Branson v. Sun-Diamond Growers

In Branson v. Sun-Diamond Growers (1994) 24 Cal.App.4th 327, suit was brought against a corporation, its marketing manager, and certain others. Judgment was entered against the marketing manager, but not the corporation. (Id. at pp. 332-334.) The marketing manager brought a motion for indemnification based on Corporations Code section 317. (Id. at p. 335.) The appellate court held there was no basis for indemnity under the statute, because the marketing manager was not sued as an agent for the corporation, but was sued as an individual pursuing his own personal interests. (Id. at p. 337.) The marketing manager then filed a separate lawsuit against the corporation, for breach of oral, written, and implied-in-fact contracts for indemnity, for breach of the duty to indemnify under Labor Code section 2802 and Corporations Code section 317, for breach of the duty of good faith and fair dealing, and for equitable estoppel. (Branson v. Sun-Diamond Growers, supra, 24 Cal.App.4th at p. 335.) The corporation asserted that the lawsuit was barred by the doctrine of res judicata. The marketing manager conceded that the statutory causes of action were barred, but argued that the other causes of action were not. (Id. at p. 338.) The court agreed, for several reasons. (Id. at pp. 343-345.) First, it stated: "The primary right to seek authorization for indemnity under Corporations Code section 317 is not the same cause of action as one for breach of a contract for indemnity . . . or one asserted under the doctrine of equitable estoppel. The statute merely accords agents of corporations the right to seek authorization for indemnity against adverse judgments rendered against them for their reasonable and good faith acts on behalf of the corporation. Contractual indemnity, in contrast, accords the contracting party a right to indemnity pursuant to the terms of the contract. Similarly, breach of theimplied covenant of good faith and fair dealing gives rise to contract remedies and in addition, to tort remedies when the breaching party also 'seeks to shield itself from liability by denying, in bad faith and without probable cause, that the contract exists.' . We hold therefore that the marketing manager's application for an order under Corporations Code section 317 involves a different primary right than those asserted in these causes of action." (Branson v. Sun-Diamond Growers, supra, 24 Cal.App.4th at pp. 343-344.) Second, the Branson court observed that the marketing manager's claim for equitable estoppel and contractual claims were not recoverable on a motion under Corporations Code section 317 in the first lawsuit. (Branson v. Sun-Diamond Growers, supra, 24 Cal.App.4th at p. 344.) Third, it said there was "an even more compelling reason why the determination of the motion under Corporations Code section 317 was not res judicata on the causes of action under examination in the second suit . . . ." (Id. at p. 345.) As the court noted, section 317, subdivision (g) specifically provides "that it does not 'affect any right to indemnification to which persons other than directors and officers may be entitled by contract or otherwise.' ." (Ibid.) In Branson v. Sun-Diamond Growers, the court reaffirmed the established rule that the "cause of action" for purposes of the doctrine of res judicata is based on the harm suffered as opposed to the particular legal theory asserted by the litigant (Branson , at p. 340), but held the limited right to seek indemnity under Corporations Code section 317 does not involve the same primary right as a cause of action for breach of contract for indemnity. Moreover, because Branson's contractual claims could not be asserted in the earlier action in which, as a defendant, he had sought indemnity by way of motion under Corporations Code section 317, the judgment in the earlier action could not act as a bar to his contract claim in any event. (Branson, at p. 344.)