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Tower Development, Inc. v. Timbers Resort Management, LLC

United States District Court, D. Hawaii

November 30, 2018




         On September 4, 2018, Defendants Timbers Resort Management, LLC (“Timbers”), David A. Burden (“Burden”), and Gregory Spencer (“Spencer, ” and collectively “Defendants”) filed their Motion to Dismiss and Stay Proceedings Under the Colorado River Abstention Doctrine and Pursuant to Fed.R.Civ.P. 12(b)(5) (“Motion”). [Dkt. no. 5.] Plaintiff Tower Development, Inc. (“TDI” or “Plaintiff”) filed its memorandum in opposition on October 1, 2018, and Defendants filed their reply on October 5, 2018. [Dkt. nos. 21, 26.] This matter came on for hearing on October 22, 2018. Defendants' Motion is hereby denied for the reasons set forth below.


         I. Hawai`i Action

         Plaintiff initiated this action on July 26, 2018 in the Circuit Court of the Fifth Circuit, State of Hawai`i under Civil No. 18-1-0108. [Notice of Removal Pursuant to 28 U.S.C. §§ 1332(a), 1441(a) & (b), filed 8/27/18 (dkt. no. 1), Exh. A (Complaint).] The Complaint arises out of a contract dispute concerning the development of a luxury hotel property on the Island of Kauai. Plaintiff is a Hawai`i real estate investment and development company specializing in local development. [Complaint at ¶ 2.] According to the Complaint, Timbers is a Colorado limited liability company doing business in the County of Kauai; Burden and Spencer are residents of the State of Colorado.[1] [Id. at ¶¶ 4, 7-8.] On April 25, 2014, Plaintiff entered into a purchase and sale agreement (“PSA”) with Kauai Lagoons LLC and MORI Golf (Kauai) (collectively “Seller”) for $60, 000, 000 to obtain the development rights to a 450-acre oceanfront luxury hotel/resort (“Project”). [Id. at ¶¶ 21, 109.] Thereafter, Plaintiff approached Oaktree Real Estate (“Oaktree”) to form a joint venture for the development of the Project. [Id. at ¶¶ 112-15.]

         TDI began negotiating with Timbers in June 2014 to discuss the development of the Project. [Id. at ¶ 116.] Plaintiff alleges Burden and Spencer subsequently communicated with Oaktree to sell the controlling interest of Timbers to Oaktree (the “Timbers Deal”). [Id. at ¶¶ 117-21.] Plaintiff alleges it had no knowledge of the Timbers Deal when it signed a Confidentiality, Non-Disclosure and Non-Compete Agreement with Timbers regarding the Project (“NCA”). The NCA included a non-compete clause that precluded Timbers from competing with Plaintiff in the event Timbers decided not to enter into the joint venture. [Id. at ¶¶ 30-31.] Under the NCA, Timbers agreed to keep all Project information confidential, and to not interfere with Plaintiff with respect to the Project. [Id. at ¶¶ 127-28.]

         Plaintiff alleges Defendants breached the NCA shortly after it was signed, by:

         1) formulating their own business plan to compete with Plaintiff and presenting it to Oaktree, thereby sharing information with third parties;

         2) creating and entering into a contract for development of the Project to benefit Timbers, in direct competition with Plaintiff;

         3) approving an $8, 000, 000 land parcel allocation for the same parcel Plaintiff had previously proposed to another luxury hotel brand at over $20, 000, 000, undercutting Plaintiff's prior proposal;

         4) refusing to provide Plaintiff with access to documents reflecting details of contracts/agreements in favor of Timbers related to the Project;

         5) accepting fees in direct violation of the NCA; and

         6) implementing Timbers' development plan in lieu of Plaintiff's development plan, thereby competing directly with Plaintiff's intended business prospects.

[Id. at ¶¶ 101, 235.]

         On August 12, 2014, Plaintiff and Oaktree negotiated what Plaintiff believed to be a finalized joint venture (“Original JV”). The parties to the Original JV included: 1) Plaintiff; 2) a subsidiary of Oaktree; and 3) a funding investment entity and affiliate/non-party Tower Hotels Fund 2014, LLC (“THF” and collectively “Original JV Parties”). [Id. at ¶¶ 161-63.] Under the Original JV, Plaintiff was entitled to a development fee and a “promote interest” fee. [Id. at ¶ 165.]

         On August 28, 2014, Oaktree became the majority shareholder of Timbers, but Plaintiff alleges neither Timbers nor Oaktree informed Plaintiff of this change. [Id. at ¶ 156.] According to Plaintiff, after selling Timbers's majority shares to Oaktree, Defendants sought to influence Oaktree to push Plaintiff out of the Kauai Deal in order to advance the Timbers Deal and transfer to Defendants certain development, sales, and management fees, as well as sponsor promote profits, and other fees and profits, to the detriment of Plaintiff. [Id. at ¶ 159.]

         On or about December 23, 2014, Oaktree asked Plaintiff to modify the Original JV and amend the Original JV Parties to instead reflect: 1) THF; 2) Tower Hotels Kauai, LLC; 3) Kauai Lagoons Grand Avenue Partners, LLC, Oaktree's subsidiary (“Kauai GAP”);[2] 4) and Plaintiff (“Modified JV”). [Id. at ¶¶ 196-98.] The Modified JV assigned Plaintiff as the “Local Development Manager” and assigned Timbers as the “Development Manager.” [Id. at ¶¶ 200-02.] The signatories to the Modified JV are: 1) Edward Bushor for Plaintiff and THF; and 2) Taejo Kim and Derek Smith for Kauai GAP.[3] [Id. at ¶ 206.] Plaintiff alleges the Modified JV was predicated on Timbers's breach of the NCA, and that Timbers entered into subsequent agreements for fees and/or compensation in breach of the NCA. [Id. at ¶¶ 218, 225, 228.] On December 31, 2014, escrow was closed and the PSA was finalized.

         Plaintiff alleges breach of contract (“Count I”), breach of the covenant of good faith and fair dealing (“Count II”), fraud (“Count III”), intentional misrepresentation (“Count IV”), negligent misrepresentation (“Count V”), tortious interference with prospective economic advantage (“Count VI”), unjust enrichment (“Count VII”), and conversion (“Count VIII”). [Complaint at pgs. 53-61.] Plaintiff requests special, general, and punitive damages, and any other appropriate relief. [Id., Prayer for Relief.]

         II. Cali ...

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