NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FILED
FOR THE NINTH CIRCUIT
MAY 09 2016
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
GINA BURKHEAD, et al., No. 13-16644
Plaintiffs - Appellants, D.C. No. 2:10-cv-01687-SRB
v.
MEMORANDUM*
STEWART TITLE GUARANTY
COMPANY, et al.,
Defendants - Appellees.
GINA BURKHEAD, et al., No. 14-15130
Plaintiffs - Appellants, D.C. No. 2:10-cv-01687-SRB
v.
STEWART TITLE GUARANTY
COMPANY, et al.,
Defendants - Appellees.
Appeal from the United States District Court
for the District of Arizona
Susan R. Bolton, District Judge, Presiding
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Argued and Submitted November 16, 2015
San Francisco, California
Before: McKEOWN, RAWLINSON, and DAVIS,** Circuit Judges.
Appellants contracted with Khelo International Developers S. de R.L. de
C.V. (“Khelo”) to buy condominiums in a luxury development slated for
construction in Mexico. Due to a land dispute, the condominiums were never
constructed, and Appellants were never refunded the money they had invested in
the project. Appellants sued Appellees, the individual owners of Khelo, asserting
claims for breach of contract and a violation of the Interstate Land Sales Full
Disclosure Act (“ILSA”), as well as other statutory and tort claims. The district
court granted summary judgment in favor of Appellees and, in a separate order,
awarded Appellees attorneys’ fees. Appellants appealed both orders, which have
been consolidated for our review. For the reasons stated below, we affirm the
judgments of the district court.
1. Appellants appeal (1) the grant of summary judgment, (2) the denial of
Appellants’ motion to strike Appellee’s late-filed answer to the second amended
complaint, (3) the denial of Appellants’ motion for sanctions, and (4) the award of
attorneys’ fees to Appellees. We review de novo the district court’s decisions
** The Honorable Andre M. Davis, Senior Circuit Judge for the United
States Court of Appeals for the Fourth Circuit, sitting by designation.
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regarding summary judgment and motions for sanctions. Szajer v. City of Los
Angeles, 632 F.3d 607, 610 (9th Cir. 2011) (citations omitted) (summary
judgment); Goodman v. Staples The Office Superstore, LLC, 644 F.3d 817, 822
(9th Cir. 2011) (citation omitted) (sanctions). We review the denial of a motion to
strike and the award of attorneys’ fees for abuse of discretion. United States v.
$133,420.00 in U.S. Currency, 672 F.3d 629, 637 (9th Cir. 2012) (motion to
strike); Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 883 (9th Cir. 2000)
(attorneys’ fees).
2. In granting Appellees’ motion for summary judgment, the district court
concluded that (1) Appellees could not be sued individually for breach of contract
by piercing the corporate veil, and (2) the ILSA claim failed because the contracts
to purchase the condominiums were subject to the ILSA’s two-year exemption
under 15 U.S.C. § 1702(a)(2). On appeal, Appellants argue that the several
grounds they asserted at the district court to pierce the corporate veil, when viewed
as a whole, are sufficient to survive summary judgment.
Appellants’ grounds, however, are either legally deficient or unsupported by
the record and are thus insufficient—when viewed individually or holistically—to
pierce the corporate veil. For example, undercapitalization is determined at the
time of incorporation and “cannot be proved merely by showing that the
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corporation is now insolvent.” Ize Nantan Bagowa, Ltd. v. Scalia, 577 P.2d 725,
729 (Ariz. Ct. App. 1978). The record contains no evidence that Khelo was
undercapitalized at the time it was incorporated. Similarly, “the mere fact that it is
a one-man corporation does not mean the corporation is the alter ego of that one
man.” Id. at 728. Finally, the contracts make clear that Appellants entered into
agreements with Khelo, not with Appellees in their individual capacities.
Appellants also argue that the ILSA’s two-year exemption does not apply
because the contracts did not obligate Appellees to deliver the condominiums
within two years. We disagree. Because the contracts provided that the
condominiums would be completed within two years, they imposed a legal duty on
Appellees to complete construction within that time period. See Flores v. Am.
Seafoods Co., 335 F.3d 904, 910 (9th Cir. 2003) (citing Klamath Water Users
Protective Ass’n v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 1999)). Nothing in
the contracts negated the possibility of specific performance as a remedy, which is
generally available under Arizona law. See Woliansky v. Miller, 661 P.2d 1145,
1147 (Ariz. Ct. App. 1983). And, contrary to Appellants’ contentions, the force
majeure clause in the contracts did not render the completion date illusory because
the clause could not have been invoked at will. See Flores, 335 F.3d at 912–13.
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3. The district court did not err in denying Appellants’ motion to strike
Appellee’s late-filed answer. Appellants were not prejudiced by the late filing
because Appellees asserted the ILSA’s two-year exemption in a joint filing two
months before Appellants filed the second amended complaint and a year before
Appellants moved for partial summary judgment. Furthermore, § 1702(a)(2) is a
statutory exemption to the conduct normally deemed impermissible under the
ILSA; it is not a waivable defense.
4. The district court did not err in denying Appellants’ motion for sanctions.
When a party is accused of destroying evidence, sanctions are appropriate if the
party “has some notice that the documents were potentially relevant to the
litigation before they were destroyed.” Leon v. IDX Sys. Corp., 464 F.3d 951, 959
(9th Cir. 2006) (emphasis omitted) (citation and internal quotation marks omitted).
The record does not demonstrate that Appellees had such notice when they allowed
a friend of Appellee Elvia Karina Gallardo-Montoya (“Gallardo”) to take
Gallardo’s personal computer. Nothing in the record indicates that Gallardo or any
other Khelo officer used the computer for corporate business. Gallardo also
repeatedly denied having any knowledge of Khelo business affairs and testified
that she did not believe that the computer contained any information about the
condominium development.
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5. The district court did not err in awarding attorneys’ fees to Appellees
under Ariz. Rev. Stat. Ann. § 12-341.01. The statutory and tort claims arose out of
contract because they were interwoven with the breach of contract claim, see
Bennett v. Baxter Grp., Inc., 224 P.3d 230, 236 (Ariz. Ct. App. 2010), and the
factors announced in Associated Indemnity Corp. v. Warner, 694 P.2d 1181, 1184
(Ariz. 1985) (in banc), weigh in favor of awarding fees. The district court also did
not abuse its discretion in holding Appellant Merrill Niles jointly and severally
liable for attorneys’ fees, given that Niles never sought dismissal from the district
court.
6. Appellants’ motion to amend their briefs to include a request for
attorneys’ fees and costs incurred on appeal is denied as moot.
AFFIRMED.
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