William A. Leonard, Jr. v. Oxbow Investment Holdings, LLC

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS FEB 1 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: ASSET RESOLUTION, LLC, No. 17-16799
Debtor, D.C. Nos. 09-32824-rcj
______________________________ 16-01064-rcj
WILLIAM A. LEONARD, Jr., Chapter 7
Trustee, MEMORANDUM*
Plaintiff-Appellee,
v.
OXBOW INVESTMENT HOLDINGS,
LLC, a California limited liability company,
Defendant-Appellant.
Appeal from the United States Bankruptcy Court
for the District of Nevada
Robert Clive Jones, District Judge, Presiding
Argued and Submitted December 19, 2018
San Francisco, California
Before: BOGGS,** PAEZ, and OWENS, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Danny J. Boggs, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
Appellant Oxbow Investment Holdings (“Oxbow”) appeals from a judgment
of the United States District Court for the District of Nevada that granted specific
performance of a contract for the sale of a bankruptcy-estate asset—a 27-acre piece
of land in San Bernardino County, California (“the Property”).
In 2015, Appellee William Leonard (“Leonard”), the bankruptcy trustee,
entered into a contract to sell the Property to Oxbow for $825,000. The parties’
attorneys negotiated and memorialized the contract on a form document with an
Addendum substituting certain terms, particularly “Acceptance.”
Acceptance means the time the offer or final counter offer
is accepted in writing by a Party, subject only to any
agreed upon contingencies, including but not limited to the
requirement of a court order authorizing the sale of the
Property and the completion of any required overbid or
auction process, and such acceptance is delivered to and
personally received by the other Party or the Party’s
authorized agent in accordance with the terms of this offer
or a final counter offer.
Upon Acceptance, Leonard had five days to provide a preliminary title report
and make certain disclosures to Oxbow. The dispute over the contract revolves
around Paragraph 13.A.(1), which states:
A. Within the time specified in paragraph 19 [5 days], if
Seller has actual knowledge, Seller shall provide to
Buyer, in writing, the following information:
(1) LEGAL PROCEEDINGS: Any lawsuits by or
against Seller, threatening or affecting the Property,
including any lawsuits alleging a defect or
deficiency in the Property or common areas, or any
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known notices of abatement or citations filed or
issued against the Property.
Within fifteen days of acceptance, Oxbow had to complete any investigations,
review the disclosures, and accept the condition of the property. The contract
identified the above items as the primary contingencies to sale, as well as court
approval and completion of any required overbid. At the end of the fifteen-day
period, Oxbow was required to either remove the applicable contingencies or cancel
the agreement. The contract stated that, by removing the contingencies, Oxbow had
elected to proceed with the transaction.
Oxbow and Leonard signed the contract on June 23, 2015. Fifteen days later,
Jonathan Dabbieri, Leonard’s counsel, contacted Oxbow to clarify that the fifteen-
day period was about to expire and inquired whether Oxbow wished to proceed with
the transaction on a non-contingent basis. After some back-and-forth about
Oxbow’s deposit, Oxbow’s principal, Eric Cernich, sent Dabbieri e-mails on July 17
and 23 stating that the transaction was noncontingent. The district court entered an
order approving the sale on August 3, 2015.
Shortly before the parties were to close escrow in August 2015, Cernich sent
an e-mail requesting an additional sixty days to address issues he had recently
discovered in soil and geotechnical reports on the Property. Cernich explained that
he would not close without additional time and attempted to cancel the contract,
although he said he would rescind the cancellation if he received more time.
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Dabbieri responded and notified Cernich that, because Oxbow had removed
all contingencies, failure to close would breach the contract. Dabbieri reminded
Cernich that “as you will recall” San Bernardino County had filed a Motion for
Relief from the automatic bankruptcy stay so the County could proceed with a tax
foreclosure sale of the Property because the property taxes were in arrears. He also
explained to Cernich that, depending on the response from the district court and the
County, Leonard was willing to provide more time.
Ultimately in November 2015, the parties agreed on the following plan.
Oxbow would increase its deposit from $25,000 to $50,000, and the deposit would
be provided to the County and credited to Oxbow’s purchase. The County would
continue its hearing on the Motion. Oxbow agreed to close escrow by the end of
February 2016.
Escrow did not close, and in April 2016, Leonard filed suit alleging breach of
contract and seeking specific performance. Oxbow asserted affirmative defenses of
(1) failure to state a claim; (2) failure of condition precedent; (3) estoppel; (4) failure
to mitigate damages; (5) unjust enrichment; and (6) failure of condition. It also
reserved the right to raise additional defenses upon discovery of grounds to do so.
After a bench trial, the district court ruled that Oxbow had breached the contract.
Oxbow appeals, arguing that: (1) Leonard breached the contract by failing to
disclose the County’s Motion for Relief; (2) the district court erred by excluding
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certain testimony from Cernich; and (3) the extended time and additional deposit
constituted a novation.
We review a district court’s factual findings for clear error, In re the Vill. at
Lakeridge, LLC, 814 F.3d 993, 1002 (9th Cir. 2016), and interpretation of a contract
de novo. Doe I v. Wal-Mart Stores, Inc., 572 F.3d 677, 681 (9th Cir. 2009). A
district court’s evidentiary rulings are reviewed for an abuse of discretion. United
States v. Rohrer, 708 F.2d 429, 432 (9th Cir. 1983). The parties agree that California
law controls the contract’s interpretation. We affirm the district court’s ruling.
1. Oxbow argues that the district court incorrectly interpreted Paragraph
13.A.(1)1 of the contract to conclude that, as a matter of law, Leonard was not
required to disclose the County’s Motion. Oxbow insists that Paragraph 13.A.(1)
required Leonard to disclose the Motion because it was a “legal proceeding.” Even
assuming the Motion is a legal proceeding, as the district court concluded, Oxbow’s
argument prevails only if the heading identifies Leonard’s disclosure obligations,
1
Before the district court and in its briefs, Oxbow has consistently maintained
that Paragraph 13.A.(1) required Leonard to disclose the Motion. It is not apparent
from the record that Oxbow has ever asserted that any other portion of the contract
required disclosure. In the last minute of its rebuttal at oral argument, Oxbow
suggested that a different provision of the contract concerning subsequent
disclosures required Leonard to disclose the Motion. Because Oxbow did not raise
this argument below, it has waived it. See McKay v. Ingleson, 558 F.3d 888, 891
n.5 (9th Cir. 2009) (concluding that an argument first raised during oral argument
was waived “[b]ecause [it] was not raised clearly and distinctly in the opening
brief”).
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not the terms following the heading.
We “read and construe[]” a heading with the language of the contractual term.
Coit v. Jefferson Standard Life Ins. Co., 168 P.2d 163, 169 (Cal. 1946). Paragraph
13 identifies disclosure obligations. Each term has a heading in large caps that
identifies a general topic, such as “legal proceedings,” “neighborhood problems,” or
“zoning issues.” The heading is followed by a more detailed description in ordinary
type. Reading the contract as a whole, see Cal. Civ. Code § 1641, demonstrates that
the items to be disclosed follow the heading because the entire contract follows the
same pattern. See Huverserian v. Catalina Scuba Luv, Inc., 110 Cal. Rptr. 3d 112,
115–16 (Ct. App. 2010). The heading “legal proceedings” may be construed
consistently with the more specific terms that follow because lawsuits are a type of
legal proceeding. See Coit, 168 P.2d at 169; see also Nygard, Inc. v. Uusi-Kerttula,
72 Cal. Rptr. 3d 210, 223 (Ct. App. 2008) (“[W]here specific words follow general
words in a contract, ‘the general words are construed to embrace only things similar
in nature to those enumerated by the specific words.’” (quoting Cal. Farm Bureau
Fed’n v. Cal. Wildlife Conservation Bd., 49 Cal. Rptr. 3d 169, 189 (Ct. App. 2006))).
Therefore, the contract only required Leonard to disclose the items listed in
Paragraph 13.A.(1), not all legal proceedings. Because the Motion for Relief is not
a lawsuit or any of the other listed items, the district court did not err in concluding
that, as a matter of law, Leonard was not required to disclose it.
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2. At trial, Oxbow attempted to raise fraud as a defense, arguing that Leonard
obtained its consent to the contract through material omissions, namely Leonard’s
failure to disclose the Motion. In support of this argument, Oxbow sought to have
Cernich testify that, had he known about the Motion, he would not have agreed to
purchase the Property because he would have waited to buy it for a cheaper price at
the tax sale. The district court refused to allow this testimony because Oxbow had
not raised fraud as a defense.
A party must state its affirmative defenses or it has waived them. Fed. R. Civ.
P. 8(c); see Fed. R. Bankr. P. 7008 (making Fed. R. Civ. P. 8 applicable in
proceedings before a bankruptcy court). Oxbow did not raise fraud in its answer, or
any defense that could liberally be construed as such. Because Oxbow did not raise
this defense, it was waived. See In re Adbox, Inc., 488 F.3d 836, 841 (9th Cir. 2007).
The district court did not abuse its discretion by refusing to allow Oxbow to
introduce testimony in support of a defense it had not raised in its answer.
3. Oxbow argues that the arrangement culminating in an additional deposit
was a novation because Oxbow had timely cancelled the contract and the additional
deposit served as new consideration.
The district court ruled that there was no novation. Whether parties entered
into a novation depends on the facts and circumstances of each case. Olympic Fin.
Co. v. Thyret, 337 F.2d 62, 66 (9th Cir. 1964). Under California law, a novation
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occurs when the parties to an agreement substitute a new obligation between the
same parties with an intent to extinguish the old one. Cal. Civ. Code § 1531. A
novation requires: (1) a previous valid obligation; (2) that all parties agree to the new
contract; (3) that the old contract is extinguished; and (4) a valid new contract.
Olympic Fin. Co., 337 F.2d at 65 (citing Young v. Benton, 131 P. 1051, 1052 (Cal.
Dist. Ct. App. 1913)). The key factor in distinguishing between contractual
modification and novation is whether the obligee intended to release the obligor from
his obligation under the original agreement. Alexander v. Angel, 236 P.2d 561, 563
(Cal. 1951).
Oxbow argues that it timely canceled the contract, based on its interpretation
that the Addendum term defining Acceptance meant that Acceptance, which
triggered the fifteen-day due diligence period, did not occur until after the district
court approved the sale. The plain language of the Addendum states that Acceptance
took place when a party accepted the offer in writing—subject to certain agreed-
upon contingencies. Based upon this language, the district court correctly concluded
that Acceptance occurred on June 23, 2015, the day the parties signed the contract.2
Cernich’s cancellation was conditioned on whether he received more time to
2
Oxbow essentially conceded as much at oral argument when it insisted that
because the parties signed the contract on June 23, 2015, Leonard was required to
disclose the Motion by June 28. Any obligation that Leonard had to disclose
information to Oxbow, according to Paragraph 19.A of the contract, only took place
5 days after “Acceptance.”
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resolve the issues with the Property, and Leonard provided it. Oxbow ultimately
received well over sixty days even before the parties set a new deadline for closing.
Leonard consistently maintained that Oxbow was bound by the original agreement.
See Alexander, 236 P.2d at 564. Finally, the essential terms of the contract did not
change. Oxbow increased its deposit and consented to its release to pay accrued
taxes, but the deposit was credited to the purchase price, and the contract always
contemplated that Leonard would use the purchase price to pay accrued property
taxes. The district court did not err in concluding that there was no novation.
AFFIRMED.
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