LGCY POWER, LLC, Petitioner, v. THE SUPERIOR COURT OF FRESNO COUNTY, Respondent; MICHAEL JED SEWELL, Real Party in Interest.
F082353 (Super. Ct. No. 20CECG01508)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIFTH APPELLATE DISTRICT
Filed 3/1/22
CERTIFIED FOR PUBLICATION
Alston & Bird, Jesus M. Jauregui, Kaitlin H. Owen and Newman A. Nahas, for Petitioner.
No appearance for Respondent.
Snell & Wilmer, Mark O. Morris, Jing Hua, Cameron J. Cutler and Sarah A. Hafen, for Real Party in Interest.
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This writ proceeding requires us to address the interplay between section 925 and California‘s compulsory cross-complaint statute (
The petitioner in this writ proceeding, LGCY Power, LLC (“LGCY“), is a Utah limited liability company formed in Delaware and headquartered in Salt Lake County, Utah. It markets and sells residential solar energy systems in various parts of the western United States. Michael Jed Sewell, the real party in interest, is a California resident who worked for LGCY as a sales representative, and later a sales manager, from January 2015 to August 2019.
Around August 2019, Sewell and six other former LGCY executives and managers left LGCY and formed a competing solar company. LGCY filed suit in Utah state court against all seven of them, alleging various causes of
Most of the defendants, but not Sewell, filed a joint cross-complaint in the Utah action alleging claims including LGCY‘s breach of their employment agreements and failure to pay wages and commissions. Rather than join this cross-complaint, Sewell filed a complaint in Fresno County Superior Court alleging virtually identical claims as those of his codefendants in their Utah cross-complaint.
LGCY demurred to Sewell‘s complaint, contending his causes of action were barred by both California and Utah‘s compulsory cross-complaint statutes, which both require that a defendant bring any related causes of action he or she has against the plaintiff in a cross-complaint. (
LGCY brings this petition for a writ of mandate challenging the Fresno County Superior Court‘s order overruling its demurrer. LGCY requests we issue a writ of mandate directing the superior court to vacate its order overruling the demurrer and enter a new order sustaining the demurrer.
We are required to answer two related questions of first impression in this opinion. First, does section 925 provide an exception to California‘s compulsory cross-complaint statute (
Second, if a related action was filed first and is still pending in a sister state (here, Utah), does the Clause compel a state court (here, California) to extend credit to and apply the sister state‘s compulsory cross-complaint statute? We conclude the answer to this question is no.
LGCY has not demonstrated that the Fresno County Superior Court erred in overruling its demurrer, and we therefore deny its petition.
I. Background
LGCY is a Delaware limited liability company with its principal place of business in Utah. LGCY is a certified partner of a company called Sunrun Solar which markets and sells residential solar energy systems in various parts of the western United States, primarily through direct door-to-door sales. LGCY hires an extensive number of sales managers and representatives. The sales managers and representatives are required to sign comprehensive employment agreements which include noncompetition, non-solicitation, and confidentiality provisions.
Sewell joined LGCY in January 2015 and signed a “Solar Representative Agreement” with LGCY that month. The agreement stated Sewell was hired as a “solar sales representative in such geographic area (“Area“) as the Company may determine to sell solar panels, solar panel-related products and services offered by the Company[.]” Sewell was to be compensated as set forth in a compensation schedule attached to the agreement. The agreement provided Sewell would be an independent contractor and not an employee.
The agreement also contained a provision pertaining to choice of law and forum selection issues. We will refer to this provision as “the Provision.” Regarding choice of law, the Provision stated the agreement “shall be governed by the laws of State of Utah, without giving effect to any choice of law provision or rule (whether in the State of Utah or any other jurisdiction) that would cause the application of the laws of any jurisdictions other than the State of Utah.” As for the litigation forum, the Provision stated that jurisdiction and venue for any legal action arising out of any of the subject matter addressed in the agreement “shall be in the state or federal Utah court of competent jurisdiction.” The record on appeal contains only Sewell‘s employment agreement, so it is unknown precisely how similar it was to any of LGCY‘s other employment agreements.
Around August 2019, Sewell and several other executives and managers left LGCY and formed a solar sales company, Sunder Energy, LLC (“Sunder“), in direct competition with LGCY. Sunder was formed in Delaware and its principal executive office is in South Jordan, Utah, which is in Salt Lake County.
II. Utah litigation
On September 23, 2019, LGCY filed a complaint in state court in the Third Judicial District Court, Salt Lake County, State of Utah, captioned as LGCY Power, LLC v. Nielsen et al, Case No. 190907492, against Sewell and six other individuals engaged in the Sunder enterprise. The complaint alleged causes of action against the defendants for breach of their employment agreements, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, breach of the Utah Uniform Trade Secrets Act (Utah Code Ann. § 13-24-1, et seq.), intentional interference with contract and prospective economic relations, and declaratory relief. All of the causes of action were against all defendants, except the declaratory relief claim, which was against only one of the defendants (not Sewell).
The gravamen of LGCY‘s claims was that the defendants, acting in concert, breached contractual obligations and fiduciary duties during and after the time they worked for LGCY, misappropriated LGCY‘s trade secrets, and tortiously interfered with LGCY‘s existing and prospective contractual relationships. The defendants supervised LGCY‘s sales operations in a number of states, including Arizona, Nevada, California, and Texas.
The complaint further averred all seven defendants signed employment agreements when they were hired by LGCY, and each of their agreements contain the same noncompetition, non-solicitation, confidentiality clauses, and choice of law and venue provisions. It was also alleged that each of the defendants had managerial or executive responsibilities.
On November 18, 2019, Sewell and the other named defendants filed a joint answer to the complaint. On February 11, 2020, four of the defendants—excluding Sewell—filed a joint cross-complaint in the Utah court alleging claims including breach of contract and failure to pay wages owed under the respective laws of the states of Utah, Arizona, Nevada, and Texas.4 The cross-complaint also alleged LGCY failed to pay for commissions owed under each defendant‘s respective employment agreement.
A. Motion to dismiss the California defendants
Before the four defendants filed their joint cross-complaint, on December 13, 2019, Sewell and defendant Michael Gutschmidt, who both resided in California at that time, filed a motion to dismiss the two of them as defendants on the stated grounds of forum non conveniens and lack of personal jurisdiction. Relevant to both grounds, Sewell and Gutschmidt (“California defendants“) submitted declarations stating that they both had been living and working in California for many years (Sewell since January 2016
The California defendants also argued in their motion that the Utah court should give “little deference” to the forum selection clause in their employment agreements because LGCY‘s decision to sue in Utah “seeks to circumvent the substantial protections that California law affords its employees and independent contractors.” The two defendants discussed the applicability of
“(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:
“(1) Require the employee to adjudicate outside of California a claim arising in California.
“(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.
“(b) Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.
“(c) In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing his or her rights under this section reasonable attorney‘s fees.
“(d) For purposes of this section, adjudication includes litigation and arbitration.
“(e) This section shall not apply to a contract with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.
“(f) This section shall apply to a contract entered into, modified, or extended on or after January 1, 2017.” ( § 925 .)
The California defendants cited to Utah case law purportedly holding that an “unfair or unreasonable” forum selection provision may be set aside (Prows v. Pinpoint Retail Systems, Inc. (Utah 1993) 868 P.2d 809, 812) and that such a provision is unfair or unreasonable if it contravenes strong public policy of either the forum state or the state preferred by the defendant. (Jacobsen Const. Co., Inc. v. Teton Builders (Utah 2005) 106 P.3d 719, 724.) The defendants argued the court should give no deference to LGCY‘s decision to sue in Utah in light of California‘s public policy against restrictive employment covenants and forum selection causes in employment agreements.
LGCY filed an opposition to all the grounds raised. In their reply, the California defendants raised the additional argument that the Utah court should apply principles of comity and defer to California‘s strong public policy against forum selection clauses.
On March 30, 2020, the Utah court denied the motion to dismiss. The court concluded Utah was an appropriate forum under Utah‘s forum non conveniens doctrine and stated that “[t]he question of which state‘s law applies is not a proper consideration in the forum non conveniens analysis.” The court also ruled it had personal jurisdiction over the California defendants because there was a “rational nexus” to exercise jurisdiction over them based, in part, on their consenting to Utah‘s jurisdiction in the forum selection clause of their employment agreements. The court also stated it was not ruling on the comity issue because it was belatedly raised in the reply brief, and not ruling on the choice of law question. However, the court stated the California defendants could reassert both of those issues in a later filing.
B. California defendants’ summary judgment motion
On June 18, 2020, Sewell and Gutschmidt filed a motion for summary judgment in the Utah action. They argued that because they are California residents, the Utah court should invoke principles of comity and apply California law with respect to the two of them. They first argued that the noncompetition clauses of their respective employment agreements are void under
LGCY contested the arguments made by the California defendants and asserted facts supporting jurisdiction in Utah. Further, in arguing that section 925 did not apply, LGCY contended the employment agreements were executed before 2017, the agreements were not duly modified as they contained a provision that any modifications to the agreements must be made in writing, and the California defendants were independent contractors, not employees.
On October 14, 2020, the Utah court denied the summary judgment motion in a brief order. The court stated it was denying the motion for the reasons discussed on the record at the motion hearing, but the parties have not included a reporter‘s transcript of that hearing in this proceeding. However, the court‘s order did state that the court concluded “the application of comity as requested in the Summary Judgment Motion is not appropriate in this case.” The order also stated the court “did not reach any choice-of-law issues and does not make any choice-of-law determinations[.]”
II. California litigation
A. Sewell action – Fresno County Superior Court
Sewell filed a complaint against LGCY in Fresno County Superior Court on May 22, 2020, alleging, among other things, claims of breach of contract, unjust enrichment, and California wage claims, and requesting declaratory relief. He avers that as a regional manager for LGCY he was misclassified as an independent contractor and LGCY failed to pay him roughly $80,000 in commissions.
On June 30, 2020, LGCY demurred to the complaint, claiming Sewell‘s claims were compulsory cross-complaints under
LGCY argued that since Sewell‘s claims against LGCY arise from his contractual relationship with LGCY—the same contractual relationship from which LGCY‘s claims arose against him—Sewell was required under both California and Utah‘s compulsory cross-complaint statutes to assert his claim in a cross-complaint in the Utah action. Sewell‘s failure to do so, LGCY contends, barred his claims.
On November 4, 2020, Sewell filed an opposition to the demurrer arguing that section 925 created an applicable exception to
On December 10, 2020, the superior court overruled the demurrer in its entirety. First, the court noted
“[LGCY] also argues that Labor Code section 925 does not create an exception to the compulsory cross-complaint statute. This argument is not persuasive. To hold that Section 925 is not an exception under Code of Civil Procedure section 426.30 would render Section 925 meaningless[,] thereby violating the rules of statutory construction. When courts interpret a statute, the fundamental task is to determine the Legislature‘s intent so as to effectuate the law‘s purpose. (See City of San Jose v. Superior Court (2017) 2 Cal.5th 608, 616.) It is evident from the text of Section 925 that the statute‘s intent is to provide a California-based
employee with a California forum to litigate employment-related claims if the terms of his or her employment change on or after January 1, 2017. (See Midwest Motor Supply Co. v. Superior Court of Contra Costa County (2020) 56 Cal.App.5th 702.) “The demurrer is overruled.”
B. Gutschmidt action – San Diego County Superior Court
On May 27, 2020, Gutschmidt filed his own separate action in San Diego County Superior Court alleging, among other things, claims of breach of contract, unjust enrichment, and California wage claims, and requesting declaratory relief. Namely, Gutschmidt contends that as a regional manager for LGCY he was misclassified as an independent contractor and LGCY failed to pay him roughly $70,000 in commissions.
On December 16, 2020, the superior court sustained LGCY‘s demurrer to the Gutschmidt action without leave to amend. This ruling was made six days after the Fresno County Superior Court‘s ruling that is the basis of this writ petition. We discuss it because it provides useful context.
First, the San Diego court found Gutschmidt‘s claims to be compulsory counterclaims under either Utah or California statutory law and thus were required to be asserted in the Utah action. The court declined to accept either of Gutschmidt‘s arguments that (1) he was not required to assert the crossclaims based on section 925, and (2) the Utah court lacked personal jurisdiction over him.
With regard to the application of section 925, the court explained that even were it applicable, it would make the employment agreement voidable, not void, and there was no evidence the parties took any action to exercise the option to void the agreement:
“The language here is permissive: providing only that certain contractual provisions are ‘voidable’ if requested by an employee in a dispute that is covered by the statue. Cal. Lab. Code § 925(b). Section 925 does not, by its terms, prevent a California employee from pursuing claims in any jurisdiction.
“Further, nothing in the language of Section 925 overturns principles of law requiring the adjudication of related claims among parties in a single action. Cal. Civ. Pro. Code § 426.30(a). There is no authority that Section 925 is an exception to California‘s compulsory cross-complaint statute or to the compulsory counterclaim laws of any other state.
“Under the compulsory cross-complaint statute, Section 426.40(b) instructs that the compulsory cross-complaint rule does not apply if the other court is ‘prohibited ... from entertaining the cause of action not pleaded.’ Cal. Civ. Pro. Code § 426.40(b) (emphasis added). Section 925, by its plain terms, does not prohibit Gutschmidt from pursing his claims against LGCY in Utah. Gutschmidt offers no reason why he cannot pursue his claims against LGCY in the Utah action.”
The court also deferred to the Utah‘s court‘s finding that Gutschmidt is subject to personal jurisdiction in Utah. Accordingly, the San Diego Superior Court ordered Gutschmidt‘s entire action dismissed without prejudice.
III. Writ petition filed
On February 9, 2021, LGCY filed the instant petition challenging the superior court‘s ruling overruling the demurrer. The petition asserted Sewell‘s causes of action asserted in the California action are barred as a matter of law for multiple reasons and asked this court to issue a writ of mandate directing the superior court to vacate its ruling overruling the demurrer and to enter a new ruling sustaining the demurrer.
On June 18, 2021, we issued an order staying the superior court proceedings in the California action and directing Sewell to file an informal response to the merits of LGCY‘s petition. We asked Sewell to address five issues LGCY raised in its petition, which he did in a filed response to our order, and LGCY then filed a reply to Sewell‘s response. We then issued an order to show cause, after which Sewell filed a written return and LGCY filed a reply to the return.
DISCUSSION
I. Standard of review
The decision to sustain or overrule a demurrer is a legal ruling subject to de novo review on appeal. (Balikov v. Southern California Gas Co. (2001) 94 Cal.App.4th 816, 819.) We likewise review questions of statutory interpretation de novo. (Christensen v. Lightbourne (2019) 7 Cal.5th 761, 771.)
II. LGCY‘s contentions
LGCY contends the trial court erred in overruling the demurrer for two independent and sufficient reasons. First, it claims the Full Faith and Credit Clause of the United States Constitution required the superior court to give
Second, LGCY contends that, notwithstanding that the Clause mandates that Utah law be applied, Sewell‘s claims are also compulsory counterclaims under California‘s compulsory cross-complaint statute (
We first will explain how Sewell‘s claims are not compulsory counterclaims under California law because section 925 provides an exception to California‘s compulsory cross-complaint statute. This exception allowed Sewell to bring his claims here in California despite there being a related action pending in a sister state. We also will reject LGCY‘s arguments that there are factual threshold issues regarding the applicability of section 925 that prevent its application to Sewell here. We then will explain how the Clause did not compel the superior court to give full faith and credit to Utah‘s compulsory cross-complaint statute.
III. Principles of statutory interpretation
We set forth the pertinent rules of statutory construction that inform our interpretation of section 925 and relevant sections of the
“In the first step of the interpretive process we look to the words of the statute themselves. [Citations.] The Legislature‘s chosen language is the most reliable indicator of its intent because ’ “it is the language of the statute
Furthermore, we are not empowered to insert language into a statute, as “[d]oing so would violate the cardinal rule of statutory construction that courts must not add provisions to statutes.” (Security Pacific, supra, 51 Cal.3d at p. 998.; see also
IV. California statutory law does not bar Sewell‘s claims
LGCY‘s claims and Sewell‘s claims are all based on the same contract, Sewell‘s employment agreement, and thus are all “related cause[s] of action” under
We recognize that section 925 does not reference
Section 925, subdivision (b), provides that in any instance in which a contractual provision that violates subdivision (a) is rendered void at the employee‘s request, “the matter shall be adjudicated in California and California law shall govern the disputes.” (Italics added.) This language clearly evinces a legislative intent that all cases and controversies that fall within section 925‘s purview be litigated in California. Consistent with this interpretation is the fact that section 925 provides no exceptions to its applicability, even for instances in which the employer has already filed a pending action against the employee in another state.
There will, of course, be instances, as in this case, where the employer will file suit first in a sister state, the employee will move the sister state‘s court to dismiss the action on section 925 grounds, and the court will
LGCY argues that it is significant that section 925 provides that contract clauses that violate subdivision (a) are only “voidable” at the request of the employee, instead of void ab initio. As LGCY contends, “[t]he word ‘voidable’ here is dispositive.” LGCY explains, by citing to long-time California precedent, that voidable contracts do not become void until (1) a litigant petitions a tribunal to adjudicate the provision void, and (2) the tribunal grants the petition. LGCY cites Storrs v. Belmont Gold Min. & Milling Co. (1938) 24 Cal.App.2d 551, 556:
” ‘A voidable act takes its full and proper legal effect unless and until it is disputed and set aside by some tribunal entitled so to do. [Citation.] “Voidable” means subject to be avoided by judicial action of a court of adequate jurisdiction. [Citation.] And a voidable contract is one which is void as to the wrongdoer but not void as to the wronged party unless he elect[s] to so treat it. [Citation.] A voidable contract is one which may be rendered null at the option of one of the parties, but is not void until so rendered.’ ”
LGCY states that Sewell failed to move the Utah court to void the Provision when his counterclaims became due, and no court had ever adjudicated the Provision void. From this, LGCY argues that, when Sewell‘s claims became due as counterclaims in Utah, section 925 had no effect because one of the conditions precedent to its effect—i.e., that the forum selection clause be rendered void—was not satisfied. From this LGCY concludes “Sewell‘s claims would have been equally due under California law as under Utah law, and they would have been equally subject to waiver.”
This argument is somewhat unclear. However, we perceive LGCY to ultimately be heading toward this conclusion: Sewell‘s failure to have obtained a court order voiding the Provision before filing his California complaint means that section 925 did not apply to him, and, therefore, section 925 could not provide him an exception to California‘s compulsory cross-complaint statute in this case.
Before explaining why we disagree with this conclusion, we first would note that LGCY is probably correct that, under section 925, a violative forum selection clause is not void until a court renders a decision ruling it
But assuming a court order was required to void the Provision, section 925 did not require Sewell to request or obtain such an order prior to his claims becoming due in Utah or prior to filing his original complaint in California, lest section 925 become unavailable for him. Indeed, section 925 does not contain time limits.
Since section 925 does not state a time limit for requesting to void a violative provision, we would apply notions of fairness and reasonableness in this situation to determine whether Sewell‘s request to void was timely. But before applying these notions here, we first would need to conclude Sewell made such a request to the court and the court did issue such an order. We conclude that Sewell‘s complaint contained a clear request to void the Provision and that the court‘s order overruling the demurrer necessarily entails the court voided the Provision.
Sewell‘s complaint asserts as part of the claim for declaratory relief that he is “entitled to an order from this Court declaring that” his entire employment agreement is void for violating California public policy and “various California statutes,” and specifically that the Provision is void for violating
LGCY argues that Sewell never “requested” the Provision be voided; instead, in LGCY‘s view, Sewell assumed he could void the Provision himself by merely expressing an intent that it be void. First, we have just explained that Sewell did request that the court void the provision. Second, it would not matter here if Sewell ever made such a request or instead just assumed he could void the Provision himself. This is because while the
Finally, LGCY argues section 925 cannot provide an exception to
A. Threshold issues bearing on section 925‘s applicability
As we have mentioned, LGCY disputes that section 925 applies even as a threshold matter. It contends in its petition for writ of mandate the timing of the contract and the nature of the relationships between LGCY and Sewell remove Sewell from section 925‘s protections for at least two reasons. First, section 925 only applies to contracts that were “entered into, modified, or extended on or after January 1, 2017,” and Sewell‘s contract was entered into in January 2015 and, LGCY argues, not modified after January 1, 2017. Second, section 925 only applies by its terms to an “employee” who enters into an “employment” relationship with an “employer,” and LGCY contends Sewell was an independent contractor, not an employee. Additionally, our June 18, 2021, order for an informal response raised a third threshold question: Did Sewell ever manifest an intent to void his employment agreement?
We have already answered this third question: Sewell did timely manifest an intent to void his agreement, and furthermore the superior court‘s order overruling the demurrer necessarily concluded the Provision is void. We will now address the two threshold issues LGCY raises.
1. Sewell‘s status as an employee
LGCY asserts in a footnote in its petition for writ of mandate that section 925 only applies by its terms to an “employee,” and Sewell was an
We conclude LGCY has forfeited any argument regarding Sewell‘s classification as a worker for failure to present it under a separate heading in the memorandum supporting its writ petition. California Rules of Court, rule 8.485 provides that, with exceptions not applicable here, “rule 8.204 governs the form and content of documents in” writ proceedings. Rule 8.204(a), governing the contents of briefs in civil appeals, requires that a brief “state each point under a separate heading or subheading summarizing the point[.]” (Cal. Rules of Court, rule 8.204(a)(1)(B).) Case law also counsels toward finding forfeiture in these circumstances. (Consolidated Irrigation Dist. v. City of Selma (2012) 204 Cal.App.4th 187, 201 [argument not presented under a separate heading forfeited]; Hall v. Department of Motor Vehicles (2018) 26 Cal.App.5th 182, 193 [argument in footnote forfeited]; Sabi v. Sterling (2010) 183 Cal.App.4th 916, 947 [“Footnotes are not the appropriate vehicle for stating contentions on appeal.“]; Colores v. Board of Trustees (2003) 105 Cal.App.4th 1293, 1301, fn. 2 [“[I]t is not appropriate to incorporate by reference, into a brief, points and authorities contained in trial court papers, even if such papers are made a part of the appellate record“].) “These well settled rules of appellate practice are not mere technicalities. They ensure that opposing parties are fairly apprised of contentions so as to afford a full and fair opportunity to respond.” (Golden Door Properties, LLC v. County of San Diego (2020) 50 Cal.App.5th 467, 555.)
In light of this forfeiture finding, we will not address the superior court‘s implied finding that, for purposes of the demurrer, Sewell‘s complaint alleged sufficient facts to establish he was a LGCY employee and not an independent contractor.
2. Oral modification of employment agreement
The superior court concluded Sewell‘s promotion and resulting change in pay structure and job responsibilities, which occurred after January 1, 2017, constituted modifications to Sewell‘s employment agreement that would bring it within the purview of section 925. We find no error in this conclusion.
Sewell does not dispute that his employment agreement was never modified in writing. We also recognize the agreement contained a clause
We first observe Sewell‘s employment agreement set forth his position, job responsibilities, and compensation structure, and thus a change to any of these aspects would constitute a modification to the written agreement. A modification to compensation has already been held to be sufficient to bring an employment contract within the purview of section 925. (Midwest Motor Supply, supra, 56 Cal.App.5th at pp. 715—716.) Midwest Motor Supply involved a written modification to an employment contract, which is not the case here. But this is irrelevant because Sewell‘s complaint avers that his pay structure “changed” in “April or May 2017.” We liberally construe this allegation to mean that his new pay structure was effectuated in April or May 2017, resulting in an “executed” (not merely executory) modification to the employment agreement (
We therefore conclude that, for purposes of the demurrer, the alleged oral modifications to Sewell‘s position, job responsibilities, and compensation structure, occurring after January 1, 2017, were sufficient to bring Sewell‘s employment agreement under section 925.6 That Sewell‘s employment agreement contains a provision that requires all modifications be in writing does
V. Full Faith and Credit doctrine
Our analysis does not end with our conclusion that section 925 provides an applicable exception to California‘s compulsory cross-complaint statute and therefore the trial court did not err in overruling the demurrer based on California law. This is because LGCY argues that, even if section 925 provides an exception to California‘s compulsory cross-complaint statute, the Full Faith and Credit Clause of the United States Constitution nevertheless compelled the superior court to apply Utah‘s compulsory cross-complaint rule in determining whether Sewell could bring his claims in California.
The United States Supreme Court has interpreted the Clause as requiring that an out-of-state judgment be given the same effect in the several
However, different credit is owed to statutes versus judgments under full faith and credit precedent. In the United States Supreme Court‘s words:
“As we have explained, ‘[o]ur precedent differentiates the credit owed to laws (legislative measures and common law) and to judgments.’ Baker [by Thomas] v. General Motors Corp., 522 U.S. 222, 232, 118 S.Ct. 657, 139 L.Ed.2d 580 (1998). Whereas the full faith and credit command ‘is exacting’ with respect to ‘[a] final judgment ... rendered by a court with adjudicatory authority over the subject matter and persons governed by the judgment,’ id., at 233, 118 S.Ct. 657, it is less demanding with respect to choice of laws. We have held that the Full Faith and Credit Clause does not compel ’ “a state to substitute the statutes of other states for its own statutes dealing with a subject matter concerning which it is competent to legislate.” ’ Sun Oil Co. v. Wortman, 486 U.S. 717, 722, 108 S.Ct. 2117, 100 L.Ed.2d 743 (1988) (quoting Pacific Employers Ins. Co. v. Industrial Accident Comm‘n, 306 U.S. 493, 501, 59 S.Ct. 629, 83 L.Ed. 940 (1939)).” (Franchise Tax Bd. of California v. Hyatt (2003) 538 U.S. 488, 494 (Hyatt I).)
The United States Supreme Court further instructs that the Clause ” ‘does not require a State to substitute for its own statute, applicable to persons and events within it, the statute of another State reflecting a conflicting and opposed policy.’ ” (Hyatt II, supra, 578 U.S. at p. 176; quoting Carroll v. Lanza (1955) 349 U.S. 408, 412.) However, a state may not enact a law that advances a ” ‘policy of hostility to the public Acts’ ” of a sister state. (Hyatt II, at p. 176.)
LGCY does not acknowledge this United States Supreme Court precedent holding that statutes are entitled to less credit than judgments. Instead, LGCY makes an argument that implies that Utah‘s compulsory cross-complaint rule is entitled to the same credit as a final judgment. Its argument also implies that the superior court was constitutionally compelled to apply the Utah statute even though no final judgment had yet been
The case LGCY relies on is R.S. v. PacifiCare Life & Health Ins. Co. (2011) 194 Cal.App.4th 192 (PacifiCare). It cites that case for the proposition that “[w]hen, as here, a California court is determining whether claims that could have been asserted in a prior related action are barred, the Full Faith and Credit Clause of the U.S. Constitution requires the California court to consider the compulsory cross-complaint rule of the foreign state.” However, PacifiCare‘s holding does not instruct that the superior court here was compelled under full faith and credit principles to apply Utah‘s Rule 13(a) to Sewell‘s claims.
In PacifiCare, multiple insurance companies together filed a lawsuit in Missouri state court seeking to rescind insurance policies for two insured individuals. (PacifiCare, supra, 194 Cal.App.4th at p. 196.) Five months later, the insureds filed in the Missouri action a cross-complaint for breach of contract based on the insurer‘s termination of benefits. (Ibid.) The insureds later dismissed without prejudice their breach of contract cross-complaint, and the next day filed in California state court a complaint against the insurers seeking damages for breach of contract and related claims. (Ibid.)
The insurers moved the California court to stay the California proceeding since the California complaint raised issues identical to those raised in the company‘s Missouri declaratory relief action. The insurers asked the California court to await the Missouri court‘s entry of judgment before proceeding with the California matter, and the California court agreed. (PacifiCare, supra, 194 Cal.App.4th at p. 196.) The Missouri court eventually entered judgment for the insureds and ordered the insurers to pay the insureds their full benefits under their policies, including benefits withheld in the past. (Ibid.)
The California court lifted its stay after the Missouri court entered its judgment, and the insurers thereafter demurred to the California complaint. (PacifiCare, supra, 194 Cal.App.4th at p. 196.) The demurrer argued that Missouri‘s compulsory cross-complaint rule, which insurers asserted California had to apply under full faith and credit principles, barred the insureds’
The trial court sustained the demurrer without leave to amend, recognizing that “constitutional mandates and California law directed the court to look to Missouri law to determine the consequences under Missouri‘s compulsory counterclaim rule of [the insureds] not pursuing their counterclaims in the Missouri proceeding.” (PacifiCare, supra, 194 Cal.App.4th at p. 197.) The trial court concluded that, under Missouri‘s compulsory cross-complaint law, the Missouri judgment barred the insureds’ California claims because those claims could have and should have been brought as counterclaims in Missouri. (Ibid.) The Court of Appeal affirmed, stating that “[t]he full faith and credit clause obligates California to enforce the Missouri judgment to the same effect as if [the insurers] sought the judgment‘s enforcement in Missouri.” (Id. at p. 201.)
LGCY contends PacifiCare could not be more apposite. However, PacifiCare‘s fundamentally different procedural posture renders it inapposite to this case. PacifiCare involved the preclusive effect of a judgment, whereas this case presents the question of what preclusive effect a statute has before a final judgment is entered. The similarity between PacifiCare and this case is that both present a question concerning the credit owed to a sister state‘s compulsory cross-complaint statute. LGCY highlights this similarity but downplays the critical difference that in PacifiCare a final judgment had been obtained, which is not the case here.
The PacifiCare court‘s reasoning makes clear that the existence of a final judgment in the sister state (Missouri) controlled the analysis and disposition there. Because there was a final judgment rendered in Missouri, the Clause required the California court to determine what effect that judgment would have in Missouri and then apply that same effect in California. To determine the effect the judgment would have there, the Court of Appeal correctly observed it had to consider the effect of Missouri‘s compulsory cross-complaint statute. The Court of Appeal cited Missouri case law holding that Missouri‘s ” ‘compulsory counterclaim rule is simply the codification of the principles of res judicata and collateral estoppel. Claims and issues which would have been litigated in a prior adjudicated action are precluded in a later action between the same parties or those in privity with them.’ ” (PacifiCare, supra, 194 Cal.App.4th at p. 203, quoting Beasley v. Mironuck (Mo.Ct.App.1994) 877 S.W.2d 653, 656.) Since the effect of the Missouri judgment would be to bar the insureds’ counterclaims in Missouri, the California Court of Appeal correctly concluded that full faith and credit principles required that the judgment be given that same effect in California.
Therefore, the single case LGCY relies on to support its argument is inapposite. We have found no other authority standing for LGCY‘s proposition that, in these circumstances, the Clause compels a California court to give credit to a sister state‘s compulsory cross-complaint statute while the sister state case is still pending and hence a final judgment has not yet been entered. We therefore reject LGCY‘s contrary proposition. LGCY has not presented a convincing argument as to how the Clause compelled the superior court to sustain its demurrer to the California action.
We recognize that denying this petition creates the possibility that the Utah and California actions will proceed concurrently, and that one action may lead to a judgment first and then be applied as res judicata in the other. This ” ‘is a natural consequence of parallel proceedings in courts with concurrent jurisdiction[.]’ ” (Advanced Bionics Corp. v. Medtronic, Inc. (2002) 29 Cal.4th 697, 706.) However, avoiding this undesirable possibility requires a public-policy exception to the Clause that the law does not recognize.
DISPOSITION
The order to show cause is discharged and the petition for writ of mandate is denied. Upon finality of this opinion, the stay of trial proceedings is vacated. (State Water Resources Control Bd. v. Superior Court (2002) 97 Cal.App.4th 907, 919.) Real party in interest is awarded his costs on appeal.
WE CONCUR:
POOCHIGIAN, ACTING P. J.
DETJEN, J.
SNAUFFER, J.