Court Opinion

ID: 3201805
Source: CourtListenerOpinion
Date Created: 2016-05-09 20:01:10.186863+00
Date Added: 2024-06-11T14:28:15.944328
License: Public Domain

NOT FOR PUBLICATION

                    UNITED STATES COURT OF APPEALS
                                                                           FILED
                            FOR THE NINTH CIRCUIT
                                                                           MAY 09 2016
                                                                        MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS
GINA BURKHEAD, et al.,                           No. 13-16644

              Plaintiffs - Appellants,           D.C. No. 2:10-cv-01687-SRB

v.
                                                 MEMORANDUM*
STEWART TITLE GUARANTY
COMPANY, et al.,

             Defendants - Appellees.

GINA BURKHEAD, et al.,                           No. 14-15130

              Plaintiffs - Appellants,           D.C. No. 2:10-cv-01687-SRB

v.

STEWART TITLE GUARANTY
COMPANY, et al.,

             Defendants - Appellees.

                    Appeal from the United States District Court
                             for the District of Arizona
                     Susan R. Bolton, District Judge, Presiding

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                    Argued and Submitted November 16, 2015
                            San Francisco, California

Before: McKEOWN, RAWLINSON, and DAVIS,** Circuit Judges.

       Appellants contracted with Khelo International Developers S. de R.L. de

C.V. (“Khelo”) to buy condominiums in a luxury development slated for

construction in Mexico. Due to a land dispute, the condominiums were never

constructed, and Appellants were never refunded the money they had invested in

the project. Appellants sued Appellees, the individual owners of Khelo, asserting

claims for breach of contract and a violation of the Interstate Land Sales Full

Disclosure Act (“ILSA”), as well as other statutory and tort claims. The district

court granted summary judgment in favor of Appellees and, in a separate order,

awarded Appellees attorneys’ fees. Appellants appealed both orders, which have

been consolidated for our review. For the reasons stated below, we affirm the

judgments of the district court.

      1. Appellants appeal (1) the grant of summary judgment, (2) the denial of

Appellants’ motion to strike Appellee’s late-filed answer to the second amended

complaint, (3) the denial of Appellants’ motion for sanctions, and (4) the award of

attorneys’ fees to Appellees. We review de novo the district court’s decisions

       **    The Honorable Andre M. Davis, Senior Circuit Judge for the United
States Court of Appeals for the Fourth Circuit, sitting by designation.

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regarding summary judgment and motions for sanctions. Szajer v. City of Los

Angeles, 632 F.3d 607, 610 (9th Cir. 2011) (citations omitted) (summary

judgment); Goodman v. Staples The Office Superstore, LLC, 644 F.3d 817, 822

(9th Cir. 2011) (citation omitted) (sanctions). We review the denial of a motion to

strike and the award of attorneys’ fees for abuse of discretion. United States v.

$133,420.00 in U.S. Currency, 672 F.3d 629, 637 (9th Cir. 2012) (motion to

strike); Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 883 (9th Cir. 2000)

(attorneys’ fees).

      2. In granting Appellees’ motion for summary judgment, the district court

concluded that (1) Appellees could not be sued individually for breach of contract

by piercing the corporate veil, and (2) the ILSA claim failed because the contracts

to purchase the condominiums were subject to the ILSA’s two-year exemption

under 15 U.S.C. § 1702(a)(2). On appeal, Appellants argue that the several

grounds they asserted at the district court to pierce the corporate veil, when viewed

as a whole, are sufficient to survive summary judgment.

      Appellants’ grounds, however, are either legally deficient or unsupported by

the record and are thus insufficient—when viewed individually or holistically—to

pierce the corporate veil. For example, undercapitalization is determined at the

time of incorporation and “cannot be proved merely by showing that the

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corporation is now insolvent.” Ize Nantan Bagowa, Ltd. v. Scalia, 577 P.2d 725,

729 (Ariz. Ct. App. 1978). The record contains no evidence that Khelo was

undercapitalized at the time it was incorporated. Similarly, “the mere fact that it is

a one-man corporation does not mean the corporation is the alter ego of that one

man.” Id. at 728. Finally, the contracts make clear that Appellants entered into

agreements with Khelo, not with Appellees in their individual capacities.

      Appellants also argue that the ILSA’s two-year exemption does not apply

because the contracts did not obligate Appellees to deliver the condominiums

within two years. We disagree. Because the contracts provided that the

condominiums would be completed within two years, they imposed a legal duty on

Appellees to complete construction within that time period. See Flores v. Am.

Seafoods Co., 335 F.3d 904, 910 (9th Cir. 2003) (citing Klamath Water Users

Protective Ass’n v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 1999)). Nothing in

the contracts negated the possibility of specific performance as a remedy, which is

generally available under Arizona law. See Woliansky v. Miller, 661 P.2d 1145,

1147 (Ariz. Ct. App. 1983). And, contrary to Appellants’ contentions, the force

majeure clause in the contracts did not render the completion date illusory because

the clause could not have been invoked at will. See Flores, 335 F.3d at 912–13.

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      3. The district court did not err in denying Appellants’ motion to strike

Appellee’s late-filed answer. Appellants were not prejudiced by the late filing

because Appellees asserted the ILSA’s two-year exemption in a joint filing two

months before Appellants filed the second amended complaint and a year before

Appellants moved for partial summary judgment. Furthermore, § 1702(a)(2) is a

statutory exemption to the conduct normally deemed impermissible under the

ILSA; it is not a waivable defense.

      4. The district court did not err in denying Appellants’ motion for sanctions.

When a party is accused of destroying evidence, sanctions are appropriate if the

party “has some notice that the documents were potentially relevant to the

litigation before they were destroyed.” Leon v. IDX Sys. Corp., 464 F.3d 951, 959

(9th Cir. 2006) (emphasis omitted) (citation and internal quotation marks omitted).

The record does not demonstrate that Appellees had such notice when they allowed

a friend of Appellee Elvia Karina Gallardo-Montoya (“Gallardo”) to take

Gallardo’s personal computer. Nothing in the record indicates that Gallardo or any

other Khelo officer used the computer for corporate business. Gallardo also

repeatedly denied having any knowledge of Khelo business affairs and testified

that she did not believe that the computer contained any information about the

condominium development.

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         5. The district court did not err in awarding attorneys’ fees to Appellees

under Ariz. Rev. Stat. Ann. § 12-341.01. The statutory and tort claims arose out of

contract because they were interwoven with the breach of contract claim, see

Bennett v. Baxter Grp., Inc., 224 P.3d 230, 236 (Ariz. Ct. App. 2010), and the

factors announced in Associated Indemnity Corp. v. Warner, 694 P.2d 1181, 1184

(Ariz. 1985) (in banc), weigh in favor of awarding fees. The district court also did

not abuse its discretion in holding Appellant Merrill Niles jointly and severally

liable for attorneys’ fees, given that Niles never sought dismissal from the district

court.

         6. Appellants’ motion to amend their briefs to include a request for

attorneys’ fees and costs incurred on appeal is denied as moot.

         AFFIRMED.

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