Res Judicata In Bankruptcy Proceedings

Bank of America v. McLaughlin involved a prior federal bankruptcy proceeding, in which the referee determined two issues: that McLaughlin was not a "farmer" under the terms of the Bankruptcy Act and that it was not the owner of the property it claimed to be farming. The federal Ninth Circuit affirmed, resting its opinion on McLaughlin's relation as a farmer. (40 Cal. App. 2d at p. 625, citing McLaughlin Land & Livestock Co. v. Bank of America etc. (9th Cir. 1938) 94 F.2d 491.) As for "the effect of a decree determining more than one issue" (40 Cal. App. 2d at p. 628), the California Court of Appeal in McLaughlin ignored statements to the contrary in the federal Ninth Circuit's opinion, and held: "[The bankruptcy] court, upon issues squarely presented by . . . appellant, found that appellant was not a farming corporation, and also found that the trustees' sale was valid, that the bank became the owner of the property by purchase at a trustees' sale, and that appellant owned no interest. These findings having been incorporated in the judgment it must be assumed that when the Circuit Court of Appeals affirmed the judgment it became res judicata of both the issues tendered and tried. This rule is stated in 34 C. J. 773 as follows: 'A general affirmance of a judgment on appeal makes it res judicata as to all of the issues, claims, or controversies involved in the action and passed upon by the court below, although the appellate court does not consider or decide upon all of them.' Upon the same subject and to the same result, it was said in State v. City of Cleveland, 60 Ohio App. 395 [22 N. E. (2d) 223, 226]: 'However, it is universally held that a court speaks by its record or journal and not by its opinions, and nothing contained in the opinion of the Circuit Court of Appeals can affect the adjudication of the District Court, unless carried into the judgment of the reviewing court. The judgment of the Circuit Court of Appeals was an affirmance of the judgment of the District Court leaving that judgment in its entirety as a final and binding adjudication of the issues presented. (Citing cases.)' " ( Bank of America v. McLaughlin, supra, 40 Cal. App. 2d at pp. 628-629, first italics added.) The rule stated at page 773 of volume 34 Corpus Juris (1924) Judgments, section 1190, cited by the McLaughlin court, is completely abandoned in the modern work, 50 Corpus Juris Secundum (1997) Judgment, section 725, page 266, which follows the Restatement: "In the case of a judgment based on alternative grounds, which is affirmed on only one of the grounds, the ground omitted from the decision is not considered to have been fully adjudicated and is not conclusively established for the purposes of res judicata." (C.J.S., supra, Judgment, 725, p. 266, fn. omitted.) The only other authority cited by the McLaughlin court, State ex rel. Squire v. City of Cleveland (1937) 60 Ohio App. 395 [14 Ohio Op. 432, 22 N.E.2d 223, 226], relied on early federal circuit court decisions, the most recent of which was decided in 1905, and only that case, Russell v. Russell, supra, 134 Fed. 840 (Russell), a two-page decision, involved a res judicata issue. The Russell court considered the effect of a prior state court judgment, which was the subject of an appellate decision. The lower federal court had held that the effect of the prior judgment could be determined by the views expressed by the appellate court in its filed opinion. the Third Circuit disagreed. (Russell, at p. 841.) 15 As discussed, ante, at page 1457, the Second Circuit in Moran Towing strongly criticized the rule applied in Russell. The McLaughlin court reached its decision without considering the arguments, well stated three years earlier in Moran Towing, in favor of looking to the appellate court's opinion to discover the ground of its decision. The Supreme Court in Martin, supra, 2 Cal. 2d at page 761, cited McLaughlin, but only for the proposition that a federal court judgment has the same effect in the courts of this state as it would in a federal court. The Martin court found it unnecessary to decide the issue that we determine here. ( Id. at pp. 762-763.)