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Dairy Road Partners v. Maui Gas Ventures LLC

United States District Court, D. Hawaii

August 16, 2018

DAIRY ROAD PARTNERS and GLENN NAKAMURA, Plaintiffs,
v.
MAUI GAS VENTURES LLC and PAUL CHENG, Defendants.

          ORDER GRANTING DEFENDANTS' MOTION TO DISMISS THE THIRD AMENDED COMPLAINT WITHOUT LEAVE TO AMEND

          Derrick K. Watson United States District Judge

         Dairy 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”), [1] 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.

         For the reasons set forth below, the Court GRANTS Defendants' Motion to Dismiss the TAC (Dkt. No. 56) without leave to amend.

         BACKGROUND

         On 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”).[2] TAC ¶¶ 4, 8, Dkt. No. 55.

         On 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).

         Facts According To The TAC

         While 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.[3] 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.

         In 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 now.
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 deal.”

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)).

         Upon 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.

         As of 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 options:
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 Options:
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 window.
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 period.
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.
Paul Cheng

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 Nakamura).

         Barbieri 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.

         Just a 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. 55.

         At some 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.

         Procedural History

         Plaintiffs 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).

         On July 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.”[4] 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.

         Attached 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].

         On 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)).

         Defendants 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.

         LEGAL STANDARDS

         Motion To Dismiss Pursuant To Federal Rule Of Civil Procedure 12(b)(6)

         The 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 ...


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