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James A. Hennefer (SBN 59490)

HENNEFER, FINLEY & WOOD, LLP

Embarcadero West

275 Battery Street, Second Floor

San Francisco, CA 94111

Telephone: (415) 421-6100

Facsimile: (415) 421-1815

jhennefer@hennefer-wood.com

Special Counsel for Plaintiff-Appellee

Mohamed Poonja

IN THE UNITED STATES COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

 

 In re: Case No. 17-cv-00858 EJD

 SAN JOSE AIRPORT HOTEL, LLC, dba

 HOLIDAY INN SAN JOSE, (Appeal from Poonja v. Sevak & Sons,

 MOBEDSHAHI HOTEL GROUP, L.P. et al. (In re San Jose Airport Hotel, LLC,

U.S. Bankruptcy Court, N. Dist. Calif.

______________________________________ (San Jose) Case No. 09-51045-SLJ

Jointly Administered with 09-51073-SLJ);

Adv. Pro. No. 11-05236)

 MOHAMED POONJA,

Plaintiff-Appellee

 vs.

 CHANDRAKANT SHAH 

Defendant-Appellant

 

PLAINTIFF-APPELLEE’S REPLY BRIEF

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PLAINTIFF-APPELLEE’S REPLY BRIEF POONJA V. SEVAK & SONS ET AL.

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TABLE OF CONTENTS

 

TABLE OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

INTRODUCTION AND SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ISSUES ARGUED IN SHAH REPLY BRIEF.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

I. Legal Tests in California for "Causation" of Damages

Resulting from Contract Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A. The Trial Court Did Not "Ignore" This Court's Remand Order.. . . . . . . . . . . . . . . . . . 4

B. Standard for Causation in a Breach of Contract Case Is Contained

 in California Civil Code § 3300 et seq. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

C. The "Foreseeability" Standard

 – The Law in California Contract Breach Cases.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

D. The "Substantial Factor" Standard is Widely Recognized in California

and Applied Where Multiple Factors Might Cause Injury. . . . . . . . . . . . . . . . . . . . . . 7

E. "Legal Causation" and Actual --"But For" -- Causation . . . . . . . . . . . . . . . . . . . . . . . . 9

F. Factual Findings on Causation by Trial Court on Remand. . . . . . . . . . . . . . . . . . . . . 10

G. Plaintiff's Case is Complete On Proving Foreseeability

and Substantial Factor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

II. Trial Court Correctly Concluded That Shah's Breach Caused the Damages. . . . . . . . . . . . . . 11

A. "Foreseeability" Standard.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

B. "Substantial Factor" Test. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

III. Shah's Breach of his "Warranty" To Assist in the 

Bankruptcy Court Approval.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

IV. Additional Flaws in Shah's Argument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

A. The Bankruptcy Court May Have Approved The Sale 

Without Shah's Breach.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

B. The Fallacious Claim Based on a "Hail Mary" Remark. . . . . . . . . . . . . . . . . . . . . . . 16

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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TABLE OF AUTHORITIES

CASES PAGE(S)

Ariz. Precious Metals Inc. v. Accept Erste

407 Fed. Appx. 216 (9th Cir. 2011). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Brookhouser v. State

10 Cal. App. 4th 1665 (Cal. Ct. App. 1992). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Britz Fertilizers, Inc. v. Bayer Corp.

, 665 F. Supp. 2d 1142 (E.D. Cal. 2009) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Bruckman v. Parliament Escrow Corp.

 190 Cal. App. 3d 1051 (2d Dist. 1987).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 8, 10, 13, 14

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.

 429 U.S. 477 (1977). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Caminetti v. Manierre

 23 Cal. 2d 94 (1943). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Citri-Lite Co. v. Cott Bevs., Inc.

721 F.Supp.2d 912 (E.D.Cal. 2010) ). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Dale Construction Co. v. United States

168 Ct. Cl. 692 (1964). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Fraijo v. Hartland Hospital

99 Cal.App.3d 331 (1979). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Gulf Oil Corp. v. Federal Power Com.

 563 F.2d 588 (3d Cir. 1977) cert. denied, 434 U.S. 1062 (1978).. . . . . . . . . . . . . . . . . . . . . 15

Hadley v. Baxendale

156 Eng. Rep. 145 (1854).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 6, 7, 8, 9, 11

Hart v. Browne 

103 Cal.App.3d 947 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Henry v. Southern P.R. Co. 

50 Cal. 176 (1875). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Hunt Bros. Co. v. San Lorenzo Water Co.

150 Cal. 51 (1906). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 6, 9, 11

Lewis Jorge Constr. Mgmt., Inc. v. Pomona Unified Sch. Dist.

 34 Cal. 4th 960 (2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Metropolitan Coal Co. v. Howard

 155 F.2d 780 (2d Cir. 1946)(J. Learned Hand).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Metzenbaum v. R.O.S. Assocs.

188 Cal. App. 3d 202 (1986). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

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PAGE(S)

Mitchell v. Gonzales

54 Cal. 1041 (1991). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 9

Music Grp. Macao Commer. Offshore, Ltd. v. Foote

2015 U.S. Dist. LEXIS 81415 (N.D. Calif. 2015). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Paccon, Inc. v. United States

399 F.2d 162 (Ct. Cl. 1968). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Price Waterhouse v. Hopkins

 490 U.S. 228, 109 S. Ct. 1775, 104 L. Ed. 2d 268 (1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Shawmut Bank, N.A. v. Kress Assocs.

33 F.3d 1477 (9th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 9, 10, 14

Transact, Inc. v. D’Errico (In re Transact, Inc)

2014 U.S. Dist LEXIS. 109746 (CD Calif 2014). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

US Ecology, Inc. v. State of California

129 Cal.App.4th 887 (2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

United States v. Alexander

 106 F.3d 874 (9th Cir. 1997). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

United States v. Rivera-Martinez

 931 F.2d 148 (1st

 Cir. 1991). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Univ. Of Tex. Southwestern Med. Ctr. V. Nassar

 570 U.S. ___, 133 S. Ct. 2517, 186 L. Ed. 2nd 503 (2013). . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Vecchione v. Carlin

111 Cal.App.3d 351 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Vestar Dev. II, LLC v. Gen. Dynamics Corp.

249 F.3d 958 (9th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

STATUTES AND CODES

California Civil Code § 3300.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5, 6

California Civil Code § 3301.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 6

42 U.S.C. § 363(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

42 U.S.C. § 363(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

42 U.S.C. § 363(f)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

42 U.S.C. § 2000e-2(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

42 U.S.C. § 2000e-3.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

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PAGE(S)

RULES

Rule 8013, Fed. R. Bankr. P.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 12, 13

TREATISES

11 Corbin on Contracts, § 55 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

11 Corbin on Contracts, § 56.2 (2005) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

11 Corbin on Contracts § 55.9 (2005).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 13

Prosser & Keeton on Torts § 41 (5th ed. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

RESTATEMENTS

Restatement (Second) of Contracts § 351 (1981). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 11

OTHER AUTHORITIES

Book of Approved Jury Instructions (“BAJI”) 3.75, 3.76 

Cause Substantial Factor Test. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 10

Judicial Council Civil Jury Instructions (“CACI”) 303 

Breach of Contract—Essential Factual Elements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Stanford Encyclopedia of Philosophy (2016). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

System of Logic (1843) Mill, John Stuart. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

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INTRODUCTION AND SUMMARY

Chandrakant Shah (“Shah,” “Appellant” or “Defendant”) still fails to address, let alone rebut,

the basic legal and factual issues that clearly establish liability and causation of damages for his – now

fully adjudicated -- intentional breach of duties under a contract (“PSA”) and guaranty (“Guaranty”) for

the $46.2 million purchase of the Holiday Inn San Jose (“HISJ” or “Hotel”). 

Shah is faced with a daunting task. He has been found three times (twice by the Bankruptcy

Court and once by this Court) to have intentionally breached the PSA and Guaranty. His myriad of

defenses to liability have been rejected by the Trial Court and this Court. It is uncontested that his

breach – a refusal to cooperate in Bankruptcy Approval of the sale -- was “critical” and without it the

Hotel had to withdraw its motion for approval of the sale, let GECC have relief from stay and allow the

foreclosure. The Hotel was lost. Shah has offered no evidence or legal theory to contest that the

monetary loss was $11,648,758. Shah is left grasping at straws. 1) He now claims that this Court, in a

general statement of the law, established “the law of the case” on causation, precluding the Trial Court

from applying the long-established contract causation standards under California law of “foreseeability”

and “substantial factor.” 2) By misstating the scope of his breach he postulates that Judge Efremsky

might not have approved the Hotel sale, and, based on such speculation that he should be exonerated. 

These claims do not bear close examination.

First, Shah does not attempt directly to contest his liability for breach of contract. He cannot,

because, as this Court has found: “[t]he bankruptcy court correctly found him liable for breach of

contract.” (Remand Order, 9:18)

Second, although this Court also found that the “causal connection between the breach and the

failure to obtain [Bankruptcy Court] approval of the sale raised no legal questions, and as such it can

only have been a factual determination” (Remand Order, 10:7-9), Shah claims the Bankruptcy Court

committed a legal error by applying “two new legal theories” to establish causation for breach of

contract. These two legal tests, the “foreseeability” and “substantial factor” tests are not “new,” but 

have “long been applied byCalifornia courts.” Moreover, they are viewed “as having been incorporated

into California Civil Code [§] 3300's definition of the damages available for breach of contract” – the

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very code section Shah claims should have been applied because it was mentioned in this Court’s

Remand Order.

Third, Shah claims that the Trial Court “failed to make the specific factual findings set forth in

this Court’s Remand Order” although it made factual findings specifically supporting causation under

both the “foreseeability” standard and the “substantial factor’ test from which it concluded that

“Defendant [Shah] caused Plaintiff’s damages” (Order on Remand, 7:2). It further found that: 

“Defendant’s [Shah’s] failure to fulfill his contractual obligation to ‘actively and fully assist [Plaintiff]

in obtaining BankruptcyCourt Approval’ was undoubtedly a substantial factor in causing the failure to

obtain approval of the sale motion and the subsequent foreclosure of the Hotel by GECC.” (Order on

Remand, 7:27 through 8:2)

Fourth, Shah inaccurately tries to limit the complete breach of his written promises under the

PSA and Guaranty, which were to “actively and fully assist,” merely to failure to provide “updated

appraisals.” As this Court found, Shah promised to “actively and fully assist [Debtor] in obtaining

Bankruptcy Court approval, as requested by [Debtor], including without limitation by providing

complete financial, experiential and strategic testimony that will support adequacy of protection of

GECC.” (Remand Order, 8-9) As this Court also found, appraisals only “constituted part of this

complete financial information” and Shah was “obligated . . . to assist in obtaining approval” and “did

not do so.” (Remand Order, 8:5-10) While there may be some uncertainty what the appraisals would

have shown, or even what might have occurred had Shah not breached, there is no uncertainty that

Shah’s total breach and refusal to participate in the required Bankruptcy Court hearing led directly to

the withdrawal of the motion to approve the sale, which led directly to the foreclosure on the Hotel by

GECC. From this incorrect premise, Shah further incorrectly speculates that had the appraisals been

done, their valuation would have precluded Bankruptcy Court Approval. This is contrary to the

Bankruptcy Code and a fair reading of the pleadings and hearings in front of Judge Efremsky. Judge

Johnson, with expertise in the Bankruptcy Code and with the original briefings to Judge Efremsky and

hearing transcripts before him found Shah’s “speculative assertion” of this not to be the case. Moreover

because Judge Johnson found the breach by Shah “ensured the sale would not be approved and that

GECC would foreclose on the Hotel” and that this was “a substantial factor in causing the failure to

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obtain approval of the sale motion” he found speculation on how Judge Efremsky would have ruled

unnecessary. (Order FollowingRemand, 7:22-8:2)Were it necessaryto find hypothetical facts as to what

might have happened in the Bankruptcy Court, had Shah’s breach not caused the sale motion to be

withdrawn (it is not), Judge Johnson would be charged with finding those facts. This Court recognized

this in its Remand Order, holding that “that is for the bankruptcy court to decide.” (Remand Order,

10:23)

The time has come for Shah to bear responsibility for a situation entirely of his own making, one

in which he sought to make a killing upwards of $50 million, with a small cash investment, but which

did not work out due to the real estate market.

ISSUES ARGUED IN SHAH’S REPLY BRIEF

Shah narrows his argument to only three issues in his “ReplyBrief.” These issues are as follows: 

1. The “Bankruptcy Court Ignored This Court’s Order Setting Forth the Relevant

Standard” for causation in a breach of contract case and instead applied legally

incorrect standards of “foreseeability” and “substantial factor” (ReplyBrief, 5:17

through 10:4); 

2. “The BankruptcyCourt Erred in Concluding [Factually] That Mr. Shah’s Breach

Caused $12 Million in Damages” (Reply Brief, 10:5 through 13:25) and,

3. “The Trustee’s ‘Warranty’ TheoryDoes Not Relieve Him of His Burden to Prove

Causation” (Reply Brief 13:26 through 15:1).

In doing so, Shah does not address the extensive legal authority in the Trustee’s Opening Brief on

California “causation” law for contractual breach – effectively admitting its validity. Shah also ignores

the Trial Court’s factual findings on remand that establish “the requisite causation, or causal

connection,” under the appropriate California standards, claiming that the Trial Court “made no factual

finding” to support “proximate causation.” Instead, Shah engages in the “speculative assertion that the

Court would have denied approval of the sale and asks the Court to substitute [Shah’s] judgment for its

own.” (Remand Order, 7:23-7:24) The Trial Court properly refused to speculate, as this Court should

also.

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ARGUMENT

I. Legal Tests in California for “Causation” of Damages Resulting from Contract Breach

A. The Trial Court Did Not “Ignore” This Court’s Remand Order

Shah claims that the only legal standard for causation of damages in a contract case here is a

“reasonable certainty” test taken from Vestar Development and Caminetti, which this Court alluded to

in its Remand Order under the general rubric of “Principles of Contract Law.” (Remand Order, 6:8-

6:25) This Court, of course, did not make any legal or factual findings on causation, but merely

“remand[ed] to the bankruptcy court to make the necessary factual determinations in the first instance.” 

There was no “law of the case” established on this issue. So, Shah’s claim and decisional authorities

that a “court’s departure from the law of the case requires reversal” have absolutely no application here.

(Reply Brief, 5:19 through 6:6) 

Neither of the two cases relied upon by Shah support his argument. In United States v.

Alexander, 106 F.3d 874 (9th Cir. 1997) the district court granted defendant’s suppression motion and

the Ninth Circuit found the granting of third motion for reconsideration of the suppression order would

be an abuse of discretion under the “law of the case” doctrine. Unlike Alexander, this Court did not

adjudicate the issue of “causation” in its Remand Order, but left it up to the Trial Court to decide. There

was no “law of the case” on causation established. In United States v. Rivera-Martinez, 931 F.2d 148

(1st Cir. 1991) the “law of the case” doctrine was applied where the district court had refused to allow

a defendant to withdraw his guilty plea, the court of appeals had already affirmed once and then refused

to consider it again because it was the law of the case. Unlike here, in Rivera-Martinez, the withdrawal

of the guilty plea had been fully adjudicated by the lower court, affirmed by the appellate court and

became the “law of the case” and could not be re-litigated on remand to the trial court.

B. Standard for Causation in a Breach of Contract Case Is Contained in California

Civil Code § 3300 et seq. --This Court’s Standard, Used on Remand

Even assuming, arguendo, that “law of the case” applied here (which it does not) the causation

standards applied by the Trial Court in its Order on Remand are the same as that in Vestar Development

and Caminetti referred to by this Court . This Court, in its Remand Order, cited to the Civil Code

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provisions dealing generally with causation of damages for a breach of contract at §§ 3300 and 3301. 

It stated as one of the “Principles of Contract Law” in the Remand Order that: 

The measure of damages for a breach of contract “is the amount which will compensate

the party aggrieved for all the detriment proximately caused thereby, or which, in the

ordinary course of things, would be likely to result therefrom.” Cal. Civ. Code § 3300.

“No damages can be recovered for a breach of contract which are not clearly

ascertainable in both their nature and origin.” Id. § 3301. “It has long been settled in

California that ‘the proof must establish with reasonable certainty and probability that

damages will result in the future to the person wronged.’” Vestar Dev. II, LLC v. Gen.

Dynamics Corp., 249 F.3d 958, 961 (9th Cir. 2001) (quoting Caminetti v. Manierre, 23

Cal. 2d 94, 101 (1943)).

(Remand Order, 6:18-25)

The Trial Court’s subsequent statement of the law in its Order Following Remand, explicitly refers to

§ 3300 and explains that the Hadley rule it applied has been “incorporated into California Civil Code

[§] 3300: 

The Hadley rule “has long been applied by California courts, which view it as having

been incorporated into California Civil Code [§] 3300’s definition of the damages available

for breach of a contract.” Lewis Jorge Constr. Mgmt., Inc. v. Pomona Unified Sch. Dist., 34

Cal. 4th 960, 969–70 (2004) (quoting Hunt Bros. Co. v. San Lorenzo Water Co., 150 Cal. 51, 56

(1906)). See Restatement (Second) of Contracts § 351 (1981); 11 Corbin on Contracts § 56.2

(2016). The applicable test is that:

the damages that can be recovered for a breach are only such as may

reasonably be supposed to have been within the contemplation of the

parties at the time of the making of the contract, as the probable result of

a breach. Other damages are too remote. . . . This rule does not mean that

the parties should actually have contemplated the very consequence that

occurred, but simply that the consequence for which compensation is

sought, must be such as the parties may be reasonably supposed, in the

light of all the facts known, or which should have been known to them,

to have considered as likely to follow, in the ordinary course of things,

from a breach, and, therefore, to have in effect stipulated against. The

understanding and intention of the parties in this regard must of course be

ascertained from the language of the contract, in the light of such facts.

Hunt Bros. Co., 150 Cal. at 56–57. In other words, a plaintiff may only recover damages for

 an injury that was, or should have been, foreseeable at the time the contract was made.

(Order on Remand, 5:6-5:20) (Emphasis supplied.)

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C. The “Foreseeability” Standard – The Law in California Contract Breach Cases

The Trial Court, in fact, did apply the law this Court referred to in its Remand Order, by applying

the “foreseeability” standard. Shah, in his Reply Brief, does not address this, effectively admitting it. 

Shah’s simple assertion that the “Trustee invokes nineteenth century English common law, opines on

Corbin on Contracts, John Stuart Mill, and the Restatement of Contracts, and cites an abundance of

caselaw [sic],” and nothing more, is extremely weak, particularly if one examines these authorities that

establish the “foreseeability” standard.

-- The Hadley rule “has long been applied by California courts” Lewis Jorge Constr.

Mgmt., Inc. v. Pomona Unified Sch. Dist., 34 Cal. 4th 960, 969–70 (2004) (quoting Hunt

Bros. Co. v. San Lorenzo Water Co., 150 Cal. 51, 56 (1906)). 

-- Hadley “has won universal acceptance in the common law and remains the leading case

in the field” and holds that “damages are recoverable only for those injuries that the

defendant had reason to foresee as a probable result of his breach when the contract was

made.” 11 Corbin on Contracts, (2005) § 56.2, pp. 83, 85-86.

 -- “The Restatement (Second) of Contracts also adopts the Hadley v. Baxendale test in §

351.” Id., at p. 87. 

-- Section 351 of the Restatement has been applied by a California District Court in

reviewing a bankruptcyadversaryproceeding. Transact, Inc. v. D’Errico (In re Transact,

Inc), 2014 U.S. Dist LEXIS. 109746, *58-61 (CD Calif 2014)(“The test for liability. . .

is whether it was foreseeable at the time of the contract”)

-- Section 351 has been applied by the 9

th Circuit in Ariz. Precious Metals Inc. v. Accept

Erste, 407 Fed. Appx. 216, 217 (9th Cir. 2011) ("general principles of contract . . .dictate

that ‘[d]amages are not recoverable for loss that the party in breach did not have reason

to foresee as a probable result of the breach when the contract was made.’ Restatement

(Second) of Contracts § 351 (1981)”).

-- Corbin observes that the “cases are very numerous” dealing with loss that is the

“proximate result” of a breach of contract, “but if the court attempts a definition it will

practically always be found that it is expressed in terms of the possibility of foresight.”

11 Corbin on Contracts § 55 (2005) pp. 22-23 

-- Corbin cites the California Supreme Court case Henry v. Southern P.R. Co. 50 Cal. 176

(1875), decided at the same time Civil Code §§ 3300 and 3301 were enacted, and which

held: “A long series of judicial decisions has defined proximate or immediate and direct

damages to be the ordinary and natural results. . .; such as are usual and as, therefore,

might have been expected.” Id. at 183.

Shah cites nothing in opposition to this overwhelming authority.

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D. The “Substantial Factor” Test is Widely Recognized in California and

Applied Where Multiple Factors Might Cause Injury

The Trial Court might have stopped after applying the Hadley foreseeability standard, but it did

not, also applying the “substantial factor” test, finding Shah liable under that standard as well.

“Substantial factor” is widely accepted in California as a test for legal or “but for” causation and many

California and federal courts, as well as California’s jury instructions have applied it.1

1

 Shawmut Bank, N.A. v. Kress Assocs., 33 F.3d 1477, 1495 (9th Cir. 1994)(Judge Fletcher, in

a breach of contract case, after discussing the “confusing way under California law” terminology like 

“proximate cause” and “cause in fact” have been used, held: “The California courts have recognized that

there are two ways in which a plaintiff can show cause in fact: by showing that defendant's conduct was

the ‘but for’ cause of injury, or by showing that it was a ‘substantial factor’ in that injury.” 

Brookhouser v. State, 10 Cal. App. 4th 1665 (Cal. Ct. App. 1992) ("There are two widely

recognized tests for determining whether a defendant's conduct has in fact caused the plaintiff's injury:

Whether the injurywould not have occurred but for the defendant's conduct, and whether the defendant's

conduct was a substantial factor in bringing about the injury. . . . Mitchell [v. Gonzales]. . . does not

appear to alter these two tests for cause in fact.") 

US Ecology, Inc. v. State of California ,129 Cal.App.4th 887, 902 (2005) (The test for causation

in a breach of contract (or promissory estoppel) action is whether the breach was a substantial factor in

causing the damages citing Bruckman v. Parliament Escrow Corp. (1987) 190 Cal. App. 3d 1051, 1063

“[in contract actions ‘[i]n order to establish liability the plaintiff must show that defendant's breach was

a ‘substantial factor’ in causing the injury.’”)

Music Grp. Macao Commer. Offshore, Ltd. v. Foote, 2015 U.S. Dist. LEXIS 81415, *38-39

(N.D. Calif. 2015) ("’In breach of contract actions, damages cannot be presumed to flow from liability.

It is essential to establish a causal connection between the breach and the damages sought.’"

Metzenbaum v. R.O.S. Assocs., 188 Cal. App. 3d 202, 211, 232 Cal. Rptr. 741 (1986). ‘The requisite

causation, or causal connection, between breach and damages is established when the plaintiff

demonstrates that the defendant's breach was a 'substantial factor' in causing the damage.’" Britz

Fertilizers, Inc. v. Bayer Corp., 665 F. Supp. 2d 1142, 1167-68 (E.D. Cal. 2009) (citations omitted)”),

Citri-Lite Co. v. Cott Bevs., Inc.721 F.Supp.2d 912, 928 (E.D.Cal. 2010) (“The requisite

causation, or causal connection, is established when the plaintiff demonstrates that the defendant's

breach was a ‘substantial factor’ in causing damage.”)

BAJI 3.76. Cause--Substantial Factor Test (“The law defines cause in its own particular way. A

cause of [injury] [damage] [loss] [or] [harm] is something that is a substantial factor in bringing about

an [injury] [damage] [loss] [or] [harm].”) CACI 303 Breach of Contract—Essential Factual Elements

(“To recover damages from [] for breach of contract, [] must prove all of the following: . . . 5.That [] was

harmed; and 6.That []’s breach of contract was a substantial factor in causing []’s harm.”)

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 Shah does not address these authorities, effectively conceding them.

Under this standard, as applied by the Trial Court here: “[e]ven if the plaintiff’s total injury is

the result of multiple factors in addition to the defendant’s breach, the defendant must generally pay

damages equivalent to the total harm suffered [by the plaintiff] if his breach was a ‘substantial factor’

in causing the injury.” Order on Remand, 7:7-7:13; Bruckman v. Parliament Escrow Corp., 190 Cal.

App. 3d 1051 (1987) (holding that even though an escrow agent’s breach of contract may not have been

the sole cause of plaintiff’s injury, the ‘substantial factor’ test justified the trial court’s award). 

Bruckman explained the substantial factor test, used by the Trial Court, and its relationship to Hadley

and the “foreseeability” test as follows: 

In all cases involving problems of causation and responsibility for harm, . . . the

plaintiff's total injury may have been the result of many factors in addition to the

defendant's tort or breach of contract. Must the defendant pay damages

equivalent to the total harm suffered? Generally the answer is Yes, even though

there were contributing factors other than his own conduct. Must the plaintiff

show the proportionate part played by the defendant's breach of contract among

all the contributing factors causing the injury, and must his loss be segregated

proportionately? To these questions the answer is generally No. . . . In order to

establish liability the plaintiff must show that the defendant's breach was a

“substantial factor” in causing the injury. . . . Because of the limiting doctrine of

Hadley v. Baxendale, apportionment has not been a concern in contract cases.

190 Cal. App. 3d at 1063 (emphasis and internal quotation marks removed). Order on Remand, 7:15-

7:21.

Corbin recognizes that “according to John Stuart Mill, the best definition of the ‘cause’ of an

event is ‘the sum- total of its antecedents.’” 11 Corbin on Contracts,§ 55.9 (2005), p. 31. But,

recognizing that many antecedents can be identified as possibly contributing to a plaintiff’s total

damages, the law makes a defendant liable for such injury without inquiry into all possible antecedents

and without the need to speculate about hypotheticals, as Shah would have the Court do here. The

“substantial factor” test avoids having to determine what the Trial Court, on remand, found to be the

“unknown” -- “Defendant’s [Shah’s] speculative assertion that the Court would have denied approval

of the sale.

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E. “Legal Causation” and Actual --“But For” -- Causation

Applying “legal” causation and actual (“but for”) causation standards, like the “foreseeability”

and “substantial factor” tests is not unusual in the law.2It accounts both for the policy limitations that

substantive law may place on holding a defendant liable for damages, and for the concatenation

requirement that damages resulted from an antecedent event, viz., the alleged wrongdoing. Doing this,

the Trial Court gave Shah the benefit of both of the tests, and he failed both of them. 

As to the “legal” causation for contracts, Corbin, the Restatement and cases like Hunt Bros. Co.

v. San Lorenzo Water Co., explain “the rule enunciated in the leading case of Hadley v. Baxendale . .

. which has been universally accepted and followed,” limits the legal liability for damages as a matter

of policy to “only such as may reasonably be supposed to have been within the contemplation of the

parties at the time of making of the contract” – those foreseeable by the parties when entering into the

contract. (Id, 150 Cal. at 56-57 ) As to “but for” or actual causation, contract law, like tort law, requires

a concatenation connection of the wrong with the injury. “The California courts have recognized that

there are two ways in which a plaintiff can show cause in fact: by showing that defendant's conduct was

the ‘but for’ cause of injury, or by showing that it was a ‘substantial factor’ in that injury.” Shawmut

Bank, N.A. v. Kress Assocs., 33 F.3d 1477, 1495 (9th Cir. 1994) In a tort context the California Supreme

Court dealt with the situation here (in which Shah now claims both his own breach in failing to support

the motion to approve the sale, and, Judge Efremsky denying the motion to approve could have caused

foreclosure on the Hotel). It held in Mitchell v. Gonzales, 54 Cal. 1041, 1049 (1991) that looking solely

at the “but for” cause when two causes could be responsible for the damage and either one of them alone

could have been sufficient to cause the damage is not proper:

2

In antitrust law, even though “but for” causation may be present, for policy reasons, the

damages must also “flow[] from that which makes the defendant’s acts unlawful.” Brunswick Corp. V.

Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). In employment discrimination law Univ. of Tex.

Southwestern Med. Ctr. v. Nassar, 570 U.S. ____, 133 S. Ct. 2517, 186 L. Ed. 2d 503 (2013) held that 

in a Title VII retaliation claim under 42 U.S.C. § 2000e-3 plaintiff is required to show that a retaliatory

motive was the "but for" cause of the adverse employment action, but in Price Waterhouse v. Hopkins,

490 U.S. 228, 109 S. Ct. 1775, 104 L. Ed. 2d 268 (1989) in Title VII action under 42 U.S.C. §2000e2(a), retaliation in a status based discrimination case must only be a “motivating” factor in, but need

not be the “but for” cause of, an adverse employment action.

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In those few situations, where there are concurrent [independent] causes, our law provides one

cannot escape responsibility for his negligence on the ground that identical harm would have

occurred without it. The proper rule for such situations is that the defendant's conduct is a cause

of the event because it is a material element and a substantial factor in bringing it about. 

(Vecchione v. Carlin (1980) 111 Cal.App.3d 351, 359 [168 Cal.Rptr. 571]; see also Hart v.

Browne (1980) 103 Cal.App.3d 947, 960-962 [163 Cal.Rptr. 356]; Fraijo v. Hartland Hospital

(1979) 99 Cal.App.3d 331, 346-347 [160 Cal.Rptr. 246]; Prosser & Keeton on Torts (5th ed.

1984) § 41, pp. 266-267; BAJI Nos. 3.75, 3.76 and respective comments.)

This is Shah’s argument, that even if he had not breached thereby causing withdrawal of the

motion for Bankruptcy Court Approval and causing foreclosure, a foreclosure might have occurred any

way because Judge Efremsky might have denied approval even with Shah’s support. The argument is

fallacious because Shah’s breach was found to be a “substantial element” in the foreclosure, and was one

which chronologically preceded Judge Efremsky deciding the motion for approval one way or the other,

and precluded the motion from even being presented to Judge Efremsky.

F. Factual Findings on Causation by Trial Court on Remand

The Trial Court made findings of fact on remand that both the “foreseeability” and “substantial

factor” tests were met. (Order on Remand, 5:21-7-2 and 7:3-8:2) Shah does not challenge these findings

of fact as satisfying these standards. Even if he had, they could not be overturned as “clearly erroneous”

under the standard of review here, dictated by Fed.R. Bankr. P. § 8013. (Remand Order, 5:10-5:25)

G. Plaintiff’s Case is Complete On Proving Foreseeability and Substantial Factor

Once the damages are found to have been a “foreseeable” consequence of breach, a plaintiff

suing for breach of contract has presented a prima facie case on legal causation. Shawmut Bank N.A.

v. Kress Assocs. 33 F.3d 1477, 1497 (9

th Cir. 1994 (The Ninth Circuit held that where, as here,

defendant’s breach of contract and actual resulting damages provide a prima facie showing of cause in

fact, the difficulty and speculativeness of determining a proffered defense like whether the injury might

also have occurred without the breach “becomes the defendant’s problem.”)

Once a contractual breach is found to be a substantial factor in causing damages to a plaintiff,

this is a legally sufficient showing of causation – even though plaintiff's total injury may have been the

result of many factors in addition to the defendant's breach of contract. Bruckman, 190 Cal. App. 3d at

1063-1064. Neither other antecedent factors, nor, as here, hypothetical postcedent factors (what might

have occurred in the Banktuptcy Court without the breach) are relevant thereafter.

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II. Trial Court Correctly Concluded That Shah’s Breach Caused the Damages

Shah proffers two arguments, both wrong, why Plaintiff cannot satisfy the “foreseeability” or

the “substantial factor” legal tests for causation. 

A. “Foreseeability” Standard

Shah claims that the foreseeability standard is to be applied “at the time Mr. Shah refused to

provide updated appraisals” and that Plaintiff must prove “it was reasonably foreseeable that Judge

Efremskywould approve the sale so long as he had those appraisals.” (Appellant’s Reply, 11:14-11:17)

This is wrong on many levels.

First, as the Trial Court (and all of the authorities cited) recognize the damages for which the

breaching party is held liable are those foreseen: “as a probable result of the breach when the contract

was made,” “only those as may reasonably be supposed to have been within the contemplation of the

parties at the time of the making of the contract, as the probable result of a breach,” and “damages, . . 

foreseeable at the time the contract was made.” (Order on Remand, 5:4-5:5, 5:12-5:13, 5:19-5:20, citing

Hadley v. Baxendale and Hunt Bros. Co.) (Emphasis supplied.) Shah misses the whole concept of

modern contract law, which is that the parties in entering into an agreement and exchanging promises

exercise the power to limit the scope of their liability for damages that may be caused by a breach. (See,

Restatement (Second) of Contracts § 351 (1981)(damages the parties had “reason to foresee as a

probable result of the breach when the contract was made”)

Second, Shah’s argument (based on his mistaken time for measuring probable results of breach)

that the history of the parties negotiation of the contract and the terms are “irrelevant” is entirely

wrongheaded. (Appellant’s Reply, 11:12-11:14) As the Trial Court quoted from the California Supreme

Court, the scope of the foreseeable damages is:

. . such as the parties may be reasonably supposed, in the light of all the facts known, or which

should have been known to them, to have considered as likely to follow in the ordinary course

of things from a breach and, and therefore, to have in effect stipulated against. The

understanding and intention of the parties in this regard must of course be ascertained from the

language of the contract, in light of such facts.

(Order on Remand, 5:14-5:18, citing Hunt Bros. Co.)

The Trial Court correctly reviewed the facts on the record under this standard and concluded:

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The Court finds that, at the time the contract was made, the parties reasonably contemplated that

GECC’s foreclosure of Plaintiff’s Hotel would be the natural and foreseeable result of

Defendant’s refusal to “actively and fully assist [Plaintiff] in obtaining Bankruptcy Court

Approval.” PSA at § 6.2.4. By abandoning his contractual obligations, Defendant caused the

sale motion to be withdrawn before it could be heard by the Court, ultimately resulting in

Plaintiff’s injury. Accordingly, Defendant caused Plaintiff’s damages.

This factual finding is not “clearly erroneous” and should not be reversed under Fed. R.Bankr.P. § 8013.

B. “Substantial Factor” Test

Shah claims that the “substantial factor” test and factual findings by the Trial Court on this are

not “of any help to the Trustee” and that this test “has no place in the analysis.” (Appellant’s Reply,

11:22, 12:3-4) This is, according to Shah, because Plaintiff has not and cannot “carry the burden to

prove that Mr. Shah’s breach was a significant factor in the collapse of the sale.” (Id., 12:8-12:9) This

is a dubious position in the face of the undisputed findings of the Trial Court that: 

. . .by refusing to honor his contractual obligations, [Shah] ensured that the sale would not be

approved and that GECC would foreclose on the Hotel . . . [and] [Shah’s] failure to fulfill his

contractual obligation to ‘actively and fully assist [Plaintiff] in obtaining Bankruptcy Court

Approval” was undoubtedly a substantial factor in causing the failure to obtain approval of he

sale motion and the subsequent foreclosure of the Hotel by GECC.”

(Order on Remand, 7:25-8:2)

To justify this position, Shah must ignore or contort both reality and logic. 

The reality which Shah must ignore is: 1) that Shah was required to “actively and fully assist”

in presenting the motion for approval of the sale to the Bankruptcy Court (not just appraisals as Shah

argues); 2) that Shah completely refused to do so; and 3) that without Shah’s required cooperation, the

Hotel’s attorney, Meyers, was forced to withdraw the motion “ensur[ing] the sale would not be approved

and that GECC would foreclose on the Hotel.” Once this reality is ignored, Shah argues that we must

speculate that Judge Efremsky, even with Shah’s full cooperation, would never have approved the sale

or allowed a reorganization under the chapter 11 proceedings, and the GECC foreclosure would have

occurred anyway. This claim is being made despite there being considerable factual dispute about the

various methods which still remained possible to approve the sale when Shah breached (see section

“IV.A.” below). 

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The logic which Shah must contort is that underlying “but for” causation, as logically analyzed

by John Stuart Mill3and Corbin. It recognizes that many antecedents can be identified as possibly

contributing to a phenomenon – a plaintiff’s total damages resulting from a breach of contract. A

single antecedent does not have to be isolated. The law makes a defendant liable for causing such injury

if a breach actually resulted in the injury, without inquiry into all possible antecedents. 11 Corbin on

Contracts,§ 55.9 (2005), p. 31. This is the purpose of the “substantial factor” test. It avoids having to

determine what the Trial Court on remand found to be the “unknown” -- “Defendant’s [Shah’s]

speculative assertion that the Court would have denied approval of the sale” even where Shah’s breach

actually caused the withdrawal of the approval motion and its effective denial. Shah’s contorted logic:

1) postulates the hypothetical that Shah fully performed his promises; 2) adds to that his own speculation

of what Judge Efremsky would have had before him by way of deal points or a chapter 11 plan; 3)

speculates about the evidence supporting it; and 4) speculates how Judge Efremsky would have ruled. 

The Trial Court rejected this exercise because Plaintiff had satisfied completely proof of his prima facie

case on causation. (Order on Remand, 7:22-7:27) There can be no doubt that “but for” Shah’s breach

the motion would have proceeded and its withdrawal would not have occurred. Shah’s breach was both

a logical antecedent that “caused” the withdrawal of the sale motion and foreclosure, and, a substantial

one. The Trial Court’s findings that Shah’s breach was “undoubtedly a substantial factor in causing the

failure to obtain approval of the sale motion and the subsequent foreclosure of the Hotel by GECC” are

not “clearly erroneous” and should not be reversed under Fed. R.Bankr.P. § 8013.

Shah’s contention that the Bruckman v. Parliament Escrow Corp., 190 Cal. App. 3d 1051, 1063

(1987) cited by the Trial Court and relied upon by Plaintiff “has no bearing on the issue before this

Court” is also without merit. (Appellant’s Reply, 7:7-7:19) In Bruckman, the court, recognizing that

while the alleged breach may have been only one among other factors that could have caused the

damages, it was “a substantial factor” in causing the damages and therefore “was a legally sufficient

3

John Stuart Mill was, according to the Stanford Encyclopedia of Philosophy (2016), “the most

influential English language philosopher of the nineteenth century.” In his System of Logic (1843) Mill

formulated principles of inductive reasoning which apply to the cause and effect of given phenomenon. 

Inductive reasoning is the logical process in which multiple premises, assumed to be true, are combined

to obtain a specific conclusion.

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showing of causation” by the plaintiff. This is precisely the tack taken by the Trial Court here. Shah’s

argument, like the defendant in Bruckman, that the sale of the Hotel “probably would not have [been

approved] anyway” due to speculative antecedents (Judge Efremsky’s hypothetical ruling here and nonperformance by another party to the escrow in Bruckman), and that the same damages would have

resulted anyway, is to no avail and irrelevant. Bruckman, at 1063-1064 Not surprisingly, Bruckman,

like the Trial Court, also relied on Corbin and the logic of BAJI No. 3.76.

Likewise, Shah’s argument that Shawmut Bank N.A. v. Kress Assocs., 33 F. 3d 1477 (9th Cir.

1994) is not applicable here has no merit. In Shawmut, facing the fact that a developer, Deringer, had

misappropriated bondholder plaintiffs’ funds released byFICALto Deringer, which funds were then lost

(“successful demonstration of cause in fact as a matter of simple logic”), FICAL tried to defend on the

speculation that the losses would have occurred anyway, in the absence of FICAL’s own breach in

releasing funds to Derringer. Its defense was rejected. The 9

th Circuit, reversing summary judgment for

FICAL, found “In order to show any different causal relationship between breach and damages, it is

FICAL which must begin to speculate, and which must imagine what might have happened in the

absence of breach. . . FICAL . . . has provided no evidence on the question of causation – just its own

assumptions about what Deringer would have done if FICAL had not breached.” Id., at 1497

III. Shah’s Breach of his “Warranty” To Assist in the Bankruptcy Court Approval

Shah attempts to dismiss his breach of express warranties in the PSA and Guaranty by claiming

this is merely a case of “a commonly-used ‘Representations and Warranties’ clause.” (Appellant’s

Reply, 14:2-14:4) This is not the case. A simple reading of the PSA and Guaranty shows that, in

addition to agreeing/promising on many issues Shah gave an unqualified “warranty” (and

“IRREVOCABLY AND UNCONDITIONALLY” guarantied “each and every . . warranty”) on certain

matters over which Shah had complete control and which were critical – life and death – to the sale of

the Hotel. (PSA §§ 6.2.1 - 6.2.4) One of these was Shah’s obligation to “actively and fully assist Seller

in obtaining Bankruptcy Court Approval,” which Shah admits refusing to do. Words, like “warranty,”

where theyare chosen for a contract or statute, are important and, as Felix Frankfurter wrote, “everything

depends on our understanding of them.”

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“Warranty” is a legal term of art different from a promise or agreement. It is an “assurance by

one party to an agreement [Shah] of the existence of a fact upon which the other party [Hotel] may relyp

it is intended preciselyto relieve the promisee [Hotel] of any duty to ascertain the facts for himself. Thus,

a warranty amounts to a promise [by Shah] to indemnify the promisee [Hotel] for any loss if the fact

warranted proves untrue. Dale Constr. Co. v. United States, 168 Ct. Cl. 692, 699 (1964); see also

Paccon, Inc. v. United States, 399 F.2d 162, 166-67 (Ct. Cl. 1968) (quoting Dale Constr. Co. v. United

States).” A party by “warranting,” assumes for itself, as Shah did here, “the entire risk that future

conditions” will turn out to be otherwise. Gulf Oil Corp. v. Federal Power Com., 563 F.2d 588, 599 (3d

Cir. 1977) cert. denied, 434 U.S. 1062 (1978). A warranty amounts to a “promise to indemnify the

promisee for any loss if the fact warranted proves untrue.” Metropolitan Coal Co. v. Howard, 155 F.2d

780, 784 (2d Cir. 1946)(J. Learned Hand) 

Shah expressly agreed to indemnify – hold harmless – the Hotel for any loss should he fail to

“actively and fully assist” in obtaining BankruptcyCourt Approval. It is not disputed that Shah refused

and failed completely to assist the Hotel in presenting the PSA to the Bankruptcy Court and that the

immediate loss to the Hotel was the GECC foreclosure. Shah must hold the Hotel harmless for that loss. 

IV. Additional Flaws in Shah’s Argument

A. The Bankruptcy Court May Have Approved The Sale Without Shah’s Breach

Shah argues fallaciously that the “bankruptcycourt Judge Efremskywas not prepared to approve

the sale [of the Hotel] for a number of different reasons, with or without updated appraisals,” suggesting

that Plaintiff therefore cannot recover from Shah. (Appellant’s Reply, 2:19-2:20)

First, this Court held that “[i]n any case, under the PSA, the bankruptcy Court’s disapproval

would eliminate Debtor’s [Hotel’s] obligations; it had no effect on Appellant’s [Shah’s] guaranty.” 

(Remand Order 8:2-4) As this holding correctly observes, the fact that Judge Efremsky, may, for

whatever reason, not have approved the sale in the Bankruptcy proceeding, if the sale could not proceed

in a Chapter 11 or otherwise because Shah did not perform under the Guaranty, he would be liable for

the damages the Hotel sustained. 

Second, this Court found as follows: “Although the bankruptcycourt expressed some skepticism

of the purposed deal, it did not deny the motion to approve it. To the contrary, at both the hearing and

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the status conference, the bankruptcy court sought and obtained assurances that the parties to the sale

were working to ensure that GECC’s interest would be protected. Appellant’s purported breach was

refusing to participate in that process, and it occurred well before the bankruptcycourt denied the motion

to authorize the sale.” (Remand Order 7:19-8:2) As this Court recognized, Shah’s breach was far greater

than simply not providing “updated appraisals.”4It was a refusal to participate altogether in the

Bankruptcy Court process to sell the Hotel, whether: under 42 U.S.C. §363(b), §363(e) or §363(f)(3);

in the context of a chapter 11 reorganization plan; with a revision of the GECC debt; or, with the Seller

providing additional strength to the deal.5 All of these were under consideration in the preliminary

discussions with Judge Efremsky. All were precluded by Shah’s actual breach, his complete refusal to

participate in the proceedings. Shah’s attempt to limit the inquiry here to whether a motion to sell would

provide adequate protection to GECC if updated appraisals came in at lower values, is simply a

“strawman.”

B. The Fallacious Claim Based on a “Hail Mary” Remark

Shah attempts to make something of Judge Efremsky’s remark that the PSA was a “Hail Mary,”

claiming that the Trustee “offers no alternative explanation for that comment.” (Appellant’s Reply, 2:21,

fn. 1) This argument is badly misplaced. Both the remark and the football analogy actually support the

Trustee’s position. First, a “Hail Mary” is synonymous with the last or penultimate play in a football

game, one on which the game can be won. The approval of the PSA by the BankruptcyCourt, for which

4

In Appellant’s Reply, as in his Opening Brief, Shah tries, again and again, to limit his breach,

and the inquiry about what the options for presentation to the Bankruptcy Court were to “updated

appraisals.” ReplyBrief: 1:15, 2:1, 2:7, 2:8, 2:11, 2:12, 2:17, 2:20, 3:9, 3:19, 4:13, 4:16, 4:19, 4:22, 5:4,

5:8, 5:10, 5:11, 7:19, 8:25, 9:5, 10:12, 11:10, 11:16, 11:19, 12:6, 12:11, 12:14, 12:16, 13:12, 13:22, and

13:23. Opening Brief: 2:8, 2:14, 2:17, 3:12, 10:19, 12:20, 12:22, 12:23, 14:16, 15:13, 16:15, 16:23,

17:4, 17:19, 18:2, 18:24, 18:25, 19:3, 21:18, 21:23, 25:6, 25:9, 27:25, 28:5, 28:7, 28:11, 29:13, 29:25,

30:6, 30:8, 30:9, 30:12, 31:9, 31:24, 32:7 and 32:15.

5 Each of these were raised before Judge Efremsky, who recognized that there were a number of

options and routes to approve the sale, and that none was foreclosed. See, generally, Doc. No. 4-24,

Transcript of November 4, 2009 hearing, pp. 5-6, 9-13; Doc. No. 4-25, Transcript of December 2, 2009

hearing, pp. 2-4. See, Doc. No. 4-22, Transcript of December 16, 2009 hearing: (1) as to amending the

PSA, 3:10; (2) as to a chapter 11 plan 5:18-25, 16:17-2, 18:12-23; (3) as to 42 U.S.C. §363(b), §363(e)

or §363(f)(3) approval 3:11-5:10, 6:1-6:8, 14:21-15:6; (4) as to adjusting the GECC note 5:11-17, 15:7-

16:2, 16:23-18:11, 18:24-21:12, 23:2-15, 29:5-30:6; 32:21-33:13, 38:15-40:22; and (4) as to the Seller

strengthening the deal 7:3-12. 

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Shah was to “provid[e] complete financial, experiential and strategic information and testimony” to

make it successful (but failed totally to do) was “foreseen” by all as the last chance before foreclosure

of the Hotel by GECC and damages. Second, it was recognized that approval required complete

cooperation by Shah to succeed, and he promised (indeed “warranted”) he would provide such

cooperation, but totally failed to perform. Third, Shah’s failure, as everyone knew it would, assured that

the Trustee lost. Shah, in the football analogy, walked off the field before the last play, assuring failure. 

Yet, he now claims he should win because it would never would have succeeded anyway – excusing his

own wrong. One only has to remember the classic Roger Staubach (1975) or Doug Flutie (1984) “Hail

Mary” plays that won games or players who have succeeded in “Hail Marys” regularly, like Aaron

Rogers in 2015 (v. Detroit Lions), 2016 (two plays v. Arizona Cardinals) and 2017 (v. New York

Giants), to understand that a game cannot be terminated before time runs out. Meyers, with his expertise

in structuring chapter 11 sales of real estate using the tools of the Bankruptcy Code, believed he could

do it, if he had Shah’s cooperation. He was not given the chance. Shah must now bear the responsibility

for his own actions.

CONCLUSION

For the foregoing reasons, the judgment of the Trial Court should now finally be affirmed.

Dated: August 30, 2017

Respectfully submitted, HENNEFER, FINLEY & WOOD, LLP

By: /s/ James A. Hennefer 

 James A. Hennefer

Special Counsel for Mohamed Poonja,

Chapter 7 Trustee for San Jose Airport 

Hotel, LLC, dba Holiday Inn San Jose, and

Mobedshahi Hotel Group

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CERTIFICATION OF COMPLIANCE

I hereby certify that the attached Plaintiff-Appellee’s Reply contains 6956 words of text and

is in compliance with Fed. R.Bankr. P. 8015(a)(7)(B)(i) and Fed.R. Bankr. P. 8015 (a)(7)(C)(i).

Dated August 30, 2017 /s/ James A. Hennefer 

 James A. Hennefer

Special Counsel for Mohamed Poonja,

Chapter 7 Trustee for San Jose Airport 

Hotel, LLC, dba Holiday Inn San Jose, and

Mobedshahi Hotel Group

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PROOF OF SERVICE

I am employed in the City and County of San Francisco, California. I am over the age of 18

and am not a party to the within action. My business address is Embarcadero West, 275 Battery

Street, Second Floor, San Francisco, California, 94111.

On August 30, 2017, I served the below-listed document(s) described as: 

PLAINTIFF-APPELLEE’S REPLY BRIEF

X (BY ELECTRONIC TRANSFER TO THE CM/ECF SYSTEM) On this date I

electronically uploaded a true and correct copy of the document(s) in Adobe “.pdf”

format the to the Court’s CM/ECF system which serves them on registered CM/ECF

users and provides a Notice of Electronic Filing to such users. 

(BY MAIL) I caused such envelope(s) with postage thereon fully prepaid to be placed

in the United States mail at San Francisco, California, addressed to the person(s) on

whom it is to be served, as set forth below, or as stated on the attached service list.

(BY EMAIL) I caused the document on this date to be delivered by email to the

offices of the addressee(s) set forth below, or as stated on the attached service list.

(BY OVERNIGHT DELIVERY) I caused such envelope(s) to be delivered to an

overnight delivery carrier with delivery fees provided for, addressed to the person(s)

on whom it is to be served, as set forth below, or as stated on the attached service list.

I declare under penalty of perjury under the laws of the State of California that the foregoing

is true and correct.

Executed on August 30, 2017 at San Francisco, California.

 /s/ James A. Hennefer 

 James A. Hennefer

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