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Jou v. Adalian

United States District Court, D. Hawaii

September 1, 2016

EMERSON M.F. JOU, M.D., Plaintiff,
v.
GREGORY M. ADALIAN, Defendant.

          ORDER GRANTING DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS, DOC. NO. 41, WITH LEAVE TO AMEND COUNT THREE

          J. Michael Seabright Chief United States District Judge

         I. INTRODUCTION

         This long-running, procedurally-complex dispute concerns two separate suits between Plaintiff Emerson Jou (“Plaintiff” or “Jou”) and Defendant Gregory Adalian (“Defendant” or “Adalian”). The court refers to the prior suit, Jou v. Adalian, Civ. No. 09-00226 JMS-KJM (D. Haw.) (Judgment entered Dec. 23, 2010) as “Jou I, ” and the present suit, Jou v. Adalian, Civ. No. 15-00155 JMS-KJM (D. Haw.) (Filed April 29, 2015) as “Jou II.

         Adalian moves under Federal Rule of Civil Procedure 12(c) for judgment on the pleadings on all claims in Jou's amended complaint filed on November 13, 2015. Jou II, Doc. No. 41.[1] Adalian primarily argues that this suit (Jou II) is barred by doctrines of prior adjudication (i.e., res judicata/collateral estoppel), given extensive pre- and post-judgment proceedings in Jou I. On the other hand, Jou contends that this suit was properly brought as an independent action for damages based on a fraudulently-induced settlement agreement in Jou I.[2]Based on the following, the Motion is GRANTED. Jou, however, may file a Second Amended Complaint as to Count Three.

         II. BACKGROUND

         Although this suit was filed on April 29, 2015, this protracted dispute between Jou and Adalian dates back to at least May 19, 2009, when Jou I was filed. The court reviewed and analyzed much of the relevant history of Jou I in its February 5, 2015 “Order (1) Denying Plaintiff's Motion for an Order for Arrest and Incarceration of [Adalian] . . . and (2) Vacating Orders of May 2, 2014 . . . and June 5, 2014” (“February 5, 2015 Order”). Jou I, Doc. No. 161; Jou II, Doc. No. 41-4 (published at Jou v. Adalian, 2015 WL 477268 (D. Haw. Feb. 5, 2015)). And because it asserts a res judicata/collateral estoppel defense, Adalian's Motion requires the court once again to examine the details of Jou I carefully. The court thus draws upon its February 5, 2015 Order to begin explaining the background for this Motion, and provides additional relevant details as necessary to analyze whether this suit is barred by principles of prior adjudication.

         A. Proceedings Leading to a December 23, 2010 Order and Judgment in Jou I

         Jou filed his initial complaint in Jou I on May 19, 2009, seeking payment of promissory notes (the “Notes”) issued by Adalian in 1991 and 1992, asserting three claims regarding the Notes. See Jou I, Doc. No. 1. As detailed in the First Amended Complaint in Jou I, the Notes were related to a 1989 “SCV Limited Partnership, ” with Adalian as general partner, and Jou as one of several limited partners. Jou I, Doc. Nos. 52, 52-4. The First Amended Complaint reasserted the three claims related to payment of the Notes, and added five claims related to the SCV Limited Partnership. Jou I, Doc. No. 52.

         On June 28, 2010, the parties placed a settlement of Jou I on the record before U.S. Magistrate Judge Kevin S.C. Chang. Jou I, Doc. No. 63. The case, however, remained open -- a dismissal from the parties was due on September 30, 2010. Id. Specifically, in a July 6, 2010 written settlement agreement (“Settlement Agreement”), Adalian agreed to pay Jou $180, 000, with an initial payment of $25, 000, and a second payment of $155, 000 due no later than September 30, 2010. Jou I, Doc. No. 69-3 at 2; Jou II, Doc. No. 55-2 at 2. The Settlement Agreement concerned only the Notes; it did not release claims or defenses regarding the SCV Limited Partnership. Jou II, Doc. No. 55-2 at 4.[3] To that end, the Settlement Agreement required Jou to file a second amended complaint that asserted only the three claims related to the Notes. Id. at 2. Accordingly, on September 24, 2010, Jou filed by stipulation a second amended complaint that was identical to the initial complaint. Jou I, Doc. No. 66.

         As discussed in the February 5, 2015 Order, the Settlement Agreement did not involve any injunctive or declaratory relief -- it only concerned payment of money. Regarding “jurisdiction and enforcement, ” the Settlement Agreement provided “[t]his Agreement shall be governed by the laws of the State of Hawaii. In the event that enforcement of any term of this Agreement is necessary, the prevailing party is entitled to recover all costs, interest, and legal fees incurred in such enforcement procedure.” Jou II, Doc. No. 55-2 at 6.

         Adalian paid the first installment of $25, 000, but did not pay the remaining $155, 000 by September 30, 2010. Jou I, Doc. No. 88 at 2. Given Adalian's failure to pay, Jou filed a “Motion to Enforce Settlement Agreement and for Damages, Attorney's Fees, Costs and Judgment” (“Motion to Enforce”) on October 6, 2010. Jou I, Doc. No. 69. In his Motion to Enforce, Jou argued, among other things, that Adalian had sold real estate in Pennsylvania in June 2010 for $693, 900, which he could have used to make the $155, 000 payment. Id. at 4. The Motion to Enforce argued that the sale “has the earmarks of a fraudulent conveyance to avoid paying Dr. Jou as agreed, ” and sought “specific enforcement” of the Settlement Agreement as well as “damages for failure to comply with [the] settlement agreement.” Id. at 6 (citing TNT Mktg., Inc. v. Aresti, 796 F.2d 276, 278 (9th Cir. 1986) (“The district court's enforcement power included authority to award damages for failure to comply with the settlement agreement.”)).

         Similarly, in his November 1, 2010 Reply in support of the Motion to Enforce, Jou emphasized that Adalian had sold the Pennsylvania property before he entered the Settlement Agreement thus “remov[ing] a significant asset from the reach of the judgment.” Jou I, Doc. No. 76 at 4. Jou asked that Adalian be held in contempt, and again sought damages for Adalian's breach of the Settlement Agreement. Id. at 7-8. Specifically, Jou claimed that he “suffered a loss of $155, 000 as a result of the breach, plus expenses and loss of interest.” Id. at 8. And he argued -- as he has claimed in this action (Jou II) -- that Adalian committed fraud in procuring the Settlement Agreement, which Adalian did not intend to comply with when he signed it:

Plaintiff gives notice that he specifically reserves fraud, fraudulent conveyance and other claims against Defendant; however, this court has inherent power to sanction Mr. Adalian and impose the equivalent of punitive damages for fraudulent settlement conduct, inter alia, Defendant, at the time he signed the Settlement Agreement, did not intend to pay Dr. Jou. Instead, Mr. Adalian was buying time, so that he could transfer property out of the reach of any judgment. Mr. Adalian tacitly admits this transfer. This was a fraudulent conveyance.

Id. at 7-8. He continued:

In this connection, the Court is empowered to decree specific performance; that is, to order Mr. Adalian to pay the full amount within a short period of time (4 or 5 hours). Dr. Jou also reserves his right to sue independently for fraud and/or specific performance. . . . In the event Dr. Jou is left, as Mr. Adalian proposes, with a judgment, prejudgment interest should be awarded from the date of breach.

Id. at 9.

         On November 19, 2010, Magistrate Judge Chang issued a Findings and Recommendation to Grant in Part and Deny in Part the Motion to Enforce (“November 19, 2010 F&R”). Jou I, Doc. No. 80. Given a binding Settlement Agreement, the November 19, 2010 F&R recommended (1) ordering Adalian to pay the $155, 000 balance to Jou within one week from when this court took final action on the November 19, 2010 F&R; (2) entry of final judgment of $155, 000 in favor of Jou and against Adalian; (3) denial of Jou's requests for civil contempt, damages and sanctions; and (4) an award of fees and costs reasonably incurred in bringing the Motion to Enforce. Id. at 2-3. The November 19, 2010 F&R cautioned Adalian “that his failure to tender the balance of the settlement amount pursuant to a court order may result in a finding of civil contempt as well as other sanctions.” Id. at 3. In Supplemental Findings, Magistrate Judge Chang recommended an additional award of $6, 365.36 in fees and costs, also to be paid within one week from this court's final action on the November 19, 2010 F&R. Jou I, Doc. No. 81.

         Both parties objected, at least in part, to the November 19, 2010 F&R. Among other arguments, Jou contended that the F&R should be modified “to authorize execution on the transferred asset [i.e., the Pennsylvania real property].” Jou I, Doc. 86 at 7. He argued:

Mr. Adalian actively negotiated an agreement during June 2010, promising to pay $180, 000. At the same time, Adalian had no intent to pay this amount, and he was secretly closing a real estate sale for $693, 900.00 during June of 2010. . . . In fact, Mr. Adalian acted in accordance with his intention not to pay, by admittedly paying others from the $693, 900, besides Dr. Jou.

Id.

         And in responding to Adalian's objection, Jou argued that a settlement could be enforced as he had done, relying on Hawaii caselaw that provides options for a party's failure to comply with a settlement agreement:

Defendant argues that a party may not enforce a settlement in Hawaii. Caselaw is otherwise. Arakaki v. SCD-Olanani Corp., [110 Haw. 1, 8 n.6, 129 P.3d 504, 511 n.6 (2006)], is dispositive:
Insofar as Arakaki's goal was the Appellant's compliance with the settlement agreement, it could have filed a motion in the circuit court to enforce the settlement or a separate action for breach of contract. See David F. Herr et al., Motion Practice § 20.06[A] (4th Ed. Supp. 2005) (“Three available remedies . . . are . . . an amendment or supplementation of the pleadings to allege the settlement agreement as an executory accord[, ]. . . a separate action for breach of the settlement agreement[, and a] motion to enforce settlement. The third remedy is the most common and usually the most cost-effective.”).

Jou I, Doc. 86 at 5 (quoting Arakaki). That is, Jou understood that he had an option of filing a separate suit for damages, rather than simply enforcing the Settlement Agreement, and he recognized he had chosen “the most common and usually the most cost-effective” remedy. Arakaki, 110 Haw. at 8, n.6, 129 P.3d at 511 n.6; see also, e.g., Rohn Products Int'l v. Sofitel Capital Corp. USA, 2010 WL 681304, at *3 (D. Md. Feb. 22, 2010) (“Rohn requests a judgment in the amount of the alleged settlement. Such relief may be sought in a separate suit based on standard contract principles or ‘it may be accomplished within the context of the underlying litigation without the need for a new complaint.'”) (quoting Hensley v. Alcon, 277 F.3d 535, 540 (4th Cir. 2002)).

         On December 23, 2010, this court adopted the November 19, 2010 F&R. Jou I, Doc. No. 88. This court overruled objections from both sides, and ordered (consistent with the November 19, 2010 F&R) as follows:

1. Defendant is ordered to pay $155, 000 to Plaintiff within one week from the date of this Order -- that is, by December 30, 2010. Failure to pay this amount within one week may result in Defendant being found in contempt of this Order.
2. The court further awards Plaintiff $5, 796.00 in attorneys' fees, $273.11 in tax, and $296.25 in costs, for a total of $6, 365.36. Defendant must remit this payment to Plaintiff no later than one week from the date of this Order, by December 30, 2010. Failure to pay this amount within one week may result in Defendant being found in contempt of this Order.
3. Plaintiff's request[s] for civil contempt, damages, and sanctions are DENIED.
4. The court directs the Clerk of Court to enter Judgment in the amount of $155, 000 in favor of Plaintiff and against Defendant. The Second Amended Complaint, filed September 24, 2010, and all claims asserted therein, are dismissed with prejudice. The court retains jurisdiction to enforce the terms of the July 6, 2010 Settlement Agreement and Release between the parties.

Id. at 8-9. Accordingly, final Judgment was entered on December 23, 2010. The December 23, 2010 Judgment provided:

IT IS ORDERED AND ADJUDGED that Judgment is entered in favor of the Plaintiff Emerson M. F. Jou, M.D., in the amount of $155, 000.00 and against the Defendant Gregory M. Adalian and all claims asserted in the Second Amended Complaint are dismissed with prejudice, pursuant to the “Order Adopting the November 19, 2010 Findings and Recommendation to Grant in Part and Deny in Part Plaintiffs' Motion to Enforce Settlement Agreement and for Damages, and the November 23, 2010 Supplement to the Findings and Recommendation, ” filed on December 23, 2010. It is further ordered that Plaintiff is awarded $5, 796.00 in attorneys' fees, $273.11 in tax, and $296.25 in costs for a total of $6, 365.36.

Jou I, Doc. No. 89.

         B. 2011 Post-Judgment Contempt Proceedings Attempting to Collect the December 23, 2010 Judgment

         Adalian did not pay the December 23, 2010 Judgment within seven days. Jou then attempted to enforce the December 23, 2010 Order and to secure payment of the Judgment by contempt proceedings. Specifically, on January 10, 2011, Jou filed a “Motion for Order to Show Cause re: Contempt of Court by Defendant Gregory M. Adalian and for Attorney's Fees and Costs.” Jou I, Doc. No. 90. He also filed an Ex Parte Motion for Examination of Judgment Debtor. Jou I, Doc. No. 99. Jou sought an order holding Adalian in civil contempt, and fining him until he paid the December 23, 2010 Judgment. Jou I, Doc. No. 90-1 at 1. Jou also asked the court to command Adalian to produce certain tax returns and real estate records. Id. at 6. He argued, in part, that “[Adalian] will refrain from providing check ledgers, or copies of complete information relating to his preemptive sale of real estate designed to defeat the settlement agreement he was negotiating.” Id. at 5.

         A February 14, 2011 hearing was set before Magistrate Judge Chang. On that date, however, Adalian filed a bankruptcy petition in the U.S. Bankruptcy Court for the Middle District of Pennsylvania (“Bankruptcy Court”), Jou I, Doc. No. 103, and the case was stayed under 11 U.S.C. § 362(a). Jou I, Doc. No. 105.

         On April 20, 2011, the Bankruptcy Court dismissed the February 14, 2011 bankruptcy petition, apparently for Adalian's failure to file certain documents. Jou I, Doc. No. 106-1. After that dismissal, on May 23, 2011, Jou renewed his attempt to hold Adalian in contempt for failure to pay the December 23, 2010 Judgment. Jou I, Doc. No. 113. Specifically, Jou filed a “Motion for an Order that Defendant Gregory M. Adalian is in Contempt of Court; For Fines and Other Relief and for Attorneys' Fees and Costs.” Id. He again argued, in part, that

Defendant Adalian took preemptive steps to make compliance [with the Settlement Agreement] more difficult. . . . Transferring some of his assets out of the reach of the settlement he was currently negotiating was preemptive. . . . On June 7, 2010[, ] Mr. Adalian and his wife sold property to a family corporation for $693, 900. Defendant Adalian, on information and belief gave his wife a significant amount of the proceeds[.] Mr. Adalian did not tell the Court or Plaintiff. Instead, he represented that during June 2010 that he would pay the full amount of settlement.

Jou I, Doc. 113-1, at 4-5. Among other relief, he sought payment of “[t]he actual loss of $161, 365.36 ($155, 000 $6, 365.36), as ordered on 12-23-10 . . . as a sanction payable to Dr. Jou in addition to fees and costs incurred in this proceeding.” Id. at 13-14.

         A hearing was scheduled before Magistrate Judge Chang for July 15, 2011. Adalian responded on July 14, 2011 by filing another bankruptcy petition in the Middle District of Pennsylvania, Jou I, Doc. No. 120-2, and the hearing was continued until August 29, 2011. Jou I, Doc. No. 119. Adalian did not appear at the August 29, 2011 hearing. On August 30, 2011 Magistrate Judge Chang issued a Findings and Recommendation, Jou I, Doc. No. 122, recommending granting in part Jou's motion seeking contempt (Jou argued, among other contentions, that a bankruptcy stay was no longer in effect and did not bar the contempt proceedings, Jou I, Doc. No. 120 at 3).

         Meanwhile, however, Adalian filed a third bankruptcy petition in the Middle District of Pennsylvania on August 26, 2011. Jou I, Doc. No. 124. After being informed of Adalian's latest bankruptcy filing, Magistrate Judge Chang vacated the August 30, 2011 Findings and Recommendation and denied the pending contempt motion without prejudice. Jou I, Doc. Nos. 126, 127.

         Nevertheless (despite the bankruptcy stay), on September 23, 2011, Jou filed another motion seeking to hold Adalian in contempt for failure to pay the Judgment. Jou I, Doc. No. 128. Among other grounds, he argued that the bankruptcy proceedings were filed in bad faith, although he acknowledged that a proceeding remained pending in the Bankruptcy Court. See Id. at 2 (“This motion is made on the further ground that while violating this Court's Order, Mr. Adalian has vexatiously and contumaciously multiplied these proceedings by maliciously filing three bankruptcy petitions. Two of the three have been dismissed. The most recent was found by the Bankruptcy Court to be in bad faith.”). Jou again argued that Adalian committed “settlement fraud” by concealing the $693, 000 sale of Pennsylvania real property, as evidenced by subsequent bankruptcy actions. Jou I, Doc. No. 128-1 at 2-3. Jou added allegations that Adalian had “loaned his small company $175, 000” out of the $693, 000, and had similarly sold other assets (stock Adalian valued at $157, 000) for $10, 000 to avoid paying the judgment. Id. at 4. And he again contended that Adalian “falsely represented that during June 2010 that he would pay the full amount of settlement, ” id. at 9, arguing that “Defendant Adalian concedes taking the preemptive step to make his compliance [with the Settlement Agreement] difficult, by selling these assets (while representing to this Court he would pay in full).” Id. at 13.

         The September 23, 2011 contempt motion sought to imprison Adalian for failure to comply with the court's December 23, 2010 Order and corresponding Judgment, and again sought payment of $161, 365.36, plus additional fees and costs, along with “a coercive sanction” of $500 per day and “compensatory contempt fines” of $22, 998.47. Id. at 15. Jou also filed an Ex Parte Motion to Shorten Time to hear the September 23, 2011 contempt motion (“Ex Parte Motion”). Jou I, Doc. No. 129.

         On September 28, 2011, a bankruptcy judge issued a temporary restraining order, restraining Jou and/or his counsel, Stephen Shaw, from “pursuing any monetary collection actions” against Adalian, “including but not limited to” pursuing the pending Ex Parte Motion. Jou I, Doc. Nos. 130-1, 130-3, 131. Accordingly, on September 29, 2011, Magistrate Judge Chang denied the Ex Parte Motion without prejudice. Jou I, Doc. No. 131. On October 25, 2011, Jou withdrew the contempt motion without prejudice. Jou I, Doc. No. 132.

         C. Bankruptcy Proceedings from 2011 to 2013

         While Jou I remained stayed in this court, extensive proceedings occurred in the Bankruptcy Court between 2011 and 2013. Some of the background is explained in three published decisions of the Bankruptcy Court -- In re Adalian, 474 B.R. 150 (Bankr. M.D. Pa. 2012); In re Adalian, 481 B.R. 290 (Bankr. M.D. Pa. 2012); and In re Adalian, 500 B.R. 402 (Bankr. M.D. Pa. 2013).

         On November 5, 2013, the Bankruptcy Court concluded that Adalian was not entitled to discharge the debt at issue in Jou I. 500 B.R. at 410. That is, the Bankruptcy Court entered summary judgment in favor of Jou on his complaint in that court seeking a determination of non-dischargeability of the debt. Id. Given that finding, the Bankruptcy Court granted Jou relief from the automatic stay to allow him to proceed in Jou I. Id. at 413.

         D. Further Contempt Proceedings Attempting to Collect the December 23, 2010 Judgment

         On February 28, 2014, Jou filed a “Renewed Motion for an Order that Defendant Gregory M. Adalian is in Contempt of Court, for Fines and for Other Relief Including Attorneys' Fees and Costs” (“Renewed Motion”). Jou I, Doc. No. 134. He again sought to find Adalian in contempt for violating the court's December 23, 2010 Order and Judgment, and sought a per diem fine as a “coercive measure.” Jou I, Doc. No. 134-1 at 7. Once again, Jou argued that Adalian had committed settlement fraud. Id. at 2-3. And he again sought $161, 365.36, plus additional fees, costs, fines, and sanctions. Id. at 15. Adalian was no longer represented by counsel, and did not file a formal opposition, although he appeared by telephone at a hearing on the Renewed Motion. Jou I, Doc. No. 138.

         On April 9, 2014, Magistrate Judge Chang issued a Finding and Recommendation to Grant in Part and Deny in Part the February 28, 2014 Renewed Motion (“April 9, 2014 F&R”). Jou I, Doc. No. 139. The April 9, 2014 F&R:

• Found Adalian in contempt of court, determining by clear and convincing evidence that Adalian violated the December 23, 2010 Order and had failed to demonstrate a present inability to comply with that Order. (Adalian had failed to appear for judgment debtor examinations, and had not produced any evidence to establish that he was unable to pay amounts due.) Id. at 11;
• Recommended that Adalian “be ordered to pay the outstanding balance set out in [the December 23, 2010] Order within one week of the order taking action on this Findings and Recommendation.” Id. at 14;
• Recommended a fine of $200 per calendar day as a coercive sanction until Adalian complies with the Order. Id. at 13;
• Recommended an award of attorneys' fees and costs incurred in connection with the motion. Id. at 15; and
• Declined to recommend imprisonment. It stated, however, that “if [Adalian] continues to disobey the Order, [Jou] may renew his request for incarceration. It is well within the Court's discretion to recommend imprisonment and the Court will not hesitate to recommend such a sanction, if necessary and appropriate.”

Id. at 13-14. Adalian did not object to the April 9, 2014 F&R, and this court adopted it in a May 2, 2014 Order. Jou ...


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