Daewoo Electronics America Inc., a Florida corporation, Plaintiff-Appellant,
Opta Corporation, a Delaware corporation registered to do business in California; T.C.L. Industries Holdings (H.K.) Limited, a Hong Kong corporation; TCL Mulitmedia Technology Holding Limited, a Cayman Islands Company; TCL Corporation, a Shenzhen, China, corporation, Defendants-Appellees.
and Submitted December 16, 2016 San Francisco, California
from the United States District Court for the Northern
District of California D.C. No. 3:13-cv-01247-VC Vince G.
Chhabria, District Judge, Presiding.
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.
panel reversed the district court's dismissal of almost
all of Daewoo Electronics America Inc.'s claims as barred
by a prior judgment of the United States District Court for
the District of New Jersey; and remanded for further
brought this diversity action to recover unpaid debt from
four entities affiliated with GoVideo for GoVideo's
purchase of DVD players from Daewoo. Daewoo previously filed
suit in New Jersey federal court seeking to enforce a
guaranty agreement, and the court ruled against Daewoo.
panel held that 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
Corporation and TCL Industries Holdings Limited did not
preclude Daewoo from bringing the present alter ego and
successor liability claims against Opta and TCL Multimedia
Technology Holding Limited.
panel held that because the claims in the present action and
in the prior guaranty action did not arise from the same
transaction or occurrence, New Jersey's version of
traditional res judicata did not apply. The panel further
held that although New Jersey's "entire controversy
doctrine" may have prevented Daewoo from bringing the
present claims in New Jersey, this procedural joinder rule
did not bar the claims from being heard in the federal
district court sitting in California. The panel concluded
that the district court erred in ruling that the claims in
the present action were precluded under New Jersey law.
Bybee dissented because the majority opinion erred in not
applying New Jersey law just as New Jersey state courts would
apply it. Judge Bybee would apply New Jersey's
"entire controversy doctrine" which would bar
Daewoo's claims, and affirm the district court's
SMITH, Circuit Judge
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 (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.,
662 A.2d 536, 537, 540-42 (N.J. 1995). Because the district
court failed to apply New Jersey law correctly, we reverse.
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).
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.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
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).
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.
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.
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.
STANDARD OF REVIEW
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).
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
International Inc. v. Lockheed Martin Corp., 531 U.S.
497 (2001), provides the framework for our
analysis.Under Semtek, "federal common
law governs the claim-preclusive effect of a dismissal by a
federal court sitting in diversity." Id. at
508. 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.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.
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
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, 677 A.2d 238,
243 ( N.J.Super.Ct.App.Div. 1996), aff'd, 696
A.2d 633 (N.J. 1997). Only the third element is genuinely in
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., 559 A.2d 400, 405
(N.J. 1989) (internal citations omitted) (quoting United
States v. Athlone Indus., Inc., 746 F.2d 977, 984 (3d
Cir. 1984)). "[T]he focal points of [the] analysis are
whether the acts complained of were the same, whether the
material facts alleged in each suit were the same and whether
the witnesses and documentation required to prove such
allegations were the same." Athlone, 746 F.2d
respect to the first factor, Defendants' acts (of which
Daewoo complained and for which Daewoo demanded corresponding
relief) differed in each action. Although Daewoo's claims
in both actions could have had the effect of
satisfying part of the default judgment against GoVideo (as
both district court judges in the present action
acknowledged), the underlying bases giving Daewoo a right to
bring each suit-the wrongs for which Daewoo sought
redress-did not overlap.
Judge White observed, the prior suit was an action for
"a breach of a guaranty contract." Daewoo's
complaint in the prior action alleged that Defendants became
liable to Daewoo under the contract for $5 million, that
Daewoo demanded payment from Defendants, and that Defendants
refused to pay. It was the breach of the
guaranty-Defendants' refusal to fulfill their contractual
obligation to pay $5 million-that was the wrong for which
Daewoo sought relief. Although proof of this claim would
require showing that GoVideo was in debt to Daewoo, the
purpose of suing in the guaranty action would not have been
to fulfill GoVideo's obligation to pay its debt. Instead,
the suit would fulfill Defendants' independent
contractual obligation under an agreement to which GoVideo
was not a party. Conversely, Daewoo seeks redress in the
present action for an obligation to pay a $7.75 million debt
incurred by GoVideo that had nothing to do with the guaranty
contract. Daewoo seeks to hold Defendants directly liable for
GoVideo's unpaid debt, rather than for Defendants'
relief available for each cause of action further evidences
the difference in the underlying wrongs. Defendants
acknowledge that the amount of damages available under the
two actions was substantially different. In the prior action,
Daewoo could have recovered no more than Defendants'
independent $5 million obligation under the guaranty.
However, under the theories asserted in the present action,
Daewoo could recover $7.75 million, because Defendants would
be held directly liable for the full amount of GoVideo's
debts. See Wady v. Provident Life & Accident Ins. Co.
of Am., 216 F.Supp.2d 1060, 1066 (C.D. Cal. 2002).
Because Daewoo brought each action to seek redress for
different underlying conduct, and because the recovery
available in each action was substantially different, this
factor weighs against finding that the claims grew from the
same transaction or occurrence.
the parties and both of the district court judges have
acknowledged that the present action involves theories of
recovery that are legally distinct from those asserted in the
prior action. The guaranty action concerned liability under
an express contract executed by the parties to the litigation
and governed by New Jersey law. The present action seeks to
hold Defendants directly liable for a third-party's debt
under California actions of alter ego and successor
liability, where Defendants would otherwise have no
independent basis for that debt. While this factor does not
carry as much weight as others in the analysis, see
Athlone, 746 F.2d at 984, it nonetheless supports the
conclusion that claims in the separate actions did not grow
from a common transaction or occurrence.
third and fourth factors are intertwined and both weigh in
Daewoo's favor, because there is not significant overlap
between the material facts or the necessary evidence in each
action. Daewoo argues that the claims asserted in the
separate actions involve substantially different facts and
evidence because the issues in the guaranty action concerned
only formation and interpretation of the guaranty contract,
which are irrelevant to the claims of alter ego and successor
liability. Instead, Daewoo argues, the present action
"focuses on the conduct of Defendants-Appellees in
stripping GoVideo of its assets, " which occurred well
after formation of the guaranty. Daewoo further contends that
(although Opta was involved in both actions) none of the
facts or evidence in the guaranty action would have related
to TCLM, because TCLM was not a party to that case or to the
guaranty agreement. Defendants argue that Daewoo demonstrated
the substantial overlap between the two lawsuits by alleging
several of the same facts in both actions. However,
Defendants fail to explain why any of these common facts (and
their supporting evidence) were material to the guaranty
action. Judge Chhabria's analysis suffers the same flaw.
As Judge White found, while some of the contextual background
facts may overlap, "Daewoo's alter ego and successor
liability claims nonetheless do not directly relate in
substance to the ...