PETER WOJCIECHOWSKI, on his own behalf and on behalf of all other persons similarly situated v. KOHLBERG VENTURES, LLC
No. 17-15966
United States Court of Appeals, Ninth Circuit
May 8, 2019
Opinion by Judge Gould
D.C. No. 3:16-cv-06775-MEJ
FOR PUBLICATION
Appeal from the United States District Court for the Northern District of California
Maria-Elena James, Magistrate Judge, Presiding
Argued and Submitted March 7, 2019
Seattle, Washington
Filed May 8, 2019
Before: Ronald M. Gould and Richard A. Paez, Circuit Judges, and Janis Graham Jack,* District Judge.
Opinion by Judge Gould
SUMMARY**
Labor Law / Claim Preclusion
Reversing the district court‘s dismissal, the panel held that claim preclusion did not bar a claim аgainst Kohlberg Ventures, LLC, under the Worker Adjustment Retraining and Notification Act because a settlement agreement approved by the bankruptcy court in a prior class action did not release any claims against Kohlberg.
The panel concluded that the parties in the bankruptcy proceeding did not intend their settlement to extend to Kohlberg. Accordingly, claim preclusion did not bar plaintiff‘s WARN Act claim against Kohlberg. The panel remanded the case for further proceedings.
COUNSEL
Robert N. Fisher (argued), René S. Roupinian, and Jack A. Raisner, Outten & Golden LLP, New York, New York; Gail L. Chung, Outten & Golden LLP, San Francisco, California; for Plaintiff-Appellant.
Daniel L. Thieme (argued), Littler Mendelson P.C., Seattle, Washington; Michael F. McCabe and George J. Tichy II, Littler Mendelson P.C., San Francisco, California; for Defendant-Appellee.
GOULD, Circuit Judge:
“By ‘preclud[ing] parties from contesting matters that they have had a full and fair opportunity to litigate,‘” the related doctrines of claim and issue preclusion “protect against ‘the expense and vexation attending multiple lawsuits, conserv[e] judicial resources, and foste[r] reliance on judicial action by minimizing the possibility of inconsistent decisions.‘” Taylor v. Sturgell, 553 U.S. 880, 892 (2008) (alterations in original) (quoting Montana v. United States, 440 U.S. 147, 153-154 (1979)).1 We consider here
We hold that the settlement agreement—and in particular, the intent of the settling parties—determines the preclusive effect of the previous action. Because the settlement agreement specifically did not release Wojciechowski‘s and the class‘s claims against Kohlberg, claim preclusion does not bar Wojciechowski‘s current claim. The distriсt court erred in dismissing this action, and we reverse and remand for further proceedings.
I2
Wojciechowski was formerly employed by ClearEdge Power, LLC. He was terminated without notice. Six days later, ClearEdge Power, LLC—along with its owner, ClearEdge Power, Inc.—filed for bankruptcy.
Wojciechowski filed an adversаry class action against the ClearEdge entities in the bankruptcy court. He alleged that the two ClearEdge entities were a “single employer” under the Worker Adjustment and Retraining Notification (“WARN“) Act,
Wojciechowski settled that action. Per the settlement agreement, the class released all claims it had against “(i) Defendants ClearEdge, Power, Inc. and ClearEdge Power, LLC and their respective estates,” and “(ii) each of the Defendants’ current and former shareholders, officеrs, directors, employees, accountants, attorneys, representatives and other agents, and all of their respective predecessors, successors and assigns, excluding any third parties which may or may not be affiliated with Defendants ClearEdge Power, Inc. and ClearEdge Power LLC, including, but not limited to Kohlberg Ventures LLC.” Kohlberg was not involved in the bankruptcy proceedings or in settlement negotiations. The bankruptcy court approved the settlement agreement and closed the case soon after. The ClearEdge estates paid a portion of the class members’ WARN Act wages and benefits.
Wojciechowski then filed this putative class action. He alleges that Kohlberg, as a “single employer” with the ClearEdge entities, violated the WARN Act when it fired him without advance notice. Wojciechowski seeks “an award for the balance of
Kohlberg moved to dismiss Wojciechowski‘s claim on the basis of claim preclusion. The district court granted Kohlberg‘s motion. Relevant here, the district court held that Kohlberg could not be bound by the settlement аgreement—and the provision preserving the class‘s claims against Kohlberg—because Kohlberg was not a party to the adversary proceeding and did not agree to allow Wojciechowski to split his claim.
Wojciechowski timely appealed.
II
We review de novo whether claim preclusion bars Wojciechowski‘s claim. Harris v. Cty. of Orange, 682 F.3d 1126, 1131 (9th Cir. 2012). Kohlberg must establish that preclusion applies. Taylor, 553 U.S. at 906.
III
A
Under the doctrine of claim preclusion, “a final judgment on the merits” in a case precludes a successive action between “identical parties or privies” concerning “the same ‘claim’ or cause of action.” Mpoyo v. Litton Electro-Optical Sys., 430 F.3d 985, 987 (9th Cir. 2005) (quoting Sidhu v. Flecto Co., 279 F.3d 896, 900 (9th Cir. 2002)). However, the claim preclusion “inquiry is modified in cases where the еarlier action was dismissed in accordance with a release or other settlement agreement.” U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 913 (4th Cir. 2013).4
A judgment entered “based upon the parties’ stipulation, unlike a judgment imposed at the end of an adversarial proceeding, receives its legitimating force from the fact that the pаrties consented to it.” Norfolk S. Corp. v. Chevron, U.S.A., Inc., 371 F.3d 1285, 1288 (11th Cir. 2004). “A settlement can limit the scope of the preclusive effect of a dismissal with prejudice by its terms.” U.S. ex rel. Barajas v. Northrop Corp., 147 F.3d 905, 911 (9th Cir. 1998); see also Pactiv Corp. v. Dow Chem. Co., 449 F.3d 1227, 1231 (Fed. Cir. 2006) (noting that “parties can, in a separate agreement, reserve the right to litigate a claim that would otherwise be barred by” claim preclusion); May v. Parker-Abbott Transfer & Storage, Inc., 899 F.2d 1007, 1010 (10th Cir. 1990) (commenting that “consent decrees are of a contractual nature and, as such, their terms may alter the preclusive effects of a judgment“); Restatement (Second) of Judgments § 26(1)(a) (1982) (preclusion does not apply if “[t]he parties have agreed in terms or in effect that the plaintiff may split his claim“).
We look to the intent of the settling parties to determine the preclusive effect of a dismissal with prejudice entered in accordance with a settlement agreement, rather than to general principles of claim preclusion. See F.T.C. v. Garvey, 383 F.3d 891, 898 n.7 (9th Cir. 2004) (“The basically contractual nature of consent
Here, Wojciechowski and the class in the prior bankruptcy proceeding settled their WARN Act claim against the ClearEdge entities. The bankruptcy court approved the settlement agreement and closed the case, giving the agreement preclusive effect. See RFF Family P‘ship, LP v. Ross, 814 F.3d 520, 532 (1st Cir. 2016) (“We have held in cases under federal law that settlements may have preclusive effect if there is court approval of the settlement or there is entry of judgment with prejudice.“); 18A Charles Alan Wright et al., Federal Practice and Procedure § 4443 (3d ed. 2018 update) (“[A] private settlement agreement does not give rise to preclusion if it is not transformed into a judgment. Whatever effect it has on the future relationships between the parties derives from its force as a contract, not from res judicata.“). The settlement agreement released the class‘s claims against the ClearEdge entities and other parties, but it explicitly preserved claims against “any third parties which may or may not be affiliated with Defendants ClearEdge Power, Inc. and ClearEdge Power LLC, including, but not limited to Kohlberg Ventures LLC.” Under the unambiguous terms of the settlement agreement, Wojciechowski‘s and the class‘s claims against Kohlberg are not precluded here. See Klamath Water Users Protective Ass‘n v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 1999) (“Contract terms are to be given their ordinary meaning, and when the terms of a contract are cleаr, the intent of the parties must be ascertained from the contract itself.“), as amended on denial of reh‘g, 203 F.3d 1175 (9th Cir. 2000); see also Norfolk S. Corp., 371 F.3d at 1290 (“Where the plain meaning of an agreement is clear, we may not go beyond the four corners of the document to look for additional evidence of the drafters’ intentions.“).
B
Kohlberg dоes not dispute that the terms of the agreement seemingly allow Wojciechowski to pursue his current claim. Instead, Kohlberg contends that it cannot be bound by the settlement agreement because it was not a party to the adversary proceeding and did not agree to the terms of the settlеment agreement.
Kohlberg is incorrect. Two (or more) parties “may negotiate a settlement of [a] dispute and . . . execute a release of all claims. The release acts as a simple contract between the two private parties . . . .” Grimes v. Vitalink Commc‘ns Corp., 17 F.3d 1553, 1557 (3d Cir. 1994). But when a court dismisses an action because of a settlement, “the settlement and release of claims . . . is stamped with the imprimatur of [a] court with jurisdiction over the parties and the subject matter of the lawsuit.” Id. The settlement and release
Here, when the bankruptcy cоurt approved the settlement agreement in the previous action, that agreement became entitled to preclusive effect separate and apart from any contractual obligations it imposed on the parties. See RFF Family P‘ship, LP, 814 F.3d at 532 (“[S]ettlements may have preclusive effect if there is court approval of the settlement or there is entry of judgment with prejudice.“); Barajas, 147 F.3d at 911 (“A settlement can limit the scope of the preclusive effect of a dismissal with prejudice by its terms.“); Restatement (Second) of Judgments § 26(1)(b) (preclusion does not apply if “[t]he court in the first action has exprеssly reserved the plaintiff‘s right to maintain the second action.“). The agreement determines the scope of preclusion in this action as a matter of preclusion law, not as a matter of contract. See Wright, Federal Practice and Procedure § 4443. Because we are not imposing any obligations on Kohlberg as a matter of contract, it does not matter whether Kohlberg, as a nonparty to the contract, is bound by its terms. Instead, we consider whether the settling parties intended to preclude Wojciechowski‘s current claim as a matter of preclusion law. As explained above, they did not.
Kohlberg‘s contention has another fundamental flaw. Kohlberg, by raising a preclusion defense, asks us to give the settlement agreement greater preclusive effect than the parties intended. But as we have previously explained, “[t]he basically contractual nature of consent judgments has led to general agreement that preclusive effects should be measured by the intent of the parties.” Garvey, 383 F.3d at 898 n.7. We are not at liberty to give the agreement greater preclusive effect than the parties intended. See Purdue Pharma, 737 F.3d at 913 (“[G]iven the contractual nature of consent deсrees and settlement agreements, the preclusive effect of a judgment based on such an agreement can be no greater than the preclusive effect of the agreement itself.“); Bandai Am. Inc. v. Bally Midway Mfg. Co., 775 F.2d 70, 74-75 (3d Cir. 1985) (because Namco “was not a party to the settlement agreement” and “was expressly exсluded from the release which that agreement contains,” “Namco cannot use the settlement agreement or the judgment as a basis for estopping Bandai from pursuing the causes of action pleaded against it“); In re Princeton-N.Y. Inv‘rs, Inc., 255 B.R. 376, 388 (Bankr. D.N.J. 2000).
IV
We hold that claim preclusion does not bar Wojciechowski‘s WARN Act clаim against Kohlberg because the parties in the bankruptcy proceeding did not intend their settlement to extend to claims against Kohlberg.5 It is of no moment that Kohlberg neither consented to nor approved the agreement. Because claim preclusion does not bar Wojciechоwski‘s claim, we reverse the district court‘s dismissal of his claim and remand for further proceedings.
REVERSED AND REMANDED.