Angelo Tsakopoulos v. Alameda Investments, LLC

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS APR 4 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: ALAMEDA INVESTMENTS, LLC, No. 14-56574
Debtor, D.C. No. 2:13-cv-01917-JGB
______________________________
ANGELO TSAKOPOULOS and BRIAN C. MEMORANDUM *
VAIL,
Appellants,
v.
ALAMEDA INVESTMENTS, LLC,
Appellee.
Appeal from the United States District Court
for the Central District of California
Jesus G. Bernal, District Judge, Presiding
Argued and Submitted October 18, 2016
Pasadena, California
Before: TALLMAN and CHRISTEN, Circuit Judges, and KENNELLY,** District
Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Matthew F. Kennelly, United States District Judge for
the Northern District of Illinois, sitting by designation.
Angelo Tsakopoulos and Brian C. Vail (“Appellants”) appeal the district
court’s order affirming the bankruptcy court’s order disallowing their claims. The
parties are familiar with the facts of the case and we do not repeat them here except
as necessary to explain our disposition.
We review a decision on appeal from a bankruptcy court de novo and apply
the same standard of review applied by the district court to the underlying
bankruptcy decision. See In re AFI Holding, Inc., 525 F.3d 700, 702 (9th Cir.
2008). When, as here, the bankruptcy court did not consider extrinsic evidence,
“the issue of [contract] interpretation is a matter of law and freely reviewable.” In
re U.S. Fin. Sec. Litig., 729 F.2d 628, 631–32 (9th Cir. 1984).
Both the bankruptcy and district courts concluded that Appellants waived
their equitable right to contribution via the plain language of the Repurchase
Guaranty, which waives “rights of . . . contribution and any other rights and
defenses that are or may become available to Guarantor by reason of California
Civil Code Sections 2787 to 2855, inclusive” and further provides that “Guarantor
shall not have, shall not directly or indirectly exercise, and hereby waives . . . any
rights of contribution, indemnification, reimbursement or similar suretyship claims
arising out of this Guaranty.”
First, Appellants argue that only Pulte Investments, Inc. (“Pulte”), and not
Alameda, may enforce the waiver provisions because the Repurchase Guaranty
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states that it is “for the sole protection and benefit of Pulte . . . and no other Party
shall be a direct or indirect beneficiary of, or shall have any direct or indirect cause
of action or claim in connection with, [the Repurchase] Guaranty.” We reject
Appellants’ blanket enforcement interpretation because it would render other
enforcement provisions—for example, Paragraph 4(a)(i)’s waiver of Appellants’
“right to require Pulte to marshal assets . . . or . . . to proceed against . . . any other
Party”—“nugatory, inoperative or meaningless.” City of Atascadero v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 80 Cal. Rptr. 2d 329, 349 (Ct. App. 1998)
(subsequent history omitted); see also Cal. Civ. Code § 1641.
We also note that if Appellants’ argument—that only Pulte may derive any
“direct or indirect” benefit from the Repurchase Guaranty—were correct, it would
bar Appellants’ own bankruptcy claims. Our dissenting colleague also overlooks
this wrinkle. Although the right to contribution is equitable in nature, it arises
from the obligation imposed under the Repurchase Guaranty. See Machado v.
Fernandez, 16 P. 19, 20 (Cal. Ct. App. 1887) (“[P]ayment, to be the foundation of
a claim for contribution, must be compulsory . . . [based on a] fixed and positive
obligation[.]”). Thus, if the “sole benefit” provision prevents Alameda from
enforcing the waiver provisions, then it also prevents Appellants from acquiring
the right to contribution (even in absence of the waiver provisions) because that
right is a benefit arising from the Repurchase Guaranty.
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Second, Appellants argue that the waivers became inoperable when the
Repurchase Guaranty was fully satisfied. Appellants are correct that the
Repurchase Guaranty was fully satisfied and its specific provisions were
extinguished via the settlement agreement. See Ebensteiner Co. v. Chadmar Grp.,
49 Cal. Rptr. 3d 825, 829 (Ct. App. 2006) (“[S]ettlement operates as a merger and
ban as to all pre-existing claims and those alleged in the lawsuit that have been
resolved.”) (citing Armstrong v. Sacramento Valley Realty Co., 178 P. 516, 517
(Cal. 1919)). However, this does not change the waivers’ original effect. The
equitable right to contribution only comes into existence after a co-obligor makes
payment on a shared obligation. Morgan Creek Residential v. Kemp, 63 Cal. Rptr.
3d 232, 238 (Ct. App. 2007). Once a co-obligor pays for “more than his share, the
one paying possesses a new obligation against the others for their proportion of
what he has paid for them.” Id. (emphasis added). Thus, a party waiving the right
to contribution necessarily does so prospectively, as Appellants did here. It does
not matter that the waivers were later extinguished.
Finally, Appellants argue that, although they waived the right to contribution
described in section 2848 of the California Civil Code, they did not waive the right
to contribution described in section 1432. Although Appellants waived the
argument by failing to specifically discuss any distinction between sections 1432
and 2848 before the bankruptcy and district courts, see Whittaker Corp. v.
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Execuair Corp., 953 F.2d 510, 515 (9th Cir. 1992), we reject this argument on the
merits. Section 1432 falls under Division 3, Part 1, of the California Civil Code,
entitled “Obligations in General,” while section 2848 falls under Part 4, entitled
“Obligations Arising from Particular Transactions.” We therefore conclude that, in
the co-guarantor context, these two sections describe the same equitable right to
contribution. See Gonzales v. Superior Court, 44 P.2d 320, 321 (Cal. 1935)
(“[C]hapter and section headings in the [California] Codes are entitled to
considerable weight in interpreting the various sections[.]”); see also Jans v.
Nelson, 100 Cal. Rptr. 2d 106, 111 (Ct. App. 2000) (citing both sections without
distinction); Morgan Creek Residential, 63 Cal. Rptr. 3d at 238 (same). Thus,
Appellants’ waiver of “the right to contribution” was effective under both sections.
Finally, we disagree with our colleague’s conclusion that there is a “gaping
hole” in Alameda’s theory because Pulte receives no benefit from Appellants’ loss
of their contribution rights once the principal has been repaid in full. Dissent 5.
Although Appellants may have waived more rights than necessary to induce Pulte
to continue with the sale, they did in fact waive those rights. The dissent’s
interpretation rests, not on ambiguity, but on the conclusion that the parties did not
mean what they wrote. Appellants could have included a provision explaining that
the waiver was only temporary and that contribution rights would spring back to
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life as between the co-guarantors once Pulte was paid—but they did not do so.
This oversight is fatal to their arguments.
Each party shall bear its own costs.
AFFIRMED.
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FILED
Alameda Investments, LLC: Tsakopoulos v Alameda 14-56574
APR 04 2017
CHRISTEN, dissenting. MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
I would reverse the judgment of the bankruptcy court.
Reviewing de novo, I conclude that the terms of the Repurchase Guaranty
can only be reconciled if the waiver of the right to contribution was confined to the
co-guarantors’ obligation to satisfy Pulte. The Repurchase Guaranty is express in
stating that it was only intended to benefit Pulte, the obligations imposed by the
Guaranty expired as soon as Pulte was paid, the circumstances under which the
Guaranty was executed are entirely consistent with that limited purpose, and
Alameda conspicuously offers no alternative explanation why Tsakopoulos and
Vail would have otherwise agreed to shoulder Alameda’s share of the $5 million
burden without receiving any consideration for doing so. For these reasons, I
respectfully dissent.
First, we must enforce the parties’ agreement according to their intent. “The
fundamental rules of contract interpretation are based on the premise that the
interpretation of a contract must give effect to the ‘mutual intention’ of the
parties.” ASP Props. Grp. v. Fard, Inc., 35 Cal. Rptr. 3d 343, 351 (Cal. Ct. App.
2005) (citation omitted). As the majority acknowledges, the Guaranty expressly
states that it was only intended to benefit Pulte. The Guaranty was “for the sole
1
protection and benefit of Pulte . . . and no other Party shall be a direct or indirect
beneficiary of, or shall have any direct or indirect cause of action or claim in
connection with [the Repurchase] Guaranty.” Neither the parties nor the majority
suggest that this language is ambiguous and neither advance a persuasive argument
why Alameda should be able to construe the Guaranty to its benefit, and to its
co-guarantors’ detriment. The Guaranty is also express in providing that, once
Pulte was satisfied, the parties were excused from any further performance: “All
covenants, agreements, representations and warranties made in this Guaranty
survive the execution and delivery of this Guaranty, and shall continue in full force
and effect so long as any Repurchase Obligation is unsatisfied,” (emphasis added).
The parties do not dispute that Vail and Tsakopoulos fully satisfied Pulte without
Alameda’s help. In keeping with the parties’ plain objective, the Guaranty
reiterates that the waiver of the right to contribution remained in effect only “so
long as any Repurchase Obligation remain[s] unsatisfied,” and further specified in
Paragraph 4(a)(I) that each guarantor waived the “right to require Pulte to marshal
assets . . . or to proceed against . . . any other Party.”
Second, the circumstances in which the Guaranty was executed support the
contract interpretation offered by Tsakopoulos and Vail, not the one offered by
Alameda. The Guaranty was executed when Tsakopoulos, Vail, and Alameda held
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title to a 208-acre parcel of real estate they hoped to sell to Pulte. Pulte learned
that certain permits were needed in order to develop the property, and he notified
the sellers that he was not willing to go through with the deal. It was in an effort to
salvage the sale that the three co-guarantors agreed to individually obligate
themselves to repurchase the parcel from Pulte if, within a year, it was not possible
to secure the necessary permits. The co-guarantors bound themselves to be jointly
and severally liable for the repurchase obligation. The consideration for the
Guaranty was Pulte’s agreement to close on the sale. Unremarkably, the express
purpose of the Guaranty was to insure that Pulte was paid: the Guaranty said as
much, the co-guarantors explicitly waived any ability to insist that Pulte proceed
against them in any particular order, and they waived the right to seek contribution
among themselves until Pulte was fully satisfied (they also agreed to pay his fees
and costs). It is important to recognize the uncontested context in which the
Guaranty was executed. It was Pulte who extracted the promise to repurchase the
property and it is clear that he had every reason—and the leverage—to insist that if
it became necessary to invoke the Repurchase Guaranty, the co-guarantors would
have no right of contribution between each other unless and until he was fully paid.
The language and circumstances of the Repayment Guaranty make the parties’
intent clear: Pulte would be paid if the repurchase obligation was triggered, and
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the inevitable problem of settling up the guarantors’ statutorily-guaranteed right to
contribution was left to the guarantors to sort out.
I agree with the majority that the waiver of the right to contribution was
prospective, but this is entirely consistent with the language specifying that the
Guaranty was to operate for Pulte’s sole benefit. With 20-20 hindsight, we know
that two of the co-guarantors fully satisfied Pulte. But if it had come to pass that
Pulte had been only partially satisfied, the prospective waiver of the right to
contribution would have protected him against the possibility that a guarantor who
contributed more than his fair share would have been able to seek contribution
from the others. Even the majority acknowledges that the obligation to settle up
would have arisen whether Pulte had been fully satisfied or not because once a
co-obligor pays for “more than his share, the one paying possesses a new
obligation against the others for their proportion of what he has paid for them.”
Morgan Creek Residential v. Kemp, 63 Cal. Rptr. 3d 232, 238 (Cal. Ct. App. 2007)
(citation omitted). Reading the Guaranty’s waiver to account for the possibility
that one or two guarantors could have been owed contribution before Pulte was
fully satisfied harmonizes the terms of the instrument.
The majority counters that if only Pulte were allowed to benefit from the
Repurchase Guaranty, Appellants’ own bankruptcy claims would be barred.
4
Respectfully, the majority has this backwards. Pulte’s status as the sole beneficiary
of the Repurchase Guaranty is precisely why Vail and Tsakopoulos do have claims
to assert in bankruptcy. The majority’s mistaken premise is its view that the right
to contribution arose from the Repurchase Guaranty. In fact, only the co-
guarantors’ joint obligation to repay Pulte arose from the Repurchase Guaranty;
the right to contribution—the claims Vail and Tsakopoulos asserted in
bankruptcy—arose when Vail and Tsakopoulos paid more than their fair share to
satisfy the joint debt owed to Pulte. The majority recognized that the right to
contribution is guaranteed by California law, and correctly cited Morgan Creek, 63
Cal. Rptr. at 238 (“The equitable right to contribution only comes into existence
after a co-obligor makes payment on a shared obligation”), but the majority failed
to apply this rule.
Alameda offers no response to the elephant in the room: while all three
guarantors had ample reason to individually accept the obligation to make Pulte
whole—unless they did so, he would not have purchased the property—they had
zero reason to agree to waive the right of contribution guaranteed by statute and by
the common law which protected each of them if, as happened here, one or two
wound up footing the entire bill. In my view, this gaping hole in Alameda’s theory
is telling. The majority’s only response is the observation that Appellants “may
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have waived more rights than necessary to induce Pulte to continue with the sale.”
But this misses the real point: there is no reason to think that Pulte would have
been induced by a waiver of the right to contribution between the co-guarantors.
The way the co-guarantors allocated the ultimate burden, among themselves, made
no difference to Pulte. As reflected in the contract’s express provisions that:
(1) the Guaranty was for Pulte’s sole protection and benefit; (2) the co-guarantors
waived any ability to insist that Pulte proceed against them in any particular order;
and (3) the warranties in the Repurchase Guaranty were to continue in effect only
so long as any Repurchase Obligation remained unsatisfied, Pulte had no interest in
how the co-guarantors settled up between themselves after he was paid. It is the
court’s obligation to interpret the Repurchase Guaranty contract, see U.S. Leasing
Corp. v. duPont, 444 P.2d 65, 71 (Cal. 1968) (“[I]t is solely a judicial function to
interpret a written instrument unless the interpretation turns upon the credibility of
extrinsic evidence.”) (citation omitted), and the theory that Vail and Tsakopoulos
would have released Alameda from the co-obligation, for no consideration, is not
explained by the majority.
I agree that the parties’ discussion of third party beneficiary status is not on
point. As a party to the contract, Alameda was not required to show that it was an
intended third party beneficiary. But being a party to the Guaranty is not the same
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thing as being a promisee. “[T]he intended beneficiary bears the burden of proving
that the promise he seeks to enforce was actually made to him personally or to a
class of which he is a member.” Spinks v. Equity Residential Briarwood
Apartments, 90 Cal. Rptr. 3d 453, 470 (Cal. Ct. App. 2009) (internal quotation
marks and citation omitted). The co-guarantors obligated themselves to joint and
several liability when and if it became necessary to repurchase property, but the
Guaranty extended no farther than that.
Because Alameda offers no coherent interpretation of the Repurchase
Guaranty from which I can glean an agreement by Tsakopoulos and Vail to release
their co-guarantor from the right to seek contribution, I respectfully dissent.
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