United States District Court, D. Hawaii
EMERSON M.F. JOU, M.D., Plaintiff,
GREGORY M. ADALIAN, Defendant.
ORDER GRANTING DEFENDANT'S MOTION FOR JUDGMENT ON
THE PLEADINGS, DOC. NO. 41, WITH LEAVE TO AMEND COUNT
Michael Seabright Chief United States District Judge
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
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. 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.Based on the following, the Motion is
GRANTED. Jou, however, may file a Second Amended Complaint as
to Count Three.
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.
Proceedings Leading to a December 23, 2010 Order and Judgment
in Jou I
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.
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. 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.
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.
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
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.
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.
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.
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)).
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
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.
2011 Post-Judgment Contempt Proceedings Attempting to Collect
the December 23, 2010 Judgment
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.
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.
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.
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).
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.
(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.
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.
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.
Bankruptcy Proceedings from 2011 to 2013
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).
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.
Further Contempt Proceedings Attempting to Collect the
December 23, 2010 Judgment
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.
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,
• 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;
• 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 ...