The trial court concluded res judicata barred Federal Home Loan Bank of San Francisco’s (the Bank) claim against Countrywide Financial Corporation (Countrywide Financial) and sustained Countrywide Financial’s demurrer to the first amended complaint without leave to amend.
The Bank appeals. It contends the court erred by concluding res judicata barred its claim against Countrywide Financial because “[t]here was no final judgment on the merits in a prior action that could have given rise to res judicata in this action.” We disagree and affirm. We conclude the doctrine of res judicata bars the Bank’s claim against Countrywide Financial because (1) the Bank’s voluntary dismissal of its claim against Countrywide Financial in the prior action was a final judgment on the merits and (2) the claim the Bank dismissed in a prior lawsuit is the same cause of action as the claim it asserts against Countrywide Financial in the current lawsuit. Having voluntarily dismissed with prejudice claims of control-person wrongdoing against one of multiple defendants for its own strategic reasons, the Bank may not avoid the res judicata consequences of its decision and sue the dismissed defendant anew, again alleging control-person liability, in reliance on the pendency of these same claims against the remaining actors in the first action.
FACTUAL AND PROCEDURAL BACKGROUND
We accept as true the following allegations in the Bank’s amended complaint for the purpose of reviewing the order sustaining Countrywide Financial’s demurrer:
In a process called securitization, an entity “originate^]” mortgage loans or acquires those loans and aggregates them into a “collateral pool” or loan pool for sale to a financial institution called a “depositor.”
In May 2010, the Bank sued eight securities dealers which offered and sold the 95 residential mortgage-backed securities, as well as the entities which issued the certificates or controlled one of the entities that issued the certificates (Credit Suisse or the Credit Suisse action).
Among the defendants in Credit Suisse were Countrywide Securities, CWALT, and Countrywide Financial. As relevant here, the Bank alleged (1) Countrywide Securities made untrue or misleading statements in the sale of securities in violation of Corporations Code sections 25401 and 25501 with respect to securitizations 74 through 78 ;
In November 2010, the Bank filed the complaint in the action before us seeking declaratory relief against Bank of America Corporation (declaratory relief action). The Bank sought a declaration that Bank of America Corporation—which had purchased Countrywide’s assets—was liable for any damages Countrywide was required to pay in the Credit Suisse action.
In August 2011, and following an adverse tentative ruling on a demurrer, the Bank dismissed with prejudice its Securities Act of 1933 claims in the Credit Suisse action, including its Section 15 claim against Countrywide Financial. The Bank did so to avoid affirmatively pleading the circumstances surrounding its discovery of facts giving rise to its claims as required by the Securities Act. Two months later, in October 2011, the Bank amended the subject declaratory relief complaint to add Countrywide Financial as a defendant. The operative first amended complaint in the declaratory relief action alleged a single claim against Countrywide Financial as a “control person” under section 25504. Specifically, the Bank alleged “[i]n doing the acts alleged in the sale to the Bank of the seven certificates in securitizations 74
Countrywide Financial’s Demurrer to the Amended Declaratory Relief Complaint
Countrywide Financial demurred to the operative amended declaratory relief complaint, contending res judicata barred the Bank’s section 25504 claim because the Bank was “impermissibly seeking to relitigate a cause of action that was dismissed with prejudice in a prior action involving the same parties.” Specifically, Countrywide Financial argued the Bank’s section 25504 claim was “the same cause of action as its Section 15 claim under the ‘primary rights’ theory.” According to Countrywide Financial, the Bank sought to hold it liable in the Credit Suisse action “as a control person for alleged misrepresentations in [residential mortgage-backed securities] offering documents” and in the declaratory relief action, the Bank “seeks to hold [Countrywide Financial] liable as a control person for the same alleged misrepresentations in the same . . . offering documents.” Countrywide Financial conceded the legal theories in the two cases were different, but contended the Bank “alleged a violation of the same primary right—the asserted right to offering documents free of material misrepresentations; and, moreover, claims in both actions to have suffered the same harm as a result of [Countrywide Financial’s] alleged misconduct.”
In opposition, the Bank argued the section 25504 claim it asserted in the declaratory relief action was “different from the claims that [it] voluntarily dismissed” in Credit Suisse and that res judicata did not bar it from asserting different claims under a different statute. In addition, the Bank contended there was no final judgment on the merits in the Credit Suisse action because its claims on each securitization at issue in Credit Suisse were “part of a single cause of action for purposes of res judicata.” As the Bank explained,
At a hearing, the court sustained Countrywide Financial’s demurrer without leave to amend. The court observed, “[t]he real question here is whether what was dismissed is the same primary right as to what is alleged here [in the declaratory relief action].” Then the court answered the question in the affirmative. It explained, the Securities Act of 1933 and sections 25401 and 25501 render “control persons responsible under the same circumstances . . . without any significant difference under the federal scheme or the state scheme. . . . And the California statute is not materially different from the federal statute.” The court continued, “a general concept in preclusive effect jurisprudence is that the [c]ourt is not bound by the format, or the pleadings, or the articulation in the causes of action. In other words . . . you don’t look at causes of action ... or parts of cause[s] of action. You get to the heart of what is going on. And it seems to me that the heart of what is going on, from this perspective ... is control person liability. One under a federal statute and one under a state statute. And no matter how you plead it or what the sequence is, . . . that it is the same in both cases.”
The court entered judgment for Countrywide Financial and the Bank timely appealed.
DISCUSSION
We review de novo the court’s order sustaining Countrywide’s demurrer without leave to amend. (Estate of Dito (2011)
The Bank’s Voluntary Dismissal of Its Section 15 Claim Was a Final Judgment on the Merits
“ ‘ “Res judicata” describes the preclusive effect of a final judgment on the merits.’ [Citation.] It ‘prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them.’ [Citation.] Under the doctrine of res judicata, ‘all claims based on the same cause of action must be decided in a single suit; if not brought initially, they may not be raised at a later date.’ [Citation.]” (Dito, supra,
Res judicata bars a cause of action that was or could have been litigated in a prior proceeding if “(1) the present action is on the same cause of action as the prior proceeding; (2) the prior proceeding resulted in a final judgment on the merits; and (3) the parties in the present action or parties in privity with them were parties to the prior proceeding. [Citation.]” (Bullock v. Philip Morris USA, Inc. (2011)
The threshold question is whether the Bank’s voluntary dismissal of its Section 15 claim in the Credit Suisse action was a final judgment on the merits. The answer is yes. “ ‘A dismissal with prejudice is the modem name for a common law retraxit. [Citation.] . . . Dismissal with prejudice is determinative of the issues in the action and precludes the dismissing party from litigating those issues again.’ ” (Estate of Redfield (2011)
The trial court granted Higashi’s motion for summary judgment on the conspiracy claim, concluding “res judicata . . . conclusively established Higashi’s complete defense to the claim for civil conspiracy.” (Higashi, supra,
We decline to extend the reasoning in Higashi to this situation. Higashi considered whether a claim survived in light of prior arbitration, where the merits of the case against one defendant were resolved. Higashi does not stand for the proposition that conduct of multiple defendants separately causing harm gives rise to a single cause of action in this context or that there can be no formal judgment as to one of multiple defendants until a judgment is entered as to all. We conclude the pendency of claims against other
The Bank also cites Freecharm Ltd. v. Atlas Wealth Holdings Corp. (S.D.Fla., Sept. 30, 2011, No. 11-20003-Civ.)
The Bank urges this court to conclude res judicata applies to only the four securitizations on which both Countrywide Securities and CWALT are sued in the Credit Suisse action, and not to a fifth securitization on which Countrywide Securities alone is sued. According to the Bank, “[tjhere can be no res judicata as to the fifth securitization . . . because no claims related to that securitization were ever voluntarily dismissed in the Credit Suisse action.” This argument misses the point. The issue is not whether the Bank dismissed any claims regarding the fifth securitization in the Credit Suisse action. The issue is whether the Bank could have raised a claim against Countrywide Financial based on its alleged control of Countrywide Securities in Credit Suisse. The law is settled that a “prior final judgment on the merits not only settles issues that were not actually litigated but also every issue that might have been raised and litigated in the first action.” (Mattson v. City of Costa Mesa (1980)
The Bank does not argue it was unable to raise a claim regarding the fifth securitization in the Credit Suisse action. (See 7 Witkin, Cal. Procedure (5th ed. 2008) Judgment, § 406, p. 1041 [no bar where plaintiff “was unable to rely on a certain theory or to seek a certain remedy or form of relief in the first action”].) Instead—and without citing any authority—the Bank contends
II.
The Bank’s Section 25504 Claim Is the Same Cause of Action as the Section 15 Claim It Dismissed with Prejudice in the Credit Suisse Action
The next question is whether the Bank’s section 25504 claim in the declaratory relief action is the same “cause of action” as the Section 15 claim it dismissed with prejudice in the Credit Suisse action.
California courts apply the “ ‘ “primary rights” theory’ ” to “determine whether two proceedings involve identical causes of action for purposes of claim preclusion.” (Boeken, supra,
“ ‘ “[T]he ‘cause of action’ is based upon the harm suffered, as opposed to the particular theory asserted by the litigant. [Citation.] Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief. ‘Hence a judgment for the defendant is
In the Credit Suisse action, the Bank claimed CWALT and others violated Sections 11 and 12 by making misrepresentations in offering documents. Section 11 “imposes liability on various persons when a registration statement contains an ‘untrue statement of a material fact’ or has ‘omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading ....’” (Insurance Underwriters Clearing House, Inc. v. Natomas Co. (1986)
In the current action, the Bank seeks to hold Countrywide Financial liable as a control person of Countrywide Securities under section 25504, which “imposes joint and several liability for securities law violations on ‘[e]very person who directly or indirectly controls a person liable under Section 25501 ____’ ”
Torrey Pines, supra,
The Torrey Pines court issued a writ of mandate directing the lower court to grant the bank’s motion for summary judgment. (Torrey Pines, supra, 216 Cal.App.3d. at p. 824.) It determined res judicata barred White’s affirmative defenses because “[s]uch affirmative defenses assert the same nucleus of operative facts and raise the same legal issues as those alleged in [his] first amended complaint in case number 597676. White’s voluntary dismissal with prejudice of his lawsuit in case number 597676 constituted a retraxit and determination on the merits invoking the principles of res judicata barring relitigation of those issues as affirmative defenses in case number N38961.” (Id. at pp. 819-820.) The Torrey Pines court explained, “. . . White’s dismissal with prejudice in case number 597676 barred another action by White against the Bank based on the same factual grounds alleged in his first amended complaint” and held “. . . White’s dismissal with prejudice also precluded him from asserting those identical facts as affirmative defenses to the Bank’s complaint in case number N38961.” (Id. at p. 821.)
We conclude the Bank’s Section 15 claim in the Credit Suisse action and its section 25504 claim in the current lawsuit constitute “identical causes of action for purposes of claim preclusion.” (Boeken, supra,
DISPOSITION
The judgment is affirmed. Countrywide Financial is awarded costs on appeal.
Simons, J., and Bruiniers, J., concurred.
Appellant’s petition for review by the Supreme Court was denied July 17, 2013, S210566. Chin, J., did not participate therein.
Notes
Securitization refers to the practice of pooling and packaging loans for sale to investors. (See Merrill Lynch Mortg. Investors v. Love Funding (2d Cir. 2009)
Countrywide Securities and CWALT acted as subsidiaries of Countrywide Financial.
Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA), LLC (Super. Ct. S.F. County, No. CGC-10-497840).
Unless otherwise noted, all further statutory references are to the Corporations Code.
The Bank seemed to take conflicting positions about the primary right theory. Initially, the Bank argued all of its claims arose out of the same primary right. Later in the opposition, however, the Bank contended “the purchase of each security caused a unique harm to the Bank and constitutes a separate primary right.”
In its opening brief, the Bank claims the only issue “in dispute on this appeal” is whether the prior proceeding resulted in a final judgment on the merits. But later in its opening brief, the Bank discusses whether the claims are part of the same cause of action and in its reply brief, the Bank states, “[t]he central question on this appeal is whether all of the Bank’s claims on each security are part of the same ‘primary right’ (or cause of action) for purposes of res judicata.” The questions presented here are whether the voluntary dismissal of the Section 15 claim in the Credit Suisse action is a final judgment on the merits with respect to that claim and whether the section 25504 claim asserted against Countrywide in the declaratory relief action is the same cause of action as the Section 15 claim in the Credit Suisse action.
Section 25501 establishes liability for violations of section 25401, which prohibits sales of securities “by means of any written or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” (§ 25401.)