FILED AUG 26 2021 SUSAN M. SPRAUL, CLERK NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. CC-21-1027-SGF SSRE HOLDINGS, LLC, Debtors. Bk. No. 2:21-bk-10327-WB

SSRE HOLDINGS, LLC, Appellant, v. MEMORANDUM* ZIRKLE GROUP, LLC; PMC FINANCIAL, Appellees.

Appeal from the United States Bankruptcy Court for the Central District of California Julia Wagner Brand, Bankruptcy Judge, Presiding

Before: SPRAKER, GAN, and FARIS, Bankruptcy Judges.

* 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. INTRODUCTION

Former chapter 11 1 debtor SSRE Holdings, LLC (“SSRE”) appeals from the

dismissal of its bankruptcy case. The bankruptcy court found that SSRE’s

manager, Stanley Wetch, lacked authority to file the bankruptcy petition. The

bankruptcy court’s decision hinged on its determinations that at the time of the

bankruptcy filing: (1) Zirkle Group, LLC held a 50% membership interest in

SSRE; (2) Zirkle Group did not consent to the bankruptcy filing; and (3) the

consent of all its members was required for SSRE to file bankruptcy. In making

these determinations, the bankruptcy court explained that a Rescission

Agreement between the parties purporting to unwind Zirkle Group’s acquisition

of a 50% membership interest in SSRE was legally ineffective. Additionally, the

court held that the parties’ Members’ Agreement did not authorize Wetch as

manager to unilaterally file bankruptcy for SSRE. As a result, the court

concluded that Zirkle Group remained a member of SSRE whose consent was

required to file the bankruptcy.

Upon de novo review, we conclude that the applicable law and record

before us do not support either ground for concluding that Wetch lacked

authority to unilaterally file bankruptcy for SSRE. Accordingly, we REVERSE.

1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532. 2 FACTS 2

A. SSRE acquires assets from Whittier Financial LLC.

In the summer of 2020, SSRE purchased a food processing plant and related

assets (the “Plant”) from Whittier Financial LLC. Prior to its acquisition of the

Plant, Wetch was the sole member and manager of SSRE. The Operating

Agreement for SSRE granted Wetch as manager “full, complete and exclusive

authority, powers and discretion to manage and control the business, property

and affairs of the Company, to make all decisions regarding those matters and

perform any and all other acts or activities customary or incident to the

management of the Company’s business, property and affairs.” A second

subsection confirmed this broad grant of authority to the manager by stating that

it was the “intent of the Agreement that no limitations be placed on the powers

of the Manager.”

As part of SSRE’s acquisition of the Plant, it assumed the secured debt that

Whittier owed to PMC Financial and took an assignment of the lease of the real

property on which the Plant operated and certain equipment leases.

B. Zirkle Group becomes a member of SSRE.

In furtherance of SSRE’s acquisition of the Plant, Wetch negotiated with

Zirkle Group, through its principal Derek Zirkle, to transfer a 50% membership

interest in SSRE to Zirkle Group (the “Membership Transaction”). The

documentation for the Membership Transaction included an Option to Enter

2 We exercise our discretion to take judicial notice of documents electronically filed in the bankruptcy court. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),

, 233 3 Members’ Agreement (“Option”), a Members’ Agreement, and an Assignment of

Membership Interest in SSRE Holdings, LLC Separate from Certificate. Under

the Option, Zirkle Group was supposed to pay $30,000 to Wetch to trigger

Wetch’s assignment of the membership interest. Ultimately, Zirkle Group paid

$30,000 to SSRE (“$30,000 Payment”).

The Members’ Agreement specified the parties’ respective rights and

responsibilities in SSRE. Though Wetch and Zirkle Group each held a 50%

ownership interest, the Members’ Agreement contemplated that Wetch initially

would serve as SSRE’s manager and chief executive officer. Zirkle would serve as

president and secretary. It further specified that Wetch and Zirkle Group would

share “joint operational control” and would “collectively make day to day

business decisions.” Under the Members’ Agreement, Alex Meseonzik and Thom

Rindt were also to be given management or consulting positions in SSRE, with

varying degrees of control. 3

Additionally, Wetch was supposed to contribute his management expertise

and bring in new customers in addition to Whittier’s existing customers and

those brought into the business by Zirkle Group. Wetch also was responsible for

obtaining financing if income from the business was insufficient to cover

operating expenses. In turn, Zirkle and Zirkle Group were supposed to

contribute their skill and experience related to running a private label food

processing business.

n.9 (9th Cir. BAP 2003). 3 Meseonzik is identified as Whittier’s owner, from which SSRE purchased the Plant.

4 In September or October 2020, SSRE commenced operations. Almost

immediately, substantial friction developed between Wetch, Zirkle, and

Meseonzik. They could not agree on a number of issues regarding SSRE’s

operations or control thereof. Chaos, business disruptions, and litigation ensued.

Some of the focus was on allegations of fraud, misappropriation, and breach of

various contractual obligations, but much of it centered on the battle for

ownership and control of SSRE.

On October 22, 2020, Wetch, SSRE, and Zirkle Group entered into a

“Recission Agreement [sic]” (“Rescission Agreement”). The parties agreed to

“render[] [the Membership Transaction] void ab initio and of no force or

effect . . . .” SSRE promised to repay to Zirkle Group the $30,000 Payment within

thirty days of the Rescission Agreement’s execution, and the parties agreed that,

“notwithstanding said payment this Recission [sic] Agreement is in full force and

effect immediately upon execution hereof by the parties.”

The Rescission Agreement did not end the dispute. On November 14, 2020,

before SSRE’s repayment of the $30,000 Payment was due, Zirkle sent an email

purporting to revoke the Rescission Agreement. Further confusing matters, SSRE

later sent a check for $30,000 to Zirkle Group but stopped payment on the check

before Zirkle Group cashed it.

C. SSRE’s bankruptcy filing and Zirkle Group’s motion to dismiss.

On January 15, 2021, Wetch filed a bankruptcy petition on behalf of SSRE

under subchapter V of chapter 11. Wetch signed the petition on SSRE’s behalf as

5 its manager. According to Wetch, he filed bankruptcy on behalf of SSRE in light

of PMC’s efforts to foreclose on the Plant and related assets.

Within a week of the bankruptcy filing, Zirkle Group filed a motion to

dismiss the case, alleging that Wetch lacked authority to unilaterally file

bankruptcy on SSRE’s behalf because all membership interests had not voted in

favor of the bankruptcy filing. Zirkle Group argued that Wetch’s failure to repay

the $30,000 Payment negated the Rescission Agreement and that Zirkle Group

remained a member of SSRE as of the petition date. It concluded that because not

all of the members of SSRE authorized the bankruptcy filing, dismissal of the

case was required.

SSRE nonetheless argued that Wetch had sufficient authority under the

Operating Agreement as SSRE’s manager to file SSRE’s bankruptcy petition. It

also argued that the Rescission Agreement was effective, and thus Wetch was the

only member as of the petition date.

The bankruptcy court heard oral argument on the motion to dismiss.4 After

taking the matter under submission, the court rendered its oral ruling, holding

that Zirkle Group was a 50% member of SSRE because the Rescission Agreement

was ineffective. The court also ruled that, under SSRE’s Operating Agreement,

the Members’ Agreement, and California law, the filing of a bankruptcy case for

4 The court also heard oral argument on PMC’s relief from stay motion, which ultimately was rendered moot by the bankruptcy court’s decision to dismiss the case. Nonetheless, PMC joined in Zirkle Group’s motion to dismiss and has participated in this appeal as a joint appellee along with Zirkle Group. 6 an LLC was an action outside the ordinary course of the LLC’s business which

required the consent of all members.

On February 16, 2021, the bankruptcy court entered its order dismissing

SSRE’s bankruptcy case. SSRE timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction under

and

157(b)(2)(A). We have jurisdiction under

ISSUE

Did the bankruptcy court commit reversible error when it dismissed

SSRE’s bankruptcy case?

STANDARDS OF REVIEW

Our decision in this appeal turns on our construction of the Operating

Agreement and the Members’ Agreement, which we construe in accordance with

state law. See Miller v. Safeco Title Ins. Co.,

(9th Cir. 1985).

Because the parties presented no disputed extrinsic evidence regarding the

meaning of the operative agreements, the task of interpreting them is a question

of law, which we review de novo. L.K. Comstock & Co. v. United Eng'rs &

Constructors Inc.,

, 221 (9th Cir. 1989); see also DVD Copy Control Ass’n,

5 In their appeal brief, Zirkle Group and PMC posit that this appeal is moot. They point to the fact that, subsequent to dismissal, PMC foreclosed on most of SSRE’s assets. The party advocating that an appeal is moot has the burden to demonstrate that the appellate court cannot grant any meaningful relief even if the appellant were to prevail. Suter v. Goedert,

(9th Cir. 2007). This matter is not moot as effective relief remains available: the bankruptcy case can be reinstated. Though PMC’s post-bankruptcy foreclosure might render it difficult or impossible for SSRE ultimately to accomplish what it originally sought by filing its 7 Inc. v. Kaleidescape, Inc.,

(2009) (“Our review of the trial

court’s interpretation of a contract generally presents a question of law for this

court to determine anew.”); Founding Members of the Newport Beach Country Club

v. Newport Beach Country Club, Inc.,

(2003) (“When

no extrinsic evidence is introduced, or when the competent extrinsic evidence is

not in conflict, the appellate court independently construes the contract.”).

Our decision also turns on the enforceability of the Rescission Agreement

and whether that agreement was rescinded by Zirkle Group. To answer these

questions, we must interpret California law. Our construction of state law also is

a matter for de novo review. See Sec. Pac. Nat'l Bank v. Kirkland (In re Kirkland),

(9th Cir. 1990); Steward Fin., LLC v. Bral (In re Bral),

, 742 (9th Cir. BAP 2020).

When we conduct a de novo review, we consider the matter as if the

bankruptcy court did not previously decide it. Francis v. Wallace (In re Francis),

(9th Cir. BAP 2014).

DISCUSSION

On appeal, SSRE has offered two theories why Wetch had authority by

himself to file bankruptcy on its behalf. First, SSRE’s Operating Agreement in

conjunction with California law regarding limited liability company governance

(

, 17701.11, 17704.07, 17710.01) enabled Wetch as the

sole manager of SSRE to file bankruptcy on its behalf even without the consent of

all its members. Second, pursuant to the Rescission Agreement, the parties

bankruptcy, the possible failure of any such bankruptcy case does not render this appeal moot. 8 unwound the Membership Transaction, and Wetch was restored to sole

ownership of SSRE, thereby terminating Zirkle Group’s role in SSRE.

A. Wetch had authority to file bankruptcy for SSRE under the Operating Agreement.

As duly recognized by the parties and the bankruptcy court, the

authorization to file for bankruptcy depends on state law. Sino Clean Energy, Inc.

v. Seiden (In re Sino Clean Energy, Inc.),

(9th Cir. 2018) (citing

Price v. Gurney,

(1945)). California’s Revised Uniform

Limited Liability Company Act governing limited liability companies provides

that, “[e]xcept as otherwise provided in this section,” the operating agreement

governs, among other matters, the relations of its members and the activities of

the limited liability company.

(a) (emphasis added).

(b) and (c), respectively, set forth the default rules for

control of member-managed and manager-managed limited liability companies.

Regardless of which one applies in this case, the consent of all members is

required to take actions on behalf of the company outside the ordinary course of

business. See

(b)(4), (c)(4).

Members of a limited liability company can, however, adopt a different

rule within an operating agreement.

. Limited liability

company operating agreements generally are subject to the ordinary rules of

contract interpretation. See Itv Gurney Holding v. Gurney,

(2017). When interpreting a contract, the court principally must rely on the

language of the contract but typically also may consider the circumstances under

9 which the contract was made and the subject matter to which it relates. Am. Alt.

Ins. Corp. v. Super. Ct.,

(2006).

Sections 4.1 and 4.2 of the Operating Agreement address the authority

conferred upon the manager of SSRE. Section 4.1 provides:

4.1 Management and Powers. The business, property and affairs of the Company shall be managed by Stanley J. Wetch[ ] (the “Manager”). Accordingly, unless otherwise limited by the Articles or this Agreement, the Manager shall have full, complete and exclusive authority, powers and discretion to manage and control the business, property and affairs of the Company, to make all decisions regarding those matters and perform any and all other acts or activities customary or incident to the management of the Company’s business, property and affairs.

Section 4.2 of the Operating Agreement confirms the broad grant of

authority to the manger by declaring that it is “the intent of the Agreement that

no limitations be placed on the powers of the Manager.”

Here, the parties read the same provisions of the same documents and

reach competing conclusions. Zirkle Group argues that the Operating Agreement

cannot be read to authorize the manager to file bankruptcy because it does not

expressly grant that authority. No case law was cited for this proposition, nor

have we found any to support such a requirement. While there is no express

grant of authority, the manager is expressly given “full, complete and exclusive”

control over all of SSRE’s affairs without limitation. This expansive grant of

authority necessarily encompasses all matters for which authority can be granted

under California law, excluding those for which the Operating Agreement

10 requires additional member consent. SSRE’s Operating Agreement specifically

provides that matters concerning dissolution, distributions, and transfers of

membership interests required additional consent of SSRE’s members.

But in this instance, the Operating Agreement does not specifically require

the consent of all members to file bankruptcy. Though such a decision is outside

of the ordinary course, under the Operating Agreement it falls within the broad,

general grant of authority vested in the manager that specifically was designated

to be without limitation. See generally In re Lexington Hosp. Grp., LLC,

(Bankr. E.D. Ky. 2017) (construing broad grant of authority under operating

agreement to include filing bankruptcy petition); In re E. End Dev., LLC,

(Bankr. E.D.N.Y. 2013) (same); but cf. In re Avalon Hotel Partners, LLC,

(Bankr. D. Or. 2003) (holding that the filing of bankruptcy fell

within a non-exclusive category of major decisions that required the consent of

all members under LLC’s operating agreement). Therefore, the Operating

Agreement is not silent as to the manager’s authority, and California’s statutory

default rule concerning decisions outside the ordinary course,

(c)(4)(B), does not apply. In short, sections 4.1 and 4.2 of the Operating

Agreement implicitly granted Wetch as manager the authority to file bankruptcy

for SSRE.

Wetch and Zirkle Group subsequently executed the Members’ Agreement

when Wetch transferred 50% of his interest in SRRE to Zirkle Group. The

Members’ Agreement altered the grant of authority to the manager as to

operational and day-to-day matters. Under the Members’ Agreement, Wetch

11 and Zirkle Group were given joint operational control to make “day to day

business decisions.” But the Members’ Agreement confirmed Wetch as manager

and left unaffected the remainder of the manager’s authority under the

Operating Agreement.

With the exception of some specific carveouts for dissolution, distributions,

and transfers of membership interests, the expansive grant of authority set forth

in the Operating Agreement is clear and unambiguous and unequivocally

applies to all management decisions that could be delegated to the manager

under California law — including the ability to file bankruptcy. The Members’

Agreement did nothing to alter the manager’s broad general control over

decisions outside the ordinary course. Instead, it merely carved out an additional

exception for joint control of SSRE’s day-to-day business decisions.

The bankruptcy court incorrectly viewed the absence of a specific grant of

authority to file bankruptcy as determinative. But no specific grant of authority

was necessary in light of the broad general grant of authority set forth in the

Operating Agreement. We, therefore, hold that Wetch as manager had the

unilateral authority to file bankruptcy for SSRE.

B. Wetch was SSRE’s sole member at the time of its bankruptcy filing because the Rescission Agreement was a binding contract and Zirkle Group did not rescind it.

Zirkle Group has not challenged the bankruptcy court’s determination that

it duly entered into the Rescission Agreement. Rather, it contends that the

Rescission Agreement never became effective because Wetch never repaid the

12 $30,000 Payment. According to Zirkle Group, the bankruptcy court correctly

determined that there was a failure of consideration to support the Rescission

Agreement such that it never became legally effective.

Zirkle Group and the bankruptcy court elided the crucial distinction

between the “rescission” of a contract by mutual agreement of the parties

(governed by

(a)) and “rescission” as a breach of contract

remedy invoked unilaterally by one of the contracting parties (governed by

(b) and 1691). See generally Pennel v. Pond Union Sch. Dist.,

(1973) (distinguishing between a bilateral agreement to

rescind and the unilateral exercise of a right to rescind). The Rescission

Agreement invoked the former kind of rescission: SSRE and Zirkle Group

mutually agreed to rescind the Membership Transaction. But Zirkle Group now

argues that it was entitled to unilaterally rescind the Rescission Agreement

because SSRE failed to repay the $30,000 Payment. We conclude that the

Rescission Agreement was an effective mutual agreement to terminate Zirkle

Group’s membership in SSRE and that any effort by Zirkle Group to unilaterally

rescind the Rescission Agreement was ineffective. Therefore, Zirkle Group was

not a member of SSRE at the petition date.

1. The Rescission Agreement was a multilateral contract supported by consideration.

The Rescission Agreement is straightforward: Zirkle Group agreed to

rescind the Membership Transaction pursuant to which it had become a member

of SSRE in exchange for SSRE returning the $30,000 Payment within thirty days.

13 The Rescission Agreement is a classic multilateral contract, where parties make

promises that serve as consideration for the other parties’ promises. See Bleecher

v. Conte,

(1981) (citing Davis v. Jacoby,

(1934)). Consideration for a contract of rescission typically is supplied by the

parties’ respective promises to forego rights arising from the rescinded contract.

See, e.g., Jura v. Sunshine Biscuits, Inc.,

(1953) (citing

cases); see also Evans v. Rancho Royale Hotel Co.,

(1952)

(“[A] contract can be mutually abandoned by the parties at any stage of their

performance and each of the parties released from any further obligation on

account thereof . . . .”). This is exactly what happened under the Rescission

Agreement.

Zirkle Group makes numerous, and sometimes confusing, references to a

failure of consideration without placing its argument within the correct legal

context. SSRE, Wetch, and Zirkle Group exchanged valid consideration upon the

execution of the Rescission Agreement that immediately created an enforceable

contract: all parties agreed to give up their rights under the Membership

Transaction; and SSRE promised to return the $30,000 Payment to Zirkle Group.

SSRE had thirty days to return the $30,000 Payment, and it did tender a payment

within that deadline. But SSRE stopped payment, depriving Zirkle Group of the

funds. Thus, SSRE failed to perform its obligation under the Rescission

Agreement. But SSRE’s promise to make that payment was still sufficient as the

initial consideration given to create the Rescission Agreement. SSRE’s

nonperformance of the contractual obligation simply was a breach of contract.

14 Some of Zirkle Group’s arguments assume that that it did not relinquish its

membership interest because SSRE never repaid the $30,000 Payment. Such an

argument is precluded by the plain language of the Rescission Agreement. The

Rescission Agreement specifically stated that the Members’ Agreement and other

related agreements comprising the Membership Transaction were “void ab initio

and of no force or effect . . . .” The Rescission Agreement further stated that it

was “in full force and effect immediately upon execution” notwithstanding

SSRE’s promise to repay the $30,000 Payment within thirty days. The plain and

unambiguous language of the Rescission Agreement is clear that Zirkle Group

released its interest in SSRE effective immediately upon execution of that

agreement, even though the $30,000 Payment had not yet been returned.

The Rescission Agreement was, therefore, a valid, enforceable contract

binding SSRE, Wetch, and Zirkle Group. This is significant because under the

Rescission Agreement, Zirkle Group immediately released its interest in SSRE.

Thus, unless it duly rescinded the Rescission Agreement, it was not a member of

SSRE as of the petition date.

2. SSRE’s failure to return the $30,000 Payment to Zirkle Group constituted a failure of consideration for purposes of creating a unilateral right of rescission under California law.

SSRE does not genuinely dispute that its failure to repay the $30,000

Payment constituted a failure of consideration that would support a right of

unilateral rescission under

(b)(2). Clearly, Zirkle Group did

not receive the consideration it was promised in exchange for releasing its

15 interest in SSRE. Instead, SSRE argues that Zirkle Group anticipatorily breached

the Rescission Agreement when Zirkle attempted to revoke it in an email sent on

November 14, 2020, before the $30,000 Payment was due. Zirkle sent Wetch an

email on that date challenging the validity of the Rescission Agreement and

stating that he was “revoking” the agreement based on the failure to return the

$30,000 Payment. In the same email, Zirkle also wrote that “[t]he agreement is

withdrawn and of no effect.” SSRE believes that the attempted revocation

excused it from making the $30,000 repayment. In this instance, it did not.

SSRE notes that the wrongful repudiation of a contract constitutes an

anticipatory breach of that contract by the repudiating party. Romano v. Rockwell

Int’l, Inc.,

(1996). SSRE construes Zirkle’s email as a

repudiation of the Rescission Agreement and cites Central Valley General Hospital

v. Smith,

(2008), for the proposition that the

repudiation “may discharge the other party’s duties to render performance.”

While this is undoubtedly a true general statement of the law, it is inapplicable

here.

As was also recognized by Central Valley General Hospital, “an anticipatory

breach of contract occurs when the contract is repudiated by the promisor before

the promisor’s performance under the contract is due.”

(citing Taylor v.

Johnston,

(1975)) (emphasis added); see also Diamond v. Univ. of

S. Cal.,

(1970) (“[I]t is the general rule, recognized in this

state, that the doctrine of breach by anticipatory repudiation does not apply to

contracts which are unilateral in their inception or have become so by complete

16 performance by one party.”) (citing Cobb v. Pac. Mut. Life Ins. Co.,

(1935)). In Gold Mining & Water Co. v. Swinerton,

(1943), the

California Supreme Court explained: “By its very name an essential element of a

true anticipatory breach of a contract is that the repudiation by the promisor

occur before his performance is due under the contract.”

Zirkle Group’s performance was completed upon the execution of the

Rescission Agreement; no further action was required to rescind the Membership

Transaction or to transfer Zirkle Group’s interest in SSRE back to Wetch. The

only remaining performance that remained under the Rescission Agreement was

SSRE’s obligation to repay $30,000 to Zirkle Group. Simply put, Zirkle’s

statement of revocation did not affect Zirkle Group’s performance under the

contract and could not “breach” the Rescission Agreement.6

Zirkle’s “revocation” was of no consequence and did not excuse SSRE’s

obligation to repay the $30,000 Payment. SSRE’s failure to make that payment,

therefore, constituted a failure of consideration within the meaning of

(b)(2). As a result, Zirkle Group had the unilateral right to rescind

the Rescission Agreement under

(b)(2) after Wetch failed to

timely perform his contractual obligation.

6 A party desiring to undo the consequences of a binding contract may not simply disavow that contract by declaring it “revoked.” See generally CPI Builders, Inc. v. Impco Techs., Inc.,

(2001) (holding that offeree duly accepted offeror’s offer to enter into binding arbitration agreement thereby forming a valid and binding contract — offeror’s attempted revocation of its offer after offeree’s acceptance was ineffective to invalidate the contract). 17 3. Zirkle Group failed to comply with the statutory requirements to unilaterally rescind the Rescission Agreement.

While

(b)(2) gave Zirkle Group the right to rescind the

Rescission Agreement for failure of consideration, it still had to comply with the

applicable statutory procedural requirements to effect the rescission. Under

, Zirkle Group was required to give notice of the rescission and

restore everything of value that it had received. The bankruptcy court concluded

that Zirkle Group unilaterally had rescinded the Rescission Agreement without

making specific findings that Zirkle Group complied with

.

We examine the record to see if it contains evidence to support a finding that

Zirkle Group complied with the requirements of

.

As discussed above, Zirkle Group was not required to physically return

anything as part of its performance under the Rescission Agreement. The

underlying agreement to unwind Zirkle Group’s 50% membership interest in

SSRE was self-effectuating, and there was nothing Zirkle Group needed to do in

order to release its interest in SSRE. For this reason, no restoration was required

by Zirkle Group in order for it to unilaterally rescind the Rescission Agreement.

See Larson v. Warner Bros. Ent. Inc., No. 2:04-CV-08400-ODW,

, at

*4 (C.D. Cal. Mar. 20, 2013) (“[T]he requirement of a restoration of consideration

is unnecessary where, as here, nothing of value was received by the plaintiff.”),

judgment entered, No. 04-CV-08400 ODW RZX,

(C.D. Cal. June

18, 2013), and aff'd on other grounds,

(9th Cir. 2016).

18 There is no evidence, however, that Zirkle Group ever effectively exercised

its right of rescission under

(b) because it never gave a

notice of rescission as required by

(a). As the bankruptcy

court noted, Zirkle Group had attempted to “revoke” the Rescission Agreement

through an email dated November 14, 2020. But as discussed above, the thirty

days for SSRE to refund the money had not yet expired when Zirkle sent his

email. As of that date, there was no failure of consideration on SSRE’s or Wetch’s

part. Thus, Zirkle Group did not have a right of unilateral rescission under

(b)(2) when Zirkle sent the email. Under California law, an

attempted notice of rescission is ineffective unless the party giving notice

actually has a right to rescind. See Larson,

, at *5 (citing Brown v.

Roberts,

(1932)). Nothing in the record establishes that

Zirkle Group attempted to exercise its unilateral right of rescission after that

right arose by giving notice to SSRE and Wetch.

Zirkle Group failed to rescind the Rescission Agreement prior to SSRE’s

petition date. As a result, it remained a valid, existing contract even though

Wetch was in breach of his contractual obligations. See Whitney Inv. Co. v.

Westview Dev. Co.,

(1969) (“A breach does not terminate

a contract as a matter of course but is a ground for termination at the option of

the injured party”); see also Alder v. Drudis,

(1947) (stating that

a party injured by a breach of contract may, by election, treat the contract as

rescinded). Under the terms of the Rescission Agreement, Zirkle Group was no

longer a member of SSRE at the time Wetch filed bankruptcy on SSRE’s behalf.

19 In sum, the Rescission Agreement was duly entered into by the parties and

contractually unwound the Membership Transaction. Furthermore, Zirkle Group

never exercised its right to unilaterally rescind the Rescission Agreement after

that right arose. Consequently, the bankruptcy court erred when it concluded

that Zirkle Group remained a member of SSRE at the time SSRE filed

bankruptcy.

CONCLUSION

For the reasons stated above, we REVERSE the bankruptcy court’s

dismissal of SSRE’s bankruptcy case.

20