Court Opinion

ID: 9493557
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:11:33.456534+00
Date Added: 2024-06-11T17:55:54.169836
License: Public Domain

DORSEY, District Judge,
dissenting:
I respectfully dissent from my colleagues’ decision. The California procedure at issue makes compulsory the filing of a cross-complaint to allege a claim related to a pending claim and bars a subsequent assertion of the claim in another action. See Cal.Civ.P.Code § 426.30. The majority would enforce that bar when there is a judgment in the case at the trial court level, on the basis of full faith and credit, despite an appeal of a denial of a request to file a late cross-complaint as permitted by CaLCiv.P.Code § 426.50. Premature effect is thus accorded a state procedural statute, resulting in affirmance of an improper dismissal.
Fed.R.Civ.P. 13(a) is inapplicable as there was no failure to file a compulsory cross-complaint in any federal proceeding. The inquiry is correctly conducted as a full faith and credit analysis. However, absent the requisite finality of judgment under federal and California law, Conopco’s claim in federal court should not be precluded based on full faith and credit. Accordingly, the case should be remanded for entry of a stay pending resolution of the California appeal and further proceedings that may follow upon that appeal.
I. Full Faith and Credit
The majority correctly states that, under the Full Faith and Credit Act, “[i]f the proceedings of a state trial court comported with due process, every federal court must afford the final judgment entered therein the same preclusive effect it would be given in the courts of that state.” Where there is a final state court judgment, a federal court looks to the state’s rules of res judicata and collateral estoppel to determine the preclusive effect of that judgment. See Town of Deerfield, New York v. FCC, 992 F.2d 420, 429 (2d Cir.1993). To trigger the full faith and credit obligation requires a “final judgment.” Baker v. General Motors Corp., 522 U.S. 222, 233, 118 S.Ct. 657, 139 L.Ed.2d 580 (1998) (emphasis added). Justice Ginsburg’s use of the words “final judgment,” not merely “judgment,” should not be discounted. See id. By way of the descriptive “final,” a judgment alone seemingly is not regarded as final for purposes of preclusion.
The Full Faith and Credit Act refers to “judicial proceedings,” 28 U.S.C. § 1738, indicating a possible requirement, in certain circumstances, to extend full faith and credit despite the absence of a final judgment. For preclusion, however, a final judgment is required, as justice abhors forfeiture — a principle with which the majority does not, apparently, disagree.9 The majority, however, would cloak all judgments with the requisite finality, short of absolute finality, which the view here would require. The majority criticizes the dissent for conflating the two-part analysis required under the Full Faith and Credit Act, which requires first looking at whether the judgment is entitled to full faith and credit under federal law and then determining what preclusive, effect the judgment would be given in the rendering state. However, the dissent is not, as the majority suggests, premised on the view that the trial court’s judgment is not entitled to full faith and credit because it does not satisfy California’s res judicata finality requirement. The view here is that federal law requires absolute finality before a claim can be precluded — a decision that is necessarily informed, but not controlled, by state law.
*93California first imposes the bar when an answer is served without alleging a cross-complaint. See Cal.Civ.P.Code § 426.30. That is not final, however, as a filing non-compliant with § 426.30 must be permitted on a showing of good faith. See Cal.Civ. P.Code § 426.50. Rejection of a late filing would result in a bar at the trial court level but the right of appeal keeps the right to file open until an appeal is decided. That a federal court’s full faith and credit obligation is statutorily, not constitutionally, imposed should not be overlooked as due process necessarily limits what a federal court is required to enforce.
II. Preclusive Effect in California
The majority necessarily likens § 426.30 to res judicata and collateral estoppel in order to weave compulsory cross-complaint statutes into the web of the preclusion doctrine. At the same time, it makes a fundamental distinction. While California law requires a final, non-appealable judgment for an action to be barred under res judicata or collateral estoppel, the majority holds that there is no such requirement for preclusion under § 426.30. Rather, the majority holds that the statutory bar takes effect immediately upon a defendant’s failure to file a cross-complaint. Thus, once judgment enters, a federal court must apply this statutory bar. The disagreement here is as to when the full faith and credit obligation is triggered.
The majority concedes California’s requirement of finality includes exhaustion of appeal rights for res judicata and collateral estoppel purposes, calling it' a “quirk of California res judicata jurisprudence.” It maintains that “this odd ‘finality’ requirement” is not required by § 426.30. No explicit authority is cited for this statement.
The majority’s distinction between the theory of waiver and estoppel (engrafted onto § 426.30 as the basis for its bar) and claim/issue preclusion provides no answer to the full faith and credit issue. A person who is pursuing an appeal of a denial of the right to assert a claim can hardly be said to have finally waived — or be said to have acted so finally as to be estopped from asserting — the claim. The combination of requiring same subject claims to be filed as cross-complaints, Cal.Civ.P.Code § 426.30, the right to a late filing of a cross-complaint if the party acted in good faith, Cal. Civ.P. Code § 426.50, and the right to appeal, CaLCiv.P.Code § -904, keep alive the right to assert a claim, and preclude finality of the bar until the right under those sections is exhausted. The majority would not accommodate the interplay among the three.
While California courts may, in some circumstances, apply the statutory bar absent a judgment in the underlying case or prior to a final, non-appealable judgment, such timing has no bearing on the determination of finality where the issue of denial of leave to file a cross-complaint is itself on appeal.10 Such denial is not sufficiently final for full faith and credit purposes before the initial case proceeds to judgment at the trial level.11 Similarly, there is no *94basis for finding the requisite finality after judgment but while the case and issue of denial are on appeal, especially given that California law generally considers a case pending, i.e., not final or conclusive, until the appeal process is exhausted. See, e.g., Cal.Civ.P.Code §§ 870, 1049. Whether or not California considers finality a prerequisite to rendering a claim irrevocably barred under § 426.30 does not control the federal requirement of finality for full faith and credit.
Generally, a judgment entered after trial seals a party’s loss of its right to file a cross-complaint at the trial level. A party cannot seek to file a cross-complaint post-judgment. If the party never filed or sought leave to file a cross-complaint, such failure is. then conclusively determined. The same rule would properly apply if such leave was sought and rejected, a judgment entered, and no appeal was taken, or if taken, was rejected. Then a federal court should, properly, grant full faith and credit to the trial court judgment and, accordingly, apply § 426.30 — California’s rule of preclusion as to compulsory cross-complaints. However, in the instant case, it has not been conclusively determined whether the cross-complaint can be filed. Indeed, it is an open question because the trial court’s denial of leave to file said cross-complaint is on appeal, thereby negating the necessary finality. “A judgment is not ‘final’ as long as it remains subject to direct attack by appeal, by motion for a new trial, or motion to vacate the judgment.” Sullivan v. Delta Air Lines, Inc., 16 Cal.4th 288, 303, 63 Cal.Rptr.2d 74, 83, 936 P.2d 781 (1997).
The propriety of the California trial court’s denial of Conopco’s motion to file an untimely cross-complaint is not the issue here. That question is presently before the California Court of Appeal and therefore has not been finally decided. Hopefully, the determination will be correct, whatever that is. When it is decided finally in California, whatever is decided can then properly determine the appropriate course to be followed as to Conopco’s action in the District Court. Nor is the question whether the trial court’s denial is of no effect until the appeal is decided. The view here is that the denial is inchoate in the sense that it is not a fully effective bar, for full faith and credit purposes, until the appeal is decided.
As the decision to deny leave to file a cross-complaint is currently on appeal, and the question of whether Conopeo will be permitted to litigate the merits of its cross-complaint in California is still unresolved, even a liberal definition of “final” is not met.12 The majority holding and district court dismissal would be stripped of their basic underpinning if Conopco’s appeal is sustained and the bar of § 426.30 is lifted. If a California trial court’s cross-complaint rejection suffices to invoke full faith and credit even without exhaustion of *95appeal rights, as the majority holds, such a rejection could be enforced even if it was unlawful on its face. For example, a trial court rejection of a request for late filing, notwithstanding a would-be cross-complainant’s showing of unquestioned or unchallenged good faith, would be enforceable under the majority holding even if it was subject to appeal, which seemingly would surely be sustained.
III. Due Process
Even if the California trial court’s decision to deny leave to file is deemed final for purposes of proceedings in the trial court, it is not entitled to full faith and credit unless it satisfies due process under the Fourteenth Amendment. See Kremer v. Chemical Constr. Corp., 456 U.S. 461, 482, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982). “A State may not grant preclusive effect in its own courts to a constitutionally infirm judgment, and other state and federal courts are not required to accord full faith and credit to such a judgment.” Id. (footnote omitted).
Conopeo has not been fully heard as required by California law:
A party who fails to plead a cause of action subject to the requirements of this article, whether through oversight, inadvertence, mistake, neglect, or other cause, may apply to the court for leave to amend his pleading, or to file a cross-complaint, to assert such cause at any time during the course of the action. The court ... shall grant, upon such terms as may be just to the parties, leave to amend the pleading, or to file the cross-complaint, to assert such cause if the party who failed to plead the cause acted in good faith. This subdivision shall be liberally construed to avoid forfeiture of causes of action.
Cal.Civ.P.Code § 426.50 (emphasis added). A miotion to file a cross-complaint “must be granted unless bad faith of the moving party is demonstrated where forfeiture would otherwise result.” Silver Org. Ltd. v. Frank, 217 Cal.App.3d 94, 99, 265 Cal.Rptr. 681, 683 (1990) (holding that “substantial evidence” must support decision to deny leave) (emphasis added). Bad faith requires a finding of “dishonest purpose, moral obliquity, sinister motive, furtive design or ill will.” Id. at 100, 265 Cal.Rptr. at 684. Mere delay is not enough to support a finding of bad faith. See id. at 98-101, 265 Cal.Rptr. at 683-85 (seeking to file cross-complaint a week prior to trial was insufficient evidence of bad faith). See also Foot’s Transfer & Storage Co. v. Superior Court of Los Angeles County, 114 Cal.App.3d 897, 902, 171 Cal.Rptr. 1, 4 (1980) (“[Djelay may only constitute the requisite bad faith ... when it appears that a delayed cross-complaint, if allowed, would work a substantial injustice to the opposing party and would prejudice that party’s position in some way.”). The statute explicitly notes its purpose is not to perpetuate “forfeiture of causes of action,” yet that is exactly the result of the majority holding.
In the case at bar, there was no finding of bad faith by the trial court judge, nor was there substantial evidence of bad faith. All that was found was an “absence of diligence” and that Conopeo had been extremely “dilatory.” Joint Appendix, at A-498, A-499.13 The record is bereft of any explicit finding by the trial court of a lack of a showing of good faith by defendant in that case (Conopeo) or a showing of bad faith on the part of Conopeo by plaintiffs in that case (defendants here). As noted above, the California cases do not equate absence of diligence nor dilatoriness with *96bad faith nor a lack of good faith. The “apparent” finding of a lack of good faith to which the majority refers is not apparent to this writer, indeed to the contrary. Thus, the trial court’s decision to deny leave to file the cross-complaint not only stripped Conopeo of its cause of action, but also its statutory right to override the bar on late cross-complaints upon a showing of good faith. By affording the opportunity to seek permission for a late filing, California has given Conopeo both a right and a means of overriding the bar. As a matter of statutory right and due process, until that right is extinguished by a final judgment against Conopeo by the terms of the California statutory scheme, i.e., including the right to review of the trial court action by appeal, the bar is not irrevocable.
Further, if the appeal in California does not overrule the state trial court decision, Conopeo might have a legitimate argument that the bar of § 426.30, on its face or as applied to its claim, constitutes a denial of due process. That argument would not have been heard or decided in the California courts. Ending the district court case by an affirmance robs Conopeo not only of its substantive claim arising from the transaction with appellees- — on a procedural basis, not on its merits — but also of its constitutional right to be heard, i.e., due process.
The result proposed here does not offend 28 U.S.C. § 1738 nor run counter to a dismissal projected by the majority if Co-nopeo had brought this action in the California courts. It had no need to do so as its rights would be protected and served fully by its pending appeal which, if sustained on the claim under § 426.50, would have resuscitated its right under that section. By its dismissal, the District Court would extinguish Conopco’s right to assert its claim. If that dismissal is sustained here, an anomaly would arise if Conopco’s appeal is sustained and, with the California trial court judgment vacated and the denial of the late filing reopened, the District Court action might well be refiled, lawfully. All of this is, of course, speculative, but the stay urged here would afford clarification of Conopco’s standing and then the course in the District Court can properly be decided.
There is a difference between Conopco’s preclusion from asserting the claim now at the trial court level and its being barred in an absolute sense as the dismissal would cause. The view here takes the middle ground, that by our staying the case, California’s trial court application of §§ 426.30 and 426.50 is honored, but the finality of a bar would, by staying the case below, await the further proceedings in California.
Accordingly, for all the reasons stated above, the case should be remanded to the district court for entry of a stay pending resolution of the California appeal and further proceedings that may follow upon the appeal decision.

. As discussed above, the majority concedes that a final judgment is required.

. The majority relies heavily on Carroll v. Import Motors, Inc., 33 Cal.App.4th 1429, 39 Cal.Rptr.2d 791 (1995) to support its position that the California courts will bar a party from raising a compulsory cross-complaint in a separate action prior to a final, non-appeal-able judgment, and thus the federal courts must do the same. Carroll does hold that a claim will be barred in California in a subsequent action where the claim should have properly been brought as a cross-complaint in a related pending action. See id. at 1435-36, 39 Cal.Rptr.2d at 795. However, it does not speak to the question of whether the California courts would regard § 426.30 as an absolute bar where the denial of leave to file is subject to reversal, i.e., not finally decided. Regardless, the full faith and credit obligation hinges on whether Conopco's right to file a . cross-complaint has been conclusively determined by the California courts. It has not.

. Nor does California deem such a decision final. See Central Bank v. Transamerica Title Ins. Co., 85 Cal.App.3d 859, 870, 149 Cal.Rptr. 822, 828-29 (1978) (denial of leave to file amended complaint, governed by the same standard as a compulsory cross-complaint, is an intermediate order). C.f. Marx v. McKinney, 23 Cal.2d 439, 444, 144 P.2d 353, *94356 (1944) (order denying motion for leave to file cross-complaint is "not appealable and may be reached only through the appeal from the judgment”); Miller v. Stein, 145 Cal.App.2d 381, 386, 302 P.2d 403, 406 (1956) ("An appeal does not lie from such an order [denying leave to file cross-complaint], these questions being reviewable only upon appeal after a final judgment or its equivalent.” (emphasis added)). It is' true that California does recognize certain judgments and orders as final dispositions of issues even though not technically final judgments. See In re Conservatorship of Rich, 46 Cal.App.4th 1233, 1235, 54 Cal.Rptr.2d 459, 460 (1996). Such orders are deemed final for appeal purposes, i.e., can be appealed prior to entry of a final judgment. See id. at 1235, 54 Cal.Rptr.2d at 460. Denial of leave to file a cross-complaint, however, cannot be so appealed and thus said denial is not entitled to full faith and credit. See Texas Employers’ Ins. Ass’n v. Jackson, 820 F.2d 1406, 1422 (5th Cir.1987).

. Again, it should be noted that California's definition of “final” with respect to res judica-ta and collateral estoppel is quite strict as it requires a non-appealable judgment. To apply a different definition in the instant context' would result in a different rule of law for plaintiffs than defendants — plaintiffs would not be precluded from filing related claims until the first lawsuit was final, i.e., non-appealable, whereas defendants would be cut off much sooner.

. The record reflects the parties’ engagement, during the pendency of the case, in settlement negotiations which could have vitiated the need for arbitration and/or a cross-complaint. Conopeo was informed that the matter would not be settled, and that arbitration would not be agreed to, on April 2, 1998. See Joint Appendix, at A-256. Thereupon it moved to compel arbitration and, in the alternative, for permission to file a late cross-complaint. Both motions were denied on June 11, 1998. See Joint Appendix, at A-485, A-496.