B. The Inventory Dispute and the Parties' Negotiations
On September 7, 1995, Conopco delivered a Closing Date
Inventory Statement to Roll, stating that the book value of the
Inventory transferred as of the closing date was $5,512,634.
(Compl. ¶ 11). Hence, Conopco contended that it was entitled to
an adjustment of $2,452,634,*fn1 the amount by which the claimed
closing date Inventory exceeded the December 31, 1994 Inventory
figure. Roll objected to the statement and the parties "mutually
extended the applicable time periods to facilitate settlement
negotiations." (Compl. ¶ 14). These negotiations continued into
early 1997. (Compl. ¶ 15). Plaintiff contends that it was not
until "early 1998," after it attempted further discussions with
defendants regarding the Closing Date Inventory Statement, that
defendants notified plaintiff that they would not arbitrate or
settle the claim (the "Inventory Adjustment claim"). (Compl. ¶¶
16-17). It is undisputed that the parties never submitted the
claim to an arbitrator. It is also undisputed that Roll never
paid Conopco any portion of the $2,452,634 Conopco claims it is
owed pursuant to section 2.5 of the Purchase Agreement.
C. The California State Court Action
In December 1996, apparently in the midst of these
negotiations, defendants Roll and Paramount sued Conopco and its
parent company, Unilever United States, Inc. ("Unilever"), in
California state court alleging that Conopco and Unilever
breached representations and warranties contained in the Purchase
Agreement and defrauded Roll and Paramount "by falsely inflating
the Fruit Roll sales figures and falsely understating the
expenses for the periods prior to the sale." (Def. Mem. at 2;
see California Compl., annexed to the Affidavit of Lawrence B.
Gutcho ("Gutcho Aff.") as Ex. B). Conopco did not raise its
Inventory Adjustment claim in its answer to the California
complaint. Nor did Conopco assert the claim as a cross-complaint
in the California action. (Gutcho Aff., Exs. D, E). Instead,
Conopco waited until May 1998 to raise the issue when it moved in
the California action to compel arbitration of the Inventory
Adjustment claim or for leave to file a cross-complaint. (Compl.
¶ 18; Gutcho Aff., Ex. E).
In June 1998, the California Superior Court denied both prongs
of the motion. (Compl. ¶ 19). Conopco appealed. On September 23,
1998, the California Court of Appeal denied Conopco's petition
for a writ, effectively declining to hear the appeal of the
cross-complaint ruling until after a final judgment in the
California action. On December 15, 1998, the same appellate court
denied Conopco's interlocutory appeal on its request to compel
arbitration. (Compl. ¶¶ 20-21). Plaintiff responded by filing the
instant complaint on March 3, 1999.
Defendants claim that California Code of Civil Procedure §
426.30 (hereinafter "§ 426.30") bars Conopco from asserting its
Inventory Adjustment claims in this Court. They further contend
that Conopco's waiver of its right to arbitrate the Inventory
Adjustment claims bars Conopco from asserting those claims here.
Finally, defendants request that this Court dismiss or stay this
action in deference to the pending California proceeding.
A. California's Compulsory Cross-Complaint Statute
Under California law, a defendant in an action is required to
assert as a "cross-complaint" any "related cause of action."
Cal.Civ.Proc.Code § 426.30. A related cause of action is defined
as "a cause of action which arises out of the same transaction,
occurrence, or a series of transactions or occurrences as the
cause of action which the plaintiff alleges in his complaint."
Cal.Civ.Proc.Code § 426.10. Failure to bring a timely
cross-complaint results in a waiver of that cause of action.
The waiver provision, § 426.30, states in relevant part:
[e]xcept as otherwise provided by statute, if a party
against whom a complaint has been filed and served
fails to allege in a cross-complaint any related
cause of action which (at the time of serving his
answer to the complaint) he has against the
plaintiff, such party may not thereafter in any other
action assert against the plaintiff the related cause
of action not pleaded.
Cal.Civ.Proc.Code § 426.30(a). A defendant who fails to assert a
timely cross-complaint may seek permission from the California
court, pursuant to § 426.50, to assert the lapsed cause of
action. Section 426.50 mandates that it "shall be liberally
construed to avoid forfeiture of causes of action."
Cal.Civ.Proc.Code § 426.50.
Conopco does not dispute that the claims it asserts here are
related to those brought by Roll and Paramount in the California
proceeding. Indeed, recognizing that it should have asserted its
Inventory Adjustment claims at the time it answered the
California complaint, Conopco made a § 426.50 motion requesting
leave to file an untimely cross-complaint.*fn2 Conopco's motion
was denied and the California Court of Appeal declined to hear
the matter on appeal prior to the entry of judgment.
Conopco argues, however, that no final, non-appealable judgment
has been entered in the California action, and that the § 426.30
therefore cannot bar its claims. To support its argument, Conopco
notes that the doctrine of res judicata does not apply in the
absence of a final judgment on the merits.*fn3 See Busick v.
Workmen's Compensation Appeals Bd., 7 Cal.3d 967, 104 Cal.Rptr. 42,
500 P.2d 1386, 1391-92 (1972) (In Bank); Castro v. Higaki,
31 Cal.App.4th 350, 37 Cal.Rptr.2d 84, 87 (1994).*fn4
The doctrine of res judicata is not at issue in this case,
however, nor are the Federal Rules of Civil Procedure or
principles of collateral estoppel. Rather, this case concerns the
proper interpretation of California's compulsory cross-complaint
statute, § 426.30, and the issue is whether § 426.30 bars
Conopco's claims when no final judgment has been entered in the
California action where Conopco failed to file a cross-complaint.
Conopco's interpretation of § 426.30 is rejected and I hold that
§ 426.30 may be applied in the absence of a final judgment, for
First, the plain language of § 426.30 demonstrates that a final
judgment is not required. The provision makes no reference to a
final judgment, and if the California state legislature had
intended the waiver to be applicable only upon the entry of a
final judgment, surely it would have inserted words to that
effect. It did not. Cf. Motor Vehicle Mfrs. Ass'n of the United
States, Inc. v. New York State Dep't of Envtl. Conservation,
17 F.3d 521, 531 (2d Cir. 1994) ("[A] court should presume that a
statute says what it means. . . . In the usual case, where the
language of the statute is clear, that is the end of the
analysis.") (internal citation omitted). This interpretation
is buttressed by the fact that the California legislature has
chosen to codify the doctrine of res judicata in a separate
statutory provision, Cal.Civ.Proc. Code § 1908, which does
explicitly require a "judgment or final order." See Cal.Civ.
Proc.Code § 1908; Castro, 37 Cal.Rptr.2d at 87 (doctrine of
res judicata is "expressed statutorily in Code of Civil
Procedure section 1908").*fn5
Second, the purpose of § 426.30 is "to provide for the
settlement in a single action of all conflicting claims between
the parties arising out of the same transaction and thus to avoid
multiplicity of actions and conflicting judgments." Saunders v.
New Capital for Small Bus., Inc., 231 Cal.App.2d 324,
41 Cal.Rptr. 703, 710-11 (1964) (internal citation omitted)
(construing § 439, predecessor to § 426.30). This purpose would
not be served by permitting a party who has failed to timely
assert a related cause of action to cure his defect simply by
commencing another action in a different forum anytime before
judgment is final. Moreover, a contrary holding would eviscerate
the discretionary aspect of § 426.50; a party denied the
opportunity to file a late cross-complaint would face not a
waiver but a new judge.
Third, although the case law is sparse, it supports the
conclusion that a final judgment is not a pre-requisite to a
waiver. The parties have not cited, nor has the Court been able
to find, any California state court case law squarely addressing
the issue. In a recent California case interpreting § 426.30, the
Court of Appeal held that the "plain meaning" of the statute
barred a claim not asserted as a cross-complaint even where the
complaint in the first action was voluntarily dismissed by the
plaintiff. See AL Holding Co. v. O'Brien & Hicks, Inc.,
75 Cal.App.4th 1310, 89 Cal.Rptr.2d 918, 920, (1999). The court did
not discuss the requirement of a final judgment, but
significantly § 426.30 was held to apply even though the merits
were never reached.
The California Court of Appeal has explicitly analogized §
426.30 to the doctrine of res judicata in the context of
pleading affirmative defenses. See Hulsey v. Koehler,
218 Cal.App.3d 1150, 267 Cal.Rptr. 523, 526 (1990). The holding of
Hulsey is that § 426.30, like res judicata and unlike
collateral estoppel, is a defense that must be specially pleaded.
The court focused on the fact that § 426.30, like res judicata,
is a complete defense barring even claims that were not actually
litigated and decided. See id. at 526-27. The Hulsey court
was not presented with the question of whether a final judgment
is a necessary prerequisite to raising a § 426.30 defense. The
Ninth Circuit has applied the § 426.30 bar without interpreting
the statute as requiring a final judgment, but it too was not
squarely presented with the issue at bar because a final judgment
had been rendered in the case. See Cheiker v. Prudential Ins.
Co. of America, 820 F.2d 334, 336 (9th Cir. 1987).*fn6
There is a recent unreported Ninth Circuit case involving
strikingly similar facts, that is directly on point. See Pietak
v. State Farm Fire & Cas. Co., No. 98-15089, 1999 WL 599478 (9th
Cir. Aug.10, 1999). In Pietak, the Ninth Circuit confronted the
very question before this Court and concluded that "§ 426.30 may
be applied when a judgment in the first action is not immune from
direct attack." 189 F.3d 474, 1999 WL 599478, at *2. The fact
that the Ninth Circuit chose not to publish
Pietak leaves this Court in a quandary. The Ninth Circuit rule
governing citation of unpublished opinions states that an
unpublished case "may not be cited to or by" the courts of the
Ninth Circuit. See 9th Cir. R. 36-3. The rule is silent as to
citation by courts outside the circuit. In these circumstances, I
assume Pietak is not binding precedent. It is, however,
directly on point and persuasive; accordingly, I adopt the
reasoning set forth therein.*fn7
Ideally, the question presented in this case would be certified
to the California Supreme Court. Unfortunately, that option is
unavailable to this Court. See Cal. Ct. R. 29.5(a); California
Prolife Council Political Action Comm. v. Scully, 989 F. Supp. 1282,
1290 (E.D.Cal. 1998) (district court may not certify
question), aff'd, 164 F.3d 1189 (9th Cir. 1999); cf. Henderson
v. INS, 157 F.3d 106, 124 n. 18 (2d Cir. 1998) (district court
may not certify question to New York Court of Appeals). In the
absence of California precedent as a guide, I am constrained to
follow the plain text of the statute, particularly when doing so
advances its intended purpose.
For the reasons stated herein, defendants' motion to dismiss
the complaint is granted and I hold that plaintiff's claims in
this action are barred by § 426.30. I do not reach defendants'
alternative arguments in favor of dismissal or a stay of this
action. The Clerk of the Court shall enter judgment accordingly.