Tuesday, July 14, 2015
Supreme Court Approves Separate Suits Against Joint Debtors
By KENNETH OFGANG, Staff Writer
A plaintiff may bring separate lawsuits against defendants who are jointly and severally liable on the same debt, even if a final judgment has been entered against one of them, the state Supreme Court ruled yesterday.
The justices unanimously reversed lower court rulings in favor of Wade Faerber, one of three principals who leased commercial space in a Riverside County shopping center to operate a gym called Evolution Fitness, and reinstated a suit against Faerber by the landlord, DKN Holdings, LLC.
The lease designated the three as having “joint and several responsibility” for compliance with the terms of the lease.
One of Faerber’s partners, Roy Caputo, sued the landlord for fraud, claiming, among other things, that it failed to disclose that a driveway into the shopping center would not be built for over a year. DKN cross-complained against Caputo, the case went to a bench trial, and the judge rejected Caputo’s claims entirely and awarded DKN more than $2.8 million.
The judgment was entered in June 2011. Shortly before that, DKN sued Faerber and the third principal, Matthew Neel, for breach of the lease. Faerber demurred on the ground that DKN’s claim was barred by the rule against splitting causes of action.
Riverside Superior Court Judge John W. Vineyard agreed and dismissed the action. The Court of Appeal affirmed, but Justice Carol Corrigan, writing for the Supreme Court yesterday, said the lower courts’ holdings violated “a bedrock principle of contract law” that permits a plaintiff to bring separate actions against parties who are jointly and severally liable on the same obligation.
“Applying joint and several liability principles, DKN’s suit against Faerber was clearly permissible,” Corrigan wrote. “Because Faerber, Caputo, and Neel were jointly and severally liable on the lease, DKN had separate claims against each and was entitled to pursue the claims in separate actions.”
That the Caputo action had gone to final judgment made no difference, the justice said.
“Although the original judgment conclusively resolves DKN’s rights against Caputo, and may bear upon the total amount DKN is entitled to recover for breach of the lease from all obligors…it does not bar DKN from suing Caputo’s copromisors,” she wrote. “Only a satisfaction of the obligation would do so….Here, the judgment remained unpaid, and a separate suit was permissible.”
Allowing separate suits in such circumstances may be inefficient, Corrigan acknowledged, but it’s an inefficiency the Legislature chose to accept by enacting Civil Code §§1659 and 1660, codifying the principle that that separate obligations to pay the same debt are presumed to be joint and several.
“It has long been settled that contracting parties who are severally liable, or subject to joint and several liability, may be sued in the same action or in separate actions at the plaintiff’s option,” the jurist wrote.
In declining to apply longstanding principles that should have made it “an easy case,” Corrigan said, the lower courts “perceived a conflict with the law governing the preclusive effect of judgments,” perhaps because of confusing language in past Supreme Court opinions.
Under this view, she explained, “actions against separate obligors are in a race to judgment,” limiting the plaintiff’s recovery to whatever it can obtain from the first defendant to suffer judgment.
“This interpretation runs counter to the essential principles that parties have a duty to meet their contractual obligations and that those injured by a breach have a right to be made whole,” she wrote. “The perceived conflict is a mirage. In reality, the res judicata, or preclusion, doctrine operates in harmony with joint and several liability principles because it only bars repeated claims for the same relief between the same parties.”
The case is DKN Holdings, LLC. v. Faerber, 15 S.O.S. 3576.
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