NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS FEB 4 2026 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
TERESITA E. HERNANDEZ, an No. 24-5397 individual, as Trustee of The Teresita E. D.C. No. Hernandez Revocable 1999 Trust, 2:16-cv-07098-MEMF-JC Plaintiff - Appellee, MEMORANDUM* v.
JAMES B NUTTER AND COMPANY, a California corporation,
Defendant - Appellant,
and
NORTHWEST TRUSTEE SERVICES, INC., a corporation doing business in the State of California, RCO LEGAL, P.S., a corporation doing business in the State of California, DOES, 1 through 50, inclusive,
Defendants.
Appeal from the United States District Court for the Central District of California
Maame Ewusi-Mensah Frimpong, District Judge, Presiding
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Submitted February 2, 2026** Pasadena, California
Before: LEE, KOH, and DE ALBA, Circuit Judges.
James B. Nutter & Company (“JBNC”) appeals the district court’s orders
denying its motion to rescind the settlement agreement (“Settlement”) with
Appellee, Teresita Hernandez, and its motion for reconsideration. We have
jurisdiction pursuant to 28 U.S.C. § 1291. We affirm.
We review a district court’s decision to deny rescission of a settlement
agreement for abuse of discretion. In re Volkswagen “Clean Diesel” Mktg., Sales
Pracs., & Prods. Liab. Litig., 975 F.3d 770, 775 (9th Cir. 2020). Questions of law,
including interpretation of a settlement agreement, are reviewed de novo, and
factual findings are reviewed for clear error. Parson v. Ryan, 949 F.3d 443, 453
(9th Cir. 2020). “Under California law, we look to the plain meaning of the
settlement’s terms.” In re Volkswagen, 975 F.3d at 775. We also review for abuse
of discretion a district court’s denial of a motion for reconsideration. Sch. Dist.
No. 1J, Multnomah Cnty. v. ACandS, Inc., 5 F.3d 1255, 1262 (9th Cir. 1993).
1. The district court did not abuse its discretion in denying recission
based on fraud. A party may rescind a contract if the consent of the party
** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2).
2 24-5397 rescinding was obtained through fraud. Cal. Civ. Code § 1689(b)(1); id. § 1574
(“Actual fraud is always a question of fact.”); see also Vill. Northridge
Homeowners Assn. v. State Farm Fire & Cas. Co., 237 P.3d 598, 602 (Cal. 2010).
First, as to Hernandez’s living conditions, there is nothing in the record that shows
that Hernandez’s assertions about her apartment were false. Second, as to
Hernandez’s alleged promise to move, even if Hernandez had promised to vacate
her apartment, her conduct is not inconsistent with her alleged promise.
Hernandez actively tried to find another apartment, but she was unable to find an
opening for some time, and once she found one, she relocated.
Third, JBNC’s assertion that the $1,700 monthly payment to Hernandez was
to be used solely for rent is not supported by the record. The payment amount was
determined based on an approximation of monthly rent. Had the parties intended
for that money to be used solely for rent, they would have placed limitations on
how Hernandez could spend the Settlement funds. The fact that the Settlement
lacks such a mechanism is telling. Accordingly, the district court did not clearly
err in finding that nothing in the record shows “that [Hernandez] knew her
representations to be untrue, or that she had no reasonable grounds for believing
them to be true, or that the deception of [JBNC] was willful,” and that, therefore,
there was no fraud. Harding v. Robinson, 166 P. 808, 810 (Cal. 1917) (quoting
Hoffman v. Kirby, 68 P. 321, 322 (Cal. 1902)).
3 24-5397 2. The district court did not abuse its discretion in denying rescission
based on mistake. Mistake requires ignorance of a material fact or belief in a
material fact which does not exist. Cal. Civ. Code § 1577. JBNC’s argument that
the district court used the wrong legal test is unavailing. In Donovan, the
California Supreme Court recognized that, in some cases, a unilateral mistake is
grounds for rescission if the non-mistaken party has reason to know of or causes
the other party’s unilateral mistake. See Donovan v. RRL Corp., 27 P.3d 702, 716
(Cal. 2001) as modified (Sept. 12, 2001). The Donovan court rejected this concept
as inapplicable to the Donovan facts, but it did not overrule any prior precedent
based on this concept. See id. at 714–15. Instead, the Donovan court created an
alternative four-element test to find rescission based on unilateral mistake where
the other party was unaware of, and did not cause, the mistake. Id. at 716. Here,
JBNC alleges that there is ample “evidence that Hernandez knew about,
encouraged, and fostered [JBNC’s] mistaken beliefs.” Thus, the district court did
not err in requiring JBNC to prove that Hernandez knew about and encouraged or
fostered JBNC’s mistaken beliefs.1 Likewise, JBNC’s argument that the district
1 JBNC’s mistake claim also fails under the Donovan test because it cannot establish unconscionability. See DeLeon v. Verizon Wireless, LLC, 143 Cal. Rptr.3d 810, 814 (Cal. Ct. App. 2012) (“[S]ubstantive unconscionability is shown only by contract terms so one-sided as to ‘shock the conscience.’”) (quoting Koehl v. Verio, Inc., 48 Cal. Rptr.3d 749, 769 (Cal. Ct. App. 2006)). The Settlement was the result of months of negotiations. In exchange for a one-time lump sum and monthly payments, Hernandez was to dismiss the lawsuit with prejudice and
4 24-5397 court conflated the legal standard for fraud with the legal standard for mistake is
unavailing.
On the merits, the district court correctly found that JBNC’s mistake claim
did not warrant rescission for the same reasons the fraud claim failed. That is,
mistake cannot be proven because there is no evidence that Hernandez’s
representations regarding the condition of her apartment or her intention to move,
or JBNC’s understanding of those representations, were not true.
3. The district court did not abuse its discretion in denying rescission
based on a partial failure of consideration. Rescission may be appropriate where
“default in performance went to the very root of the consideration bargained for,
[and] such breach amounted to a failure of consideration.” Wilson v. Corrugated
Kraft Containers, 256 P.2d 1012, 1016 (Cal. Dist. Ct. App. 1953). JBNC’s
contention that the Settlement’s key consideration was Hernandez’s relocation is
contradicted by the language of the Settlement. The integrated Settlement does not
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NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS FEB 4 2026 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
TERESITA E. HERNANDEZ, an No. 24-5397 individual, as Trustee of The Teresita E. D.C. No. Hernandez Revocable 1999 Trust, 2:16-cv-07098-MEMF-JC Plaintiff - Appellee, MEMORANDUM* v.
JAMES B NUTTER AND COMPANY, a California corporation,
Defendant - Appellant,
and
NORTHWEST TRUSTEE SERVICES, INC., a corporation doing business in the State of California, RCO LEGAL, P.S., a corporation doing business in the State of California, DOES, 1 through 50, inclusive,
Defendants.
Appeal from the United States District Court for the Central District of California
Maame Ewusi-Mensah Frimpong, District Judge, Presiding
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Submitted February 2, 2026** Pasadena, California
Before: LEE, KOH, and DE ALBA, Circuit Judges.
James B. Nutter & Company (“JBNC”) appeals the district court’s orders
denying its motion to rescind the settlement agreement (“Settlement”) with
Appellee, Teresita Hernandez, and its motion for reconsideration. We have
jurisdiction pursuant to 28 U.S.C. § 1291. We affirm.
We review a district court’s decision to deny rescission of a settlement
agreement for abuse of discretion. In re Volkswagen “Clean Diesel” Mktg., Sales
Pracs., & Prods. Liab. Litig., 975 F.3d 770, 775 (9th Cir. 2020). Questions of law,
including interpretation of a settlement agreement, are reviewed de novo, and
factual findings are reviewed for clear error. Parson v. Ryan, 949 F.3d 443, 453
(9th Cir. 2020). “Under California law, we look to the plain meaning of the
settlement’s terms.” In re Volkswagen, 975 F.3d at 775. We also review for abuse
of discretion a district court’s denial of a motion for reconsideration. Sch. Dist.
No. 1J, Multnomah Cnty. v. ACandS, Inc., 5 F.3d 1255, 1262 (9th Cir. 1993).
1. The district court did not abuse its discretion in denying recission
based on fraud. A party may rescind a contract if the consent of the party
** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2).
2 24-5397 rescinding was obtained through fraud. Cal. Civ. Code § 1689(b)(1); id. § 1574
(“Actual fraud is always a question of fact.”); see also Vill. Northridge
Homeowners Assn. v. State Farm Fire & Cas. Co., 237 P.3d 598, 602 (Cal. 2010).
First, as to Hernandez’s living conditions, there is nothing in the record that shows
that Hernandez’s assertions about her apartment were false. Second, as to
Hernandez’s alleged promise to move, even if Hernandez had promised to vacate
her apartment, her conduct is not inconsistent with her alleged promise.
Hernandez actively tried to find another apartment, but she was unable to find an
opening for some time, and once she found one, she relocated.
Third, JBNC’s assertion that the $1,700 monthly payment to Hernandez was
to be used solely for rent is not supported by the record. The payment amount was
determined based on an approximation of monthly rent. Had the parties intended
for that money to be used solely for rent, they would have placed limitations on
how Hernandez could spend the Settlement funds. The fact that the Settlement
lacks such a mechanism is telling. Accordingly, the district court did not clearly
err in finding that nothing in the record shows “that [Hernandez] knew her
representations to be untrue, or that she had no reasonable grounds for believing
them to be true, or that the deception of [JBNC] was willful,” and that, therefore,
there was no fraud. Harding v. Robinson, 166 P. 808, 810 (Cal. 1917) (quoting
Hoffman v. Kirby, 68 P. 321, 322 (Cal. 1902)).
3 24-5397 2. The district court did not abuse its discretion in denying rescission
based on mistake. Mistake requires ignorance of a material fact or belief in a
material fact which does not exist. Cal. Civ. Code § 1577. JBNC’s argument that
the district court used the wrong legal test is unavailing. In Donovan, the
California Supreme Court recognized that, in some cases, a unilateral mistake is
grounds for rescission if the non-mistaken party has reason to know of or causes
the other party’s unilateral mistake. See Donovan v. RRL Corp., 27 P.3d 702, 716
(Cal. 2001) as modified (Sept. 12, 2001). The Donovan court rejected this concept
as inapplicable to the Donovan facts, but it did not overrule any prior precedent
based on this concept. See id. at 714–15. Instead, the Donovan court created an
alternative four-element test to find rescission based on unilateral mistake where
the other party was unaware of, and did not cause, the mistake. Id. at 716. Here,
JBNC alleges that there is ample “evidence that Hernandez knew about,
encouraged, and fostered [JBNC’s] mistaken beliefs.” Thus, the district court did
not err in requiring JBNC to prove that Hernandez knew about and encouraged or
fostered JBNC’s mistaken beliefs.1 Likewise, JBNC’s argument that the district
1 JBNC’s mistake claim also fails under the Donovan test because it cannot establish unconscionability. See DeLeon v. Verizon Wireless, LLC, 143 Cal. Rptr.3d 810, 814 (Cal. Ct. App. 2012) (“[S]ubstantive unconscionability is shown only by contract terms so one-sided as to ‘shock the conscience.’”) (quoting Koehl v. Verio, Inc., 48 Cal. Rptr.3d 749, 769 (Cal. Ct. App. 2006)). The Settlement was the result of months of negotiations. In exchange for a one-time lump sum and monthly payments, Hernandez was to dismiss the lawsuit with prejudice and
4 24-5397 court conflated the legal standard for fraud with the legal standard for mistake is
unavailing.
On the merits, the district court correctly found that JBNC’s mistake claim
did not warrant rescission for the same reasons the fraud claim failed. That is,
mistake cannot be proven because there is no evidence that Hernandez’s
representations regarding the condition of her apartment or her intention to move,
or JBNC’s understanding of those representations, were not true.
3. The district court did not abuse its discretion in denying rescission
based on a partial failure of consideration. Rescission may be appropriate where
“default in performance went to the very root of the consideration bargained for,
[and] such breach amounted to a failure of consideration.” Wilson v. Corrugated
Kraft Containers, 256 P.2d 1012, 1016 (Cal. Dist. Ct. App. 1953). JBNC’s
contention that the Settlement’s key consideration was Hernandez’s relocation is
contradicted by the language of the Settlement. The integrated Settlement does not
even mention, let alone have an express condition, that Hernandez had to move to
safer housing, which negates its materiality. See Wyler v. Feuer, 149 Cal. Rptr.
626, 633 (Cal. Ct. App. 1978) (noting that partial failure of consideration can be
actionable for rescission but only if the failure is “material” or goes to the
release her claims. JBNC failed to show that the consideration was so inadequate as to “shock the conscience” when measured against the litigation risks and costs it confronted.
5 24-5397 “essence” of the contract). Instead, the Settlement expressly states that the parties,
including JBNC, are executing the Settlement because they want to “avoid the
uncertainties and expense of further litigation”—not that they want Hernandez to
move into safer housing. JBNC’s materiality argument is further contradicted by
the fact that JBNC performed under the Settlement for approximately four years
without objection. Thus, the district court did not err in finding that the key
consideration in the Settlement was that Hernandez would dismiss the lawsuit and
release her claims in exchange for payments.
4. We reject JBNC’s attempt to introduce extrinsic evidence based on
California’s parol evidence rule. Parol evidence is admissible “‘to interpret an
agreement when a material term is ambiguous.’” Hollingsworth v. Heavy Transp.,
Inc., 381 Cal. Rptr.3d 738, 756 (Cal. Ct. App. 2021) (quoting Wolf v. Walt Disney
Pictures & Television, 76 Cal. Rptr.3d 585, 602 (Cal. Ct. App. 2008)). But the
terms “Qualifying Residence” and “lease” in the Settlement are not ambiguous.
The Settlement expressly defines “Qualifying Residence” in an objective manner,
and the term “lease” is expressed in broad terms. Reading the Settlement with the
language JBNC suggests would contradict or modify the express language of the
instrument, which is precisely what the parol evidence rule prohibits. See Julius
6 24-5397 Castle Rest. Inc. v. Payne, 157 Cal. Rptr.3d 839, 850–51 (Cal. Ct. App. 2013).2
Thus, since nothing in the Settlement excludes an assisted living facility or a
month-to-month lease from the definition of a “Qualifying Residence,” the district
court did not err in finding that both are allowed under the Settlement’s terms.
5. For the same reasons the district court correctly denied JBNC’s
motion to rescind, it also did not abuse its discretion in denying JBNC’s motion for
reconsideration. Since both the denials of the motions to rescind and for
reconsideration are affirmed, the order granting attorneys’ fees is also affirmed.
AFFIRMED.
2 While California’s parol evidence rule allows extrinsic evidence to be considered for fraud and mistake claims, (Cal. Code Civ. Proc. § 1856(g)), we explained earlier that the district court did not err in rejecting those claims.
7 24-5397