Cal Sierra Dev., Inc. v. George Reed, Inc.

14 Cal.App.5th 663

223 Cal.Rptr.3d 506

CAL SIERRA DEVELOPMENT, INC., Plaintiff and Appellant,

v.GEORGE REED, INC., et al., Defendants and Respondents;

Western Aggregates LLC, Cross-defendant and Respondent.

C080397

Court of Appeal, Third District, California.

Filed August 22, 2017

Radoslovich Parker Turner, Frank M. Radoslovich, Port J. Parker, Sacramento, Joseph F. Klatt and Myles G. Taylor for Plaintiff and Appellant.

Stoel Rives, Ryan C. Wood and Bao M. Vu, Sacramento, for Defendants and Respondents.

Jeffer Mangels Butler & Mitchell, Joseph N. Demko, Kerry Shapiro and Matthew J. Sanders, San Francisco, for Cross-defendant and Respondent.

Duarte, J.

This case arose from competing claims to a portion of the Yuba Goldfields. At issue is whether an arbitration award resolving a dispute between plaintiff Cal Sierra Development, Inc. (Cal Sierra), and Western Aggregates, Inc., serves as res judicata to bar Cal Sierra's lawsuit against Western Aggregates' licensee George Reed, Inc., and the licensee's parent Basic Resources, Inc. We conclude the answer is yes.

Plaintiff Cal Sierra's predecessor and Western Aggregates entered into a Mutual Operations Agreement (MOA) for the Yuba Goldfields. (In this context, an MOA is a mechanism to allow two mining companies to operate on the same property.) Pursuant to the MOA and accompanying deeds, Cal Sierra had the superior right to mine for precious metals, subject to certain exceptions; Western Aggregates had the subordinate right to the surface estate. Western Aggregates entered into a license agreement with George Reed, Inc. (Reed), permitting Reed to locate a mobile asphalt plant on the portion of the Yuba Goldfields known as the Deep Reserve. A dispute arose when Cal Sierra's gold mining dredge was on course to collide with the asphalt plant. Cal Sierra altered the dredge course and demanded arbitration to settle the dispute. The arbitration panel found for Cal Sierra on its claim of breach of contract, but found Cal Sierra failed to prove its tort claims of trespass, nuisance, and conversion.

After the arbitration was complete, Cal Sierra proceeded with its lawsuit against Reed and Basic Resources for trespass, intentional inference with contract, and negligent interference with economic relations. After a trial on the affirmative defenses of res judicata (claim preclusion) and collateral estoppel (issue preclusion), the court found res judicata applied and entered judgment for defendants. Cal Sierra appeals, contending defendants failed to establish the elements of res judicata and that the application of res judicata in this case is inequitable.

FACTUAL AND PROCEDURAL BACKGROUND

The Yuba Goldfields is a 10,000-acre valley on both sides of the Yuba River near Marysville. Cal Sierra mines for gold in the Yuba Goldfields using a dredge. The dredge is part ship and part machine and the length of a football field; it moves along the surface of the water at three to six miles an hour, digging up the material in front of it to a depth of 100 feet. The material is sorted and tailings or aggregate are ejected behind the dredge. The path of the dredge is planned well in advance.

In 1992, Cal Sierra's predecessor entered into the MOA with Western Aggregates governing operations on the Yuba Goldfields. Under the MOA and associated deeds, Cal Sierra had the priority right to mine for precious metals and, subject to that priority right, Western Aggregates had the rights to the surface. There were certain exceptions to Cal Sierra's priority mining rights.

In 2009, Western Aggregates entered into a license agreement with Reed, an asphalt paving contractor. Pursuant to the license agreement, Reed installed an asphalt plant on the property known as the Deep Reserve on a site selected by Western Aggregates. The plant was mobile and not affixed to a solid foundation; it moved from location to location at great expense. The plant processed aggregate provided by Western Aggregates. The original license was temporary, only long enough for Reed to complete its contract to resurface Highway 99. A second agreement extended the license. Both license agreements contained a provision setting forth the relationship between Western Aggregates and Reed, stating: "Nothing contained in this Agreement shall be deemed or construed by the parties or by any third person to create the relationship of principal and agent or of partnership or of joint venture or of any association between Licensor and Licensee, and no provision contained in this Agreement or any act of the parties shall be deemed to create any relationship between Licensor and Licensee, other than the relationship of licensor and licensee."

In late 2009, it became clear that the path of Cal Sierra's dredge would eventually encounter Reed's asphalt plant. In a series of correspondence, the parties disputed whether the site of the asphalt plant had been excluded from Cal Sierra's priority mining rights. The dispute was not resolved, but Cal Sierra altered the path of the dredge to avoid the asphalt plant and demanded arbitration under the provisions of the MOA. Reed wanted to participate in the arbitration but pulled out due to a scheduling conflict.

In the arbitration, Cal Sierra claimed "that its gold operation within the Yuba County Goldfields [ ] has been severely damaged as a result of the unauthorized presence of a George Reed, Inc. [ ] asphalt plant upon an area (rich with provable gold reserves) where Cal Sierra has predominant rights to mine." Cal Sierra sought damages under theories of breach of contract, trespass, nuisance, and conversion.

The scope of the arbitration was limited to "the parties' respective rights and obligations related to the current location of the [Reed] asphalt plant." The arbitration was conducted in two phases, merits and attorney fees. Due to time constraints, the arbitration panel did not produce a decision on the first phase, only a "check-the-box" form, similar to a special verdict. The three-member panel, with one dissent, found for Cal Sierra on breach of contract and awarded $6,209,781 in lost profits and $644,052 in mitigation costs (related to changing the dredge course). The panel found Cal Sierra had not proven trespass, nuisance, or conversion. In the second phase of the arbitration, the panel awarded Cal Sierra $991,119 in attorney fees and costs. Western Aggregates promptly paid the award.

Shortly after the demand for arbitration, Cal Sierra filed a complaint against Reed, its parent Basic Resources, and Western Aggregates' parent Eagle Materials, Inc. An amended complaint added Western Aggregates as a party. The trial court granted the motion to dismiss Western Aggregates and its parent on the basis of res judicata.

Cal Sierra filed a second amended complaint, the operative pleading at issue here, against Reed and Basic Resources, with claims for trespass, intentional interference with contract, and negligent interference with economic relations. The second amended complaint alleged that Reed was the alter ego of Basic Resources. It further alleged that at least one executive of Basic Resources knew of and acknowledged the superior mining rights of Cal Sierra to the Deep Reserve. Notwithstanding this knowledge, Reed installed a portable asphalt plant within the Deep Reserve and refused to remove it.

Reed and Basic Resources filed a cross-complaint against Western Aggregates for breach of contract, negligent misrepresentation, and implied equitable indemnity. The cross-complaint alleged that Reed had inquired whether Cal Sierra's mining operations would interfere with the asphalt plant; Western Aggregates said no and that Reed "had nothing to worry about."

The trial court bifurcated the trial and in the first phase addressed defendants' affirmative defenses of res judicata and collateral estoppel. Over Cal Sierra's objection, Western Aggregates participated in the trial. Cal Sierra introduced evidence that Western Aggregates and Reed were separate companies. Western Aggregates did not receive revenue from the asphalt plant and did not provide insurance, workers compensation insurance, or trucking services for Reed; the two companies had separate entrances to the property.¹ Western Aggregates had no say over Reed's contracts and its personnel never operated the asphalt plant. Reed did not pay any portion of the arbitration award already paid by Western Aggregates.

The trial court ruled that res judicata (claim preclusion) applied to bar the action. It found the same claim (trespass) was involved in both the arbitration and the lawsuit; thus the final arbitration award served as a final judgment. The court found the same party or privity requirement (which we discuss post ) applied only to the party against whom the defense of res judicata was asserted—in this case, Cal Sierra. As to the interference claims, which had not been raised in the arbitration, the court found the case involved derivative liability based on a single act—locating the asphalt plant—which had been addressed in the arbitration.

After the trial had ended, the California Supreme Court clarified that for the claim preclusion aspect of res judicata, a complete identity of parties was required; the requirement of the same party or its privy applies to both the party asserting the defense and the party against whom the defense is asserted. ( DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 824-825, 189 Cal.Rptr.3d 809, 352 P.3d 378 ( DKN Holdings ).) Based on this clarification in the law, Cal Sierra moved for judgment notwithstanding the verdict, a new trial, and to vacate the judgment, contending privity had not been established. The trial court found the license agreement between Western Aggregates and Reed was sufficient to establish privity. The court reiterated that the case was one of derivative liability.

Cal Sierra appealed. Both Western Aggregates and Reed filed respondents' briefs.

DISCUSSION

IRes Judicata

" ‘Res judicata’ describes the...