Kaonohi Ohana, Ltd. v. Sutherland
| Decision Date | 05 May 1989 |
| Docket Number | Nos. 87-2742,87-1892 and 87-2680,s. 87-2742 |
| Citation | 873 F.2d 1302 |
| Parties | KAONOHI OHANA, LTD., Plaintiff-Appellant, v. Nancy E. SUTHERLAND, Defendant-Appellee. In re KAONOHI OHANA, LTD., Debtor. Nancy E. SUTHERLAND; Donald Sutherland; Stephen Newnham, Trustees of the Ralph L. Evans Trust, Plaintiffs-Appellants, v. KAONOHI OHANA, LTD., Debtor-Appellee. In re KAONOHI OHANA, LTD., Debtor. Nancy E. SUTHERLAND; Donald Sutherland; Stephen Newnhan, Trustees of the Ralph L. Evans Trust, Plaintiffs-Appellants, v. KAONOHI OHANA, LTD., Sylvester Stallone, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
James T. Paul and Elizabeth Kent, Honolulu, Hawaii, for Kaonohi ohana, ltd.
Alexander C. Marrack, Honolulu, Hawaii, for Nancy Sutherland, Donald Sutherland and Stephen Newnham, Trustees of the Ralph L. Evans Trust.
David J. Dezzani and Ronald K.K. Sakimura, Honolulu, Hawaii, for Sylvester Stallone.
Appeal from the United States District Court for the District of Hawaii.
Before BROWNING, HUG and TROTT, Circuit Judges.
These consolidated appeals arise out of a complex web of litigation pitting Nancy Sutherland and assignees against Sylvester Stallone and Kaonohi Ohana, Ltd., a creditor's corporation that sold the same parcel of Hawaiian beach front property first to Sutherland, then to Stallone.
After agreeing to sell 5.5 acres of shoreline property on the island of Kauai to Sutherland, Kaonohi accepted a higher offer from Stallone on the theory that the prior agreement with Sutherland was not binding because not approved by three quarters of Kaonohi's stockholders, as Kaonohi believed to be required by Haw.Rev.Stat. Sec. 416-33. Sutherland brought a breach of contract action against Kaonohi in the court below, alleging diversity. The same day Kaonohi filed suit in state court seeking a declaration that compliance with section 416-33 was required. This action was removed to federal district court and consolidated with Sutherland's breach of contract action. The declaration sought was granted and Sutherland appealed. 1 We held section 416-33 inapplicable to the Sutherland contract and reversed and remanded to the district court. Sutherland v. Kaonohi Ohana, Ltd., 776 F.2d 1425, 1427-28 (9th Cir.1985) (Kaonohi I ).
Sutherland moved for judgment on remand in Kaonohi's declaratory judgment action, and for summary judgment in Sutherland's breach of contract action. Kaonohi countered that in the declaratory judgment action we had held only that the contract was not voided by section 416-33, and that summary judgment could not be granted to Sutherland in the breach of contract action because none of the factual issues effecting the validity of the contract had been resolved. Kaonohi also moved for dismissal or summary judgment in the breach of contract action, arguing that Sutherland sought only specific performance, relief which was rendered impossible by Kaonohi's earlier transfer of title to Stallone.
One day before the hearing on Sutherland's motion for judgment on remand and for summary judgment, Kaonohi filed for bankruptcy under Chapter 11, automatically staying all proceedings on the consolidated cases. The stay was subsequently lifted "to allow determination by the District Court of whether a contract existed between [Kaonohi and Sutherland] and, if so, whether [Sutherland is] entitled to any damages for the breach of the contract."
Before the district court took any action, however, the bankruptcy court held the Sutherland contract was executory and permitted Kaonohi to reject it, allowing Kaonohi to refuse to perform under the contract but leaving Kaonohi liable for any damages caused by the breach. This decision was later affirmed by the district court, which concluded the contract was executory and that rejection would benefit the estate. Sutherland's appeal from this ruling is before us in In re Kaonohi Ohana, Ltd., C.A. No. 87-1892.
Meanwhile, the district court had denied Kaonohi's motion for dismissal or summary judgment in the breach of contract action, ruling that Sutherland sought compensatory damages in addition to specific performance. The court then declared that, "[i]n accordance with the Ninth Circuit's opinion," shareholder approval was not required "and thus, the original contract between Sutherland and Kaonohi Ohana was binding." Without addressing Kaonohi's factual defenses, the court also ordered judgment entered for Sutherland in her breach of contract action "on the issue of liability."
However, a final judgment was not in fact entered in either of the consolidated actions. Eight months later the district court ordered the two cases severed. The court referred "the civil damage claim for breach of ... contract" to the bankruptcy court for further proceedings. 2 The court ordered Kaonohi to show cause why final judgment should not be entered on the declaratory judgment action. In response, Kaonohi again raised factual defenses to the validity of the contract. The district court conceded that factual disputes existed, but found them to be outside the scope of the declaratory judgment action. The court denied Kaonohi leave to amend and ordered final judgment entered for Sutherland in the declaratory judgment action. Kaonohi appeals both the entry of final judgment in the declaratory judgment action and denial of leave to amend the declaratory judgment complaint in Kaonohi Ohana, Ltd. v. Sutherland, C.A. No. 87-2742.
Meanwhile, Sutherland had filed an adversarial proceeding in the Kaonohi bankruptcy demanding specific performance by either Kaonohi or Stallone of the contract for purchase of the land. The district court dismissed Kaonohi on the ground Kaonohi was unable to provide the requested relief because title had passed to Stallone. The court later dismissed Sutherland's specific performance claim against Stallone for want of subject matter jurisdiction, holding that this claim was not sufficiently related to the bankruptcy proceedings to create jurisdiction under 28 U.S.C. Sec. 1334(b). Sutherland's appeal from this dismissal, and from the prior dismissal of Kaonohi as a defendant in the adversarial proceeding, is before us in In re Kaonohi Ohana, Ltd., C.A. No. 87-2680.
We consider first the issues raised in Kaonohi's appeal from the judgment entered on remand from this court in the action for declaratory relief.
The district court's judgment "declar[ed] that Sutherland and Kaonohi Ohana had a valid contract, which contract was breached by Kaonohi." Kaonohi insists the court was required to consider its factual defenses before declaring the contract binding. Kaonohi fears the judgment as entered will preclude it from obtaining a trial on these defenses, especially because the district court expressly noted "the possibility that collateral estoppel might bar any future attempts by [Kaonohi] to raise other issues regarding the validity of the contract."
We do not read the district court's judgment as broadly as does Kaonohi, and therefore affirm.
All Kaonohi sought in its original complaint was a declaration that the Sutherland contract either was or was not binding to the extent that Haw.Rev.Stat. Sec. 416-33 either did or did not void the contract. Kaonohi explains that it expected to litigate its factual defenses in Sutherland's breach of contract case if its legal defenses under section 416-33 were rejected in the declaratory judgment suit.
The only issue before us in Sutherland's appeal in the declaratory judgment action, and therefore the only issue we resolved, was whether section 416-33 invalidated the contract. We held it did not. See Kaonohi I, 776 F.2d at 1427-28. On remand, the district court entered judgment "[i]n accordance with the Ninth Circuit's opinion," declaring "it was not necessary for Kaonohi Ohana to obtain shareholder consent in selling the property at issue [as section 416-33 appeared to require], and thus, the original contract between Sutherland and Kaonohi Ohana was binding." 3
Since the district court could not, and did not, do more than uphold the Sutherland contract against a challenge based on section 416-33, the district court could not determine the contract was binding or that it had been breached in respect to any factual defenses that might exist. Clearly, the court was not required to hold a hearing on Kaonohi's factual defenses before entering such a judgment, because these defenses were irrelevant to the wholly legal issue before the court, the validity of the contract under the statute. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986); KL Group v. Case, Kay & Lynch, 829 F.2d 909, 915 (9th Cir.1987). Kaonohi's fears of preclusion are therefore unjustified, for the district court could not foreclose future litigation in other actions over issues which the court conceded were not before it in this action and, consequently, had never been litigated. See Greater Los Angeles Council on Deafness, Inc. v. Baldrige, 827 F.2d 1353, 1360 (9th Cir.1987).
For the same reason the district court did not abuse its discretion in denying Kaonohi leave to amend the declaratory judgment complaint. 4 As the district court explained, Kaonohi's proposed amendments were irrelevant because they were "not within the scope of this lawsuit." Order Entering Judgment at 1-2; see Klamath-Lake Pharmaceutical Ass'n v. Klamath Medical Serv. Bureau, 701 F.2d 1276, 1293 (9th Cir.1983) ().
We dismiss as moot Sutherland's appeal from the ruling of the bankruptcy court, affirmed by the district court, that the Sutherland contract was executory and could be rejected by Kaonohi. See Flast v. Cohen, 392 U.S. 83, 95, 88 S.Ct. 1942, 1949-50, 20 L.Ed.2d 947 (1968); In re Onouli-Kona Land Co., 846 F.2d 1170, 1171-72 (9th...
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