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Ward Management Development Company, LLC v. Nordic Pcl Construction, Inc.

United States District Court, D. Hawaii

August 3, 2018





         Defendant Nordic PCL Construction, Inc. (“Nordic”) moves to dismiss the First Amended Complaint (“FAC”) filed against it by Plaintiffs Ward Management Development Company, LLC (“Ward Management”); Waiea Management Development Company, LLC; Victoria Ward, Ltd. (“Victoria Ward”); and 1118 Ala Moana, LLC (“1118 Ala Moana”) (collectively “Plaintiffs”).

         The Motion to Dismiss raises three grounds for dismissal: (1) the action must be dismissed under Federal Rule of Civil Procedure 19(b) because a non-party, the Association of Unit Owners of 1118 Ala Moana (“AOUO”), is required to be joined as a Plaintiff, and the AOUO's presence would destroy diversity of citizenship; (2) the court lacks complete diversity of citizenship because Victoria Ward is a Hawaii citizen (not a Texas citizen as the FAC alleges); and (3) before filing suit, Plaintiffs failed to comply with notice and mediation requirements of the Hawaii Contractor Repair Act (the “Act”), codified at Hawaii Revised Statutes (“HRS”) Chapter 672E.

         Much of the briefing and post-hearing activity has focused on the first two grounds, both of which implicate the court's subject-matter jurisdiction - normally a threshold inquiry. As has become apparent, however, after much thought on both issues and consideration of supplemental filings as to the Rule 19 issue, both grounds raise complicated questions that lack obvious answers. The posture thus calls for a quintessential application of a principle explained in Sinochem International Co. v. Malaysia International Shipping Corp., 549 U.S. 422 (2007) - “a federal court has leeway ‘to choose among threshold grounds for denying audience to a case on the merits.'” Id. at 431 (quoting Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 585 (1999)).

         Under Sinochem, the court need not decide the jurisdictional issues in order to resolve Nordic's Motion to Dismiss because it is obvious that Plaintiffs did not satisfy Chapter 672E before filing suit. See Carijano v. Occidental Petroleum Corp., 643 F.3d 1216, 1227 (9th Cir. 2011) (“The Sinochem Court . . . promoted judicial economy by allowing the district court to dismiss the case without first having to address complicated jurisdictional issues.”). That is, as explained to follow, Nordic prevails on the third ground raised in its Motion, a ground that does not rely on the merits of the dispute. The action is dismissed without prejudice under HRS § 672E-13 (“The court . . . shall dismiss, without prejudice, any action failing to meet the requirements of this chapter[.]”).


         A. Factual Background

         This diversity action arises from the construction of the Waiea Tower (the “Project”), “a 36-floor, high-rise, mixed-use building consisting of retail space and ultra-luxury residential units located in the Kaka‘ako district of Honolulu.” FAC ¶ 1, ECF No. 24. Plaintiffs are owners, former owners, and/or developers of the Project, and Nordic was the Project's construction manager and general contractor. Id. ¶¶ 1, 9-10. Victoria Ward, the original Project owner, is a limited signatory and third-party beneficiary to the construction management agreement (“CMA”) between Nordic and primary signatory, Ward Management. Id. ¶¶ 7 & 10.

         The FAC alleges claims for breach of contract, breach of warranty, and injunctive and declaratory relief, based on allegations that Nordic's work on the Project was substandard and untimely, and that Nordic actually obstructed completion of the Project and sales of units. Id. ¶¶ 1-5. Specifically, Count I alleges that Nordic breached the CMA because Nordic failed to reach “Substantial Completion” of the Project by the required dates. Id. ¶ 87. Count II alleges that Nordic is liable for breach of warranty provisions in the CMA regarding the “façade of the building” which is “emitting loud popping noises.” Id. ¶¶ 94-95. And Count III seeks a declaratory judgment regarding related contentions by Nordic that Ward Management has improperly withheld payments due to Nordic for work performed under the CMA. Id. ¶¶ 100-107.

         B. Procedural Background

         Ward Management filed the original complaint in this action by itself (i.e., as the sole Plaintiff) on November 21, 2017, asserting subject matter jurisdiction under 28 U.S.C. § 1332, diversity of citizenship. Compl. ¶ 10, ECF No. 1. Nordic moved to dismiss, arguing that Victoria Ward is a required party under Rule 19, and that Victoria Ward is a Hawaii citizen for purposes of § 1332 whose presence would destroy diversity. ECF No. 16. Ward Management responded by filing the FAC on January 24, 2018, adding Victoria Ward as a Plaintiff (along with the other Plaintiffs). See FAC ¶¶ 8 to 10. The FAC alleges, however, that Victoria Ward is a Delaware Corporation with a principal place of business in Texas (not Hawaii) because its executive officers with decision-making authority direct and control the corporation's activities from Dallas, Texas (and thus is a Texas citizen for purposes of § 1332). Id. ¶ 10. Thus, the FAC again bases federal jurisdiction on complete diversity of citizenship with an amount in controversy exceeding $75, 000.

         On February 7, 2018, Nordic filed its Motion to Dismiss, arguing as a factual matter that - contrary to the FAC's allegations - Victoria Ward is a Hawaii citizen for purposes of § 1332.[1] Nordic also argues that the AOUO is a required party under Rule 19 whose presence would also destroy diversity; and that Plaintiffs failed to comply with provisions of HRS Chapter 672E, requiring dismissal without prejudice under HRS § 672E-13. Plaintiffs responded on April 9, 2018, ECF Nos. 31 & 32, and Nordic filed a Reply on April 16, 2018. ECF Nos. 33 & 34.[2] The court held a hearing on April 30, 2018. ECF No. 39.

         Under Rule 19(a)(1)(B), a person is “required to be joined if feasible” if, among other factors, “that person claims an interest relating to the subject of the action.” Id. (emphasis added). At the April 30, 2018 hearing, a question arose as to whether the AOUO had or should have “claimed an interest” in the subject of this action under Rule 19. Plaintiffs relied on the AOUO's apparent silence in this regard, but the court recognized that some of Plaintiffs' officers are also directors of the AOUO (and thus those officers might have an inevitable conflict of interest where one or more of the Plaintiffs as developers could conceivably have potential liability to the AOUO or some of its unit owners). See, e.g., Raven's Cove Townhomes, Inc. v. Knuppe Dev. Co., 171 Cal.Rptr. 334, 343 (Cal.Ct.App. 1981) (“[A] developer and his agents and employees who also serve as directors of an association . . . may not make decisions for the Association that benefit their own interests at the expense of the association and its members.”) (citations omitted)).

         The court thus requested that the AOUO submit a letter to the court regarding its interest in, and intent regarding, this litigation. The AOAO submitted such a letter on June 18, 2018 from independent counsel, stating that “a committee [of the Board of the AOUO] composed of the independent Directors who are not affiliated with any of the developer entities” has “determined that it is not in the best interest of the AOUO and the unit owners to seek to intervene in the Litigation at this time, ” although it purports to retain rights to do so in future. ECF No. 54. The court allowed the parties to respond to that letter, see ECF No. 56, and both parties filed supplemental briefing on July 5, 2018. ECF Nos. 64, 65.


         A. The Court “Bypasses” the Jurisdictional Issues

         Both of the jurisdictional asserted grounds for dismissal raise substantive questions without obvious answers. The Rule 19 question regarding whether the AOUO is a required party whose presence would destroy diversity involves applying a rule in the Ninth Circuit that the absent party actually and formally “claim a legally protected interest.” Altmann v. Republic of Austria, 317 F.3d 954, 971 (9th Cir. 2002) (emphasis in original). See also, e.g., Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1043-44 (9th Cir. 1983) (reasoning that the United States was not a necessary party in part because it had not asserted a formal interest in the action and instead “meticulously observed a neutral and disinterested posture”); Ward v. Apple Inc., 791 F.3d 1041, 1051 (9th Cir. 2015) (“[I]t is not perfectly clear whether ATTM has, in fact, asserted an interest in this action.”); Gemini Ins. Co. v. Clever Constr., Inc., 2009 WL 3378593, at *4 (D. Haw. Oct. 21, 2009) (“[W]here a party is aware of an action and chooses not to claim an interest, the district court does not err by holding that joinder [is] ‘unnecessary.'”) (quoting Altmann, 317 F.3d at 971) (other citations omitted); Aliviado v. Kimoto, 2012 WL 2974225, at *8 (D. Haw. July 19, 2012) (applying test).

         Here, although the AOUO has not made a formal claim, its June 18, 2018 letter is equivocal - it tells the court that intervention is “not in [its] best interest . . . at this time.” ECF No. 54 (emphasis added). And it implies it might seek to intervene later, stating that it “does not waive any of its rights by declining to intervene at this time.” Id. And so, even if the Rule 19 question is answered now, the issues might simply arise again, albeit in a different posture, should the AOUO seek to intervene later.

         Likewise, Nordic raises a factual (not facial) challenge to Victoria Ward's citizenship, which - although the court could certainly resolve it now - would still require a factual finding at a Rule 12(b)(1) stage, where the answer is not apparent. See, e.g., Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004) (explaining differences between factual and facial challenges to subject matter jurisdiction, and setting forth standards for deciding such questions). On one hand, Plaintiffs proffer strong prima facie evidence of decision-making by Victoria Ward that meets the relevant test of a corporation's “principal place of business” under Hertz Corp. v. Friend, 559 U.S. 77, 92-93 (2010) (explaining that a corporation's principal place of business is “the place where [the] corporation's officers direct, control, and coordinate the corporation's activities. It is the place that Courts of Appeals have called the corporation's ‘nerve center.'”). On the other hand, Nordic proffers extensive evidence where Victoria Ward has held itself out in leases, deeds, and other agreements - consistent with its large landholdings and long-standing presence in Honolulu - as having its principal place of business in Honolulu, Hawaii. See ECF Nos. 27-24 to 27-34.

         In reviewing Nordic's Motion to Dismiss, the court contrasts these first two grounds for dismissal (which are relatively complicated) with the third ground (which is not). As explained to follow, the court easily concludes that Plaintiffs failed to satisfy certain prerequisites in HRS Chapter 672E before filing this suit. The posture thus exemplifies a prototypical application of Sinochem where a court need not resolve complex jurisdictional questions if another basis to dismiss is apparent and does not reach the merits of the dispute. 549 U.S. at 425 (holding that federal district courts may decide forum non conveniens motions without resolving jurisdictional issues).

         Sinochem reiterated that “a federal court generally may not rule on the merits of a case without first determining that it has jurisdiction over the category of claim in suit (subject-matter jurisdiction) and the parties (personal jurisdiction).” Id. at 430-31 (citing Steel Co. v. Citizens for Better Env't, 523 U.S. 83, 93-102 (1998)). A court “may not assume jurisdiction for the purpose of deciding the merits of the case.” Id. (citing Steel Co., 523 U.S. at 94). But although “jurisdictional questions ordinarily must precede merits determinations in dispositional order . . . there is no mandatory ‘sequencing of jurisdictional issues.'” Id. at 431 (quoting Ruhrgas, 526 U.S. at 584). Rather “a federal court has leeway ‘to choose among threshold grounds for denying audience to a case on the merits.'” Id. (quoting Ruhrgas, 526 U.S. at 584). Sinochem summarized:

If . . . a court can readily determine that it lacks jurisdiction over the cause or the defendant, the proper course would be to dismiss on that ground. . . . But where subject-matter or personal jurisdiction is difficult to determine, and forum non conveniens considerations weigh heavily in favor of dismissal, the court properly takes the less burdensome course.

Id. at 436.

         Sinochem reasoned that, because a forum non conveniens inquiry - directed at which forum is correct - is a “non-merits ground for dismissal, ” id. at 432 (citation omitted), courts may dispose of a case on that ground and “bypass[] questions of subject-matter and personal jurisdiction, when considerations of convenience, fairness, and judicial economy so warrant.” Id. And Potter v. Hughes, 546 F.3d 1051 (9th Cir. 2008) later explained that, under Sinochem, “there are non-constitutional grounds on which we may dismiss a suit before considering the existence of federal subject matter jurisdiction, ” including “jurisdictional grounds that are discretionary . . . grounds of prudential standing, such as statutory standing . . . and grounds that are ‘logically antecedent to the existence of any Article III issues[.]'” Id. at 1055 ...

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