United States District Court, D. Hawaii
WARD MANAGEMENT DEVELOPMENT COMPANY, LLC, et. al, Plaintiffs,
NORDIC PCL CONSTRUCTION, INC., Defendant.
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS, ECF
MICHAEL SEABRIGHT, CHIEF UNITED STATES DISTRICT JUDGE.
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
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.
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)).
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
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.
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. ¶¶
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.
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. 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. The court held a
hearing on April 30, 2018. ECF No. 39.
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)).
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.
The Court “Bypasses” the Jurisdictional
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)
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.
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.
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
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
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.
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 ...