Court Opinion

ID: 3208947
Source: CourtListenerOpinion
Date Created: 2016-06-02 20:00:59.559493+00
Date Added: 2024-06-11T12:59:41.085488
License: Public Domain

NOT FOR PUBLICATION                           FILED
                       UNITED STATES COURT OF APPEALS                        JUN 2 2016
                                                                         MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS
                              FOR THE NINTH CIRCUIT

 PAUL SINGH,                                        No. 14-16287

               Plaintiff - Appellant,               D.C. No. 2:14-cv-00603-LKK-
                                                    CKD
    v.

 BHUPINDER BAIDWAN, AKA Paul                        MEMORANDUM*
 Baidwan,

               Defendant - Appellee.

                    Appeal from the United States District Court
                        for the Eastern District of California
                 Lawrence K. Karlton, Senior District Judge, Presiding

                                Submitted May 10, 2016**
                                San Francisco, California

Before: McKEOWN and FRIEDLAND, Circuit Judges and LEFKOW,*** Senior
District Judge.

         Plaintiff-Appellant Paul Singh appeals the district court’s dismissal of his

         *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
         **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
         ***
             The Honorable Joan Lefkow, Senior District Judge for the U.S.
District Court for the Northern District of Illinois, sitting by designation.
Complaint against Defendant-Appellee Bhupinder Baidwan. We affirm.

      Singh alleges that he wanted to purchase a gas station, but that he “did not

have permanent residence status, which at the time was a requirement for a BP

franchise, and of most lenders.” Baidwan allegedly agreed to hold Singh’s shares

in an LLC as well as Singh’s fifty percent interest in the gas station in his own

name “in order to help [Singh] qualify for both the loan and franchise.” Singh

claims that Baidwan promised to transfer back the shares in the LLC and half

interest in the gas station upon Singh’s request.

      In October 2013, Singh allegedly learned that Baidwan would not return

Singh’s shares or fifty percent interest in the gas station. Singh then filed a

complaint against Baidwan, alleging breach of contract as well as ten other claims.

Baidwan filed a motion to dismiss, which the district court ultimately granted.

The district court dismissed Singh’s claim for breach of contract on the basis that

an illegal contract is unenforceable. The court dismissed the remainder of Singh’s

claims for failure to prosecute pursuant to Federal Rule of Civil Procedure 41(b).

Singh appealed.

      The district court did not err in dismissing Singh’s breach of contract claim

on the basis of illegality. Under California law, the “well-settled rule [is] that the

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courts will not aid a party whose claim for relief rests on an illegal transaction.”

Wong v. Tenneco, Inc., 702 P.2d 570, 576 (Cal. 1985) (in bank). “This rule is

based on the rationale that ‘the public importance of discouraging such prohibited

transactions outweighs equitable considerations of possible injustice between the

parties.’” Asdourian v. Araj, 696 P.2d 95, 105 (Cal. 1985) (in bank) (quoting

Southfield v. Barrett, 91 Cal. Rptr. 514, 516 (Cal. Ct. App. 1970)).1 “[T]he rule[,

however,] is not an inflexible one to be applied in its fullest rigor under any and all

circumstances.” Id. (quoting Southfield, 91 Cal. Rptr. at 516). “In each case, the

extent of enforceability and the kind of remedy granted depend upon a variety of

factors, including the policy of the transgressed law, the kind of illegality and the

particular facts.” Id. (quoting S. Tahoe Gas Co. v. Hofmann Land Improvement

Co., 102 Cal. Rptr. 286, 292 (Cal. Ct. App. 1972)). In Asdourian, the California

Supreme Court considered three factors in concluding that equitable relief was
1
  The dissent cites the general rule that illegal contracts, whether malum
prohibitum or malum in se, will not be enforced, but ignores the fact that courts
have treated those sorts of contracts differently in equity. “[A]ll the consequences
which attend a contract contrary to public morals do not attend one which is purely
Malum prohibitum, and that in the latter case courts will take notice of the
circumstances, and will give relief, if justice and equity require a restoration of
money received by either party thereunder.” S. Tahoe Gas Co. v. Hofman Land
Improvement Co., 102 Cal. Rptr. 286, 291 (Cal. Ct. App. 1972) (quoting Smith v.
Bach, 191 P. 14, 15 (Cal. 1920)).

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warranted. One of those factors—whether the contract is malum in se or merely

malum prohibitum—is dispositive here. Malum in se agreements are “all those of

an immoral character, those which are inequities in themselves, and those opposed

to sound public policy or designed to further a crime or obstruct justice.” Vitek,

Inc. v. Alvarado Ice Palace, Inc., 110 Cal. Rptr. 86, 91 (Cal. Ct. App. 1973); see

Asdourian, 696 P.2d at 106 (describing malum in se agreements similarly).

Contracts that are malum in se are “viewed as rendering the agreement absolutely

void in the sense that no right or claim can be derived from them.” Vitek, 110 Cal.

Rptr. at 91. In Asdourian, the court, citing Vitek with approval, explained, “a

contract made in violation of [the statute] does not involve the kind of illegality

which automatically renders an agreement void. The contracts at issue here were

not malum in se. They were not immoral in character, inherently inequitable or

designed to further a crime or obstruct justice.” 696 P.2d at 106.2 Instead, the

court explained, “the contracts were malum prohibitum, and hence only voidable
2
  The distinction between malum prohibitum and malum in se, while not always a
bright line, nevertheless continues to be used by California courts, contrary to the
dissent’s suggestion. See Cal. Physicians’ Serv. v. Aoki Diabetes Research Inst.,
78 Cal. Rptr. 3d 646, 654 (Cal. Ct. App. 2008) (“[A] contract for the provision of
medical services by licensed professionals is plainly not malum in se; Blue Shield
would be unjustly enriched if it were allowed to retain the benefit of services
bestowed on its subscribers without compensating ADRI.” (emphasis added)).

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depending on the factual context and the public policies involved.” Id.3

      Even according to Singh’s own allegations, the contract between Singh and

Baidwan was for the express purpose of evading the franchisor’s and the lender’s

requirements. This purpose to defraud the franchisor and lender, by misleading

them as to who would actually run and own the gas station, makes the contract

malum in se, and therefore unenforceable. See Homami v. Iranzadi, 260 Cal.

Rptr. 6, 11 (Cal. Ct. App.), modified (June 27, 1989) (declining to enforce an oral

contract that provided that a buyer of real property would pay interest secretly to

the seller in order to allow the seller to avoid declaring interest income and thus to

evade required taxes). The district court therefore did not err in dismissing

Singh’s breach of contract claim.

      The district court also did not abuse its discretion in dismissing the

remainder of Singh’s claims for failure to prosecute. Singh’s initial opposition to

Baidwan’s motion to dismiss failed to meaningfully respond to the majority of
3
  The cases cited by the dissent as granting relief despite the illegality of a contract
involved contracts that were illegal not because they involved moral turpitude but
rather solely because one of the contracting parties did not have the required
licenses to be participating in the industry in question. See Asdourian, 696 P.2d at
96 (oral contract where statute required written contract and technical non-
compliance with licensing statute); Vitek, 110 Cal. Rptr. at 87 (unlicensed
contractor); Southfield, 91 Cal. Rptr. at 516 (unlicensed commission merchant).

                                           5
Baidwan’s arguments. Consequently, the court filed an order that explained that

Singh’s lack of response constituted failure to prosecute, subject to dismissal under

Federal Rule of Civil Procedure 41(b). As an alternative to dismissing right away,

the district court gave Singh a second chance to respond, ordering that “plaintiff

SHALL FILE an opposition to defendant’s dismissal motion – addressing every

argument in defendant’s motion.”

      Singh, however, still declined to respond to Baidwan’s arguments, asserting,

“Without a ruling from the Court on its position regarding whether the oral

contract is enforceable it is difficult and appears to be a waste of time and

resources to address in detail the sufficiency of all the other remaining causes of

action.” In light of the fact that Singh failed to comply with the order, the district

court did not abuse its discretion in dismissing the remainder of Singh’s claims for

failure to prosecute. See Fed. R. Civ. P. 41(b) (“If the plaintiff fails to prosecute

or to comply with these rules or a court order, a defendant may move to dismiss the

action or any claim against it.”). Singh has also failed to offer any relevant

arguments on appeal to challenge the dismissal for failure to prosecute.

AFFIRMED.

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Singh v. Baidwan, 14-16287                                              FILED
                                                                         JUN 2 2016
                                                                     MOLLY C. DWYER, CLERK
                                                                      U.S. COURT OF APPEALS

Joan H. Lefkow, District Judge, dissenting in part and concurring in part.

      Singh alleges that he and other individuals invested in an LLC for the purpose of

buying Arco gas stations from BP Corporation. Before the transaction at issue, the LLC

had purchased seven. Another individual, Gill, had been turned down for a loan and

Singh was ineligible to be a BP franchisee because of his non-resident status. To make

the transaction work, the LLC by its members transferred $70,000 from Singh’s capital

account to Baidwan’s capital account. Baidwan applied with Gill for and personally

guaranteed a loan. The LLC agreed to assign a 50% share in the gas station to Baidwan,

rather than Singh, and Baidwan promised to assign that share to Singh when requested.

      I agree with the majority that the transaction had an unlawful purpose, to obtain a

franchise and presumably a loan by making false representations. I do not fully agree that

Singh and his cohorts made the representation with intent to defraud BP. In fact, the

transaction closed and BP was (as far as the complaint reveals) not harmed, nor do we

know of a default on the loan or whether Singh’s immigration status had changed by the

time he requested performance. Nonetheless, if Baidwan made a false statement to a

federally insured bank (which we also do not know) at Singh’s instance, Singh was

                                             1
implicated in criminal conduct, 18 U.S.C. § 1001(a), and the agreement between them

was illegal, therefore unenforceable.

      I differ from the majority only in its conclusion that the court cannot do equity in a

case such as this. The majority rests on the common law distinction between malum in se

(contrary to morals, criminal) and malum prohibitum (contrary to statute or regulation) to

reach its decision, citing Vitek, Inc. v. Alvarado Ice Palace, Inc., 110 Cal. Rptr. 86 (Cal.

Ct. App. 1973), for the proposition that malum in se contracts are “viewed as rendering

the agreement absolutely void in the sense that no right or claim can be derived from

them.” Fair enough. But California courts have also said the general rule applies to both

malum in se and malum prohibitum contracts: “The general rule is that a void contract, a

contract against public policy or against the mandate of a statute, may not be made the

foundation of any action, either in law or equity.” Hooper v. Barranti, 184 P.2d 688, 691

(Cal. Ct. App. 1947) (citing cases).

      The distinction between malum in se and malum prohibitum has fallen into

disfavor because it “does not add to the discussion, but may actually obscure a more

pointed explanation of a court’s reasoning and result.” 15 Corbin on Contracts §79.5, p.

25 (2003); see R.M. Sherman Co. v. W.R. Thomason, Inc., 236 Cal. Rptr. 577, 581 (Cal.

Ct. App. 1987) (“The First and Second Restatements of Contracts assiduously avoid the

terms, focusing instead on legislative intent and the balance of interests between statutory

policy and the policy favoring enforcement of contracts. (See Rest., Contracts, § 580,

                                              2
com. a; Rest.2d Contracts, § 178, com. b.)”). As Corbin puts it, “When courts mention

the distinction, they identify a contract as contrary to a statute involving conduct malum

prohibitum as a preliminary step to providing a judicial remedy less harsh than declaring

the contract completely void.” 15 Corbin on Contracts §79.5, p. 25. By the same token

here, the majority, while acknowledging that there may be exceptions to the general rule,1

by identifying the contract as malum in se, is expressing a conclusion that no relief should

be granted rather than assessing whether the evidence points to the conclusion that no

relief should be granted.

      Moreover, the distinction that the majority draws is not clear from the cases they

rely on. Indeed, Asdourian and Southfield teach that malum in se is one factor of several

the court considers when deciding whether or not to craft an equitable solution.

Asdourian, 696 P.2d at 105 (“In each case, the extent of enforceability and the kind of

remedy granted depend upon a variety of factors, including the policy of the transgressed

law, the kind of illegality and the particular facts.” (emphasis added) (internal quotations

1
  See, e.g., Southfield, 91 Cal. Rptr. at 516 (finding that although the contract was illegal
the plaintiff should be entitled to recover the balance due on the advance payment in
addition to the agreed interest); Tri-Q, Inc. v. Sta-Hi Corp., 404 P.2d 486, 497 (Cal.
1965) (remanding for consideration of equitable relief where refusing to enforce
severance agreement structured to obtain improper income tax advantage would result in
unjust enrichment of the party at greater fault); Asdourian v. Araj, 696 P.2d 95, 107 (Cal.
1985) (enforcing contract even though contractor was unlicensed and otherwise non-
compliant with law); Vitek, 110 Cal. Rptr. 86, 92 (1973) (granting relief to initially
unlicensed subcontractor where the public had not been harmed and promised work had
been performed).
                                              3
omitted)); Southfield, 91 Cal. Rptr. at 516 (“Where the public cannot be protected

because the transaction has already been completed, no serious moral turpitude is

involved, defendant is the one guilty of the ‘greatest moral fault,’ and defendant would be

unjustly enriched at the expense of plaintiff if the rule were applied, the general rule

should not be applied.” (emphasis added)). Rather than treating malum in se as a factor

to be considered, the majority’s analysis begins with whether the contract was malum in

se or malum prohibitum and, because it concludes the former, its analysis ends.

      Given the allegations in the complaint, the district court was obliged to consider

whether equity favored any relief to Singh based on the evidence in the case. For this

reason, I respectfully dissent. I concur in the dismissal with prejudice of all other claims.

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