Argued and Submitted October 22, 2015, Pasadena, California.
Appeal from the United States District Court for the Central District of California. D.C. No. 2:12-cv-02707-MWF-FMO. Michael W. Fitzgerald, District Judge, Presiding.
The panel affirmed the district court's grant of summary judgment in favor of First Tennessee Bank National Association (FTB) in an action brought by DM Residential Fund II, LLC, seeking to rescind its purchase of real property on the basis that the seller failed to disclose a defect. FTB initiated a nonjudicial foreclosure on residential real property and sold the property at a foreclosure sale to DM. The property lacked a utilities easement to provide electrical services to the new home and also lacked a certificate of occupancy. DM discovered the utilities easement issue shortly after buying the property, but did not bring this diversity action until two years later, seeking to rescind the purchase.
The panel held that there was a genuine issue of material fact as to whether DM could have discovered the defect prior to the foreclosure. The panel also held nevertheless that the district court did not err in concluding on summary judgment that DM was not entitled to the equitable remedy of rescission because a party seeking rescission must do so " promptly upon discovering the facts upon discovering the facts which entitle him to rescind." Cal. Civ. Code § 1691. The panel also held that there was no genuine issue of material fact that DM was put on inquiry of wrongdoing at the time it discovered the lack of electricity at the residence shortly after the purchase, and therefore it was deemed to know all facts that could be discovered from a reasonable investigation. The panel further held that DM, instead of investigating and pursuing its claims, took actions inconsistent with unwinding the contract, and by taking those actions and waiting two years before suing FTB, DM affirmed the transaction and lost its right to rescind.
The panel concluded that FTB was entitled to summary judgment because there was no genuine issue of material fact that DM's two-year delay in bringing suit deprived it of the equitable remedy of rescission under California law.
Dissenting, Judge Kozinski would hold that DM raised a genuine issue of material fact regarding whether it was wronged by FTB, and FTB was not entitled to prevail on its defenses and not entitled to summary judgment. He would certify the issue for consideration by the California Supreme Court.
Harris L. Cohen, (argued) Harris L. Cohen, A Professional Corporation, Encino, California; Elkanah J. Burns, Alan D. Wilner, A Professional Corporation, Burbank, California, for Plaintiff-Appellant.
Keith A. Attlesey (argued) and Suzanne S. Storm, Attlesey Storm, LLP, Tustin, California, for Defendant-Appellee.
Before: Alex Kozinski, Sandra S. Ikuta, and John B. Owens, Circuit Judges.
Sandra S. Ikuta, Circuit Judge.
DM Residential Fund II, LLC, (DM) appeals the district court's grant of summary judgment in favor of First Tennessee Bank National Association (FTB). We have jurisdiction under 28 U.S.C. § 1291, and we affirm.
FTB initiated a nonjudicial foreclosure on residential real property and sold the property at a foreclosure sale to DM. The property lacked a utilities easement needed to provide electrical service to the new home that had been constructed on the property and also lacked a certificate of occupancy. DM discovered the utilities easement issue shortly after buying the property and brought this diversity action ...