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Eggs 'n Things International Holdings Pte. Ltd., et al v. Ent Holdings LLC

February 17, 2012

EGGS 'N THINGS INTERNATIONAL HOLDINGS PTE. LTD., ET AL., PETITIONERS,
v.
ENT HOLDINGS LLC, RESPONDENT.



The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge

S E A L E D

ORDER GRANTING PETITIONERS' MOTION TO REMAND FOR LACK OF SUBJECT MATTER JURISDICTION AND FOR ATTORNEYS' FEES

Before the Court is Petitioners Eggs 'N Things International Holdings Pte. Ltd., a Singapore private limited company ("ENT International"), Eggs 'N Things Japan, K.K., a Japan company ("ENT Japan"), and Kouta Matsuda's (all collectively "Petitioners") Motion to Remand for Lack of Subject Matter Jurisdiction and for Attorneys' Fees ("Motion"), filed under seal on November 4, 2011.*fn1 [Dkt. no. 23.] Respondent ENT Holdings LLC, a Hawai`i limited liability company ("ENT Hawaii") filed its memorandum in opposition under seal on January 18, 2012.*fn2 [Dkt. no. 44.] Petitioners filed their reply under seal on January 23, 2012.*fn3 [Dkt. no. 50.] This matter came on for hearing on February 6, 2012. Appearing on behalf of Petitioners was Glenn Melchinger, Esq., and appearing on behalf of ENT Hawaii was Philip Brown, Esq. Yuka Nishizawa, the principal of ENT Hawaii was also present. After careful consideration of the Motion, supporting and opposing memoranda, and the arguments of counsel, Petitioners' Motion is HEREBY GRANTED for the reasons set forth below.

BACKGROUND

I. The Original Case

The instant case has its roots in a previous case: Eggs 'N Things International Holdings Pte. Ltd., et al. v. ENT Holdings LLC, et al., CV 10-00298 JMS-LEK ("Eggs 'N Things #1"). The parties in Eggs 'N Things #1 were: Plaintiffs ENT International and ENT Japan (collectively "the Original Plaintiffs"); and Defendants ENT Hawaii,*fn4 FB Innovation Hawaii, Inc., a Hawaii domestic corporation ("FB"), and Yuka Nishizawa (collectively "the Original Defendants").

The relevant background of Eggs 'N Things 2010 is set forth in this Court's Findings and Recommendation to Deny Plaintiffs' Motion for Attorneys' Fees and Costs ("Fee F&R"), and this Court incorporates the following portion of Fee F&R in the instant Order:

Eggs 'N Things is a breakfast restaurant in Waikiki ("ENT Waikiki"). Defendant ENT HI closed the restaurant on August 31, 2008. In mid-2008, Defendant Nishizawa, who is the sole member of Defendant ENT HI, began seeking private investors to gain needed capital. On March 21, 2009, Kouta Matsuda, an international entrepreneur, and Defendant ENT HI entered into a license agreement giving Mr. Matsuda franchise rights in certain international areas, including Japan ("the Agreement"). Some of these rights included: 1) the right to operate Eggs 'N Things ("ENT") restaurants directly or through subfranchises; 2) the right to use ENT trademarks, recipes, designs, trade dress, etc.; and 3) the right to create new menu items. Mr. Matsuda paid a franchise fee of 40,000,000 Japanese Yen and agreed to pay an additional one percent royalty on net revenue from sales within the franchises.

Disputes subsequently arose relating to the Agreement. In September 2009, Plaintiff ENT Japan informed Defendant ENT HI that it found a location for a flagship ENT restaurant in Japan ("ENT Harajuku"). None of the Defendants responded. Plaintiff ENT Japan signed a lease for the location and began the process of opening ENT Harajuku.

ENT Harajuku opened in February 2010 and held a grand opening in March 2010. On May 14, 2010, Plaintiffs discovered that Defendant ENT HI and/or Defendant FB had posted a disclaimer on ENT Waikiki's website, and in ENT Waikiki's storefront, stating, inter alia, that ENT Harajuku was not affiliated with ENT Waikiki ("the Disclaimer"). Plaintiffs state that they asked Defendants to remove the Disclaimer, but Defendants refused to do so. Plaintiffs filed an arbitration demand under the terms of the Agreement, and filed the instant action to seek provisional remedies to preserve the effectiveness of the arbitration proceedings.

Plaintiffs allege that the posting of the Disclaimer, and other actions enumerated in the First Amended Complaint, constitute: breach of contract; a violation of the Hawai`i Franchise Investment Law, Haw. Rev. Stat. Chapter 482E; unfair competition in violation of Haw. Rev. Stat. § 480-2; deceptive trade practices in violation of Haw. Rev. Stat. § 481A-3; and business defamation and commercial disparagement. Plaintiffs' First Amended Complaint sought: damages; interim and permanent injunctive relief; an order requiring alternative dispute resolution as required under the parties' Agreement; reasonable attorneys' fees and costs; and any other appropriate relief.

On May 19, 2010, Plaintiffs filed a Motion for Temporary Restraining Order/Preliminary Injunction against Defendant ENT HI ("TRO Motion"). On May 24, 2010, after the addition of Defendant FB and Defendant Nishizawa with the filing of the First Amended Complaint, Plaintiffs filed an Amended Motion for Temporary Restraining Order/Preliminary Injunction against Defendants ("Amended TRO Motion"). The district judge held a hearing on both motions on May 24, 2010 and orally granted the requests for a temporary restraining order in part and denied them in part. On May 27, 2010, the district judge issued a written order granting in part and denying in part the TRO Motion and the Amended TRO Motion ("TRO Order"). The TRO Order prohibited Defendants from displaying the Disclaimer and from making any further "false or misleading [statements] regarding the ENT brand in Japan or the Harajuku restaurant, including, but not limited to, any disclaimer of affiliation with Plaintiffs[.]" On June 23, 2010, the district judge approved and filed the parties' Stipulated Permanent Injunction and Order ("Stipulated Injunction"), and on September 7, 2010, the district judge approved and filed the parties' stipulation to dismiss all remaining claims and parties without prejudice. [Stipulation for Dismissal Without Prejudice as to Remaining Claims and Parties and Order, (dkt. no. 39) ("Stipulation for Dismissal").]

Eggs 'N Things #1, Civil No. 10-00298 JMS-LEK, 2010 WL 5834799, at *1-2 (D. Hawai`i Dec. 16, 2010) (alterations in original) (some citations and footnote omitted).

In the motion for attorneys' fees, the Original Plaintiffs argued that the Stipulated Injunction rendered them the prevailing party, and they sought attorneys' fees against Defendant FB pursuant to Haw. Rev. Stat. § 480-13(a)(2) and Haw. Rev. Stat. § 481A-4(b). Id. at *2. Before turning to the attorneys' fee issue, however, this Court addressed whether the district court had jurisdiction over the case.

Both the Complaint and the First Amended Complaint alleged diversity jurisdiction. The First Amended Complaint alleged that Plaintiff ENT International is a Singapore private limited company with its principal place of business in Singapore, and Plaintiff ENT Japan is a Japan company with its sole place of business in Japan. It alleged that Defendant ENT HI's principal place of business is Hawai`i, and its sole member is Defendant Nishizawa. Further, Defendant FB is a Hawai`i corporation, and its sole officer and director is Defendant Nishizawa. Plaintiffs alleged that Defendant Nishizawa is a permanent resident alien and a Hawai'i citizen.

In its memorandum in opposition the (sic) instant Motion, Defendant FB states that Defendant Nishizawa is a Japan citizen who lives in the United States on a temporary work visa. Defendant FB also alleges that Defendant Nishizawa informed Mr. Matsuda of this fact during their negotiations over the purchase of ENT franchise rights. Defendant FB therefore argues that diversity jurisdiction is lacking because both Plaintiff ENT Japan and Defendant Nishizawa are Japanese citizens.

Defendant Nishizawa's citizenship arguably destroys jurisdiction in two ways. First, complete diversity requires that every plaintiff be a citizen from a different state than every defendant. See In re Digimarc Corp. Derivative Litig., 549 F.3d 1223, 1234 (9th Cir. 2008). Second, diversity jurisdiction does not include suits between a foreign plaintiff and a foreign defendant, even if there are also citizen defendants. See 28 U.S.C. § 1332(a); see also Nike, Inc. v. Comercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d 987, 991 (9th Cir. 1994) (citing Faysound Ltd. v. United Coconut Chem., Inc., 878 F.2d 290, 294 (9th Cir. 1989) (presence of citizen defendant does not save jurisdiction as to alien defendant in action brought by alien plaintiff) (some citations omitted)).

In light of Defendant Nishizawa's and Defendant ENT HI's citizenship, this district court arguably did not have jurisdiction over the case during most of the proceedings, including the entry of the Stipulated Injunction. On September 7, 2010, however, the Stipulation for Dismissal dismissed Defendant Nishizawa and Defendant ENT HI from this case. Federal Rule of Civil Procedure 21 states, in pertinent part: "Misjoinder of parties is not a ground for dismissing an action. On motion or on its own, the court may at any time, on just terms, add or drop a party." Thus, courts have recognized that, "[u]nder Rule 21, a district court can dismiss dispensable, nondiverse parties either before or after a final judgment." Dexia Credit Local v. Rogan, 602 F.3d 879, 883 (7th Cir. 2010) (citing Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 827, 832 n.6 (1989); Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 572-73 (2004) (some citations omitted)) (emphasis in original). Even in a case where the non-diverse defendant participated in the litigation, which culminated in a jury verdict and a post-verdict ruling of judgment as matter of law, the parties could stipulate to the dismissal of the non-diverse parties to preserve diversity jurisdiction on appeal. See Elliott v. Tilton, 89 F.3d 260, 261-62 (5th Cir. 1996). . . .

Id. at *7 (some alterations in original) (some citations and footnote omitted). This Court found that the dismissal of Defendant ENT HI and Defendant Nishizawa in the Stipulation for Dismissal was just, and concluded that the district court had jurisdiction over the only parties remaining in the action: Plaintiff ENT International, Plaintiff ENT Japan, and Defendant FB. Id. at *8 (citing § 1332(a)(2)). The Court, however, ultimately found that the Original Plaintiffs were not entitled to an award of attorneys' fees and costs against Defendant FB under either § 480-13(a)(2) or § 481A-4(b) because neither the Stipulated Injunction nor the TRO Order rendered the Original Plaintiffs the prevailing party as to Count III and Count IV. Id. at *9-11.

United States District Judge J. Michael Seabright issued an order adopting the Fee F&R ("the Fee Order"). Eggs 'N Things #1, 2011 WL 676226 (D. Hawai`i Feb. 17, 2011). The Fee Order stated, in pertinent part:

Although Plaintiffs added Nishizawa as a Defendant in the Amended Complaint, the Stipulated Injunction is solely against FB and ENT Holdings-the parties agreed to dismiss Nishizawa as a party. Under these facts, the court finds that Nishizawa is not an indispensable party such that her earlier dismissal from this action preserves the court's jurisdiction. There is no prejudice to either Nishizawa or any of the other parties if the court maintains this action-the parties' Stipulated Injunction does not include Nishizawa, Nishizawa was dismissed from this action (by agreement of the parties), and the attorneys' fee issue is directed to FB only.

Given this posture, Nishizawa was not needed for judgment and the parties have adequate remedies without Nishizawa present as a party.

In sum, the court finds that to the extent the court did not have diversity jurisdiction due to Nishizawa's presence as a Defendant, she is not indispensable and has been dropped from this action such that the court retains jurisdiction.

Id. at *5-6. Based on his own analysis, Judge Seabright also concluded that the Original Plaintiffs were not entitled to attorneys' fees pursuant to either § 480-13 or § 481A-4. Id. at *7-10.

II. The Instant Case

On or about October 14, 2011, Petitioners submitted a "Motion for Order Confirming Partial Final Decision and Award of Arbitrator, Dated July 25, 2011, and Final Decision and Award of Arbitrator (Fees and Costs), Dated October 10, 2011" ("the Petition") to the state court.*fn5 In pertinent part, the arbitrator awarded to Petitioners, as contract damages against ENT Hawaii, the amount of fees that the Original Plaintiffs incurred in Eggs 'N Things #1 because of the bad faith breach of the Agreement's non-disparagement provision and the posting of the Disclaimer.

On October 18, 2011, ENT Hawaii removed the Petition to this district court. [Notice of Removal (dkt. no. 1).] The Notice of Removal states that there is diversity jurisdiction, federal question jurisdiction, and enforcement jurisdiction over the case. [Id. at ¶¶ 9, 11-12.] ENT Hawaii noted that the complaint in Eggs 'N Things #1 stated that ENT International was a Singapore private limited company, with its principal place of business in Singapore, and ENT Japan was a Japan company with its sole place of business in Japan. [Id. at ¶¶ 4-5.] The Notice of Removal also states that Matsuda is a resident and citizen of Japan, and ENT Hawaii is a Hawai`i limited liability company, with its principal place of business in Hawai`i. Further, the amount in controversy exceeds $75,000, exclusive of interest and costs. [Id. at ¶¶ 6-8.] ENT Hawaii also emphasizes that the Fee F&R and the Fee Order both ruled that there was diversity jurisdiction in Eggs 'N Things #1. [Id. at ¶ 10.]

ENT Hawaii argues that there is both federal question jurisdiction and enforcement jurisdiction because confirming the Arbitration Decision would effectively overrule the Fee F&R and the Fee Order. [Id. at ¶¶ 11-12.]

A. Motion to Remand

In the instant Motion, Petitioners argue that there is no diversity jurisdiction because this Court found in the Fee F&R that ENT Hawaii was a Japan citizen.*fn6 Thus, there is no diversity jurisdiction pursuant to 28 U.S.C. ยง 1332(a) because Petitioners are citizens of either Japan or Singapore. Petitioners point out that the Fee Order did not dispute the Fee F&R's finding that ENT Hawaii is a Japan citizen, and they argue that the finding of diversity jurisdiction in the Fee Order is not relevant to the instant case ...


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