Consul Ltd. v. Solide Enterprises, Inc.

• Decision Date: 20 October 1986
• Docket Number: Nos. 84-6610,86-5522,s. 84-6610
• Parties: CONSUL LIMITED, Kenneth B. Wilson dba Ken Wilson Associates, Plaintiffs-Appellants, v. SOLIDE ENTERPRISES, INC., a corporation, and HRH Operating Company, a corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1143

802 F.2d 1143

CONSUL LIMITED, Kenneth B. Wilson dba Ken Wilson Associates, Plaintiffs-Appellants, v. SOLIDE ENTERPRISES, INC., a corporation, and HRH Operating

Company, a corporation, et al., Defendants-Appellees.

Nos. 84-6610, 86-5522.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 5, 1986.

Decided Oct. 20, 1986.

Rosbon D.B. Whedbee, Ahoskie, N.C., for plaintiffs-appellants.

Harry L. Gershon, Richard, Watson, Dreyfuss & Gershon, Los Angeles, Ca., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before GOODWIN, TANG, and FLETCHER, Circuit Judges.

FLETCHER, Circuit Judge:

Consul, Ltd. and Kenneth B. Wilson appeal from orders dismissing their complaints for failure to state claims. We reverse.

BACKGROUND

Consul is a North Carolina corporation of which Wilson is president. Wilson is licensed as a real estate broker in North Carolina, Georgia, and several other states but not in California. Consul has no broker's licenses. Actions brought by Consul and Wilson, one filed in North Carolina and transferred to California pursuant to 28 U.S.C. Sec. 1404(a) (1982), the other filed in California, have been consolidated. Defendants include Raschid Zeghar, an Algerian citizen domiciled in California, and a group of corporations which own or operate the resort properties whose sale is at issue. ¹

The complaints in the two actions are nearly identical. Allegations relating to property in the Bahamas, however, are found only in the North Carolina complaint. Plaintiffs allege that they agreed orally with defendants to perform certain real estate consulting and brokerage services. As a result of defendants' breaches of those agreements, plaintiffs brought state court actions in California and North Carolina. After negotiations, plaintiffs and defendants reached a settlement agreement and the state court actions were dismissed. The settlement agreement provided, inter alia, that plaintiffs would receive the exclusive right to arrange for the sale of one property in the Bahamas and one in California and the non-exclusive right to sell a second California property. These three transactions are at issue in this case. The agreement also gave an exclusive right of sale to a North Carolina property not at issue in this case. It provided that it would be interpreted "under the laws of the state of North Carolina and California or either of them."

The parties later entered into "Brokerage/Agency Agreements," drafted by the defendants, that provided specifications for the sale of each of the four properties. The agreements relating to the two California properties and the property in the Bahamas provided that they would be interpreted under California law. The fourth Brokerage/Agency Agreement, involving the North Carolina property, provided that it was to be interpreted under North Carolina law.

The complaints allege that defendants did not cooperate with plaintiffs' attempts to arrange the sales and attempted to make sales that violated the exclusive nature of the agreements. Plaintiffs claim damages for anticipatory breach, breach of contract, intentional interference with contractual relations and fraud. ²

The district court ruled that California law applied and dismissed the complaints for failure to state a claim. It held that because plaintiffs had no California broker's licenses they could not maintain actions for breach of contract, and because in the absence of a license the settlement agreement was illegal, they could not maintain the related tort actions. Plaintiffs timely appeal.

STANDARD OF REVIEW

We review a dismissal for failure to state a claim and a district court's interpretation of state law de novo. Gibson v. United States, 781 F.2d 1334, 1337 (9th Cir.1986); Matter of McLinn, 739 F.2d 1395, 1403 (9th Cir.1984) (en banc). An action may be dismissed for failure to state a claim only if it appears certain that plaintiffs can prove no set of facts that entitles them to relief. Gibson, 781 F.2d at 1337.

DISCUSSION

I. Choice of Law

A federal court ordinarily applies the choice-of-law rules of the state in which it sits. Piper Aircraft Co. v. Reyno, 454 U.S. 235, 243 n. 8, 102 S.Ct. 252, 259 n. 8, 70 L.Ed.2d 419 (1981). In re Yagman, 796 F.2d 1165, 1171 (9th Cir.1986). However, when a case is transferred pursuant to 28 U.S.C. Sec. 1404(a), we must apply the choice-of-law rules of the state from which the case was transferred. Piper Aircraft, 454 U.S. at 243 n. 8, 102 S.Ct. at 259 n. 8; S.A. Empresa de Viacao Aerea Rio Grandense v. Boeing Co., 641 F.2d 746, 749 (9th Cir.1981). Thus the California action will be governed by California choice-of-law rules, the North Carolina action by those of North Carolina. The parties agree that the tort claims in the present action are governed by California law, ³ but they disagree as to the law applicable to the contract claims.

The settlement agreement provides that it will be governed by California law, North Carolina law "or either of them." This cryptic phrase takes on meaning when read with the choice-of-law provisions in the accompanying Brokerage/Agency Agreements. Because three of them had provisions choosing California law and one chose North Carolina law, it seems likely that the parties intended each transaction to be governed by the state law indicated by the corresponding brokerage agreement. Accordingly, we believe the parties intended California law to govern this case since the parts of the settlement agreement at issue relate to the brokerage agreements that provide that California law governs.

California and North Carolina courts treat contractual choice-of-law provisions in a similar fashion. California will honor the parties' choice of law unless: (1) the chosen state has no substantial relation to the parties or the transaction; or (2) the choice results in a violation of California public The "substantial relation" and "reasonable basis" language come from the application of Restatement (Second) of Conflict of Laws Sec. 187(2) (1971). ⁴ See Gamer v. duPont Glore Forgan, Inc., 65 Cal.App.3d 280, 287-88, 135 Cal.Rptr. 230, 232 (1977); Behr, 266 S.E.2d at 395. Under that application, California bears the requisite substantial or reasonable relation to the transactions that involve the sale of California property. See 1 B. Witkin, Summary of California Law Sec. 65 at 72 (8th ed. 1973). California also is sufficiently related to the sale of the Bahamas property since one of the parties to the settlement agreement, Zeghar, was a California resident. Also, according to the settlement agreement, the corporate defendant involved in the Bahamas transaction is an alter ego of Zeghar. If one of the parties resides in the chosen state, the parties have a reasonable basis for their choice. Restatement (Second) of Conflict of Laws Sec. 187 comment f.

                policy or the evasion of a California statute.   S.A. Empresa, 641 F.2d at 749;  Sarlot-Kantarjian v. First Pennsylvania Mortgage Trust, 599 F.2d 915, 917 (9th Cir.1979);  Ashland Chemical Co. v. Provence, 129 Cal.App.3d 790, 794, 181 Cal.Rptr. 340, 342 (1982);  see Smith, Valentino & Smith, Inc. v. Superior Court, 17 Cal.3d 491, 494, 551 P.2d 1206, 1208, 131 Cal.Rptr. 374, 376 (1976);  Hall v. Superior Court, 150 Cal.App.3d 411, 416-17, 197 Cal.Rptr. 757, 761 (1983).  North Carolina will honor a choice-of-law provision if there is a reasonable basis for the parties' choice unless application of the chosen law would violate a fundamental policy of the state whose law would otherwise apply.   Behr v. Behr, 46 N.C.App. 694, 266 S.E.2d 393, 395 (1980);  see A.E.P. Industries v. McClure, 308 N.C. 393, 302 S.E.2d 754, 760 (1983)
                

We also must consider whether any fundamental public policies might be offended by applying the parties' choice of law. California obviously would not violate its own public policy by applying its own law. As noted, the public policy considered by North Carolina is that of the state of otherwise applicable law. In the absence of a valid contractual choice of law, North Carolina applies the law of the state in which the contract was "made" to determine questions of validity and interpretation of the contract. Tanglewood Land Co. v. Byrd, 299 N.C. 260, 261 S.E.2d 655, 656 (1980); Davis v. Davis, 269 N.C. 120, 152 S.E.2d 306, 310 (1967). A contract is "made" in the place where the last act was done that was essential to a meeting of the minds of the parties. Fast v. Gulley, 271 N.C. 208, 155 S.E.2d 507, 510 (1967); Suitt Construction Co. v. Seaman's Bank for Savings, 30 N.C.App. 155, 226 S.E.2d 408, 410 (1976). It is unclear from the record whether this act took place in Georgia (where the contract apparently was executed), in North Carolina, or in California. If a North Carolina court determined that the contract was "made" in Georgia or North Carolina, it would proceed to look at the public policies of that state. Although we are obviously hampered at this stage of the proceedings by an inadequate record we currently perceive no conflicts with the policies of either state and so we see no reason why California law should not apply. See note 8 infra. Further factual development could alter this view. The district court should not consider itself bound if facts alter this tentative holding.

II. Merits

A. Statutory Framework

The district court relied on the plaintiffs' failure to comply with California statutes that regulate real estate brokers to dismiss the case. "It is unlawful for any person to engage in the business, act in the capacity of, advertise or assume to act as a real estate broker ... within this State [California] without first obtaining a real estate license...." Cal.Bus. & Prof.Code Sec. 10130 (West Supp.1986) (emphasis added). A real estate broker is defined, in part, as one who, for compensation or expectation of compensation, "[s]ells or offers to sell ..., solicits...