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Reading International v. Malulani Group, Ltd.

United States District Court, D. Hawaii

April 22, 2014

READING INTERNATIONAL, a Nevada corporation, Plaintiff,
v.
THE MALULANI GROUP, LIMITED, a Hawaii corporation, Defendant

For Reading International, Inc., a Nevada corporation, Plaintiff: Margery S. Bronster, Rex Y. Fujichaku, LEAD ATTORNEYS, Bronster Hoshibata, Attorneys at Law, A Law Corporation, Honolulu, HI.

For The Malulani Group, Limited, a Hawaii corporation, Defendant: Jay S. Handlin, LEAD ATTORNEY, Lindsay N. McAneeley, Carlsmith Ball LLP Honolulu, Honolulu, HI; Peter C. Sheridan, LEAD ATTORNEY, PRO HAC VICE, Glaser Weil Fink Jacobs Howard Avchen & Shapiro LLP, Los Angeles, CA.

OPINION

Page 1186

J. Michael Seabright, United States District Judge.

ORDER (1) GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT, OR, IN THE ALTERNATIVE, MOTION FOR PARTIAL SUMMARY JUDGMENT, DOC. NO. 39; AND (2) DENYING PLAINTIFF'S COUNTER-MOTION FOR SUMMARY JUDGMENT, DOC. NO. 58

I. INTRODUCTION

On March 19, 2013, Plaintiff Reading International (" Plaintiff" or " Reading" ) filed this action alleging that Defendant The Malulani Group, Limited (" Defendant" or " TMG" ) breached a settlement between the parties by failing to provide timely financial statements for certain leased properties, provide access to financial books and records, and certify that Defendant used its best efforts to destroy certain materials from a prior litigation.

Currently before the court is Defendant's Motion for Summary Judgment, and Plaintiff's Counter-Motion for Summary Judgment, in which the parties dispute whether Defendant breached the parties' agreement, whether any breaches are curable, and whether Defendant cured the breaches. Based on the following, the court finds that the undisputed facts establish that the breaches at issue were subject to cure but that factual questions remain as to whether Defendant did indeed cure some of those breaches. The court therefore GRANTS in part and DENIES in part Defendant's Motion for Summary Judgment, and DENIES Plaintiff's Counter-Motion for Summary Judgment.

II. BACKGROUND

A. Factual Background

In 2006, Plaintiff purchased stock in Defendant's subsidiary, Malulani Investments

Page 1187

Limited (" MIL" ) for $1.8 million. See Doc. No. 40, Def.'s Concise Statement of Facts (" CSF" ) ¶ 1.[1] Six months later, Plaintiff commenced litigation against MIL and its directors in Hawaii state court (the " Hawaii Action" ), after which time Defendant intervened. Id. Plaintiff, a minority shareholder in MIL, brought the Hawaii Action alleging that MIL refused to provide shareholder information and blocked efforts by the minority-appointed director, James Cotter, to participate in the management and direction of MIL. See Doc. No. 59, Pl.'s CSF ¶ 1. From June 2008 to February 2009, Plaintiff and Defendant mediated their dispute, resulting in a July 2009 settlement. Doc. No. 40, Def.'s CSF ¶ 2.

Pursuant to the July 2009 settlement, Defendant repurchased its stock from Plaintiff, and Plaintiff received $2.5 million in cash and a three-year interest-bearing note for $6.75 million. Id. ¶ 3. This overall agreement was documented in the following five interrelated agreements (" Settlement Documents" ):

1. Settlement Agreement dated July 2, 2009 (" Settlement Agreement" ), Doc. No. 40-3, Def.'s Ex. 2;
2. Secured Promissory Note (" Promissory Note" ), Doc No. 40-4, Def.'s Ex. 3;
3. Mortgage, Assignment of Leases and Rents, Security Agreement, Financing Statement and Fixture Filing dated July 2, 2009, encumbering Defendant's right, title, and interest in real property referred to as the Kokua Market Property (" Mortgage" ), Doc. No. 40-5, Def.'s Ex. 4;
4. Shareholder Pledge Agreement dated July 2, 2009, in which Defendant granted a security interest in and pledged to Plaintiff all of its right, title, and interest in the shares of MBL Maryland, Inc., whose sole asset is a property known as the West Maui Center (" MBL Pledge Agreement" ), Doc. No. 40-6, Def.'s Ex. 5; and
5. Collateral Assignment of Membership Interests dated July 2, 2009, in which Defendant granted a security interest and pledged to Plaintiff all of its right, title, and interest in its membership in Lahaina C, LLC, whose sole asset is a property known as the Kaiser Property (" Lahaina Pledge Agreement" ), Doc. No., 40-7, Def.'s Ex. 6.

See also Doc. No. 40, Def.'s CSF ¶ 3.

The court outlines the relevant provisions of these documents and the facts regarding Defendant's alleged breaches as follows:

1. The Settlement Agreement

The Settlement Agreement is between Plaintiff, Magoon Acquisition and Development, LLC, and James Cotter on the one hand (defined as " Plaintiff Parties" in the Settlement Agreement), and Defendant, MIL, Easton Manson, John Dwyer, Jr., Philip Gray, and Kenwei Chong on the other hand (defined as " Defendant Parties" in the Settlement Agreement).

The Settlement Agreement provides that in exchange for Plaintiff's surrender of all of Plaintiff's stock in Defendant companies and other consideration, Defendant Parties shall (1) deliver a cashier's check to Plaintiff for $2.5 million; (2) issue the Promissory Note in the amount of $6.75 million; and (3) secure the Promissory Note by providing the Mortgage on the Kokua Market Property, the MBL Pledge

Page 1188

Agreement, and the Lahaina Pledge Agreement. See Doc. No. 40-3, Def.'s Ex. 2 § 2.2.

The Settlement Agreement also includes a provision regarding the confidentiality and destruction of an investigatory report regarding James Cotter (the " Kroll Report" ), and an April 2, 2008 " Order Regarding Allegation of Improper Purpose by Special Master Michael N. Tanoue" (the " Tanoue Order" ). The Settlement Agreement allows Defendant Parties forty-five days to procure and destroy all copies of these documents that are either in their possession (§ 5.2(a) of the Settlement Agreement) or in the possession of any related entities (§ 5.2(b) of the Settlement Agreement), and to certify in writing that their best efforts were used to comply with these obligations. Id. § 5.2(c). The Settlement Agreement further outlines restrictions on Defendant Parties' obligations to keep these documents confidential going forward. Id. § 5.2(d)-(g). The Settlement Agreement states that " this Section is material to this Agreement and has been necessary to induce Plaintiff Parties to enter this agreement." Id. § 5.2.

Finally, the Settlement Agreement provides that " time is of the essence as to each and every provision of this Agreement." Id. § 8.18. The Settlement Agreement also includes an integration clause, stating that " [t]his Agreement (including the exhibits hereto which are an integral part hereof and the documents and instruments whose execution and delivery are contemplated herein) contains the final and entire agreement and understanding of the Parties regarding the subject matter hereof." Id. § 8.13.[2]

2. The Promissory Note

The Promissory Note states that Defendant promises to pay Plaintiff $6.75 million, plus interest at the rate of 6.25 percent per annum starting on the date of the Note. Doc. No. 40-4, Def.'s Ex. 3. These payments are due on a quarterly basis starting January 1, 2010. Id.

The Promissory Note further includes the following default provision:

3. Event of Default; Default Interest; Late Charge.
(a) Upon the occurrence of an Event of Default (as hereinbelow defined), the Indebtedness shall become immediately due and payable at the option of Holder. If Maker fails to pay any sums due under this Note or any instrument securing this Note on the date when the same is due, Maker shall pay to Holder upon demand a late charge on such sum in an amount equal to the lesser of (i) five percent (5%) of such unpaid amount, and (ii) the maximum late charge permitted to be charged under the laws of the State of Hawaii (a " Late Charge" ). Maker will also pay to Holder, after an Event of Default occurs, in addition to the amount due and any Late Charges, all reasonable costs in collecting, securing, or attempting to collect or secure this Note or any instrument securing this Note, including, without limitation, court costs and reasonable attorneys' fees (including reasonable attorneys' fees on any appeal by either Maker or Holder and in any bankruptcy proceedings).
(b) As used herein, the term " Event of Default" shall mean the occurrence of one or more of the following: (i) if Maker fails to make any scheduled payment

Page 1189

of principal or interest on the date such payment is due, (ii) if Maker fails to pay any other amount payable pursuant to the Loan Documents (excluding principal due on the Maturity Date) within five (5) days after written notice from Holder, (iii) if Maker fails to pay the outstanding Indebtedness on the Maturity Date; or (iv) upon the occurrence of an " Event of Default" as such term is defined in the Mortgage or an other Loan Document.

Id. § 3.

3. The Mortgage, MBL Pledge Agreement, and Lahaina Pledge Agreement

The Promissory Note was secured by the (1) Mortgage on the Kokua Market Property, (2) the MBL Pledge Agreement pledging TMG's interests in MBL Maryland Inc., whose sole asset was the West Maui Center, and (3) the Lahaina Pledge Agreement pledging TMG's interests in Lahaina C, LLC, whose sole asset was the Kaiser Property. See Doc. No. 40-3, Def.'s Ex. 2 § 2.2.3; Doc. No. 40-4, Def.'s Ex. 3 § 6. The court collectively refers to the Kokua Market Property, the West Maui Center, and the Kaiser Property as the " Collateral Properties."

The Mortgage, MBL Pledge Agreement, and Lahaina Pledge Agreement all include similar language requiring Defendant to provide Plaintiff " (i) annually within forty (40) days following the end of each calendar year, and (ii) within twenty (20) days following the end of each calendar quarter a true, complete, correct and accurate copy of [the Defendant company-at-issue's] unaudited financial statement" for the period, " including a statement of operations (profit and loss), a statement of cash flows, a calculation of net operating income, a balance sheet, an aged accounts receivable report and such other information or reports as shall be requested by [Plaintiff]." Doc. No. 40-5, Def.'s Ex. 4 § 2.5(b); Doc. No. 40-6, Def.'s Ex. 5 § 15.3(b); Doc. No. 40-7, Def.'s Ex. 6 § 15.3(b). The Mortgage further requires that Defendant provide for the Kokua Market Property " within twenty (20) days following the end of each calendar quarter a true, complete, correct and accurate rent roll and occupancy report for such period and such other occupancy and rate statistics" as Plaintiff shall request in its discretion. Doc. No. 40-5, Def.'s Ex. 4 § 2.5(c).

The Mortgage, MBL Pledge Agreement, and Lahaina Pledge Agreement also include similar provisions defining an " Event of Default" and outlining the timing for an opportunity to cure. For example, the Mortgage provides:

Section 7.11 Event of Default defined. The occurrence of one or more of the following events shall be an " Event of Default" hereunder:
(i) the occurrence of the events identified elsewhere in the Note, this Mortgage, or the other Loan Documents as constituting an " Event of ...

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