United States District Court, D. Hawaii
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS THE
THIRD AMENDED COMPLAINT WITHOUT LEAVE TO AMEND
Derrick K. Watson United States District Judge
Road and Nakamura initiated this action on November 16, 2016.
See Compl., Dkt. No. 1. On July 20, 2017, they filed
a Second Amended Complaint (“SAC”),
seeking monetary damages and equitable relief arising out of
an alleged, fraudulently procured loan agreement with Maui
Gas and Cheng. Dkt. No. 40. On March 9, 2018, this Court
dismissed the SAC, allowing leave to amend only the Count I
claim for Fraud/Misrepresentation. Dkt. No. 54. Plaintiffs
filed their Third Amended Complaint (“TAC”) on
April 9, 2018. Dkt. No. 55.
reasons set forth below, the Court GRANTS Defendants'
Motion to Dismiss the TAC (Dkt. No. 56) without leave to
December 9, 2009, American Savings Bank, F.S.B.
(“ASB”) extended a $1, 384, 213 commercial loan
to Dairy Road (“ASB Loan”) that was guaranteed by
Nakamura, Dairy Road's General Partner. TAC ¶ 8,
Dkt. No. 55. The ASB Loan granted ASB a lien and security
interest in the property located at 380 Dairy Road, Kahului,
Maui, Hawaii, Tax Map Key (2) 3-8-65-27 (“Subject
Property”). TAC ¶¶ 4, 8, Dkt. No. 55.
March 3, 2013, after Dairy Road fell behind on its mortgage
payments under the ASB Loan, ASB filed for foreclosure in the
Second Circuit Court of the State of Hawaii, Civil No.
13-1-0283(3) (“Foreclosure Action”). TAC ¶
12, Dkt. No. 55. Dairy Road also filed for Chapter 11
bankruptcy around that time. TAC ¶ 13 (stating that the
eventual dismissal of the bankruptcy case delayed proceedings
in the Foreclosure Action until December 24, 2014).
According To The TAC
the Foreclosure Action was pending, Cheng-“an investor
from Texas” who is the “principal and controlling
person” of Maui Gas (TAC ¶ 7, Dkt. No.
55)-allegedly approached Nakamura for advice regarding his
“interest in investing in commercial properties in
Hawaii.” TAC ¶ 11, Dkt. No. 55. Apparently, the
two became friends, Nakamura “acquaint[ed] Cheng with
the Subject Property, ” and based on Cheng's
“promises that Cheng and [Maui Gas] could financially
assist” Plaintiffs with their defaulted ASB Loan,
Cheng, Nakamura and ASB began to negotiate a deal. TAC ¶
11, Dkt. No. 55. Cheng represented to Nakamura and others
“that Cheng was going to buy the ASB Loan on
[Plaintiffs'] behalf to help [Dairy Road] gain some time
to refinance or sell” (TAC ¶ 16) and to stop the
Foreclosure Action (TAC ¶ 14). To this end, Cheng
emailed a $300, 000 purchase price proposal to ASB on
September 20, 2014. TAC ¶ 15, Dkt. No. 55; see
TAC, Ex. B, Dkt. No. 55-4 at 2-3. On October 29, 2014, after
negotiations, Cheng successfully purchased the ASB Loan,
announcing to Plaintiffs that, “ASB accepted my
offer-$400k, ” and “We are ON.” TAC, Ex. E
[“We are ON” E-mail], Dkt. No. 55-4 at 27.
their latest pleadings, Plaintiffs also describe a
“luncheon meeting called by Cheng at a restaurant in
Lahaina, ” attended by Cheng, Nakamura, Garth Nakamura,
and others, which allegedly represents when “[t]he
entire episode with Cheng and the Plaintiffs began.”
TAC ¶¶ 35-36, Dkt. No. 55. Although the exact
timing of this luncheon meeting is unclear, it necessarily
pre-dated Cheng's purchase of the ASB Loan on October 29,
2014. See TAC ¶¶ 19-20, Dkt. No. 55.
According to the TAC:
37. Cheng told everyone at the luncheon meeting that he liked
Nakamura and wanted to help Nakamura by contemporaneously
buying the Note from ASB at a discount and working with
Nakamura whereby Cheng would allow Nakamura to buy back the
property from him immediately, but in order to do so Cheng
said he needed information on the property contemporaneously
detailed in Paragraph 19 above. Those promises were not
future promises but present promises to buy the ASB mortgage
loan now, to stop the foreclosure now, to give Nakamura
binding buy back options now, which triggered Plaintiffs'
reliance and change of position and induced their conduct
38. At that luncheon meeting at the restaurant Cheng
specifically told everyone: “I want to help you
guys.” “I'll be much easier to deal with than
any bank.” He then insisted on a handshake “to
solidify the deal.” I will scare ASB about possible
environmental contamination and ASB will offer me a better
TAC ¶¶ 37-38, Dkt. No. 55 (alleging further that
“[e]veryone attending the luncheon was impressed by
Cheng and reasonably believed that Cheng wanted to help
Nakamura” (TAC ¶ 39)).
concluding negotiations with ASB over the loan purchase,
Cheng turned to negotiating a loan modification with Dairy
Road. As part of that process, he introduced Choi, Dairy
Road's attorney, to both Alice Wong, his partner in
Texas, and Anthony Barbieri, his attorney. See TAC
¶ 23, Dkt. No. 55 (referring to Wong as Cheng's
Texas “accountant”). “[D]uring all of the
cooperation, information sharing, and back-and-forth written
correspondence and offers that ensued, there was no
indication that Cheng would take over the ASB note and
ASB's position as foreclosing plaintiff [in the
Foreclosure Action] and by credit bidding at auction take
over the [Subject] [P]roperty and evict Nakamura and [Dairy
Road].” TAC ¶ 40, Dkt. No. 55.
December 10, 2014, Plaintiffs acknowledge that “Cheng
was still offering [Dairy Road at least] three options”
to buy back the loan:
I met with my partners and we are amenable to the following
If you do not want to make a deal, we will go immediately to
foreclosure. We will sell to the highest bidder at the
auction. If no one comes, then we will keep it and hire
someone to run the operations.
If you do want to make a deal, we offer the following 3
Option 1: 12 months and we give you a one time 30 day window
to buy us out at the 12th month for $500, 000. Monthly
payment is: $7, 500.00 per month in the interim. Buyout price
is at $500, 000.00.
Option 2: 24 months and we give you a one time 30 day window
to buy us out at the 24th month. Monthly payment is $7, 500
for the first 12 months, and then $9, 000 per month for the
2nd twelve months, Buyout price is at $560, 000.00.
Option 3: 36 months and we give you a one time 30 day window
to buy us out at the 36th month. Monthly payment is $7, 500
for the first 12 months, and then $9, 000 per month for the
2nd twelve months and $11, 000 per month for the third twelve
months, Buyout price is at $620, 000.00 at the 36th month
After 36 months, if no buyout takes place, we will foreclose
but we will always entertain an offer to extend the lease.
Buyout price is the same for each 12 month period whether you
pay us off at the first or the last month of each 12 month
Nakamura to remediate immediately and or obtain clean Health
Department permit to operate.
No financing allowed on any of the leasehold properties or
against any leases during the time of lease.
TAC, Ex. F, Dkt. No. 55-4 at 28-30 [hereinafter Options
Email]; TAC ¶ 26, Dkt. No. 55; see also TAC,
Ex. F, Dkt. No. 55-4 at 28 (forwarding Options Email to Garth
sent a draft loan modification agreement to Choi on December
24, 2014. TAC, Ex. J, Dkt. No. 55-5 at 21-40 (email), 23-40
(“First Loan Modification Agreement”). Plaintiffs
contend by that time, Cheng was “fully aware that the
property was fully protected by insurance . . . except for
boilerplate conditions” that Nakamura allegedly
“never had a chance to satisfy because days later Cheng
acted like he never knew Nakamura.” TAC ¶ 41, Dkt.
No. 55; see TAC, Ex. H, Dkt. No. 55-4 at 34 (Nov. 6,
2014 email), 35-41 (Sept. 19, 2014 “Reservation of
Rights to Provide Coverage” letter from Berkeley
Insurance to Garth Nakamura)). The pleadings also state that
“[t]here were conditions to be satisfied in the
‘First Loan Modification Agreement,' but those
conditions were conditions subsequent and not conditions
precedent to contract.” TAC ¶ 41, Dkt. No. 55.
few days after sending the draft, Cheng, “through his
Texas attorney[, ] was still asking Nakamura and [Dairy Road]
to sign a ‘First Loan Modification
Agreement.'” TAC ¶ 41, Dkt. No. 55. However,
Plaintiffs contend that “when Choi . . . inquired of
Barbieri as to Nakamura's deal with Cheng, [Barbieri]
inconsistently emailed Choi back: ‘What
option?'-making it clear that Cheng had never intended to
go forward with his promises.” TAC ¶ 29, Dkt. No.
point shortly thereafter, negotiations over the loan
modification agreement ceased. That is evident because, on
January 12, 2015, Cheng's attorney contacted the court in
the Foreclosure Action and advised that Maui Gas was the
“new owner of the ASB Loan” and would presumably
be substituting in place of ASB as plaintiff. TAC ¶ 30,
Dkt. No. 55. Moreover, “on May 14, 2015, [Maui Gas]
filed for summary judgment against [Dairy Road] and against
Nakamura for the entire principal loan balance as well as an
immediate money judgment against Nakamura [as Guarantor],
subsequently awarded in the amount of $1, 270, 933.79.”
TAC ¶ 31, Dkt. No. 55.
initiated the instant lawsuit on November 16, 2016. Compl.,
Dkt. No. 1. Defendants filed a joint Motion to Dismiss on
April 10, 2017. See Dkt. No. 21. On May 22, 2017, in
addition to filing their Memorandum in Opposition to the
April 10, 2017 motion (Dkt. No. 27), Plaintiffs filed a
“First Amended Complaint” (Dkt. No. 28) without
leave of court, followed by a belated Ex Parte Motion for
Leave to File First Amended Complaint on May 23, 2017 (Dkt.
No. 29). After a June 19, 2017 scheduling conference before
the Magistrate Judge (see EP, Dkt. No. 37), the
Magistrate Judge denied the Ex Parte Motion (Dkt. No. 36).
6, 2017, the Magistrate Judge signed a Stipulation Regarding
First Amended Complaint and Order (Dkt. No. 39), in which the
parties agreed that the May 22, 2017 complaint would
“be deemed withdrawn without prejudice.” Pursuant
to the same Stipulation and Order, Plaintiffs then filed
another amended complaint, which they styled as a
“Refiled First Amended Complaint.” The SAC asserted
claims for Fraud/Misrepresentation, Breach of Contract,
Promissory Estoppel, Specific Performance, and Breach of
Fiduciary Duty. SAC ¶¶ 34-42, Dkt. No. 40.
as Exhibit 7 to the SAC were several hundred pages of e-mail
communications, setting forth Dairy Road's negotiations
with Maui Gas. See SAC, Ex. 7.1, Dkt. No. 40-8
(including emails dated Sept. 23, 2014 to Dec. 23, 2014);
SAC, Ex. 7.2, Dkt. No. 40-9 (emails from Dec. 11 to Dec. 29,
2014); SAC, Ex. 7.3, Dkt. No. 40-10 (emails from Sept. 9 to
Dec. 24, 2014); and SAC, Ex. 7.4, Dkt. No. 40-11 (emails from
Sept. 18, 2014 to Dec. 11, 2014). On March 9, 2018, this
Court granted Defendants' motion to dismiss the SAC,
permitting leave to amend only Plaintiffs' claims except
for Fraud/Misrepresentation. Order Granting Defs.' Mot.
to Dismiss Refiled First Am. Compl. at 3 n.2, Dkt. No. 54
[hereinafter Order Dismissing SAC].
April 9, 2018, Plaintiffs filed their Third Amended Complaint
(Dkt. No. 55), setting forth the basis for Dairy Road's
re-asserted allegations of fraud and/or misrepresentation.
Conspicuously absent from the exhibits attached to the TAC,
however, are a majority of the e-mail communications provided
in SAC Exhibit 7. Instead, the TAC attaches a handful of
specific e-mails, each as a separate exhibit that is devoid
of context offered by the surrounding e-mail
“threads” previously visible to the Court via SAC
Exhibit 7, including-Cheng's October 29, 2014 “We
are ON” Email (TAC, Ex. E, Dkt. No. 55-4 at 26-27);
Garth Nakamura's November 6, 2014 e-mail attaching the
September 19, 2014 “Reservation of Rights to Provide
Coverage” letter from Berkeley Insurance (TAC, Ex. H,
Dkt. No. 55-4 at 34 (e-mail), 35-41 (ins. letter));
Cheng's December 10, 2014 “Options Email” to
Choi, which was forwarded to Garth Nakamura the same day
(TAC, Ex. F, Dkt. No. 55-4 at 28-30); and Barbieri's
December 24, 2014 e-mail to Choi, attaching an unsigned,
undated copy of the “First Loan Modification
Agreement” (TAC, Ex. J, Dkt. No. 55-5 at 21-22
(e-mail), 23-40 (unsigned agreement)).
filed their Motion to Dismiss the TAC on April 23, 2018. MTD,
Dkt. No. 56. Defendants contend that Plaintiffs'
operative pleading once again fails to plead a viable fraud
claim, and that even if it did, Plaintiffs' fraud claim
is foreclosed by the TAC's own exhibits as well as the
exhibits Plaintiffs offered with the July 2017 SAC. Mem. in
Supp. of MTD the TAC at 3, 10-12, 16, 25-26, Dkt. No. 56-1.
Plaintiffs opposed the MTD on May 25, 2018 (Mem. in Opp. to
MTD the TAC, Dkt. No. 58), to which Defendants replied on
June 1, 2018 (Reply in Supp. of MTD the TAC, Dkt. No. 59).
The Court elected to adjudicate the MTD without a hearing
under Local Rule 7.2. Entering Order, Dkt. No. 60. The
instant disposition follows.
To Dismiss Pursuant To Federal Rule Of Civil Procedure
Court may dismiss a complaint under Federal Rule of Civil
Procedure (“FRCP”) 12(b)(6) for “failure to
state a claim upon which relief can be granted” when
there is a “lack of a cognizable legal theory or the
absence of sufficient facts alleged.” UMG
Recordings, Inc. v. Shelter Capital Partners, LLC, 718
F.3d 1006, 1014 (9th Cir. 2013) (quoting Balistreri v.
Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.
1990)). In other words, plaintiffs are required to allege
“sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its
face.'” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 570 (2007)); see also Weber v. Dep't of
Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir. 2008).
“A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged.” Iqbal, 556 U.S. at 678
(citing Twombly, 550 U.S. at 556). Factual
allegations that only permit the Court to infer “the
mere possibility of misconduct” do not constitute a