Unpublished Disposition, 933 F.2d 1014 (9th Cir. 1991)

MEMORANDUM^** 

In these cross-appeals, plaintiff-appellant Grant S. Lyddon contests the district court's summary judgment dismissal of his action against Geothermal Properties, Inc. ("GPI") for recission and breach of contract (No. 90-55386). GPI appeals the district court's denial of GPI's motion for sanctions under Fed. R. Civ. P. 11 (No. 90-55387). GPI has also moved for sanctions pursuant to Fed. R. App. P. 38.

The district court had subject matter jurisdiction under 28 U.S.C. § 1332(a) (1). We have jurisdiction over these timely appeals pursuant to 28 U.S.C. § 1291. We affirm the entry of summary judgment against Lyddon and the denial of GPI's motion for sanctions. We grant GPI's motion for sanctions against Lyddon for bringing a frivolous appeal.

* Lyddon first argues that the district court erred in granting summary judgment on his claims for recission of the 1982 agreement. He contends that GPI fraudulently induced him into entering that agreement by falsely representing that it was "qualified to do business in California." By "qualified to do business," Lyddon refers to California Corporations Code Sec. 2105(a), which requires a foreign corporation to obtain a "certificate of qualification" from the Secretary of State prior to "transact [ing] intrastate business."

The district court granted GPI's motion for summary judgment holding, " [T]he misrepresentation, if such it were, was not material, in that no reasonable person, particularly anyone who has some business experience, could possibly have thought that that was a material misrepresentation." Relying on dicta in Wood v. Kalbaugh, 39 Cal. App. 3d 926, 930, 114 Cal. Rptr. 673, 676 (1974), Lyddon claims that the court erred in that under California law materiality is not a requisite element of an action for recission.

Even if we were to accept Lyddon's argument, we would nevertheless affirm. It is well settled that we may sustain the district court on any ground in the record, whether or not the trial court relied on it. Salmeron v. United States, 724 F.2d 1357, 1364 (9th Cir. 1983). In an action for recission based on misrepresentation, three requirements must be met: (1) The misrepresentation must have been either fraudulent or material; (2) it must have induced the recipient to make the contract; and (3) the recipient must have been justified in relying on the misrepresentation. Restatement (Second) of Contracts Sec. 164, comment a (1979). A party's reliance is not justified where "the fact to which the misrepresentation relates is of only peripheral importance to the transaction." Id. comment d.

We conclude that the alleged misrepresentation was "of only peripheral importance to the transaction" and that Lyddon's alleged reliance was not justified. Section 2105 is a technical, rather than substantive, statute, imposing fines for noncompliance, but not otherwise prohibiting a corporation from doing intrastate business. Moreover, it had little, if any bearing on the 1982 agreement. The focus of that agreement was on the assignment of federal leases, not intrastate business, and GPI was otherwise fully qualified to accept the assignment of those leases. See E.R. 213, 223, 224. On this record we hold that Lyddon could not have justifiably relied on the misrepresentation and affirm the entry of summary judgment on his claims for recission.

II

Lyddon argues that the district court erred in granting summary judgment in favor of GPI on his third and fourth causes of action for breach of Paragraph 9 of the Stipulated Judgment. His claim is wholly frivolous and merits little discussion. Once GPI bought out Lyddon's interest under Paragraph 8 of the Stipulated Judgment, it had no contractual obligation to commence drilling, nor did Lyddon have any basis for asserting a claim against GPI.¹ 

III

GPI argues that the district court erred in denying its motions for Rule 11 sanctions. We review the court's decision for abuse of discretion. Cooter & Gell v. Hartmarx Corp., 110 S. Ct. 2447, 2461 (1990). Because nothing in the record suggests that the court based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence, id., we affirm.

We find it appropriate, however, to grant GPI's motion to impose sanctions against Lyddon for bringing a frivolous appeal, pursuant to Rule 38 of the Federal Rules of Appellate Procedure. "An appeal is considered frivolous in this circuit when the result is obvious or the appellant's arguments are wholly without merit." Glanzman v. Uniroyal, Inc., 892 F.2d 58, 61 (9th Cir. 1989) (citation omitted). As we stated in DeWitt v. Western Pac. R.R. Co., 719 F.2d 1448, 1451 (9th Cir. 1983), "the decision to appeal should be a considered one, ... not a knee-jerk reaction to every unfavorable ruling."

Here, the result was patently obvious. Lyddon's recission argument was supported by dicta from a single California case and ignored the insurmountable problem of justifiable reliance. His claims for breach of the Stipulated Judgment casually disregard the express terms of that Judgment and its protracted history. Finally, we note that Lyddon appears to have given little, if any, reflection to whether an appeal was warranted, filing a notice of appeal on the very day that the district court "very reluctantly" declined to impose sanctions for filing a frivolous and vexatious complaint in the first instance.

Under Rule 38, we may award damages, attorneys' fees, and single or double costs as a sanction for bringing a frivolous appeal. Glanzman, 892 F.2d at 61. We think it appropriate to award the full measure of sanctions--attorneys' fees, double costs, and any related damages--on Lyddon pursuant to Rule 38 and 28 U.S.C. § 1912. We remand to the district court for computation of these amounts.

AFFIRMED.