Court Opinion

ID: 4310749
Source: CourtListenerOpinion
Date Created: 2018-09-07 20:00:32.134519+00
Date Added: 2024-06-11T14:44:17.138865
License: Public Domain

NOT FOR PUBLICATION

                       UNITED STATES COURT OF APPEALS
                                                                                         FILED
                                FOR THE NINTH CIRCUIT
                                                                                          SEP 07 2018
                                                                                      MOLLY C. DWYER, CLERK
                                                                                       U.S. COURT OF APPEALS
 JOHN T. HARDISTY,                                      Nos. 15-56797
                                                             16-55538
                Plaintiff-counter-
                defendant-Appellee,                     D.C. No. 3:11-cv-01591-BAS-BLM

 v.
                                                        MEMORANDUM*
 MELANIE MOORE, in her capacity as the
 executrix and the party representative of
 the estate of Hal Moore; ELAINE K.
 MOORE; STATE INSULATION, INC.,
 an Arizona limited liability company; THE
 1998 HAROLD M. MOORE
 REVOCABLE TRUST; MARK PELUSO;
 STATE INSULATION, LLC, a Nevada
 limited liability company; STATE
 INSULATION, LLC, an Arizona limited
 liability company,

                Defendants-counter-
                claimants-Appellants.

 JOHN T. HARDISTY,                                      No.     15-56806

                Plaintiff-counter-                      D.C. No. 3:11-cv-01591-BAS-BLM
                defendant-Appellant,

       *
              This disposition is not appropriate for publication and is not precedent except as
provided by Ninth Circuit Rule 36-3.
 v.

 MELANIE MOORE, in her capacity as the
 executrix and the party representative of
 the estate of Hal Moore; ELAINE K.
 MOORE; THE 1998 HAROLD M.
 MOORE REVOCABLE TRUST; MARK
 PELUSO; STATE INSULATION, LLC, a
 Nevada limited liability company; STATE
 INSULATION, LLC, an Arizona limited
 liability company,

               Defendants-counter-
               claimants-Appellees.

                     Appeal from the United States District Court
                        for the Southern District of California
                     Cynthia A. Bashant, District Judge, Presiding

                           Argued and Submitted June 5, 2018
                                 Pasadena, California

Before: WARDLAW and PAEZ, Circuit Judges, and CHHABRIA,** District
Judge.

       Elaine K. Moore and others (collectively “the Moores”) appeal the district

court’s judgment and denial of attorney’s fees following a bench trial in this state-

law fraud case. John T. Hardisty cross-appeals the judgment and denial of

attorney’s fees. For the following reasons, we affirm.

       **
                The Honorable Vince Chhabria, United States District Judge for the Northern
District of California, sitting by designation.

                                               2
      1. The district court did not err in basing its fraud finding on three

misrepresentations that contradicted the text of the Purchase and Sale Agreement.

The case on which the Moores rely to assert otherwise, Cobbs v. Cobbs, 53 Cal.

App. 2d 780, 785 (1943), has been overruled by the California Supreme Court.

Riverisland Cold Storage, Inc. v. Fresno-Madera Prod. Credit Ass’n, 55 Cal. 4th
1169, 1180–82 (2013). The other misrepresentation found by the district court was

not clearly erroneous even if, as the Moores assert, they always intended to submit

the costs to HUD for payment as a change order. The district court’s finding was

based on the Moores’ representation that costs not paid by HUD would be

reimbursed by Legacy Pointe rather than through a claim on the bond. The Moores

do not challenge that aspect of the district court’s finding on appeal.

      2. The district court did not err in concluding that Hardisty justifiably relied

on the Moores’ representations for purposes of its fraud in the execution finding.

Hardisty’s failure to read the final draft of the contract, coupled with his reasonable

opportunity to do so, would ordinarily render his reliance unjustifiable. Rosenthal

v. Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 423 (1996). But that rule does not

apply because the district court did not clearly err in finding that Hardisty read an

earlier draft of the contract and that the Moores concealed the fact that they had

edited it. Restatement (Second) of Contracts § 163 cmt. b, illus. 2. Nor is the

                                           3
district court’s finding that Hardisty’s reliance was reasonable otherwise clearly

erroneous. For similar reasons, the district court did not err in awarding fraud

damages. Chapman v. Skype, Inc., 220 Cal. App. 4th 217, 233 n.6 (2013) (noting

that a lower standard of justifiable reliance applies to tort claims than to fraud in

the execution).

      3. The district court did not err in finding that the Incentive Agreement was

valid. Although the Incentive Agreement is titled “Letter of Intent,” Hardisty

testified that he understood it to be a binding, standalone contract and his counsel

argued to the district court that it could be affirmed, at least in part, even if the

Purchase and Sale Agreement were declared void or rescinded. The district court’s

factual finding that the Moores intended to perform in accordance with the

Incentive Agreement when they signed it was not internally inconsistent or

otherwise clearly erroneous. See Miller v. Thane Int’l, 615 F.3d 1095, 1104 (9th

Cir. 2010) (“[W]e are extremely deferential to credibility determinations.”).

Hardisty waived any claim for rescission of the Incentive Agreement based on total

failure of consideration by not raising it below. Smith v. Marsh, 194 F.3d 1045,

1052 (9th Cir. 1999). That HUD’s approval of the transfer was premised on the

void Purchase and Sale Agreement may make the transfer voidable at HUD’s

option, but it does not make it automatically void. Hardisty waived his argument

                                            4
that the Incentive Agreement was never a valid contract based on Hal Moore’s

failure to sign it, because he did not raise it either below or in his opening brief.

Brown v. Rawson-Neal Psychiatric Hosp., 840 F.3d 1146, 1148 (9th Cir. 2016);

Smith, 194 F.3d at 1052. We therefore affirm the district court’s refusal to rescind

the full transaction and its judgment for the Moores on the conversion and

securities fraud claims.1

       4. The district court did not err in finding that there was no confidential

relationship at the relevant time and entering judgment for the Moores on the

constructive fraud claim. The district court properly interpreted Odorizzi v.

Bloomfield Sch. Dist., 246 Cal. App. 2d 123, 129 (1966), to stand for the

proposition that a negotiation “to bring about a termination of [the] relationship” is

generally strong evidence (but not dispositive evidence) that a confidential

relationship has ended. Any continued control over Hardisty’s finances by the

Moores is relevant only to the existence of a fiduciary relationship, not to the

existence of a confidential relationship.2 See Vai v. Bank of Am. Nat’l Tr. & Sav.

Ass’n, 56 Cal. 2d 329, 338 (1961); Hayutin v. Weintraub, 207 Cal. App. 2d 497,

       1
        We need not, and do not, decide whether the district court’s alternative holding that the
LLC interests were not securities was correct.
       2
         Hardisty waived any challenge to the district court’s finding that there was no fiduciary
relationship by not addressing it in his opening brief. Brown, 840 F.3d at 1148.

                                                5
513-14 (1962); Sime v. Malouf, 95 Cal. App. 2d 82, 97 (1949). The district court’s

factual finding that any confidential relationship had deteriorated was not

otherwise clearly erroneous in light of the evidence in the record that the

negotiations over the Incentive Agreement and the Purchase and Sale Agreement

were acrimonious and based on threats rather than trust and confidence.

      5. The Moores waived their challenge to the district court’s reopening of the

case to permit new evidence by failing to explain what prejudice they suffered

from the reopening—that is, what evidence introduced after reopening the district

court relied on to support its judgment. See Fed. R. App. P. 28(a)(8)(A); United

Nurses Ass’ns of Cal. v. Nat’l Labor Relations Bd., 871 F.3d 767, 780 (9th Cir.

2017). Even if we were to reach this issue, we would affirm. On two separate

occasions, the district court explained that it was reopening the case “solely

because . . . I feel like I short circuited both sides with the time crunch” and that its

“only reason for reopening was my concern that I had not given both sides

sufficient time.” The district court properly ensured that it did “not adhere so

                                            6
rigidly to time limits as to sacrifice justice in the name of efficiency.” Navellier v.

Sletten, 262 F.3d 923, 941 (9th Cir. 2001). 3

       6. We need not decide whether the district court properly admitted the

testimony of Hardisty’s expert witness because the Moores concede that the district

court did not rely on that testimony, so there could be no prejudice. See Estate of

Barabin v. AstenJohnson, Inc., 740 F.3d 457, 462 (9th Cir. 2014).

       7. Hardisty’s claims were, in part, “on a contract” because they sought

rescission of the Purchase and Sale Agreement. Super 7 Motel Assocs. v. Wang, 16
Cal. App. 4th 541, 549 (1993); see also Cal. Civ. Code § 1717(a). But Hardisty

also sought consequential damages, which sound in tort rather than contract. Id. at

549–50. The district court should have focused solely on the contract portion of the

claims to determine the prevailing party under § 1717(a). We nevertheless affirm

because “under the correct legal standard it would have been an abuse of

discretion” to find either party to be the prevailing party. United States v. Davis,

       3
          In connection with its decision to reopen, the district court may have misstated the
burden of proof as to damages under California law. But these statements were merely in further
defense of the decision to reopen in response to objections by counsel. The district court twice
stated clearly that it made the decision to alleviate the harm caused by unduly strict time limits.
And even if the district court’s explanation of its rationale for the reopening could be considered
ambiguous, we would resolve that ambiguity in favor of the conclusion that the district court
properly exercised its discretion. In the criminal sentencing context, we have resolved
ambiguities about whether the district court exercised its discretion or instead based a decision
on an erroneous legal conclusion in favor of remand. See United States v. Brown, 985 F.2d 478,
480–81 (9th Cir. 1993). That context is very different from this one, which involves merely the
reopening of the evidence in a civil bench trial.

                                                 7
428 F.3d 802, 808 (9th Cir. 2005). The Moores are not the prevailing party on the

rescission claims because the Purchase and Sale Agreement was declared void

based on the fraud they committed against Hardisty. Hardisty is also not the

prevailing party because he sought rescission of the Purchase and Sale Agreement

solely for the purpose of getting his shares in Legacy Pointe back, which he failed

to do. See Hsu v. Abbara, 9 Cal. 4th 863, 877 (1995) (“[I]n determining litigation

success, courts should respect substance more than form.”). The district court’s

judgment thus was “good news and bad news to each of the parties.” Kytasty v.

Godwin, 102 Cal. App. 3d 762, 774 (1980).

         8. The district court did not abuse its discretion in denying costs to Hardisty.

Considering “the overall action,” this case involved “a mixed judgment.” Amarel v.

Connell, 102 F.3d 1494, 1523 (9th Cir. 1996).

         AFFIRMED. Each party shall bear its own costs on appeal in all three

cases.

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