DKN Holdings LLC v. Faerber

Filed 7/13/15

IN THE SUPREME COURT OF CALIFORNIA

DKN HOLDINGS LLC, )

)

Plaintiff and Appellant, ) S218597

)

v. ) Ct.App. 4/2 E055732, E056294

)

WADE FAERBER, ) Riverside County

) Super. Ct. No. RIC1109512

Defendant and Respondent. )

____________________________________)

We granted review to clarify a bedrock principle of contract law: Parties

who are jointly and severally liable on an obligation may be sued in separate

actions. Although long-standing case law has found separate actions permissible,

the Court of Appeal here held that a second suit is barred after entry of judgment

against one of the contracting parties. The court reasoned that a breach of contract

invades a single primary right, and the plaintiff could not split its breach of

contract cause of action into multiple claims. This reasoning was erroneous

because joint and several liability does not implicate the “primary rights”

doctrine.1 Moreover, the facts here do not support preclusion. Although a breach

of contract may constitute a single wrong, the plaintiff has separate breach of

1 Under the “primary rights” theory, a cause of action arises from the

invasion of a primary right. Although different grounds for legal relief may be

asserted under different theories, conduct that violates a single primary right gives

rise to only one cause of action. (Boeken v. Philip Morris USA, Inc. (2010) 48

Cal.4th 788, 797-798 (Boeken).)

1

contract claims against each of the defendants alleged to be jointly and severally

liable.

I. BACKGROUND

Acting on behalf of a company called Evolution Fitness, Roy Caputo,

Wade Faerber, and Matthew Neel leased commercial space in a shopping center to

operate a fitness club.2 Their 10-year lease with DKN Holdings LLC (DKN)

provided that multiple parties who signed as lessors or lessees “shall have joint

and several responsibility” to comply with the lease terms. (Italics added.) The

parties do not dispute that Caputo, Faerber, and Neel were jointly and severally

liable on this contract.

Caputo later sued DKN for fraud, breach of contract, unfair business

practices, and breach of fiduciary duty (the Caputo action). Among other things,

he alleged DKN had failed to disclose that construction on a driveway into the

shopping center would not begin for over a year and that state regulations

prohibited cutting back vegetation that made the gym less visible. Caputo sought

damages and rescission of the lease. DKN cross-complained for rent and other

monies due. Although the cross-complaint named all three lessees, it was served

on Caputo alone. Faerber and Neel were subsequently dismissed as cross-

defendants.3 After a bench trial, the court rejected all of Caputo‟s claims and

2 Another owner, CDFT Limited Partnership, was named in the lease but is

not a party to this action.

3 Although it was not previously disputed that these dismissals were without

prejudice, Faerber now contends the action against him was abandoned and thus

subject to dismissal with prejudice. (Code Civ. Proc., § 581, subd. (d).) This

belated claim lacks merit. DKN formally dismissed Faerber and Neel from the

cross-complaint. Over two years later, DKN filed an amended cross-complaint

with a caption that listed Faerber and Neel along with Caputo. When concerns

were raised that the amendment would revive claims against these parties, DKN

stipulated that Faerber and Neel “remain dismissed from this litigation.” As far as

the record shows, the amended cross-complaint was never served on Faerber, nor,

for that matter, did the court dismiss any claims against Faerber as abandoned.

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awarded over $2.8 million on DKN‟s cross-complaint. Judgment was entered on

June 20, 2011.4

Shortly before the statement of decision in the Caputo action was filed,

DKN sued Faerber and Neel for breach of the lease.5 Faerber demurred, arguing

that, because DKN‟s rights under the lease had been adjudicated in the Caputo

action, suit against Faerber was barred by the rule against splitting a cause of

action. (See Wulfjen v. Dolton (1944) 24 Cal.2d 891, 894.) In opposition, DKN

argued California law permits separate actions against parties who are jointly and

severally liable. The trial court sustained the demurrer without leave to amend and

entered judgment for Faerber. The Court of Appeal affirmed.6

II. DISCUSSION

The parties frame the issue here as a clash between two venerable doctrines,

debating whether the rule of joint and several liability must yield to rules

governing the preclusive effect of judgments. The characterization is inapt

because the doctrines are separate. Neither need be subordinated to the other.

While acknowledging that separate actions are permitted against joint and several

obligors, the Court of Appeal held that when one of the actions has resulted in a

final judgment on the merits, that judgment bars assertion of the same claims in

4 DKN did not seek to add Faerber or Neel as additional judgment debtors.

Under Code of Civil Procedure section 989, joint debtors who were named but not

served may be ordered to show cause why they should not be bound by a

judgment on the obligation. (Brenelli Amedeo, S.P.A. v. Bakara Furniture, Inc.

(1994) 29 Cal.App.4th 1828, 1840.) However, settled law holds that section 989

procedures are permissive, not mandatory. (Brenelli, at p. 1840) Failure to pursue

this remedy does not extinguish the plaintiff‟s right to recover against joint and

several obligors in a separate lawsuit. (Melander v. Western Nat. Bank (1913) 21

Cal.App. 462, 479-480.)

5 Faerber allegedly agreed to indemnify Neel for any liability Neel incurred.

The complaint‟s second cause of action asserts that this agreement makes Faerber

liable to DKN for Neel‟s share of unpaid rent.

6 In a separate appeal, the court also affirmed a postjudgment order

dismissing Neel. That appeal is not before us.

3

any other action. In other words, although separate suits on a contract are

technically allowed, the lower court held only one can proceed to judgment if the

suits allege the same claims. Precedent provides no support for this conclusion.

As we explain, there is no conflict between the doctrines of claim

preclusion and joint and several liability. Parties who are jointly and severally

liable on a contract may be sued in separate actions. Judgment in the first action

does not bar judgments in later actions, even when they allege the same claim of

wrongdoing, as long as the suits are against different parties.

A. Parties Who Are Jointly and Severally Liable May Be Sued in Separate

Actions.

At common law, when multiple parties promised the same performance,

they were presumed to be jointly obligated absent a clear indication otherwise.

(Farmers’ Exchange Bank v. Morse (1900) 129 Cal. 239, 243.) Parties who are

jointly liable are each responsible for their share of a total obligation. When

enforcement was sought, the common law rule required that all jointly liable

parties be joined in a single suit that would determine the total amount of their

shared liability. (Ibid.; see Harrison v. McCormick (1886) 69 Cal. 616.) This

joinder requirement sometimes made enforcement difficult, if not impossible.

(See 9 Corbin on Contracts (rev. ed. 2007) § 52.1, p. 279.)

California and nearly all other states have passed statutes to ameliorate the

harshness of the common law‟s compulsory joinder rule. (9 Corbin, supra, § 52.1,

pp. 280-281.) The typical solution was to convert “joint” obligations into “joint

and several” obligations. (Id., § 52.1, p. 281.) A joint and several contract is

considered to be a contract that is made both separately with each promisor and

jointly with all the promisors. (12 Williston on Contracts (4th ed. 2012) § 36:1,

pp. 801-802.) Parties to a joint and several contract are thus bound jointly, so that

they are liable for the entire obligation, and severally, so that each may be sued

separately for the entire loss. (See id., § 36:1, p. 803.) The change to joint and

several liability allowed individual promisors to be sued for enforcement of a

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contract without joining all copromisors. (9 Corbin, supra, § 52.1, p. 281.) To

this end, Civil Code section 1659 provides, “Where all the parties who unite in a

promise receive some benefit from the consideration, whether past or present, their

promise is presumed to be joint and several.” Similarly, Civil Code section 1660

states, “A promise, made in the singular number, but executed by several persons,

is presumed to be joint and several.”

It has long been settled that contracting parties who are severally liable, or

subject to joint and several liability, may be sued in the same action or in separate

actions at the plaintiff‟s option. (Goff v. Ladd (1911) 161 Cal. 257, 260; Moreing

v. Weber (1906) 3 Cal.App. 14, 21-22.) The plaintiff “does not lose the right to

the several liability of a several obligor until the obligation is fully satisfied,”

notwithstanding that he may have obtained a judgment against other severally

liable obligors. (Melander v. Western Nat. Bank, supra, 21 Cal.App. at p. 475.)

This principle was explored in some detail in Williams v. Reed (1952) 113

Cal.App.2d 195 (Williams I) and Williams v. Reed (1957) 48 Cal.2d 57 (Williams

II).

In the Williams litigation, defendant Reed and three others promised to pay

a debt totaling $40,000. (Williams I, supra, 113 Cal.App.2d at p. 197.) After they

defaulted, Reed entered a separate agreement promising to pay $35,000 of the

debt. (Id. at pp. 197-199.) He failed to pay, and the creditor obtained a judgment

against him for the $35,000, plus interest. (Id. at p. 199.) When Reed failed to

pay that judgment as well, the creditor sued Reed and his copromisors on the

original notes. (Ibid.) The copromisors argued the action was barred because the

creditor had not joined them in the initial suit against Reed and had obtained a

judgment against Reed alone. (Id. at pp. 203-204.) The Court of Appeal rejected

this argument. It explained that while joint obligors are indispensable parties and

may not be sued separately, the same is not true when an obligation is joint and

several. (Id. at p. 204.) “In such a case the judgment obtained against one is not a

bar to an action against the remaining joint and several obligors. „Nothing short of

5

satisfaction in some form constitutes a bar . . .‟ [citation].” (Ibid., italics added.)

In later proceedings, we too concluded that the creditor was not required to join

the co-promisors in its suit against Reed because their obligations on the

promissory notes were joint and several. (Williams II, supra, 48 Cal.2d at pp. 64-

65.) We explained that the judgment against Reed “add[ed] nothing to the

picture” except insofar as it benefitted the copromisors by partially exhausting the

creditor‟s rights against Reed. (Id. at p. 65.) That judgment did not preclude the

subsequent action, we repeated, because “ „[n]othing short of satisfaction in some

form constitutes a bar‟ against an action against the comakers” of a promise. (Id.

at p. 66.)7

The Court of Appeal here asserted our discussion of joint and several

liability in Williams II was “ „wrong‟ and incorrectly state[d] the law” if it would

permit “an obligee, such as DKN, to obtain separate judgments in separate actions

against joint and several obligors, based on the same claims.” The court erred.

The principle it rejected is fundamental to the concept of joint and several liability

and is set out in the Restatements of both Contracts and Judgments. The

Restatement Second of Contracts states: “A judgment against one or more

promisors does not discharge other promisors of the same performance unless

7 The same rule applies to joint and several tortfeasors. “ „The general rule

followed in America is that the liability of two or more persons who jointly engage

in the commission of a tort is joint and several, and gives the same rights of action

to the person injured as a joint and several contract. Consequently, a judgment

recovered against one of two joint tort feasors, remaining unsatisfied, is no bar to

an action against the other for the same tort.‟ [Citation.]” (Grundel v. Union Iron

Works (1900) 127 Cal. 438, 440-441.) An injured party may therefore sue all

those responsible together, or in separate actions, and may proceed to judgment

against any or all of them until fully compensated for the injury. (Cole v. Roebling

Construction. Co. (1909) 156 Cal. 443, 447-448.) “The well-settled rule is that no

bar arises as to any of the wrongdoers until the injured party has received

satisfaction, or what in law is deemed its equivalent, and a judgment against one

wrongdoer which remains wholly unsatisfied is not such satisfaction.” (Id. at

p. 449.)

6

joinder of the other promisors is required by the rule stated in § 290.”8 (Rest.2d,

Contracts, § 292.) An official comment explains the historical development of the

rule: “Modern procedural reforms and statutes relating to joint obligations have

eliminated the foundations on which the all-or-none rule [of compulsory joinder]

rested. In most States joinder of promisors of the same performance is permitted

but not required, and judgment against one does not bar action against his co-

obligor, whether there is a joint duty or several duties or both.” (Id., § 291, com.

c, p. 418.)

Similarly, the Restatement Second of Judgments provides that a “judgment

against one person liable for a loss does not terminate a claim that the injured

party may have against another person who may be liable therefor.” (Rest.2d,

Judgments, § 49.) The injured party has separate claims against each obligor,

regardless of whether the obligation arises from a tort or breach of contract. (Id.,

§ 49, com. a, p. 34.) The injured party may not “ „split‟ ” his claim against a

single obligor or present it in successive actions, and “[i]f he recovers judgment,

his claim is „merged‟ in the judgment so that he may not bring another action on

the claim against the obligor whom he has sued.” (Ibid.) “But the claim against

others who are liable for the same harm is regarded as separate. Accordingly, a

judgment for or against one obligor does not result in merger or bar of the claim

that the injured party may have against another obligor.” (Ibid., italics added.)

While the injured party ordinarily may not relitigate issues decided against him in

the first action (id., § 49, com. a, p. 35; see post, at pp. 13-14), “the rendition of

the judgment in the first action does not terminate the claims against other persons

who may be liable for the loss in question.” (Rest.2d, Judgments, § 49, com. a,

p. 35.) Indeed, because the judgment confirms the injured party‟s right to

recovery on the obligation, it would be anomalous to hold that the legal

8 Section 290 describes the compulsory joinder rule for joint contracts.

(Rest.2d, Contracts, § 290.)

7

confirmation of one obligor‟s liability should limit or extinguish the liability of

other obligors. (Ibid.)

Applying joint and several liability principles, DKN‟s suit against Faerber

was clearly permissible. Because Faerber, Caputo, and Neel were jointly and

severally liable on the lease, DKN had separate claims against each and was

entitled to pursue the claims in separate actions. (Williams II, supra, 48 Cal.2d at

pp. 64-65; Goff v. Ladd, supra, 161 Cal. at p. 260.) Furthermore, the judgment

DKN obtained in the Caputo action did not bar its right to seek recovery from

Faerber and Neel later. (See Rest.2d, Judgments, § 49, com. b, p. 36.) Although

the original judgment conclusively resolves DKN‟s rights against Caputo, and

may bear upon the total amount DKN is entitled to recover for breach of the lease

from all obligors (see post, at p. 14), it does not bar DKN from suing Caputo‟s

copromisors. Only a satisfaction of the obligation would do so. (See Williams II,

at p. 66.) Here, the judgment remained unpaid, and a separate suit was

permissible.

Faerber protests that allowing separate suits against obligors is inefficient

because it subjects the parties, witnesses, and courts to multiple proceedings on the

same matter. This objection goes to the very nature of several liability, however,

and the Legislature implicitly rejected it in adopting the presumption that

contractual obligations are joint and several. (See Civ. Code, §§ 1659-1660.)

Faerber is really insisting on a return to the old rule of joint liability, which held

that contractual obligations had to be enforced in a single action. If an obligor

could not be joined, because he was outside the court‟s jurisdiction, for example,

the plaintiff forfeited the right to recover against him. (Rest.2d, Judgments, § 49,

com. a, p. 35.) As noted, these harsh consequences led to a liberalization of the

rule. (See ante, at pp. 4-5.)

B. Separate Actions Against Joint and Several Obligors Are Not Barred.

The long-settled law of joint and several liability should have made this an

easy case. However, the courts below perceived a conflict with the law governing

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the preclusive effect of judgments. The Court of Appeal reasoned that, regardless

of whether joint and several liability rules permit separate actions, once “a final

judgment on the merits has been rendered in one action against a joint and several

obligor, res judicata will bar the assertion of identical claims against other joint

and several obligors, in a subsequent action, by parties bound by the judgment in

the prior action.” In other words, under the Court of Appeal‟s view, actions

against separate obligors are in a race to judgment, and a final judgment against

one obligor precludes the injured party from pursuing redress from any other

obligor, even though the obligation is nominally joint and several. This

interpretation runs counter to the essential principles that parties have a duty to

meet their contractual obligations and that those injured by a breach have a right to

be made whole. The perceived conflict is a mirage. In reality, the res judicata, or

preclusion, doctrine operates in harmony with joint and several liability principles

because it only bars repeated claims for the same relief between the same parties.

In fairness to the Court of Appeal, our terminology in discussing the

preclusive effect of judgments has been inconsistent and may have caused some

confusion. We have frequently used “res judicata” as an umbrella term

encompassing both claim preclusion and issue preclusion, which we described as

two separate “aspects” of an overarching doctrine. (E.g., Boeken, supra, 48

Cal.4th at p. 797; Teitelbaum Furs, Inc. v. Dominion (1962) 58 Cal.2d 601, 604

(Teitelbaum Furs).) Claim preclusion, the “ „ “primary aspect” ‟ ” of res judicata,

acts to bar claims that were, or should have been, advanced in a previous suit

involving the same parties. (Boeken, at p. 797.) Issue preclusion, the

“ „ “secondary aspect” ‟ ” historically called collateral estoppel, describes the bar

on relitigating issues that were argued and decided in the first suit. (Ibid.)

We have sometimes described “res judicata” as synonymous with claim

preclusion, while reserving the term “collateral estoppel” for issue preclusion.

(See Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896 (Mycogen).) On

occasion, however, we have used the term “res judicata” more broadly, even in a

9

case involving only issue preclusion, or collateral estoppel. (See Bernhard v.

Bank of America (1942) 19 Cal.2d 807, 813.) We are not the only court to

sometimes use the term “res judicata” with imprecision. (See, e.g., Migra v.

Warren City School Dist. Bd. of Ed. (1984) 465 U.S. 75, 77, fn. 1.) To avoid

future confusion, we will follow the example of other courts and use the terms

“claim preclusion” to describe the primary aspect of the res judicata doctrine and

“issue preclusion” to encompass the notion of collateral estoppel. (See ibid.) It is

important to distinguish these two types of preclusion because they have different

requirements.

Claim preclusion “prevents relitigation of the same cause of action in a

second suit between the same parties or parties in privity with them.” (Mycogen,

supra, 28 Cal.4th at p. 896.) Claim preclusion arises if a second suit involves:

(1) the same cause of action (2) between the same parties (3) after a final judgment

on the merits in the first suit. (Ibid.; In re Crow (1971) 4 Cal.3d 613, 622;

Teitelbaum Furs, supra, 58 Cal.2d at p. 604.) If claim preclusion is established, it

operates to bar relitigation of the claim altogether.

Issue preclusion prohibits the relitigation of issues argued and decided in a

previous case, even if the second suit raises different causes of action. (Mycogen,

supra, 28 Cal.4th at p. 896.) Under issue preclusion, the prior judgment

conclusively resolves an issue actually litigated and determined in the first action.

(Boeken, supra, 48 Cal.4th at p. 797.) There is a limit to the reach of issue

preclusion, however. In accordance with due process, it can be asserted only

against a party to the first lawsuit, or one in privity with a party. (Bernhard v.

Bank of America, supra, 19 Cal.2d at p. 812.)

Issue preclusion differs from claim preclusion in two ways. First, issue

preclusion does not bar entire causes of action. Instead, it prevents relitigation of

previously decided issues. Second, unlike claim preclusion, issue preclusion can

be raised by one who was not a party or privy in the first suit. (Vandenberg v.

Superior Court (1999) 21 Cal.4th 815, 828.) “Only the party against whom the

10

doctrine is invoked must be bound by the prior proceeding. [Citations.]” (Ibid.)

In summary, issue preclusion applies: (1) after final adjudication (2) of an

identical issue (3) actually litigated and necessarily decided in the first suit and

(4) asserted against one who was a party in the first suit or one in privity with that

party. (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341; Vandenberg, at

p. 828; Teitelbaum Furs, supra, 58 Cal.2d at p. 604.)

When the distinct requirements of issue and claim preclusion are

considered, resolution of this appeal is straightforward. After DKN secured a final

judgment on the merits against Caputo, the judgment remained unpaid, and DKN

sued Faerber and Neel. These defendants had been named but were never served

in the Caputo action. Faerber demurred. He urged that the claim against him was

barred because DKN had successfully sued Caputo on that same claim. This

argument led both courts below astray. After discussing the “primary rights”

theory (see, e.g., Boeken, supra, 48 Cal.4th at p. 797), the Court of Appeal

determined the present suit seeks redress for the same wrong as the Caputo action

and thus involves the same cause of action for purposes of claim preclusion. With

the “same cause of action” requirement satisfied, and with no dispute that the

Caputo action yielded a final judgment on the merits, the court held the present

suit was barred even though Faerber was not a party in Caputo.

The Court of Appeal‟s analysis was flawed. As discussed, claim preclusion

applies only to the relitigation of the same cause of action between the same

parties or those in privity with them. (Teitelbaum Furs, supra, 58 Cal.2d at

p. 604; Rice v. Crow (2000) 81 Cal.App.4th 725, 734.) Whether DKN‟s two

lawsuits involve the same primary right is beside the point. (See Rice, at p. 736.)

Claim preclusion does not bar DKN from suing Faerber because Faerber is not

“the same party” who defended the cause of action in the first suit, nor was he in

privity with Caputo based on their business partnership or cosigner status. (See

Dillard v. McKnight (1949) 34 Cal.2d 209, 214 [business partners are not in

privity for purposes of preclusion].)

11

This conclusion is entirely consistent with the settled rule that joint and

several obligors may be sued in separate actions. (See Williams II, supra, 48

Cal.2d at p. 66.) Claim preclusion does not bar subsequent suits against co-

obligors if they were not parties to the original litigation. In this context, a party

“is one who is „directly interested in the subject matter, and had a right to make

defense, or to control the proceeding, and to appeal from the judgment.‟ ”

(Bernhard v. Bank of America, supra, 19 Cal.2d at p. 811.) Faerber has never

contended that he and the other lessees should be considered the same party.

Nor does joint and several liability put co-obligors in privity with each

other. As applied to questions of preclusion, privity 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. (Clemmer v. Hartford Insurance Co.

(1978) 22 Cal.3d 865, 875.) A nonparty alleged to be in privity must have an

interest so similar to the party‟s interest that the party acted as the nonparty‟s

“ „ “virtual representative” ‟ ” in the first action. (Gottlieb v. Kest (2006) 141

Cal.App.4th 110, 150.) Joint and several liability alone does not create such a

closely aligned interest between co-obligors. The liability of each joint and

several obligor is separate and independent, not vicarious or derivative. (See id. at

p. 154, citing Tavery v. U.S. (10th Cir. 1990) 897 F.2d 1032, 1033.) Thus, joint

and several obligors are not considered to be in privity for purposes of issue or

claim preclusion. (Gottlieb, at p. 154.)9

The Court of Appeal recognized that Faerber was not a party in the Caputo

action. It erred, however, when it conflated claim preclusion, which requires

9 Questions about whether a relationship is sufficient to support privity

typically arise in the context of issue preclusion, to prevent a party from contesting

an issue that was decided against its alleged privy in a previous suit. (See, e.g.,

Clemmer v. Hartford Insurance Co., supra, 22 Cal.3d at p. 875; Gottlieb v. Kest,

supra, 141 Cal.App.4th at p. 150.) We have encountered no other case in which a

party asserts claim preclusion based on a prior judgment against its alleged privy.

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identity of parties, and issue preclusion, which does not. DKN explicitly argued

that “ „the defense of res judicata is available only when both the cause of action

and the parties are the same,‟ ” quoting 4 Witkin, California Procedure (5th ed.

2008) Pleading, section 65, page 124. The court rejected this passage from Witkin

as “an incorrect statement of the law” because it believed “only the party against

whom res judicata is invoked must have been a party to the prior action and bound

by the judgment in that action.” The court cited Arias v. Superior Court (2009) 46

Cal.4th 969, 985 for this proposition. The cited portion of Arias quotes this

language from Vandenberg v. Superior Court, supra, 21 Cal.4th at page 828. Both

Arias and Vandenberg were discussing the requirements of issue preclusion,

however, not claim preclusion. The difference is important.

Unlike claim preclusion, issue preclusion can be invoked by one not a party

to the first proceeding. The bar is asserted against a party who had a full and fair

opportunity to litigate the issue in the first case but lost. (See Parklane Hosiery

Co. v. Shore (1979) 439 U.S. 322, 327-329.) The point is that, once an issue has

been finally decided against such a party, that party should not be allowed to

relitigate the same issue in a new lawsuit. (Blonder-Tongue v. University

Foundation (1971) 402 U.S. 313, 324-325 (Blonder-Tongue); see Arias v.

Superior Court, supra, 46 Cal.4th at p. 985.) Issue preclusion operates “as a

shield against one who was a party to the prior action to prevent” that party from

relitigating an issue already settled in the previous case. (Rice v. Crow, supra, 81

Cal.App.4th at p. 735.)10

10 At common law, only one who was a party or in privity with a party in the

first action could assert the bar of issue or claim preclusion. (Bernhard v. Bank of

America, supra, 19 Cal.2d at pp. 810-811.) The cases required “mutuality of

estoppel,” which meant that parties could only take advantage of an earlier

judgment if that judgment would have bound them, had it been decided differently.

(Id. at p. 811; see Parklane Hosiery Co. v. Shore, supra, 439 U.S. at p. 326.) In

the landmark case Bernhard v. Bank of America, we repudiated the mutuality rule

for issue preclusion and held that only the party against whom the binding effect

of the previous judgment was asserted had to be a party or privy in that prior

13

The present case does not involve these concerns. Faerber is asserting that

claim preclusion bars DKN‟s entire suit against him. It does not. Issue

preclusion, however, can indeed bind DKN to the resolution of issues decided in

the Caputo action. For example, Faerber may raise issue preclusion as a shield to

prevent relitigation of the rent due, or other losses caused by breach of the lease.

DKN has apparently had a full and fair opportunity to litigate the extent of those

damages. In separate actions against joint and several obligors, “adjudication of

the amount of the loss [in one action] . . . has the effect of establishing the limit of

the injured party‟s entitlement to redress, whoever the obligor may be. This is

because the determination of the amount of the loss resulting from actual litigation

of the issue of damages results in the injured person‟s being precluded from

relitigating the damages question.” (Rest.2d, Judgments, § 50, com. d, p. 43.) But

issue preclusion cannot be used to prohibit DKN from seeking redress from a

different obligor just because it has prevailed against a different party in the first

suit.

The cases Faerber relies on do not suggest otherwise. They involve

derivative liability, not joint and several liability. For example, in Lippert v.

Bailey (1966) 241 Cal.App.2d 376, the plaintiff was precluded from suing

insurance agents after he settled with the insurance company for the same loss.

Because these agents had no liability apart from that of their principal (id. at

p. 382), the defendants were in privity with the insurance company, and were thus

effectively the same parties for purposes of preclusion. When a defendant‟s

liability is entirely derivative from that of a party in an earlier action, claim

preclusion bars the second action because the second defendant stands in privity

with the earlier one. (See Richard B. LeVine, Inc. v. Higashi (2005) 131

proceeding. (Bernhard v. Bank of America, supra, 19 Cal.2d at pp. 812-813; see

Blonder-Tongue, supra, 402 U.S. at p. 324 [noting that Bernhard led many state

and federal courts to reject the mutuality requirement when parties sought to

relitigate issues they had previously lost].)

14

Cal.App.4th 566, 576-579; Brinton v. Bankers Pension Services, Inc. (1999) 76

Cal.App.4th 550, 557-558.) The nature of derivative liability so closely aligns the

separate defendants‟ interests that they are treated as identical parties. (Richard B.

LeVine, Inc., at p. 578.) Derivative liability supporting preclusion has been found

between a corporation and its employees (Sartor v. Superior Court (1982) 136

Cal.App.3d 322, 328; Lippert, at p. 382), a general contractor and subcontractors

(Thibodeau v. Crum (1992) 4 Cal.App.4th 749, 757), an association of securities

dealers and member agents (Brinton, at pp. 557-558), and among alleged

coconspirators (Richard B. LeVine, Inc., at p. 579).

None of these derivative liability cases involves joint and several liability.

No cited decision extends their holdings to parties jointly and severally liable on a

contract. The concepts of joint and several liability and derivative liability are not

coextensive. Each joint and several obligor is separately responsible for breach of

the contract; the basis of each one‟s liability is independent, although all have

contributed to the same loss. (Gottlieb v. Kest, supra, 141 Cal.App.4th at p. 154;

Tavery v. U.S., supra, 897 F.2d at p. 1033; cf. American Motorcycle Assn. v.

Superior Court (1978) 20 Cal.3d 578, 587 [explaining that joint and several

liability among concurrent tortfeasors does not rest on notions of vicarious

liability, but instead describes each tortfeasor‟s liability for injury caused by his

own negligence].) Faerber cites no case holding that joint and several liability

under a contract is a derivative liability. We will not extend the concepts of joint

and several liability and preclusion to that degree.

Finally, Faerber complains these long-settled rules confer an unfair

procedural advantage because plaintiffs may “divide and conquer,” suing each

obligor separately and preventing co-obligors from mounting a unified defense.

This concern is largely answered by the modern doctrine of issue preclusion. As

discussed, even when multiple suits are permissible, the plaintiff may not relitigate

issues decided against him in the first action, including issues related to damages.

(Rest.2d, Judgments, § 49, com. a, p. 35; see ante, at pp. 13-14.) Yet all defenses

15

remain available to a co-obligor in a later suit, including those rejected in the first

suit, because the co-obligor was not a party to the earlier proceeding and thus is

not bound by it. (See Hansberry v. Lee (1940) 311 U.S. 32, 40.) Moreover, the

rewards of a divide and conquer trial strategy are debatable. As a comment to the

Restatement Second of Judgments observes, “Even when not obliged to do so, the

claimant usually is under strong inducement to effectuate joinder of multiple

obligors because it reduces his litigating costs and may impel the defendants to

contribute to the proofs against each other.” (Rest.2d, Judgments, § 49, com. a,

p. 35.)

III. DISPOSITION

The decision of the Court of Appeal is reversed and the case remanded.

The matter shall be returned to the trial court with directions to set aside its order

sustaining the demurrer.

CORRIGAN, J.

WE CONCUR:

CANTIL-SAKAUYE, C. J.

WERDEGAR, J.

CHIN, J.

LIU, J.

CUÉLLAR, J.

KRUGER, J.

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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion DKN Holdings LLC v. Faerber

__________________________________________________________________________________

Unpublished Opinion

Original Appeal

Original Proceeding

Review Granted XXX 225 Cal.App.4th 1115

Rehearing Granted

__________________________________________________________________________________

Opinion No. S218597

Date Filed: July 13, 2015

__________________________________________________________________________________

Court: Superior

County: Riverside

Judge: John W. Vineyard

__________________________________________________________________________________

Counsel:

Prenovost, Normandin, Bergh & Dawe, Michael G. Dawe, Kristin F. Godeke and Paula M. Harrelson for

Plaintiff and Appellant.

Callahan & Blaine, Daniel J. Callahan, Edward Susolik, Michael S. LeBoff and Jill A. Thomas for

Defendant and Respondent.

1

Counsel who argued in Supreme Court (not intended for publication with opinion):

Michael G. Dawe

Prenovost, Normandin, Bergh & Dawe

2122 North Broadway, Suite 200

Santa Ana, CA 92706-2614

(714) 547-2444

Michael S. LeBoff

Callahan & Blaine

3 Hutton Centre Drive, Ninth Floor

Santa Ana, CA 92707

(714) 241-4444

2