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                               NOT FOR PUBLICATION                       FILED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.


                                             3
      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.


                                          4
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




                                          5
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


                                             2
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


                                           3
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


                                          5
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


                                           6
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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