Court Opinion

ID: 3029218
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:42:26.783311+00
Date Added: 2024-06-11T09:28:49.944602
License: Public Domain

FILED
                           NOT FOR PUBLICATION                                NOV 16 2009

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

                           FOR THE NINTH CIRCUIT

In the Matter of: CHECKMATE                      No. 08-60009
STAFFING, INC.,
                                                 BAP No. CC-07-1300-PaDMo
             Debtor,

                                                 MEMORANDUM *

DIVERSIFIED PARATRANSIT, INC.,

             Appellant,

  v.

CHECKMATE STAFFING, INC.,

             Appellee.

                        Appeal from the Ninth Circuit
                         Bankruptcy Appellate Panel
            Pappas, Montali, and Dunn, Bankruptcy Judges, Presiding

                       Argued and Submitted October 9, 2009
                               Pasadena, California

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before: HALL and TALLMAN, Circuit Judges, and LAWSON, ** District Judge.

      Diversified Paratransit, Inc., (“DPI”) timely appeals from a decision of the

Ninth Circuit Bankruptcy Appellate Panel (“BAP”) affirming the judgment of the

bankruptcy court after trial of an adversary proceeding prosecuted by appellee

Checkmate Staffing, Inc. (“Checkmate”), a Chapter 11 debtor. In the adversary

proceeding, Checkmate obtained a money judgment of $467,500, which was the

full amount due on open invoices for staff leasing services Checkmate performed

for DPI pursuant to a written Service Agreement between the filing of the

bankruptcy petition on December 29, 2003, and the expiration of the Service

Agreement in April 2004.

      DPI and its subsidiaries, Paul’s Yellow Cab, Inc. and Inland Express, Inc.,

provide bus and taxi services to the public. DPI contends that the bankruptcy court

abused its discretion by refusing to allow it to proceed under equitable theories of

restitution or unjust enrichment to establish a claim for recoupment of amounts

DPI paid to Checkmate pursuant to the Service Agreement to purchase workers’

compensation and employer liability insurance policies covering the “employees”

of Checkmate who were “leased back” to DPI—insurance Checkmate admits it did

       **
             The Honorable David M. Lawson, United States District Judge for the
Eastern District of Michigan, sitting by designation.

                                         -2-
not purchase during the fourteen-month period from October 11, 2002, through

December 19, 2003. The parties stipulated that the total amount DPI paid to

Checkmate to obtain insurance for that period exceeded the $467,500 DPI admitted

was due and owing for post-petition services Checkmate performed for DPI.

      Checkmate counters that the bankruptcy court properly held DPI to its

burden of proving actual damages for Checkmate’s breach of contract and the

inadequacy of its remedy at law, before it would consider equitable forms of relief.

Checkmate further contends that judgment in its favor for the full $467,500 was

properly entered, without offset, because DPI failed to carry its burden of proof as

to both of those issues. Checkmate contends, in the alternative, that restitution was

not an appropriate remedy in the circumstances of this case because DPI continued

to accept services from Checkmate for almost four months after the filing of the

bankruptcy petition without ever asserting a right to rescission of the Service

Agreement, even though it had learned of Checkmate’s failure to obtain

appropriate insurance as much as four months before the petition was filed.

      In an appeal from the BAP, we independently review the bankruptcy court’s

decision, reviewing any conclusions of law de novo, while reviewing findings of

fact for clear error. In re Reynoso, 477 F.3d 1117, 1120 (9th Cir. 2007). The

bankruptcy court’s choice of remedies is reviewed for an abuse of discretion. See

                                         -3-
In re Lopez, 345 F.3d 701, 705 (9th Cir. 2003). This general standard of review is

consistent with California law governing contract claims: “The selection of which

measure of damages to apply is within the sound discretion of the trier of fact.”

GHK Assocs. v. Mayer Group, Inc., 224 Cal. App. 3d 856, 874 (1990). We have

jurisdiction pursuant to 28 U.S.C. § 158(d), and we affirm.

      Contrary to DPI’s argument, the bankruptcy court did not foreclose equitable

theories of relief, but only required DPI first to establish: (1) its actual damages

under California Civil Code section 3300 (hereafter, “section 3300”) for

Checkmate’s breach of contract;1 and (2) the inadequacy of its remedy at law. As

the BAP noted, there are no exceptions to section 3300 elsewhere in the California

Codes establishing a different measure of damages for breach of a contract by a

private party to obtain insurance for another party, and both the bankruptcy court

and the BAP relied on a substantial body of California case law establishing the

general rule that one who fails to procure insurance as requested will be liable for

      1
          Section 3300 provides, in full:

      For the breach of an obligation arising from contract, the measure of
      damages, except where otherwise expressly provided by this code, is
      the amount which will compensate the party aggrieved for all the
      detriment proximately caused thereby, or which, in the ordinary
      course of things, would be likely to result therefrom.

                                            -4-
any resulting damage. Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins.

Assocs., Inc., 115 Cal. App. 4th 1145, 1153 (2004); Saunders v. Cariss, 224
Cal. App. 3d 905, 909 ( 1990); see also Davidson v. Welch, 270 Cal. App. 2d 220,

236-37 (1969) (damages for a failure to procure insurance required by a contract

are measured by the expenses incurred by the party for whom insurance was to be

provided in defending or settling a claim that would have been covered by that

insurance).2 The bankruptcy court did not abuse its discretion in selecting the

measure of damages to be applied in fashioning a remedy for Checkmate’s

admitted breach of contract. See GHK Assocs., 224 Cal. App. 3d at 873-74.

      Nor did the bankruptcy court err in finding that DPI failed to carry its burden

of proof as to both the amount of damages and the adequacy of its remedy at law.

DPI had fifteen months to prepare for trial in light of the bankruptcy court’s

December 2005 ruling that it would apply the “actual damages” measure of

      2
        Both the California Civil and Insurance Codes have provisions dealing
with the failure of an insurer to provide coverage under an insurance policy, but
these special provisions apply only to insurance companies, and not to entities that
contractually undertake to obtain insurance coverage from insurance companies for
the benefit of other parties. Delta Mfg. Co. v. Jones, 69 Cal. App. 3d 428, 432-33
(1977) (the liability of a party who breaches a contract to procure insurance is to
pay damages, and is not that of an insurer). Thus, DPI’s reliance on Albillo v.
Intermodal Container Services, Inc., 114 Cal. App. 4th 190 (2003), and Rattan v.
United Services Automobile Ass’n, 84 Cal. App. 4th 715 (2000), both of which deal
with the special responsibilities of insurers, is misplaced.

                                         -5-
damages under section 3300 at the second stage of the bifurcated trial in March

2007. DPI simply failed to produce competent, admissible evidence to prove any

amount of actual damages proximately caused by Checkmate’s breach of contract,

clinging to its belief that it would be “impossible” to prove actual damages with

“reasonable certainty,” and that the only appropriate remedy would be restitution of

the amounts it paid Checkmate to purchase appropriate insurance policies.

      The bankruptcy court carefully reviewed all of the evidence DPI presented at

trial3 and prepared detailed findings of fact, conclusions of law, and a well-

reasoned written decision rejecting DPI’s claim for recoupment. The bankruptcy

court specifically held that DPI failed to carry its burdens of proof as to actual

damages and the inadequacy of its remedy at law. The BAP carefully considered

each of DPI’s claims of error, including those DPI raises in this appeal. We find

no abuse of discretion or other reversible error in the decisions of the bankruptcy

court or the BAP as to these issues.

      In addition, the BAP considered and accepted Checkmate’s alternative

argument that restitution was not, and could not have been, an appropriate remedy

      3
        The bankruptcy court excluded significant portions of DPI’s evidence,
finding much of it to be lacking in foundation, irrelevant, inadmissible hearsay, and
improper expert testimony. In this appeal, DPI does not challenge any of the
bankruptcy court’s rulings on the admissibility of evidence it presented at trial.

                                          -6-
on the facts of this case. The aggrieved party in an action for breach of contract

under California law may elect restitution as a remedy for breach of contract in

some circumstances, but only when it follows rescission of the contract. See

Oliver v. Campbell, 43 Cal. 2d 298, 302 (1954). Moreover, a party seeking

rescission must invoke that remedy “promptly” upon discovering grounds

justifying rescission. See Cal. Civ. Code § 1691. California courts have

interpreted this “promptness” requirement strictly, demanding action by the

aggrieved party within a month of discovery of the breach unless an adequate

explanation for delay is provided. Campbell v. Title Guar. & Trust Co., 121
Cal. App. 374, 377 (1932); Gedstad v. Ellichman, 124 Cal. App. 2d 831, 834 (1954).

      In this case, DPI admits it became aware of Checkmate’s failure to procure

insurance sometime prior to December 29, 2003,4 and probably no later than

August 2003, when one of DPI’s subsidiaries was denied access to the Los Angeles

and Ontario Airports because its drivers did not have appropriate workers’

compensation coverage. In spite of this knowledge, DPI continued to accept

Checkmate’s performance under the Service Agreement for over eight months,

four of which were post-petition. Indeed, DPI never notified Checkmate that it

      4
        It is also undisputed that Checkmate obtained the insurance required by
the Service Agreement in early December 2003, before it filed for bankruptcy.

                                         -7-
intended to rescind the Service Agreement; it simply continued to accept

Checkmate’s services, allowed the contract to expire in April 2004, and replaced

Checkmate with another service company. Under these facts, the remedy of

restitution was not available to DPI pursuant to an election of remedies because the

Service Agreement was never rescinded, promptly or otherwise.

      AFFIRMED.

                                        -8-