Checkmate Staffing, Inc. v. Diversified Paratransit, Inc. , 359 Fed. Appx. 736 ( 2009 )

FILED
NOT FOR PUBLICATION NOV 16 2009
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: CHECKMATE No. 08-60009
STAFFING, INC.,
BAP No. CC-07-1300-PaDMo
Debtor,
MEMORANDUM *
DIVERSIFIED PARATRANSIT, INC.,
Appellant,
v.
CHECKMATE STAFFING, INC.,
Appellee.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Pappas, Montali, and Dunn, Bankruptcy Judges, Presiding
Argued and Submitted October 9, 2009
Pasadena, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before: HALL and TALLMAN, Circuit Judges, and LAWSON, ** District Judge.
Diversified Paratransit, Inc., (“DPI”) timely appeals from a decision of the
Ninth Circuit Bankruptcy Appellate Panel (“BAP”) affirming the judgment of the
bankruptcy court after trial of an adversary proceeding prosecuted by appellee
Checkmate Staffing, Inc. (“Checkmate”), a Chapter 11 debtor. In the adversary
proceeding, Checkmate obtained a money judgment of $467,500, which was the
full amount due on open invoices for staff leasing services Checkmate performed
for DPI pursuant to a written Service Agreement between the filing of the
bankruptcy petition on December 29, 2003, and the expiration of the Service
Agreement in April 2004.
DPI and its subsidiaries, Paul’s Yellow Cab, Inc. and Inland Express, Inc.,
provide bus and taxi services to the public. DPI contends that the bankruptcy court
abused its discretion by refusing to allow it to proceed under equitable theories of
restitution or unjust enrichment to establish a claim for recoupment of amounts
DPI paid to Checkmate pursuant to the Service Agreement to purchase workers’
compensation and employer liability insurance policies covering the “employees”
of Checkmate who were “leased back” to DPI—insurance Checkmate admits it did
**
The Honorable David M. Lawson, United States District Judge for the
Eastern District of Michigan, sitting by designation.
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not purchase during the fourteen-month period from October 11, 2002, through
December 19, 2003. The parties stipulated that the total amount DPI paid to
Checkmate to obtain insurance for that period exceeded the $467,500 DPI admitted
was due and owing for post-petition services Checkmate performed for DPI.
Checkmate counters that the bankruptcy court properly held DPI to its
burden of proving actual damages for Checkmate’s breach of contract and the
inadequacy of its remedy at law, before it would consider equitable forms of relief.
Checkmate further contends that judgment in its favor for the full $467,500 was
properly entered, without offset, because DPI failed to carry its burden of proof as
to both of those issues. Checkmate contends, in the alternative, that restitution was
not an appropriate remedy in the circumstances of this case because DPI continued
to accept services from Checkmate for almost four months after the filing of the
bankruptcy petition without ever asserting a right to rescission of the Service
Agreement, even though it had learned of Checkmate’s failure to obtain
appropriate insurance as much as four months before the petition was filed.
In an appeal from the BAP, we independently review the bankruptcy court’s
decision, reviewing any conclusions of law de novo, while reviewing findings of
fact for clear error. In re Reynoso, 477 F.3d 1117, 1120 (9th Cir. 2007). The
bankruptcy court’s choice of remedies is reviewed for an abuse of discretion. See
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In re Lopez, 345 F.3d 701, 705 (9th Cir. 2003). This general standard of review is
consistent with California law governing contract claims: “The selection of which
measure of damages to apply is within the sound discretion of the trier of fact.”
GHK Assocs. v. Mayer Group, Inc., 224 Cal. App. 3d 856, 874 (1990). We have
jurisdiction pursuant to 28 U.S.C. § 158(d), and we affirm.
Contrary to DPI’s argument, the bankruptcy court did not foreclose equitable
theories of relief, but only required DPI first to establish: (1) its actual damages
under California Civil Code section 3300 (hereafter, “section 3300”) for
Checkmate’s breach of contract;1 and (2) the inadequacy of its remedy at law. As
the BAP noted, there are no exceptions to section 3300 elsewhere in the California
Codes establishing a different measure of damages for breach of a contract by a
private party to obtain insurance for another party, and both the bankruptcy court
and the BAP relied on a substantial body of California case law establishing the
general rule that one who fails to procure insurance as requested will be liable for
1
Section 3300 provides, in full:
For the breach of an obligation arising from contract, the measure of
damages, except where otherwise expressly provided by this code, is
the amount which will compensate the party aggrieved for all the
detriment proximately caused thereby, or which, in the ordinary
course of things, would be likely to result therefrom.
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any resulting damage. Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins.
Assocs., Inc., 115 Cal. App. 4th 1145, 1153 (2004); Saunders v. Cariss, 224
Cal. App. 3d 905, 909 ( 1990); see also Davidson v. Welch, 270 Cal. App. 2d 220,
236-37 (1969) (damages for a failure to procure insurance required by a contract
are measured by the expenses incurred by the party for whom insurance was to be
provided in defending or settling a claim that would have been covered by that
insurance).2 The bankruptcy court did not abuse its discretion in selecting the
measure of damages to be applied in fashioning a remedy for Checkmate’s
admitted breach of contract. See GHK Assocs., 224 Cal. App. 3d at 873-74.
Nor did the bankruptcy court err in finding that DPI failed to carry its burden
of proof as to both the amount of damages and the adequacy of its remedy at law.
DPI had fifteen months to prepare for trial in light of the bankruptcy court’s
December 2005 ruling that it would apply the “actual damages” measure of
2
Both the California Civil and Insurance Codes have provisions dealing
with the failure of an insurer to provide coverage under an insurance policy, but
these special provisions apply only to insurance companies, and not to entities that
contractually undertake to obtain insurance coverage from insurance companies for
the benefit of other parties. Delta Mfg. Co. v. Jones, 69 Cal. App. 3d 428, 432-33
(1977) (the liability of a party who breaches a contract to procure insurance is to
pay damages, and is not that of an insurer). Thus, DPI’s reliance on Albillo v.
Intermodal Container Services, Inc., 114 Cal. App. 4th 190 (2003), and Rattan v.
United Services Automobile Ass’n, 84 Cal. App. 4th 715 (2000), both of which deal
with the special responsibilities of insurers, is misplaced.
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damages under section 3300 at the second stage of the bifurcated trial in March
2007. DPI simply failed to produce competent, admissible evidence to prove any
amount of actual damages proximately caused by Checkmate’s breach of contract,
clinging to its belief that it would be “impossible” to prove actual damages with
“reasonable certainty,” and that the only appropriate remedy would be restitution of
the amounts it paid Checkmate to purchase appropriate insurance policies.
The bankruptcy court carefully reviewed all of the evidence DPI presented at
trial3 and prepared detailed findings of fact, conclusions of law, and a well-
reasoned written decision rejecting DPI’s claim for recoupment. The bankruptcy
court specifically held that DPI failed to carry its burdens of proof as to actual
damages and the inadequacy of its remedy at law. The BAP carefully considered
each of DPI’s claims of error, including those DPI raises in this appeal. We find
no abuse of discretion or other reversible error in the decisions of the bankruptcy
court or the BAP as to these issues.
In addition, the BAP considered and accepted Checkmate’s alternative
argument that restitution was not, and could not have been, an appropriate remedy
3
The bankruptcy court excluded significant portions of DPI’s evidence,
finding much of it to be lacking in foundation, irrelevant, inadmissible hearsay, and
improper expert testimony. In this appeal, DPI does not challenge any of the
bankruptcy court’s rulings on the admissibility of evidence it presented at trial.
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on the facts of this case. The aggrieved party in an action for breach of contract
under California law may elect restitution as a remedy for breach of contract in
some circumstances, but only when it follows rescission of the contract. See
Oliver v. Campbell, 43 Cal. 2d 298, 302 (1954). Moreover, a party seeking
rescission must invoke that remedy “promptly” upon discovering grounds
justifying rescission. See Cal. Civ. Code § 1691. California courts have
interpreted this “promptness” requirement strictly, demanding action by the
aggrieved party within a month of discovery of the breach unless an adequate
explanation for delay is provided. Campbell v. Title Guar. & Trust Co., 121
Cal. App. 374, 377 (1932); Gedstad v. Ellichman, 124 Cal. App. 2d 831, 834 (1954).
In this case, DPI admits it became aware of Checkmate’s failure to procure
insurance sometime prior to December 29, 2003,4 and probably no later than
August 2003, when one of DPI’s subsidiaries was denied access to the Los Angeles
and Ontario Airports because its drivers did not have appropriate workers’
compensation coverage. In spite of this knowledge, DPI continued to accept
Checkmate’s performance under the Service Agreement for over eight months,
four of which were post-petition. Indeed, DPI never notified Checkmate that it
4
It is also undisputed that Checkmate obtained the insurance required by
the Service Agreement in early December 2003, before it filed for bankruptcy.
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intended to rescind the Service Agreement; it simply continued to accept
Checkmate’s services, allowed the contract to expire in April 2004, and replaced
Checkmate with another service company. Under these facts, the remedy of
restitution was not available to DPI pursuant to an election of remedies because the
Service Agreement was never rescinded, promptly or otherwise.
AFFIRMED.
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