Arbitration, Res Judicata: Third District Holds That Licensee Not Participating In Arbitration Can Assert Res Judicata Effect Of Arbitration Award

Key Here To Finding Res Judicata (Claim Preclusion) Is Licensee's Derivative Liability.  

Gold Dredge.  Klondike River.  May 31, 1915.  Library of Congress.

         A confirmed arbitration award (which, however, was not reduced to judgment ¹) enabled George Reed, Inc. to assert res judicata against Cal Sierra Development, Inc.  Cal Sierra Development, Inc., Plaintiff and Appellant,  v. George Reed, Inc., et al., Defedants and Respondents; Western Aggregates LLC, Cross-defendant and Respondent, C08397 (3d Dist.  8/22/17) (Duarte, Robie, Butz).

        An underlying dispute between Cal Sierra and Western Aggregates involved placement of an asphalt plant and whether it infringed Cal Sierra's mining rights to operate its gold mining dredge.  Cal Sierra had a Mutual Operations Agreement with Western Aggregates, allowing the two mining companies to operate on the same property, and Western Aggregates licensed certain surface rights to its licensee George Reed, Inc. (Reed), which had an asphalt plant.  Cal Sierra arbitrated its claims against Western Aggregates, prevailing on a breach of contract, but failing to prove claims of trespass, conversion, and private nuisance.

        Reed did not participate in the arbitration.  After obtaining an award against Reed's licensor, Western Aggregates, Cal Western then sued Reed for trespass, intentional interference with contract, and negligent interference.  Basically, the trial court and the Court of Appeal agreed that Cal Western's claims against Reed derived from the same basic act -- locating the asphalt plant -- which had been addressed in the arbitration. 

        The elements of claim preclusion arise if the second suit involves:  "(1) the same cause of action (2) between the same parties (3) after a final judgment on the merits in the first suit."  The key issue was whether the dispute was between the "same parties" because Reed did not participate in the arbitration, and was a distinct entity from Western Aggegates.  The Court of Appeal concluded that Reed, as a licensee of Western Aggregates, and having the same interest in the subject matter of the litigation as Western Aggregates, and having liability, if any, derivative of Western Aggregates, was in a relationship of privity for purposes of claim preclusion.

        Affirmed.

1 _{It appears that the award was not reduced to judgment because it was promptly paid.}