Author: LegalEase Solutions

Our research has revealed that the small claims judgment obtained by Prairie Pantaleon should have no adverse effect on ARMM Inc.’s lawsuit, and will not require any alteration of the complaint we have prepared. Defendants in small claims suits are not required to assert all related counterclaims against the small claims plaintiff. Such claims may be asserted later, in a separate action. Furthermore, Prairie will not be able to use the favorable small claims judgment to invoke collateral estoppel (issue preclusion) against ARMM on the employment issues decided in his favor. Procedurally, ARMM, Inc. may file the suit as planned and move to consolidate the case with the appeal of the small claims decision.

Although normally a defendant in an action must assert all related counterclaims he has against the plaintiff or be barred from bringing the claims later, Cal Code Civ Proc § 426.30, small claims actions are excepted from this requirement, under Cal Code Civ Proc § 426.60.

Cal Code Civ Proc § 426.30 reads as follows:

• 426.30.  Assertion of related causes of action; Preclusion against subsequent assertion in another action
  (a) Except as otherwise provided by statute, if a party against whom a complaint has been filed and served fails to allege in a cross-complaint any related cause of action which (at the time of serving his answer to the complaint) he has against the plaintiff, such party may not thereafter in any other action assert against the plaintiff the related cause of action not pleaded.
  (b) This section does not apply if either of the following are established:
  (1) The court in which the action is pending does not have jurisdiction to render a personal judgment against the person who failed to plead the related cause of action.
  (2) The person who failed to plead the related cause of action did not file an answer to the complaint against him.

But there is an exception to this general rule. It does not apply to actions in the small claims court. Cal Code Civ Proc § 426.60 reads as follows:

• 426.60.  Actions to which Article applies
  (a) This article applies only to civil actions and does not apply to special proceedings.
  (b) This article does not apply to actions in the small claims court.
  (c) This article does not apply where the only relief sought is a declaration of the rights and duties of the respective parties in an action for declaratory relief under Chapter 8’ (commencing with Section 1060) of Title 14 of this part.

Thus, ARMM, Inc. is not barred from instituting the claims against Prairie merely because they were not raised in the small claims action.

Nor will Prairie be able to use the small claims victory to assert collateral estoppel. Pitzen v. Superior Court, 120 Cal. App. 4th 1374, 1387 (Cal. Ct. App. 2004) provides an in-depth analysis of the history of the use of small claims decisions for res judicata and collateral estoppel purposes. Generally, the term res judicata has two parts. The first prevents the assertion of the same cause of action previously decided (claim preclusion), and the second prevents the relitigation of issues necessarily decided already in a prior case (issue preclusion, or collateral estoppel). The prerequisites for both doctrines are: (1) A claim or issue raised in the present action is identical to a claim or issue litigated in a prior proceeding; (2) the prior proceeding resulted in a final judgment on the merits; and (3) the party against whom the doctrine is being asserted was a party or in privity with a party to the prior proceeding. Pitzen, 120 Cal. App. 4th at 1381.

The claim preclusion aspect of res judicata applies to small claims judgments. Id. however, the California Supreme Court initially decided in the 1941 case of Sanderson v. Niemann (1941) 17 Cal.2d 563, 571 (110 P.2d 1025), that due to the informality of small claims proceedings, they cannot be used as the basis for issue preclusion. Pitzen, 120 Cal. App. 4th at 1382. In 1980, the Court introduced an exception to this rule in the case of decisions in an appeal of a small claims case, due to the more formal procedures on an appeal, which consist of a de novo trial in the civil superior court. Id. at 1383 (describing Perez v. City of San Bruno (1980) 27 Cal.3d 875, 885 (168 Cal. Rptr. 114, 616 P.2d 1287). However, after legislative changes that made the appeal less formal, and more like the initial small claims trial, California courts returned to the Sanderson standard even for appeals of small claims decisions. Id. at 1384 (describing Rosse v. DeSoto Cab Co. (1995) 34 Cal.App.4th 1047, 1052 (40 Cal. Rptr. 2d 680). Although Pitzen itself introduced an exception for instances in which the small claims defendant is asserting collateral estoppel against the small claims plaintiff on an issue clearly addressed by the decision, there is no exception that would allow a small claims plaintiff to use the judgment against the small claims defendant. See Id. at 1835. Thus, Prairie, will be unable to use the judgment to preclude ARMM Inc. from raising issues already considered at the small claims level.

Because the small claims litigation has no effect on ARMM Inc.’s causes of action, the new suit may be initiated as planned. However, either side may bring a motion to consolidate the action with the appeal of the small claims decision, under Cal. Code Civ. Proc. §  1048(a). The standard required for a motion to consolidate is a showing that both of the actions are related and they evolved at the same time. Sales Dimensions v. Superior Court, 90 Cal. App. 3d 757, 764 (Cal. Ct. App. 1979). Ultimately, it is up to the court’s discretion whether to permit consolidated. Id. In Sales Dimensions, the employer appealed to the superior court from the Labor Commissioner’s award of unpaid commissions to a former employee. Along with other relief, the employer moved for an order to consolidate its appeal from the administrative order with its pending civil action against the employee. Even though, the employer showed that there was some relation between both the actions, the trial court denied the motion on grounds that consolidation of the two different types of proceedings was “necessarily inappropriate.”  Id. at 764. On appeal, the Court held that, it was within the lower court’s discretion to consolidate the civil action with the appeal from a decision by intervenor Labor Commissioner. Id. at 757. See also, Murphy v. Kenneth Cole Productions, 134 Cal. App. 4th 728 (Cal. Ct. App. 2005).

For these reasons, we believe the action may be filed as planned, without adjustment to the complaint we prepared.