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Reading Int'l, Inc. v. Malulani Group, Ltd.

United States District Court, D. Hawaii

August 22, 2014

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

Page 1313

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: Brad Parr, James T. Grant, Peter C. Sheridan, LEAD ATTORNEYS, PRO HAC VICE, Glaser Weil Fink Jacobs Howard Avchen & Shapiro LLP, Los Angeles, CA; Jay S. Handlin, LEAD ATTORNEY, Lindsay N. McAneeley, Carlsmith Ball LLP Honolulu, Honolulu, HI.

Page 1314

ORDER GRANTING DEFENDANT THE MALULANI GROUP, LIMITED'S RENEWED MOTION FOR PARTIAL SUMMARY JUDGMENT ON PLAINTIFF READING INTERNATIONAL, INC.'S ALLEGED BREACH NO. 6, DOC. NO. 133

J. Michael Seabright, United States District Judge.

I. INTRODUCTION

On March 19, 2013, Plaintiff Reading International, Inc. (" Plaintiff" or " Reading" ) filed this action alleging several breaches of a settlement agreement by Defendant The Malulani Group, Limited (" Defendant" or " TMG" ). On April 22, 2014, the court granted in part Defendant's Motion for Summary Judgment (the " April 22, 2014 Order" ). See Reading Int'l v. The Malulani Grp., Ltd., __ F.Supp.2d __, 16 F.Supp.3d 1185, 2014 WL 1604344 (D. Haw. Apr. 22, 2014). The April 22, 2014 Order granted summary judgment in favor of Defendant on all but one of Plaintiff's claims, concluding that -- on the record then before the court -- material questions of fact existed as to Plaintiff's claim that Defendant breached its obligation to allow inspection of records and accounts of MBL Maryland, Inc. and Lahaina C, LLC. Id. at *14. After additional discovery, and rulings on related discovery motions, Defendant was granted leave to file a Renewed Motion for Partial Summary Judgment on the remaining claim. Doc. No. 133. Based on the following, the court GRANTS the renewed Motion.

II. BACKGROUND

A. Factual Background[1]

1. Relevant Contractual Provisions

The parties' disputes stem from a July 2009 settlement that was documented in five agreements. Given the court's conclusions in the April 22, 2014 Order, remaining in this action is whether TMG failed to allow inspection of certain records as required by two agreements: (1) the Shareholder Pledge Agreement dated July 2, 2009, in which TMG granted a security interest in and pledged to Reading 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" ); and (2) the Collateral Assignment of Membership Interests

Page 1315

dated July 2, 2009, in which TMG granted a security interest and pledged to Reading 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" ).

In particular, both the MBL Pledge Agreement and Lahaina Pledge Agreement give Reading the right to inspect " such books, records and accounts of [MBL Maryland or Lahaina C] and to make such copies and extracts thereof as [Reading] shall desire, in each case at such reasonable times as may be requested by [Reading]," and to do so " at [TMG's] cost and expense if an Event of Default has occurred." Doc. No. 135-5, Def.'s Ex. 4 § 15.2; Doc. No. 135-6, Def.'s Ex. 5 § 15.2.

As explained and interpreted in the April 22, 2014 Order, the MBL Pledge Agreement and the Lahaina Pledge Agreement include default-related clauses. For example, the MBL Pledge Agreement provides:

7.1. Definition of Events of Default. Any of the following specified events shall constitute " Events of Default" under this Agreement:
(a) the occurrence of the events identified elsewhere in this Agreement or the Loan Documents as constituting an " Event of Default" hereunder or thereunder;
(b) subject to subparagraph 7.1(i) below, any breach by a " Defendant Party" (as such term is defined in the Settlement Agreement) of an obligation of such party under the Settlement Agreement or any other Settlement Document;
. . .
(g) if [Defendant] shall fail to deliver to [Plainitff] any of the Financial Statements as required pursuant to Section 15.3 hereof; [2]
. . .
(i) if a default shall be continuing under any of the other obligations, agreements, undertakings, terms, covenants, provisions or conditions of this Agreement, the Lahaina Pledge, Mortgage, Note or any other Loan Document not otherwise referred to in this Section for ten (10) days after notice to [Defendant], in the case of any default which can be cured by the payment of a sum of money or for thirty (30) days after written notice, in the case of any other default (unless otherwise provided herein or in such other Loan Document); provided, however, that if such non-monetary default under this clause (i) is susceptible of cure but cannot reasonably be cured within such thirty (30) day period and provided further that [Defendant] shall have commenced to cure such default

Page 1316

within such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) day period shall be extended for such time as is reasonably necessary for [Defendant] in the exercise of due diligence to cure such default, but in no event shall such period exceed ninety (90) days after the original notice.

Doc. No. 135-5, Def.'s Ex. 4 § 7.1.

The Lahaina Pledge Agreement and MBL Pledge Agreement also include provisions stating that time is of the essence with respect to the performance of the obligations under these documents. Id. § 23(f); Doc. No. 135-6, Def.'s Ex. 5 § 23(f).

2. Reading's Allegations of Default by TMG

Analyzing Reading's remaining theory of default is best understood by considering the following chronology of events and exchanges of communications between the parties beginning in late 2009 and continuing through 2010 (with additional details set forth when the court analyzes whether there are genuine issues of material fact as to the remaining issue in the case):

On November 13, 2009, Reading delivered to TMG a Notice of Default and Acceleration of Indebtedness (" November 13, 2009 Notice" ), invoking several provisions of the settlement agreement and corresponding documents. See Doc. No. 135-7, Def.'s Ex. 6. The November 13, 2009 Notice claimed several distinct Events of Default, and (among other demands) elected under § 15.2 of the MBL Pledge and Lahaina Pledge Agreements to inspect certain " books, records and accounts." Id. at TMG000239. Reading requested that such inspection occur during the week of November 30, 2009, and asked TMG to " confirm by 5:00 PM (Honolulu Local Time), Monday, November 16, 2009, whether you will cooperate with the inspection." Id.

On November 16, 2009, TMG responded to the November 13, 2009 Notice, primarily asserting that there was a misunderstanding regarding when TMG's obligations would begin, explaining that it had believed the obligations would begin on December 31, 2009, and producing certain financial documents. It requested that the November 13, 2009 Notice be withdrawn. It did not, however, specifically mention the request to inspect records under § 15.2. See Doc. No. 40-11, Def.'s Ex. 10 (First Mot. Summ. J.).

On November 19, 2009, Reading (through its counsel, Margery Bronster) responded to TMG's November 16, 2009 letter by demanding mediation, stating " Reading is open to mediate this matter and therefore hereby gives TMG notice that Reading demands mediation. Please let me know by Friday, November 20, 2009, when you will be available for mediation." Doc. No. 135-8, Def.'s Ex. 7 at 2. The letter, however, does not specifically mention the § 15.2 requests for inspection.

TMG responded (through its counsel John (" Jack" ) Dwyer) on November 20, 2009. It " disagree[d] with [Reading's] conclusions," asserting that " [t]here simply has been no default under the various Settlement documents as alleged by you." Doc. No. 135-9, Def.'s Ex. 8. But TMG agreed that " mediation is appropriate," although its letter also did not specifically mention the § 15.2 inspection requests.

On November 30, 2009, Reading wrote back, noting TMG's disagreement, but stating:

. . . Pending mediation, we expect that the demands in the [November 13, 2009] Notice . . . be complied with fully. Any failure by [TMG] or others responsible

Page 1317

for executing these actions will constitute additional grounds for relief. . . .
Moreover, we reiterate Reading's demand, as set forth in the [November 13, 2009] Notice, for inspection and copying of the books and records of MBL Maryland, Inc. and Lahaina C, LLC. Reading's rights to access the entities' records is guaranteed by the Closing Documents and is not [dependent] upon whether TMG agrees whether default has occurred. We repeat Reading's request that the records be made available, preferably during the week of December 7, 2009. Please verify by Wednesday, December 2, 2009, whether or not a representative of Reading may access the records.

Doc. No. 135-10, Def.'s Ex. 9.

On December 3, 2009, another of Reading's counsel, Rex Fujichaku, sent an email to Dwyer as follows: " Jack, did you have a chance to follow up with Easton [Manson, President of TMG] on the possible dates for the TMG mediation? They were 12/29, 12/30 or 1/5, with a preference for the December dates." Doc. No. 135-11, Def.'s Ex. 10. On December 4, 2009, Dwyer answered Fujichaku's email, stating:

Rex -- Yes, I have been able to confirm that both Easton and I will be available on Wednesday, December 30, 2009 for mediation. If you could advise [the Mediator] of that date and let me know the time, I would appreciate it.
With respect to you[r] letters of November 19 and 30, 2009, we of course disagree with your position and will defer to the decision of the Mediator regarding the production of documents. Jack.

Id.

On December 4, 2009, Reading confirmed by letter that " the mediation of [Reading's] Notice of Default regarding the Settlement Agreement will be held on December 30, 2009 at 9:00 a.m., in our office. David Fairbanks will preside as the Mediator." Doc. No. 135-12, Def.'s Ex. 11.

Later on December 4, 2009, Reading sent TMG another letter -- a new Notice of Default, purportedly based on Dwyer's earlier email of December 4, 2009, wherein he stated that TMG " will defer to the decision of the Mediator regarding the production of documents." Specifically, Reading's counsel wrote:

We write regarding [TMG's] refusal, contained in John Dwyer, Jr.'s December 4, 2009, email, of [Reading's] request to inspect and copy the books and records of MBL Maryland, Inc. (" MBL" ) and Lahaina C, LLC (" Lahaina" ).
Reading had requested access to the MBL records under Section 15.2 of the MBL Pledge Agreement and the Lahaina records under Section 15.2 of the Lahaina Pledge Agreement in its Notice of Default and Acceleration of Indebtedness dated November 13, 2009. We had reiterated the request in our letters dated November 19 and 30, 2009.
Notice is hereby given that TMG's refusal constitutes and Event of Default under Section 7.1(a), (b), and (f) of the MBL Pledge Agreement and the Lahaina Pledge Agreement, respectively.

Doc. No. 135-13, Def.'s Ex. 12. The present Motion centers around this December 4, 2009 Notice of Default.

On December 16, 2009, Reading sent yet another Notice of Default to TMG. This Notice of Default concerned " Kroll documents" and a " Tanoue Order" regarding certification of efforts to destroy certain documents, as described in the April 22, 2014 Order. Doc. No. 144-3, Pl.'s Ex. A. TMG's counsel responded to this latest Notice of ...


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