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Carlos H. Perez, Plaintiff v. Gordon & Wong Law Group

March 26, 2012


The opinion of the court was delivered by: Lucy H. Koh United States District Court United States District Judge

United States District Court For the Northern District of California


Plaintiff Carlos H. Perez ("Plaintiff" or "Perez") brings this action against Defendants Gordon & Wong Law Group, P.C., a debt collection law firm, and its various employees 23 (collectively "Defendants"), for violations of the federal Fair Debt Collection Practices Act 24 ("FDCPA"), 15 U.S.C. §§ 1692, et seq., and California's Rosenthal Fair Debt Collection Practices 25 Act ("RFDCPA"), Cal. Civ. Code §§ 1788, et seq. See ECF No. 1 ("Compl.") ¶ 1. The matter 26 comes before the Court now on two motions: (1) Defendants' Motion for Summary Judgment, ECF 27 No. 18 ("MSJ"); and (2) Plaintiff's Motion to Strike Defendants' Affirmative Defenses pursuant to 28 Federal Rule of Civil Procedure 12(f), ECF No. 15 ("MTS"), both of which are fully briefed. 2

Pursuant to Civil Local Rule 7-1(b), the Court found that these motions were appropriate for 3 determination without oral argument and vacated the March 15, 2012 hearing.*fn1 Having considered 4 the submission of the parties and the relevant law, the Court DENIES Defendants' motion for 5 summary judgment, and GRANTS IN PART and DENIES IN PART Plaintiff's motion to strike. 6

8 alleged violations of the federal Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 9 Civ. Code §§ 1788, et seq. Compl. ¶ 1. Defendants Amy Louise Gordon ("Gordon"), Mitchell Lewis Wong ("Wong"), and Andrew Arnold Ford ("Ford") are all licensed California attorneys employed by the California-based law firm Gordon & Wong Law Group, P.C. ("Gordon & Wong 13


On July 7, 2011, Plaintiff filed a complaint and demand for jury trial against defendants for 1692, et seq., and California's Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), Cal. 10 Law Group"). Compl. ¶¶ 9-13. Plaintiff alleges that on or about January 14, 2011, Defendants 14 unlawfully attempted to collect a debt by filing a lawsuit on behalf of Discover Bank against 15 Plaintiff in the Superior Court of California, Santa Clara County, captioned Discover Bank v. 16 Plaintiff alleges that Defendants intentionally misrepresented, among other things, the character 18 and legal status of the debt they were attempting to collect, in violation of federal and state debt 19 collection laws. See id. ¶¶ 21-24, 42. 20

Carlos H. Perez, et al., Case No. 1-11-CV-191911 ("the state court action"). Compl. ¶¶ 14-16. 17

Defendants filed an Answer, in which they asserted fifteen affirmative defenses: (1) failure to state a claim; (2) statute of limitations / laches; (3) bona fide error; (4) unclean hands; (5) no 22 willful conduct; (6) failure to mitigate; (7) waiver; (8) good faith; (9) apportionment; (10) 23 supervening clause; (11) equitable indemnity; (12) First Amendment; (13) res judicata; (14) 24 collateral estoppel; and (15) lack of standing. See ECF No. 12 ("Answer") at 9-12. Plaintiff then 25 filed the instant motion to strike all fifteen affirmative defenses pursuant to Federal Rule of Civil Procedure 12(f). Defendants filed an opposition, see ECF No. 16 ("Opp'n to MTS"); and Plaintiff 2 filed a reply, see ECF No. 17 ("MTS Reply"). 3

On October 18, 2011, Defendants also filed a motion for summary judgment on the ground

4 that Plaintiff's claims are precluded under the doctrine of res judicata. See MSJ at 7. Plaintiff filed 5 an opposition, see ECF No. 20 ("Opp'n to MSJ"), and Defendants filed a reply, see ECF No. 22 6

("MSJ Reply"). Defendants attach documents to their motion showing that in the state court action 7 against Perez filed by Defendants on Discover Bank's behalf, Perez filed a cross-complaint on 8

Rosenthal Fair Debt Collection Practices Act, Cal. Civil Code §§ 1788-1788.33. See Defendants' 10

May 25, 2011, the Moore Law Group substituted for Gordon & Wong Law Group as counsel for

Discover Bank in the state action. See Pl.'s RJN Ex. A, ECF No. 20-4. Shortly thereafter, on or 13 about June 6, 2011, Discover Bank and Perez entered into a Release and Settlement Agreement 14 settling all claims, but specifically excluding Gordon & Wong Law Group, Wong, Ford, and 15

("Schwinn Decl.") ¶ 4 & Ex. B, ECF No. 20. Pursuant to the Release and Settlement Agreement, 17

Ex. C, and Perez dismissed his cross-complaint against Discover Bank with prejudice on June 10, 19 2011, see Defs.' RJN Ex. B. 20

March 14, 2011, against Discover Bank and Roes 1 through 10 for violations of California's 9 Request for Judicial Notice ("Defs.' RJN"), Ex. A ("state cross-complaint"), ECF No. 18-1.*fn2 On

Gordon from the release. See Decl. of Fred W. Schwinn in Opp'n to Defs.' Mot. for Summ. J. 16

Discover Bank dismissed its complaint against Perez with prejudice on June 8, 2011, see Pl.'s RJN 18


A.Legal Standard

2 judgment if the movant shows that there is no genuine dispute as to any material fact and the 3 movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Material facts are those 4 that may affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 5

Rule 56 of the Federal Rules of Civil Procedure provides that a court "shall grant summary

(1986). A dispute as to a material fact is "genuine" if the evidence is such that "a reasonable jury 6 could return a verdict for the nonmoving party." See id. The moving party bears the initial 7 responsibility for informing the district court of the basis for its motion and identifying those 8 portions of the evidentiary record that it contends demonstrate the absence of a genuine issue of 9 material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A party opposing a properly 10 supported motion for summary judgment "may not rest upon the mere allegations or denials of

[that] party's pleading, but . . . must set forth specific facts showing that there is a genuine issue for

trial." Anderson, 477 U.S. at 248 (internal quotation marks and citation omitted). The nonmoving 13 party need not show the issue will be resolved conclusively in its favor. See id. at 248-49. All that 14 is necessary is submission of sufficient evidence to create a material factual dispute, thereby 15 requiring a jury or judge to resolve the parties' differing versions at trial. See id. 16

Defendants argue that Plaintiff's dismissal with prejudice of his cross-complaint in the state

18 court action against Discover Bank pursuant to a settlement agreement precludes his claims in this 19 action.*fn3 Federal courts give full faith and credit to state court judgments. See U.S. Const. art. IV, § 20

1; 28 U.S.C. § 1738; Holcombe v. Hosmer, 477 F.3d 1094, 1097 (9th Cir. 2007). To determine the 21 preclusive effect of a state court judgment, federal courts apply state preclusion rules. See Kay v. 22


City of Rancho Palos Verdes, 504 F.3d 803, 808 (9th Cir. 2007). 23

Nonetheless, Defendants make clear that they move for summary judgment solely based on claim preclusion, not issue preclusion. See MSJ Reply at 1-3. In this Order, therefore, the Court adopts 27 the parties' use of the term "res judicata" to mean only claim preclusion. See, e.g., United States v. 28

2 cause of action in a second suit between the same parties or parties in privity with them." Mycogen 3

Corp. v. Monsanto Co., 28 Cal. 4th 888, 896 (2002). Claim preclusion applies when three 4 requirements are satisfied: (1) the prior proceeding resulted in a final judgment on the merits; (2) 5 the present action is on the same cause of action as the prior proceeding; and (3) the party to be 6 precluded was a party or in privity with a party to the prior proceeding. Boeken v. Philip Morris 7

Under California law, "[r]es judicata, or claim preclusion, prevents relitigation of the same

USA, Inc., 48 Cal. 4th 788, 797 (2010) (citations omitted). "Even if these threshold requirements 8 are established, res judicata will not be applied 'if injustice would result or if the public interest 9 requires that relitigation not be foreclosed.'" Consumer Advocacy Group, Inc. v. ExxonMobil 10

Corp., 168 Cal. App. 4th 675, 686 (2008) (quoting Citizens for Open Access to Sand and Tide, Inc. 11

Here, the second and third requirements for res judicata are clearly satisfied. Plaintiff's

13 cross-claim against Discover Bank in the prior state action and the instant Complaint are based on 14 the same alleged harm suffered as a result of Defendants' filing of the January 14, 2011 state 15 complaint against Perez, and thus they assert the same cause of action. See Boecken, 48 Cal. 4th at 16

"harm suffered"). Furthermore, Plaintiff -- the party against whom the defense is asserted -- was 18 clearly a party to the prior state action. See Consumer Advocacy Group, 168 Cal. App. 4th at 689. 19

20 dismissal with prejudice of his RFDCPA claims against Discover Bank pursuant to a settlement 21 agreement in the predicate state action. There is no question that under California law, "a dismissal 22 with prejudice is the equivalent of a final judgment on the merits, barring the entire cause of 23 action." Boeken, 48 Cal. 4th at 793. A dismissal with prejudice following a settlement agreement 24 is no exception to this rule. See In re Estate of Redfield, 193 Cal. App. 4th 1526, 1533 (2011); Rice 25

v. Crow, 81 Cal. App. 4th 725, 733-34 (2000) ("[A] judgment or order dismissing an action, based 26 upon a stipulation or agreement of the parties settling and adjusting the claim or cause of action in 27 suit and providing for the dismissal, is a bar to another action of the same cause."). Nevertheless, 28

v. Seadrift Ass'n, 60 Cal. App. 4th 1053, 1065 (1998)). 12

798 (explaining that a "cause of action" under California's primary rights theory is based on the 17

The dispositive issue presented here is thus the preclusive effect of Plaintiff's voluntary

Plaintiff argues that the scope of the prior judgment's preclusive effect must be determined by 2 looking to the terms of the Release and Settlement Agreement on which the voluntary dismissal 3 with prejudice was predicated. Opp'n to MSJ at 7, 12. Because the Release and Settlement 4

Agreement expressly excluded Defendants Gordon & Wong Law Group, Gordon, Wong, and Ford 5 from the terms of the release, expressly preserving Plaintiff's right to bring suit against them in a 6 subsequent proceeding, Plaintiff argues that his present claims are not barred by res judicata. 7

8 directly on point, it is well settled under California law in the context of consent decrees, stipulated 9 judgments, and court-approved class action settlements that when "applying the doctrine of res 10 judicata, courts may examine the terms of the settlement to ensure that the defendant did not waive 11 res judicata as a defense." Villacres v. ABM Indus., Inc., 189 Cal. App. 4th 562, 577 (2010).

The Court agrees with Plaintiff. Although the Court was unable to find a California case

"Although a stipulated judgment is no less conclusive than a judgment entered after trial and 13 contest . . . it is axiomatic that its res judicata effect extends only to those issues embraced within 14 the consent judgment." Ellena v. State of Cal., 69 Cal. App. 3d 245, 260 (1977) (internal citations 15 omitted)); see also Louie v. BFS Retail and Commercial Operations, LLC, 178 Cal. App. 4th 1544, 16

1557-60 (2009) (citing United States v. Seckinger, 397 U.S. 203, 206 n.6 (1970), for the 17 proposition that res judicata does not bar claims where the prior judgment expressly left open the 18 option to pursue those claims at a later time). As the Supreme Court of California has explained, 19

to rest upon one decision in their controversy, but where they expressly agreed to withdraw an issue from the court, the reason for the rule ceases. The issue is not in

fact adjudged, and the parties themselves having consented to that method of trial are not entitled to invoke the rule which requires parties to submit their whole case

to the court. If they consent to adjudicate their differences piece-meal, there is no

reason that the court should extend the rules of law to prevent that which they had expressly agreed might be done.

The rule of res adjudicata is to prevent vexatious litigation and to require the parties

Although these California cases discuss res judicata in the context of consent decrees, stipulated 26 judgments, or court-approved class action settlements, the Court sees no reason why the underlying 27 principles would not be equally applicable to determining the preclusive effect of a dismissal with 28 prejudice pursuant to the express terms of a private settlement agreement, as is the case here. See 2

App. 4th 1319, 1334 (2005) ("We have no quarrel with Travelers' proposition that parties may by 4 agreement limit the legal effect of a dismissal with prejudice so that it would not constitute a 5 retraxit and affect their rights in a later pending action." (citations omitted)). 6

Furthermore, the ability of parties to limit the scope of a judgment's preclusive effect

7 through the terms of a settlement agreement is an exception to the rule of res judicata recognized 8 by several federal appellate courts, including the Ninth Circuit. See, e.g., California v. Randtron, 9

Alpha Mechanical, Heating & Air Conditioning, Inc. v. Travelers Cas. & Sur. Co. of Am., 133 Cal. 3

284 F.3d 969, 975 (9th Cir. 2002) (res judicata did not apply where "[i]t was contemplated at the 10 time of the Consent Decree that other actions would lie against Randtron and its insurers to the

extent not covered under the settlement agreement"); United States ex rel. Barajas v. Northrop Corp., 147 F.3d 905, 911 (9th Cir. 1998) ("A settlement can limit the scope of the preclusive effect 13 of a dismissal with prejudice by its terms." (citing Int'l Union of Operating Eng'rs v. Karr, 994 14 1984)); Norfolk S. Corp. v. Chevron, U.S.A., Inc., 371 F.3d 1285, 1289-91 (11th Cir. 2004); Keith 16 v. Aldridge, 900 F.2d 736, 740 (4th Cir. 1990) ("'Express agreement' between the parties that 17 litigation of one part of a claim will not preclude a second suit on another part of the same claim is 18 normally honored by courts."); May v. Parker-Abbott Transfer and Storage, Inc., 899 F.2d 1007, 19

Cir. 1989) (applying Third Circuit law). Clear policy reasons underlie this well recognized 21 exception to res judicata. As explained by the Eleventh Circuit, "[a] judgment dismissing an action 22 with prejudice based upon the parties' stipulation, unlike a judgment imposed at the end of an 23 adversarial proceeding, receives its legitimating force from the fact that the parties consented to it." 24

Norfolk, 371 F.3d at 1288. Furthermore, as a practical matter, "parties may be able to settle part of 25 the claim only if another part is left free for later assertion. . . . Since a principal purpose of the 26 general rule of res judicata is to protect the defendant from the burden of relitigating the same 27 claim in different suits, consent, 'in express words or otherwise,' to the splitting of the claim 28

F.2d 1426, 1432 (9th Cir. 1993); Prestin v. Mobil Oil Corp., 741 F.2d 268, 273 n.6 (9th Cir. 15

1010 (10th Cir. 1990); Epic Metals Corp. v. H.H. Robertson Co., 870 F.2d 1574, 1576-77 (Fed.

prevents the defendant from invoking claim preclusion." Keith, 900 F.2d at 740. The Court is 2 therefore convinced that, to determine whether Plaintiff's claims are barred by res judicata, the 3

Agreement resolving the prior state action. 5

6 otherwise included issue [must] be withdrawn by an express reservation." Ellena, 69 Cal. App. 3d 7 at 261 (citing Miller & Lux, 180 Cal. 38). Thus, the Court looks to the terms of the settlement 8 agreement to see whether Plaintiff's ...

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