Joseph Bourbeau v. Cognitive Code Corp.

NOT FOR PUBLICATION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.
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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.
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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).
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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,
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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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