Orange County v. Hongkong and Shanghai Banking Corp. Ltd.

• Decision Date: 24 April 1995
• Docket Number: No. 94-56037,94-56037
• Citation: 52 F.3d 821
• Parties: ORANGE COUNTY, California Airport Hotel Associates, a California Limited Partnership, Plaintiff-Appellant, v. The HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 821

52 F.3d 821

63 USLW 2678

ORANGE COUNTY, California Airport Hotel Associates, a California Limited Partnership, Plaintiff-Appellant, v. The HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED Defendant-Appellee.

No. 94-56037.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 6, 1994.

Decided April 24, 1995.

James S. Renard and Richard A. Burton, Bickel & Brewer, Dallas, TX, for plaintiff-appellant.

Tom Lallas, Levy, Small & Lallas, Los Angeles, CA, for defendant-appellee.

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

Before: WALLACE, Chief Judge, REINHARDT and BRUNETTI, Circuit Judges.

WALLACE, Chief Judge:

This appeal concerns a district court's order expunging a lis pendens pursuant to California law. Orange County, California Airport Hotel Associates, a California Limited Partnership (Partnership) appeals from the district court's order granting the motion of the Hongkong and Shanghai Banking Corporation Limited (Bank) to expunge the Partnership's lis pendens concerning the Crown Sterling Suites Hotel in Orange County, California (Hotel). The district court had jurisdiction on the basis of diversity of citizenship, pursuant to 28 U.S.C. Sec. 1332. We conclude that this court lacks appellate jurisdiction to review the district court's order. The appeal is dismissed.

I

In 1986, the Bank loaned the Partnership $22 million secured by a first deed of trust in favor of the Bank encumbering the Hotel. After the Partnership defaulted on the loan, the Bank initiated judicial foreclosure proceedings in state court. The Partnership filed a cross-complaint, which was dismissed on summary judgment. While the appeal of the dismissal of the Partnership's cross-complaint was pending, the parties agreed to settle the dispute between them. The parties ultimately entered into a Stipulation for Settlement of Case and Dismissal of Claims (Settlement Agreement) which was filed and approved by the state court.

Under the terms of the Settlement Agreement, the Bank was permitted to proceed with the foreclosure sale of the Hotel. It provided that if the Bank was the successful bidder at the foreclosure sale, the Partnership would have a two-year right of first refusal to repurchase the Hotel from the Bank.

The terms of the right of first refusal were as follows. If the Bank received an offer for the Hotel that it was "willing to accept," it was required to communicate the terms of the offer to the Partnership. The Bank would be required to allow the Partnership to purchase the Hotel under the same terms as provided in the offer made by the third-party, with two exceptions. First, the Partnership would have to pay a nonrefundable option fee and second, the Bank would "[u]nder no circumstance" be required to provide financing of any part of the purchase price, even if it were required to do so under the terms of the offer made by a third-party. The Partnership would then have 14 days in which to exercise its right to purchase the Hotel.

Before the expiration of the right of first refusal, the Bank listed the Hotel for sale. An entity named Osar Ltd. submitted a bid for $18,100,000. The Partnership asserts that the Bank rejected this bid, but the Bank maintains that Osar Ltd. revoked the bid and replaced it with one for $15,000,000.

Shortly after the right of first refusal had expired, the Bank received an offer from the Windsor Capital Group to purchase the Hotel for $18,000,000. The Bank extended to the Partnership the right to purchase the Hotel under the same terms as provided in the Settlement Agreement. The Partnership, however, was either unwilling or unable to purchase the Hotel without financing by the Bank. The Bank ultimately accepted Windsor Capital Group's offer.

In April 1994, the Partnership filed a complaint in federal district court, requesting the imposition of a constructive trust, reformation of the Settlement Agreement, and injunctive, declaratory, and pecuniary relief on theories of breach of contract, breach of implied covenant of good faith and fair dealing, and fraud. About six weeks later, the Partnership recorded a lis pendens or Notice of Pendency of Action on the Hotel property. The Bank then filed a motion to expunge the lis pendens as well as a motion for summary judgment. The district court denied the Bank's motion for summary judgment, but granted the motion to expunge the lis pendens. On appeal, the Partnership asserts that the district court abused its discretion in expunging the lis pendens.

II

At the outset, we must determine whether we have jurisdiction to decide this appeal. The Bank argues that no basis exists for this court to exercise appellate jurisdiction. The Partnership, however, maintains that the district court's order is an appealable collateral order under 28 U.S.C. Sec. 1291 or that it is appealable under 28 U.S.C. Sec. 1292 as an order having the practical effect of refusing an injunction.

A.

28 U.S.C. Sec. 1291 provides that the courts of appeals may review only "final" decisions of district courts. A "final" decision has been described as one that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Van Cauwenberghe v. Biard, 486 U.S. 517, 521, 108 S.Ct. 1945, 1949, 100 L.Ed.2d 517 (1988) (Van Cauwenberghe ), quoting Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 633, 89 L.Ed. 911 (1945). The order expunging the lis pendens obviously does not end the litigation on the merits. Thus, the district's order expunging the lis pendens is not a final decision for purposes of 28 U.S.C. Sec. 1291. Accord Mohasco Indus. v. Lydick, 459 F.2d 959, 960 (9th Cir.1972) (order vacating attachment not a final order). The Partnership argues, however, that we have jurisdiction over this appeal under the collateral order doctrine, which creates a small class of orders that are appealable under 28 U.S.C. Sec. 1291 even though they do not end the litigation on the merits. Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 545-47, 69 S.Ct. 1221, 1225-26, 93 L.Ed. 1528 (1949) (Cohen ).

To be appealable under the collateral order doctrine, an order must satisfy three requirements: the order must (1) "conclusively determine a disputed question," (2) "resolve an important issue completely separate from the merits of the action," and (3) "be effectively unreviewable on appeal from a final judgment." Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98 S.Ct. 2454, 2458, 57 L.Ed.2d 351 (1978) (Coopers & Lybrand ); see also United States v. Szado, 912 F.2d 390, 391 (9th Cir.1990) (same).

The Third Circuit recently held that a district court order discharging a notice of lis pendens under New Jersey law was not appealable under the collateral order doctrine. Demenus v. Tinton 35 Inc., 873 F.2d 50 (3d Cir.1989) (Demenus ). Demenus is instructive. The New Jersey lis pendens statute in Demenus required the trial court to evaluate the likelihood that the plaintiff will prevail on the merits in ruling on a motion to discharge a notice of lis pendens. Thus, the court concluded that the requirement that the order "resolve an important issue completely separate from the merits of the action," Coopers & Lybrand, 437 U.S. at 468, 98 S.Ct. at 2458 (emphasis added), could not be met. As the Third Circuit explained, "[b]ecause N.J.S.A. Sec. 2A:15-7(b) requires the district court to determine the 'probability that final judgment will be entered in favor of the plaintiff' in ruling on a motion to discharge a notice of lis pendens, we are indeed 'thrust ... into the merits of the underlying dispute' when we review a district court order ruling on such a motion." Demenus, 873 F.2d at 52, discussing and quoting Van Cauwenberghe, 486 U.S. at 528, 108 S.Ct. at 1953.

In support of its view that to be appealable the order must resolve an important issue completely separate from the merits, Demenus relied upon Van Cauwenberghe. Although Van Cauwenberghe addressed whether an order concerning a forum non conveniens motion was appealable as a collateral order, the opinion indicated that the Court has tightened the requirement that the order resolve an important issue completely separate from the merits of the action. The Court not only reiterated "the principle that there should not be piecemeal review of 'steps towards final judgment in which they will merge,' " 486 U.S. at 527, 108 S.Ct. at 1952, quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 12 n. 13, 103 S.Ct. 927, 935 n. 13, 74 L.Ed.2d 765 (1983), further quoting Cohen, 337 U.S. at 546, 69 S.Ct. at 1225, but also explained that "[a]llowing appeals from interlocutory orders that involve considerations enmeshed in the merits of the dispute would waste judicial resources by requiring appellate review of substantive questions in the case." Id. at 527-28, 108 S.Ct. at 1952.

The California lis pendens statute requires the trial court to expunge the lis pendens if the "claimant has not established by a preponderance of the evidence the probable validity of the real property claim." Cal.Code Civ.Proc. Sec. 405.32 (1992). "Probable validity" meaning that "it is more likely than not that the claimant will obtain a judgment against the defendant on the claim." Id. Sec. 405.3. Thus, like the statute at issue in Demenus, the California lis pendens statute requires the court to evaluate the merits of the underlying claim. Both the appellant in Demenus and the Partnership here argue that it had submitted sufficient evidence to establish the probable validity of its claims.

We agree with the Third Circuit's analysis and hold that the district court's order expunging the lis pendens is not an appealable collateral order because the determination of whether the claimant has established the probable validity of his real property claim will thrust this court into the merits of the dispute. The rule makes good...