Opinion
Editorial Note:
This opinion appears in the Federal reporter in a table titled "Table of Decisions Without Reported Opinions". (See FI CTA9 Rule 36-3 regarding use of unpublished opinions)
Argued and submitted Nov. 3, 1998.
Appeal from the United States District Court for the Northern District of California Susan Y. Illston, District Judge, Presiding.
Before B. FLETCHER and TASHIMA, Circuit Judges, and FITZGERALD, District Judge.
The Honorable James M. Fitzgerald, Senior District Court Judge for the District of Alaska, sitting by designation.
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as may be provided by 9th Cir. R. 36-3.
The Charles Lowe Company ("Lowe") and Federal Insurance Company ("Federal") appeal from the district court's grant of partial summary judgment as to their first and fourth causes of action, as well as the district court's dismissal of their second and third causes of action. Xomox Corporation ("Xomox") and Emerson Electric Company ("Emerson") cross-appeal from the district court's dismissal of their counter-claim for comparative equitable indemnity. In a separate consolidated appeal, Xomox appeals from the district court's postjudgment denial of Xomox's motion for costs. The district court had jurisdiction pursuant to 28 U.S.C. § 1332 and 2201. We have jurisdiction pursuant to 28 U.S.C. § 1291.
Federal has also moved to strike portions of Xomox and Emerson's Reply Brief in connection with this appeal. While we agree that sections III, IV, and V of the Reply Brief appear to be attempts to get an improper final bite at the apple, the offending sections merely repeat arguments properly raised in earlier briefing and thus are harmless. Accordingly, Federal's motion is DENIED.
The parties are familiar with the facts, and we will recite them only to the extent necessary for our disposition of these appeals.
1. Lowe's Corporate Suspension
Xomox and Emerson challenge Lowe's capacity to bring this appeal, in light of Lowe's corporate suspension. It is well-settled under California law that a delinquent corporation may not appeal from an adverse judgment. See United States v. 2.61 Acres of Land, 791 F .2d 666, 668 (9th Cir.1985). Lowe's corporate status was suspended on March 17, 1997 and remained suspended as of the date of oral argument. Lowe does not dispute its suspended status. Accordingly, Lowe may not maintain this appeal and is hereby dismissed as an appellant. Xomox and Emerson do not challenge Federal's right to proceed in this appeal on behalf of Lowe, its insured.
2. Federal's Appeal
In an order filed October 18, 1996, the district court granted partial summary judgment in favor of Xomox and Emerson on Federal's first cause of action (breach of contract). Partial summary judgment is appropriate where the submissions of the parties, viewed in the light most favorable to the nonmoving party, demonstrate that there exist no genuine issues of material fact as to a particular claim or defense. See Amdahl Corp. v. Profit Freight Sys., Inc., 65 F.3d 144, 146 (9th Cir.1995). We review the district court's ruling de novo. See id.
We reverse the district court's grant of summary judgment with respect to the first cause of action. Before the district court, Federal alleged that Xomox and Emerson breached the indemnity agreement in three ways: (1) by failure to indemnify; (2) by failure to defend; and (3) by failure to timely retender the defense. The facts it alleged supported its claims.
As to the first theory, that Xomox and Emerson breached the indemnity agreement by failing to reimburse Lowe and Federal for the roughly $900,000 paid out in settlements, we conclude that Federal has demonstrated that a genuine issue of material fact precludes a grant of summary judgment. Xomox and Emerson make much of the fact that the indemnity agreement itself was limited to "loss arising out of the allegedly defective design, manufacture and assembly of the valve." At the same time, however, counsel for Xomox and Emerson conceded that Xomox was aware some time before the trial of Lowe's failure to pass along a warning to Rhone-Poulenc, and was prepared to indemnify Lowe for liability arising from this failure to warn. This is enough, we think, to raise a genuine issue of material fact regarding whether the indemnity agreement encompassed the settlements paid by Lowe and Federal.
Xomox and Emerson failed to squarely address Federal's second and third theories--failure to defend and failure to timely retender the defense--in their motion for summary judgment before the district court. Accordingly, Xomox and Emerson failed to sustain the initial burden of pointing out the insufficiency of Federal's evidence as to these theories. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). For the foregoing reasons, we conclude that the district court erred in granting partial summary judgment in favor of Xomox and Emerson on Federal's first cause of action.
We also reverse the district court's grant of partial summary judgment to Xomox and Emerson on Federal's fourth cause of action (tortious interference with contract). The district court's ruling as to this cause of action was premised entirely on its grant of summary judgment denying Federal's first cause of action. The reversal of that ruling vitiates the district court's rationale as to the fourth cause of action, leading us to reverse.
We affirm the district court's dismissal of Federal's second (equitable indemnity) and third (declaratory relief) causes of action. The dismissals and subsequent entry of judgment on these causes of action turn on California collateral estoppel principles. This court reviews this question of law de novo. See Bates v. Union Oil Co., 944 F.2d 647, 649 (9th Cir.1991). It is clear that a plaintiff seeking equitable indemnity under California law has the burden of proving fault on the part of the party from whom indemnity is sought. See National Union Fire Ins. Co. v. Showa Shipping Co., 47 F.3d 316, 322-23 (9th Cir.1995). Federal conceded on the day of trial that it intended to rely on the underlying state court verdict in order to establish this element of its claim. Federal further conceded that it was not prepared to offer alternative evidence, and that it was not prepared to prove Xomox's fault anew.
We agree with the district court that, under the California law of collateral estoppel, Federal could not rely on the state court verdict to show Xomox's fault. Under California law it is well-established that parties to a judgment are not bound by it in a subsequent controversy between themselves unless they were adverse parties, one against the other, in the original action. See CAL. CIV. PROC. CODE § 1910; Standard Oil Co. v. John P. Mills Org., 3 Cal.2d 128, 139-41 (1935); Great Western Furniture Co. v. Porter Corp., 238 Cal.App.2d 502, 509 (1965); 7 B.E. WITKIN, CALIFORNIA PROCEDURE, JUDGMENTS § 389 (4th ed.1997). Federal does not contest the nonadversarial posture of the codefendants in the prior action--Lowe and Xomox shared a common defense and filed no cross-claims against each other. "Ordinarily, therefore, where the plaintiff and defendant in the subsequent action were merely codefendants in the original action, the prior judgment cannot be used by one against the other as an estoppel since they were not advers[e] parties in the original action and no issues were raised or adjudicated between them therein." Great Western Furniture, 238 Cal.App.3d at 509. California has consistently applied its "nonadverse codefendant" doctrine, see, e.g., Atherley v. MacDonald, Young & Nelson, Inc., 135 Cal.App.2d 383 (1955), and we hold that the doctrine applies here to preclude Federal from relying on the state court judgment to prove Xomox's fault.
3. Xomox and Emerson's Cross-Appeal
The district court dismissed Xomox and Emerson's counter-claim against Lowe for comparative equitable indemnity. In their cross-appeal, Xomox and Emerson challenge the dismissal on two grounds: (1) that the district court erred in denying Xomox and Emerson's motion for default judgment and (2) that the dismissal was based on an erroneous understanding of California collateral estoppel principles. We take the two contentions in turn and affirm.
The district court's denial of a default judgment is reviewed for an abuse of discretion. See Eitel v. McCool, 782 F.2d 1470, 1471 (9th Cir.1986). We may affirm on any ground finding support in the record. Id. Xomox and Emerson argue that Lowe's suspended corporate status requires that its pleadings be struck, clearing the way for a default judgment in favor of Xomox and Emerson. See Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp., 155 Cal.App.2d 46, 50-51 (1957). Up until the time of its last answer, however, Lowe was in good standing. When it filed its pleadings responding to Xomox and Emerson's counter-claims, it was in good standing. Accordingly, the district court did not abuse its discretion in refusing to strike Lowe's pleadings and in denying Xomox and Emerson's motion for default judgment.
As noted above, we review the district court's application of California collateral estoppel principles de novo. See Bates, 944 F.2d at 649. According to Xomox and Emerson, the dismissal was based on the district court's erroneous ruling that neither party could assert the prior state court judgment as an estoppel against the other. In Xomox and Emerson's view, this ruling was erroneous as applied to Lowe because Lowe, by agreeing to a unified defense in the state court action, "waived" its right to take an adverse position to Xomox. Consequently, Xomox and Emerson reason that Lowe should have been bound in this proceeding by the prior state court judgment.
We reject Xomox and Emerson's proposed gloss on California collateral estoppel principles as flatly contrary to California's "nonadverse codefendant" doctrine. Xomox and Emerson are attempting to use the state court judgment to establish the proportionate liability as between Lowe and Xomox--precisely the sort of estoppel barred by a long line of California precedents. See generally 7 B.E. WITKIN, CALIFORNIA PROCEDURE, JUDGMENTS § 389. The proportionate liability of the codefendants was never litigated as between the codefendants in the state court action, and accepting Xomox and Emerson's argument would effectively prevent the issue from ever being litigated in any court. This evil is precisely what California's nonadverse codefendant doctrine aims to prevent, and Xomox and Emerson have not offered any authority suggesting that the California courts would embrace an "implied waiver" approach to end-run the doctrine in a context where it would otherwise plainly be applicable.
4. Xomox's Appeal Regarding Costs
Xomox also appeals from the district court's order denying its motion for costs. The allowance or disallowance of costs by the district court pursuant to Rule 54(d) is reviewed for an abuse of discretion. See National Info. Services, Inc. v. TRW, Inc., 51 F .3d 1470, 1471 (9th Cir.1995). We conclude that the district court did not abuse its discretion here. Having reviewed the record, we agree with Federal:
The bottom line in this litigation was that nobody won and everybody lost. The record reasonably supports no other conclusion.
In short, the district court did not abuse its discretion in concluding that neither party deserved the "prevailing party" title. We affirm.
5. Conclusion
Lowe's appeal is DISMISSED. The district court's grant of summary judgment in favor of Xomox and Emerson as to Federal's first and fourth causes of action is REVERSED and REMANDED. The district court's dismissal of Federal's second and third causes of action is AFFIRMED. The district court's dismissal of Xomox and Emerson's counter-claim for comparative equitable indemnity is AFFIRMED. The district court's denial of Xomox's motion for costs is AFFIRMED.
Each party shall bear its own costs on appeal.