Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-05437/USCOURTS-cand-3_14-cv-05437-8/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 28:1332 Diversity-(Citizenship)

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

RICHARD REED, et al.,

Plaintiffs,

v.

US BAN N.A., et al.,

Defendants.

Case No. 14-cv-05437-VC 

ORDER

On November 10, 2014, the plaintiffs filed a complaint in Contra Costa Superior Court, 

asserting a variety of claims against Defendants US Bank and Select Portfolio Services. The 

defendants removed the case to federal court and moved to dismiss under Rule 12(b)(6). Docket 

Nos. 1,8. On January 12, 2015, the plaintiffs filed a First Amended Complaint ("FAC"), adding 

"JP Morgan Chase" as a defendant, see Docket No. 24, despite the fact that the plaintiffs' had 

previously brought an action in state court against Chase, asserting a variety of claims relating to 

the foreclosure of their home. See Richard Reed v. JP Morgan Chase Bank, et al., Contra Costa 

Superior Court Case No. MSC12-00154. In February 2013, the Superior Court dismissed that

action without leave to amend. The plaintiffs did not bring this prior case to the attention of the 

Court. Nor does it appear, as of the date of this order, that the plaintiffs have served Chase in this 

action.

US Bank and Select Portfolio Services moved to dismiss the FAC. Docket No. 37. On 

April 10, 2015, the Court issued an order directing the plaintiffs to file a sur-reply addressing the 

defendants' collateral estoppel argument. Docket No. 46. In their sur-reply, the plaintiffs contend 

that they are not collaterally estopped from asserting any of the claims in their FAC because the

dismissal of the prior state court action against Chase was without prejudice, and thus the court's 

entry of judgment in Chase's favor was not a final judgment on the merits. Docket No. 47 at 2–4.

But contrary to the plaintiffs' contention, the Superior Court sustained Chase's general demurrer to 

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United States District Court

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each cause of action in the plaintiffs' complaint, dismissing without leave to amend. See RJN-2,

Ex. B. And "[i]n California, a state court's order sustaining a general demurrer constitutes a final 

judgment on the merits." Janson v. Deutsche Bank Nat'l Trust Co., No. 14-CV-05639 JSC, 2015 

WL 1250092, at *10 (N.D. Cal. Mar. 18, 2015); see McKinney v. Cnty. of Santa Clara, 169 Cal.

Rptr. 89, 92 (Ct. App. 1980) ("[A] judgment on a general demurrer will have the effect of a bar in 

a new action in which the complaint states the same facts which were held not to constitute a cause 

of action on the former demurrer.").

The plaintiffs also contend that the enactment of the California Homeowner Bill of Rights

("HBOR") represents an intervening change in the law, meaning that collateral estoppel does not 

bar the plaintiffs' claims based on Chase's conduct.

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 But even assuming that the HBOR

represented a significant change in the underlying legal principles between the dismissal of the 

plaintiffs' prior state court case and their filing of the present one, see Steen, 106 F.3d at 913, the 

HBOR may not be applied retroactively. See Gonzales v. Wells Fargo Bank, N.A., No. C 14-

03850 JSW, 2014 WL 5465290, at *2 (N.D. Cal. Oct. 28, 2014). As a result, the enactment of the 

HBOR has no bearing on whether the plaintiffs are estopped from asserting claims based on 

Chase's conduct before the HBOR took effect. 

Accordingly, the plaintiffs' counsel—specifically, Nikhil Bhatnagar, who is the author of 

the briefs filed on the plaintiffs' behalf—must come to the hearing on the defendants' motion to 

dismiss prepared to discuss the merits of the defendants' collateral estoppel argument (as it relates 

to both the claims the plaintiffs bring against Chase and the claims the plaintiffs bring against US 

 

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The plaintiffs' brief attributes to the Ninth Circuit a quotation from Jackson v. DeSoto Parish 

School Board, 585 F.2d 726 (5th Cir. 1978), in which the Fifth Circuit noted that "[i]t has long 

been established that res judicata is no defense where, between the first and second suit, there has 

been an intervening change in the law or modification of signification facts creating new legal 

conditions." Id. at 729; see Docket No. 47 at 5. However, like the Fifth Circuit, the Ninth Circuit 

has also recognized that collateral estoppel may not apply where "controlling facts or legal 

principles have changed significantly since the prior judgment." See, e.g., Steen v. John Hancock 

Mut. Life Ins. Co., 106 F.3d 904, 913 (9th Cir. 1997). 

The plaintiffs also argue that "Plaintiffs were never able to plead the rights outlined by the 

Homeowners Bill of Rights as their second - and last - amended complaint was filed and demurred 

to in 2014 - only a few months before the law would take effect." Docket No. 47 at 5. But the 

HBOR took effect on January 1, 2013. The Court can only assume that the plaintiffs' reference to 

2014 is a typographical error. 

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Bank and Select Portfolio Services based on Chase's alleged wrongful conduct on a theory of 

successor liability). Mr. Bhatnagar should also come to the hearing prepared to demonstrate why 

he should not be sanctioned under Rule 11 in the amount of the defendants' costs and attorneys' 

fees in defending this action with respect to claims based on Chase's conduct, particularly given 

Mr. Bhatnagar's misrepresentation in his brief about the nature of the prior dismissal. The

defendants should submit to the Court a declaration, by no later than April 29, 2015 at 3:00 p.m.,

which sets forth those costs and fees.

Finally, the Court notes that Mr. Bhatnagar failed to appear at the case management 

conference held on March 17, 2015. Failure to appear at the hearing on the defendants' motion to 

dismiss will result in dismissal of the case for failure to prosecute. 

IT IS SO ORDERED.

Dated: April 28, 2015

______________________________________

 VINCE CHHABRIA

 United States District Judge

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