United States District Court, D. Hawaii
ORDER: (1) DENYING DEFENDANTS’ MOTION TO TRANSFER VENUE, DOC. NO. 58; AND (2) GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO DISMISS, DOC. NO. 61
J. Michael Seabright United States District Judge.
On April 2, 2015, Plaintiff HTK Hawaii, Inc. (“HTK”) brought this action against Defendants Kevin Sun (“Mr. Sun”) and Nicole Yang (“Ms. Yang”) (collectively, “Defendants”), seeking, among other things, a declaratory judgment that a document entitled “Contract Agreement For HTK California” (the “Document”) is not an enforceable contract.
Two motions are presently before the court. First, Defendants argue that the court should transfer venue pursuant to 28 U.S.C. § 1404(a) to the United States District Court for the Central District of California. Doc. No. 58, Motion to Transfer. Second, Defendants argue that, in the alternative, the court should dismiss the case pursuant to Federal Rule of Civil Procedure 12(b)(6). Doc. No. 61, Motion to Dismiss. Based on the following, the court DENIES Defendants’ Motion to Transfer, and DENIES IN PART and GRANTS IN PART Defendants’ Motion to Dismiss.
A. Factual Background
1. Allegations of Complaint
HTK is “a domestic corporation organized under the laws of the State of Hawaii, with its principal place of business in Honolulu, Hawaii.” Doc. No. 51, First Amended Complaint (“FAC”) ¶ 1. William Hsia is the President of HTK and his wife, Kimberly, is the Treasurer. Doc. No. 65-1, Hsia Decl. ¶ 4 (“Hsia Decl.”). Mr. Sun and Ms. Yang, also a married couple, are residents of the State of California. FAC ¶¶ 2, 3.
In or around 2012, Mr. Hsia became friends with Mr. Sun. Id. ¶ 10. “At some point, the Hsias, on behalf of HTK, and the Suns began discussing ways HTK could expand its California sales and operations.” Id. Toward that end, Mr. Sun signed a non-disclosure agreement, id. ¶ 11, and “began working as an independent contractor for HTK to learn the shave ice supply business.” Id. ¶ 12. Mr. Sun continued working as an independent contractor for HTK through 2014. Id. ¶ 19.
HTK alleges that, “in late 2013, Defendants traveled to Hawaii to meet with HTK’s officers and discuss the role they could play in the potential expansion of HTK’s California operations. While they were in Hawaii, the parties began preliminary negotiations regarding the expansion.” Id. ¶ 13. Ultimately, the parties drafted the “[Document] with the intention of possibly entering into a partnership agreement to further expand HTK’s operations in California.” FAC ¶ 15.
Although not attached to the FAC, the court considers the Document, Doc. No. 59-6, because the parties do not question the Document’s authenticity and the FAC relies on the Document. See Harris v. Cty. of Orange, 682 F.3d 1126, 1132 (9th Cir. 2012). The Document recites that “[t]he [Defendants] are hereby agreeing to purchase and be responsible for 50% of all gross and profits of HTK Hawaii’s sales in the mainland for the sum of $250, 000 paid over the period of three years starting January 2014.” See Doc. No. 59-6. The Document outlines various “contract terms and conditions, ” including, for example, the selling price, a salary for Mr. Sun, and the sharing and accounting of expenses. Id. The Document is signed by Mr. and Mrs. Hsia as sellers and Defendants as buyers. Id.
According to HTK, “[t]he parties did not intend for the [Document] to be a final binding contract between them. Rather, the [p]arties understood that the [Document] was a step in the negotiation process, and that a formal contract would need to be negotiated and executed between HTK and Defendants.” FAC ¶ 15. The Complaint further alleges that, “[b]ased on Defendants’ representations, HTK understood that the [Document], and any potential partnership, was premised on Defendants’ ability to meaningfully expand HTK’s California sales and obtain new customers.” Id. ¶ 17. However, “[t]he [Document] did not identify the actual business entity that would be sold, nor did it contain a timeline for the creation of such an entity or subsidiary of HTK.” Id. ¶ 18.
At some point during this negotiation process, “HTK made [a] $99, 077.62 good faith payment to Defendants.” Id. ¶ 38. Ultimately, HTK alleges that “[s]ignificant disagreements arose between the Parties, and it became clear that any potential business relationship regarding HTK’s California operation would never materialize.” Id. ¶ 22. HTK further alleges that, “[o]n December 8, 2014, after the relationship between the Parties had deteriorated, the Defendants unilaterally and without  HTK’s knowledge or consent, filed Articles of Incorporation for Hawaiian Snow California, an S-corporation organized under laws of [the] state of California.” Id. ¶ 23.
HTK complains that Defendants “have subsequently attempted to enforce the [Document] as a binding contract, despite the fact there was never any intent by the Parties for the [Document] to be binding.” Id. ¶ 24. HTK also alleges that, despite Defendants’ position that the Document is binding, Defendants have failed to “act in furtherance of the [Document], and their conduct clearly shows their intent that the [Document] was not a binding agreement.” Id. ¶ 35. Specifically, HTK alleges the following deficiencies:
A. Defendants never made a single payment toward the $250, 000 purchase price contained in the [Document].
B. Defendants never paid any of the expenses for HTK’s California operations for 2014, even though the [Document] provided that the Suns would share all inventory and other expenses for the mainland business.
C. Defendants admitted that they did not have any ability to make any payments toward the inventory expenses or alleged purchase price contained in the [Document].
D. Defendants admitted that Mr. Sun was looking for other business opportunities and employment outside of HTK during the time [Document] was allegedly in effect.
E. Defendants did not significantly expand HTK’s California business or obtain new customers to fulfill the purpose [of] creating the new HTK subsidiary anticipated by the [Document].
F. The [Document] purports to sell an interest in a subsidiary and/or partnership related to HTK; however, no such subsidiary was ever created that was legally linked to HTK.
Id. ¶ 26.
2. Additional Facts Relevant to Defendants’ Motion to Transfer
HTK is a Hawaii corporation that sells shave ice products, and its office, officers, employees, operations, accountant, and bank are all located in Hawaii. Hsia Decl. ¶¶ 1, 3. HTK also transacts business on the mainland, including in California. Id. ¶ 11. In mid-2013, Mr. Sun began managing HTK’s operations in California. Doc. No. 60, Kevin Sun Decl. ¶ 5 (“Sun Decl.”). Toward that end, on June 4, 2013, Mr. Sun signed an Employee Confidentiality and Non-Disclosure Agreement, which provides that, among other things, the agreement is governed by the laws of Hawaii. Doc. No. 59-5, Defs.’ Ex. 5 at 3.
The parties subsequently began negotiating a partnership agreement. Before the parties signed the Document, “Kevin Sun travelled [sic] from California to Hawaii to meet with [Mr. Hsia], as well as HTK’s other officers and employees.” Hsia Decl. ¶ 13. “At that meeting in Honolulu, [the parties] began negotiating a potential business relationship between HTK and [Defendants].” Id. ¶ 14. Subsequent negotiations were conducted primarily by telephone and email, see, e.g., Doc. No. 60-1, Defs. Ex. A, although the Hsias also visited California to discuss the partnership. Sun Decl. ¶ 7. See also Doc. No. 60-2, Defs.’ Ex. B (email stating that Kim Hsia will be in California on December 6, 2013 and “will discuss with you further in person”). Ultimately, the Hsias executed the Document in December 2013, Doc. No. 59-6, and sent it to Defendants in California, where Defendants signed it. Sun Decl. ¶ 8.
HTK subsequently began paying Mr. Sun an annual sum of $36, 000, Doc. No. 59-6, and Defendants managed orders made by customers located on the mainland, shipped products for these orders, examined possible warehouses for the partnership, and marketed the business, all from California. Sun Decl. ¶ 9; see also Doc. No. 60-4, Defs.’ Ex. D (checks from HTK to Mr. Sun). HTK’s website described Mr. Sun as “our current California office representative” who “helps our mainland customers, ” and who “has traveled around the States and has a good knowledge of the mainland sales market.” See Doc. No. 59-1, Defs.’ Ex. 1. Despite being located in California, however, Mr. Sun’s business cards provided by HTK stated HTK’s Hawaii address. See Doc. No. 65-4, Pl.’s Ex. C.
Under the parties’ arrangement, HTK and the Suns worked jointly to meet orders for customers -- a customer would purchase products from HTK, who would ship those products to HS International, who in turn would deliver the products to the customer. Sun Decl. ¶ 11; see also Doc. No. 60-5, Defs.’ Ex. E (invoices). In carrying out this arrangement, HTK states that HTK did not itself own or rent any real property or warehouse space in California, and instead used Sonical International in El Monte, California as a “drop shipper, ” a third-party distribution hub and customs broker, to ship goods between HTK’s suppliers and customers. Hsia Decl. ¶¶ 6-7; see also Doc. No. 59-2, Defs.’ Ex. 2 (invoices from Sonical to HTK charging for “storage, ” “in/out charge, ” and “pallelt [sic] fee”). By contrast, Defendants claim that HTK does have a California office. Sun Decl. ¶ 10.
Mr. Sun also took steps to establish a business in California. For example, Mr. Sun (1) filed registrations to do business in California under the name “HS International, ” which lists both Mr. Sun and Mr. Hsia as the registered owners, Doc. No. 59-7, Defs.’ Ex. 7; (2) obtained an employer identification number from the Internal Revenue Service for HS International (which Mr. Hsia also signed), Doc. No. 59-11, Defs.’ Ex. 11 at 1-3; (3) filed articles of incorporation for “Hawaiian Snow California Corporation” with the California Secretary of State, Doc. No. 59-10, Defs’ Ex. 10; and (4) applied for a business account for HS International with JP Morgan Chase Bank listing himself and Mr. Hsia as partners, Doc. No. 59-11, Defs.’ Ex. 11 at 4-6.
According to Defendants, on July 24, 2014, HTK provided Mr. Sun a check in the amount of $99, 077.62, writing “Bonus” in the memo line. Doc. No. 60-6, Defs.’ Ex. F. Defendants claim this check was half the profits from January through July 2014. Sun Decl. ¶ 12. By the end of 2014, however, HTK refused to close the financial books for the California business and refused to share profits for the second half of 2014. Id. ¶ 13. The Hsias then suggested a new partnership agreement, which resulted in an email from Mr. Hsia on January 9, 2015, stating that he had his attorney “draft a legal document for the partnership with amendments to the controlling power.” See Doc. No. 60-7, Defs.’ Ex. G. After Ms. Yang expressed a desire to seek legal advice, the Hsias told Defendants that they felt Defendants had threatened legal action, and the Hsias subsequently stopped paying Mr. Sun. Id.; see also Sun Decl. ¶¶ 15-16.
The parties now dispute whether the Document is binding. Toward that end, both HTK and Defendants filed lawsuits in separate forums -- HTK in Hawaii, and Defendants in the Superior Court of California (County of Los Angeles), Doc. No. 27-13, Defs.’ Ex. 13.
B. Procedural Background
On January 12, 2015, HTK filed its Complaint in the Circuit Court of the First Circuit of the State of Hawaii. Doc. No. 1-1, Compl. Defendants removed to this court on April 2, 2015. Doc. No. 1, Notice of Removal.
On September 8, 2015, HTK filed its FAC. Doc. No. 51. The FAC asserts claims for declaratory judgment (Count 1) and unjust enrichment (Count II). Id. In the alternative, the FAC also alleges claims for breach of contract (Count III), breach of the covenant of good faith and fair dealing (Count IV), and rescission (Count V). Id.
On November 20, 2015, HTK filed a Second Amended Complaint (“SAC”). Doc. No. 57. Three days later, Defendants filed a Motion to Change Venue, Doc. No. 58, and a Motion to Dismiss, Doc. No. 61 (collectively, “Defendants’ Motions”). Defendants’ Motions address the FAC and not the SAC.
On January 6, 2016, the court held a hearing on Defendants’ Motions. Doc. No. 72. At the hearing, the parties agreed that the FAC and not the SAC was the relevant pleading for analyzing Defendants’ Motions.
III. STANDARDS OF REVIEW
A. Transfer of Venue
Section 1404(a) provides: “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” 28 U.S.C. § 1404(a) The purpose of § 1404(a) is “to prevent the waste of time, energy and money and to protect litigants, witnesses and the public against unnecessary inconvenience and expense.” Van Dusen v. Barrack, 376 U.S. 612, 616 (1964) (internal quotation marks omitted).
In deciding a motion to transfer venue, the court must consider each of the factors enumerated in § 1404(a) -- whether the action could have been brought in the proposed transferee district, the convenience of the parties, the convenience of the witnesses, and the interests of justice. See Jones v. GNC Franchising, Inc., 211 F.3d 495, 498-99 (9th Cir. 2000); see also Hatch v. Reliance Ins. Co., 758 F.2d 409, 414 (9th Cir. 1985). In determining whether transfer is appropriate, the Ninth Circuit has articulated several non-exclusive factors that the district court may consider, including:
(1) the location where the relevant agreements were negotiated and executed, (2) the state that is most familiar with the governing law, (3) the plaintiff’s choice of forum, (4) the respective parties’ contacts with the forum, (5) the contacts relating to the plaintiff’s cause of action in the chosen forum, (6) the differences in the costs of litigation in the two forums, (7) the availability of compulsory ...