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Reading International, Inc. v. Malulani Group, Ltd

United States District Court, D. Hawaii

May 25, 2018

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

          ORDER GRANTING DEFENDANT THE MALULANI GROUP LIMITED'S MOTION FOR SUMMARY JUDGMENT ON ISSUE ON REMAND, ECF NO. 197

          J. Michael Seabright United States District Judge

         I. INTRODUCTION

         On March 19, 2013, Plaintiff Reading International, Inc. (“Plaintiff” or “Reading”) filed this action alleging that Defendant The Malulani Group, Limited (“Defendant” or “TMG”) breached a July 2, 2009 settlement agreement (the “Settlement Agreement”) between the parties based on the alleged failure: 1) to provide timely financial statements for certain leased properties; 2) to provide access to financial books and records; and 3) to timely certify compliance with § 5.2(b) of the Settlement Agreement.

         In two separate Orders, this court granted summary judgment in favor of TMG. See ECF Nos. 96, 164; Reading Int'l, Inc. v. Malulani Grp., Ltd., 16 F.Supp.3d 1185 (D. Haw. 2014), Reading Int'l, Inc. v. Malulani Grp., Ltd., 40 F.Supp.3d 1312 (D. Haw. 2014). On appeal, the Ninth Circuit affirmed in part, reversed in part, and remanded for a determination of a single issue. Reading Int'l, Inc. v. Malulani Grp., Ltd., 694 Fed.Appx. 571 (9th Cir. 2017). Now before the court is TMG's Motion for Summary Judgment on that single remand issue - whether TMG “materially breached the Settlement Agreement when two individual Defendant Parties failed to timely certify their compliance with § 5.2(b) of the Settlement Agreement.” Id. at 572.

         The court concludes that the failure to timely certify compliance with § 5.2(b) of the Settlement Agreement was not material. TMG's Motion for Summary Judgment is thus GRANTED.

         II. BACKGROUND

         A. Factual Background[1]

         In 2006, Plaintiff purchased stock in TMG's subsidiary, Malulani Investments Limited (“MIL”) for $1.8 million. See ECF No. 198, Def.'s Concise Statement of Facts (“CSF”) ¶ 1. Approximately six months later, Plaintiff and others commenced litigation against MIL and its directors (Easton Manson, John Dwyer, Jr., Kenwei Chong, and Philip Gray) in Hawaii state court, after which TMG intervened. Id. After mediation, the parties reached a settlement in July 2009. Id. ¶ 3. This overall settlement was documented in five related agreements, including the Settlement Agreement, a Note, a Mortgage, and two Pledge documents. Id. ¶ 6.

         The Settlement Agreement, between Plaintiff, Magoon Acquisition and Development, LLC, and James Cotter (collectively defined as “Plaintiff Parties” in the Settlement Agreement), and TMG, MIL, Easton Manson, John Dwyer, Jr., Philip Gray, and Kenwei Chong (collectively defined as “Defendant Parties” in the Settlement Agreement), includes monetary compensation in return for stock. ECF No. 200-4. Specifically, it provides that in exchange for Plaintiff's surrender of all of Plaintiff's stock in TMG companies and other consideration, Defendant Parties shall make a $2.5 million payment to Plaintiff and issue a Promissory Note in the amount of $6.75 million. Id. These payments were made, and are not the subject of the instant motion.

         The Settlement Agreement also includes a provision regarding the confidentiality and destruction of an investigatory report regarding James Cotter (the “Kroll Report”), and an April 2, 2008 “Order Regarding Allegation of Improper Purpose by Special Master Michael N. Tanoue” (the “Tanoue Order”).[2] Under §§ 5.2(a) and (b), the Settlement Agreement requires the Defendant Parties to destroy all copies of the Kroll/Tanoue Documents in their possession or custody, and to use best efforts to procure and destroy the Kroll/Tanoue Documents in the possession of certain related persons/entities. Next, the Settlement Agreement requires a certification that best efforts were used by the Defendant Parties to comply with §§ 5.2(a) and (b):

Within forty-five (45) days of the Closing Date, the Defendant Parties (a) shall destroy all copies of the Kroll Report and the Tanoue Order (as defined above) within their possession or custody, (b) shall use their best efforts to procure and destroy all copies of the Kroll Report and the Tanoue Order in the possession or control of the Defendant Parties' past or current affiliates, partners, subsidiaries (including subsidiaries of subsidiaries), parents, agents, principals, directors, officers, investors (direct or indirect), owners (direct or indirect), employees, attorneys, representatives, successors, predecessors, and assigns, and (c) shall certify in writing to the Plaintiff Parties that the Defendant Parties have used their best efforts to comply with Subsections (a) and (b).

Id. § 5.2 (emphasis added).

         The Settlement Agreement further outlines confidentiality restrictions on Defendant Parties regarding the Kroll/Tanoue Documents, id. § 5.2(d)-(g), and states that “this Section is material to this Agreement and has been necessary to induce Plaintiff Parties to enter this Agreement.” Id. § 5.2. Finally, the Settlement Agreement elsewhere states that “[t]ime is of the essence as to each and every provision of this Agreement.” Id. § 8.18.

         In his declaration, TMG President Easton Manson (also President and Director of MIL) sets forth TMG's compliance with § 5.2. First, he states that all six of the Defendant Parties “complied with Section 5.2(a) by destroying all copies of the [Kroll/Tanoue Documents] in their possession within the 45-Day Period.” Manson Decl. ¶ 13; ECF No. 198-1. As to § 5.2(b), on July 6, 2009, Manson sent a letter of behalf of the Defendant Parties “to their respective agents requesting that, in accordance with Section 5.2 of the Settlement Agreement, they each return or destroy all copies of the [Kroll/Tanoue Documents] in their possession.” Id. ¶ 14. All recipients of that letter, including Chong and Gray's law firm, confirmed that they had “searched for and destroyed or deleted all copies of the [Kroll/Tanoue Documents] in their possession with the 45-Day Period.” Id. ¶15; see also ECF No. 198-8. “Thus, all six Defendant Parties, including Directors Chong and Gray, also complied with Section 5.2(b) of the Settlement Agreement by requesting and receiving confirmation from their agents that their agents had destroyed all copies of the [Kroll/Tanoue Documents] in their possession within the 45-Day Period.” Manson Decl. ¶ 16. The 45-day period ended on August 16, 2009. Id. ¶ 10.

         The § 5.2(c) certification of compliance with §§ 5.2(a) and (b), however, was incomplete. As explained by Manson, on August 14, 2009 (again, within the 45-day time period) the six Defendant Parties submitted to Reading a “Certification by Defendant Parties, ” signed by all six. Id. ¶ 17; see also ECF No. 198-9 at 3. This document certified that all six Defendant Parties complied with the requirements of § 5.2(a), but only listed four of the Defendant Parties as certifying compliance with § 5.2(b). That is, the certification states that TMG, MIL, Manson, and Dwyer used their best efforts to comply with § 5.2(b) of the Settlement Agreement, but does not mention Chong or Gray. According to Manson, the certification “inadvertently failed to note similar compliance by Chong and Gray, even though that compliance had occurred.” Id. ¶ 17; ECF No. 198-9.[3]

         On November 13 and December 4, 2009, Reading sent two notices of default relating to TMG's financial reporting obligations. Id. ¶ 18. Then, on December 16, 2009, for the first time Reading notified TMG that the August 14, 2009 certification was deficient because Chong and Gray had failed to certify compliance with § 5.2(b). Id. ¶ 19; see also ECF No. 198-12. Five days later, on December 21, 2009, Chong and Gray each executed a certification, stating that they had indeed used - before the expiration of the 45-day period - “best efforts to comply with Subsections (a) and (b) of Section 5.2 of the Settlement Agreement.” Manson Decl. ¶ 20; see also ECF No. 198-13.[4]

         With this background, TMG now moves for summary judgment on the single question remanded by the Ninth Circuit - whether TMG “materially breached the Settlement Agreement when [Chong and Gray] failed timely to certify their compliance with § 5.2(b) of the Settlement Agreement.” Reading Int'l, 694 Fed.Appx. at 572.

         B. Procedural Background

         Based on two of this court's previous summary judgment orders, on July 26, 2017, the Ninth Circuit reversed in part, affirmed in part, and remanded. On January 5, 2018, Defendant filed its Motion for Summary Judgment on Issue on Remand. ECF No. 197. Plaintiff filed an Opposition on March 12, 2018, ECF No. 202, ...


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