United States District Court, N.D. California
VINCE CHHABRIA, District Judge.
On November 10, 2014, the plaintiffs filed a complaint in Contra Costa Superior Court, asserting a variety of claims against Defendants U.S. Bank and Select Portfolio Services. The defendants removed the case to federal court and moved to dismiss under Rule 12(b)(6). Docket Nos. 1, 8. On January 12, 2015, the plaintiffs filed a First Amended Complaint ("FAC"), adding "JP Morgan Chase" as a defendant, see Docket No. 24, despite the fact that the plaintiffs' had previously brought an action in state court against Chase, asserting a variety of claims relating to the foreclosure of their home. See Richard Reed v. JP Morgan Chase Bank, et al., Contra Costa Superior Court Case No. MSC12-00154. In February 2013, the Superior Court dismissed that action without leave to amend. The plaintiffs did not bring this prior case to the attention of the Court. Nor does it appear, as of the date of this order, that the plaintiffs have served Chase in this action.
US Bank and Select Portfolio Services moved to dismiss the FAC. Docket No. 37. On April 10, 2015, the Court issued an order directing the plaintiffs to file a sur-reply addressing the defendants' collateral estoppel argument. Docket No. 46. In their sur-reply, the plaintiffs contend that they are not collaterally estopped from asserting any of the claims in their FAC because the dismissal of the prior state court action against Chase was without prejudice, and thus the court's entry of judgment in Chase's favor was not a final judgment on the merits. Docket No. 47 at 2-4. But contrary to the plaintiffs' contention, the Superior Court sustained Chase's general demurrer to each cause of action in the plaintiffs' complaint, dismissing without leave to amend. See RJN-2, Ex. B. And "[i]n California, a state court's order sustaining a general demurrer constitutes a final judgment on the merits." Janson v. Deutsche Bank Nat'l Trust Co., No. 14-CV-05639 JSC, 2015 WL 1250092, at *10 (N.D. Cal. Mar. 18, 2015); see McKinney v. Cnty. of Santa Clara, 169 Cal.Rptr. 89, 92 (Ct. App. 1980) ("[A] judgment on a general demurrer will have the effect of a bar in a new action in which the complaint states the same facts which were held not to constitute a cause of action on the former demurrer.").
The plaintiffs also contend that the enactment of the California Homeowner Bill of Rights ("HBOR") represents an intervening change in the law, meaning that collateral estoppel does not bar the plaintiffs' claims based on Chase's conduct. But even assuming that the HBOR represented a significant change in the underlying legal principles between the dismissal of the plaintiffs' prior state court case and their filing of the present one, see Steen, 106 F.3d at 913, the HBOR may not be applied retroactively. See Gonzales v. Wells Fargo Bank, N.A., No. C 14-03850 JSW, 2014 WL 5465290, at *2 (N.D. Cal. Oct. 28, 2014). As a result, the enactment of the HBOR has no bearing on whether the plaintiffs are estopped from asserting claims based on Chase's conduct before the HBOR took effect.
Accordingly, the plaintiffs' counsel-specifically, Nikhil Bhatnagar, who is the author of the briefs filed on the plaintiffs' behalf-must come to the hearing on the defendants' motion to dismiss prepared to discuss the merits of the defendants' collateral estoppel argument (as it relates to both the claims the plaintiffs bring against Chase and the claims the plaintiffs bring against U.S. Bank and Select Portfolio Services based on Chase's alleged wrongful conduct on a theory of successor liability). Mr. Bhatnagar should also come to the hearing prepared to demonstrate why he should not be sanctioned under Rule 11 in the amount of the defendants' costs and attorneys' fees in defending this action with respect to claims based on Chase's conduct, particularly given Mr. Bhatnagar's misrepresentation in his brief about the nature of the prior dismissal. The defendants should submit to the Court a declaration, by no later than April 29, 2015 at 3:00 p.m., which sets forth those costs and fees.
Finally, the Court notes that Mr. Bhatnagar failed to appear at the case management conference held on March 17, 2015. Failure to appear at the hearing on the defendants' motion to dismiss will ...