Hacienda Management, S. De R.L. De C.V. v. Starwood Capital Group Global, I, LLC et al

Filing 44

Order by Hon. Samuel Conti granting 22 Motion to Dismiss.(sclc1, COURT STAFF) (Filed on 7/10/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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United States District Court

For the Northern District of California

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HACIENDA MANAGEMENT, S. DE R.L. ) Case No. 12-0395 SC
)
DE C.V.,
) ORDER GRANTING DEFENDANTS'
) MOTION TO DISMISS
)
Plaintiff,
)
)
v.
)
STARWOOD CAPITAL GROUP GLOBAL I )
)
LLC, STARWOOD GLOBAL
OPPORTUNITY FUND VI-A, STARWOOD )
GLOBAL OPPORTUNITY FUND VI-B,
)
SOF-VI MANAGEMENT, LLC and
)
STARWOOD CAPITAL GROUP
)
MANAGEMENT LLC,
)
)
Defendants.
)
)

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I.

INTRODUCTION
This case concerns Defendants' alleged tortious interference

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with Plaintiff's contract to manage a luxury residential

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development property in Cabo San Lucas, Mexico, known as the

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Hacienda Beach Club and Residences (the "Hacidenda Beach Club" or

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the "Project").

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dismiss the action on the ground that Plaintiff's claims are barred

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by res judicata because Plaintiff brought similar contract claims

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in earlier arbitration proceedings.

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motion is fully briefed.

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Court also requested supplemental briefing, which the parties have

ECF No. 1 ("Compl.").

Defendants now move to

ECF No. 22 ("MTD").

The

ECF Nos. 26 ("Opp'n"), 32 ("Reply").

The

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provided.

ECF Nos. 39 ("Defs.' Supp. Br."), 40 ("Pl.'s Supp.

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Br.").

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matter appropriate for decision without oral argument.

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below, the Court GRANTS Defendants' motion to dismiss.

Pursuant to Civil Local Rule 7-1(b), the Court finds this
As detailed

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II.

BACKGROUND

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The Hacienda Beach Club is owned by Desarrollo, a Mexican

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trust, whose indirect, controlling investors are investment funds,

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Defendants Starwood Global Opportunity Fund VI-A and Starwood

United States District Court

For the Northern District of California

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Global Opportunity Fund VI-B ("Starwood").

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three named defendants are, essentially, managers of Starwood Funds

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A and B.

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Compl. ¶ 12.

The other

Id. ¶¶ 5-6.

In May 2008, a few months prior to the opening of the Hacienda

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Beach Club, Plaintiff and Desarrollo (through an affiliate)

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negotiated and executed the Property and Rental Management Term

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Sheet (the "Term Sheet").

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the term sheet, the parties also agreed to "negotiate exclusively

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with one another for a period of 90 days following the date hereof

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in an effort to finalize the other aspects of their agreements."

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Term Sheet § X.

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exclusivity provision by secretly negotiating with other, less

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costly property management companies in the weeks following the

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execution of the term sheet.

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Id. ¶ 17, Ex. 1 ("Term Sheet").

Under

Plaintiff alleges that Defendants breached this

Compl. ¶ 19.

Nevertheless, the parties ultimately reached an agreement in

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December 2008.

The resulting twenty-year Management Agreement

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provided that Plaintiff was to manage and operate the Hacienda

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Beach Club for a base fee of $50,000 per month and incentive fees

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based on profits.

Compl. ¶ 37, Ex. 18 ("Mgmt. Agr.").

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Under the

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Management Agreement, Plaintiff was to meet "the standards of [the]

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Four Seasons and similarly positioned luxury hotels, and . . .

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Villas del Mar," another luxury residential community in Cabo San

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Lucas managed by Plaintiff.

Mgmt. Agr. at 14; Compl. ¶ 11.

Around the time the Management Agreement was executed, sales

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of Hacienda Beach Club units allegedly stalled due to the global

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economic crisis, Mexican drug violence, and an outbreak of the

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swine flu in Mexico.

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these economic pressures, Defendants began scheming to find a way

Id. ¶ 38.

Plaintiff alleges that, due to

United States District Court

For the Northern District of California

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to escape their obligations under the Management Agreement.

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¶ 39.

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agents and principals which allegedly document Defendants' intent

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to breach the agreement and replace Plaintiff with a property

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manager that would accept lower fees.

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Allegedly, the first step in the process was appointing a new

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general manager who would report directly to Defendants.

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e.g., id. ¶ 47.

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manager along with a number of their consultants to "concoct[] an

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extensive list of baseless breaches of the Management Agreement by

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[Plaintiff] and use these alleged breaches as [a] pretext . . . to

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cause Desarrollo to terminate the Management Agreement."

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Compl.

Plaintiff refers to a number of emails among Defendants'

See, e.g., id. ¶¶ 40-50.

See,

Defendants then allegedly used the new general

Id. ¶ 53.

On August 20, 2010, Plaintiff initiated an arbitration against

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Desarrollo, alleging wrongful termination of the Management

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Agreement and seeking, among other things, all fees and incentive

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fees due under the agreement.

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("Arbitration. Compl.").

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clause called for a three-member panel of individuals with

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"hospitality industry" experience (the "Panel"): one appointed by

ECF No. 23 ("RJN") Ex. C

The Management Agreement's arbitration

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each party, with the appointees selecting a chairperson.

Mgmt.

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Agr. § 14.2.1.

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discovery, including document productions, depositions, and two

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rounds of expert reports.

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and 4, 2011, and the Panel heard opening statements and a portion

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of Plaintiff's case-in-chief.

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hearing, Plaintiff informed the Panel that it would withdraw all of

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its claims with prejudice.

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and binding" award confirming Plaintiff's withdrawal.

The Panel allowed the parties to engage in

RJN Ex. G.

A hearing was held October 3

RJN Ex. B.

Id.

On the second day of the

The Panel then entered a "final
Id.

United States District Court

For the Northern District of California

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January 10, 2012, the Supreme Court of the State of New York

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granted a petition to confirm the arbitration award.

On

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RJN Ex. A.

Plaintiff filed the instant action on January 25, 2012,

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alleging many of the same facts asserted in its arbitration

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complaint.

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which sound in tort, are different than the contract claim asserted

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in the arbitration.

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for: (1) tortious interference with contract; (2) fraud and aiding

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and abetting fraud and fraudulent inducement; (3) aiding and

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abetting tortious breach of the duty of good faith and fair

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dealing.

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exemplary damages.

However, the causes of action alleged here, all of

Specifically, Plaintiff now asserts claims

Compl. ¶¶ 63-75.

Plaintiff also seeks damages and

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III. DISCUSSION
Defendants argue that (1) Plaintiff's entire action is barred

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by res judicata pursuant to the New York Supreme Court's order

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confirming Defendants' arbitration award; and (2) Plaintiff's

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claims contain other incurable defects.

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first contention and, therefore does not reach the second.

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The Court agrees with the

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A.

Choice of Law

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The Court first addresses the issue of what res judicata law

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to apply.

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agreed that the Court should apply the law of the forum state,

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California.

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supplemental briefing on the issue, Defendants changed course,

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arguing that New York law should apply because the Court must

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decide the preclusive effect of a New York judgment.

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Br. at 1.

United States District Court

For the Northern District of California

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In their initial briefing, Plaintiff and Defendants

See MTD at 9; Opp'n at 3.

After the Court requested

Defs.' Supp.

The Court finds that applying California law is the

better course.
In doing so, the Court follows a line of authority holding

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that a federal court, sitting in diversity, should apply the

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substantive preclusion law of the forum state

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Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508-09 (2001); Jacobs

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v. CBS Broad., Inc., 291 F.3d 1173, 1177 (9th Cir. 2002); Pardo v.

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Olson & Sons, Inc., 40 F.3d 1063, 1066 (9th Cir. 1994); Bates v.

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Union Oil Co. of California, 944 F.2d 647, 649 (9th Cir. 1991).

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This rule is consistent with the principle enunciated by the

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Supreme Court in Erie Railroad Co. v. Tompkins, 304 U.S. 64, 77

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(1938): "[e]xcept in matters governed by the Federal Constitution

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or by acts of Congress, the [substantive] law to be applied in any

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case is the law of the state."

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("any other rule would produce the sort of forum-shopping and

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inequitable administration of the laws that Erie seeks to avoid").

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Defendants acknowledge this authority, but argue that the

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Court should instead follow the Ninth Circuit's decision in Noel v.

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Hall, 341 F.3d 1148 (9th Cir. 2003).

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that case, the plaintiff brought a number of state and federal

See Semtek Int'l

See Semtek, 531 U.S. at 508-09

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Defs.' Supp. Br. at 1-2.

In

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wire-tapping claims.

Noel, 341 F.3d at 1153.

In deciding whether

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those claims were barred by res judicata, the Court applied the

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"[preclusion] rules chosen by the State from which the judgment was

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taken."

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originally been filed in the District of Oregon, but the Ninth

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Circuit chose to apply the preclusion rules of Washington, the

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state that issued the purportedly preclusive judgments at issue.

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Id. at 1153, 1166.

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U.S.C. § 1738, federal courts must give "full faith and credit" to

Id. at 1166 (internal quotations omitted).

The case had

The Ninth Circuit reasoned that, under 28

Id. at 1166.

The Court is not

United States District Court

For the Northern District of California

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the judgments of state courts.

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persuaded that the Noel rule is applicable here.

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instant action, Noel involved a number of federal law claims,

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including alleged violations of the federal wiretap law and

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blackmail in violation of 18 U.S.C. § 873.1

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appears that the Noel court was exercising federal question

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jurisdiction.

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course is to apply the res judicata law of the forum.

Unlike the

Id. at 1153.

Thus, it

As this Court is sitting in diversity, the better

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For these reasons, the Court applies California law to

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determine whether Plaintiff's action is barred by res judicata.2

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Likewise, the other case cited by Defendants in support of
applying New York law was not decided by a federal court sitting in
diversity. See Myer v. Americo Life, Inc., 05-0718MCWDW, 2005 WL
3007117, at *1 (W.D. Mo. Nov. 8, 2005) ("Plaintiff . . . seeks
relief under federal law"), aff'd on other grounds, 469 F.3d 731
(8th Cir. 2006).
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The ultimate outcome of this case would remain the same if the
Court were to apply New York res judicata law. The primary
distinction between New York and California's res judicata laws is
the different tests used to determine whether a later action
involves the same cause of action as the first one. California
courts use a primary rights analysis to make this determination.
See infra Section III.B.1. New York courts use a far broader
transactional test, whereby, "once a claim is brought to a final
conclusion, all other claims arising out of the same transaction or
series of transactions are barred, even if based upon different

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B.

Res Judicata (Claim Preclusion)

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The doctrine of res judicata provides that "a valid, final

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judgment on the merits precludes parties or their privies from

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relitigating the same 'cause of action' in a subsequent suit."

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Parc Cmty. Ass'n v. Workers' Comp. Appeals Bd., 110 Cal. App. 4th

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1161, 1169 (2003).

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be met for res judicata to apply:

Le

Under California law, three requirements must

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United States District Court

For the Northern District of California

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(1) the second lawsuit must involve the same "cause of
action" as the first one, (2) there must have been a
final judgment on the merits in the first lawsuit and (3)
the party to be precluded must itself have been a party,
or in privity with a party, to that first lawsuit.

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San Diego Police Officers' Ass'n v. San Diego City Employees' Ret.

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Sys., 568 F.3d 725, 734 (9th Cir. 2009) (applying California law).

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The Court addresses each of these factors below and finds that

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Plaintiff's claims are barred.

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1.

This suit involves the same cause of action as the
arbitration

For the purposes of res judicata analysis, California courts

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define a cause of action by focusing on the primary right at stake.

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Le Parc, 110 Cal. App. at 1170.

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"a 'cause of action' is comprised of a 'primary right' of the

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plaintiff, a corresponding 'primary duty' of the defendant, and a

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wrongful act by the defendant constituting a breach of that duty."

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Crowley v. Katleman, 8 Cal. 4th 666, 681 (Cal. 1994).

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salient characteristic of a primary right is that it is

Under this primary rights theory,

"The most

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theories . . . ." O'Brien v. City of Syracuse, 54 N.Y.3d 353, 35758 (1981). Plaintiff's claims would be barred under New York res
judicata law since they arise out of the same transaction as the
claims brought in the prior arbitration proceedings.

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indivisible: the violation of a single primary right gives rise to

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but a single cause of action."

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same injury to the plaintiff and the same wrong by the defendant

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then the same primary right is at stake even if in the second suit

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the plaintiff pleads different theories of recovery, seeks

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different forms of relief and/or adds new facts supporting

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recovery."

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160 (Cal. Ct. App. 1993).

Id.

"[I]f two actions involve the

Tensor Grp. v. City of Glendale, 14 Cal. App. 4th 154,

Here, Plaintiff pled a breach of contract claim against

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United States District Court

For the Northern District of California

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Desarrollo in the arbitration and asserts three tort claims against

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Defendants in the instant action.

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the two suits are different, the alleged injuries and the alleged

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wrongs are the same.

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breach of the Management Agreement and sought to recover all fees

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and payments due under the agreement.

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Likewise, the three causes of action alleged in the instant action

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are predicated on the allegedly wrongful breach of the Management

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Agreement and the lost fees that resulted from that breach.

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Compl. ¶¶ 65, 70, 72.

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of the arbitration award merely by pleading different legal

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theories.

Though the causes of action in

In the arbitration, Plaintiff alleged a

Arbitration Comp. ¶¶ 54, 56.

See

Plaintiff cannot avoid the preclusive effect

See Tensor Grp., 14 Cal. App. 4th 160.

Plaintiff argues "there is a significant difference between

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the primary right, arising under a contract, to provide services[,]

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versus the primary right, arising under the common law, to be free

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from a third party's trickery and subterfuge in the course of

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performing under a contract with another party."3

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Opp'n at 6.

Plaintiff also argues that the two actions must involve different
primary rights since torts like fraud and tortious interference
require different proof and elements than breach of contract

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This argument lacks merit since it focuses on the distinction

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between the legal theories pled in the two actions.

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focus should be on the difference between the alleged injuries and

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the distinction between the alleged wrongs.

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Further, Plaintiff's attempt to characterize Defendants as third

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parties to the agreement between Plaintiff and Desarrollo is

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unpersuasive.

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Defendants, as a group, are its principal owner and parent.

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¶¶ 18, 64 n.74.

There is none.

Desarrollo is a trust -- a legal fiction -- and

United States District Court

Compl.

In fact, Plaintiff often refers to Desarrollo and
See, e.g., Comp. ¶¶ 36,

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For the Northern District of California

Instead, the

Starwood interchangeably in the Complaint.

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66.

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same set of facts as Desallarro's alleged breach.4

Defendants' alleged "trickery and subterfuge" rests on the

Plaintiff cites to a number of California cases where courts

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found that separate contract and tort actions involved different

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primary rights.

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since the purported preclusive judgments at issue involved

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different sets of facts or different sets of injuries than the

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later actions.

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B167519, 2005 WL 435413, *at 12 (Cal. Ct. App. Feb. 25, 2005)

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("[T]he mere failure of performance of the clinical trial agreement

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does not violate the same primary right as actions deliberately and

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fraudulently undertaken to destroy the reputation of the implant by

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altering patient records [and] accepting bribes from plaintiff's

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Opp'n at 6-8.

These cases are distinguishable

See Sargon Enters., Inc. v. Univ. of S. Cal.,

claims. Pls.' Opp'n at 6. If this were true, then a plaintiff
could always avoid res judicata by recasting the same primary right
under different cause of action. But that is clearly not the law.
See Tensor Grp., 14 Cal. App. 4th 160.
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This is evident from the Complaint itself, which cites to and
attaches a significant number of internal documents which were
likely obtained through discovery in the arbitration.

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competitor."); Brenelli Amedeo, S.P.A. v. Bakara Furniture, Inc.,

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29 Cal. App. 4th 1828, 1837 (Cal. Ct. App. 1994) ("[T]he right to

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have contractual obligations performed is distinct from the right

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to be free from tortious behavior preventing collection of a

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judgment.");

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390, 402 (Cal. Ct. App. 1981) ("the basis of the [tort] claim is

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completely different, and rests upon a completely separate set of

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facts").

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United States District Court

For the Northern District of California

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Sawyer v. First City Fin. Corp., 124 Cal. App. 3d

For these reasons, the Court finds that the instant suit
involves the same cause of action as the arbitration.
2.

The arbitration resulted in a final judgment on the
merits

The second factor in the res judicata analysis -- a final

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judgment on the merits -- is also satisfied here.

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their arbitration claims for over a year, Plaintiffs chose to

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withdraw the claims with prejudice.

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arbitrations the same claim preclusive effect as court actions.

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See Richard B. LeVine, Inc. v. Higashi, 131 Cal. App. 4th 566, 572-

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79 (Cal. Ct. App. 2005); Brinton v. Bankers Pension Servs., Inc.,

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76 Cal. App. 4th 550, 556-58 (Cal. Ct. App. 1999).

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purposes of applying the doctrine of res judicata . . . , a

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dismissal with prejudice is the equivalent of a final judgment on

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the merits, barring the entire cause of action."

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Morris USA, Inc., 48 Cal. 4th 788, 793 (Cal. 2010).

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After litigating

California courts give

Further, "for

Boeken v. Philip

Relying on Le Parc, Plaintiff argues that "the [arbitration]

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award cannot constitute a final judgment on the merits . . .

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because the voluntary withdrawal of claims resulted in nothing

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being 'actually litigated or necessarily decided' in the

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arbitration."

Opp'n at 9 (quoting Le Parc, 110 Cal. App. 4th at

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1174).

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it concerns collateral estoppel, not res judicata.

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would make little sense to inquire whether an issue has been

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"actually litigated or necessarily decided" for the purposes of

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determining whether a claim is precluded.

The language Plaintiff cites from Le Parc is inapposite as
Indeed, it

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Plaintiff also argues that the arbitration award cannot

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operate as a final judgment on the merits because the arbitration

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panel never addressed the merits of the parties' dispute.

Opp'n at

United States District Court

For the Northern District of California

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9.

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prejudice before a state court can trigger res judicata.

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Rather, Plaintiff urges the Court to apply a different rule in the

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arbitration context.

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judicata "is intended to preserve the integrity of the judicial

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system, promote judicial economy, and protect litigants from

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harassment by vexatious litigation."

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Cal. 4th 815, 982 (Cal. 1999).

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force to arbitration proceedings, especially where, as here, the

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parties previously arbitrated for over a year.

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Plaintiff does not contest that a voluntary dismissal with

The Court sees no reason to do so.

See id.

Res

Vandenberg v. Super. Ct., 21

This reasoning applies with equal

Finally, Plaintiff argues that a withdrawal with prejudice

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only triggers res judicata in successive lawsuits between the same

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parties.

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Plaintiff's position runs contrary to prevailing case law, which

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allows for the application of res judicata where the defendants in

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a later action are in privity with the defendants in the first

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action.

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See infra Section IV.B.3.

The Court is aware of no such limitation.

See Boeken, 48 Cal. 4th at 797.

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Further,

Such is the case here.

For these reasons, the Court finds that there was a final

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judgment on the merits in Plaintiff's prior arbitration

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proceedings.

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3.

Plaintiff and Defendants were adverse parties in the
arbitration

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Plaintiff does not contest that the final factor in the res

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judicata analysis -- that there be an identity of the parties in

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the two actions -- is satisfied here.

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not go into great detail on this issue.

Accordingly, the Court will
Suffice it to say, this

United States District Court

For the Northern District of California

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factor is satisfied because Hacienda Management is the plaintiff in

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both cases and the defendants in this action are in privity with

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Desarrollo, the respondent in the arbitration.

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Police Officers' Ass'n, 568 F.3d at 734.

See San Diego

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IV.

CONCLUSION

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For the reasons set forth herein, the Court finds that

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Plaintiff Hacienda Management's action is barred by res judicata.

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Accordingly, the Court GRANTS Defendants Starwood Capital Group

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Global I LLLC, Starwood Global Opportunity Fund VI-A, Starwood

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Global Opportunity Fund VI-B, SOF-VI Management, LLC and Starwood

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Capital Group Management LLC's motion to dismiss and DISMISSES

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Plaintiff's action WITH PREJUDICE.

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IT IS SO ORDERED.

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Dated:

July 10, 2012
UNITED STATES DISTRICT JUDGE

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