Court Opinion

ID: 1035585
Source: CourtListenerOpinion
Date Created: 2013-07-30 00:01:36.090961+00
Date Added: 2024-06-11T15:27:47.226635
License: Public Domain

FILED
                             NOT FOR PUBLICATION                               JUL 29 2013

                                                                          MOLLY C. DWYER, CLERK
                      UNITED STATES COURT OF APPEALS                        U.S. COURT OF APPEALS

                             FOR THE NINTH CIRCUIT

FLAGSHIP WEST LLC, a California                  No. 11-17528, 11-17674
limited liability company; et al.,
                                                 D.C. Nos. 1:02 cv-5200-LJO
                Plaintiffs - Appellees and
                Cross-Appellants,
                                                 MEMORANDUM*
  v.

EXCEL REALTY PARTNERS LP and
NEW PLAN EXCEL REALTY TRUST, a
Maryland corporation,

                Defendants - Appellants and
                Cross-Appellees.

                     Appeals from the United States District Court
                         for the Eastern District of California
                  Oliver W. Wanger, Senior District Judge, Presiding

                         Argued and Submitted June 13, 2013
                              San Francisco, California

Before:       TASHIMA and BYBEE, Circuit Judges, and WOOD, District Judge.**

       This is the second time that this case has come before this Court on appeal.

In the previous appeal, this Court remanded for the district court to determine

          *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
whether or not the commercial lease between the parties (the “Lease”) barred

rescission. Flagship W., LLC v. Excel Realtly Partners LP, 337 F. App’x 679 (9th

Cir. 2009). The district court held that it did not and, after a trial, entered judgment

for Plaintiff Flagship West LLC (“Plaintiff”). Defendants Excel Realty Partners

LP and New Plan Excel Realty Trust (“Defendants”) appeal from the district

court’s determination that the Lease does not bar rescission, and from the amount

of the judgment. Plaintiff cross-appeals from the amount of the judgment. The

district court exercised diversity jurisdiction pursuant to 28 U.S.C. § 1332 in this

case governed by California law. We have jurisdiction under 28 U.S.C. § 1291.

Because the facts are known to the parties, we do not recite them here, except as

necessary to explain our decision. We affirm in part, reverse in part, and remand.

I.    Defendants’ Appeal

      1.     Defendants contend that the district court erred in its determination

that the Lease as a whole did not bar rescission. We review the district court’s

interpretation of the Lease de novo. Conrad v. Ace Prop. & Cas. Ins. Co., 532
F.3d 1000, 1004 (9th Cir. 2008). Under California law, any waiver of contract

remedies must be clear and unambiguous. See Fosson v. Palace (Waterland), Ltd.,

78 F.3d 1448, 1455 (9th Cir. 1996) (construing California law). Plaintiff had the

right unilaterally to rescind the Lease in this case under California law, due to a

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failure of consideration, see Cal. Civ. Code § 1689(b)(2); see also Medico-Dental

Bldg. Co. v. Horton & Converse, 132 P.2d 457, 470 (Cal. 1942), and none of the

language on which Defendants rely constitutes a “clear and unambiguous” waiver

of that right. See Fosson, 78 F.3d at 1455. The district court did not err in holding

that the Lease does not bar rescission.

      2.     Defendants contend that the district court violated its Seventh

Amendment right to a jury trial when it awarded “consequential damages” in

rescission under California Civil Code § 1692, because that part of the award

constituted legal, rather than equitable, relief. Rescission in California fuses

aspects of common law legal and equitable actions. See Runyan v. Pac. Air Indus.,

466 P.2d 682, 688-89 (Cal. 1970). We must, therefore, consider the “nature” of the

relief at issue. See Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494
U.S. 558, 564-65 (1990). The name given the relief is not determinative, see id. at

571-72; nor is the fact that money was awarded, see id. at 570-71. We note that the

relief awarded under § 1692 went beyond that which would have been available in

a common law rescission; “consequential damages, given in conjunction with

restitution,” would have been available only “in actions in equity.” See Runyan,
466 P.2d at 690. These “consequential damages” were intertwined with the

restitutionary goal of “put[ting] the rescinding party in the [s]tatus quo ante.” Id.

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at n.15. We also note the broad discretion afforded the trial court under § 1692 to

“adjust the equities between the parties” as “justice may require.” Cal. Civ. Code §

1692. This broad discretion to “bring about substantial justice,” Runyan, 466 P.2d

at 691, convinces us that the relief at issue in this case was equitable, not legal, see

Lutz v. Glendale Union High Sch., Dist. No. 205, 403 F.3d 1061, 1068 n.7 (9th Cir.

2005). Accordingly, Defendants had no right to have the amount of rescissory

damages tried by a jury under the Seventh Amendment. See Traxler v. Multnomah

Cnty., 596 F.3d 1007, 1011-14 (9th Cir. 2010). Thus, there was no error in this

regard.

      3.     Defendants argue that the district court erred in awarding Plaintiff’s

costs in improving the leased premises instead of the fair market value of those

improvements. California law gives a trial court broad discretion to “adjust the

equities between the parties” when awarding damages in rescission, Cal. Civ. Code

§ 1692, and our function on appeal is limited to determining “whether the trial

court, presumably responsive to the mandate that the aggrieved party be awarded

complete relief, acted reasonably and equitably.” See Runyan, 466 P.2d at 692.

Here, the trial court found that it would be more equitable to award costs instead of

value, and it was within its discretion to do so. See Lobdell v. Miller, 250 P.2d
357, 367 (Cal. Ct. App. 1952).

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       4.     Defendants next argue that the district court’s finding as to the amount

of Plaintiff’s construction costs was clear error. The district court based this

finding on invoices in evidence, and the testimony that Plaintiff had paid all of its

bills that were actually due. We conclude that the district court’s finding of fact on

this issue was not clearly erroneous. See Simeonoff v. Hiner, 249 F.3d 883, 893

(9th Cir. 2001).

       5.     Defendants next contend that the district court erred in its

determination of the amount of a rental offset. While it is generally true under

California law that rental offsets are appropriate in rescission, see Runyan, 466
P.2d at 690, “the amount to be credited to the guilty [non-rescinding party] is not,

strictly speaking, rental . . . ; it is only to the extent that the [rescinding party] has

profited by the undertaking that he is required in good conscience to restore to the

[non-rescinding party].” Pendell v. Warren, 281 P. 658, 659 (Cal. Ct. App. 1929)

(internal quotation marks omitted). The district court was not required to award an

offset in the amount of the rental value of the property as improved. See Utemark

v. Samuel, 257 P.2d 656, 660 (Cal. Ct. App. 1953). It awarded an amount that it

found to be equitable, and we cannot say that decision was unreasonable or

inequitable. See Runyan, 466 P.2d at 692.

                                            -5-
      6.     Finally, Defendants argue that the district court erred in awarding

prejudgment interest on that part of the award for interest payments made by

Plaintiff to its lender. Awards of prejudgment interest are governed by state law.

In re Exxon Valdez, 484 F.3d 1098, 1101 (9th Cir. 2007). In California, “[e]very

person who is entitled to recover damages certain, or capable of being made certain

by calculation, and the right to recover which is vested in him upon a particular

day, is entitled also to recover interest thereon from that day.” Cal. Civ. Code §

3287(a). In the instant case, the central issue was the existence of liability, rather

than its extent, see Fireman’s Fund Ins. Co. v. Allstate Ins. Co., 286 Cal. Rptr. 146,

158-59 (Ct. App. 1991), and the district court found the final amount of interest

that Plaintiff paid its lender simply by examining Plaintiff’s profit and loss

statements. As such, the amount was “certain, or capable of being made certain”

for purposes of § 3287(a), and the district court properly awarded prejudgment

interest on this amount.1

II.   Plaintiff’s Appeal

      1
              Defendants argue that even if prejudgment interest was properly
awarded, it should run only from the time that Plaintiff amended its complaint to
allege rescission against the correct party. But Defendants had notice of rescission
from the filing of the original complaint for purposes of California Civil Code
§ 1691, and the district court did not err in relating the filing of the amended
complaint back to the filing of the original complaint pursuant to Federal Rule of
Civil Procedure 15(c).

                                          -6-
      1.     Plaintiff argues that Defendants were not entitled to any rental offset

whatsoever. As discussed in Part I.5, supra, the general rule in California is that

some offset is appropriate. See Runyan, 466 P.2d at 690. Case law establishes that

the trial court has broad discretion to craft an equitable award in rescission. See id.

at 691-92; see also Utemark, 257 P.2d at 660. Indeed, the statute itself provides

that “the court may require the party to whom [rescission] is granted to make any

compensation to the other which justice may require and may otherwise in its

judgment adjust the equities between the parties.” Cal. Civ. Code § 1692. None of

the cases on which Plaintiff relies establishes that the district court abused its

discretion by awarding an offset in the instant case. We, therefore, uphold its

exercise of discretion in this regard.

      2.     Plaintiff contends that the district court erred in refusing to award

prejudgment interest on its costs other than interest payments to its lender (i.e.,

construction costs, restaurant equipment, permits and fees, opening inventory

costs, franchise fee, and costs of training). As discussed in Part I.6, supra,

prejudgment interest should be awarded where damages are “certain, or capable of

being made certain by calculation.” Cal. Civ. Code § 3287. Indeed,

“[p]rejudgment interest must be granted as a matter of right if, as a matter of law,

damages are certain” for purposes of the statute. Levy-Zentner Co. v. S. Pac.

                                          -7-
Transp. Co., 142 Cal. Rptr. 1, 25 (Ct. App. 1977). The district court did not

explain why it was unable to find with certainty the amount of damages for those

categories for which it denied prejudgment interest, and it appears from the record

that these amounts were indeed readily ascertainable from the evidence. See

Coleman Eng’g Co. v. N. Am. Aviation, Inc., 420 P.2d 713, 722 (Cal. 1966). The

district court erred when it declined to award prejudgment interest for these other

categories of damages. See Levy-Zentner, 142 Cal. Rptr. at 25.

      3.     Plaintiff argues that the district court erred in refusing to award further

relief. It first contends that the district court erred when it refused to award

damages for interest that accrued, but was never paid, between the date that

Plaintiff first defaulted on its loan and the date of the verdict. As we have noted,

California law affords the trial judge discretion in awarding equitable relief in

rescission, see Cal. Civ. Code § 1692; see also Runyan, 466 P.2d at 691-92, but it

also provides that “such relief shall not include duplicate or inconsistent items of

recovery.” Cal. Civ. Code § 1692. Contrary to Plaintiff’s assertions, the district

court parsed the record evidence carefully and noted that the amount that Plaintiff

sought to recover in “accrued unpaid interest” likely encompassed at least some

money that it had already awarded as “interest paid.” Because a duplicate award

                                          -8-
would have run afoul of California law, Cal. Civ. Code § 1692, the district court

properly refused to award relief for Plaintiff’s accrued but unpaid interest.

      Plaintiff also contends that the district court should have awarded more than

it did in the category of interest that Plaintiff did pay its lender. This question boils

down to an analysis of the evidence in the record. The district court explained why

it interpreted the evidence and found the facts as it did, and we conclude that there

was no clear error in its determination of the amount of paid interest to which

Plaintiff was entitled. See Simeonoff, 249 F.3d at 893.

      Finally, Plaintiff argues that it was entitled to recover additional damages for

“out-of-pocket expenses.” The district court found that it would be inequitable to

award these damages in rescission, because they were not caused by Defendants

but were rather a normal part of running a restaurant. The district court was within

its discretion to adjust the equities in this way, see Runyan, 466 P.2d at 692, and

we will not disturb its decision.

                                    CONCLUSION

      For the foregoing reasons:

      In No. 11-17528, the rulings of the district court are AFFIRMED.

      In No. 11-17674, the rulings of the district court are AFFIRMED, except

for its failure to award prejudgment interest to Plaintiff on its construction costs,

                                           -9-
restaurant equipment, permits and fees, opening inventory costs, franchise fee, and

costs of training. As to that matter, the judgment of the district court is

REVERSED and the case is REMANDED for further proceedings consistent with

this disposition.

      Each party shall bear its own costs on appeal.

      AFFIRMED in part, REVERSED and REMANDED in part.

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