Court Opinion

ID: 2721509
Source: CourtListenerOpinion
Date Created: 2014-08-27 22:02:06.379684+00
Date Added: 2024-06-11T10:07:01.369384
License: Public Domain

Filed 8/27/14 Walker v. Signature Group Holdings CA2/1
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                  DIVISION ONE

KYLE WALKER,                                                         B246926

         Plaintiff and Respondent,                                   (Los Angeles County
                                                                     Super. Ct. No. SC112970)
         v.

SIGNATURE GROUP HOLDINGS, INC.,

         Defendant and Appellant.

         APPEAL from an order of the Superior Court of Los Angeles County. Cesar A.
Sarmiento, Judge. Reversed with directions.
                                                         ______
         Ervin Cohen & Jessup, Michael C. Lieb, and Leemore L. Kushner for Defendant
and Appellant.
         Daniels, Fine, Israel, Schonbuch & Lebovits, Moses Lebovits, and Anna Lisa
Knafo For Plaintiff and Respondent.
                                                         ______
       Signature Group Holdings, Inc. (Signature) appeals from an order granting
Kyle Walker’s motion for new trial after the superior court granted summary judgment
in favor of Signature on Walker’s cause of action for breach of contract. We conclude
that because of the preclusive effect of an order entered in a parallel bankruptcy
proceeding while this appeal was pending, we must reverse the superior court’s order
granting the motion for new trial.
                                     BACKGROUND
       From early 2006 until the termination of his employment in 2007, Walker was the
president and chief executive officer of Fremont Investment & Loan (FIL). FIL was a
depository institution insured by the Federal Deposit Insurance Corporation (FDIC).
FIL was a wholly owned subsidiary of Fremont General Credit Corporation (FGCC),
which was a wholly owned subsidiary of Fremont General Corporation (FGC). Signature
is the successor to FGC, FGCC, and FIL.
       Walker, FGC, and FIL were parties to a “Management Continuity Agreement”
(MCA), which provided that Walker was to receive certain severance benefits if his
“employment with the Company [defined as FIL and FGC collectively] terminates within
the thirty-six (36) month period following a Company Event.” The MCA defined the
term “Company Event” as including the acquisition or control, by a previously
unaffiliated third party, of more than 50 percent “of the voting securities or assets of
FIL.” Also, if FIL or FGC terminated Walker’s employment for any reason other than
disability, the MCA defined the “Termination Date” as “the date on which a notice of
termination is given.”
       On February 26, 2007, the FDIC notified FIL that the FDIC considered FIL to be
a “troubled institution.” On March 7, 2007, FGC and FIL stipulated to the FDIC’s
issuance of a “cease and desist” order against FIL and its “institution-affiliated parties,”
prohibiting them from engaging in certain “unsafe and unsound banking practices and
violations of law.”
       On June 29, 2007, Walker received written notice of termination of his
employment with FIL.

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       On July 2, 2007, a sale of a substantial portion of FIL’s assets, which the parties
refer to as the “iStar transaction,” closed. Walker contends that the iStar transaction
constituted a Company Event within the meaning of the MCA.
       In June 2008, FGC filed a voluntary petition in bankruptcy. In July 2008, FIL
surrendered its banking license, terminated its deposit insurance with the FDIC, and
amended its articles of incorporation to become a general corporation not engaged in the
banking business.
       On August 28, 2008, Walker filed a proof of claim for $2,515,474.01 in the FGC
bankruptcy proceeding. He alleged breach of contract as the basis for the claim.
       On June 10, 2011, Walker filed suit in the superior court against FGC, FIL, and
Signature, alleging claims for breach of contract, breach of fiduciary duty, and violations
of the Labor Code. Signature (the successor to both FGC and FIL) demurred to the
fiduciary duty and Labor Code claims, and Walker abandoned them, electing to proceed
on the breach of contract claim alone. He alleged that defendants breached the MCA by
failing to pay him severance benefits to which he was entitled, because he allegedly was
terminated within 36 months after a Company Event, namely, the iStar transaction.
       In December 2011, Signature moved to disallow Walker’s claim in the FGC
bankruptcy proceeding. Signature argued that no Company Event took place before
Walker was terminated, so he had no contractual entitlement to severance benefits under
the MCA. Signature also argued that assuming for the sake of argument that Walker was
entitled to severance benefits under the MCA, the troubled condition of FIL at the time of
Walker’s termination rendered the relevant provisions of the MCA unenforceable,
because the severance payments would constitute an illegal “golden parachute” under
federal law.
       Back in the superior court, Signature answered in December 2011and, six months
later, moved for summary judgment on Walker’s sole remaining claim for breach of
contract. In support of the summary judgment motion, Signature argued that the iStar
transaction was not a Company Event, that the iStar transaction followed rather than

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preceded Walker’s termination, and that the claimed severance benefits were an unlawful
golden parachute even if Walker was contractually entitled to them.
       On September 19, 2012, the superior court granted Signature’s summary judgment
motion. The court agreed that, assuming for the sake of argument that Walker was
contractually entitled to severance benefits under the MCA, such payments would
constitute an unlawful golden parachute. The court did not address Signature’s other
arguments.
       On October 26, 2012, the superior court entered judgment in favor of Signature.
On November 20, 2012, Walker moved for a new trial on the basis of Faigin v. Signature
Group Holdings, Inc. (2012) 211 Cal. App. 4th 726 (Faigin), which had been decided
earlier that month. Walker contended that under Faigin, the severance payments he
sought to recover did not constitute an unlawful golden parachute.
       On January 8, 2013, the superior court granted Walker’s motion for new trial.
The court agreed that Faigin undermined the legal basis for the court’s summary
judgment ruling. The court did not evaluate the merits of Signature’s other grounds for
summary judgment (namely, that no Company Event preceded Walker’s termination), but
the court expressed willingness to receive further briefing and evidence and to conduct an
additional hearing concerning those grounds. The docket reflects that nothing came of
the court’s invitation, and on February 5, 2013, Signature filed the instant appeal from the
order granting Walker’s new trial motion.
       While this appeal was pending, on January 21-24, 2014, the bankruptcy court
conducted an evidentiary hearing on Signature’s motion to disallow Walker’s claim.
On March 14, 2014, the court orally announced its ruling, granting Signature’s motion
and disallowing Walker’s claim. On March 26, 2014, the court entered a signed order to
the same effect. After a detailed consideration of the relevant documents and other
evidence, the court determined that the iStar transaction did constitute a Company Event
within the meaning of the MCA but that it took place after Walker was terminated, so he
was not entitled to severance benefits.

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       The bankruptcy court docket reflects that Walker moved for reconsideration, but
his motion was denied. The bankruptcy court docket also reflects that Walker then
appealed the bankruptcy court’s order to the federal district court. As far as we can
determine, that appeal is still pending.
                                       DISCUSSION
       Signature argues that the preclusive effect of the bankruptcy court order
disallowing Walker’s claim requires reversal of the superior court’s order granting
Walker’s motion for new trial. We agree.
       “A federal judgment ‘has the same effect in the courts of this state as it would
have in a federal court.’ [Citation.]” (Younger v. Jensen (1980) 26 Cal. 3d 397, 411.)
“The federal rule is that a judgment or order, once rendered, is final for purposes of
res judicata until reversed on appeal or modified or set aside in the court of rendition.”
(Levy v. Cohen (1977) 19 Cal. 3d 165, 172.) We must therefore treat the bankruptcy
court’s order as final for purposes of res judicata, even though an appeal from that order
is presently pending.
       “The doctrine of res judicata precludes parties or their privies from relitigating an
issue that has been finally determined by a court of competent jurisdiction. [Citation.]
‘Any issue necessarily decided in such litigation is conclusively determined as to the
parties or their privies if it is involved in a subsequent lawsuit on a different cause of
action.’ [Citation.] The application of the doctrine in a given case depends upon an
affirmative answer to these three questions: (1) Was the issue decided in the prior
adjudication identical with the one presented in the action in question? (2) Was there a
final judgment on the merits? (3) Was the party against whom the plea is asserted a party
to or in privity with a party to the prior adjudication?” (Levy v. Cohen, supra, 19 Cal.3d
at p. 171.)
       The issue decided by the bankruptcy court is identical to one of the issues
presented in the present action. The bankruptcy court considered and agreed with
Signature’s argument that the iStar transaction took place after Walker’s termination;
Signature raised that argument in support of summary judgment in the superior court and

                                               5
in support of disallowance of Walker’s claim in the bankruptcy court. The bankruptcy
court’s order finally adjudicates that issue on the merits. And the party against whom the
preclusive effect of the bankruptcy court’s order is to operate was a party to the prior
adjudication—Walker filed the claim in the bankruptcy proceeding and opposed
Signature’s motion, which was adjudicated at a four-day evidentiary hearing.
       The bankruptcy court’s order provides an independent alternative basis for the
judgment entered in favor of Signature in the superior court. Accordingly, because all of
the requirements for application of collateral estoppel are met, we must give preclusive
effect to the bankruptcy court’s order and reverse the superior court’s order granting
Walker’s motion for new trial.
       Walker’s arguments to the contrary are not persuasive. First, Walker argues that
when Signature appealed from the superior court’s order rather than accepting the court’s
invitation for an additional hearing and further briefing and evidentiary submissions
concerning Walker’s termination date and the date of the iStar transaction, Signature’s
conduct constituted “a waiver of this issue in this appeal.” We are not persuaded. When
Signature filed its notice of appeal, the bankruptcy court had not yet ruled on the motion
to disallow Walker’s claim. Indeed, the four-day evidentiary hearing on that motion had
not even begun. It was therefore impossible for Signature to bring the preclusive effect
of the bankruptcy court’s order to the attention of the superior court, because the
bankruptcy court’s order did not yet exist. But now that the bankruptcy court has entered
its order, Signature is free to argue that the preclusive effect of that order provides a
dispositive alternative ground for the superior court’s judgment in favor of Signature and
therefore requires reversal of the superior court’s order granting a new trial.
       Second, Walker argues that Signature is improperly asking this court to make
“findings of fact with respect to Walker’s termination date and the date of the ‘Company
Event.’” We disagree. Signature is not seeking findings of fact from this court
concerning those dates, and we are making none. We are determining only the preclusive
effect of the bankruptcy court’s order, which is dispositive of the present appeal.

                                               6
       Third, Walker argues that the bankruptcy court’s order is not final because it may
yet be reversed or modified on appeal. We disagree. As we have already stated, the
bankruptcy court’s order has the same preclusive effect in California courts that it would
have in federal courts, and in federal court it is final for purposes of res judicata when
entered, even though it may later be reversed or modified.
       Fourth, Walker argues that the bankruptcy court’s order cannot be given
preclusive effect because “the parties are not the same.” (Underlining omitted.) We
disagree. Collateral estoppel applies as long as the party sought to be precluded is the
same as or in privity with a party to the prior adjudication. Walker is the party to be
precluded, and he was a party to the bankruptcy proceeding, where he fully litigated the
issues of his termination date and the date of the iStar transaction.1
       For all of the foregoing reasons, we conclude that the bankruptcy court’s order
granting Signature’s motion to disallow Walker’s claim requires us to reverse the
superior court’s order granting Walker’s motion for new trial. Our resolution of that
issue makes it unnecessary for us to address the other arguments raised by the parties.

1
       We also note that, apart from Walker, the parties are all but identical. The parties
to the MCA are Walker, FIL, and FGC. The superior court litigation consists of a single
cause of action for breach of the MCA. Walker named both FIL and FGC as defendants.
Signature is the successor to both FIL and FGC, and Walker named Signature as a
defendant. FGC is the petitioner in the bankruptcy action, which is being litigated by
Signature as FGC’s successor.

                                              7
                                     DISPOSITION
       The order granting Walker’s motion for new trial is reversed, and the superior
court is directed to enter a new and different order denying the motion. Appellant shall
recover its costs of appeal.
       NOT TO BE PUBLISHED.

                                                       ROTHSCHILD, P. J.
We concur:

                     JOHNSON, J.

                     MILLER, J.


        Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

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