Unpublished Disposition, 936 F.2d 576 (9th Cir. 1991)

MEMORANDUM

The Burgesses filed this action against Lawson and Peebles (owners), alleging a pattern of racketeering in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. The district court dismissed the action after concluding that it was barred by res judicata. In a previous state court action between the same parties, the court determined that the Burgesses had breached their purchase agreement with the owners, and therefore had no right to any interest in the property at issue. The district court concluded that the Burgesses' federal claim merely sought to relitigate identical issues under the guise of a RICO action. The district court had jurisdiction pursuant to 18 U.S.C. § 1964(c). We have jurisdiction over this timely appeal pursuant to 28 U.S.C. § 1291. We affirm.

We review de novo the district court's decision to dismiss the action on grounds of res judicata. Guild Wineries & Distilleries v. Whitehall Co., 853 F.2d 755, 758 (9th Cir. 1988). The state court judgment rendered against the Burgesses is entitled to the same preclusive effect in this court as it would be accorded in a California court. Migra v. Warren City School District Board of Education, 465 U.S. 75, 83 (1984); Los Angeles Branch NAACP v. Los Angeles Unified School District, 750 F.2d 731, 736 (9th Cir. 1984) (Los Angeles Branch), cert. denied, 474 U.S. 919 (1985).

In California, res judicata precludes the maintenance of a second suit between the same parties on the same cause of action if the first suit concluded in a final judgment on the merits. Id. at 737; Agarwal v. Johnson, 25 Cal. 3d 932, 954, 160 Cal. Rptr. 141, 155, 603 P.2d 58, 72 (1979). "All issues that were litigated or that might have been litigated as part of the cause of action are barred." Los Angeles Branch, 750 F.2d at 737, citing Olwell v. Hopkins, 28 Cal. 2d 147, 152, 168 P.2d 972, 975 (1946).

We conclude that the Burgesses could easily have asserted their present claim in the state court action brought against them by the owners for ejectment and quiet title. In his answer to the complaint in the state court action, John Burgess alleged the same basic facts that form the basis for the present federal RICO action. For example, he alleged that the owners had made numerous misrepresentations with regard to the Burgesses' attempted purchase of the subject property, and contended that the Burgesses deserved title to the property. Moreover, the Burgesses now seek the same relief in federal court that was denied them in state court: title to the subject property and damages based on the money they claim to have paid to the owners. Simply put, both actions arise out of the same nucleus of facts, and center around the parties' agreements concerning the property as well as the money paid and owed under those agreements. In this respect, the case is almost identical to Zaccaria v. Bank of America, 164 Cal. App. 2d 715, 331 P.2d 198 (1958), in which the plaintiffs sought title to property and damages. The court concluded that the action was barred by res judicata because, as in this case, the defendants' right to the property had been conclusively established in a prior action brought against the plaintiffs for ejectment. Because the plaintiffs "had the opportunity [in the prior action] to protest [the] claimed right of possession by setting forth the claims here made," the court dismissed the second action. Id. at 719, 331 P.2d at 201. Accordingly, the Burgesses are barred from relitigating their alleged interest in the subject property.

The Burgesses present several arguments against this result, however. They first contend that because their present claims are RICO claims, the second suit involves a separate cause of action. It is well-settled in California, however, that different causes of action are not involved merely "because relief may be obtained under either state or federal law, or under either of two legal theories." Los Angeles Branch, 750 F.2d at 737. Moreover, it is clear that the Burgesses could have brought their federal RICO claims in state court, as both California and the Ninth Circuit had already recognized concurrent jurisdiction for RICO claims. Lou v. Belzburg, 834 F.2d 730, 735 (9th Cir. 1987), cert. denied, 485 U.S. 993 (1988); Cianci v. Superior Court, 40 Cal. 3d 903, 908, 221 Cal. Rptr. 575, 576, 710 P.2d 375, 376 (1985).

The Burgesses next argue that because the judgment in state court against Virginia Burgess was a default judgment, she is not precluded by res judicata from proceeding with the federal claim. This argument fails. It is true that in California a judgment must be a "final judgment on the merits" for res judicata to apply. Freeze v. Salot, 122 Cal. App. 2d 561, 565, 266 P.2d 140, 142 (1954). The California courts have held that a default judgment satisfies this requirement and may operate to bar a later action, however, because it "is a complete adjudication of all the rights of the parties embraced in the prayer of the complaint and stands on the same footing as a judgment after answer and trial." Id. at 566, 266 P.2d at 143.

The Burgesses argue that California's compulsory counterclaim rule does not bar Virginia from pursuing this action because she did not file an answer in the prior state action. See Cal.Civ.Proc.Code Sec. 426.30(b) (2). This may be true, but it is beside the point. The separate doctrine of res judicata independently can preclude a subsequent action even where the compulsory counterclaim rule does not. See id. Legislative Committee Comment (" [A]lthough Section 426.30 may not apply to a particular case, independent application of the rules of res judicata or collateral estoppel, if any, is not affected.").

Finally, the Burgesses assert that the prior judgment is not binding because their present complaint includes an allegation that one aspect of the state court litigation, relating solely to Virginia Burgess, was part of the alleged pattern of RICO racketeering activity. They contend that the owners committed fraud by opposing Virginia Burgess's motion to set aside the default judgment entered against her in state court, after representing that they would not do so. However, all of the other allegedly fraudulent actions supporting the Burgesses' RICO claim occurred prior to the filing of the state court action against them. We conclude that any defense or claim based on fraud or RICO was available to the Burgesses at the time of the state court action, and was not dependent on the one act that they allege occurred in connection with that suit. Thus, the state court judgment bars relitigation of the facts underlying the alleged RICO activity.

AFFIRMED.