Paul Singh v. Bhupinder Baidwan

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JUN 2 2016
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
PAUL SINGH, No. 14-16287
Plaintiff - Appellant, D.C. No. 2:14-cv-00603-LKK-
CKD
v.
BHUPINDER BAIDWAN, AKA Paul MEMORANDUM*
Baidwan,
Defendant - Appellee.
Appeal from the United States District Court
for the Eastern District of California
Lawrence K. Karlton, Senior District Judge, Presiding
Submitted May 10, 2016**
San Francisco, California
Before: McKEOWN and FRIEDLAND, Circuit Judges and LEFKOW,*** Senior
District Judge.
Plaintiff-Appellant Paul Singh appeals the district court’s dismissal of his
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable Joan Lefkow, Senior District Judge for the U.S.
District Court for the Northern District of Illinois, sitting by designation.
Complaint against Defendant-Appellee Bhupinder Baidwan. We affirm.
Singh alleges that he wanted to purchase a gas station, but that he “did not
have permanent residence status, which at the time was a requirement for a BP
franchise, and of most lenders.” Baidwan allegedly agreed to hold Singh’s shares
in an LLC as well as Singh’s fifty percent interest in the gas station in his own
name “in order to help [Singh] qualify for both the loan and franchise.” Singh
claims that Baidwan promised to transfer back the shares in the LLC and half
interest in the gas station upon Singh’s request.
In October 2013, Singh allegedly learned that Baidwan would not return
Singh’s shares or fifty percent interest in the gas station. Singh then filed a
complaint against Baidwan, alleging breach of contract as well as ten other claims.
Baidwan filed a motion to dismiss, which the district court ultimately granted.
The district court dismissed Singh’s claim for breach of contract on the basis that
an illegal contract is unenforceable. The court dismissed the remainder of Singh’s
claims for failure to prosecute pursuant to Federal Rule of Civil Procedure 41(b).
Singh appealed.
The district court did not err in dismissing Singh’s breach of contract claim
on the basis of illegality. Under California law, the “well-settled rule [is] that the
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courts will not aid a party whose claim for relief rests on an illegal transaction.”
Wong v. Tenneco, Inc., 702 P.2d 570, 576 (Cal. 1985) (in bank). “This rule is
based on the rationale that ‘the public importance of discouraging such prohibited
transactions outweighs equitable considerations of possible injustice between the
parties.’” Asdourian v. Araj, 696 P.2d 95, 105 (Cal. 1985) (in bank) (quoting
Southfield v. Barrett, 91 Cal. Rptr. 514, 516 (Cal. Ct. App. 1970)).1 “[T]he rule[,
however,] is not an inflexible one to be applied in its fullest rigor under any and all
circumstances.” Id. (quoting Southfield, 91 Cal. Rptr. at 516). “In each case, the
extent of enforceability and the kind of remedy granted depend upon a variety of
factors, including the policy of the transgressed law, the kind of illegality and the
particular facts.” Id. (quoting S. Tahoe Gas Co. v. Hofmann Land Improvement
Co., 102 Cal. Rptr. 286, 292 (Cal. Ct. App. 1972)). In Asdourian, the California
Supreme Court considered three factors in concluding that equitable relief was
1
The dissent cites the general rule that illegal contracts, whether malum
prohibitum or malum in se, will not be enforced, but ignores the fact that courts
have treated those sorts of contracts differently in equity. “[A]ll the consequences
which attend a contract contrary to public morals do not attend one which is purely
Malum prohibitum, and that in the latter case courts will take notice of the
circumstances, and will give relief, if justice and equity require a restoration of
money received by either party thereunder.” S. Tahoe Gas Co. v. Hofman Land
Improvement Co., 102 Cal. Rptr. 286, 291 (Cal. Ct. App. 1972) (quoting Smith v.
Bach, 191 P. 14, 15 (Cal. 1920)).
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warranted. One of those factors—whether the contract is malum in se or merely
malum prohibitum—is dispositive here. Malum in se agreements are “all those of
an immoral character, those which are inequities in themselves, and those opposed
to sound public policy or designed to further a crime or obstruct justice.” Vitek,
Inc. v. Alvarado Ice Palace, Inc., 110 Cal. Rptr. 86, 91 (Cal. Ct. App. 1973); see
Asdourian, 696 P.2d at 106 (describing malum in se agreements similarly).
Contracts that are malum in se are “viewed as rendering the agreement absolutely
void in the sense that no right or claim can be derived from them.” Vitek, 110 Cal.
Rptr. at 91. In Asdourian, the court, citing Vitek with approval, explained, “a
contract made in violation of [the statute] does not involve the kind of illegality
which automatically renders an agreement void. The contracts at issue here were
not malum in se. They were not immoral in character, inherently inequitable or
designed to further a crime or obstruct justice.” 696 P.2d at 106.2 Instead, the
court explained, “the contracts were malum prohibitum, and hence only voidable
2
The distinction between malum prohibitum and malum in se, while not always a
bright line, nevertheless continues to be used by California courts, contrary to the
dissent’s suggestion. See Cal. Physicians’ Serv. v. Aoki Diabetes Research Inst.,
78 Cal. Rptr. 3d 646, 654 (Cal. Ct. App. 2008) (“[A] contract for the provision of
medical services by licensed professionals is plainly not malum in se; Blue Shield
would be unjustly enriched if it were allowed to retain the benefit of services
bestowed on its subscribers without compensating ADRI.” (emphasis added)).
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depending on the factual context and the public policies involved.” Id.3
Even according to Singh’s own allegations, the contract between Singh and
Baidwan was for the express purpose of evading the franchisor’s and the lender’s
requirements. This purpose to defraud the franchisor and lender, by misleading
them as to who would actually run and own the gas station, makes the contract
malum in se, and therefore unenforceable. See Homami v. Iranzadi, 260 Cal.
Rptr. 6, 11 (Cal. Ct. App.), modified (June 27, 1989) (declining to enforce an oral
contract that provided that a buyer of real property would pay interest secretly to
the seller in order to allow the seller to avoid declaring interest income and thus to
evade required taxes). The district court therefore did not err in dismissing
Singh’s breach of contract claim.
The district court also did not abuse its discretion in dismissing the
remainder of Singh’s claims for failure to prosecute. Singh’s initial opposition to
Baidwan’s motion to dismiss failed to meaningfully respond to the majority of
3
The cases cited by the dissent as granting relief despite the illegality of a contract
involved contracts that were illegal not because they involved moral turpitude but
rather solely because one of the contracting parties did not have the required
licenses to be participating in the industry in question. See Asdourian, 696 P.2d at
96 (oral contract where statute required written contract and technical non-
compliance with licensing statute); Vitek, 110 Cal. Rptr. at 87 (unlicensed
contractor); Southfield, 91 Cal. Rptr. at 516 (unlicensed commission merchant).
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Baidwan’s arguments. Consequently, the court filed an order that explained that
Singh’s lack of response constituted failure to prosecute, subject to dismissal under
Federal Rule of Civil Procedure 41(b). As an alternative to dismissing right away,
the district court gave Singh a second chance to respond, ordering that “plaintiff
SHALL FILE an opposition to defendant’s dismissal motion – addressing every
argument in defendant’s motion.”
Singh, however, still declined to respond to Baidwan’s arguments, asserting,
“Without a ruling from the Court on its position regarding whether the oral
contract is enforceable it is difficult and appears to be a waste of time and
resources to address in detail the sufficiency of all the other remaining causes of
action.” In light of the fact that Singh failed to comply with the order, the district
court did not abuse its discretion in dismissing the remainder of Singh’s claims for
failure to prosecute. See Fed. R. Civ. P. 41(b) (“If the plaintiff fails to prosecute
or to comply with these rules or a court order, a defendant may move to dismiss the
action or any claim against it.”). Singh has also failed to offer any relevant
arguments on appeal to challenge the dismissal for failure to prosecute.
AFFIRMED.
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Singh v. Baidwan, 14-16287 FILED
JUN 2 2016
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
Joan H. Lefkow, District Judge, dissenting in part and concurring in part.
Singh alleges that he and other individuals invested in an LLC for the purpose of
buying Arco gas stations from BP Corporation. Before the transaction at issue, the LLC
had purchased seven. Another individual, Gill, had been turned down for a loan and
Singh was ineligible to be a BP franchisee because of his non-resident status. To make
the transaction work, the LLC by its members transferred $70,000 from Singh’s capital
account to Baidwan’s capital account. Baidwan applied with Gill for and personally
guaranteed a loan. The LLC agreed to assign a 50% share in the gas station to Baidwan,
rather than Singh, and Baidwan promised to assign that share to Singh when requested.
I agree with the majority that the transaction had an unlawful purpose, to obtain a
franchise and presumably a loan by making false representations. I do not fully agree that
Singh and his cohorts made the representation with intent to defraud BP. In fact, the
transaction closed and BP was (as far as the complaint reveals) not harmed, nor do we
know of a default on the loan or whether Singh’s immigration status had changed by the
time he requested performance. Nonetheless, if Baidwan made a false statement to a
federally insured bank (which we also do not know) at Singh’s instance, Singh was
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implicated in criminal conduct, 18 U.S.C. § 1001(a), and the agreement between them
was illegal, therefore unenforceable.
I differ from the majority only in its conclusion that the court cannot do equity in a
case such as this. The majority rests on the common law distinction between malum in se
(contrary to morals, criminal) and malum prohibitum (contrary to statute or regulation) to
reach its decision, citing Vitek, Inc. v. Alvarado Ice Palace, Inc., 110 Cal. Rptr. 86 (Cal.
Ct. App. 1973), for the proposition that malum in se contracts are “viewed as rendering
the agreement absolutely void in the sense that no right or claim can be derived from
them.” Fair enough. But California courts have also said the general rule applies to both
malum in se and malum prohibitum contracts: “The general rule is that a void contract, a
contract against public policy or against the mandate of a statute, may not be made the
foundation of any action, either in law or equity.” Hooper v. Barranti, 184 P.2d 688, 691
(Cal. Ct. App. 1947) (citing cases).
The distinction between malum in se and malum prohibitum has fallen into
disfavor because it “does not add to the discussion, but may actually obscure a more
pointed explanation of a court’s reasoning and result.” 15 Corbin on Contracts §79.5, p.
25 (2003); see R.M. Sherman Co. v. W.R. Thomason, Inc., 236 Cal. Rptr. 577, 581 (Cal.
Ct. App. 1987) (“The First and Second Restatements of Contracts assiduously avoid the
terms, focusing instead on legislative intent and the balance of interests between statutory
policy and the policy favoring enforcement of contracts. (See Rest., Contracts, § 580,
2
com. a; Rest.2d Contracts, § 178, com. b.)”). As Corbin puts it, “When courts mention
the distinction, they identify a contract as contrary to a statute involving conduct malum
prohibitum as a preliminary step to providing a judicial remedy less harsh than declaring
the contract completely void.” 15 Corbin on Contracts §79.5, p. 25. By the same token
here, the majority, while acknowledging that there may be exceptions to the general rule,1
by identifying the contract as malum in se, is expressing a conclusion that no relief should
be granted rather than assessing whether the evidence points to the conclusion that no
relief should be granted.
Moreover, the distinction that the majority draws is not clear from the cases they
rely on. Indeed, Asdourian and Southfield teach that malum in se is one factor of several
the court considers when deciding whether or not to craft an equitable solution.
Asdourian, 696 P.2d at 105 (“In each case, the extent of enforceability and the kind of
remedy granted depend upon a variety of factors, including the policy of the transgressed
law, the kind of illegality and the particular facts.” (emphasis added) (internal quotations
1
See, e.g., Southfield, 91 Cal. Rptr. at 516 (finding that although the contract was illegal
the plaintiff should be entitled to recover the balance due on the advance payment in
addition to the agreed interest); Tri-Q, Inc. v. Sta-Hi Corp., 404 P.2d 486, 497 (Cal.
1965) (remanding for consideration of equitable relief where refusing to enforce
severance agreement structured to obtain improper income tax advantage would result in
unjust enrichment of the party at greater fault); Asdourian v. Araj, 696 P.2d 95, 107 (Cal.
1985) (enforcing contract even though contractor was unlicensed and otherwise non-
compliant with law); Vitek, 110 Cal. Rptr. 86, 92 (1973) (granting relief to initially
unlicensed subcontractor where the public had not been harmed and promised work had
been performed).
3
omitted)); Southfield, 91 Cal. Rptr. at 516 (“Where the public cannot be protected
because the transaction has already been completed, no serious moral turpitude is
involved, defendant is the one guilty of the ‘greatest moral fault,’ and defendant would be
unjustly enriched at the expense of plaintiff if the rule were applied, the general rule
should not be applied.” (emphasis added)). Rather than treating malum in se as a factor
to be considered, the majority’s analysis begins with whether the contract was malum in
se or malum prohibitum and, because it concludes the former, its analysis ends.
Given the allegations in the complaint, the district court was obliged to consider
whether equity favored any relief to Singh based on the evidence in the case. For this
reason, I respectfully dissent. I concur in the dismissal with prejudice of all other claims.
4