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HTK Hawaii, Inc. v. Sun

United States District Court, D. Hawaii

October 7, 2016

HTK HAWAII, INC., Plaintiff,
v.
KEVIN SUN, NICOLE YANG, Defendants.

          ORDER: (1) DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT, ECF NO. 146; AND (2) GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT, ECF NO. 154; EXHIBIT “A”

          J. Michael Seabright Chief United States District Judge.

         I. INTRODUCTION

         Plaintiff HTK Hawaii, Inc. (“HTK Hawaii”) is solely owned by William Hsia, president of HTK Hawaii. Kimberly Hsia, William Hsia's wife, is secretary and treasurer of HTK Hawaii. HTK Hawaii brings this action against Defendants Kevin Sun and Nicole Sun (formerly “Nicole Yang”) primarily seeking a declaratory judgment that a document titled “Contract Agreement for HTK California” (“the Document”) is not an enforceable contract.[1] A business arrangement between William Hsia and Kimberly Hsia (“the Hsias”) and Defendants Kevin Sun and Nicole Sun (“the Suns”), originally created to help the Hsias expand HTK Hawaii's mainland business, fell apart, leading to this litigation.

         The Suns filed a counterclaim against HTK Hawaii and, as Third-Party Plaintiffs, filed claims against the Hsias in their individual capacities. The counterclaim alleges multiple claims, primarily breach of contract -- related to the Document -- and various employment law violations. Because Plaintiff HTK Hawaii, Third-Party Defendant William Hsia, and Third-Party Defendant Kimberly Hsia are closely related and argue as one, they will be collectively referred to as “HTK.”

         Currently before the court is the Suns' Motion for Summary Judgment (“Suns' Motion”), ECF No. 146, and HTK's Counter-Motion for Partial Summary Judgment (“HTK's Motion”), ECF No. 154. For the reasons that follow, the court DENIES the Suns' Motion and GRANTS in part and DENIES in part HTK's Motion.

         II. BACKGROUND

         A. Factual Background

         William Hsia is the president and sole owner of HTK Hawaii. ECF No. 147-5, at 7:3-16. Kimberly Hsia, William Hsia's wife, is the secretary and treasurer of HTK Hawaii. Id. at 8:15-18. HTK Hawaii sells shave ice products. ECF No. 155-2, ¶ 1.

         The Suns are residents of California. ECF No. 155-3, Ex. 1. William Hsia and Kevin Sun first met sometime in 2007. ECF No. 155-2, ¶ 7. On June 10, 2013, Kevin Sun sent William Hsia an email seeking employment with HTK Hawaii. ECF No. 155-6, Ex. 4. Sometime shortly thereafter, Kevin Sun began working for HTK Hawaii in California. ECF No. 155-2, ¶¶ 9-10; ECF No. 147-1, ¶¶ 9-11. The nature of this employment relationship is at issue in this litigation.

         In October 2013, the Hsias went to California to meet with the Suns. ECF No. 155-2, ¶ 13; ECF No. 147-1, ¶ 12. The Hsias and the Suns discussed a potential business arrangement where the Suns would purchase 50% of the mainland business and help expand it. ECF No. 155-2, ¶¶ 13-14; ECF No. 147-1, ¶ 12. William Hsia and Kevin Sun subsequently exchanged several emails discussing the specifics of the potential partnership. ECF No. 155-8, Ex. 6 (memorializing the conversation in California); ECF No. 147-8, Ex. 4 (answering follow up questions about the potential partnership).

         Between November 30, 2013, and December 5, 2013, William Hsia and Kevin Sun exchanged a series of emails negotiating specific terms to be included in any agreement. ECF No. 155-9, Ex. 7; ECF No. 147-10, Ex. 6. In these emails, the parties explicitly used phrases such as “Current counter offer by W and K” and “Current revised 2nd offer by K and N” to label proposed terms for the potential agreement. ECF No. 155-9, Ex. 7; ECF No. 147-10, Ex. 6.

         The Hsias drafted the Document to reflect the terms discussed in the emails. ECF No. 155-11, Ex. 9; ECF No. 147-12, Ex. 8. The first paragraph of the Document describes the agreement: “The buyers are hereby agreeing to purchase and be responsible for 50% of all gross sales 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.” ECF No. 155-11, Ex. 9; ECF No. 147-12, Ex. 8. The remainder of the Document consists of twenty-one bullet points, setting forth “contract terms and conditions.” Id. As an example, the first bullet point states: “Selling price of $250, 000 paid through 3 years starting January 2014.” Id. The Hsias signed the Document on December 12, 2013, and the Suns signed the Document on December 26, 2013. ECF No. 155-11, Ex. 9; ECF No. 147-12, Ex. 8. After both parties signed the Document, they continued to discuss details of the arrangement by email. ECF No. 155-12, -13, Ex. 10-11.

         On January 1, 2014, William Hsia and Kevin Sun signed a partnership agreement to create HS International. ECF No. 147-16, Ex. 12. For several months after that, the relationship continued amicably. ECF No. 154-2, at 8; ECF No. 147-1, ¶ 27; ECF No. 147-2, ¶ 10. And, several payments (the purposes of which are in dispute) were made between the parties -- on January 23, 2014, the Suns paid the Hsias $10, 000; on March 3, 2014, the Suns paid the Hsias $39, 314.07; and on July 1, 2014, Kimberly Hsia paid Kevin Sun $99, 077.62. ECF No. 147-17, Ex. 13; ECF No. 147-19, Ex. 15. Pursuant to the Document, Kevin Sun received a monthly salary of $3, 000; these payments began January 2014 and ended September 2014. ECF No. 147-5, Ex. 1, at 96:8-12; ECF No. 147-1, ¶ 25.

         On November 20, 2014, William Hsia formed Hawaiian Snow Nevada, Inc. (“Hawaiian Snow Nevada”), a Nevada corporation, without the Suns' knowledge. ECF No. 180-23, Ex. 20; ECF No. 188, at 11. On January 2, 2015, Kimberly Hsia emailed the Suns about Nicole Sun's upcoming trip to Hawaii, noting that the Hsias “had been working with [their] lawyer to draft up a term sheet for [their] engagement.” ECF No. 147-23, Ex. 19. On January 3, 2015, Kimberly Hsia emailed the Suns listing reasons why she wanted to change their business arrangement to a “40/60” split from their existing 50% split. ECF No. 147-24, Ex. 20. On January 7, 2015, Nicole Sun emailed Kimberly Hsia refusing to agree to the “40/60” split. ECF No. 147-25, Ex. 21.

         Sometime in January 2015, William Hsia changed the locks and passwords to HTK's mainland business operations, preventing the Suns from operating the business. ECF No. 147-5, Ex. 1 at 149:2-8. The Hsias never paid the Suns for the profits from the second half of 2014, and the Suns never paid any portion of the $250, 000 purchase price. Id. at 146:11-16; ECF No. 155-4, Ex. 2, at 78:12-79:11.

         B. Procedural Background

         Kevin Sun filed a Notice of Removal from the Circuit Court of the First Circuit, State of Hawaii, on April 2, 2015. ECF No. 1. HTK Hawaii filed a First Amended Complaint on September 8, 2015. ECF No. 51.

         Kevin Sun filed a Motion to Transfer and a Motion to Dismiss on November 23, 2015. ECF No. 58; ECF No. 61. On January 25, 2016, the court denied Defendants' Motion to Transfer Venue, and granted in part and denied in part Defendants' Motion to Dismiss. ECF No. 77.

         HTK Hawaii filed a Fourth Amended Complaint on March 3, 2016, asserting the following claims against the Suns: (1) declaratory judgment that the Document is not a binding contract; and (2) unjust enrichment. ECF No. 92.

         The Suns filed a Counterclaim against HTK Hawaii on March 17, 2016, asserting the following claims against HTK Hawaii: (1) breach of contract; (2) unjust enrichment; (3) breach of the implied covenant of good faith and fair dealing; (4) conversion; (5) fraud; (6) failure to timely pay wages; (7) failure to timely pay wages at termination; (8) failure to pay overtime; (9) failure to provide itemized wage statements; and (10) unlawful and unfair business activity. ECF No. 105.

         The Suns filed a Third Party Complaint against the Hsias in their individual capacities on March 18, 2016, with Counts 1-3, 6, and 7 reasserting Counts 1-5 and 10 of their Counterclaim, respectively, and adding claims for promissory estoppel and breach of fiduciary duty. ECF No. 106.

         On July 27, 2016, the Suns filed a Motion for Summary Judgment on their breach of contract claim against HTK Hawaii and the Hsias and on both counts in HTK Hawaii's Fourth Amended Complaint. ECF No. 146. On August 3, 2016, the Hsias filed a Motion for Partial Summary Judgment as to Counts 1, 3, and 5-10 of the Suns' Counterclaim, and Counts 1, 3-5, and 7 of the Suns' Third-Party Complaint. ECF No. 154. On September 2, both parties filed their Opposition briefs, and on September 12, both parties filed their Reply briefs. ECF No. 179, 181, 187, 188. A hearing was held on September 26, 2016. Supplemental letter briefing was provided to the court on September 30, 2016.

         III. STANDARD OF REVIEW

         Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). Rule 56(a) mandates summary judgment “against a party who fails to make a showing sufficient to establish the existence of an element essential to the party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Broussard v. Univ. of Cal. at Berkeley, 192 F.3d 1252, 1258 (9th Cir. 1999).

         “A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact.” Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007) (citing Celotex, 477 U.S. at 323); see also Jespersen v. Harrah's Operating Co., 392 F.3d 1076, 1079 (9th Cir. 2004). “When the moving party has carried its burden under Rule 56[(a)] its opponent must do more than simply show that there is some metaphysical doubt as to the material facts [and] come forward with specific facts showing that there is a genuine issue for trial.Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586-87 (1986) (citation and internal quotation marks omitted); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (stating that a party cannot “rest upon the mere allegations or denials of his pleading” in opposing summary judgment).

         “An issue is ‘genuine' only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party, and a dispute is ‘material' only if it could affect the outcome of the suit under the governing law.” In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008) (citing Anderson, 477 U.S. at 248). When considering the evidence on a motion for summary judgment, the court must draw all reasonable inferences on behalf of the nonmoving party. Matsushita Elec. Indus. Co., 475 U.S. at 587.

         IV. DISCUSSION

         A. Cross Motions Concerning the Document's ...


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