Unpublished Disposition, 940 F.2d 1536 (9th Cir. 1991)

MEMORANDUM^* 

A. Having reviewed the voluminous record, we conclude that the magistrate was not clearly erroneous in fixing August 1984 as the date the one-year statute of limitations was triggered. While there was evidence of a legal dispute between the parties at the August 1983 board meeting, there was also substantial evidence supporting the magistrate's finding that this early dispute centered around the alleged $2 million farm management debt and not plaintiffs' claim for negligent misrepresentation.

B. The record also shows that the magistrate was not clearly erroneous in finding Associated Farm Management (AFM) liable for negligent misrepresentation both in its initial securities offerings and in its subsequent dealings with the partnerships. Again, there was much conflicting evidence, and we will not reverse the trier of fact on credibility determinations. SEC v. Rogers, 790 F.2d 1450, 1455 (9th Cir. 1986).

C. California Civil Code Sec. 3343 provides that the proper measure of damages for negligent misrepresentation is "the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received...." Under California law, " [i]n determining the difference between the actual value of that which a defrauded person received and that with which he parted as the result of a fraudulent sale, the value of property received should be determined as of the date of the sale, taking into consideration subsequent material circumstances." McCue v. Bruce Enter., Inc., 39 Cal. Rptr. 125, 131 (Dist.Ct.App.1964) (citation omitted). But where the property purchased is lost through foreclosure proximately caused by negligent misrepresentations, the purchaser may recover all of his money invested in the property. Burkhouse v. Phillips, 96 Cal. Rptr. 197, 200, 18 Cal. App. 3d 661, 665-66 (1971). The rationale for this rule is that if the property has been lost through foreclosure which is itself caused by the misrepresentation, the seller has effectively prevented the purchaser from seeking rescission because the property cannot be returned to the seller.

Here, all of the assets of the partnerships were ultimately lost through foreclosure or its equivalent. Amended Pre-Trial Conference Order 12-13. We hold that the magistrate was not clearly erroneous in finding that the negligent misrepresentations made by AFM undermined the ability of the partnerships to operate profitably and thus proximately caused the foreclosure of the properties. Therefore, we find this case indistinguishable from Burkhouse and affirm the magistrate's measure of damages.

D. In its settlement agreement, A. Duda & Sons, Inc. (Duda) guaranteed that plaintiffs would recover no less than $5.5 million from all defendants. Release and Settlement Agreement 20. Duda agreed to pay $4.3 million as part of its settlement. Id. at 7. Thus, Duda guaranteed that plaintiffs would recover at least $1.2 million more from AFM. The settlement agreement also provided that plaintiffs would pay back to Duda 25% of any monies they recovered from AFM, up to a $1 million maximum payback, provided that plaintiffs in all events received $1.2 million from AFM, even after the deduction of the payback to Duda. Id. at 20.

AFM correctly contends that the damages award levied against it by the magistrate should be offset by the value of the guarantee/payback provision. Under the one satisfaction rule, discussed below, a non-settling co-defendant (like AFM) is entitled to an offset for any common damages paid to plaintiffs by a settling co-defendant.

In its settlement with Duda, plaintiffs received $4.3 million outright plus a sliding-scale guarantee/payback. The guarantee/payback is essentially an insurance policy, a risk-hedging bet. Its value to plaintiffs ex ante depended upon their expected recovery from AFM in the present lawsuit. If plaintiffs were likely to recover less than $1.2 million from AFM, this guarantee/payback had positive value to plaintiffs. If, on the other hand, plaintiffs had a high likelihood of gaining a large judgment from AFM, then the guarantee/payback had less value to them.

The guarantee and payback provisions, taken together, must have had a value to plaintiffs between a negative $1 million and a positive $1.2 million. If plaintiffs' claims against AFM proved totally worthless and they recovered no damages from AFM, plaintiffs would have received $1.2 million from Duda. In that case, the guarantee/payback would have been worth $1.2 million. Had plaintiffs recovered over $4 million from AFM, they would actually have had to pay back $1 million to Duda (25% of $4 million). In that event, the guarantee/payback would have resulted in a net loss to plaintiffs to the tune of $1 million.

The magistrate held that, given the probability distribution of expected recoveries from AFM, the risk of plaintiffs' losing $1 million under the guarantee/payback offset the chance of their gaining $1.2 million. This judgment as to the ex ante value of the guarantee/payback was not clearly erroneous.

E. Plaintiffs claim that the district court erred in allowing AFM an offset equal to the entire amount of plaintiffs' settlement with Duda. In their suit against Duda, plaintiffs pursued state tort and securities law claims, federal securities law claims, and federal RICO claims. Because plaintiffs alleged RICO violations in their suit against Duda, they also had a claim for attorneys' fees, if successful in their suit. See 18 U.S.C. § 1964(c) (providing for award of reasonable attorneys' fees). Plaintiffs settled all of those claims against Duda in the settlement agreement detailed in Part D supra. In this suit, plaintiffs pursued only their state tort and securities law claims and their federal securities law claims against AFM.

Under the one satisfaction rule, "an injured party is ordinarily entitled to only one satisfaction for each injury." Prudential-Bache Securities, Inc. v. Kaypro Corp., 884 F.2d 1222, 1230 (9th Cir. 1989), cert. denied, 111 S. Ct. 232 (1990) (citation omitted). Thus, a non-settling co-defendant is entitled to a credit, or offset, for amounts paid by a settling co-defendant, "provided both the settlement and the judgment represent common damages." U.S. Industries, Inc. v. Touche Ross & Co., 854 F.2d 1223, 1236 (10th Cir. 1988).

As we conclude below, plaintiffs' non-RICO claims do not allow for an award of attorneys' fees. Plaintiffs' claim against Duda for attorneys' fees under RICO was "an obligation separate and distinct from" their present claims against AFM under state tort and securities law and federal securities law. Koehler v. Pulvers, 614 F. Supp. 829, 851 (S.D. Cal. 1985). Thus, whatever portion of the Duda settlement payment represents the settling of plaintiffs' claim for attorneys' fees under RICO cannot be offset against AFM's liability in this action.

We remand this case to the magistrate for a determination of what portion of the Duda settlement constituted the settling of plaintiffs' RICO attorneys' fees claim. We direct the magistrate's attention to our recent decision in Force v. Director, OWCP, No. 89-70520, slip op. at 8563 (9th Cir. July 10, 1991), where we outlined the factors to consider in "unscrambling the component parts of a settlement." Id. at 8574-75. The magistrate may certainly consider the fact that the Duda settlement agreement specifically allotted $1,548,280 to plaintiffs' attorneys on account of attorneys' fees and costs. But he should be mindful of the fact that not all of those attorneys' fees necessarily represent the settlement of plaintiffs' RICO attorneys' fees claim. A portion of that payment may merely constitute the direct payment to plaintiffs' attorneys of amounts owed by plaintiffs on account of other services rendered. In any event, the magistrate shall reduce the amount offset on account of the Duda settlement by whatever amount he determines Duda paid in settling plaintiffs' RICO attorneys' fees claim.

F. The farm management contracts contained a clause which provided that, " [i]n the event of any litigation regarding this Agreement, the prevailing party of such litigation shall be entitled to all costs and expenses thereof, including reasonable attorney's fees from the unsuccessful party." Exhibit 4101, Plaintiffs' Supplemental Excerpts of Record 631. Plaintiffs brought this action for negligent misrepresentation in the sale of securities, a tort, not an action in contract for rescission of their responsibilities under the farm management contracts. We agree with the magistrate that this was not litigation regarding the farm management contracts, and thus attorneys' fees were not available. Schoolcraft v. Ross, 146 Cal. Rptr. 57, 60-61, 81 Cal. App. 3d 75, 82 (1978); McKenzie v. Kaiser-Aetna, 127 Cal. Rptr. 275, 278, 55 Cal. App. 3d 84, 89 (1976) ("Negligent misrepresentation may render a contract void, or may be ground for rescission or reformation, but an action for negligent misrepresentation is not an action to enforce the provisions of a contract." (citation omitted)).

AFFIRMED IN PART, REVERSED AND REMANDED IN PART.