IKUTA, Circuit Judge:
DM Residential Fund II, LLC, (DM) appeals the district court's grant of summary judgment in favor of First Tennessee Bank National Association (FTB). We have jurisdiction under 28 U.S.C. § 1291, and we affirm.
FTB initiated a nonjudicial foreclosure on residential real property and sold the property at a foreclosure sale to DM. The property lacked a utilities easement needed to provide electrical service to the new home that had been constructed on the property and also lacked a certificate of occupancy. DM discovered the utilities easement issue shortly after buying the property and brought this diversity action two years later, seeking to rescind the transaction on the basis of FTB's failure to disclose the defect.
A jury could have reasonably concluded that DM could not have discovered the utility easement issue prior to the foreclosure sale based on evidence in the record that: (1) DM's pre-foreclosure due diligence exceeded industry standards; and (2) it was reasonable for DM not to seek the certificate of occupancy for this property because construction of the residence appeared to be completed in 2007 and the City of Whittier did not require certificates of occupancy for residences built before 2010. Therefore, there was a genuine issue of material fact as to whether DM could have discovered the defect prior to the foreclosure sale, which is the relevant inquiry under Karoutas v. HomeFed Bank, 232 Cal.App.3d 767, 771, 283 Cal.Rptr. 809 (1991).
Nevertheless, the district court did not err in concluding on summary judgment that DM is not entitled to the equitable remedy of rescission. A party seeking rescission must do so "promptly upon discovering the facts which entitle him to rescind." Cal. Civ.Code § 1691.
Instead of investigating and pursuing its claims, DM took actions inconsistent with unwinding the contract, including encumbering the property, building improvements, and attempting to sell it. By taking those actions and waiting two years before suing FTB, DM affirmed the transaction, and its "right to rescind it is gone." Bancroft, 183 Cal. at 111, 190 P. 445; see also Neet v. Holmes, 25 Cal.2d 447, 458, 154 P.2d 854 (1944). Because there is no genuine issue of material fact as to whether DM's two-year delay deprived it of the equitable remedy of rescission, FTB is entitled to summary judgment on that issue.
KOZINSKI, Circuit Judge, dissenting:
I agree with the majority that DM was entitled to go to the jury with its claim that it couldn't have discovered the hidden defect prior to buying the property. Maj. at 877. Moreover, as the majority correctly notes, FTB was bound to disclose the hidden defect of which it was aware at the time of the sale "because a foreclosing lender has the same duties of disclosure regarding the property as any other seller." Id. at 877 (citing Karoutas v. HomeFed Bank, 232 Cal.App.3d 767, 771, 283 Cal.Rptr. 809 (1991)). Nor is there any doubt that DM brought the lawsuit well within both the three-year statute of limitations for its fraud claims, see Cal. Civ. Proc.Code § 338(d), and the four-year statute of limitations for its rescission claim, see id. § 337(3). DM thus was entitled to sue FTB, unless it relinquished those rights. The majority concludes it did, but does so by misreading California law and ignoring key facts.
The majority goes astray by relying on a case from the era of flivvers and flappers that interpreted an earlier version of section 1691. Maj. at 877 (citing Bancroft v. Woodward, 183 Cal. 99, 108, 190 P. 445 (1920)). At that time, section 1691 required the party seeking rescission to "use. . . reasonable diligence," Cal. Civil Code § 1691 (1915), but in 1961, California lawmakers removed the "reasonable diligence" requirement. The current version of the statute contains no diligence requirement and says nothing at all about the period before the rescinding party discovers its ground for rescinding. See Cal. Civil Code § 1691 (2015). Thus, "reasonable diligence or promptness on the part of the party seeking rescission is no longer a prerequisite for the remedy." Wilke v. Coinway, Inc., 257 Cal.App.2d 126, 140, 64 Cal.Rptr. 845
The majority also cites Jolly v. Eli Lilly & Co., 44 Cal.3d 1103, 1112, 245 Cal.Rptr. 658, 751 P.2d 923 (1988), and Fox v. Ethicon Endo-Surgery, Inc., 35 Cal.4th 797, 808-09, 27 Cal.Rptr.3d 661, 110 P.3d 914 (2005), but those are statute of limitations cases. See Maj. at 877. The statute of limitations hadn't run when DM brought suit, so those cases are irrelevant to the question presented to us.
The prior owner, Huerta, would likely have known about the defect, but she would have had no reason to disclose it to the bank. I don't understand why DM had a duty to track down Huerta and ask her whether she told the bank about the hidden defect. Absent some evidence that such a communication between Huerta and the bank had taken place—of which there was none here—a reasonable buyer wouldn't have bothered looking for Huerta and asking her what she'd told the bank.
But there's an even wider gap in the majority's reasoning: Assuming DM did have a duty to find Huerta and interrogate her about whether she disclosed the defect to the bank, there's no proof DM could have done so. We know that Huerta was reachable on December 29, 2011, because DM's agents talked to her around that time. But the record shows nothing about her whereabouts between February 4, 2010, the date of the sale, and December 29, 2011, when she talked to DM. Was she easily found? Was she hospitalized in a coma? Was she in Zanzibar hunting snark? The record does not say.
The majority errs by assuming that Huerta was reachable by DM in 2010 because she talked to its agents in December 2011. Maj. at 878. We have no evidence that this was the case, and it is FTB's duty, as the party moving for summary judgment, to fill any such gaps in the record. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
FTB ultimately leaves too much to speculation. First, it doesn't explain why DM would have had reason to chase down Huerta and ask her whether she told the bank about the hidden defect. Nothing in the relationship of defaulting borrower and foreclosing bank naturally suggests that she would have done so. And, second, we are left to speculate about where Huerta was all this time and whether DM could have gotten a hold of her. All of these are facts—facts that are necessary for FTB to prevail on summary judgment, and facts that are absent from this record.
DM raised a genuine issue of material fact regarding whether it was wronged by FTB. FTB was not entitled to prevail on its defenses, and certainly not on summary judgment. I can't imagine the result would be the same if this case were decided by the California courts. At the very least, the matter is highly debatable, and we should certify it for consideration by the California Supreme Court. See Cal. R. Ct. 8.548(a).