                                                                           FILED
                                                                            DEC 16 2019
                           NOT FOR PUBLICATION                         SUSAN M. SPRAUL, CLERK
                                                                          U.S. BKCY. APP. PANEL
                                                                          OF THE NINTH CIRCUIT

             UNITED STATES BANKRUPTCY APPELLATE PANEL
                       OF THE NINTH CIRCUIT

In re:                                               BAP No. MT-19-1057-FBH

EDRA D. BLIXSETH,                                    Bk. No.      2:09-bk-60452-TLM

                    Debtor.                          Adv. Pro. 2:09-ap-00105-TLM

WESTERN CAPITAL PARTNERS, LLC,

                    Appellant,

v.                                                   MEMORANDUM*

ATIGEO LLC; XPATTERNS LLC;
MICHAEL SANDOVAL,

                    Appellees.

                 Argued and Submitted on November 21, 2019
                           at Las Vegas, Nevada

                             Filed – December 16, 2019

               Appeal from the United States Bankruptcy Court
                         for the District of Montana



         *
        This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
           Honorable Terry L. Meyers, Bankruptcy Judge, Presiding



Appearances:        Christopher Conant of Hatch Ray Olsen Conant LLC
                    argued on behalf of appellant Western Capital Partners,
                    LLC; James Morrison of Baker Hostetler LLP argued on
                    behalf of appellee Michael Sandoval.



Before: FARIS, BRAND, and HERCHER,** Bankruptcy Judges.

                                 INTRODUCTION

      The bankruptcy court concluded that chapter 71 debtor Edra D.

Blixseth’s assignee, Western Capital Partners, LLC (“WCP”), could not

enforce a contractual guaranty against appellee Michael Sandoval and his

companies because Ms. Blixseth breached her obligations under the

contract. WCP appeals.

      We hold that the bankruptcy court did not misconstrue the

agreement and guaranty or clearly err in its factual findings. We AFFIRM.




      **
       The Honorable David W. Hercher, U.S. Bankruptcy Judge for the District of
Oregon, sitting by designation.
      1
      Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532.

                                           2
                           FACTUAL BACKGROUND2

A.    The three companies: Atigeo, xPatterns, and Opspring

      Mr. Sandoval was the founder and CEO of technology company

Atigeo LLC. In late 2005, he became friends with Ms. Blixseth, who agreed

to invest a total of $18 million in xPatterns LLC and Opspring LLC, which

were subsidiaries of Atigeo.3 Mr. Sandoval was the CEO of the three

companies, and Ms. Blixseth was a director of xPatterns and Opspring.

      xPatterns made a $5 million loan to Mr. Sandoval. He used the loan

proceeds to purchase real property in Kirkland, Washington (“Kirkland

Property”).

      In 2007, Opspring negotiated and received a letter of intent from the

United States government that could have produced $100 million of

revenue for Opspring. But Opspring ultimately received only $2 million to

$2.5 million under that agreement.

B.    The Letter Agreement

      Also in 2007, various disputes arose between Ms. Blixseth and


      2
         We exercise our discretion to review the bankruptcy court’s docket, as
appropriate. See Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2
(9th Cir. BAP 2008). We also borrow the factual background from our previous decision,
Western Capital Partners, LLC v. Atigeo LLC (In re Blixseth), BAP Nos. MT-11-1574-JuHPa,
MT-11-1575-JuHPa, 2012 WL 3234205 (9th Cir. BAP Aug. 9, 2012).
      3
       Sometime in or around 2007, Opspring ceased operations and merged into
Blxware LLC. For ease of reference, we refer to both entities as “Opspring.” Similarly,
Atigeo was preceded by Azimyth LLC, but we will refer to both entities as “Atigeo.”

                                            3
Mr. Sandoval, including a dispute over xPatterns’ $5 million loan to

Mr. Sandoval. To resolve their disputes, they entered into an agreement

(“Letter Agreement”)4 in which they agreed that Mr. Sandoval would

become the sole owner of xPatterns and Ms. Blixseth would obtain full

ownership of Opspring and recover $10 million. More specifically:

      • Ms. Blixseth’s $10 million investment in xPatterns was to be

“redeemed” by: (1) a $2 million payment due within 120 days and (2) an $8

million unsecured note payable by xPatterns over three years.

      • Mr. Sandoval agreed to guarantee the first $5 million of xPatterns’

obligation (the “Guaranty”):

      By signing this Letter Agreement, Sandoval guarantees to the
      Blixseth Family that the first $5 million portion of the xPatterns
      Obligations will be paid when due, no matter what may
      happen. This is a continuing guaranty until the final payment
      in full of all of the first $5 million portion of the xPatterns
      Obligations.

      • Opspring would pay Atigeo a quarterly performance fee

(“Performance Fee”) of five percent of Opspring’s revenue, up to $15

million. Atigeo would pay the first $5 million to Ms. Blixseth to reduce

xPatterns’ obligation on the promissory note.

      • The parties agreed to not disclose the companies’ trade secrets and


      4
       The Letter Agreement also involved people and entities related to Mr. Sandoval
and Ms. Blixseth, respectively. For ease of understanding, our references to
Mr. Sandoval and Ms. Blixseth encompass these related parties, as well.

                                          4
confidential information and the Letter Agreement’s terms and promised

not to disparage each other.

C.    Performance under the Letter Agreement

      Mr. Sandoval, on behalf of xPatterns, executed the $8 million

promissory note pursuant to the Letter Agreement. The first $2 million due

under the Letter Agreement was eventually paid, about a year late,

through set-offs and a lump-sum cash payment. xPatterns did not make

any further payments to Ms. Blixseth.

      Opspring and Ms. Blixseth failed to pay the Performance Fee to

Atigeo. Ms. Blixseth induced third parties to breach their confidentiality

agreements with Atigeo and to provide Opspring with proprietary

information. Further, Ms. Blixseth sued Atigeo and others in Washington

state court in connection with the Letter Agreement and the outstanding

balance on the promissory note. She publicly disclosed the terms of the

Letter Agreement and asserted that Mr. Sandoval made significant

misrepresentations, engaged in fraud, and depleted xPatterns’ assets.

      The state court later dismissed the lawsuit with prejudice because

Ms. Blixseth’s claims were premature: payment was not yet due under the

promissory note.

D.    Ms. Blixseth’s bankruptcy case and the adversary proceeding

      On March 26, 2009, Ms. Blixseth initiated a chapter 11 case, which

was later converted to chapter 7. Atigeo and xPatterns filed an adversary


                                      5
complaint against Ms. Blixseth, Opspring, and others, alleging that

Ms. Blixseth had breached the Letter Agreement.

      The chapter 7 trustee filed a counterclaim against the plaintiffs and a

third-party complaint against Mr. Sandoval and others. He asserted that

Mr. Sandoval wrongfully converted Ms. Blixseth’s investment in xPatterns

when he borrowed money from xPatterns to purchase the Kirkland

Property. He also asserted that Mr. Sandoval misrepresented the

technology owned by Atigeo and xPatterns and fraudulently induced

Ms. Blixseth to enter into the Letter Agreement. He requested that the court

void the Letter Agreement.

      WCP moved to intervene in the adversary proceeding. Ms. Blixseth

had guaranteed a loan made by WCP to her son and pledged certain

personal property, including her rights in the Letter Agreement and the

promissory note. WCP foreclosed on its security interest and purchased the

contract claims and accounts arising out of the Letter Agreement. The

bankruptcy court granted WCP’s motion to intervene.

      WCP, standing in Ms. Blixseth’s shoes as her assignee, filed a third-

party complaint against the Atigeo entities. It sought to enforce the Letter

Agreement and collect the $8 million due under the promissory note.

      In July 2011, the chapter 7 trustee filed a stipulation for declaratory

judgment on the first count (repudiation of the Letter Agreement) of the

complaint. The trustee acknowledged that Ms. Blixseth and her related


                                       6
entities had breached the Letter Agreement. He agreed that all of the terms

of the Letter Agreement were repudiated.

      The chapter 7 trustee had additionally negotiated a settlement with

the Atigeo parties regarding the estate’s tort claims against them. He filed a

motion to approve the settlement.

      The court approved the settlement and stipulation, concluding that

the Letter Agreement was repudiated such that it was invalid and

unenforceable as a matter of law. However, this Panel vacated the orders,

agreeing with WCP that the bankruptcy court had deprived it of due

process.

      The adversary proceeding was delayed due to other pending appeals

and WCP’s own bankruptcy case. After the Ninth Circuit held in 2017 that

the transfer of Ms. Blixseth’s interest in the Letter Agreement to WCP was

not a fraudulent transfer, the chapter 7 trustee sought to be dismissed from

the adversary proceeding. He argued that he had no interest in the

litigation following the appeal but that the estate would have rights to

commercial tort claims against Mr. Sandoval if Mr. Sandoval, Atigeo, and

xPatterns were successful in repudiating the Letter Agreement. The

bankruptcy court did not immediately rule on the trustee’s motion.

E.    The trial and decision

      The bankruptcy court held a trial on WCP’s third-party complaint in

early 2018. Only Mr. Sandoval and a representative of WCP testified live.


                                      7
      Ronald Warren, who managed WCP after its reorganization, testified

on behalf of WCP. He said that xPatterns’ current obligation to Ms. Blixseth

exceeded $19 million. He stated that his calculations credited xPatterns

$100,000 for the Performance Fee as of March 2009.

      Mr. Sandoval testified as to his business relationship with

Ms. Blixseth and the creation of the Letter Agreement. He testified that he

agreed to the Letter Agreement’s terms to “avoid a lot of the conflict . . . so

that the companies could continue.”

      He admitted that the first payment of $2 million was made about a

year late. He agreed that xPatterns never paid the additional $8 million due

under the promissory note.

      Mr. Sandoval testified that the $5 million amount of the Guaranty

was not pegged to the $5 million loan he obtained from xPatterns to buy

the Kirkland Property. Rather, he stated that it was “mutually arrived at”

based on five percent of the anticipated $100 million government contract.

      Regarding the “no matter what may happen” language of the

Guaranty, Mr. Sandoval testified that he understood the provision to mean

that he might be responsible for a portion of the balance of the $5 million

Guaranty. However, he balked at the “ludicrous” suggestion that he would

agree to pay the Guaranty even if no one else performed their obligations

under the Letter Agreement.

      He stated that he would not have signed the Letter Agreement


                                       8
without the nondisclosure and nondisparagement provisions. He testified

that these terms were critical to the Letter Agreement in order to protect his

companies’ business relationship with the government. He testified that

people connected to Ms. Blixseth and her companies stole source code,

contact information, backup hard drives, and other confidential materials.

      The bankruptcy court took the matter under submission and entered

its written decision and judgment on February 27, 2019.

      The court first considered the Guaranty and the “no matter what may

happen” language. It stated that the interpretation of the Guaranty turned

on the mutual intention of the parties. It held that, based on the language of

the Letter Agreement and Mr. Sandoval’s testimony regarding his intent,

the Guaranty was not an unconditional promise to satisfy the $5 million

owed by xPatterns even if Ms. Blixseth breached the Letter Agreement.

Rather, based on the language of the Guaranty, “Sandoval guaranteed

xPatterns’ debt; he did not make an absolute, direct payment obligation to

Blixseth. Inherent in the use of a guarantee is the understanding that the

underlying obligation is legally enforceable.” It held that Mr. Sandoval’s

“plausible explanation, coupled with the context of the structured

payments and mutual obligations of all parties, leads the Court to conclude

the parties to the Letter Agreement did not intend the Guarantee to be an

absolute, independent commitment to pay $5 million to Blixseth despite

any breaches on her part.”


                                      9
      The court next concluded that, under California law,5 the Letter

Agreement was a single, indivisible agreement, rather than a single

document containing divisible and independent agreements. It held that

the language of the Letter Agreement showed that “the parties intended

the Letter Agreement to be an entire encompassing and inclusive contract,

creating a global settlement of all issues.” Additionally, the bankruptcy

court credited Mr. Sandoval’s trial testimony in which he explained how

the various provisions were dependent and interrelated.

      Finally, the court held that WCP failed to prove that Ms. Blixseth

performed her obligations or was excused from nonperformance. It found

that she failed to pay the Performance Fee, even though Opspring received

at least $2 million under the government contract. WCP’s proposed credit

for the unpaid $100,000 Performance Fee was ten years late and insufficient

to cure the breach. It also held that Ms. Blixseth breached the Letter

Agreement by disclosing the terms of the agreement and publicly

disparaging Mr. Sandoval during the state court litigation.

      The bankruptcy court dismissed the third-party complaint because

WCP failed to establish that it could enforce the Guaranty due to

Ms. Blixseth’s breach of her obligations. WCP timely appealed.




      5
          The parties agreed that the Letter Agreement was governed by California law.

                                           10
                                     JURISDICTION

       The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334

and 157(c)(2).6 We have jurisdiction under 28 U.S.C. § 158.

                                            ISSUE

       Whether the bankruptcy court erred in dismissing WCP’s third-party

complaint and holding that WCP cannot enforce Mr. Sandoval’s $5 million

Guarantee.

                              STANDARDS OF REVIEW

       We review questions of contract interpretation de novo. See DP

Aviation v. Smiths Indus. Aerospace & Def. Sys. Ltd., 268 F.3d 829, 836 (9th Cir.

2001) (“We review the interpretation and meaning of contract provisions

de novo.” (citation omitted)). This includes “the determinations of whether


       6
         We have an independent obligation to satisfy ourselves that the bankruptcy
court had subject matter jurisdiction, even though neither party has raised this issue. See
Allstate Ins. Co. v. Hughes, 358 F.3d 1089, 1093 (9th Cir. 2004). At first blush, it is not clear
that the bankruptcy court had subject matter jurisdiction. This is a dispute between two
creditors that does not turn on bankruptcy law and has no immediately apparent effect
on the bankruptcy estate. However, as this Panel noted in the prior appeal, WCP
acquired Ms. Blixseth’s claims against Mr. Sandoval and his related entities but did not
assume her liabilities to the parties. Therefore, the outcome of this proceeding could
affect the validity and amount of Mr. Sandoval’s claims against Ms. Blixseth’s
bankruptcy estate. In re Blixseth, 2012 WL 3234205, at *12 (“Whether the Letter
Agreement is enforceable or unenforceable under Count I is directly related to Edra’s
potential liability for breach of contract damages as alleged in other Counts in the
complaint. . . . In addition, the bankruptcy court’s decision on the enforceability of the
Letter Agreement was inextricably intertwined with the existence of the estate’s tort
claims against the Atigeo Parties.”). For the same reasons, the bankruptcy court still had
subject matter jurisdiction when the case came to trial.

                                               11
contract language is ambiguous, and whether the written contract is

reasonably susceptible of a proffered meaning.” Cellular Inv. Co. v. GTE

Mobilnet, Inc., 281 F.3d 929, 934 (9th Cir. 2002) (internal citations and

quotation marks omitted). It also includes whether a contract’s obligations

are dependent or independent. See Chevron U.S.A. Inc. v. Sheikhpour, 469 F.

App’x 593, 596 (9th Cir. 2012) (interpreting the language of the contract to

determine whether provisions were dependent or independent); see also

Verdier v. Verdier, 133 Cal. App. 2d 325, 334 (1955) (holding that the

determination whether contractual provisions are independent “is wholly

one of construction of the agreement.”).

      “De novo review requires that we consider a matter anew, as if no

decision had been made previously.” Francis v. Wallace (In re Francis), 505

B.R. 914, 917 (9th Cir. BAP 2014) (citations omitted).

      But if the bankruptcy court properly relied on extrinsic evidence to

interpret the contract, we review the court’s factual findings for clear error.

See Captain Blythers, Inc. v. Thompson (In re Captain Blythers, Inc.), 311 B.R.

530, 534 (9th Cir. BAP 2004), aff’d, 182 F. App’x 708 (9th Cir. 2006)

(“Questions of contract interpretation are subject to de novo review unless

extrinsic evidence was introduced on issues such as intent, in which event

the pertinent factual findings are reviewed for clear error[.]” (internal

citations omitted)).

      Whether a contractual breach was material is also a factual question


                                        12
that we review for clear error. See Sunstone Behavioral Health, Inc. v. Alameda

Cty. Med. Ctr., 399 F. App’x 237, 237 (9th Cir. 2010) (“The district court’s

conclusion that Sunstone’s breach was not material, and its careful and

thorough analysis of that issue, contain no clear error.” (citations omitted)).

      Factual findings are clearly erroneous if they are illogical,

implausible, or without support in the record. Retz v. Samson (In re Retz),

606 F.3d 1189, 1196 (9th Cir. 2010). “To be clearly erroneous, a decision

must strike us as more than just maybe or probably wrong; it must . . .

strike us as wrong with the force of a five-week-old, unrefrigerated dead

fish.” Papio Keno Club, Inc. v. City of Papillion (In re Papio Keno Club, Inc.), 262

F.3d 725, 729 (8th Cir. 2001) (citation omitted). “Review for clear error is

‘significantly deferential.’” Roth v. Educ. Credit Mgmt. Corp. (In re Roth), 490

B.R. 908, 915 (9th Cir. BAP 2013) (quoting Baker v. Mereshian (In re

Mereshian), 200 B.R. 342, 345 (9th Cir. BAP 1996)). If two views of the

evidence are possible, the court’s choice between them cannot be clearly

erroneous. Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985).

                                  DISCUSSION

A.    The bankruptcy court did not err in finding that Ms. Blixseth’s
      breaches of the Letter Agreement bar WCP from enforcing it.

      WCP argues that the bankruptcy court erred in finding that it could

not enforce the Guaranty because Ms. Blixseth breached the Letter

Agreement. We disagree.


                                         13
       “The elements of a breach of contract action under California law are:

(1) the existence of a contract, (2) plaintiff’s performance or excuse for

nonperformance, (3) defendant’s breach, and (4) damages to plaintiff as a

result of the breach.” Moss v. Infinity Ins. Co., 197 F. Supp. 3d 1191, 1201

(N.D. Cal. 2016) (citing Buschman v. Anesthesia Bus. Consultants, LLC, 42 F.

Supp. 3d 1244, 1250 (N.D. Cal. 2014)).

       WCP does not deny that Ms. Blixseth breached her obligations. She

disparaged Mr. Sandoval and his companies and disclosed the terms of the

Letter Agreement. She also failed to cause Opspring to pay the quarterly

Performance Fee to Atigeo.7

       But this is not the end of the inquiry. Even if the plaintiff has

breached the contract, the plaintiff may still enforce the contract in certain

circumstances. California law evaluates this issue in two different ways.

       One line of cases bars recovery only if the plaintiff’s breach was

“material.” See Comedy Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1289

n.12 (9th Cir. 2009) (“The general rule is that if the breach is a material

breach, it may give grounds for the non-breaching party to cancel the

contract, but if the breach is a partial breach, the non-breaching party’s



       7
        WCP takes issue with the bankruptcy court’s finding that Ms. Blixseth failed to
pay the Performance Fee. It contends that it did “pay” the Performance Fee with the
$100,000 credit and that the timing of the payment was irrelevant. But the Performance
Fee had a specific due date. WCP cites no authority for its position that it can nullify a
material breach years after the fact by offering a setoff at trial.

                                            14
remedy is for damages.” (citations omitted)). A material breach occurs

where the failure to perform “is so dominant or pervasive as in any real or

substantial measure to frustrate the purpose of the contract.’” Aslan v.

Sycamore Inv. Co. (In re Aslan), 909 F.2d 367, 370 (9th Cir. 1990) (quoting

Superior Motels, Inc. v. Rinn Motor Hotels, Inc., 195 Cal. App. 3d 1032, 1051

(1987)). “Whether a partial breach of a contract is material depends on ‘the

importance or seriousness thereof and the probability of the injured party

getting substantial performance.’” Brown v. Grimes, 192 Cal. App. 4th 265,

278 (2011) (citations omitted). This line of cases is consistent with the

Restatement (Second) of Contracts. See Restatement (Second) of Contracts

§ 237 cmt. b (Am. Law Inst. 1981) (“Where performances are to be

exchanged under an exchange of promises, each party is entitled to the

assurance that he will not be called upon to perform his remaining duties

of performance with respect to the expected exchange if there has already

been an uncured material failure of performance by the other party.”).

      The second line of cases asks whether the promises that the plaintiff

breached are dependent on or independent of the promises that the

plaintiff seeks to enforce against the defendant. The breaching plaintiff can

enforce any of the defendant’s obligations that are independent of the

plaintiff’s breached obligations, subject to an offset from any damages the

defendant incurred due to the plaintiff’s breach; but the plaintiff cannot

enforce any of the defendant’s promises that are dependent on the


                                       15
plaintiff’s promises. “If the covenants are independent, breach of one does

not excuse performance of the other.” Verdier, 133 Cal. App. 2d at 334

(citation omitted). Whether provisions in an agreement are dependent or

independent “is wholly [a question] of construction of the agreement.” Id.

(citation omitted).

       California case law does not explain how to choose between the two

approaches.8 In fact, one decision by the California court of appeal applies

both approaches without explanation. Brown applies the materiality

standard, 192 Cal. App. 4th at 277-78, and the independence standard, id. at

278-79, without noting that the two standards are different.

       One court has reasoned that the two approaches are nearly the same:

“One way of determining whether a breach is material is to decide whether

the covenant breached was independent or dependent. Breach of an

independent covenant is not, as a matter of law, a material breach. By

definition, an independent covenant does not go to the essence of a

contract.” Flagship W., LLC v. Excel Realty Partners, L.P., No. 102-CV-05200

OWW DLB, 2005 WL 4701939, at *4 (E.D. Cal. Sept. 30, 2005), vacated on

other grounds and remanded, 337 F. App’x 679 (9th Cir. 2009) (citations

omitted). But the converse is not necessarily true. “[T]he fact-finder need


       8
          The problem is compounded because “the precedential value of a California
Court of Appeal decision does not extend to another panel within the same appellate
district, let alone to another appellate district in California.” Tomkow v. Barton (In re
Tomkow), 563 B.R. 716, 728 (9th Cir. 2017).

                                             16
not necessarily answer the question whether the covenant breached is

independent in order to decide that the breach was material. California

case law has long held that the answer to the materiality question is

determinative.” Id.

      Fortunately, we need not decide which of these approaches is correct

or applicable to the facts of this case. As the following sections will show,

the bankruptcy court’s decision was correct under both approaches.

      1.    Ms. Blixseth’s breaches were material.

      The bankruptcy court correctly determined that Ms. Blixseth’s

breaches of the nondisclosure and nondisparagement provisions and the

Performance Fee obligation were material.

      “Normally the question of whether a breach of an obligation is a

material breach, so as to excuse performance by the other party, is a

question of fact.” Brown, 192 Cal. App. 4th at 277. The bankruptcy court

properly accepted extrinsic evidence about the materiality of the breach.

See Schellinger Bros. v. Cotter, 2 Cal. App. 5th 984, 1002 (2016) (“Whether a

breach is material is usually left to the trier of fact ‘to determine from all the

facts and circumstances shown in evidence.’” (citation omitted)).

      Mr. Sandoval testified that these terms were major considerations in

the bargained-for Letter Agreement. He explained how the money

generated by the Performance Fee was intended to offset the monies due

under the Letter Agreement and fund the start-up companies. He also


                                        17
testified that the confidentiality and nondisparagement provisions were

vital to securing new investors and business; he testified that Ms. Blixseth’s

breach devastated the companies and made it impossible to secure new

funding. The court did not err in crediting Mr. Sandoval’s testimony and

finding that the breaches were material.

      WCP argues that there is a legally significant difference between a

breach of a material term of a contract, on the one hand, and a material

breach of the contract, on the other. This is sophistry. WCP relies on

Superior Motels, but that case merely stands for the well-accepted

proposition that not every breach of a contract is material. 195 Cal. App. 3d

at 1051. Superior Motels makes no distinction between a “breach of a

material term” and a “material breach.”

      Therefore, the bankruptcy court did not err in finding that

Ms. Blixseth materially breached the Letter Agreement.

      2.    Ms. Blixseth’s obligations under the Letter Agreement were
            not independent of the Guaranty.

      WCP urges us to follow the second approach. It argues that

Ms. Blixseth’s obligations under the Letter Agreement were independent of

the Guaranty, such that her breaches had no effect on Mr. Sandoval’s

obligation under the Guaranty. It relies heavily on Colaco v. Cavotec SA, 25

Cal. App. 5th 1172 (2018), reh’g denied (Aug. 10, 2018), review denied (Oct. 24,

2018). In that case, both parties breached their obligations under an asset


                                       18
purchase agreement. The California court of appeal held that, where the

agreement called for performance at different times, the provisions were

not dependent. Id. at 1183. It also held that, “[w]hen a covenant or promise

goes only to a part of the consideration, and a breach thereof may be paid

for in damages, it is an independent covenant or promise.” Id. (citations

omitted).

      The language of the agreement and the intent of the parties

determine whether the provisions are dependent or independent. See id.

(“Whether specific contractual obligations are independent or dependent is

a matter of contract interpretation based on the contract’s plain language

and the parties’ intent”); Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas

Co., 116 Cal. App. 4th 1375, 1389 (2004) (“Generally, the parties’ intent

[regarding severability] is revealed by the nature and character of the

agreement . . . . Intent can further be shown by the parties’ subsequent acts

and conduct.” (citations and internal quotation marks omitted)); Brown, 192

Cal. App. 4th at 279 (“The determination of whether a promise is an

independent covenant, so that breach of that promise by one party does not

excuse performance by the other party, is based on the intention of the

parties as deduced from the agreement.”).

      The bankruptcy court properly considered the language of the Letter

Agreement and Mr. Sandoval’s testimony and found that the parties did

not intend that Ms. Blixseth’s obligations were independent from


                                      19
Mr. Sandoval’s Guaranty. The context makes this obvious. At the outset,

Ms. Blixseth and Mr. Sandoval jointly owned two companies. Under the

Letter Agreement, they agreed to rearrange things so each of them would

become the sole owner of one of the two companies and Ms. Blixseth

would recover her investment in the company allocated to Mr. Sandoval.

They also agreed to other terms, such as the confidentiality and

nondisparagement provisions, that were needed to protect the value of

each company. A “business divorce” such as this one only makes sense if

viewed as a single, integrated transaction.

      Likewise, nothing in the language of the Letter Agreement indicates

that the parties intended that it was actually two or more separate

agreements. The bankruptcy court correctly observed that the parties’

desire, memorialized in the introduction to the Letter Agreement, for a

“reasonable separation” to “resolve[] the issues between us” supports “an

entire encompassing and inclusive contract, creating a global settlement of

all issues.” The court additionally noted that some provisions would be

rendered nonsensical if it were to sever certain provisions.9

      The court also relied on Mr. Sandoval’s testimony. This was not error;



      9
        Contrary to WCP’s argument, the severability clause of the Letter Agreement
has nothing to do with this issue. It comes into play only if one or more provisions of
the agreement is “invalid and unenforceable.” (Emphasis added.) The bankruptcy court
did not hold that any provision of the Letter Agreement was invalid, only that WCP
could not enforce it due to Ms. Blixseth’s breaches.

                                          20
extrinsic evidence is admissible to determine whether the parties intended

the agreement to contain dependent or independent promises. See Brown,

192 Cal. App. 4th at 279 (holding that the trial court properly relied on

parol evidence to determine “whether a promise is an independent

covenant . . . .”). The court credited his explanation of the reasons for and

importance of the various provisions, as well as the parties’ intention that

the Letter Agreement was a “global resolution of all issues, rather than a

series of independent agreements.” These findings are not clearly

erroneous.

       WCP also argues that Mr. Sandoval’s payment obligations under the

Guaranty were independent of Ms. Blixseth’s obligations under the

nondisparagement and confidentiality provisions because she was

obligated to obey those terms into the indefinite future, while

Mr. Sandoval’s payments were due on specific dates. But the bankruptcy

court did not need to consider the effect of a possible future breach of those

provisions: Ms. Blixseth breached the Letter Agreement when she filed the

state court action disclosing the Letter Agreement and disparaging

Mr. Sandoval in May 2008, before the full amount under the Guaranty was

due.

       Therefore, the bankruptcy court did not err in holding that the Letter

Agreement was a unified contract and that Mr. Sandoval’s obligations

under the Guaranty were dependent on Ms. Blixseth’s performance of the


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cited provisions of the Letter Agreement.

B.    The bankruptcy court correctly interpreted the phrase “no matter
      what may happen” in Mr. Sandoval’s Guaranty.

      The Guaranty provided that Mr. Sandoval guaranteed “that the first

$5 million portion of the xPatterns obligations will be paid when due, no

matter what may happen.” WCP argues that, by virtue of the “no matter

what may happen” phrase, Mr. Sandoval was absolutely obligated to pay

the $5 million Guaranty to Ms. Blixseth, even if she materially breached the

Letter Agreement. We disagree.

      WCP argues that the Letter Agreement was unambiguous and that

the court therefore erred in receiving Mr. Sandoval’s testimony. Under

California law, “[i]f contractual language is clear and explicit, it governs.”

Bank of the W. v. Superior Court, 2 Cal. 4th 1254, 1264 (1992) (citing Cal. Civ.

Code §§ 1636, 1638); see also Shaw v. Regents of Univ. of Cal., 58 Cal. App. 4th

44, 54-55 (1997) (“Although the intent of the parties determines the

meaning of the contract, the relevant intent is ‘objective’—that is, the

objective intent as evidenced by the words of the instrument, not a party’s

subjective intent.” (citations omitted)). The court only needs to consider

extrinsic evidence where there is an ambiguity. See Crow Winthrop

Operating P’ship v. Jamboree LLC (In re Crow Winthrop Operating P’ship), 241

F.3d 1121, 1124 (9th Cir. 2001) (“Under California law, if a contract’s terms

are unambiguous, a court may interpret the contract without recourse to


                                       22
extrinsic evidence.” (citing City of Santa Clara v. Watkins, 984 F.2d 1008, 1012

(9th Cir. 1993)).

      The bankruptcy court correctly held that the phrase “no matter what

may happen” had “two arguable interpretations.” WCP’s argument, that

Mr. Sandoval was liable on the Guaranty despite any breach by

Ms. Blixseth, is consistent with the literal language of the quoted phrase

read in isolation. Mr. Sandoval’s argument to the contrary is supported by

a reading of the entire Letter Agreement and an understanding of the

integrated transactions that it documented.

      The court employed a correct analytical process to decide which

interpretation was correct. The bankruptcy court properly considered the

nature of a guaranty. As the court noted, the Guaranty made Mr. Sandoval

liable for a portion of xPatterns’ debt. This implies that Mr. Sandoval was

liable under the Guaranty only to the extent that xPatterns was liable to

Ms. Blixseth. xPattern’s debt, and Mr. Sandoval’s Guaranty, became

unenforceable when Ms. Blixseth committed material breaches of the Letter

Agreement. The court discounted WCP’s interpretation of the phrase “no

matter what may happen,” partly because it was inconsistent with the

usual meaning of a guaranty. It correctly deduced the meaning of the

Guaranty from the language of the Letter Agreement itself.

      Moreover, the court correctly considered Mr. Sandoval’s testimony.

He testified that he would not have entered into the Letter Agreement


                                       23
absent the confidentiality and nondisparagement provisions and that

Atigeo and xPatterns were relying on the Performance Fee promised by

Ms. Blixseth in order to make the payments that they owed to her and

continue business operations. The bankruptcy court properly credited this

testimony.

      WCP argues that the bankruptcy court found that Mr. Sandoval only

agreed to the Guaranty because he thought he would never have to satisfy

the debt. It states that the bankruptcy court found that Mr. Sandoval “never

intended to actually pay it.” WCP then argues that the bankruptcy court

improperly substituted Mr. Sandoval’s subjective expectation for the Letter

Agreement’s terms, thereby “exonerating” Mr. Sandoval.

      This distorts the bankruptcy court’s findings beyond recognition. The

bankruptcy court never found that Mr. Sandoval believed that he would

never have to actually pay the Guaranty. Rather, it found that he thought

the Guaranty would be a backup means to satisfy the debt if “various other

clauses in the Letter Agreement did not generate sufficient funds to make

the payments, as they were designed.” In other words, Mr. Sandoval

signed the Guaranty because he expected that Ms. Blixseth would carry out

her side of the Letter Agreement, which in turn was crucial to Atigeo’s and

xPatterns’ success and ability to pay Ms. Blixseth. This is not the least bit

surprising: few people would sign a guaranty if they did not think that the

principal obligor would probably pay the debt. The bankruptcy court’s


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interpretation of the Letter Agreement and the Guaranty was reasonable.

                            CONCLUSION

     The bankruptcy court did not err in entering judgment in

Mr. Sandoval’s favor on WCP’s third-party complaint. We AFFIRM.




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