DKN Holdings LLC v. Faerber
61 Cal. 4th 813
| Cal. | 2015Background
- DKN Holdings leased commercial space to Evolution Fitness; Roy Caputo, Wade Faerber, and Matthew Neel signed the lease and were jointly and severally liable.
- Caputo sued DKN (the Caputo action) alleging fraud and other claims; DKN cross-complained for unpaid rent and obtained a bench judgment against Caputo for over $2.8 million; Faerber and Neel were named but not served and later dismissed from that cross-complaint.
- After judgment in the Caputo action, DKN sued Faerber and Neel separately for breach of the same lease obligations; Faerber demurred on grounds the suit was barred by the rule against claim-splitting/res judicata.
- The trial court sustained Faerber’s demurrer without leave to amend; the Court of Appeal affirmed, holding that a final judgment against one joint obligor barred identical claims against other joint obligors.
- The California Supreme Court granted review to resolve whether joint-and-several obligors can be sued in separate actions after a final judgment against one obligor and reversed the Court of Appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a plaintiff may sue joint-and-several obligors in separate actions | DKN: Joint-and-several liability allows separate suits against each obligor | Faerber: A final judgment against one obligor bars identical later suits (claim-splitting) | Plaintiff may sue each joint-and-several obligor separately; separate suits are permissible |
| Whether a judgment against one obligor bars subsequent suits against other joint obligors via claim preclusion | DKN: Claim preclusion requires same parties or privity; Faerber was not a party or in privity with Caputo | Faerber: The “primary right” / single-wrong theory means same cause of action; thus claim preclusion applies | Claim preclusion does not bar suit against different parties not in privity; primary-right analysis irrelevant to claim preclusion here |
| Whether issue preclusion can be used to bind co-obligors in later suits | DKN: Issues actually litigated in the first case may be precluded as to parties who litigated them | Faerber: Judgment should preclude re-litigation of the same matters by other obligors | Issue preclusion can bind only parties (or privies) to the first suit on issues actually litigated; it does not bar separate suits against different obligors |
| Whether joint-and-several liability equates to privity (derivative liability) for preclusion purposes | DKN: Joint-and-several liability is independent, not derivative, so no privity | Faerber: Co-obligors should be treated as in privity for res judicata purposes | Joint-and-several liability does not by itself create privity or derivative liability for claim or issue preclusion |
Key Cases Cited
- Boeken v. Philip Morris USA, Inc., 48 Cal.4th 788 (2010) (discusses primary-rights theory and distinction between claim and issue preclusion)
- Williams v. Reed, 48 Cal.2d 57 (1957) (holding judgment against one joint-and-several promisor does not bar action against co-promisors)
- Melander v. Western Nat. Bank, 21 Cal.App. 462 (1913) (judgment against one several obligor does not extinguish claim against others)
- Bernhard v. Bank of America, 19 Cal.2d 807 (1942) (privity and mutuality doctrines; party/privity requirements for preclusion)
- Mycogen Corp. v. Monsanto Co., 28 Cal.4th 888 (2002) (distinguishing claim preclusion and issue preclusion)
- Vandenberg v. Superior Court, 21 Cal.4th 815 (1999) (issue preclusion may be asserted against a nonparty only in limited circumstances)
- Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979) (issue preclusion policy considerations)