Sungyou Enterprise Co. v. Ghirardelli Chocolate Company

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA [6] 7 SUNGYOU ENTERPRISE CO., Case No. 22-cv-05306-TSH 8 Plaintiff, ORDER GRANTING MOTION TO 9 v. DISMISS 10 GHIRARDELLI CHOCOLATE Re: Dkt. No. 15 COMPANY, [11] Defendant. [12] 13 I. INTRODUCTION 14 Sungyou Enterprise Co. brings this breach of contract complaint against Ghirardelli 15 Chocolate Company related to an agreement to distribute Ghirardelli’s chocolate products in 16 South Korea. Ghirardelli now moves to dismiss pursuant to Federal Rule of Civil Procedure 17 12(b)(6) based on claim preclusion, arguing that Sungyou already litigated identical causes of 18 action in federal court, settled them, and dismissed them with prejudice. ECF No. 15. Sungyou 19 filed an Opposition (ECF No. 21) and Ghirardelli filed a Reply (ECF No. 25). The Court finds 20 this matter suitable for disposition without oral argument and VACATES the April 27, 2023 21 hearing. See Civ. L.R. 7-1(b). For the reasons stated below, the Court GRANTS the motion.1 22 II. BACKGROUND 23 Sungyou, a South Korean importer and distributor of food and beverages, alleges it was 24 “the exclusive distributor of Ghirardelli’s chocolate products in South Korea” from 2005 to 2018. 25 Compl. ¶¶ 1, 12, 15, ECF No. 1. Sungyou sold Ghirardelli products through Western Export 26 Services (“WES”), a Colorado corporation that distributes its clients’ foods and beverages [27] 1 internationally through local distributors. Id. ¶¶ 9, 14. By virtue of a 2003 agreement between 2 WES and Ghirardelli, WES was “the export manager for Ghirardelli for the presentation and 3 solicitation of sale of Ghirardelli’s products outside of the United States, including South Korea.” 4 Id. ¶ 10. 5 Around August 2017, disputes arose between WES and Sungyou concerning the choice of 6 a freight forwarder as well as nearly $400,000 in unpaid invoices issued by WES, which Sungyou 7 maintained it had paid in full. Id. ¶¶ 24-28. At some point, Ghirardelli became involved as a 8 “mediator.” Id. ¶ 28. However, Sungyou and WES were unable to resolve the invoice dispute. 9 Id. ¶¶ 29-33. WES decided to move forward with a new South Korean importer/distributor, 10 Samkyoung F.S. Co., Ltd., and terminated its relationship with Sungyou in September 2018, a 11 decision that Ghirardelli “support[ed].” Id. ¶¶ 35-36 (“David Cisneros of WES sent the 12 ‘Termination Notice’ to Sungyou, with copies to Raymond Sanchez of Ghirardelli.”). 13 A. Allegations in the Present Complaint 14 Sungyou asserts seven claims for relief alleging that Defendants—typically 15 “Ghirardelli/WES” or “Ghirardelli, through WES”—wronged Sungyou in connection with the 16 termination. See, e.g., id. ¶¶ 12, 39, 41, 50, 53, 54, 58, 61, 78, 81, 82, 97. Sungyou’s claims for 17 relief principally sound in contract. See id. ¶¶ 47-56 (First Cause of Action: Commercial Code 18 2711 – Failure to Deliver or Repudiation); ¶¶ 57-65 (Second Cause of Action: Breach of Contract 19 – Promissory Estoppel); ¶¶ 66-71 (Third Cause of Action: Implied Covenant of Good Faith and 20 Fair Dealing); ¶¶ 77-85 (Fifth Cause of Action: Failure to Give Reasonable Notice Under 21 Commercial Code 2309(3)). 22 Sungyou alleges WES and Ghirardelli are parties to an agreement signed in 2003 “by 23 which Ghirardelli appointed WES as the export manager for Ghirardelli for the presentation and 24 solicitation of sale of Ghirardelli’s products outside of the United States, including South Korea.” 25 Id. ¶ 10. Commencing in 2005, “Ghirardelli/WES appointed Sungyou as the exclusive importer of 26 Ghirardelli chocolate products in South Korea.” Id. ¶ 12. Since approximately 2005, Sungyou 27 sold Ghirardelli’s chocolate products “through WES on an exclusive basis in Korea.” Id. ¶ 15. In 1 provided Sungyou a statement on Ghirardelli letterhead and signed by David Cisneros as “Export 2 Manager” of “Ghirardelli Chocolate Co.” that reads: “It is hereby certified that Sungyou 3 Enterprise is the only official importer and agent of Ghirardelli Chocolate Co. in Korea, with who 4 we cooperate for exclusive distributing and marketing of Ghirardelli food service on a long term 5 basis in Korea.” Id. ¶ 18; Hall Decl., Ex. A (2007 Statement), ECF No. 16.2 Sungyou also points 6 to a June 27, 2017 letter signed by Henry Hsia as “Director of Marketing & Sales Planning” for 7 “Ghirardelli Chocolate Company” that “confirm[s] that Sungyou Enterprise is an official importer 8 in South Korea for Ghirardelli products.” Compl. ¶ 23; Hall Decl., Ex. B (2017 Letter). Sungyou 9 alleges the 2007 Statement, alone, and the 2007 Statement together with the 2017 Letter, 10 constitute a “Distributorship Agreement,” a “valid written contract.” Compl. ¶¶ 51, 78. Sungyou 11 alleges it was wrongful that “Ghirardelli/WES’ ceased to supply any Products to Sungyou, and 12 instead shifted the South Korean business to Samkyoung. Id. ¶¶ 38-41. 13 Sungyou asserts three other claims arising from the termination or the “aftermaths” of the 14 termination: Unjust Enrichment, id. ¶¶ 72-76 (Fourth Cause of Action); Cal. Civ. Code §§ 2338 , 15 2339 / Vicarious Liability / Respondeat Superior, id. ¶¶ 86–99 (Sixth Cause of Action); and 16 Prohibited Business Practice – Cal. Bus. & Prof. Code §§ 17040 , et seq., Unfair Competition, Cal. 17 Bus. & Prof. Code §§ 17200, et seq., id. ¶¶ 100-03 (Seventh Cause of Action). These claims 18 variously allege other wrongs in connection with the termination, such as diversion of orders, the 19 misappropriation of Sungyou’s South Korean distributors, and misrepresentations around the debt 20 issue that led to termination. 21 B. Sungyou’s Allegations in Its Prior Action Against WES 22 Three years before initiating this lawsuit, Sungyou brought claims against WES arising 23 from the 2018 termination as part of its Answer to Third-Party Complaint and Rule 14(a) Claim in 24 a case brought by WES in the Central District of California. See Western Export Services, Inc. v. [25] 2 “Documents not attached to a complaint may be considered if no party questions their [26] authenticity and the complaint relies on those documents.” Finkelstein v. AXA Equitable Life Insurance Co., 325 F. Supp. 3d 1061, 1066 (N.D. Cal. 2018) (“Under the incorporation by [27] reference doctrine, courts are permitted to look beyond the pleadings without converting a Rule 1 Webtrans Logistics, Inc., Case No. 2:19-cv-04279-JEM (C.D. Cal.) (the “WES Lawsuit”).3 2 Sungyou asserted these causes of action as crossclaims, after it was brought into a lawsuit between 3 WES and a logistics company, Webtrans Logistics, that allegedly shipped unpaid-for Ghirardelli 4 products to Sungyou during the debt dispute that led to Sungyou’s termination. See Hall Decl., 5 Ex. C ¶¶ 37-43. 6 In the WES Lawsuit, Sungyou’s allegations revolved around WES’s termination of 7 Sungyou pursuant to the same “Termination Notice” alleged in the present complaint. Id. ¶¶ 318 36. The Rule 14(a) claim alleged that the termination arose from the same invoice/debt dispute 9 alleged here. Id. ¶¶ 23-27. Sungyou alleged that WES’s conduct was wrongful and harmed it to 10 the extent that Sungyou made investments in growing the South Korean market, made business 11 relationships with South Korean distributors, and lost future sales to the new South Korean 12 distributor, Samkyoung. Id. ¶¶ 12, 16, 19-20, 44-48. Sungyou based its claims against WES in 13 large part on the 2007 Statement, id. ¶¶ 17, 52, 74 (quoting and referencing the 2007 Statement), 14 and the June 27, 2017 letter, id. ¶ 22 (referencing the June 27, 2017 letter). Sungyou alleged that 15 because of the 2007 Statement and 2017 Letter, it was wrongful that WES shifted its business to 16 Samkyoung. Id. ¶¶ 44-48. 17 The parties in the WES Lawsuit litigated their claims for over three years, culminating in a 18 jury trial that began on September 13, 2022 and ended in a mistrial the same day. See Hall Decl., 19 Ex. D (WES Lawsuit Civil Docket), ECF No. 269. Shortly before the new trial setting, the parties 20 filed a Notice of Settlement on September 17, 2022. Id., ECF No. 271. Sungyou brought this 21 lawsuit against Ghirardelli two days later. On October 26, 2022, the parties in the WES Lawsuit 22 filed a Joint Request for Dismissal of Entire Action With Prejudice, representing that “[t]his action [23] 3 Ghirardelli requests the Court take judicial notice of the public record from the WES Lawsuit. [24] Mot. at 9; Hall Decl., ECF No. 16. Specifically, Ghirardelli requests the Court take judicial notice of (1) Sungyou’s Answer to Third-Party Complaint and Rule 14(a) Claim, ECF No. 26 (C.D. Cal. [25] Sept. 18, 2019), attached to the Hall Declaration as Exhibit C; (2) Joint Request for Dismissal of Entire Action with Prejudice; Order Thereon, ECF No. 277 (C.D. Cal. Oct. 27, 2022), attached [26] to the Hall Declaration as Exhibit F; and (3) the WES Lawsuit Civil Docket, attached to the Hall Declaration as Exhibit D. The Court “may take judicial notice of undisputed matters of public [27] record [under Fed. R. Evid. 201], . . . including documents on file in federal or state courts.” 1 has been settled and the settlement payment has been paid and negotiated.” Id., ECF No. 276. 2 Granting the parties’ request, the Central District of California dismissed Sungyou’s claims with 3 prejudice on October 27, 2022. Id., ECF No. 277; Hall Decl., Ex. F (Joint Request for Dismissal 4 of Entire Action with Prejudice; Order Theron). 5 III. LEGAL STANDARD 6 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) “tests the legal 7 sufficiency of a claim. A claim may be dismissed only if it appears beyond doubt that the plaintiff 8 can prove no set of facts in support of his claim which would entitle him to relief.” Cook v. 9 Brewer, 637 F.3d 1002, 1004 (9th Cir. 2011) (citation and quotation marks omitted). Rule 8 10 provides that a complaint must contain a “short and plain statement of the claim showing that the 11 pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Thus, a complaint must plead “enough facts 12 to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544 , 13 570 (2007). Plausibility does not mean probability, but it requires “more than a sheer possibility 14 that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 687 (2009). A complaint 15 must therefore provide a defendant with “fair notice” of the claims against it and the grounds for 16 relief. Twombly, 550 U.S. at 555 (quotations and citation omitted). 17 In considering a motion to dismiss, the court accepts factual allegations in the complaint as 18 true and construes the pleadings in the light most favorable to the nonmoving party. Manzarek v. 19 St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008); Erickson v. Pardus, 551 20 U.S. 89 , 93-94 (2007). However, “the tenet that a court must accept a complaint’s allegations as 21 true is inapplicable to threadbare recitals of a cause of action’s elements, supported by mere 22 conclusory statements.” Iqbal, 556 U.S. at 678 . 23 If a Rule 12(b)(6) motion is granted, the “court should grant leave to amend even if no 24 request to amend the pleading was made, unless it determines that the pleading could not possibly 25 be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en 26 banc) (citations and quotations omitted). However, a court “may exercise its discretion to deny 27 leave to amend due to ‘undue delay, bad faith or dilatory motive on part of the movant, repeated 1 party . . ., [and] futility of amendment.’” Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876 , 2 892–93 (9th Cir. 2010) (alterations in original) (quoting Foman v. Davis, 371 U.S. 178 , 182 3 (1962)). 4 IV. DISCUSSION 5 Ghirardelli argues Sungyou’s complaint must be dismissed under the doctrine of claim 6 preclusion because it asserts the same cause of action brought against WES in the WES Lawsuit, 7 which the Central District dismissed with prejudice on October 27, 2022.4 8 Claim preclusion bars re-litigation of any claims that were raised or could have been raised 9 in an earlier action. W. Radio Servs. Co., Inc. v. Glickman, 123 F.3d 1189 , 1192 (9th Cir. 1992) 10 (citations omitted). Application of the claim preclusion doctrine “relieve[s] parties of the cost and 11 vexation of multiple lawsuits, conserve[s] judicial resources, and, by preventing inconsistent 12 decisions, encourage[s] reliance on adjudication.” Mpoyo v. Litton Electro-Optical Sys., 430 F.3d 13 985, 988-89 (9th Cir. 2005) (citations omitted). 14 California state preclusion law applies here because the Central District of California sat in 15 diversity in the WES Lawsuit. See Daewoo Elecs. Am. Inc. v. Opta Corp., 875 F.3d 1241 , 1247 16 (9th Cir. 2017); Pollok v. Vanguard Fiduciary Tr. Co., 803 Fed. App’x 67, 68 (9th Cir. 2020). 17 “Under California’s doctrine of claim preclusion, ‘all claims based on the same cause of action 18 must be decided in a single suit; if not brought initially, they may not be raised at a later date.” 19 Gonzales v. Cal. Dep’t of Corrections, 739 F.3d 1226, 1232 (9th Cir. 2014) (quoting Mycogen 20 Corp. v. Monsanto Co., 28 Cal. 4th 888, 897 (2002)). The California Supreme Court has 21 “described claim preclusion as applying ‘only when a second suit involves (1) the same cause of 22 action (2) between the same parties [or their privies] (3) after a final judgment on the merits in the [24] 4 Alternatively, Ghirardelli argues Sungyou’s claims should be dismissed because they fail to state claims on which relief can be granted and fail for lack of jurisdiction. Ghirardelli asserts the [25] “Distributorship Agreement” is not a valid contract, and therefore Sungyou’s First, Second, Third, Fifth and Sixth Causes of Action must fail. In addition, it contends that four of Sungyou’s [26] claims—“breach of contract – promissory estoppel,” unjust enrichment, vicarious liability, and unfair competition—should be independently dismissed as legally barred, not cognizable, and [27] insufficiently pled. And finally, as it relates to Does 1-20, Ghirardelli says the complaint must be 1 first suit.’” Grande v. Eisenhower Med. Ctr., 13 Cal. 5th 313 , 323 (2022) (emphasis in original) 2 (quoting Samara v. Matar, 5 Cal. 5th 322, 327 (2018)). As the litigant asserting preclusion, 3 Ghirardelli bears the burden of establishing that it was in privity in the first action. Id. at 326 4 (citation omitted). 5 A. Same Cause of Action 6 In assessing whether the same cause of action is involved in the current lawsuit and in 7 prior lawsuits, California follows the primary rights theory. Boeken v. Philip Morris USA, Inc., 48 8 Cal. 4th 788 , 797 (2010). “A ‘“cause of action” is comprised of a “primary right” of the plaintiff, 9 a corresponding “primary duty” of the defendant, and a wrongful act by the defendant constituting 10 a breach of that duty.’” Gonzales, 739 F.3d at 1232 -33 (quoting Crowley v. Katleman, 8 Cal. 4th 11 666, 681 (1994)). “‘[I]f two actions involve the same injury to the plaintiff and the same wrong 12 by the defendant then the same primary right is at stake even if in the second suit the plaintiff 13 pleads different theories of recovery, seeks different forms of relief and/or adds new facts 14 supporting recovery.’” Id. at 1233 (quoting Eichman v. Fotomat Corp., 147 Cal. App. 3d 1170 , 15 1174 (1983)). “‘If the same primary right is involved in two actions, judgment in the first bars 16 consideration not only of all matters actually raised in the first suit but also all matters which could 17 have been raised.’” Id. (quoting Eichman, 147 Cal. App. 3d at 1175 ); Mfrd. Home Cmtys Inc. v. 18 City of San Jose, 420 F.3d 1022 , 1032 (9th Cir. 2005) (“Different theories of recovery are not 19 separate primary rights.”). 20 For example, “an exclusive right to sell and distribute [a product] pursuant to a contract” is 21 a single primary right, even where the plaintiff in the subsequent suit advances different legal 22 theories of recovery. See, e.g., Sanchez v. Sanchez, 2012 WL 6678223 , at *1, *4 (S.D. Cal. Dec. 23 21, 2012); Mfrd. Home Cmtys Inc., 420 F.3d at 1031 (finding a single primary right where the 24 plaintiff claimed a right to a fair return on an investment and where the claims all stemmed from 25 the same alleged injury). Thus, in Sanchez, the court found that because the plaintiff alleged a 26 single primary right to exclusive distribution—in one case through trademark, in another case 27 through tort and contract—any claim essentially seeking the benefits lost due to the defendant’s 1 preclusion analysis. Sanchez, 2012 WL 6678223 , at *4. Similarly, in Pollok, the Ninth Circuit 2 held that an individual’s contract claims against a Vanguard subsidiary asserted the same cause of 3 action as an earlier tort-based action against another Vanguard entity, and thus were precluded. 4 803 Fed. App’x at 69. 5 Sungyou’s claims in the WES lawsuit and the claims it brings here all stem from the same 6 overarching primary right: the alleged right to be the “exclusive importer and distributor of 7 Ghirardelli’s chocolate products in South Korea.” Compare Compl. ¶¶ 1, 12, 15, 18, 23, 50, 51, 8 58, 78 (all referencing Sungyou’s alleged “exclusive” distributor status) with Hall Decl., Ex. C ¶¶ 9 3, 14, 17, 22, 52, 62, 74, 84, 92 (same). Sungyou correspondingly claims in both suits that WES 10 violated the same “primary duty” to transact exclusively with Sungyou in South Korea by 11 terminating Sungyou and shifting its business to Samkyoung. Compare Compl. ¶¶ 24-41 with 12 Hall Decl., Ex. C ¶¶ 23-27, 31-36, 44-48. Under the umbrella of its “exclusive distributorship” 13 right, both suits further claim that Sungyou had a right as to the manner and timing of its 14 termination and that WES’s actions leading up to and including the termination letter violated that 15 right, causing the same injury—an inability to fulfill customer orders. Compare Compl. ¶¶ 29-37 16 (Titled “Termination) with Hall Decl., Ex. C ¶¶ 31-36 (also titled “Termination”). Both pleadings 17 also allege that Sungyou had proprietary rights in the customers to whom it once sold Ghirardelli 18 products, which were allegedly infringed when WES began selling to Samkyoung, thus causing 19 the same loss of profits/revenue. Compare Compl. ¶ 17 with Hall Decl., Ex. C ¶ 16. 20 In fact, the two complaints overlap one another to such an extent that large swaths of the 21 factual allegations are identical. For example, both suits allege the same harms and damages 22 flowing from the “aftermaths of termination,” alleging that WES’s transition to an alternate 23 importer following Sungyou’s failure to pay its invoices caused damages by violating Sungyou’s 24 alleged rights to exclusivity. Compare Compl. ¶¶ 38-41 (titled “Aftermaths of Termination – 25 Samkyoung”) with Hall Decl., Ex. C ¶¶ 44-48 (also titled “Aftermaths of Termination – 26 Samkyung [sic]”). The two suits also allege wrongful behavior related to Sungyou’s agreement 27 with WES to purchase Ghirardelli’s products pursuant to the same letters of credit following 1 credit for “$303,752.71”) with Hall Decl., Ex. C ¶ 32 (discussing the same letter of credit). And in 2 both cases, Sungyou seeks the same amount of damages: “not less than $2,000,000.” Compare 3 Compl. at 16 ¶ B with Hall Decl., Ex. C ¶¶ 60, 66, 72. The Court also notes that Sungyou’s 4 complaint in this case casts the majority of its allegations against WES—which is not a party 5 here—only slightly tailoring its allegations with occasional references to “WES/Ghirardelli” and 6 allegations that WES was Ghirardelli’s agent. See, e.g., Compl. ¶¶ 14, 38, 50, 54, 61, 78, 87, 88. 7 Sungyou does bring some slightly different claims on slightly different theories of recovery, but it 8 is questionable whether this makes a difference given the claims in both suits all flow from the 9 same alleged primary right and the same alleged breach of that right. See, e.g., Sanchez, 2012 WL 10 6678223, at *1, *4 (finding the claims were based on the same primary right where “[t]he 11 difference between the two actions [was] only the legal theory advanced”). 12 Accordingly, the Court finds Sungyou’s claims against Ghirardelli arise out of the same 13 primary right as its claims in the WES Lawsuit and thus constitute the same cause of action, 14 satisfying the first requirement of the test for preclusion. 15 B. Same Parties 16 The second element requires that the second suit be between the same parties or their 17 privies. “Privity requires the sharing of ‘an identity or community of interest,’ with ‘adequate 18 representation’ of that interest in the first suit.” DKN Holdings LLC v. Faerber, 61 Cal. 4th 813 , 19 826 (2015) (quoting Clemmer v. Hartford Ins. Co., 22 Cal. 3d 865, 875 (1978)). “When a 20 defendant’s liability is entirely derivative from that of a party in an earlier action, claim preclusion 21 bars the second action because the second defendant stands in privity with the earlier one.” Id. at 22 827-28. 23 Crediting Sungyou’s own allegations, its complaint is premised on the allegation that WES 24 acted as Ghirardelli’s agent and that Ghirardelli, on a theory of vicarious liability, is derivatively 25 liable for WES’s actions. See, e.g., Compl. ¶ 87 (“At all times herein mentioned, WES was the 26 agent of defendant Ghirardelli. . . . Ghirardelli is, therefore, liable to Plaintiff for the acts of WES 27 as heretofore alleged.”), ¶ 88 (“WES, as Ghirardelli’s authorized agent, signed the Statement.”). 1 “agent.” Opp’n at 1, 7. Federal courts have found claims precluded under similar circumstances. 2 See, e.g., Lucore v. U.S. Bank, N.A. as Tr. for Certificate Holders of Bank of Am. Funding Corp., [3] 2019 WL 1114876 , at *5 (S.D. Cal. Mar. 11, 2019), aff’d sub nom. Lucore v. U.S. Bank, N.A. as 4 Tr. for Certificate Holders of Bank of Am. Funding Corp. Mortg. Pass-Through Certificates, 5 Series 2006-H, 829 F. App’x 790 (9th Cir. 2020) (“Defendants argue that Plaintiffs’ allegations 6 amount to a principle-agent relationship that constitutes privity. . . . Based on Plaintiffs’ 7 allegations, which the Court must construe as true on a motion to dismiss, the Court finds that any 8 liability found as to [first defendant] is derivative of [second defendant’s] action. Thus, [the two 9 defendants’] separate interests are ‘so closely aligned’ that, for claim preclusion purposes, they 10 ‘are treated as identical parties.’”) (quoting DKN Holdings, 61 Cal. 4th at 824 ); Ratliff v. Mortg. 11 Store Fin., Inc., 2017 WL 5890090 , at *6 (N.D. Cal. Nov. 29, 2017) (“Crediting [plaintiff’s] own 12 allegations of agency, the ‘same parties’ requirement is met [under DKN Holdings] because 13 [previous defendants] were defendants in the state-court cases. . . . The agency allegations are 14 material to [plaintiff’s] claims against [second defendant]. . . . without the agency relationship 15 between [previous defendants and second defendant], [plaintiff] would have no claim. . . [plaintiff] 16 cannot have it both ways—either privity obtains because of agency or there is no [claim against 17 second defendant] if agency is lacking.”); cf. Delta Aliraq, Inc. v. Martin, 2017 WL 11615775 , at 18 *11 (C.D. Cal. Aug. 5, 2017) (“In cases where a plaintiff finds out that a corporate defendant is 19 controlled by a non-party during the litigation, the proper procedure is to amend the complaint to 20 add the additional defendant.”). Thus, given Sungyou’s central theory that WES acted as 21 Ghirardelli’s agent, and that Ghirardelli is therefore liability on a theory of vicarious liability, the 22 Court finds the element of privity is established for purposes of claim preclusion. 23 In its opposition, Sungyou argues Ghirardelli cannot establish privity because it cannot 24 show it controlled WES or show it “has an interest so similar to WES’s that it acted as WES’s 25 virtual representative in the prior litigation. The mere existence of an agency relationship is not 26 sufficient.” Opp’n at 8-12. In support of this argument, Sungyou primarily relies on two recent 27 California Supreme Court decisions —Grande and DKN Holdings. However, these two cases 1 satisfies the privity requirement. 2 Sungyou relies on DKN Holdings for the propositions that “joint and several obligors may 3 be sued in separate actions” and that “[c]laim preclusion does not bar subsequent suits against co4 obligors if they were not parties to the original litigation.” Opp’n at 8 (quoting DKN Holdings, 61 5 Cal. 4th at 825). It is unclear how this is relevant here, where the complaint alleges that 6 Ghirardelli and WES were principal and agent, not co-obligors. This distinction is important 7 because “[w]hen a defendants’ liability is entirely derivative from that of a party in an earlier 8 action, claim preclusion bars the second action because the second defendant stands in privity with 9 the earlier one. . . . The nature of derivative liability so closely aligns the separate defendants’ 10 interest that they are treated as identical parties” DKN Holdings, 61 Cal. 4th at 828 . Thus, for 11 example, “[d]erivative liability supporting preclusion has been found between a corporation and 12 its employees . . . a general contractor and subcontractors . . . an association of securities dealers 13 and member agents . . . and among alleged coconspirators.” Id. (citations omitted). This rule— 14 not the opinion’s holding with respect to joint and several liability—is the pertinent part of DKN 15 Holdings given that Sungyou’s claims are predicated on allegations of agency and invoke a theory 16 of vicarious liability. 17 Sungyou next argues “Ghirardelli’s claim that the second action is precluded because WES 18 was its agent is a fact-based, and here disputed, issue that does not permit dismissal under Rule 19 12(b)(6),” noting that the Court in Grande “state[d] that ‘the right of control’ [is] ‘the essential 20 characteristic’ of an agency relationship.” Opp’n at 10 (quoting Grande, 13 Cal. 5th at 322). 21 Sungyou argues “Ghirardelli appeared not to control WES as regards the termination of Sungyou’s 22 exclusive distributorship and stayed clear of that relationship, even though it undoubtedly had the 23 power to appoint Sungyou as its distributor.” Id. However, Grande did not establish any such test 24 and, in fact, explicitly left unresolved issues related to the relationship between agency and the 25 right of control. See Grande, 13 Cal. 5th at 322 (“[W]e do not resolve these issues.”). Rather, 26 Grande established that where different defendants have independent and unfulfilled statutory 27 duties, those independent duties must be factored into the privity analysis. Id. at 331 (“But at 1 agency’s alleged failure to make full payment did not give rise to that duty. It may be possible for 2 the parties to satisfy their statutory duties by contract, but the duties exist independent of those 3 efforts.”). Thus, Grande is distinguishable from Sungyou’s present claims against Ghirardelli, 4 which arise out of a private contractual relationship and where there is no independent legal duty 5 arising out of statute. In such scenarios, Grande echoed the rule stated in DKN Holdings 6 permitting claim preclusion in cases involving theories of derivative liability, stating that a 7 defendant “stands in privity with the [original defendant] only if circumstances would permit 8 binding the [second defendant] to an unfavorable judgment against the [first defendant] in the first 9 action.” Id. at 324 (citing DKN Holdings, 61 Cal. 4th at 827 n.10). 10 Finally, Sungyou asserts that whether an agency relationship exists is a “factbased, and 11 here disputed, issue.” Opp’n at 15. However, not only is that Sungyou’s own allegation, but it is 12 not disputed by Ghirardelli. See Mot. at 4 n.1 (acknowledging that Ghirardelli accepts Sungyou’s 13 allegations as true for purposes of the motion); Reply at 7 (same). Sungyou’s complaint and 14 opposition unambiguously allege an agency relationship between Ghirardelli and WES with 15 respect to the subject of the lawsuit. See, e.g., Compl. ¶¶ 14, 38, 50, 54, 61, 78, 87, 88; see also 16 Opp’n at 1, 7. Sungyou also argues its complaint demonstrates a lack of “the right of control” (the 17 “essential characteristic” of an agency relationship) because “Ghirardelli appeared not to control 18 WES as regards the termination of Sungyou’s exclusive distributorship and stayed clear of that 19 relationship.” Opp’n at 10. But the complaint does not allege this and, regardless, Sungyou’s un20 pled argument that WES acted outside of Ghirardelli’s “control” cannot avoid the consequences of 21 its own express allegations of a principal-agent relationship because “Ninth Circuit courts 22 regularly rely on allegations in the complaint to determine whether privity exists between former 23 and current defendants.” Rolloco Holdings, Inc. v. VLP Cap., Inc., 2019 WL 1491175 , at *5 (C.D. 24 Cal. Apr. 4, 2019) (collecting cases, finding privity for purposes of claim preclusion, and 25 dismissing certain claims with prejudice); see also Macklin v. Hollingsworth, 2014 WL 4417770 , 26 at *14 (E.D. Cal. Sept. 8, 2014), report and recommendation adopted, 2014 WL 7399214 (E.D. 27 Cal. Dec. 29, 2014) (finding that plaintiff’s allegation of an agency relationship between former 1 In sum, the Court finds that Ghirardelli stands in privity with WES, and the second element 2 is therefore satisfied. 3 C. Final Judgment 4 Under California law, “[a] dismissal with prejudice following a settlement constitutes a 5 final judgment on the merits.” In re Estate of Redfield, 193 Cal. App. 4th 1526, 1553 (2011); 6 Lodgepole Investments, LLC v. Barsky, 2015 WL 1306849 , at *1-2, *5 (N.D. Cal. Mar. 23, 2015) 7 (in deciding the claim preclusive effect of a voluntary dismissal following settlement in a prior 8 federal court judgment based on diversity jurisdiction, concluding “[a] settlement and subsequent 9 dismissal of an action is a final judgment on the merits”). Here, the United States District Court 10 for the Central District of California dismissed with prejudice the previous suit between WES and 11 Sungyou on October 27, 2022. Hall Decl., Ex. F. The Central District’s order “dismiss[ed] the [] 12 action in its entirety with prejudice,” noting that the actions “ha[d] been settled and the settlement 13 payment ha[d] been paid and negotiated.” Id. Thus, as a matter of law, the judgment in the WES 14 Lawsuit is a “final judgment on the merits” for purposes of claim preclusion. 15 D. Summary 16 In summary, the Court finds all three claim preclusion factors are satisfied. As all claims 17 based on the same cause of action must be decided in a single suit, and Sungyou’s claims in this 18 case all rely on its claims in the WES Lawsuit, claim preclusion bars relitigation of Sungyou’s 19 claims here. See Gonzales, 739 F.3d at 1233 ( “If the same primary right is involved in two 20 actions, judgment in the first bars consideration not only of all matters actually raised in the first 21 suit but also all matters which could have been raised.”) (citation and internal quotations omitted). 22 E. Attorney’s Fees 23 Ghirardelli requests that, should the Court dismiss the complaint on grounds of claim 24 preclusion, it be granted leave to file a motion for sanctions to be imposed under the Court’s 25 inherent power in the form of attorney’s fees. Mot. at 23. The Court finds Sungyou did not bring 26 this complaint in bad faith and therefore DENIES Ghirardelli’s request. 27 V. CONCLUSION 1 Sungyou’s complaint. As leave to amend would be futile, dismissal is WITHOUT LEAVE TO 2 |} AMEND. The Clerk of Court shall close the file. 3 IT ISSO ORDERED. [4] 5 || Dated: April 26, 2023 TAA. |p THOMAS S. HIXSON 7 United States Magistrate Judge [11] 3s 12 [16] it Z 18