Court Opinion

ID: 4160550
Source: CourtListenerOpinion
Date Created: 2017-04-14 20:01:25.469771+00
Date Added: 2024-06-11T14:45:41.231220
License: Public Domain

NOT FOR PUBLICATION
                                                                         FILED
                                                                          APR 14 2017
                    UNITED STATES COURT OF APPEALS
                                                                      MOLLY C. DWYER, CLERK
                                                                        U.S. COURT OF APPEALS
                            FOR THE NINTH CIRCUIT

JOHN BOURBEAU,                                   No. 15-55950

              Plaintiff-Appellant,               D.C. No. 2:12-cv-09069-FMO-JCG

 v.
                                                 MEMORANDUM*
COGNITIVE CODE CORPORATION,
a Delaware corporation; et al.,

              Defendants-Appellees.

JOSEPH G. ODISH and CRANBROOK                    No. 15-56086
CAPITAL CONSULTING GROUP, LLC,
a Michigan limited liability company,            D.C. No. 2:12-cv-09069-FMO-JCG

              Plaintiffs-Appellants,

 v.

COGNITIVE CODE CORPORATION,
a Delaware corporation; et al.,

              Defendants-Appellees.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                    Appeal from the United States District Court
                       for the Central District of California
                   Fernando M. Olguin, District Judge, Presiding

                        Argued and Submitted April 7, 2017
                               Pasadena, California

Before: CLIFTON and OWENS, Circuit Judges, and ANTOON,** District Judge.

      Plaintiffs-Appellants John Bourbeau, Joseph G. Odish, and Cranbrook

Capital Consulting Group, LLC appeal the district court’s order granting summary

judgment for Defendants-Appellees Cognitive Code Corporation, Leslie Spring,

Mimi Chen, John Chen, and Sal DiFazio (together, Defendants). Odish and

Cranbrook also appeal numerous interlocutory rulings from the district court. We

have jurisdiction under 28 U.S.C. § 1291, and we reverse in part, affirm in part,

and remand for further proceedings.

      1.     Bourbeau and Odish challenge the district court’s summary judgment

order on four principal grounds: (1) the subject agreements are not voidable on

grounds of undue influence; (2) Defendants’ counterclaims for rescission are

barred under Bourbeau’s affirmative defenses of waiver, ratification, and laches;

(3) Bourbeau’s rights under the subject agreements are severable; and (4)

Bourbeau is entitled to quantum meruit. As we explain below, we reverse the entry

      **
            The Honorable John Antoon II, United States District Judge for the
Middle District of Florida, sitting by designation.
                                          2
of summary judgment against Bourbeau on the issues of ratification and waiver,

but affirm the entry of summary judgment for Defendants as to all other issues and

parties. We remand for further proceedings to determine whether Defendants either

ratified the subject agreements as to Bourbeau or waived their right to rescind the

subject agreements as to Bourbeau.

             A.     Voidability. The district court did not err by granting summary

judgment for Defendants on the issue of whether the subject agreements are

voidable on grounds of undue influence. The district court correctly applied

California law to determine the enforceability of the subject agreements, and the

undisputed facts establish that Odish violated California Rule of Professional

Conduct 3-300 by serving as the company’s attorney while entering into the

subject agreements, and that Odish failed to rebut the presumption of undue

influence under California Probate Code § 16004 by showing that the subject

agreements met the requirements for both substantive and procedural fairness.

             B.     Waiver. Under California Civil Code § 1691, the party seeking

to rescind a contract must, among other things, provide prompt notice of rescission.

Under California’s discovery rule, the time for providing notice of rescission runs

from the time of inquiry notice: that is, when “the plaintiff either discovers or has

reason to discover the existence of a claim, i.e., at least has reason to suspect a

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factual basis for its elements.” Platt Elec. Supply, Inc. v. EOFF Elec., Inc., 522

F.3d 1049, 1054 (9th Cir. 2008) (internal quotation marks and citation omitted);

see also DM Residential Fund II, LLC v. First Tenn. Bank, Nat’l Ass’n, 813 F.3d

876, 877-78 (9th Cir. 2015). California courts have interpreted section 1691’s

promptness requirement strictly. See Campbell v. Title Guarantee & Trust Co., 9

P.2d 264, 265 (Cal. Ct. App. 1932); see also Diversified Paratransit, Inc. v.

Checkmate Staffing, Inc. (In re Checkmate Staffing, Inc.), 359 Fed. App’x 736, 739

(9th Cir. 2009) (collecting cases). Failure to provide prompt notice of rescission

under section 1691 may result in implied waiver of the right to rescind. Witkin, 1

Summary of California Law, Contracts § 939 (10th ed.).

      In opposition to summary judgment, Bourbeau presented sufficient evidence

to raise a genuine dispute of material fact regarding Defendants’ notice of their

right to rescind. This evidence included deposition testimony from Leslie Spring

stating that in June 2011, eighteen months before Defendants filed their

counterclaims for rescission, he began investigating the validity of the subject

agreements and determined that the agreements were possibly invalid under

California law, as well as deposition testimony from Mimi Chen stating that after

discussing the validity of the agreements with Spring, she then consulted with two

of the company’s business advisors, who also suggested that there was a conflict.

                                           4
Given California’s strict notice requirements, Defendants’ purported eighteen-

month delay in seeking rescission is sufficient to create a genuine dispute of

material fact regarding waiver. The district court therefore erred by granting

summary judgment for Defendants on the issue of waiver.

                C.   Ratification. As with waiver, to establish the affirmative

defense of ratification, the party asserting ratification must show, among other

things, that the rescinding party had notice of the grounds for rescission. Union

Pac. R. Co. v. Zimmer, 197 P.2d 363, 368 (Cal. Ct. App. 1948). As discussed

above, Bourbeau presented sufficient evidence to create a genuine dispute of

material fact regarding Defendants’ notice of their right to rescind. The district

court therefore erred by granting summary judgment for Defendants on the issue of

ratification.

                D.   Laches. Unlike with ratification and waiver, the district court

did not err in granting summary judgment for Defendants on the issue of laches. As

the district court correctly held, under California law, Defendants’ affirmative

defense of undue influence is not barred by laches. See Styne v. Stevens, 26 P.3d

343, 350 (Cal. 2001); 2 Cal. Affirmative Defenses § 46:1 (2d ed.) (undue

influence).

                                           5
             E.     Severance. The district court did not err by granting summary

judgment for Defendants on the issue of severance. As the district court correctly

held, under California law, Bourbeau’s rights under the subject agreements were

not severable because the agreements were the direct product of Odish’s undue

influence, and by their terms expressly contemplated the performance of both

Odish and Bourbeau. See BGJ Assocs., LLC v. Wilson, 7 Cal. Rptr. 3d 140, 146-51

(Ct. App. 2003).

             F.     Quantum meruit. The district court did not err by rejecting

Bourbeau’s request for quantum meruit as procedurally improper. See Trishan Air,

Inc. v. Fed. Ins. Co., 635 F.3d 422, 435 & n.19 (9th Cir. 2011). On remand,

however, the district court may consider whether Bourbeau may seek leave to

amend his pleadings under Federal Rule of Civil Procedure 15 to allege a claim for

quantum meruit.

      2.     In addition to the district court’s summary judgment order, Odish also

appeals approximately forty interlocutory rulings from the district court, including

the district court’s rulings regarding Rule 11 sanctions, terminating sanctions, a

motion to disqualify former counsel, and a motion to recuse the district court. We

reject these arguments on appeal because they either are unmeritorious; waived,

                                          6
Indep. Towers of Wash. v. Washington, 350 F.3d 925, 929 (9th Cir. 2003); or fail

to establish prejudicial error, Obrey v. Johnson, 400 F.3d 691, 699 (9th Cir. 2005).1

      3.     We lack jurisdiction over any appeal brought on behalf of Cranbrook

because Cranbrook has not retained counsel for this appeal. See D-Beam Ltd.

P’ship v. Roller Derby Skates, Inc., 366 F.3d 972, 973-74 (9th Cir. 2004).

      Costs are to be taxed against Odish and Cranbrook in favor of Defendants.

As between Bourbeau and Defendants, costs are to be borne by the parties.

      AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

      1
              In affirming the district court’s judgment against Odish, we did not
rely on either the allegations in Odish’s motion for an extension or the materials
that are the subject of Defendants’ request for judicial notice. Accordingly, we
deny as moot Defendants’ motion to strike and their request for judicial notice.
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