Beaver v. Tarsadia Hotels

• Decision Date: 10 March 2016
• Docket Number: No. 15–55106.,15–55106.
• Citation: 816 F.3d 1170
• Parties: Dean BEAVER, Husband; Laurie Beaver, Wife; Steven Adelman, an individual; Abram Aghachi, an individual; Dinesh Gauba, an individual; Kevin Kenna, husband and wife, on behalf of themselves and all others similarly situated; Veronica Kenna, husband and wife, on behalf of themselves and all others similarly situated, Plaintiffs–Appellees, v. TARSADIA HOTELS, a California corporation; Tushar Patel, an individual; B.U. Patel, an individual; Gregory Casserly, an individual; 5th Rock LLC, a Delaware limited liability company; MKP One, LLC, a California limited liability company; Gaslamp Holdings, LLC, a California limited liability company, Defendants–Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

816 F.3d 1170

Dean BEAVER, Husband; Laurie Beaver, Wife; Steven Adelman, an individual; Abram Aghachi, an individual; Dinesh Gauba, an individual; Kevin Kenna, husband and wife, on behalf of themselves and all others similarly situated; Veronica Kenna, husband and wife, on behalf of themselves and all others similarly situated, Plaintiffs–Appellees,

v.TARSADIA HOTELS, a California corporation; Tushar Patel, an individual; B.U. Patel, an individual; Gregory Casserly, an individual; 5th Rock LLC, a Delaware limited liability company; MKP One, LLC, a California limited liability company; Gaslamp Holdings, LLC, a California limited liability company, Defendants–Appellants.

No. 15–55106.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 4, 2016.

Filed March 10, 2016.

Frederick H. Kranz (argued) and Lynn Therese Galuppo, Cox, Castle & Nicholson, LLP, Irvine, CA; David Wesley Moon, Stroock & Stroock & Lavan LLP, Los Angeles, CA, for Defendants–Appellants.

Michael Rubin (argued), Altshuler Berzon LLP, San Francisco, CA; Donald E. Chomiak, Talisman Law, P.C., Glendale, CA; Wendy C. Fostvedt, Fostvedt Legal Group LLC, Basalt, CO; Tyler R. Meade, The Meade Firm P.C., Berkeley, CA; Michael J. Reiser, Law Office of Michael J. Reiser, Walnut Creek, CA; Michael L. Schrag and Andre M. Mura, Gibbs Law Group LLP, Oakland, CA, for Plaintiffs–Appellees.

Before: MILAN D. SMITH, JR., PAUL J. WATFORD, and MICHELLE T. FRIEDLAND, Circuit Judges.

OPINION

M. SMITH, Circuit Judge:

Plaintiffs Dean Beaver, Laurie Beaver, Steven Adelman, Abram Aghachi, Dinesh Gauba, Kevin Kenna, and Veronica Kenna are the purchasers of non-residential condominium units in San Diego's Hard Rock Hotel & Condominium Project (the Hard Rock Project). Plaintiffs brought this putative class action against Defendants,¹ a group of developers and their agents or affiliates who allegedly participated in the sale of the condominium units. Plaintiffs claimed, inter alia, that Defendants' business practices violated California's Unfair Competition Law (UCL), Cal. Bus. & Prof.Code § 17200 et seq.

Specifically, Plaintiffs alleged that Defendants failed to make certain disclosures in the course of the sale transactions, as required by the Interstate Land Sales Full Disclosure Act (ILSA), 15 U.S.C. § 1701 et seq., which applies in this case by operation of the UCL's prohibition against "unlawful" business practices. Cal. Bus. & Prof.Code §§ 17200.

Defendants concede that they failed to comply with ILSA's disclosure requirements. They instead raise a series of affirmative defenses, contending that (1) ILSA's statute of limitations, 15 U.S.C. § 1711, bars Plaintiffs' UCL claim; (2) ILSA does not apply because Plaintiffs' condominium units are not considered qualifying "lots" under ILSA, see 12 C.F.R. § 1010.1(b) ; (3) the condominium units are exempt under ILSA's Improved Lot Exemption, 15 U.S.C. § 1702(a)(2) ; and (4) a 2014 amendment to ILSA, 15 U.S.C. § 1702(b)(9), passed after the commencement of the current proceedings, operates to extinguish Defendants' liability in connection with the condominium sales.

The district court rejected each of these four arguments and granted partial summary judgment in favor of Plaintiffs on the portion of their UCL claim that was premised on the existence of an "unlawful" business practice under ILSA. Nonetheless, the district court certified these four issues for interlocutory appeal, pursuant to 28 U.S.C. § 1292(b). We granted Defendants' petition for interlocutory appeal, and we now affirm the district court's partial summary judgment order with respect to the certified issues.²

FACTS AND PRIOR PROCEEDINGS

A. The Parties

The Hard Rock Project, located at 205 Fifth Avenue in downtown San Diego, is a mixed-use development that includes the Hard Rock Hotel and 420 commercial condominium units. Plaintiffs are a group of individual purchasers of non-residential condominium units in the Hard Rock Project. Defendant 5th Rock, LLC (5th Rock) was the developer of the condominium units and sold these units to Plaintiffs. Defendant MKP operated as the managing member of 5th Rock and signed the condominium purchase contracts on 5th Rock's behalf. 5th Rock enlisted the assistance of Defendant Tarsadia Hotels (Tarsadia) in the development and subsequent management and operation of the properties. Defendant Greg Casserly served as Tarsadia's president, and Defendant Tushar Patel served as Tarsadia's chairman.

B. The Purchase Transactions

Plaintiffs purchased the condominium units from 5th Rock before construction of the Hard Rock Project was completed. The condominium purchase contracts were signed in May 2006 by one set of Plaintiffs, and in December 2006 by the remaining Plaintiffs. These purchase contracts called for estimated completion dates between August 2007 and September 2007, and a closing date of no later than December 29, 2007. In addition, the purchase contracts contained clauses specifying that "except for delays caused by circumstances beyond Seller's reasonable control or the failure to complete due to a permitted excuse, Seller shall use commercially reasonable efforts to complete the construction of the Unit by the Estimated Completion Date."

One of the "permitted excuses" to timely completion was contained in a pre-sale contingency clause, which gave Defendants the "unilateral right" to terminate the contract if less than 75% of the condominium units were sold or under contract by the closing date. By December 2006, more than 75% of the condominium units at the Hard Rock Project were under contract.

The purchase contracts also required that Plaintiffs execute a unit maintenance and operation agreement (UMA) as part of the sale transaction. The UMA contained several restrictions on Plaintiffs' use of the units. The UMA limited Plaintiffs' rights to occupy the condominium units to a maximum of twenty-eight days per year. Moreover, the UMA mandated that the properties could only be resold as non-residential condominium units, required that the properties be managed as part of the Hard Rock Hotel, and granted the Hard Rock Hotel a right of first refusal in the event that a Plaintiff wished to sell his condominium unit. Plaintiffs also agreed that the hotel would control the room furnishings and other routine housekeeping and maintenance services in the units.

C. Post–Transaction Events

Separately, in 2007, Plaintiffs entered into Rental Management Agreements (RMAs) that appointed Tarsadia as property manager with the "sole and exclusive authority to manage, operate, market and rent" the condominium units. The terms of the RMA gave Tarsadia the right to "enter the Unit, without Notice to Owner, from time to time, and at any time, for any purpose set forth in this Agreement."

Construction of the condominium units was completed around October of 2007. Between October and December of 2007, Plaintiffs closed escrow on their respective condominium units. Plaintiffs contend that they would have cancelled the purchase contracts prior to closing escrow had Defendants complied with their disclosure obligations and made Plaintiffs aware of their statutory rescission rights under ILSA.

D. Procedural History

On May 18, 2011, Plaintiffs brought a putative class action in California state court against Defendants, alleging violations of federal and state laws, including the UCL, in connection with the sale of the condominium units. Defendants later removed the action to federal court in the Southern District of California under the Class Action Fairness Act, 28 U.S.C. § 1332(d).

Plaintiffs' claims were predicated, in part, on allegations of unlawful conduct through Defendants' failure to comply with ILSA. The parties filed cross-motions for partial summary judgment on those UCL claims arising from Defendants' failure to comply with ILSA's disclosure requirements. The district court initially granted summary judgment to Defendants on the basis that Plaintiffs' UCL claim was time-barred, but later reversed its holding after Plaintiffs filed a motion for reconsideration. The district court ultimately issued a new order, allowing Plaintiffs' UCL claim to proceed and awarding partial summary judgment in Plaintiffs' favor.

In 2014, while a motion for reconsideration from Defendants was pending before the district court, Congress passed an amendment to ILSA (the 2014 Amendment), codified at 15 U.S.C. § 1702(b)(9). This amendment exempts condominium sales from the same ILSA disclosure requirements upon which Plaintiffs had predicated their UCL claim. After additional briefing from the parties, the district court concluded that the 2014 Amendment had no retrospective application in the present action.

Nonetheless, the district court certified the issue, as well as other issues of law involved in its partial summary judgment order, for interlocutory appeal pursuant to 28 U.S.C. § 1292(b). We granted Defendants' petition for interlocutory appeal.

STANDARD OF REVIEW

We review a district court's grant of summary judgment de novo. See Orr v. Bank of Am., NT & SA, 285 F.3d 764, 772 (9th Cir.2002). We view the evidence in the light most favorable to the non-moving party. Id. Where disputed facts exist, the plaintiff's representations of these facts are assumed to be correct for the purposes of deciding the summary judgment motion. Id. The district court's determinations on questions of law are reviewed de novo. See Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., ––– U.S. ––––, 134 S.Ct. 1744, 1748, 188 L.Ed.2d 829 (2014).

DISCUSSION

I. The Statute of Limitations

The UCL is a California consumer protection statute that broadly proscribes the use of any "unlawful, unfair or fraudulent business act or practice." Cal. Bus. & Prof.Code. § 17200. The UCL operates as a three-pronged statute: "Each of these three adjectives [unlawful, unfair, or fraudulent] captures a ‘separate and distinct theory of liability.’ " Rubio v. Capital One Bank, 613 F.3d 1195, 1203 (9th Cir.2010)...