Unpublished Disposition, 930 F.2d 26 (9th Cir. 1991)

MEMORANDUM^** 

Originally, this case involved a consolidated action brought by over 100 individuals against defendants Koppers Company, Inc. ("Koppers") and Louisiana-Pacific Corporation ("Louisiana-Pacific"). Plaintiffs allege that the pressure wood treating facilities operated by defendants released a toxic chemical, Pentachlorophenol, which contaminated the groundwater system in areas surrounding plaintiffs' property. Defendants removed to federal court on the basis of diversity of citizenship.

Due to the number of plaintiffs and complexity of issues, the parties agreed to, and the district court approved, the following Stipulation:

Three (3) individual plaintiffs (hereinafter referred to as the "initial plaintiffs") shall be selected for purposes of complete discovery and an initial trial on liability and damages....

Rulings of law made by the Court on pretrial motions, at trial or after trial, and findings of fact made by the Court, or by the jury in response to special interrogatories, shall have mutual collateral estoppel effect binding on all plaintiffs and both defendants with respect to issues which are common to all plaintiffs and which are actually litigated in connection with the claims of the initial plaintiffs, including, but not necessarily limited to:

(A) The issue of liability;

(B) The issue whether each defendant's conduct was a substantial factor in causing any alleged contamination of the groundwater ...

After hearing testimony on the issues of negligence, personal injury and emotional distress, and at the close of plaintiffs' case, the court granted Koppers' motion for involuntary dismissal with prejudice pursuant to Federal Rule of Civil Procedure 41(b).¹  The court found that Koppers had not been negligent and that it had not been the proximate cause of any personal injury, emotional distress or property damages.

Subsequently, Koppers moved for summary judgment against all remaining plaintiffs' claims, arguing both that principles of collateral estoppel barred their action and that no plaintiff could establish the existence of a genuine issue of material fact. The court agreed on both grounds, finding in particular that "all parties to the action, through execution of the stipulation ... intended to be bound with mutual collateral estoppel effect." Challenging the court's interpretation of the stipulation's preclusive impact, plaintiffs filed this appeal.

I. Collateral Estoppel in Diversity Actions and Choice of

Law

As a threshold matter, we are confronted with what commentators have dubbed the "bewildering" issue of which rules, state or federal, govern the preclusive effect of federal adjudication of a state question in diversity actions. See 18 Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction Sec. 4472 (1981) (hereinafter Wright & Miller) . Courts remain divided, some deeming that federal law should control "to protect the integrity of federal judgments," In re Air Crash at Dallas/Forth Worth Airport, 861 F.2d 814, 816 (5th Cir. 1988); see also Avondale Shipyards, Inc. v. Insured Lloyd's, 786 F.2d 1265, 1269 n. 4 (5th Cir. 1986), while others prefer looking to state law. See, e.g., Answering Service, Inc. v. Egan, 728 F.2d 1500, 1505-06 (D.C. Cir. 1984); Iowa Elec. Light & Power Co. v. Mobile Aerial Towers, Inc., 723 F.2d 50, 52 (8th Cir. 1983). Finally, some courts base their determination on the substantive law at stake. See, e.g., Federal Ins. Co. v. Gates Learjet Corp., 823 F.2d 383, 386 (10th Cir. 1987).

This Circuit appears to favor the second approach. See Costantini v. Trans World Airlines, 681 F.2d 1199, 1201 (9th Cir.) (holding that "a federal court sitting in diversity must apply the res judicata law of the state in which it sits"), cert. denied, 459 U.S. 1087 (1982). In any event, we need not choose because in this case, federal and state law yield the same result.

II. Application of Collateral Estoppel to Non-Parties

It is well settled that "a person cannot be bound by a judgment in litigation to which he was not a party." Meza v. General Battery Corp., 908 F.2d 1262, 1266 (5th Cir. 1990) (citing Martin v. Wilks, 490 U.S. 755 (1989); Hansberry v. Lee, 311 U.S. 32, 40 (1940)). Because the non-test plaintiffs did not participate in the actual litigation, appellants challenge the application of collateral estoppel in this case.

However, as recognized by California law, the doctrine of estoppel bars relitigation by a party in privity with a party to the prior adjudication. See Clemmer v. Hartford Insurance Co., 22 Cal. 3d 865, 874 (1978). Privity, under California's expansive definition, refers "to a relationship between the party to be estopped and the unsuccessful party in the prior litigation which is 'sufficiently close' so as to justify application of the doctrine of collateral estoppel." Id. at 875 (citations omitted). Thus, " [t]he circumstances must have been such that the party to be estopped should reasonably have expected to be bound by the prior adjudication." Id; see also Lynch v. Glass, 44 Cal. App. 3d 943, 947 (1975). Here, the non-test plaintiffs entered into a stipulation, thereby expressly giving the actual parties authority to represent them and relinquishing any possible claim of surprise once estopped.

We note further that, according to the Restatement, " [a] person who agrees to be bound by the determination of issues in an action between others is bound in accordance with the terms of his agreement." Restatement (Second) of Judgments Sec. 40; see also Restatement (Second) of Judgments Sec. 62; 18 Wright & Miller Sec. 4453 ("Actual consent to be bound by the res judicata effects of a judgment ... is a suitable basis for invoking ordinary concepts of preclusion ... Both public and private interests are well served by allowing nonparties thus to submit to preclusion"). Indeed, " [t]he situations that are most likely to create an implied agreement to be bound involve a shared understanding that a single action is to serve as a test case that will resolve the claims or defenses of nonparties as well as parties." Id. (emphasis added). Cf. Sampson v. Sony Corp. of America, 434 F.2d 312 (2d Cir. 1970). Appellants have provided us with no reason to believe that California's expansive definition of privity would not extend to this type of arrangement.

Insofar as the district court found that there was insufficient evidence in this case and made appropriate findings of fact and law, the involuntary dismissal under Rule 41(b) operated as an adjudication on the merits. By ruling that defendant Koppers was not negligent, the court effectively disposed of the remaining plaintiffs' claims.

CONCLUSION

The district court correctly granted appellee's motion for summary judgment against all non-test plaintiffs. Accordingly, the judgment is AFFIRMED.