Court Opinion

ID: 4364149
Source: CourtListenerOpinion
Date Created: 2019-02-01 21:00:36.188738+00
Date Added: 2024-06-11T14:49:06.454202
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        FEB 1 2019
                                                                     MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

In re: ASSET RESOLUTION, LLC,                   No.   17-16799

             Debtor,                            D.C. Nos.    09-32824-rcj
______________________________                               16-01064-rcj

WILLIAM A. LEONARD, Jr., Chapter 7
Trustee,                                        MEMORANDUM*

                Plaintiff-Appellee,

 v.

OXBOW INVESTMENT HOLDINGS,
LLC, a California limited liability company,

                Defendant-Appellant.

                 Appeal from the United States Bankruptcy Court
                           for the District of Nevada
                  Robert Clive Jones, District Judge, Presiding

                    Argued and Submitted December 19, 2018
                            San Francisco, California

Before: BOGGS,** PAEZ, and OWENS, Circuit Judges.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
            The Honorable Danny J. Boggs, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
      Appellant Oxbow Investment Holdings (“Oxbow”) appeals from a judgment

of the United States District Court for the District of Nevada that granted specific

performance of a contract for the sale of a bankruptcy-estate asset—a 27-acre piece

of land in San Bernardino County, California (“the Property”).

      In 2015, Appellee William Leonard (“Leonard”), the bankruptcy trustee,

entered into a contract to sell the Property to Oxbow for $825,000. The parties’

attorneys negotiated and memorialized the contract on a form document with an

Addendum substituting certain terms, particularly “Acceptance.”

            Acceptance means the time the offer or final counter offer
            is accepted in writing by a Party, subject only to any
            agreed upon contingencies, including but not limited to the
            requirement of a court order authorizing the sale of the
            Property and the completion of any required overbid or
            auction process, and such acceptance is delivered to and
            personally received by the other Party or the Party’s
            authorized agent in accordance with the terms of this offer
            or a final counter offer.

      Upon Acceptance, Leonard had five days to provide a preliminary title report

and make certain disclosures to Oxbow. The dispute over the contract revolves

around Paragraph 13.A.(1), which states:

            A. Within the time specified in paragraph 19 [5 days], if
               Seller has actual knowledge, Seller shall provide to
               Buyer, in writing, the following information:
               (1) LEGAL PROCEEDINGS: Any lawsuits by or
                   against Seller, threatening or affecting the Property,
                   including any lawsuits alleging a defect or
                   deficiency in the Property or common areas, or any

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                   known notices of abatement or citations filed or
                   issued against the Property.
Within fifteen days of acceptance, Oxbow had to complete any investigations,

review the disclosures, and accept the condition of the property. The contract

identified the above items as the primary contingencies to sale, as well as court

approval and completion of any required overbid. At the end of the fifteen-day

period, Oxbow was required to either remove the applicable contingencies or cancel

the agreement. The contract stated that, by removing the contingencies, Oxbow had

elected to proceed with the transaction.

      Oxbow and Leonard signed the contract on June 23, 2015. Fifteen days later,

Jonathan Dabbieri, Leonard’s counsel, contacted Oxbow to clarify that the fifteen-

day period was about to expire and inquired whether Oxbow wished to proceed with

the transaction on a non-contingent basis.      After some back-and-forth about

Oxbow’s deposit, Oxbow’s principal, Eric Cernich, sent Dabbieri e-mails on July 17

and 23 stating that the transaction was noncontingent. The district court entered an

order approving the sale on August 3, 2015.

      Shortly before the parties were to close escrow in August 2015, Cernich sent

an e-mail requesting an additional sixty days to address issues he had recently

discovered in soil and geotechnical reports on the Property. Cernich explained that

he would not close without additional time and attempted to cancel the contract,

although he said he would rescind the cancellation if he received more time.

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       Dabbieri responded and notified Cernich that, because Oxbow had removed

all contingencies, failure to close would breach the contract. Dabbieri reminded

Cernich that “as you will recall” San Bernardino County had filed a Motion for

Relief from the automatic bankruptcy stay so the County could proceed with a tax

foreclosure sale of the Property because the property taxes were in arrears. He also

explained to Cernich that, depending on the response from the district court and the

County, Leonard was willing to provide more time.

       Ultimately in November 2015, the parties agreed on the following plan.

Oxbow would increase its deposit from $25,000 to $50,000, and the deposit would

be provided to the County and credited to Oxbow’s purchase. The County would

continue its hearing on the Motion. Oxbow agreed to close escrow by the end of

February 2016.

       Escrow did not close, and in April 2016, Leonard filed suit alleging breach of

contract and seeking specific performance. Oxbow asserted affirmative defenses of

(1) failure to state a claim; (2) failure of condition precedent; (3) estoppel; (4) failure

to mitigate damages; (5) unjust enrichment; and (6) failure of condition. It also

reserved the right to raise additional defenses upon discovery of grounds to do so.

After a bench trial, the district court ruled that Oxbow had breached the contract.

       Oxbow appeals, arguing that: (1) Leonard breached the contract by failing to

disclose the County’s Motion for Relief; (2) the district court erred by excluding

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certain testimony from Cernich; and (3) the extended time and additional deposit

constituted a novation.

      We review a district court’s factual findings for clear error, In re the Vill. at

Lakeridge, LLC, 814 F.3d 993, 1002 (9th Cir. 2016), and interpretation of a contract

de novo. Doe I v. Wal-Mart Stores, Inc., 572 F.3d 677, 681 (9th Cir. 2009). A

district court’s evidentiary rulings are reviewed for an abuse of discretion. United

States v. Rohrer, 708 F.2d 429, 432 (9th Cir. 1983). The parties agree that California

law controls the contract’s interpretation. We affirm the district court’s ruling.

      1. Oxbow argues that the district court incorrectly interpreted Paragraph

13.A.(1)1 of the contract to conclude that, as a matter of law, Leonard was not

required to disclose the County’s Motion. Oxbow insists that Paragraph 13.A.(1)

required Leonard to disclose the Motion because it was a “legal proceeding.” Even

assuming the Motion is a legal proceeding, as the district court concluded, Oxbow’s

argument prevails only if the heading identifies Leonard’s disclosure obligations,

      1
         Before the district court and in its briefs, Oxbow has consistently maintained
that Paragraph 13.A.(1) required Leonard to disclose the Motion. It is not apparent
from the record that Oxbow has ever asserted that any other portion of the contract
required disclosure. In the last minute of its rebuttal at oral argument, Oxbow
suggested that a different provision of the contract concerning subsequent
disclosures required Leonard to disclose the Motion. Because Oxbow did not raise
this argument below, it has waived it. See McKay v. Ingleson, 558 F.3d 888, 891
n.5 (9th Cir. 2009) (concluding that an argument first raised during oral argument
was waived “[b]ecause [it] was not raised clearly and distinctly in the opening
brief”).

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not the terms following the heading.

      We “read and construe[]” a heading with the language of the contractual term.

Coit v. Jefferson Standard Life Ins. Co., 168 P.2d 163, 169 (Cal. 1946). Paragraph

13 identifies disclosure obligations. Each term has a heading in large caps that

identifies a general topic, such as “legal proceedings,” “neighborhood problems,” or

“zoning issues.” The heading is followed by a more detailed description in ordinary

type. Reading the contract as a whole, see Cal. Civ. Code § 1641, demonstrates that

the items to be disclosed follow the heading because the entire contract follows the

same pattern. See Huverserian v. Catalina Scuba Luv, Inc., 110 Cal. Rptr. 3d 112,

115–16 (Ct. App. 2010). The heading “legal proceedings” may be construed

consistently with the more specific terms that follow because lawsuits are a type of

legal proceeding. See Coit, 168 P.2d at 169; see also Nygard, Inc. v. Uusi-Kerttula,

72 Cal. Rptr. 3d 210, 223 (Ct. App. 2008) (“[W]here specific words follow general

words in a contract, ‘the general words are construed to embrace only things similar

in nature to those enumerated by the specific words.’” (quoting Cal. Farm Bureau

Fed’n v. Cal. Wildlife Conservation Bd., 49 Cal. Rptr. 3d 169, 189 (Ct. App. 2006))).

Therefore, the contract only required Leonard to disclose the items listed in

Paragraph 13.A.(1), not all legal proceedings. Because the Motion for Relief is not

a lawsuit or any of the other listed items, the district court did not err in concluding

that, as a matter of law, Leonard was not required to disclose it.

                                           6                                    17-16799
      2. At trial, Oxbow attempted to raise fraud as a defense, arguing that Leonard

obtained its consent to the contract through material omissions, namely Leonard’s

failure to disclose the Motion. In support of this argument, Oxbow sought to have

Cernich testify that, had he known about the Motion, he would not have agreed to

purchase the Property because he would have waited to buy it for a cheaper price at

the tax sale. The district court refused to allow this testimony because Oxbow had

not raised fraud as a defense.

      A party must state its affirmative defenses or it has waived them. Fed. R. Civ.

P. 8(c); see Fed. R. Bankr. P. 7008 (making Fed. R. Civ. P. 8 applicable in

proceedings before a bankruptcy court). Oxbow did not raise fraud in its answer, or

any defense that could liberally be construed as such. Because Oxbow did not raise

this defense, it was waived. See In re Adbox, Inc., 488 F.3d 836, 841 (9th Cir. 2007).

The district court did not abuse its discretion by refusing to allow Oxbow to

introduce testimony in support of a defense it had not raised in its answer.

      3. Oxbow argues that the arrangement culminating in an additional deposit

was a novation because Oxbow had timely cancelled the contract and the additional

deposit served as new consideration.

      The district court ruled that there was no novation. Whether parties entered

into a novation depends on the facts and circumstances of each case. Olympic Fin.

Co. v. Thyret, 337 F.2d 62, 66 (9th Cir. 1964). Under California law, a novation

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occurs when the parties to an agreement substitute a new obligation between the

same parties with an intent to extinguish the old one. Cal. Civ. Code § 1531. A

novation requires: (1) a previous valid obligation; (2) that all parties agree to the new

contract; (3) that the old contract is extinguished; and (4) a valid new contract.

Olympic Fin. Co., 337 F.2d at 65 (citing Young v. Benton, 131 P. 1051, 1052 (Cal.

Dist. Ct. App. 1913)).      The key factor in distinguishing between contractual

modification and novation is whether the obligee intended to release the obligor from

his obligation under the original agreement. Alexander v. Angel, 236 P.2d 561, 563

(Cal. 1951).

      Oxbow argues that it timely canceled the contract, based on its interpretation

that the Addendum term defining Acceptance meant that Acceptance, which

triggered the fifteen-day due diligence period, did not occur until after the district

court approved the sale. The plain language of the Addendum states that Acceptance

took place when a party accepted the offer in writing—subject to certain agreed-

upon contingencies. Based upon this language, the district court correctly concluded

that Acceptance occurred on June 23, 2015, the day the parties signed the contract.2

      Cernich’s cancellation was conditioned on whether he received more time to

      2
        Oxbow essentially conceded as much at oral argument when it insisted that
because the parties signed the contract on June 23, 2015, Leonard was required to
disclose the Motion by June 28. Any obligation that Leonard had to disclose
information to Oxbow, according to Paragraph 19.A of the contract, only took place
5 days after “Acceptance.”

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resolve the issues with the Property, and Leonard provided it. Oxbow ultimately

received well over sixty days even before the parties set a new deadline for closing.

Leonard consistently maintained that Oxbow was bound by the original agreement.

See Alexander, 236 P.2d at 564. Finally, the essential terms of the contract did not

change. Oxbow increased its deposit and consented to its release to pay accrued

taxes, but the deposit was credited to the purchase price, and the contract always

contemplated that Leonard would use the purchase price to pay accrued property

taxes. The district court did not err in concluding that there was no novation.

      AFFIRMED.

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