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Office of the Circuit Executive
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT |
No. 99-56466
Plaintiffs-Appellants,
D.C. No.
v.
CV 97-04898-WDK
KAISER FOUNDATION HEALTH PLAN,
OPINION
INC., a California corporation,
Defendant-Appellee.
Appeal from the United States District
Court
for the Central District of California
William D. Keller, District Judge, Presiding
Argued and Submitted
March 8, 2001--Pasadena, California
Filed March 26, 2001
Before: Arthur L. Alarcon, Melvin Brunetti, and Michael Daly Hawkins, Circuit Judges.
Opinion by Judge Alarcon
_________________________________________________________________
COUNSEL
David G. Spivak and David L. Ross, Ross,
Rose &
Hammill,
LLP, Beverly Hills, California, for the plaintiffs-appellants.
3658
James A. Breslo, Seyfarth, Shaw, Fairweather & Geraldson,
Los Angeles, California, for the defendant-appellee.
_________________________________________________________________
OPINION
ALARCON, Circuit Judge:
Appellants Christopher Owens and Cynthia
Hutchins
appeal from the district court's order dismissing their Title
VII action against Kaiser Foundation Health Plan, Inc.
("Kaiser") based on the doctrine of res judicata. We affirm
because we conclude that the application of the doctrine of res
judicata is not barred merely because they did not receive
"right to sue" letters from the Equal Employment Opportunity
Commission ("EEOC") until after their earlier action had
been dismissed with prejudice.
I
Appellants are African-Americans who were
employed as
regional chartroom clerks in Kaiser's facility in Downey, Cal-
ifornia. Kaiser relocated the facility from Downey to Ontario,
California in February, 1994, at which time Appellants'
employment was terminated. Thereafter, Appellants filed discrimination
charges with both the EEOC and the California
Department of Fair Employment and Housing, alleging that
Kaiser failed to relocate them to another facility because of
their race.
On February 14, 1995, Appellants filed an
action in
California state court against Kaiser, two individual supervisors,
and Appellants' union, asserting causes of action for breach
of implied-in-fact contract, breach of the implied covenant of
good faith and fair dealing, intentional infliction of emotional
distress, and fraud. The Defendants removed the action to fed-
eral court. Kaiser moved to dismiss the action based on fed-
eral preemption and the applicable statute of limitations.
Appellants stipulated to a dismissal. The
court
dismissed
without prejudice on June 19, 1995. On November 3, 1995,
Appellants amended their charges of discrimination with the
EEOC, adding allegations of hostile work environment and
racial discrimination.
On November 22, 1995, Appellants filed a
second action
in
state court against the same Defendants. They alleged the
same causes of action, with the addition of a claim for breach
of the duty of fair representation. The complaint alleged that
Kaiser filled positions "with less qualified non-Blacks" and
that this action was not based on seniority, "but was instead
arbitrary and discriminatory against several African American
employees . . . ." Defendants again removed the action to fed-
eral court and Kaiser moved to dismiss. Appellants did not
file a response to Kaiser's motion. The district court, noting
that no opposition had been filed and that Appellants' attorney had
failed to respond to the court's repeated inquiries,
dismissed the action with prejudice on October 25, 1996.
On April 4 and May 9, 1997, respectively,
Owens and
Hutchins received their "right to sue" letters from the EEOC.
Shortly thereafter, they filed a pro se action in federal court
solely against Kaiser, alleging that their terminations were
unlawfully based on race. Kaiser moved to dismiss the action
for failure to state a claim. The district court granted Kaiser's
motion, and dismissed the complaint with leave to amend.
Appellants, now represented by counsel,
filed an amended
complaint on May 12, 1998 alleging that Kaiser had violated
Title VII. Specifically, they alleged that Kaiser permitted a
"racially discriminatory and hostile work environment" and
that their terminations were "the result of racial, color, and
cultural discrimination." The district court denied Kaiser's
motion to dismiss the amended complaint for failure to state
a claim. Kaiser filed its answer on August 31, 1998, and dis-
covery commenced. The court stayed all proceedings from
November 9, 1998 to January 13, 1999, however, in order to
investigate whether Appellants' attorney was licensed to prac-
tice law.
On May 10, 1999, after discovery had
resumed, Appellants
moved to file a second amended complaint seeking to add
claims for harassment and discrimination under state law. On
May 20, 1999, before the district court had ruled on Appel-
lants' motion, Kaiser moved to file an amended answer to
assert res judicata as an affirmative defense and for judgment
on the pleadings based on that doctrine. Kaiser argued that the
court's dismissal with prejudice of Appellants' previous
action barred any further action by Appellants based on the
same underlying facts. The district court granted Kaiser's
motion to amend its answer, denied Appellants' motion to
amend their complaint as moot, and dismissed the action
based on res judicata. Appellants filed a timely notice of
appeal. We have jurisdiction pursuant to 28 U.S.C.S 1291.
II
Appellants contend that the district court
abused its
discretion by permitting Kaiser to amend its answer to assert res
judicata as an affirmative defense. They contend that Kaiser's
motion was untimely, submitted in bad faith, and prejudicial.
We review the district court's decision to permit Kaiser to
amend its answer for an abuse of discretion. Islamic Republic
of Iran v. Boeing Co., 771 F.2d 1279, 1286 (9th Cir. 1985).
"A district court may abuse its discretion if it does not apply
the correct law or if it rests its decision on a clearly erroneous
finding of material fact." Bogovich v. Sandoval, 189 F.3d 999,
1001 (9th Cir. 1999) (quoting United States v. Plainbull, 957
F.2d 724, 725 (9th Cir. 1992)).
A district court "shall grant leave to
amend freely
`when
justice so requires.' " Lopez v. Smith, 203 F.3d 1122, 1130
(9th Cir. 2000) (en banc) (quoting Fed. R. Civ. P. 15(a)). We
have stated that "this policy is to be applied with extreme lib-
erality." Morongo Band of Mission Indians v. Rose, 893 F.2d
1074, 1079 (9th Cir. 1990); see also Griggs v. Pace Am.
Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999) (noting that
inferences should be drawn "in favor of granting the
motion"). In determining whether leave to amend is appropriate, the
district court considers "the presence of any of four
factors: bad faith, undue delay, prejudice to the opposing
party, and/or futility." Griggs, 170 F.3d at 880.
[1] Appellants contend that Kaiser acted in
bad faith
because Kaiser failed "to offer a plausible explanation for
their delayed res judicata application." We disagree. Kaiser
offered substantial competent evidence to explain the delay.
Kaiser substituted counsel shortly after Appellants filed their
first amended complaint, and offered evidence that new coun-
sel had not represented Kaiser in the prior action and was not
aware that the prior action had been dismissed with prejudice.
Moreover, Kaiser's new counsel offered a credible explanation for his
belated discovery that Appellants' action was
barred by res judicata: He researched the procedural history
of the action in the course of determining whether to oppose
Appellants' motion to file a second amended complaint.
Immediately upon learning of the availability of the res judi-
cata defense, Kaiser moved to amend its answer. The district
court did not clearly err in finding that Kaiser did not act in
bad faith.
Appellants also contend that they suffered
prejudice
when
Kaiser was permitted to amend its answer. This assertion also
lacks merit. The amendment caused no delay in the proceedings and
required no additional discovery. See Lockheed Mar-
tin Corp. v. Network Solutions, Inc., 194 F.3d 980, 986 (9th
Cir. 1999) (stating that "[a] need to reopen discovery and
therefore delay the proceedings supports a district court's
finding of prejudice from a delayed motion to amend . . . .").
Appellants do not dispute that permitting Kaiser to amend its
answer did not require Appellants to incur substantial addi-
tional litigation expenses. Nonetheless, Appellants argue that they
were prejudiced because they incurred substantial litiga-
tion expenses before Kaiser moved to amend its answer.
Appellants cite no case holding that prejudice should be mea-
sured by litigation expenses incurred before a motion to
amend is filed. While we agree that delaying assertion of an
affirmative defense for the purpose of forcing a party to incur
unnecessary expenses would demonstrate bad faith, there is
no evidence that Kaiser acted with such a purpose. Appellants
have failed to demonstrate that the district court clearly erred
in finding that Kaiser's amendment was not prejudicial.
Appellants further argue that the district
court abused
its
discretion because Kaiser unreasonably delayed the filing of
its motion to amend. As discussed supra, Kaiser moved to
amend as soon as it became aware of the applicability of the
res judicata defense. Assuming arguendo that Kaiser had
unreasonably delayed the filing of the motion to amend its
answer, "[u]ndue delay by itself . . . is insufficient to justify
denying a motion to amend." Bowles v. Reade , 198 F.3d 752,
758 (9th Cir. 1999). We conclude that the district court did
not abuse its discretion by permitting Kaiser to amend its
answer.
III
[2] Appellants alternatively contend that
Kaiser waived
its
right to assert the doctrine of res judicata by failing to raise
it as an affirmative defense in its answer or in its prior
motions to dismiss. We review this issue de novo. Kern Oil
& Ref. Co. v. Tenneco Oil Co., 840 F.2d 730, 735 (9th Cir.
1988). In prior cases "[w]e have liberalized the requirement
that defendants must raise affirmative defenses in their initial
pleadings." Magana v. Commonwealth of the N. Mariana
Islands, 107 F.3d 1436, 1446 (9th Cir. 1997); see also Rivera
v. Anaya, 726 F.2d 564, 566 (9th Cir. 1984) (similar lan-
guage). A defendant may thus raise an affirmative defense for
the first time in a motion for judgment on the pleadings, but
"only if the delay does not prejudice the plaintiff." Magana, 107 F.3d
at 1446; see also Healy Tibbitts Constr. Co. v. Ins.
Co. of N. Am., 679 F.2d 803, 804 (9th Cir. 1982) (similar language).
As discussed supra, Appellants were not
prejudiced by
Kaiser's late assertion of res judicata. Indeed, Appellants may
not demonstrate prejudice based solely on the untimely assertion of res
judicata because this affirmative defense would
have been dispositive had Kaiser asserted it when the action
was filed. See Wyshak v. City Nat'l Bank, 607 F.2d 824, 826
(9th Cir. 1979) (holding that plaintiff was not prejudiced by
assertion of statute of limitations defense in amended answer
because the defense would have been "effective at the outset
of [plaintiff's] suit."). Appellants argue that Kaiser should be
estopped from asserting res judicata because Kaiser admitted
that it was aware of Appellants' previous actions when it
moved to dismiss the instant action. We conclude, however,
that Kaiser's knowledge that Appellants' previous action had
been dismissed is insufficient to demonstrate waiver of the
affirmative defense of res judicata in the absence of any repre-
sentation by Kaiser that it did not intend to assert that defense
before trial. Thus, Kaiser did not waive its right to assert
res
judicata by failing to plead it in Kaiser's original answer.
IV
Appellants also contend that the district
court erred in
granting Kaiser's motion for judgment on the pleadings. We
review de novo an award of judgment on the pleadings. Nelson v. City of
Irvine, 143 F.3d 1196, 1200 (9th Cir. 1998). "A
judgment on the pleadings is properly granted when, taking
all the allegations in the pleadings as true, the moving party
is entitled to judgment as a matter of law." Id.
[3] "Res judicata, also known as claim
preclusion, bars
litigation in a subsequent action of any claims that were raised
or could have been raised in the prior action." W. Radio Servs.
Co. v. Glickman, 123 F.3d 1189, 1192 (9th Cir. 1997). The
doctrine is applicable whenever there is "(1) an identity of
claims, (2) a final judgment on the merits, and (3) identity or
privity between parties." Id. Appellants contend that res judicata does
not apply because the parties and the claims in the
two actions were not the same. There is no genuine dispute,
however, regarding the identity of the parties -- Owens and
Hutchins were plaintiffs and Kaiser defended in both actions.
There is, however, some difference in the nature of the
claims. Appellants' previous action alleged wrongful termination and
various state law claims based on breach of contract.
The instant action alleged Title VII claims of discriminatory
termination, hostile work environment, and wrongful retalia-
tion. Appellants contend that their latter claims are "distinctly
different" and "not the subject of the prior action."
[4] "The central criterion in determining
whether there
is an
identity of claims between the first and second adjudications
is `whether the two suits arise out of the same transactional
nucleus of facts.' " Frank v. United Airlines, Inc., 216 F.3d
845, 851 (9th Cir. 2000) (citation omitted). The district court
concluded that the allegations in both complaints "clearly
arise from the same transactional nucleus of facts. " The
record supports this finding. Both causes of action are predi-
cated on racial discrimination and allege the same circumstances
regarding Appellants' terminations. Although the
current action also alleges retaliation and hostile work environment,
these are "all grounds for recovery which could have
been asserted, whether they were or not, in a prior suit
between the same parties . . . on the same cause of action."
Gregory v. Widnall, 153 F.3d 1071, 1074 (9th Cir. 1998)
(holding that res judicata bars consideration of a hostile work
environment claim that could have been raised in a prior
action between the same parties) (internal quotation marks
and citation omitted). As the district court correctly noted, the
additional allegations of discrimination are "related to the
same set of facts as the allegations in plaintiffs' 1995 complaint for
wrongful discharge, and . . . the two cases could
have conveniently been tried together." See Feminist Women's Health
Ctr. v. Codispoti, 63 F.3d 863, 868 (9th Cir.
1995) (holding that res judicata bars subsequent action when
the plaintiff "had to produce substantially the same evidence
in both suits to sustain its case").
[5] Appellants also challenge the district
court's
conclusion
that the dismissal of their prior action was "an adjudication on
the merits." This argument fails because the prior action was
dismissed with prejudice "based upon plaintiffs' failure to
prosecute." Unless otherwise specified, such a dismissal "operates as
an adjudication upon the merits." Fed. R. Civ. P.
41(b). Thus, "involuntary dismissal generally acts as a judgment on the
merits for the purposes of res judicata . . . ."
United States v. Schimmels (In re Schimmels ), 127 F.3d 875,
884 (9th Cir. 1997); see also Johnson v. United States Dep't
of Treasury, 939 F.2d 820, 825 (9th Cir. 1991) (noting that
dismissal for failure to prosecute is "treated as an adjudication
on the `merits' for purposes of preclusion").
[6] Appellants further contend that res
judicata should
not
bar review on the merits because their counsel failed to
oppose Kaiser's motion to dismiss in the previous action. The
Supreme Court has made clear, however, that there is "no
principle of law or equity which sanctions the rejection by a
federal court of the salutary principle of res judicata." Feder-
ated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 401 (1981)
(internal quotation marks and citation omitted). The Court
explained that "[t]he doctrine of res judicata serves vital public
interests beyond any individual judge's ad hoc determina-
tion of the equities in a particular case" and rejected any
equitable exceptions to the application of res judicata based
on "public policy" or "simple justice." Id. Accordingly, we
reject Appellants' contention that equitable principles pre-
clude application of res judicata in this case.
V
[7] Finally, Appellants argue that res
judicata cannot
apply
because they were barred from bringing their Title VII claims
in the previous action in light of the fact that they had not yet
received their "right to sue" letters from the EEOC.1 Though
we have never addressed this issue in a published opinion, we
now join our sister circuits in holding that Title VII claims are
not exempt from the doctrine of res judicata where plaintiffs
have neither sought a stay from the district court for the pur-
pose of pursuing Title VII administrative remedies nor
attempted to amend their complaint to include their Title VII
claims. See Heyliger v. State Univ. & Cmty. Coll. Sys. of
Tenn., 126 F.3d 849, 856 (6th Cir. 1997) (holding that plain-
tiff was subject to claim preclusion because he failed to litigate a
Title VII claim in a prior state court proceeding);
Herrmann v. Cencom Cable Assocs., Inc., 999 F.2d 223, 225-26 (7th Cir.
1993) (stating that "[p]arties to Title VII actions
enjoy no immunity from res judicata); Woods v. Dunlop Tire
Corp., 972 F.2d 36, 40-41 (2d Cir. 1992) (Title VII claim not
exempt from res judicata where plaintiff made no effort in
prior action to seek a stay from the district court or amend her
complaint to include Title VII claim); see also Boateng v.
InterAmerican Univ., Inc., 210 F.3d 56, 63 (1st Cir. 2000)
(Title VII claim subject to res judicata where plaintiff
received right to sue letter during pendency of first
action);
Jang v. United Techs. Corp., 206 F.3d 1147, 1149 (11th Cir.
2000) (adopting Title VII analysis and concluding that ADA
claim was not exempt from res judicata where plaintiff failed
to obtain right to sue letter during pendency of first action);
Churchill v. Star Enters., 183 F.3d 184, 193-94 (3d Cir. 1999)
(same).
[8] Appellants had ample time to secure
"right to sue"
let-
_________________________________________________________________
1 Title VII requires that a plaintiff obtain a "right to sue" letter
from the
EEOC before filing an action. See Valenzuela v. Kraft, Inc., 801 F.2d
1170, 1172-74 (9th Cir. 1986), amended by 815 F.2d 570 (9th Cir. 1987).
ters prior to filing their first action in
November of
1995.
Alternatively, they could have sought a stay from the district
court pending their administrative proceedings before the
EEOC. In light of Appellants' failure to exercise either
option, we conclude that their Title VII claims are barred by
the doctrine of res judicata.
AFFIRMED.
Each party shall bear its own costs.