Court Opinion

ID: 4504411
Source: CourtListenerOpinion
Date Created: 2020-02-04 21:00:39.605676+00
Date Added: 2024-06-11T15:04:13.332497
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                         FEB 4 2020
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

JULIAN A. POLLOK,                               No.    18-55818

                Plaintiff-Appellant,            D.C. No.
                                                2:18-CV-01099-JLS-JCG
 v.

VANGUARD FIDUCIARY TRUST                        MEMORANDUM*
COMPANY,

                Defendant-Appellee.

                   Appeal from the United States District Court
                       for the Central District of California
                   Josephine L. Staton, District Judge, Presiding

                        Argued and Submitted July 9, 2019
                        Submission Vacated August 6, 2019
                           Resubmitted January 3, 2020
                              Pasadena, California

Before: M. SMITH and FRIEDLAND, Circuit Judges, and AMON,** District
Judge.

      Appellant Julian Pollok initiated two separate diversity actions against various

Vanguard entities, both alleging mishandling of funds contained in a brokerage

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The Honorable Carol Bagley Amon, United States District Judge for
the Eastern District of New York, sitting by designation.
account and an IRA opened by Dr. Edward S. Salkin, of which Pollok claims to be

the beneficiary. The district court granted summary judgment in favor of the

Vanguard Defendants in the earlier-filed action (the “Tort Action”) based on the

economic loss rule, and we affirmed in Case No. 17-56814. After the district court

granted summary judgment in the Tort Action but before we affirmed on appeal,

Pollok filed a second action in the district court (the “Contract Action”) against

Vanguard Fiduciary Trust Company (“VFTC”). The district court granted VFTC’s

motion to dismiss the Contract Action, applying federal preclusion principles in its

claim-splitting analysis to hold that the Contract Action could not be filed separately

from the Tort Action. Pollok appeals that decision.

      We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm. We agree

with Pollok that the district court erred in applying federal claim preclusion rather

than state claim preclusion. We nevertheless affirm because the application of state

claim preclusion leads to the same outcome: Pollok’s initiation of the Contract

Action constituted improper claim splitting. Since all appeals in the Tort Action are

now completed, we also find that the Contract Action is at this point barred by the

doctrine of res judicata.

      I.     Choice of Law

      The district court erred in applying federal preclusion law in its claim-splitting

analysis because federal courts apply state preclusion law in analyzing the preclusive

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effect of a prior federal diversity judgment. In Semtek International Inc. v. Lockheed

Martin Corporation, 531 U.S. 497, 508 (2001), a unanimous Supreme Court held

that “federal common law governs the claim-preclusive effect of a dismissal by a

federal court sitting in diversity.” The Semtek Court went on to conclude that “the

federally prescribed rule of decision [is] the law that would be applied by state courts

in the State in which the federal diversity court sits.” Id.

      At least one California intermediate court has interpreted Semtek to require

state preclusion law to govern the preclusive effect of prior federal diversity

judgments. See Johnson v. GlaxoSmithKline, Inc., 83 Cal. Rptr. 3d 607, 615, 623–

24 (Ct. App. 2008). But see Louie v. BFS Retail & Commercial Operations, LLC,

101 Cal. Rptr. 3d 441, 448–49 (Ct. App. 2009) (applying federal standards to

determine preclusive effect of federal court judgment in federal question action).

The approach in Johnson is consistent with how California courts addressed whether

to give an earlier federal court judgment preclusive effect prior to Semtek. See City

of Simi Valley v. Superior Court, 4 Cal. Rptr. 3d 468, 472 (Ct. App. 2003); Gamble

v. Gen. Foods Corp., 280 Cal. Rptr. 457, 460 (Ct. App. 1991); Lucas v. County of

Los Angeles, 54 Cal. Rptr. 2d 655, 662 (Ct. App. 1996). This Court is bound to

follow these state appellate cases “unless there is convincing evidence that the

highest court of the state would decide differently.”              In re Watts, 298

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F.3d 1077, 1083 (9th Cir. 2002) (quoting Owen ex rel. Owen v. United States, 713
F.2d 1461, 1464 (9th Cir. 1983)). We find that there is no such evidence.

      II.    Application of State Claim Preclusion to Claim-Splitting Analysis

      Under California law, claim preclusion requires, in addition to a final

judgment on the merits, that both “[a] claim or issue raised in the present action is

identical to a claim or issue litigated in a prior proceeding” and “the party against

whom the doctrine is being asserted was a party or in privity with a party to the prior

proceeding.” Boeken v. Philip Morris USA, Inc., 230 P.3d 342, 348 (Cal. 2000)

(internal quotation marks and citation omitted).

      A. Identical Claims

      California utilizes the “primary rights theory,” which states that “two actions

constitute a single cause of action if they both affect the same primary right.”

Gamble, 280 Cal. Rptr. at 460; see also Gustafson v. U.S. Bank N.A., 618 F. App’x

921, 922 (9th Cir. 2015) (“Under California preclusion law, the question is not

whether the two suits ‘arise out of the same transactional nucleus of facts,’ but

whether the plaintiff seeks to vindicate the same ‘primary right’ in both suits.”

(citations omitted)). “[U]nder the primary rights theory, the determinative factor is

the harm suffered.” Boeken, 230 P.2d at 348. “When two actions involving the

same parties seek compensation for the same harm, they generally involve the same

primary right.” Id. Here, both the Contract Action and the Tort Action seek to

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redress identical harm: the loss of value in Salkin’s brokerage account and IRA as a

result of the failure of Vanguard and VFTC to turn over the accounts on Pollok’s

demands. Therefore, we conclude that the Contract Action and the Tort Action

involve the same primary right, satisfying the first prong of California’s claim

preclusion analysis.

       B. Privity

       California claim preclusion law requires “the sharing of an identity or

community of interest, with adequate representation of that interest in the first suit,

and circumstances such that the nonparty should reasonably have expected to be

bound by the first suit.” DKN Holdings LLC v. Faerber, 352 P.3d 378, 387–88

(Cal. 2015) (internal quotation marks and citation omitted). Here, VFTC is a wholly

owned subsidiary of the Vanguard Group, Inc., one of the defendants in the Tort

Action.    We are satisfied that such a relationship meets California’s privity

requirement.    See Stafford v. Russell, 255 P.2d 872, 873 (Cal. Ct. App. 1953)

(concluding that a corporation and its “principal stockholder and guiding hand” were

in privity); see also Restatement (Second) of Judgments § 59(3)(b) (“The judgment

in an action . . . against the holder of ownership in the corporation is conclusive upon

the corporation . . . .”). Because we hold that VFTC and Vanguard Group, Inc. are

privies under California law, the second prong of California’s claim preclusion

analysis is satisfied.

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      C. Suit Pending

      We assume without deciding that California’s doctrine against claim splitting

has a concurrent pendency requirement. Under California law, the Tort Action was

still pending when Pollok filed the Contract Action. See Nat’l Union Fire Ins. Co.

of Pittsburgh, Pa. v. Stites Prof’l Law Corp., 1 Cal. Rptr. 2d 570, 574 (Ct.

App. 1991) (“When . . . a judgment is still open to direct attack by appeal or

otherwise, it is not final and the doctrines of res judicata and collateral estoppel do

not apply.”). Therefore, we conclude that Pollok improperly split his claims by filing

the Contract Action.

      We note that even if federal finality rules apply, such that the Tort Action was

final following the district court’s summary judgment decision, see Tripati v.

Henman, 857 F.2d 1366, 1367 (9th Cir. 1988), the Contract Action would have been

barred by res judicata for the same reasons laid out in the state claim preclusion

analysis.    See Adams v. Cal. Dep’t of Health Servs., 487 F.3d 684, 688 (9th

Cir. 2007) (noting claim splitting “borrow[s] from the test for claim preclusion”),

overruled on other grounds by Taylor v. Sturgell, 533 U.S. 880, 904 (2008).

      III.    Res Judicata

      Because the parties to the Tort Action have informed us that all appeals in the

Tort Action are completed, (Docket No. 40), the Tort Action is now final, regardless

of whether state or federal finality principles apply. As a result, for the same reasons

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as stated in the claim-splitting analysis in Sections II.A and II.B, supra, the Contract

Action—in addition to constituting impermissible claim splitting when it was

initiated—is now barred by res judicata.

                                        * * *

      We have considered Pollok’s remaining arguments and hold them to be

without merit. For these reasons, the district court’s judgment is AFFIRMED.

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