Filed 3/1/24 Bhakta v. Bhakta CA4/2 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION TWO
AJESH S. BHAKTA et al.,
Plaintiffs and Appellants, E079359
v. (Super.Ct.No. MCC1600827)
DHARMENDRA M. BHAKTA et al., OPINION
Defendants and Appellants.
APPEAL from the Superior Court of Riverside County. Raquel Marquez, Judge.
Judgment vacated and remanded with directions.
Lanza & Smith, Anthony Lanza and Brodie H. Smith, for Plaintiffs and
Appellants, Ajesh S. Bhakta et al.
Shulman Bastian Friedman & Bui, and Shane M. Biornstad for Defendants and
Appellants, Dharmendra M. Bhakta et al.
1 This appeal concerns a business dispute between extended family members that
gave rise to both this action and two subsequent federal lawsuits. Before the federal
lawsuits were even filed, the parties in this action entered a settlement agreement. The
trial court ordered the matter dismissed with prejudice but did not enter judgment and
instead retained jurisdiction under Code of Civil Procedure section 664.6. (Unlabeled
statutory references are to the Code of Civil Procedure.) Plaintiffs moved years later
under section 664.6 to invalidate the settlement. The trial court denied the motion.
Plaintiffs appeal from the subsequently entered judgment, arguing that the court should
have granted the earlier motion to invalidate because the settlement was an unenforceable
agreement to agree. We agree with plaintiffs’ assessment and accordingly vacate the
judgment that was entered on the settlement.
Defendants cross-appeal, arguing that the judgment should be modified to reflect
an unqualified victory for the defense and then affirmed as modified, for reasons
independent of the settlement. Defendants argue that the trial court erred by denying two
motions—one filed before the settlement and one after—in which defendants sought to
have judgment entered in their favor on the basis of res judicata. We reject defendants’
arguments and accordingly remand to the trial court for further proceedings.
BACKGROUND
A. The Present Action
In September 2016, Ajesh, Savita, Arjun, and Parul Bhakta (collectively,
plaintiffs) filed a lawsuit against Jayashree Krishna, Inc. (JSK) and Dharmendra, Anjali,
2 Minesh, Mukundbhai, and Sudhaben Bhakta (collectively, defendants). The following
facts are taken from the complaint.
JSK was incorporated in 2005. Plaintiffs collectively invested one million dollars
in the company in exchange for a 50 percent shareholder interest. JSK’s remaining 50
percent shareholder interest belonged to defendants Mukundbhai and Sudhaben, who also
had invested one million dollars in the company.1
JSK’s purpose was to purchase and operate a particular motel in San Bernardino,
California. JSK purchased the motel in 2006. Defendants handled the day-to-day
operations of the motel without any assistance from plaintiffs. In addition to operating
the motel, defendants controlled JSK. In 2012, defendants asked plaintiffs to invest
additional capital into JSK, but plaintiffs refused.
Plaintiffs were never given a shareholder agreement or provided notice of any
meetings of the shareholders or the board of directors. Plaintiffs never received any
compensation, dividends, or distributions from JSK.
In September 2015, defendant Anjali informed plaintiffs that they “were no longer
shareholders in the Company and that they had no interest in the Company.” In April
2016, plaintiffs demanded in writing that JSK make available for inspection and copying
JSK’s accounting books and records along with the minutes of meetings of the
shareholders and the board of directors. Defendants refused to comply.
1 Because all of the individual parties have the same last name, we refer to them individually by their first names. No disrespect is intended.
3 In the complaint, plaintiffs alleged that defendants were “engaged in an active
campaign to capture and usurp control and the financial gains of the Company, to the
exclusion and detriment of Plaintiffs through a series of wrongful actions in violation of
their fiduciary duties owed to Plaintiffs.” Against the individual defendants, plaintiffs
alleged causes of action for breach of fiduciary duties and fraud by concealment and
nondisclosure. Plaintiffs alleged that defendants had committed fraud and breached their
fiduciary duties by diluting and then eliminating plaintiffs’ 50 percent interest in JSK
while concealing that information from plaintiffs. Plaintiffs also alleged that defendants
failed to disclose that defendants received loan forgiveness from the United States Small
Business Administration (SBA) in an amount over $1.5 million dollars “in connection
with certain loans encumbering the motel and the Company’s assets.”
In addition, in a cause of action naming both JSK and the individual defendants,
plaintiffs demanded to inspect JSK’s corporate records under Corporations Code sections
1600 and 1601. Plaintiffs also sought involuntary dissolution of JSK under Corporations
Code section 1800 et seq. In support of the involuntary dissolution claim, plaintiffs
alleged that defendants had “been guilty of or knowingly countenanced persistent and
pervasive fraud, mismanagement or abuse of their authority or persistent unfairness
toward Plaintiffs or misapplied and/or wasted the Company’s property.” Plaintiffs also
alleged that the requested relief was supported by “the allegations set forth in th[e]
Complaint, [and] any and all pleadings filed in connection therewith.”
4 In December 2017, plaintiffs requested dismissal with prejudice of the involuntary
dissolution cause of action (the fourth cause of action). The clerk entered dismissal as
requested “as to [the] Fourth Cause of Action only.”
B. Defendants Move for Judgment on the Pleadings
In February 2018, defendants JSK, Dharmendra, Minesh, and Anjali (but not
defendant Mukundbhai) moved for judgment on the pleadings. The moving defendants
argued that plaintiffs’ dismissal with prejudice of the involuntary dissolution cause of
action required the court to enter judgment in favor of defendants on the remaining
causes of action because the dismissal of the involuntary dissolution claim adjudicated on
the merits the same primary rights at issue in the other causes of action.
The court granted the motion in part, but not on the basis of res judicata, and
otherwise denied it.2 The court granted the motion with respect to the claim for
inspection of JSK’s records on the ground that the claim was not viable against the
individual defendants. The court denied the motion in all other respects, reasoning that
dismissal with prejudice of the involuntary dissolution cause of action did not bar the
breach of fiduciary duty and fraud causes of action because “the same primary right is not
involved, so neither the issue preclusion nor claim preclusion aspects of res judicata
apply. The primary right for the remaining causes of action is the right to be free from
interference with property rights in the corporation, while in the fourth cause of action for
2 The motion was heard on April 2018, but the record on appeal does not contain a transcript of the hearing.
5 involuntary dissolution the primary right is the right to a dissolution of the corporation
under the statutory procedure.”
C. The Settlement
In April 2018, the parties attended a mandatory settlement conference and reached
an agreement at the end of the second day of negotiations. The court asked counsel to put
the terms of the settlement on the record.
Counsel for defendants Mukundbhai and Sudhaben stated that the parties had
reached the following agreement: The parties “agreed that the loan made by Mukundbhai
and Sudhaben Bhakta to the company shall have a principal balance of $1,990,435. From
that will be deducted any attorney fees paid by the corporation or through the corporation
in this particular litigation. This amount is subject to verification of the infusions of loans
advanced by Mukundbhai and Sudhaben Bhakta and any other defendants in the case.
“The second point is the parties agree to retain an independent appraiser to value
the property, that being the hotel which is the subject matter of this dispute. [¶] The
property will be listed for sale based on the appraised value at a price determined by
mutual agreement of the parties. If the party is sold—I’m sorry—if the property is sold
to a third party, then the loans to the U.S. Bank and Balboa Finance will be paid first, and
then the loan described above, with respect to Mukundbhai and Sudhaben Bhakta will be
paid with interest as follows. [¶] For those advances made by the Bhaktas prior to 2008,
their interest rate will be five percent simple interest from the date of such advance. For
any advance from January 1, 2008, onward, it will be six percent, again, simple interest,
payable only from the date that the actual advance was made. [¶] After the payments of
6 the third-party loans and the loans to Mukundbhai and Sudhaben Bhakta, then the
remaining proceeds of the sale will be split 49 percent to the plaintiffs and 51 percent to
the defendants, and in particular that would be Dharmendra, Minesh, and Anjali Bhakta.
[¶] If the property, however, is sold to the defendants, and they shall have the right to
purchase it by agreement, then the payout to the plaintiffs will be over a period of
approximately two to five years, with a view towards tax-favorable treatment towards the
plaintiff with regard to such sale. Also, it shall be structured in a way that is sustainable
by the cash flow of the company.
“The case will be dismissed without prejudice. The Court will retain jurisdiction
pursuant to [Code of Civil Procedure section] 664.6 to review and enforce all aspects of
the settlement.
“The parties will and hereby do mutually release each other, and also agree to
[Civil Code section] 1542 waivers from each side. The parties will cooperate with regard
to any further documents that are required to effectuate the terms that I’ve described
above. [¶] Subject to counsel’s verification, those are the terms that I understand the
parties have agreed to.”
Counsel immediately added the following “additional” term: The parties
“stipulated and agreed that nothing in the settlement agreement shall operate to create a
right to be recognized on the part of the plaintiffs as a shareholder in the company.”
The court added: “And then, finally, if there’s any agreement, there’s an
agreement about the purchase price, the sale price, there is some ambiguity about what is
going to be validated or not validated in terms of the money owed to the defendants who
7 made the loan, all of that will be determined by the Court if there’s—if you’re not able to
reach an agreement. The Court will exercise its jurisdiction on any issue to which they
cannot make an agreement on. The Court will listen to both sides and make the order and
make the determination.”
Plaintiffs’ counsel then offered the following “minor clarification”: “I heard the
words, ‘They shall have the right to purchase it by agreement.’ That was when counsel
was talking about the right of defendants to purchase the property by agreement. It’s not
that we have agreed. It’s that in the event that we agree, then they shall have a right to
purchase it. It’s somewhat of an illusory term. But I think the point is that we’ll get
together, and if they want to buy it, then we’ll agree to it. Correct?” Counsel for
defendants Mukundbhai and Sudhaben responded: “That’s correct. And the parties
intend to negotiate amongst themselves for a buyout if it can be done. If not, the property
will be sold to a third party.”
The parties all said that they understood and agreed to the terms of the settlement
agreement as stated in the record. (Defendant Dharmendra agreed on behalf of defendant
Anjali.3) JSK’s counsel indicated “that the corporation is going along” and remarked:
3 Before defense counsel put the terms of the agreement on the record, the court learned that all of the parties were present except for defendant Anjali, who was in a meeting. Her counsel asked if defendant Dharmendra (Anjali’s husband) could agree on her behalf. Dharmendra said that he had authority to agree on Anjali’s behalf. Plaintiffs’ counsel stipulated that would be fine. The court stated: “Then if it’s stipulated by the parties that you have authority as her husband, then I will permit it. The parties are going to give up any appellate rights or any other rights to withdraw because of the fact that she’s not present.”
8 “As I understand it, your honor, this is in regards to the sale of the hotel solely. It has
nothing to do with the corporation or the company.”
After the parties assented to the terms, the court stated: “It’s usually just
dismissed and it’s dismissed with prejudice, not without prejudice.” Counsel for
defendants Mukundbhai and Sudhaben responded: “I misspoke, your Honor. I
understand that the Court already retains jurisdiction. . . . [¶] . . . The case will be
dismissed with prejudice but the Court will retain jurisdiction.” No other counsel
commented.
The court then stated: “The matter is now settled. It is dismissed. The Court will
retain jurisdiction.” The minute order from the hearing reads: “Entire Action Dismissed
with prejudice. The court will retain jurisdiction over the parties to enforce the
settlement until performance in full of the terms of the settlement (CCP 664.6).”
D. The Parties’ Initial Appeals
At a hearing in June 2018, the court asked the parties about the status of the
settlement. We know nothing else about the purpose of the hearing, because the record
on appeal does not contain a transcript. The court continued the hearing until September
and set a briefing deadline.
Days before that scheduled hearing, plaintiffs appealed from the April 2018 order
dismissing the case with prejudice as a result of the parties’ settlement agreement.
Defendants cross-appealed from the order denying the motion for judgment on the
pleadings. We dismissed both appeals without prejudice on the ground that they were
premature because judgment had not been entered.
9 According to the superior court docket, the September 2018 hearing was held as
scheduled. The transcript from that hearing is not included in the record on appeal. The
findings from that proceeding were as follows: “Court will await further litigation from
Counsel. [¶] Counsel may file a motion for the Court to exercise its jurisdiction pursuant
to CCP 664.6.”
E. The First Federal Action
In April 2020, plaintiffs filed a complaint in federal court. Plaintiffs named the
same defendants as in the present action and added the SBA. Plaintiffs alleged that
defendants violated the Racketeer Influenced and Corrupt Organizations Act (RICO), 18
U.S.C. § 1962(a)-(d) and alleged that defendants and the SBA violated plaintiffs’ civil
rights under the First, Fourth, Fifth, and Fourteenth Amendments of the federal
Constitution. The federal suit arose from the same basic operative facts as the underlying
state court action, namely, plaintiffs’ loan to JSK when the company formed, JSK’s
purchase of the motel, and plaintiffs’ discovery in 2015 that they no longer had a
shareholder interest in JSK.
In June 2020, plaintiffs voluntarily dismissed the federal action without prejudice
by notice under Federal Rules of Civil Procedure, rule 41(a)(1)(A)(i). (Undesignated
citations to rules are to the Federal Rules of Civil Procedure.)
F. Plaintiffs Move to Invalidate the Settlement Agreement
In October 2020, plaintiffs moved to invalidate the “purported” settlement
agreement under sections 128, 187, 473, 664.6, and 1060. Plaintiffs argued that the
settlement agreement was invalid because it amounted to an unenforceable agreement to
10 agree and lacked essential terms, including a sale price for the motel and a definite
amount owed to defendants Mukundbhai and Sudhaben on their loan to JSK, given that
the loan amount was subject to verification.
The trial court held a hearing on the motion in November 2020. The court had
issued a tentative ruling indicating that it was denying the motion for the following
reason: “Plaintiffs provide no authority that makes the dismissal void or gives the Court
authority to set aside the settlement agreement.” At the hearing, plaintiffs’ counsel
argued that the court should reconsider the tentative ruling or, in the alternative, that the
court should enter judgment on the settlement. Counsel argued that finality was needed
because otherwise plaintiffs were “stuck in a procedural limbo.” The court rejected
plaintiffs’ request to enter judgment. The court reasoned that it had “made clear that the
case was dismissed with prejudice, and the Court retained jurisdiction to enforce the
terms of the settlement. And I’ll leave it to the parties on that.” The court otherwise
denied the motion and indicated that it was “leav[ing] it to the parties to move forward.”
G. The Second Federal Action
In July 2020 (after plaintiffs filed the motion to invalidate but before the hearing),
plaintiffs Ajesh, Arjun, and Parul (collectively, the federal plaintiffs) filed another action
in federal court against the same defendants as named in the present action and arising
from the same operative facts as this action and the first federal action The federal
plaintiffs alleged causes of action for RICO violations, breach of contract, fraud, breach
of fiduciary duty, unfair competition under Business and Professions Code section 17200
et seq., unjust enrichment, and fraudulent conveyance.
11 In October 2020, the parties jointly stipulated to stay the second federal action
because of the pending motion to invalidate the settlement in this action. The parties
agreed that the ruling on that motion might eliminate the need for the second federal
action because the allegations in the second federal action “alleg[ed] largely the same or
similar claims which according to Plaintiffs were not resolved in the State Court case,
and some new claims purportedly arising from the alleged State Court ‘settlement’
(Defendants position is that all matters between the Parties was resolved in the State
Court Action).” The federal district court did not accept the stipulation.
In January 2021, the federal plaintiffs filed a first amended complaint. (The first
amended complaint is not included in the record on appeal, but the docket in that action
shows when the first amended complaint was filed.) Defendants moved to dismiss the
first amended complaint. In March 2021, the federal district court granted the motion,
concluding that the second federal action was barred by (1) the fact that the parties’
settlement agreement in the underlying action included a waiver under Civil Code section
1542, and (2) the full faith and credit owed to the state court dismissal. The court found
that the state court action and the second federal action were “fundamentally based on the
same events,” noting that the federal plaintiffs had conceded the point in the joint
stipulation for a stay in that action. In March 2021, the federal district court entered
judgment in favor of defendants.
The federal plaintiffs appealed to the Ninth Circuit. In February 2022, the Ninth
Circuit reversed and remanded. The Ninth Circuit concluded that the second federal
action was not precluded by the present action, because no final judgment was entered.
12 (Bhakta v. Bhakta (9th Cir. Feb. 1, 2022, No. 21-55328) 2022 U.S.App. Lexis 2860.) In
February 2022, the federal district court ordered the parties to meet and confer and
thereafter to file a joint status report explaining why the court should not stay the matter
pending resolution of the state court action.
The following month, the parties in the second federal action entered into a tolling
agreement.4 The federal plaintiffs agreed to dismiss the second federal action without
prejudice pursuant to rule 41(a)(1)(A)(i). The parties also agreed “to ensure that the
Federal Action is dismissed, by, including but not limited to, filing additional documents
in the Federal Action, such as a joint stipulation for dismissal.”
Later that month, in March 2022, the federal plaintiffs filed a notice of dismissal
pursuant to rule 41(a)(1)(A)(i) and voluntarily dismissed the second federal action
without prejudice.
H. The Parties’ Cross-Motions to Enforce the Settlement
In June 2021 (while the appeal in the second federal action was pending in the
Ninth Circuit), plaintiffs moved in the superior court to enforce the “MSC transcript”
under sections 128, 187, 473, 664.6, 1060, and the court’s inherent powers.
(Capitalization and boldface omitted.) Plaintiffs asserted that they filed the motion in
large part because of the court’s instruction, in denying the motion to invalidate the
settlement, that the parties “‘move forward.’” In the enforcement motion, plaintiffs
4 The copy of the tolling agreement included in the record on appeal includes only the federal plaintiffs’ signatures. But plaintiffs’ counsel attested in a declaration that all of the parties signed the agreement.
13 indicated that they “expressly reserve[d] all rights to appeal the decision on that motion,
if necessary, and” indicated that “as such neither the content of this motion nor any
filings or comments made in connection with it shall be deemed a waiver of any
arguments or rights, all of which are expressly reserved.”
Plaintiffs described their unsuccessful efforts to reach agreement with defendants
after the mandatory settlement conference. In light of those failed efforts, plaintiffs
moved for an order requiring the motel to be sold by a commercial real estate broker for
the highest price on the open market, and they outlined a process by which the sale could
be effectuated. Plaintiffs argued: “Because it is clear from the 2018 Transcript that no
party has the right to buy the hotel (no right of first refusal), and because the 2021
Appraisal is merely advisory, the remaining two options (other than appeal) are (1) the
parties reach a written agreement supplying the essential terms; or (2) the court orders
that the hotel be sold through a commercial broker for the highest price on the open
market.”
Defendants opposed the motion and cross-moved for the court to enforce the
settlement. Defendants argued that the court had authority under “section 664.6 to
enforce the terms of the parties’ Settlement Stipulation” and had the authority under
sections 128 and 187 to fashion an equitable remedy. After setting forth what they
contended were the settlement terms stated on the record, defendants explained what the
parties “meant” regarding the sale of the property. According to defendants, the parties
intended “that the only circumstance under which the Property would be sold to a third
party purchaser (or Plaintiffs) would be if the valuation of net proceeds exceeded
14 Defendants Dhar and Minesh Bhakta’s and Jayashree Krishna’s ability to tender
Plaintiffs 49% of net proceeds, but Defendants have always believed that they would be
able to pay Plaintiffs that amount from their own resources without having to sell the
Property.” According to defendants, “neither Defendants nor Plaintiffs ever agreed to
sell the Property unless Defendants demonstrated that they were unable to pay Plaintiffs
49% of the net proceeds Plaintiffs were entitled to as demonstrated by an independent
appraisal.”
In their cross-motions, the parties argued about a March 2021 appraisal of the
property. The appraiser’s declaration and the appraisal report were attached as exhibits to
defendants’ motion. The market value of the property was appraised to be $5 million as
of January 1, 2021, and $5.8 million as of June 30, 2018. Plaintiffs’ counsel pointed out
that in the appraisal report the appraiser disclosed that she had previously appraised the
property in 2017, but defendants did not tell plaintiffs about the prior appraisal before the
2021 appraisal was performed.
In September 2021, the court held a hearing on the motions and denied both
motions. At the hearing, the court noted that it had the power to enter judgment only on
the terms of the settlement.
I. Defendants Move for Entry of Judgment Based on Res Judicata
In April 2022, defendants moved under sections 128, 187, 664.6 and rule 41 for
“entry of judgment based on the res judicata effect of Plaintiffs’ notice of dismissal filed
on March 29, 2022, in their second federal court action.” Defendants argued that under
the federal two dismissal rule under rule 41(a)(1)(B) the judgment entered in the second
15 federal action amounted to a judgment on the merits and accordingly should preclude the
state court action under res judicata principles. The two dismissal rule provides that “if
the plaintiff previously dismissed any federal- or state-court action based on or including
the same claim, a notice of dismissal operates as an adjudication on the merits.” (Ibid.;
Commercial Space Management Co. v. Boeing Co. (9th Cir. 1999) 193 F.3d 1074, 1076
(Commercial Space).)
Plaintiffs opposed the motion, arguing that the two dismissal rule did not apply,
because the federal plaintiffs’ voluntary dismissal of the second federal action was not
unilateral and instead resulted from the parties’ agreement to dismiss that action. In
support of the opposition, plaintiffs’ counsel filed a declaration in which he attached as
exhibits the parties’ tolling agreement and an email exchange with defendants’ attorney
about that agreement. In that email exchange, defense counsel wrote: “I also added a
provision requiring plaintiffs to dismiss the federal action, which was mentioned in the
recitals but not included in the actual agreement.”
The court denied the motion, concluding that dismissal of the second federal
action did not amount to a judgment on the merits, because the parties agreed that the
dismissal was without prejudice.
J. The Judgment
In February 2022, plaintiffs filed a proposed judgment. It read: “Pursuant to the
reporter’s transcript of proceedings from the court hearing which occurred on April 19,
2018 (eight pages in length plus the one-page reporter’s certificate, attached hereto),
judgment is hereby entered and the court retains jurisdiction pursuant to Section 664.6 of
16 the California Code of Civil Procedure.” The court issued an order to show cause as to
why it should not sign plaintiffs’ proposed judgment. Defendants filed an opposition,
arguing that entry of judgment was not necessary because the court had previously
dismissed the action with prejudice and that amounted to a final judgment. In the
alternative, defendants asked the court to enter defendants’ proposed judgment, which
included a list of 17 items that purported to reflect the terms of the oral settlement.
At a hearing on the order to show cause, plaintiffs objected to the terms that
defendants “put in their proposed judgment” as deviating from the parties’ settlement.
The day after the hearing, plaintiffs filed an objection to defendants’ proposed judgment
on the same grounds that they raised at the hearing. The court entered defendants’
proposed judgment, with some minor modifications that were discussed at the hearing.5
DISCUSSION
A. Appeal
Plaintiffs argue that the settlement agreement is unenforceable because (1) the
agreement does not contain a sale price for the motel or an objective method of
determining the sale price and (2) the loan amount to be repaid to defendants
Mukundbhai and Sudhaben (and possibly others) is subject to verification. Plaintiffs
5 We agree with plaintiffs that the judgment did not accurately reflect the terms of the oral settlement. The judgment improperly varies in key respects from the settlement and includes terms that were not part of the settlement. (Machado v. Myers (2019) 39 Cal.App.5th 779, 790 (Machado); Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 810 (Weddington).) Because we vacate the judgment in its entirety, however, we need not address the specific issues that plaintiffs raise in that regard.
17 argue that the term concerning the sale price lacks certainty and that both terms are
unenforceable because they are agreements to agree. We agree. Because we conclude
that the settlement agreement is unenforceable on those grounds, we need not address
plaintiffs’ remaining arguments.
Section 664.6 provides: “If parties to pending litigation stipulate, in a writing
signed by the parties outside of the presence of the court or orally before the court, for
settlement of the case, or part thereof, the court, upon motion, may enter judgment
pursuant to the terms of the settlement. If requested by the parties, the court may retain
jurisdiction over the parties to enforce the settlement until performance in full of the
terms of the settlement.” (Id., subd. (a).) Section 664.6 allows parties that have settled to
“avail themselves of a quick and effective avenue for enforcement by making a motion to
enter judgment on the agreement.” (In re Marriage of Woolsey (2013) 220 Cal.App.4th
881, 898.) The parties are thus able to enforce an agreement with “nothing more than a
single motion.” (Ibid.)
When the trial court retains jurisdiction under section 664.6 to enforce a
settlement, the trial court’s authority “is extremely limited.” (Hernandez v. Board of
Education (2004) 126 Cal.App.4th 1161, 1176.) Before the court can enforce the
agreement, the court is empowered to determine “in the first instance whether the parties
have entered into an enforceable settlement.” (Osumi v. Sutton (2007) 151 Cal.App.4th
1355, 1360 (Osumi).) The trial court is limited “‘to deciding what terms the parties
themselves have previously agreed upon.’” (Bowers v. Raymond J. Lucia Companies,
Inc. (2012) 206 Cal.App.4th 724, 732 (Bowers).) The “trial court cannot enforce a
18 settlement under section 664.6 unless the trial court finds the parties expressly
consented . . . to the material terms of the settlement.” (Ibid.) “In making that
determination, ‘the trial court acts as the trier of fact, determining whether the parties
entered into a valid and binding settlement.’” (Osumi, supra, at p. 1360.) “The court is
powerless to impose on the parties more restrictive or less restrictive or different terms
than those contained in their settlement agreement.” (Hernandez, supra, at p. 1176.) In
other words, “‘“nothing in section 664.6 authorizes a judge to create the material terms of
a settlement, as opposed to deciding what terms the parties themselves have previously
agreed upon.”’” (Machado, supra, 39 Cal.App.5th at p. 790.)
We must affirm the trial court’s factual findings if they are supported by
substantial evidence. (Osumi, supra, 151 Cal.App.4th at p. 1360.) We independently
review a trial court’s ruling on a section 664.6 motion for “errors of law.” (Sully-Miller
Contracting Co. v. Gledson/Cashman Construction, Inc. (2002) 103 Cal.App.4th 30, 35;
Weddington, supra, 60 Cal.App.4th at p. 815.)
Settlement agreements are contracts subject to the ordinary rules of contract
interpretation. (General Motors Corp. v. Superior Court (1993) 12 Cal.App.4th 435,
439; Weddington, supra, 60 Cal.App.4th at p. 810.) “Under statutory rules of contract
interpretation, the mutual intention of the parties at the time the contract is formed
governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible,
solely from the written provisions of the contract. (Id., § 1639.)” (AIU Ins. Co. v.
Superior Court (1990) 51 Cal.3d 807, 821-822.)
19 “A settlement agreement, like any other contract, is unenforceable if the parties
fail to agree on a material term or if a material term is not reasonably certain.” (Lindsay
v. Lewandowski (2006) 139 Cal.App.4th 1618, 1622.) Subdivision (e) of Civil Code
section 3390 provides that an agreement is unenforceable if its terms “are not sufficiently
certain to make the precise act which is to be done clearly ascertainable.” “‘“‘The terms
of a contract are reasonably certain if they provide a basis for determining the existence
of a breach and for giving an appropriate remedy.’”’” (Bowers, supra, 206 Cal.App.4th
at p. 734.) “‘If, by contrast, a supposed “contract” does not provide a basis for
determining what obligations the parties have agreed to, and hence does not make
possible a determination of whether those agreed obligations have been breached, there is
no contract.’” (Ibid.)
A term requiring “‘that some matter shall be settled by future agreement’” is in
general “‘too indefinite for enforcement.’” (Weddington, supra, 60 Cal.App.4th at
p. 812.) “‘[I]f an essential element is reserved for the future agreement of both parties, as
a general rule the promise can give rise to no legal obligation until such future agreement.
Since either party in such a case may, by the very terms of the promise, refuse to agree to
anything to which the other party will agree, it is impossible for the law to affix any
obligation to such a promise.’” (Ibid.; Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th
199, 213-214 (Bustamante).) In other words, “‘there is no contract where the objective
manifestations of intent demonstrate that the parties chose not to bind themselves until a
subsequent agreement [was] made.’” (Bustamante, supra, at p. 213.) Nevertheless, when
an agreement provides an objective method for ascertaining the term left for future
20 determination, “the contract should not be construed as too indefinite to be enforced.”
(Larwin-Southern California, Inc. v. JGB Investment Co. (1979) 101 Cal.App.3d 626,
643.)
“Whether a contract is certain enough to be enforced is a question of law for the
court.” (Patel v. Liebermensch (2008) 45 Cal.4th 344, 348, fn. 1.)
Plaintiffs argue that the provision concerning the motel’s sale price lacks certainty
and amounts to nothing more than an agreement to agree on a price at a later date. We
agree. The sale price is a critical material term of the agreement because all of the
parties’ other obligations and rights in the agreement flow from that price. For example,
defendants’ determination of whether they will “buyout” plaintiffs’ interest in the
motel (as opposed to selling the motel to a third party) is to be determined on the basis of
the sale price. But the settlement agreement does not contain a set price for the sale of
the motel or any usable process by which the price can later be set.
The agreement provides that the parties will list the motel for sale “based on the
appraised value at a price determined by mutual agreement of the parties.” The parties
agreed to have the property appraised by an independent appraiser, but they did not agree
to list the property for sale for the appraised value, either initially or as a default if the
parties could not agree. The price is instead to be based in some unspecified way “on the
appraised value” as “determined by” the parties. The agreement contains no clarity about
precisely how the appraised value is to factor into the parties’ later agreement, such as by
setting the price at the appraised value as a default after some specified period if the
parties could not otherwise agree upon a price. Because the agreement does not contain
21 any objective method by which the parties are required to set the sale price, the parties at
best had an unenforceable “‘agreement to agree.’” (Bustamante, supra, 141 Cal.App.4th
at p. 213.) The parties’ agreement to agree on a price at a later date without any method
for setting that price is not enforceable. (Ibid.)
Plaintiffs also argue that the term concerning the repayment of loans made by
defendants Mukundbhai and Sudhaben is similarly unenforceable. We agree.
The parties agreed that if and when the motel is sold to a third party, the proceeds
would first be used to pay off outstanding loans from U.S. Bank and Balboa Finance and
then would be used to pay “the loan” (as otherwise described in the agreement) from
defendants Mukundbhai and Sudhaben. The parties otherwise agreed that “the loan”
made by defendants Mukundbhai and Sudhaben had a principal balance of $1,990,435.
Those terms adequately specify the amount to be repaid to defendants and the priority of
that repayment, and they are reasonably certain and definite. But the parties also agreed
that the amount of the principal balance of $1,990,435 “is subject to verification of the
infusions or loans advanced by Mukundbhai and Sudhaben Bhakta and any other
defendants in the case.” The amount of the loan made by defendants Mukundbhai and
Sudhaben was therefore subject to some kind of future verification by plaintiffs. No
provision explains when or how that verification is to occur or what happens if the
amount is not verified. Moreover, the provision also introduces a new variable—loans
made by “any other defendants in the case”—but provides no clarity about whether those
loans are part of “the loan” amount to be repaid to defendants Mukundbhai and Sudhaben
or were subject to consideration in the verification process. The trial court itself
22 acknowledged that the agreement contained “some ambiguity about what is going to be
validated or not validated in terms of the money owed to the defendants who made the
loan.” Given the lack of certainty concerning the amount of the loan to be repaid to
defendants Mukundbhai and Sudhaben (or any other defendants) and the verification
process for that repayment, the provision is unenforceable and renders the agreement
invalid. (Bowers, supra, 206 Cal.App.4th at p. 734; Civ. Code, § 3390, subd. (e).)
Defendants argue that to the extent that the agreement is “lacking in any way” it is
nevertheless enforceable because the parties “agreed upon [a] binding resolution
mechanism involving the trial court cur[ing] any purported defects.” In particular,
defendants point out that the trial court stated that if the parties were “not able to reach an
agreement” about the sale price or the loans to be repaid to defendants, then “all of that
[would] be determined by the Court.” The court further explained: “The Court will
exercise its jurisdiction on any issue to which they cannot make an agreement on. The
Court will listen to both sides and make the order and make the determination.” We are
not persuaded that the purported dispute resolution mechanism cures the defects in the
settlement.
The purported dispute resolution mechanism is itself too indefinite to be usable.
First, the settlement agreement does not specify how the parties are to invoke the
mechanism, and it does not set conditions that would trigger the mechanism on their own.
For example, the settlement does not state that if the parties do not agree on the sale price
by a certain date, then either party may move the court to determine the price. As a
result, no one—plaintiffs, defendants, or the court—knows when the agreement calls for
23 the court to step in and settle a dispute, and when the agreement instead calls for the court
to have the parties continue to try to reach agreement on their own. Second, the
settlement agreement does not specify how the dispute resolution mechanism is supposed
to work, other than the vague statement that the court “will listen to both sides and make
the order and make the determination.” Will there be a trial? Can the parties call
witnesses to testify? Can they introduce documentary evidence? Can they engage in
discovery beforehand? Again, no one knows what procedures are prohibited or allowed
or required by the agreement. As a result, the purported dispute resolution mechanism is
incapable of curing the deficiencies in the settlement.
For all of these reasons, we conclude that the trial court erred by not granting
plaintiffs’ motion to invalidate the settlement agreement because the terms concerning
the sale price of the motel and repayment of loans to defendants are too uncertain to
enforce. We accordingly vacate the judgment entered on the basis of the invalid
agreement.
B. Cross-Appeal
Defendants cross-appeal, arguing that they are entitled to judgment in their favor
and that we should so modify the judgment and affirm it as modified. Defendants
contend that the trial court erred by denying (1) the presettlement motion for judgment on
the pleadings based on the res judicata effect of plaintiffs’ dismissal with prejudice of the
involuntary dissolution claim and (2) the postsettlement motion for judgment based on
the res judicata effect of the federal two dismissal rule. Defendants’ arguments are
meritless.
24 1. Judgment on the Pleadings
Defendants first argue that the trial court should have granted the presettlement
motion for judgment on the pleadings because plaintiffs’ dismissal with prejudice of the
involuntary dissolution cause of action operated to preclude the remaining claims under
the doctrine of res judicata. The argument is legally baseless.
“‘A judgment on the pleadings in favor of the defendant is appropriate when the
complaint fails to allege facts sufficient to state a cause of action.’” (People ex rel.
Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 777; § 438, subds.
(b)(1), (c)(1)(B)(ii).) We independently review a trial court’s ruling on a motion for
judgment on the pleadings. (Harris, supra, at p. 777.)
“The preclusive effects of a prior judgment or similar adjudication—traditionally
known as res judicata—are of two distinct kinds:” (1) the narrow form of res judicata
known as claim preclusion and (2) collateral estoppel, also known as issue preclusion.
(Ferraro v. Camarlinghi (2008) 161 Cal.App.4th 509, 530; Vandenberg v. Superior
Court (1999) 21 Cal.4th 815, 828.) “Res judicata, or claim preclusion, prevents
relitigation of the same cause of action in a second suit between the same parties or
parties in privity with them. Collateral estoppel, or issue preclusion, ‘precludes
relitigation of issues argued and decided in prior proceedings.’” (Mycogen Corp. v.
Monsanto Co. (2002) 28 Cal.4th 888, 896 (Mycogen).) Defendants’ motion for judgment
on the pleadings involves the claim preclusion aspect of res judicata.
25 Claim preclusion “acts to bar claims that were, or should have been, advanced in a
previous suit involving the same parties.” (DKN Holdings LLC v. Faerber (2015) 61
Cal.4th 813, 824 (DKN Holdings).) “Claim preclusion ‘prevents relitigation of the same
cause of action in a second suit between the same parties or parties in privity with them.’”
(Ibid., italics omitted.) “Claim preclusion arises if a 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.” (Ibid.) “To determine whether two proceedings involve identical causes of
action for purposes of claim preclusion, California courts have ‘consistently applied the
“primary rights” theory.’” (Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788,
797.) Whether claim preclusion applies is a question of law that we independently
review. (Noble v. Draper (2008) 160 Cal.App.4th 1, 10.)
Defendants argue that the court erred by not granting the motion for judgment on
the pleadings on plaintiffs’ fraud and breach of fiduciary duty causes of action because
those claims involve the same “primary rights” as the involuntary dissolution cause of
action that plaintiffs voluntarily dismissed with prejudice. We disagree, regardless of
whether the causes of action involve the same primary right. Claim preclusion does not
apply because the dismissal of the involuntary dissolution cause of action was not a “final
judgment on the merits” in plaintiffs’ lawsuit. (DKN Holdings, supra, 61 Cal.4th at
p. 824.) A final judgment disposes of all issues between the parties. (Villacres v. ABM
Industries Inc. (2010) 189 Cal.App.4th 562, 575; ECC Construction, Inc. v. Oak Park
Calabasas Homeowners Assn. (2004) 122 Cal.App.4th 994, 1002.) The dismissal of the
dissolution claim did not do that—it disposed of only one claim. Moreover, the dismissal
26 of the dissolution claim was not even a court order, let alone a final judgment; it was
merely a pretrial voluntary dismissal of a single claim. Claim preclusion does not operate
on the voluntary dismissal of a single claim to bar other claims in the same action.
Rather, claim preclusion “‘gives conclusive effect to a former judgment only when the
former judgment was in a different action; an earlier ruling in the same action cannot be
res judicata . . . .’” (Phillips v. Sprint PCS (2012) 209 Cal.App.4th 758, 770; see also
DKN Holdings, supra, 61 Cal 4th at p. 828 [“claim preclusion bars the second action”];
Clark v. Lesher (1956) 46 Cal.2d 874, 880 [claim preclusion “operates as a bar to the
maintenance of a second suit between the same parties on the same cause of action”];
Mycogen, supra, 28 Cal.4th at p. 897 [“all claims based on the same cause of action must
be decided in a single suit; if not brought initially, they may not be raised at a later
date”].) Because plaintiffs’ voluntary dismissal of the dissolution claim occurred in the
present action and left other claims unresolved, it was not a final judgment (or even a
court order) and could not have any preclusive effect on the remaining causes of action in
the same lawsuit.
Campbell v. Security Pacific National Bank (1976) 62 Cal.App.3d 379 is the only
authority defendants cite for the proposition that dismissal of some claims can have
preclusive effect on other claims in the same suit. Campbell is inapposite because it
concerned issue preclusion, not claim preclusion. (Id. at pp. 385-386; but see Lennane v.
Franchise Tax Bd. (1996) 51 Cal.App.4th 1180, 1185-1186 [issue preclusion does not
apply in the same action].)
27 For these reasons, we conclude that the trial court did not err by denying
defendants’ motion for judgment on the pleadings.
2. The Federal Two Dismissal Rule
Defendants argue that the trial court erred by denying the motion for entry of
judgment based on the purported res judicata effect of the federal plaintiffs’ voluntary
dismissal of both federal actions. The argument is forfeited and meritless.
We presume that a trial court order is correct, and the burden is on an appellant or
cross-appellant “to demonstrate, on the basis of the record presented to the appellate
court, that the trial court committed an error that justifies reversal of the judgment.”
(Jameson v. Desta (2018) 5 Cal.5th 594, 609; Denham v. Superior Court (1970) 2 Cal.3d
557, 564; Amato v. Mercury Casualty Co. (1993) 18 Cal.App.4th 1784, 1794.) The
record on appeal does not include the first amended complaint filed in the second federal
action. We thus are unable to examine the claims asserted in that action to determine
whether they involve the same causes of action as the claims asserted in this action. The
record therefore is inadequate for us to determine whether the doctrine of res judicata
applies. Defendants have consequently failed to carry their burden as cross-appellants of
affirmatively demonstrating that the trial court erred by denying the motion for judgment
based on the res judicata effect of the federal two dismissal rule. (Herrera v. Doctors
Medical Center of Modesto Inc. (2021) 67 Cal.App.5th 538, 546-547.)
In any event, the argument has no merit because the federal plaintiffs’ voluntary
dismissal of the second federal action did not trigger the federal two dismissal rule and
accordingly did not constitute a judgment on the merits. In analyzing whether the
28 voluntary dismissal of the second federal action triggered the two dismissal rule and thus
has preclusive effect, we look to federal law. (Butcher v. Truck Ins. Exchange (2000) 77
Cal.App.4th 1442, 1452.)
Rule 41(a)(1)(A)(i) provides that a plaintiff in federal court may voluntarily
dismiss an action by notice of dismissal “before the opposing party serves either an
answer or a motion for summary judgment.” Rule 41(a)(1)(B) provides: “Unless the
notice or stipulation states otherwise, the dismissal is without prejudice. But if the
plaintiff previously dismissed any federal- or state-court action based on or including the
same claim, a notice of dismissal operates as an adjudication on the merits.” The second
dismissal operates as an adjudication on the merits regardless of whether the notice states
that the dismissal is without prejudice. (Commercial Space, supra, 193 F.3d at p. 1076.)
“This is known as the ‘two dismissal rule.’” (Ibid., italics omitted.)
The two dismissal rule is an exception to the equitable principle in federal law,
reflected in rule 41(a)(1), “that a voluntary dismissal of an action does not bar a new suit
based upon the same claim.” (Poloron Products, Inc. v. Lybrand Ross Bros. &
Montgomery (2d Cir. 1976) 534 F.2d 1012, 1017 (Poloron).) The “purpose of the ‘two
dismissal’ rule is to prevent an unreasonable use of the plaintiff’s unilateral right to
dismiss an action prior to the filing of the defendant’s responsive pleading” (ibid.) and
“‘to prevent unreasonable abuse and harassment,’ [Citation] ‘by [the] plaintiff securing
numerous dismissals without prejudice.’” (Sutton Place Development Co. v. Abacus
Mortg. Inv. Co. (7th Cir. 1987) 826 F.2d 637, 640.) When “the purpose behind the ‘two
dismissal’ exception would not appear to be served by its literal application, and where
29 that application’s effect would be to close the courthouse doors to an otherwise proper
litigant, a court should be most careful not to construe or apply the exception too
broadly.” (Poloron, supra, at p. 1017; Sutton Place, supra, at p. 640 [“there are
circumstances when due regard for the underlying policy concerns of the Rule may
require that the court depart from the precise language of the Rule”].) In particular, “a
dismissal by stipulation knowingly consented to by all parties does not activate the ‘two
dismissal’ bar against bringing an action based on or including the same claim.”
(Poloron, at p. 1018.) We independently review whether res judicata applies.
(Association of Irritated Residents v. Department of Conservation (2017) 11 Cal.App.5th
1202, 1218.)
The federal plaintiffs’ dismissal of the second federal action was not unilateral.
(Lake at Las Vegas Investors Group v. Pacific Malibu Dev. Corp. (9th Cir. 1991) 933
F.2d 724, 727.) Rather, the federal plaintiffs voluntarily dismissed that action pursuant to
the parties’ negotiated tolling agreement. The term requiring the federal plaintiffs to
dismiss the action was actually added by defense counsel, and defendants even agreed
that they would file a joint stipulation for dismissal, if necessary. The dismissal of the
second federal action thus falls squarely within the rule that “a dismissal by stipulation
knowingly consented to by all parties does not activate the ‘two dismissal’ bar against
bringing an action based on or including the same claim.” (Poloron, supra, 534 F.2d at
p. 1017.) The trial court consequently did not err by denying defendants’ motion.
30 DISPOSITION
We vacate the judgment and reverse and remand for further proceedings consistent
with this opinion. Plaintiffs shall recover their costs of appeal.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
MENETREZ J.
We concur:
FIELDS Acting P. J.
RAPHAEL J.