The Finality of Federal Court Judgment
California follows the rule that the preclusive effect of a prior judgment of a federal court is determined by federal law, at least where the prior judgment was on the basis of federal question jurisdiction. ( Levy v. Cohen (1977) 19 Cal. 3d 165 [137 Cal. Rptr. 162, 561 P.2d 252] (Levy), cert. den. 434 U.S. 833 [98 S. Ct. 119, 54 L. Ed. 2d 94]; Martin v. Martin (1970) 2 Cal. 3d 752 [87 Cal. Rptr. 526, 470 P.2d 662] (Martin).)
In Martin, supra, 2 Cal. 3d at page 761 the court stated: "On [the] question of finality federal law is controlling. a federal court judgment has the same effect in the courts of this state as it would in a federal court." the Levy court stated the rule as follows:
"Full faith and credit must be given to a final order or judgment of a federal court. . . . Such an order or judgment has the same effect in the courts of this state as it would have in a federal court. . . . In the federal jurisdiction, the doctrine of res judicata prevents the readjudication of all matters . . . which were, or might have been, litigated in a prior proceeding between the same parties." (19 Cal. 3d at pp. 172-173, citations omitted.)
The prior action in each of these cases was filed under the Bankruptcy Act, which presented a federal question. (See Stoll v. Gottlieb, supra, 305 U.S. at p. 170 [59 S. Ct. at pp. 136-137].)
After the decision in Levy, the United States Supreme Court held, in Limbach v. Hooven & Allison Co. (1984) 466 U.S. 353, 361-362 [104 S. Ct. 1837, 1842-1843, 80 L. Ed. 2d 356], that a state court must apply federal law to determine preclusive effect of prior federal question judgment.
Since the adoption of the Federal Rules of Civil Procedure and the development of modern perceptions of diversity jurisdiction, a majority of circuits follows the rule that the federal law of res judicata should be applied where the prior case is brought in a federal court under diversity jurisdiction. (See, e.g., Paramount Aviation Corp. v. Augusta (3d Cir. 1999) 178 F.3d 132, 144-145, cert. den. U.S. [120 S. Ct. 188, 145 L. Ed. 2d 158]; J.Z.G. Resources, Inc. v. Shelby Ins. Co. (6th Cir. 1996) 84 F.3d 211, 213-214; Havoco of America v. Freeman, Atkins & Coleman (7th Cir. 1995) 58 F.3d 303, 307-308; Johnson v. SCA Disposal Services of New England (1st Cir. 1991) 931 F.2d 970, 974; Empire Fire & Marine Ins. Co. v. J. Transport (11th Cir. 1989) 880 F.2d 1291, 1293, fn. 2; Shoup v. Bell & Howell Co. (4th Cir. 1989) 872 F.2d 1178, 1179; Aerojet-General Corporation v. Askew (5th Cir. 1975) 511 F.2d 710, 716, cert. den. 423 U.S. 908 [96 S. Ct. 210, 46 L. Ed. 2d 137]; Kern v. Hettinger (2d Cir. 1962) 303 F.2d 333, 340 fn. 8; see also Rest.2d Judgments, 87; 8 but see Pardo v. Olson & Sons, Inc. (9th Cir. 1994) 40 F.3d 1063, 1066 [applying the law of the state in which the first federal diversity court sat]; Austin v. Super Valu Stores, Inc. (8th Cir. 1994) 31 F.3d 615, 617-618 [same]; Gramm v. Lincoln (9th Cir. 1958) 257 F.2d 250, 255, fn. 6 [same].)
Kern v. Hettinger, supra, 303 F.2d 333 contains a forceful statement of the rationale for this rule. In that case a district court in California dismissed a diversity action for failure to prosecute.
In a second diversity action brought against the same defendant in a district court in New York, the defendant argued that the dismissal should be governed by the California rule that denies preclusion, not by Federal Rules of Civil Procedure, rule 41(b) (28 U.S.C.)
The Second Circuit (Medina, J.) persuasively rejected that argument: "One of the strongest policies a court can have is that of determining the scope of its own judgments. . . . It would be destructive of the basic principles of the Federal Rules of Civil Procedure to say that the effect of a judgment of a federal court was governed by the law of the state where the court sits simply because the source of federal jurisdiction is diversity.. . . We think it would be a strange doctrine to allow a state to nullify the judgments of federal courts constitutionally established and given power also to enforce state created rights. the Erie doctrine . . . is not applicable here . . . ." (303 F.2d at p. 340, citations omitted.)
Federal Rules of Civil Procedure, rule 41(b) (28 U.S.C.) provides: "For failure of the plaintiff to prosecute or to comply with these rules or any order of court, a defendant may move for dismissal of an action or of any claim against the defendant. Unless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision and any dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction, for improper venue, or for failure to join a party under rule 19, operates as an adjudication upon the merits."
The Supreme Court, in Levy v. Cohen (1977) at pages 172-73, and Martin v. Martin (1970) at page 761, did not give any indication that the rule it was announcing--the preclusive effect of a prior judgment of a federal court is determined by federal law would differ depending on whether the basis of the federal court's jurisdiction was diversity or federal question.
If our Supreme Court, in a diversity jurisdiction situation, would apply the res judicata law of the state whose law the federal court was applying, in the case at hand (involving the federal action), that would be the law of California.
If, however, our Supreme Court would apply the rule of Levy and Martin to both diversity and federal question situations, the law to be applied would be federal law, which in this case would be the law followed by the Ninth Circuit.
That law, in turn, as we have seen (e.g., Gramm v. Lincoln, supra, 257 F.2d at p. 255, fn. 6), is the law of the forum state, which in this case is California. Accordingly, whichever rule our Supreme Court would follow, the choice of law rule points to the res judicata law of California.