the single satisfaction rule "`is equitable in its nature, and ... its purpose is to prevent, unjust enrichment.'" Milicevich, 155 Cal.App.3d at 1003, 202 Cal.Rptr. 484 (quoting Prosser, Joint Torts and Several Liability, 25 Cal.L.Rev. 413, 422 (1937)); see also McCall, 51 Cal.App.4th at 1399, 59 Cal.Rptr.2d 829 (noting that the rule is designed to prevent double recovery); Winzler, 48 Cal.App.3d at 392, 122 Cal. Rptr. 259 ("the injured party can receive only one satisfaction for his injury"). There is no danger of double recovery here for, as plaintiff correctly argues, any verdict assigning defendants liability for plaintiffs compensatory damages will be offset so as to prevent plaintiff's unjust enrichment. See Carr v. Cove, (1973) 33 Cal.App.3d 851, 854, 109 Cal.Rptr. 449 ("Only one `complete satisfaction is permissible, and, if partial satisfaction is received from one, the liability of others will be correspondingly reduced."); Winzler, 48 Cal.App.3d at 392, 122 Cal.Rptr. 259 (partial satisfaction "has the effect of a discharge pro tanto.") (internal quotations and citation omitted); see, e.g., McGee, 344

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S.C. at 472, 545 S.E.2d 286 (discussing the trial process on remand).

Defendants argue that because an award of compensatory damages is a prerequisite to an award of punitive damages under California law, plaintiffs current claim must fail. See, e.g., Cheung v. Daley, 35 Cal.App.4th 1673, 42 Cal.Rptr.2d 164 (1995). The rule, however, is that an award of compensatory damages or its equivalent is a prerequisite to an award of punitive damages. See id. at n. 8; see also Sole Energy Co. v. Petrominerals Corp., 128 Cal.App.4th 212, 238, 26 Cal.Rptr.3d 798 (2005) ("An award of actual damages, even if nominal, is required to recover punitive damages."). In other words, "[t]he requirement of `actual damages' imposed by section 3294 is simply the requirement that a tortious act be proven if punitive damages are to be assessed." Esparza v. Specht, 55 Cal.App.3d 1, 6, 127 Cal.Rptr. 493 (1976).

Thus, where a claimant's award of compensatory damages was completely offset, he could still receive punitive damages. See Esparza, 55 Cal.App.3d at 9, 127 Cal. Rptr. 493 (cited with approval in Cheung, 35 Cal.App.4th at 1677 n. 8, 42 Cal.Rptr.2d 164). Here, plaintiff has already demonstrated the commission of a tortious act, and may yet prove defendants' liability for some part of the damages arising therefrom. It does not follow that because plaintiffs compensatory damage claim may, be completely offset, he is automatically precluded from recovering punitive damages against defendants.¹¹

Because plaintiffs suit does not run afoul of California's single satisfaction rule, and because plaintiffs recovery of punitive damages against defendants is not barred as a matter of law, I decline to apply the single satisfaction rule in the manner encouraged by defendants¹²

Defendants' second argument — that this Court lacks subject matter jurisdiction — also fails. For any suit lying in diversity, plaintiff must demonstrate both complete diversity and that "the matter in controversy exceeds the sum or value of

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$75,000, exclusive of interest and costs." 28 U.S.C. § 1332(a). "In calculating the amount in controversy, the Court must also...