FILED APR 3 2023 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. CC-22-1205-SCL ALEX A. KHADAVI, Debtor. Bk. No. 2:21-bk-14449-BB
GREEN COIN, Adv. No. 2:21-ap-01262-BB Appellant, v. MEMORANDUM* ALEX A. KHADAVI; JASON M. RUND, Chapter 7 Trustee, Appellees.
Appeal from the United States Bankruptcy Court for the Central District of California Sheri Bluebond, Bankruptcy Judge, Presiding
Before: SPRAKER, CORBIT, and LAFFERTY, Bankruptcy Judges.
INTRODUCTION
Appellant Green Coin challenges the bankruptcy court’s summary
judgment declaring that its $900,000 deposit in furtherance of a sale that
never closed is property of the chapter 7 1 bankruptcy estate administered
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. Unless specified otherwise, all chapter and section references are to the 1
Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules by appellee Jason Rund, trustee. The bankruptcy court held, pursuant to
the purchase agreement it had approved, that the estate was entitled to
retain the deposit because Green Coin had defaulted. The bankruptcy court
also determined that debtor never relinquished the estate’s rights under the
purchase agreement. Because we discern no error, we AFFIRM.
FACTS2
A. The debtor files bankruptcy and moves to sell real property to Green Coin.
The debtor, Alex Khadavi, is a dermatologist and facial surgeon who
practices in Southern California. Green Coin is a cryptocurrency company
allegedly owned by a man commonly known as Mr. Pink.3
In May 2021, Khadavi commenced his bankruptcy case by filing a
chapter 11 petition. Khadavi’s assets included a single-family residence he
owned as an investment property on Sarbonne Road in Los Angeles
(“Property”). He valued the Property at $80 million. But he also scheduled
numerous deeds of trust and liens against the Property totaling over $31
million.
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure. 2 We exercise our discretion to take judicial notice of documents electronically filed in the underlying bankruptcy case and adversary proceeding. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 3 Although nothing in the record definitively identifies the full name of Mr. Pink,
the public records filings of which we can take judicial notice suggest he is Pink Qiuying Wang Suo. 2 On September 23, 2021, Khadavi moved for authority to sell the
Property for $85 million to Green Coin. He attached to the sale motion a
copy of the purchase agreement (“Purchase Agreement”), which consisted
of an offer to purchase the Property set forth on a form California
Residential Purchase Agreement and Joint Escrow Instructions dated
August 18, 2021, and a form Seller Counter Offer No. 1 dated September 8,
2021. Khadavi stated that Green Coin accepted his counter offer on
September 9, 2021. In relevant part, the counter offer required Green Coin
to pay a deposit of 3% of the purchase price, or $2.55 million. The motion
further advised that Green Coin had deposited into escrow $900,000 of the
$2.55 million deposit. The motion also specified that the Purchase
Agreement was “subject to court approval” but was not contingent on an
appraisal of the property. Additionally, Khadavi was selling the Property
“as is, where is” with no representations or warranties. Of particular
importance to this appeal, paragraph 21B of the Purchase Agreement
included a liquidated damages clause entitling the seller to keep the
deposit as liquidated damages in the event of a default by buyer
(“Liquidated Damages Clause”).
Khadavi served the sale motion on two real estate agents who were
representing Green Coin as the Buyer in the Purchase Agreement:
(1) George Kahwaji of Platinum Triangle Group Rodeo Realty Fine Estates;
and (2) Brianna Bebd of Keller Williams. But Green Coin did not participate
in the bankruptcy court sale proceedings. Nor did either real estate agent
3 appear for the sale hearing held on October 14, 2021. At the sale hearing the
court focused on the mechanics of the sale, timing issues, and procedures
for holding and eventually distributing the sale proceeds, but it did ask
whether Green Coin had paid the full deposit. Counsel for Khadavi
advised the court that it had not, that it was a matter of grave concern, and
that he had heard “a variety of stories about how it’s not just the rest of the
deposit but all the money that will be deposited.” Counsel further advised
the court that if the sale did not close within a month, “then it’s never
going to close.”
On November 16, 2021, the bankruptcy court entered an order
approving the sale. The sale order specified that Khadavi “shall sell” and
Green Coin “shall buy” the Property in accordance with the terms and
conditions of the Purchase Agreement attached to the sale motion as
Exhibit 1.
B. Khadavi and Green Coin execute additional agreements that are not noticed or presented for court approval.
The Purchase Agreement contained a section, paragraph 5, for
identifying and incorporating any addenda to the agreement. That section
was left blank by the parties, indicating that there were no addenda.
Though absent from the Purchase Agreement and not mentioned in
Khadavi’s sale motion, Green Coin contends that there were three addenda
that changed the terms of the sale presented to the court.
Green Coin claims that its purchase of the Property was contingent
4 on a valuation of Green Coin of no less than the $85 million sale price for
the Property. According to Green Coin, this contingency was stated in
Addendum No. 1 to its August 18, 2021 purchase offer. Mr. Pink, Green
Coin’s principal, says he signed the Purchase Agreement and Addendum
No. 1 with the understanding that any deposit Green Coin paid would be
fully refundable if the sale did not close for any reason. But the Purchase
Agreement did not say this.
Mr. Pink contends that Khadavi, acting on the advice of counsel,
insisted that they conceal the conditional nature of the sale from the court.
As Mr. Pink later alleged in the subsequent adversary proceeding, he was
tricked into executing a form Contingency Removal No. 1 dated September
26, 2021, stating that all buyer contingencies had been removed from the
Purchase Agreement. As he recounts it, Khadavi and his counsel told him
that formal removal of the contingencies was necessary to move forward
with the court proceedings, but they both reassured him that his deposit
would be fully refundable if escrow did not close.
In Green Coin’s version of events, it signed two more addenda after
the sale hearing but before the sale order was signed. The first of these,
Addendum No. 2 dated October 25, 2021, extended the deadline for paying
the remainder of the deposit to November 2, 2021, and extended the sale
closing date to November 25, 2021. The second, Addendum No. 3 dated
November 12, 2021, further extended the deadline for paying the
remainder of the deposit to December 2, 2021. Addendum No. 3 also
5 extended the sale closing date, this time to January 15, 2022. Both addenda
purported to render the deposit fully refundable if Green Coin failed to
close escrow, notwithstanding the Liquidated Damages Clause, which
indicated otherwise.
None of the three addenda were disclosed or provided to the
bankruptcy court before it entered the order approving the sale.
C. The debtor commences an adversary proceeding after Green Coin fails to pay the remainder of the earnest money deposit.
On December 1, 2021, Khadavi sent Green Coin a Notice to Buyer to
Perform No. 1. The Notice directed Green Coin to perform its contractual
obligation to remit the balance of the 3% deposit into escrow. Green Coin
never paid the remaining portion of the $2.55 million deposit or the
purchase price for the Property. Instead, Green Coin claims that it and
Khadavi mutually agreed to cancel the Purchase Agreement. Alternately,
Green Coin claims that Khadavi unilaterally cancelled the Purchase
Agreement before it defaulted.
The parties dispute the specifics of the alleged cancellation. But the
contemporaneous documentation between the parties reflects that Khadavi
and Green Coin mutually agreed on December 10, 2021, that the Purchase
Agreement would be deemed cancelled. Khadavi and Green Coin executed
a California form—Cancellation of Contract, Release of Deposit and
Cancellation of Escrow (the, “Cancellation Form”). Two versions of the
Cancellation Form were presented in the adversary proceeding. Both
6 versions were signed by Khadavi and Green Coin on December 10, 2021,
though Khadavi’s signature is missing in Section 1 of the Cancellation
Form in Green Coin’s version. Khadavi’s Cancellation Form includes
signatures for both parties in all required areas. Section 1 of the document
is entitled Cancellation of Contract and provides six choices for the buyer
or seller to select the basis for cancellation of the sale. Khadavi and Green
Coin selected “[p]er mutual agreement.”
The Cancellation Form also addressed the release of any deposit and
cancellation of escrow by providing various options for the buyer and
seller to select. In both of their versions, Khadavi and Green Coin selected
“Other,” and wrote “See Addendum #3.” The main difference between the
two versions of the Cancellation Form concerns the attachment identified
as Addendum #3. Green Coin’s version includes an official form
Addendum that states, “Buyer to release $200,000 to Seller. Buyer and
Seller agree this satisfies any and all liquidated damages. $700,000 US
Dollars will be returned to the buyer Green Coin.” This page is signed by
Green Coin but not by Khadavi. Additionally, Green Coin’s version
includes another page titled, “777 Sarbonne Agreement between Green
Coin and Alex Khadavi.” This document stated that Green Coin would
release $200,000 of the escrow deposit to Khadavi while the remaining
$700,000 would be returned to Green Coin. Both Khadavi and Green Coin
signed this page on December 10, 2021. Khadavi’s version omits the official
addendum page but includes a separate page requiring Green Coin to
7 release $200,000 from the escrow deposit to Khadavi while the remaining
$700,000 of the earnest money would be held in escrow pending future
litigation. This page was also signed by both Khadavi and Green Coin on
December 10, 2021.
Khadavi did not receive the $200,000 from the earnest money deposit
being held in escrow. Consistent with the court’s scheduling deadlines and
instructions given at a sale status conference held on December 1, 2021,
Khadavi then sued Green Coin in the bankruptcy court seeking declaratory
relief that he was entitled to the entire $900,000 held in escrow. In its
answer to the complaint, Green Coin alleged that its $900,000 deposit
always was fully refundable. It alternately argued that in December 2021, it
and Khadavi mutually agreed to cancel their sale agreement.
D The court grants summary judgment in the adversary proceeding.
Apprised of these allegations during a status conference in the
adversary proceeding, the court issued an order to show cause why a
chapter 11 trustee should not be appointed. On April 14, 2022, the court
directed the United States Trustee to appoint a chapter 11 trustee for
Khadavi’s bankruptcy estate. Ultimately, in July 2022, the case was
converted to chapter 7. Jason Rund has served as both the chapter 11
trustee and the chapter 7 trustee of Khadavi’s bankruptcy estate.
Rund moved for summary judgment in the adversary proceeding. He
asserted that the plain language of the Purchase Agreement, along with
Green Coin’s written release of all contingencies, compelled judgment 8 awarding the estate the $900,000 deposit as liquidated damages for Green
Coin’s breach of the Purchase Agreement. Rund further argued that even if
Addenda 1-3 or either of the conflicting versions of the December 10, 2021
Cancellation Form were authentic and actually executed by Khadavi, they
were invalid because the bankruptcy court had not approved them.
In its opposition to the summary judgment motion, Green Coin
contended that there were several disputed issues of material fact that
prevented entry of summary judgment. These included: (1) whether and
when the seller’s contingency of “court approval” was satisfied; (2) the
deadline for Green Coin to close escrow; (3) which event or events (if any)
qualified as a default triggering the liquidated damages clause; (4) whether
Khadavi’s admission that he “mutually cancelled” the Purchase Agreement
triggered paragraphs 14D(2) and 14H of the Purchase Agreement requiring
refund of the deposit; and (5) the validity of Addenda Nos. 2 and 3,
notwithstanding Khadavi’s concealment of them from the court. 4
Green Coin further argued that the liquidated damages clause was
unreasonable and unenforceable.5
In reply, Rund maintained that any purported agreement to cancel
the Purchase Agreement was invalid because the bankruptcy court did not
4 Whereas Green Coin characterizes these as questions of fact, they actually are issues of bankruptcy law, contract law, and contract interpretation that do not require resolution of any genuinely disputed issue of material fact. 5 Green Coin has abandoned this argument on appeal. It is not addressed in its
opening brief. 9 approve it. Rund reasoned that any cancellation of the Purchase
Agreement was tantamount to a compromise of a dispute governed by
Rule 9019 that required notice and court approval.
As for Green Coin’s arguments questioning whether and when a
default occurred, Rund relied on the terms of the Purchase Agreement as
approved by the court. He argued that under the ordinary meaning of the
term “default,” Green Coin had defaulted because it failed to pay the full
purchase price into escrow as required under the Purchase Agreement’s
plain language within 28 days of acceptance of the Purchase Agreement.
Rund further contended that the liquidated damages clause was both
reasonable and enforceable.
At the first hearing on the summary judgment motion, the
bankruptcy court granted the motion in part and reserved the remainder
for further consideration. The court held that the Purchase Agreement did
not include any of the addenda Green Coin subsequently presented
because none of them were proffered at the time the bankruptcy court
considered and granted the sale motion. As the court reasoned, if Green
Coin thought the addenda were part of the Purchase Agreement, it was
incumbent on it to advise the court in response to the sale motion. The
court ruled that Green Coin had actual or constructive notice of the
contents of the sale motion because both of its real estate agents received
service copies of the motion at the time it was filed. The agents also
received notice of the initial sale hearing date. Accordingly, the court
10 concluded that the Purchase Agreement was not contingent upon any
valuation of Green Coin, nor was the deposit refundable. The court also
rejected Green Coin’s liquidated damages argument, holding that under
the circumstances the $900,000 deposited was a reasonable amount of
liquidated damages.
The court declined to decide which of the various versions of the
December 10, 2021 cancellation agreement was controlling. Rather, it held
that any agreement to dispose of the escrow deposit was invalid. It
reasoned that each of the agreements constituted a compromise under Rule
9019 that required prior notice and court approval to become effective.
Alternately, the court reasoned they constituted an improper attempt at
abandonment of an estate asset without court approval.
As for the buyer’s default, the court held that Green Coin had
unequivocally defaulted because it was uncontroverted that it never paid
the balance of the deposit. The court noted that this was true whether
measured by the time specified in the Purchase Agreement or within three
days of Khadavi’s December 1, 2021 written notice to buyer to perform.
The court also ordered supplemental briefing on whether Khadavi had
cancelled the Purchase Agreement and if so, whether prior court approval
was required.
After further briefing the court held that Khadavi had not cancelled
the Purchase Agreement under paragraph 14(D), which was the only
Purchase Agreement provision that might have entitled Green Coin to a
11 refund of its deposit. The court further ruled that even if he had attempted
to do so, this attempt was invalid absent prior notice and court approval
either as an abandonment of estate property under § 554 or as a
compromise under Rule 9019.
The bankruptcy court entered summary judgment in favor of Rund
on September 28, 2022. Green Coin timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred when it granted summary
judgment in favor of Rund.
STANDARD OF REVIEW
We review de novo the bankruptcy court’s grant of summary
judgment. Boyajian v. New Falls Corp. (In re Boyajian), 564 F.3d 1088, 1090
(9th Cir. 2009). When we review a matter de novo, we give no deference to
the bankruptcy court’s decision. Francis v. Wallace (In re Francis), 505 B.R.
914, 917 (9th Cir. BAP 2014).
DISCUSSION
A. Summary judgment.
Civil Rule 56(a) is made applicable in adversary proceedings by Rule
7056. Under this rule, courts grant summary judgment when the record
demonstrates “that there is no genuine issue as to any material fact and
12 that the moving party is entitled to a judgment as a matter of law.” Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). Only genuine disputes of material
fact will preclude summary judgment. See id. at 322-23. “An issue is
‘genuine’ only if there is sufficient evidence for a reasonable fact finder to
find for the non-moving party.” Far Out Prods., Inc. v. Oskar, 247 F.3d 986,
992 (9th Cir. 2001) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49
(1986)). A fact is “material” if it may affect the outcome of the case under
the substantive law. Anderson, 477 U.S. at 248.
In assessing the merits of a summary judgment motion, all facts
genuinely in dispute must be viewed and all reasonable inferences must be
made, “in the light most favorable to the nonmoving party.” Scott v. Harris,
550 U.S. 372, 380 (2007). However, when the nonmovant’s uncorroborated
declaration testimony is conclusively refuted by other evidence in the
record, the nonmovant has not demonstrated a genuine issue of material
fact that requires denial of summary judgment. Id. at 379-81.
B. Rules of contract construction.
Because the rules of contract interpretation address many of Green
Coin’s arguments, we offer a brief recitation of relevant contract
interpretation rules. Under California law, real property sales contracts are
interpreted in the same manner as other contracts. See Ram's Gate Winery,
LLC v. Roche, 235 Cal. App. 4th 1071, 1082 (2015) (stating in the context of a
dispute over a real property sale that the court would ascertain the
contracting parties’ intent “in the same manner as in the case of any other
13 contract.”); see also Cal. Civ. Code § 1635 (“All contracts, whether public or
private, are to be interpreted by the same rules, except as otherwise
provided by this Code.”).
“California recognizes the objective theory of contracts, under which
it is the objective intent, as evidenced by the words of the contract, rather
than the subjective intent of one of the parties, that controls interpretation.”
Founding Members of the Newport Beach Country Club v. Newport Beach
Country Club, Inc., 109 Cal. App. 4th 944, 956 (2003) (cleaned up). In other
words, “[t]he language of a contract is to govern its interpretation, if the
language is clear and explicit, and does not involve an absurdity.” Cal. Civ.
Code § 1638. Furthermore, “[w]hen a contract is reduced to writing, this
intent ‘is to be ascertained from the writing alone, if possible.’” U.S. Cellular
Inv. Co. v. GTE Mobilnet, Inc., 281 F.3d 929, 934 (9th Cir. 2002) (citing Cal.
Civ. Code § 1639; and Brinton v. Bankers Pension Servs., Inc., 76 Cal. App. 4th
550, 559, (1999)).
When the contract language is unambiguous or the relevant extrinsic
evidence is undisputed, the court’s interpretation of the contract is a
question of law. L.K. Comstock & Co. v. United Eng'rs & Constructors Inc., 880
F.2d 219, 221 (9th Cir. 1989); see also Founding Members of the Newport Beach
Country Club, 109 Cal. App. 4th at 955-56 (“When no extrinsic evidence is
introduced, or when the competent extrinsic evidence is not in conflict, the
14 appellate court independently construes the contract.”).
C. Green Coin defaulted on the Purchase Agreement.
This appeal hinges on a single sentence from the Liquidated
Damages Clause: “If Buyer fails to complete this purchase because of
Buyer’s default, Seller shall retain, as liquidated damages, the deposit
actually paid.” The bankruptcy court applied the Liquidated Damages
Clause to hold that the estate was entitled to the $900,000 deposit. It
determined that Green Coin defaulted by failing to pay the full deposit at
or before the time it was due, and this resulted in Green Coin not being
able to complete the purchase.
Green Coin’s relevant arguments challenge the bankruptcy court’s
application of the Liquidated Damages Clause. Though Green Coin never
paid the full deposit as required under the Purchase Agreement, it claims
that it never defaulted before cancellation of the contract. It asserts that its
duty to perform never matured because notice of various events was a
condition to its performance. It next contends the parties agreed that the
deposit under any and all circumstances was fully refundable, thereby
negating the Liquidated Damages Clause. Alternately, it insists that by the
time its performance was due, Khadavi had cancelled the contract. Finally,
it argues that regardless of any default that occurred, Khadavi elected to
proceed and did proceed under paragraph 14D of the Purchase Agreement,
which provides for return of the deposit to the prospective purchaser upon
cancellation. As discussed below, none of Green Coin’s theories justify
15 reversal.6
1. The due date of the deposit.
As the bankruptcy court duly recognized, the plain language of the
Purchase Agreement required the buyer to pay the full deposit amount
“within 3 business days after Acceptance.” In turn, the Purchase
Agreement specifically defined “Acceptance” as “the time the offer or final
counter offer is accepted in writing by a Party and is delivered to and
personally received by the other Party or that Party’s authorized agent in
accordance with the terms of this offer or a final counter offer.” It is
undisputed that “Acceptance” occurred here on September 9, 2021, when
Green Coin executed and returned the counter offer to Khadavi. Thus, the
full $2.55 million deposit was due on September 12, 2021 (or the next
business day thereafter).
Evidently aware of this deadline, the parties negotiated for two
Purchase Agreement addenda, which extended the due date for the
6 In addition to its other arguments, Green Coin contends that its failure to timely pay the full deposit as the Purchase Agreement required did not constitute a default under the agreement. Though it acknowledges that the Purchase Agreement did not define the term “default,” Green Coin makes no attempt to define the word—other than to baldly assert that its nonpayment of the deposit would not fall within the definition. This assertion lacks merit. Ordinarily, “words of a contract are to be understood in their ordinary and popular sense,” unless the surrounding circumstances indicate otherwise. Cal. Civ. Code § 1644; accord, AIU Ins. Co. v. Super. Ct., 51 Cal. 3d 807, 822 (1990). “Default” commonly means “[t]he omission or failure to perform a legal or contractual duty; esp., the failure to pay a debt when due.” Black’s Law Dictionary (11th ed. 2019). As discussed below, the Purchase Agreement required Green Coin to pay the deposit, and it defaulted by not timely paying the full deposit amount required. 16 deposit. Addendum No. 2 extended the deposit deadline to November 2,
2021, and Addendum No. 3 further extended the deposit deadline to
December 2, 2021. There are disputes regarding the execution of these
addenda and whether they are valid in the absence of court approval.
These disputes are not material. Consistent with the bankruptcy court’s
decision, we assume for purposes of summary judgment that the addenda
duly extended the deposit deadline.
This means that, at the latest, Green Coin’s full deposit was due no
later than December 2, 2021. Therefore, Green Coin was in default under
the Purchase Agreement as of December 3, 2021, when it failed to pay the
full amount of the required deposit. By that date even the contingency
handwritten into the Purchase Agreement at paragraph 6—“Subject to
Court Approval”—had been satisfied. The bankruptcy court had entered
its order authorizing the sale on November 16, 2021.
Green Coin argues that the Notice of Buyer to Perform No. 1 (“NBP”)
Khadavi executed and sent to Green Coin on December 1, 2021, constituted
a further extension of the deposit deadline. Green Coin suggests that the
NBP extended the deposit deadline to December 6, 2021. It is mistaken. The
NBP identifies full payment of the “Initial Deposit” as a required
“contractual action” and then specifies that the buyer has three days from
delivery of the NBP to perform or else “Seller may cancel the Agreement.”
(Emphasis added.) It is beyond genuine dispute that the performance
period given in the NBP was to cure an existing default. Such a reading is
17 compelled by Purchase Agreement paragraphs 3A (governing the deposit)
and 14D (governing buyer rescission). In relevant part, paragraph 14D(2)
permits the seller to rescind and return the portion of deposit paid “after
first delivering to Buyer a NBP” if the full deposit is not paid in accordance
with paragraph 3A. Because Khadavi gave the NBP to permit Green Coin
to cure its failure to fund the full deposit, the NBP does not alter the
uncontroverted fact that Green Coin already was in default as of December
3, 2021.
2. Alleged notice conditions.
Green Coin next claims that its failure to pay the full deposit did not
constitute a default because its duty to pay the full deposit amount never
matured. It broadly complains that it was not aware of what specifically
occurred in the bankruptcy court. This was largely a self-inflicted wound.
Yet, Green Coin insists that before the full earnest money deposit was due,
Khadavi was required to give it notice: (1) of the bankruptcy court’s order
approving the contract; (2) that it might forfeit the $900,000 deposit paid if
it did not pay the remainder of the deposit; and (3) that it was obliged to
perform this duty by a date certain.
We have found no per se rule that such notice is a compulsory
condition precedent to performance under a contract. To the contrary,
unless the parties agree to a notice condition or one of the parties
persuades the court that the notice condition is implicit in the contract or is
necessary as a matter of good faith and fair dealing, no such condition
18 exists. See Restatement (Second) of Contracts § 226, cmts. a & c, and illus. 7
& 8 (1981); see also JMR Constr. Corp. v. Env't Assessment & Remediation
Mgmt., Inc., 243 Cal. App. 4th 571, 596 (2015), as modified on denial of reh'g
(Jan. 28, 2016) (holding that under California’s rules of contract
construction, obligee under surety contract was not required to give notice
to surety of principal’s default as a condition precedent to surety’s liability
on performance bonds).
If Green Coin wanted to require notice of court approval, potential
forfeiture, and the specific timing of its performance as contractual
provisions, it could have proposed putting them in the parties’ Purchase
Agreement. But it did not do so. Nor has Green Coin presented any
authority supporting the notion that the conditions should have been
implied as a matter of law. We see nothing unfair, unreasonable, or
impractical in the absence of these notice conditions.
Importantly, the bankruptcy court noted that Green Coin’s real estate
agents were timely served with the sale motion and notice of the sale
hearing. As the bankruptcy court’s decision correctly reflects, their
knowledge is imputed to Green Coin.7 The real estate agents knew the
7 Green Coin’s real estate sales agents had a fiduciary duty to report to their respective brokers all information that they knew or should have known in the course and scope of their agency, and their brokers had an equivalent fiduciary duty to report the same information to Green Coin as the prospective buyer. See Horiike v. Coldwell Banker Residential Brokerage Co., 1 Cal. 5th 1024, 1038-39 (2016). As a result, all knowledge Green Coin’s real estate agents and brokers acquired or reasonably should have learned in the course and scope of their duties is imputed to Green Coin. See 4 19 name and number of the bankruptcy case and that Khadavi was seeking
court approval of the sale. They also knew the contents of the sale motion,
the transaction documents attached, and the date and time of the hearing
on the motion. Thus, it would have been simple and easy for Green Coin’s
agents to track the court’s approval process for an $85 million sale.
Additionally, Green Coin’s agents were in repeated contact with Khadavi
and his bankruptcy counsel about the sale. Indeed, Green Coin and its
agents negotiated for extensions of the due date. Thus, Green Coin’s
professed ignorance of the specific due date and the claimed unfairness of
not being told the specific due date rings hollow and fails to raise a genuine
dispute of material fact to preclude summary judgment.
Green Coin’s argument that it was unaware that its partial deposit
was subject to potential forfeiture is equally unavailing. As the bankruptcy
court found, the Liquidated Damages Clause clearly provides for
liquidated damages if Green Coin defaulted. Also, Green Coin’s repeated
efforts to amend the Purchase Agreement to make the deposit refundable
demonstrate its knowledge that it was subject to forfeiture if it defaulted.
Accordingly, we reject Green Coin’s argument that conditions of
notice regarding court approval, potential forfeiture, and the specific
timing of its performance were part of, or should be implied into, the
parties’ contract.
Miller and Starr, Cal. Real Est. § 10:79 & n.6 (4th ed. 2023) (citing Merchants' Holding Corp. v. Grey, 6 Cal. App. 2d 682, 687-88 (1935)). 20 3. Alleged refundability of the $900,000 deposited.
Green Coin next contends that regardless of default, the deposit was
fully refundable if the sale did not close for any reason. Green Coin
attempted to protect the deposit’s refundability in all three addenda.
Addenda No. 1 said: “This sale is based on a valuation of Green Coin for
$85 Million.” 8 Addenda Nos. 2 and 3 were more direct. Each said: “The
Buyer’s deposit is fully refundable if Buyer fails to close.”
For purposes of summary judgment we assume, as the bankruptcy
court did, that the Addenda would have amended the Purchase Agreement
and rendered the $900,000 partial deposit fully refundable as Green Coin
claims. Still, we also agree with the bankruptcy court that the refundability
provisions are invalid. None of the three addenda were presented to the
bankruptcy court for approval. As a result, they could not substantively
amend the Purchase Agreement approved by the bankruptcy court by
removing the Liquidated Damages Clause.
Agreements with a debtor in possession or trustee involving the use
or sale of estate property outside the ordinary course of the debtor’s
business are subject to prior notice under Rule 2002(a)(2) and the statutory
requirements of § 363(b)(1). 240 N. Brand Partners, Ltd. v. Colony GFP
Partners, L.P. (In re 240 N. Brand Partners, Ltd.), 200 B.R. 653, 659 (9th Cir.
8 There is a genuine dispute regarding what this language meant. Green Coin claims it meant that the sale was contingent on Green Coin being valued by some unidentified entity as being worth $85 million. But this dispute is not material as explained below. 21 BAP 1996). The requirements protect the interests of creditors in estate
assets. Debtors and trustees who wish to dispose of estate assets must
demonstrate both good faith and a legitimate business purpose. Id. This
typically means that sale agreements not approved by the bankruptcy
court are unenforceable. See In re Smith, 352 B.R. 500, 501-03 (Bankr. N.D.
Ala. 2006) (collecting cases); see also Slaieh v. Simons, 584 B.R. 28, 36 (C.D.
Cal. 2018) (holding that plaintiff could not allege the existence of a binding
sale contract with bankruptcy trustee without allegation of court approval).
These cases stand for the proposition that Khadavi and Green Coin could
not present one version of the Purchase Agreement to the bankruptcy court
for approval but bind each other to a different version of the Purchase
Agreement purporting to omit or negate material terms of the court-
approved version.
In short, we agree with the bankruptcy court that the secret addenda
were invalid and unenforceable for violating Rule 2002 and § 363(b)(1).
Accordingly, we reject Green Coin’s argument that the deposit was
refundable under the addenda.
4. Alleged cancellation of the Purchase Agreement and Escrow.
Green Coin’s remaining arguments focus on the alleged cancellation
of the Purchase Agreement and the escrow. Though Green Coin’s
references to cancellation are myriad, its cancellation arguments generally
fall into one of two broad categories: (1) Green Coin never defaulted
because Khadavi cancelled the Purchase Agreement on December 6, 2021,
22 before Green Coin’s duty to pay the full deposit matured; and (2) the
cancellation triggered paragraph 14D(2) of the Purchase Agreement, which
required return of the full deposit to Green Coin.9
a. Green Coin was in default on December 3, 2021.
Our prior analysis of the contractual due date for the full deposit
disposes of Green Coin’s first cancellation argument. Accepting that
Khadavi extended the due date for payment of the balance of the earnest
money deposit, Green Coin was required to deposit an additional
$1,650,000 into escrow by December 2, 2021. It did not and was in default
of the Purchase Agreement at that time. As explained above, the NBP did
not extend the due date for the balance of the deposit. Thus, Green Coin
already was in default when the so-called December 6, 2021 cancellation
allegedly occurred.
b. Khadavi did not unilaterally cancel the Purchase Agreement under ¶ 14D(2).
Green Coin’s second cancellation argument is patently dependent on
its claim that Khadavi unilaterally cancelled the Purchase Agreement on
December 6, 2021. To support this point, Green Coin relies on a single
sentence from Khadavi’s declaration filed on December 6, 2021: “As of
9 As the bankruptcy court aptly pointed out, these two arguments are mutually exclusive. The first denies that default ever occurred, while the second presupposes the existence of a default since paragraph 14D(2) is premised on the buyer’s failure to perform a contractual obligation “by the time specified in this Agreement.” Green Coin cannot have it both ways. 23 December 6, 2021, Green Coin failed to perform, as a result of which I
cancelled the agreement with Green Coin for the sale of the Sarbonne
Property.” Green Coin contends that this declaration testimony constituted
the rescission provided for in paragraph 14D(2). With this statement, Green
Coin believes that Khadavi relinquished any claim his bankruptcy estate
might have had in the deposit.
The California Association of Realtors utilizes its Cancellation of
Contract, Release of Deposit and Cancellation of Escrow (Form CC) for the
cancellation of California Residential Purchase Agreements and other
contracts. The document provides for cancellation of the contract and
instructions for the release of any deposit as well as the cancellation of
escrow. The parties to the contract may select various reasons for
cancellation of the contract, including the failure to take applicable
contractual actions after being given a Notice to Perform. Alternately, the
parties may mutually agree to cancel the contract. Similarly, the parties
may choose from several options how any deposit is to be handled.
Khadavi never executed a Cancellation Form for unilateral rescission
of the Purchase Agreement. As we previously stated, the two versions of
the Cancellation Form in the summary judgment record both provided for
cancellation by mutual agreement. In fact, there is no writing in the record
other than Khadavi’s statement in his declaration even remotely suggesting
a unilateral cancellation. Presumably, Green Coin relies on this declaration
testimony to support its rescission argument because paragraph 14H of the
24 Purchase Agreement requires any party purporting to cancel or rescind the
agreement to do so in writing.
All other evidence in the record demonstrates that Green Coin has
taken this single sentence out of context. Khadavi’s declaration was
submitted in response to the court’s direction that the debtor provide an
update after the December 1, 2021 continued status hearing on the sale
motion. At the status hearing, debtor’s counsel explained that the debtor
had just sent the NBP to Green Coin giving it three days to cure the default:
“This is a real estate form that basically says you’ve got three days to put
up the money or we’re canceling this deal.” When asked by the court if
there was a nonrefundable deposit, counsel responded that the issue was
“a matter of some contention.” But counsel made it clear that “[c]ertainly
the Debtor’s going to seek to retain the deposit” in the event Green Coin
did not cure the default.
After his December 6, 2021 declaration, Khadavi and Green Coin
negotiated a mutually agreed-upon cancellation of both the Purchase
Agreement and the related escrow. The key term the parties negotiated
was whether and how the $900,000 should be split between Khadavi and
Green Coin. As a result of the parties’ efforts, they presented in the
adversary proceeding two different versions of the Cancellation Form, both
dated December 10, 2021, as well as several different versions of their terms
for disposal of the funds in escrow. Nonetheless, it is undisputed that on
both of the competing versions of the Cancellation Form, the parties
25 checked the box stating that the Purchase Agreement was being cancelled
“Per Mutual Agreement” rather than one of the two boxes providing for
unilateral cancelation of the Purchase Agreement.
Moreover, if Khadavi was cancelling the Purchase Agreement under
paragraph 14D, the partial deposit should have been returned to Green
Coin and the appropriate box checked on the form. Yet on both versions of
the Cancellation Form, the parties checked the box for “other” disposition
of the funds held in escrow. And they wrote “See Addendum 3” to
reference their specific terms for disposition of the escrow funds. Rather
than returning the deposit to Green Coin as required under paragraph 14D,
all versions of this addendum dispose of the deposit by sending some
amount to Khadavi in a split of the monies in one fashion or another.10
Initially, there was no dispute that the parties sought to mutually
cancel the Purchase Agreement on December 10, 2021, and split the
monies. Indeed, it was Green Coin that brought this matter to light when it
disclosed one version of the Cancellation Form and addendum in its
answer to Khadavi’s complaint. In its opposition to the trustee’s summary
10 To be clear, there is a genuine dispute as to which version of the attachment to the Cancellation Form providing for disposal of the escrowed funds accurately reflects the parties’ agreement. But this dispute is not material. Indeed, Green Coin states in its reply brief on appeal that it does not seek to enforce any of the Cancellation Forms. The only material fact for purposes of summary judgment and this appeal is undisputed: by mutual agreement the parties attempted to split disposition of the deposit. This is wholly inconsistent with Green Coin’s claim that Khadavi intended to relinquish the estate’s rights in the deposit by unilaterally cancelling the Purchase Agreement in his December 6, 2021 declaration. 26 judgment motion, Green Coin also repeatedly referred to the parties’
mutual agreement to cancel the Purchase Agreement. However, in its
supplemental papers opposing the summary judgment motion, Green Coin
claimed for the first time that Khadavi unilaterally cancelled the Purchase
Agreement and that its prior statements regarding cancellation by mutual
agreement only were meant to refer to the cancellation of escrow.
Green Coin argues that the facts and circumstances surrounding the
putative cancellation efforts demonstrated disputed questions of fact that
required the bankruptcy court to deny summary judgment. We disagree.
“When opposing parties tell two different stories, one of which is blatantly
contradicted by the record, so that no reasonable jury could believe it, a
court should not adopt that version of the facts for purposes of ruling on a
motion for summary judgment.” Scott, 550 U.S. at 380.
Green Coin seizes on one sentence from Khadavi’s declaration made
in a status report required by the court. From this, Green Coin attempts to
raise a genuine dispute as to what Khadavi intended to do. All other
evidence in the record, including the parties’ actions, are directed towards
a formal mutual agreement to cancel the Purchase Agreement and divide
the deposit. The contemporaneous transaction documents are flatly
inconsistent with a unilateral cancellation that would have triggered Green
Coin’s right under paragraph 14D to reclaim the full deposit. Under these
circumstances we will follow Scott. The record demonstrates that the
parties attempted to mutually cancel the Purchase Agreement and split the
27 deposit. Green Coin’s reliance on Khadavi’s statement fails to raise a
genuine dispute that he unilaterally canceled the Purchase Agreement and
relinquished the estate’s interest in the deposit.
c. None of the versions of the cancellation agreement were approved by the bankruptcy court and hence all were invalid and unenforceable.
As for the various versions of the parties’ mutual agreement to cancel
the Purchase Agreement and to split and dispose of the deposit funds held
in escrow, any dispute regarding the actual contents of the cancellation
agreement is immaterial. We agree with the bankruptcy court that
whatever agreement may have been reached, regardless of version, it
constituted an attempted compromise of the parties’ dispute over the
deposit. As such, the compromise was subject to notice and the
requirements of Rule 9019. Again, the parties failed to present the mutual
cancellation to the court for approval. See generally Goodwin v. Mickey
Thompson Ent. Grp., Inc. (In re Mickey Thompson Ent. Grp., Inc.), 292 B.R. 415,
420-21 (9th Cir. BAP 2003) (describing prerequisites to compromise).
Put differently, the cancellation agreement is analogous to the
refundability provisions we rejected earlier. It qualified as an unauthorized
agreement to use or sell an estate asset: the right to dispose of the deposit
under the Liquidated Damages Clause. Without court approval, the
parties’ attempted agreement to cancel the Purchase Agreement and
dispose of the deposit was invalid and unenforceable against the
28 bankruptcy estate. See Slaieh, 584 B.R. at 36; In re Smith, 352 B.R. at 503.
In sum, the bankruptcy court correctly determined on summary
judgment that there was no unilateral cancellation of the Purchase
Agreement or relinquishment of the estate’s interest in the deposit under
the Liquidated Damages Clause. Nor was the parties’ mutual cancellation
agreement—whatever its actual terms—effective to bind the estate to a
disposition of the deposited funds. 11
CONCLUSION
For the reasons set forth above, we AFFIRM.
11 For the first time on appeal, Green Coin asserted that the bankruptcy court should have rewritten the Purchase Agreement to mirror the standard terms typically set forth in form contracts for the sale of real property subject to probate proceedings. In essence, Green Coin is asking for reformation of the Purchase Agreement. But reformation requires the proponent to bring a cause of action for reformation, as well as plead and prove the elements for the requested relief. See Pascoe v. Morrison, 219 Cal. 54, 55–56 (1933) (citing Cal. Civ. Code § 3399). Because Green Coin failed to do so, we decline its belated invitation to rewrite the parties’ contract. 29