Court Opinion

ID: 4154118
Source: CourtListenerOpinion
Date Created: 2017-03-20 20:00:57.582313+00
Date Added: 2024-06-11T14:34:28.521896
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                            MAR 20 2017
                     UNITED STATES COURT OF APPEALS                      MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

DOUGLAS B. NUROCK, Individually,                 No.   15-56738
and as Trustee of the Michael K Moezzi
Family Trust UA 4/16/2003,                       DC No. CV 11-10284 PJW

              Plaintiff,
                                                 MEMORANDUM*
 and

TED KEY; LAURA KEY,

              Plaintiffs-Appellants,

 v.

PELICAN EYES HOLDING COMPANY
LLC, a California limited liability
company; PELICAN RESCUE LLC, a
California limited liability company;
JAMES K. HANKLA, an individual;
MICHAEL J. EMLING, an individual,

              Defendants-Appellees.

                    Appeal from the United States District Court
                         for the Central District of California
                    Patrick J. Walsh, Magistrate Judge, Presiding

       *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                       Argued and Submitted March 10, 2017
                               Pasadena, California

Before:        TASHIMA and NGUYEN, Circuit Judges, and MARBLEY,** District
               Judge.

      Ted and Laura Key appeal the denial of their motion to enforce a settlement

agreement between themselves and appellees Pelican Eyes Holding Company

(“PEHC”), Pelican Rescue LLC, James Kirk Hankla, and Michael J. Emling

(collectively, “Pelican Parties”). We have jurisdiction under 28 U.S.C. § 1291, and

we affirm.

      In 2006, the Keys purchased an undeveloped residence in Pelican Eyes

Resort, located on the Pacific Coast of Nicaragua. Before construction on the

residence was complete and before the Keys acquired title to it, the entity from

which the Keys had purchased the property became insolvent. PEHC later

acquired the resort. In 2011, the Keys and other similarly situated buyers sued the

Pelican Parties, asserting federal claims under the Securities Act and Securities and

Exchange Act, and state law claims for fraud, breach of fiduciary duty, and breach

of contract.

      **
            The Honorable Algenon L. Marbley, United States District Judge for
the Southern District of Ohio, sitting by designation.
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      The Pelican Parties and the Keys executed a settlement agreement, under

which, in exchange for a release of their claims, the Keys obtained the option to

buy Casa Alegria, a completed residence that was larger than the one they had

originally purchased. The agreement provided that the Keys could obtain Casa

Alegria by buying and tendering to PEHC 1,344,389.38 class B shares of PEHC

(“shares”) by April 6, 2015. PEHC had issued such shares to the Keys and others

who had purchased incomplete properties at the resort, in an amount equal to the

amount that each had paid for his original residence. The Keys could buy the

additional shares that they needed to reach 1,344,389.38 from other shareholders

willing to sell their shares, or directly from PEHC. The agreed-upon price for the

directly-purchased shares was $0.10 per share.

      After the settlement, the Keys tried to obtain 1,344,389.38 shares. They

negotiated with a number of other shareholders. They were also in contact with

Hankla, a member of the PEHC board, about logistical matters, such as how to

accomplish the transfer of shares to themselves from third parties and from

themselves to PEHC. Eventually, Hankla stopped responding to the Keys’ calls

and messages. On April 12, Emling, another member of the PEHC board,

informed the Keys that the deadline for purchasing Casa Alegria had passed.

                                          3
      The Keys moved to enforce the settlement agreement on the ground that the

Pelican Parties had thwarted the Keys’ attempt to tender the requisite number of

shares, and had breached the settlement agreement by failing to cooperate with the

Keys.1 The magistrate judge denied the motion, finding that “even assuming that

Mr. Hankla had returned Mr. Key’s calls and texts and met with him on April 6th,

Mr. Key did not have enough shares to complete the deal.” Specifically, the court

found that, as of April 6, the Keys were 1,145,889.38 shares short of the number

that they needed under the agreement. The court found that the Keys were short of

the requisite shares for a number of reasons: they had purported to purchase shares

from individuals who did not own shares; from others who never agreed to sell to

the Keys; and still others who did not agree to make the sale until after the April 6

deadline. The court also concluded that the Pelican Parties’ failure to

communicate with the Keys just prior to the deadline was not a breach of the

agreement’s requirement to cooperate, because the contract did not require the

Pelican Parties “to help Mr. Key assemble the necessary shares.”

      The Keys timely appealed. We review “factual findings as to what the

parties said or did . . . under the ‘clearly erroneous’ standard.” L.K. Comstock &

      1
            The settlement agreement provided that the magistrate judge who had
presided over their case would retain jurisdiction to enforce the agreement. See
Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 381–82 (1994).
                                           4
Co., Inc. v. United Eng’rs & Constructors Inc., 880 F.2d 219, 221 (9th Cir. 1989).

We review “principles of contract interpretation applied to the facts . . . de novo.”

Id. We review the denial of equitable relief for abuse of discretion. See Dollar

Sys., Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165, 174 (9th Cir. 1989).

      1(a). The Keys first argue that the Pelican Parties breached the settlement

agreement by preventing the Keys from tendering 1,344,389.38 shares to PEHC.

Tendering those shares was a condition precedent to the transfer of Casa Alegria.

See Cal. Civ. Code § 1436. “[W]here one contracting party prevents the other’s

performance of a condition precedent, the party burdened by the condition is

excused from performing it, and the benefited party’s duty of performance

becomes unconditional.” City of Hollister v. Monterey Ins. Co., 81 Cal. Rptr. 3d

72, 100 (Ct. App. 2008). The Pelican Parties, however, did not prevent the

fulfillment of the condition. As the magistrate judge found, even if the Pelican

Parties intended to thwart the Keys by failing to respond to their inquiries in the

last few days before April 6, that conduct was not the cause of the Keys’ failure to

tender the requisite shares. Rather, the Keys failed to purchase enough shares in

the first place. This finding is not clearly erroneous.

      (b).   The Keys next argue that the Pelican Parties breached the settlement

agreement by failing to explain to the Keys how, logistically, to obtain the shares

                                           5
they had purchased or were going to purchase from third parties. In support, the

Keys point to a provision of the agreement requiring the parties to “cooperate as

may be necessary and/or desirable to effectuate” the agreement’s purpose. The

magistrate judge, however, found that the evidence did not show that such term

was intended to require the Pelican Parties “to help Mr. Key assemble the

necessary shares.” The magistrate judge thus declined to construe the contract as

requiring the Pelican Parties affirmatively to facilitate the transfer of shares from

third parties to the Keys. That construction of the settlement agreement is not

erroneous. The agreement provided that the Keys’ acquisition of additional shares

from other owners would be a “private transaction” and the Pelican Parties’ only

obligation with respect to that transaction was not to “hinder” it. Thus, the Pelican

Parties did not breach the agreement.

      2.     The Keys contend that, in light of the Pelican Parties’ allegedly

inequitable conduct, this court should compel the Pelican Parties either to transfer

ownership of Casa Alegria to the Keys, or to extend the deadline for gathering the

requisite number of shares. The magistrate judge concluded that the Keys were not

entitled to equitable relief because “both parties are to blame” for the fact that the

“deal was not performed on time under the terms of the agreement,” and that

nothing the Pelican Parties “did or failed to do was so egregious as to justify

                                           6
requiring them to transfer Casa Alegria to Mr. Key now.” This conclusion was not

an abuse of discretion.

      3.     Finally, the Keys suggest that they have suffered a forfeiture. The

authorities they cite uniformly hold that a buyer of land under an installment

contract who has defaulted on the installment payments has the right to cure by

tendering the remaining amount due under the contract. See, e.g., Petersen v.

Hartell, 707 P.2d 232, 242 (Cal. 1985).

      But these cases are inapposite. Although the Keys may have suffered a loss,

assuming that the shares they own are now worthless as they allege, equity does

not demand that such loss be shifted to the Pelican Parties. Unlike in the forfeiture

cases on which the Keys rely, the Pelican Parties were not unjustly enriched by the

Keys’ attempt to perform under the contract, because the Keys made no payments

to the Pelican Parties.2 Instead, the Keys purchased some shares from third parties

and failed to purchase enough by the deadline. Although the Keys allege that they

paid the Pelican Parties’ predecessor for a residence to which the Keys never

obtained title, that is a claim that was released when, represented by counsel, the

Keys agreed to settle in exchange for the option to obtain a larger dwelling by

      2
             The Keys did pay $9,100 to PEHC, but this sum was held in escrow
for the benefit of a seller of shares to the Keys, or for the Keys, depending on
whether the sale was consummated.
                                          7
collecting and tendering shares to PEHC by April 6, 2015. Under the settlement

agreement, the Keys failed timely to exercise their option and have forfeited

nothing. See Holiday Inns of Am., Inc. v. Knight, 450 P.2d 42, 44 (Cal. 1969)

(“[T]he time within which an option must be exercised . . . cannot be extended

beyond that provided in the contract,” because “[t]o hold otherwise would give the

optionee, not the option he bargained for, but a longer and therefore more

extensive option.”).

      AFFIRMED.

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