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Chateau School, Inc. v. Green Mountain Associates Inc.

United States District Court, D. Hawaii

February 19, 2019

CHATEAU SCHOOL, INC., A JAPAN CORPORATION; Plaintiff,
v.
GREEN MOUNTAIN ASSOCIATES INC., A HAWAI'I CORPORATION; HEIMA YAMAZAKI, JOHN DOES 1-10, JANE DOES 1-10, DOE PARTNERSHIPS 1-10, DOE CORPORATIONS 1-10, Defendants

          ORDER GRANTING PLAINTIFF'S MOTION TO STAY CASE PENDING OUTCOME OF LAWSUIT IN JAPAN

          LESLIE E. KOBAYASHI UNITED STATES DISTRICT JUDGE

         BACKGROUND

         On December 2, 2018, Plaintiff Chateau School, Inc., a Japan corporation (“Plaintiff”), filed its Motion to Stay Case Pending Outcome of Lawsuit in Japan (“Motion”). [Dkt. no. 37.] Defendants Green Mountain Associates Inc. (“GMA”) and Heima Yamazaki (“Yamazaki” and collectively “Defendants”) did not file a memorandum in opposition, and Plaintiff filed its reply on January 4, 2018. [Dkt. no. 49.] The Court finds this matter suitable for disposition without a hearing pursuant to Rule LR7.2(d) of the Local Rules of Practice of the United States District Court for the District of Hawaii (“Local Rules”). Plaintiff's Motion is hereby granted for the reasons set forth below.

         Plaintiff is a stock corporation organized and existing under the laws of Japan. [Complaint, filed 1/19/18 (dkt. no. 1), at ¶ 2.] GMA is a Hawai`i corporation, formerly doing business as “Voyage School” and later as “Thinker School.” [Id. at ¶ 3; Defs.' Answer to Pltf.'s Complaint, filed 5/7/18 (dkt. no. 21) (“Answer”), at ¶ 4.[1] Yamazaki is a resident of the State of Hawai`i and a Japanese citizen, and is the President, Director, and shareholder of GMA. [Answer at ¶ 5.]

         Plaintiff runs and operates a preschool known as the Chateau School, which is located in Japan, in Nishi-Azabu, Minato-Ku, Tokyo (“Chateau School”). [Complaint at ¶ 11.] According to the Complaint, the Chateau School is a globally-focused preschool with an advanced education program. The Chateau School employs a specialized curriculum and teaching methodology. [Id. at ¶¶ 12-13.] Plaintiff alleges the Chateau School is well known in Tokyo. [Id. at ¶ 15.] On or about December 2016 and into early 2017, Plaintiff and Yamazaki discussed developing a school in Hawai`i using the same concepts and curriculum employed at the Chateau School (“Chateau Information”). [Id. at ¶ 16.] To commemorate their development plans, Plaintiff and Yamazaki, through his company, GMA, entered into the Advisory Agreement on February 3, 2017 (“Advisory Agreement”). [Id. at ¶¶ 20-21.] Plaintiff alleges the Advisory Agreement provided Defendants limited use of the Chateau Information, and did not permit Defendants to, inter alia, operate its own school under any circumstances. [Id. at ¶¶ 22-23.]

         In June 2017, Plaintiff sent a licensing agreement to Defendants that would have permitted GMA to continue to use the Chateau Information in exchange for payment. [Id. at ¶ 35.] Meanwhile, Natalia Koltunovskaya, manager of the Chateau School operations in Japan, traveled to Hawai`i at the direction of Plaintiff to assist Yamazaki in opening the Voyage School. [Id. at ¶ 36.] Here, Plaintiff alleges the preparations took a turn for the worst when Yamazaki failed to meet the promises he had made to Plaintiff. [Id. at ¶¶ 38-39.]

         Yamazaki had secured a location in the Waikiki Shopping Plaza for the Voyage School, but ultimately did not sign the licensing agreement on behalf of GMA. [Id. at ¶¶ 39-40.] Additionally, Yamazaki neither paid Plaintiff for the use of the Chateau Information nor provided housing for Ms. Koltunovskaya while she was in Hawai`i to assist with the Voyage School opening. [Id. at ¶¶ 40-41.] Yamazaki failed to obtain the proper permits to open the Voyage School, and failed to make timely payments to his teachers and staff. Ms. Koltunovskaya observed that Yamazaki would arrive at the school site intoxicated during the day, act inappropriately in front of children and staff, and was overall unfit and unprepared to operate the Voyage School. [Id. at ¶¶ 41-42.] Further, Plaintiff alleges GMA breached the Advisory Agreement by registering the Voyage School name in the State of Hawai`i under GMA, without Plaintiff's consent. [Id. at ¶ 44.]

         Shortly thereafter, Plaintiff decided to end its relations with Defendants, and on September 14, 2017, sent a demand letter to Defendants (“Demand Letter”) terminating any rights GMA may have had under the Advisory Agreement, and demanding that Defendants cease their use of the Chateau Information. [Id. at ¶¶ 46-47.] Notwithstanding Plaintiff's Demand Letter, Defendants continued to run and operate the Voyage School. Plaintiff believes Defendants attempted to establish similar operations using the Chateau Information in parts of Asia, including Hong Kong, Shanghai, and Beijing. [Id. at ¶¶ 50-52.]

         Plaintiff alleges the following claims: misappropriation of trade secrets based on Defendants' improper use of the Chateau Information (“Count I”); false designation of origin pursuant to the Lanham Act (“Count II”); unfair competition pursuant to Haw. Rev. Stat. Chapter 480 (“Count III”); interference with business advantage (“Count IV”); deceptive trade practices pursuant to Haw. Rev. Stat. Chapter 481A (“Count V”); common law injury to business reputation (“Count VI”); and breach of contract (“Count VII”). Plaintiff seeks general and special damages; recovery of Defendants' gains as a result of the alleged infringement; exemplary and/or punitive damages; and statutory damages. [Id. at pgs. 21-22.] In addition, Plaintiff seeks a preliminary and permanent injunction barring Defendants from continuing to violate Plaintiff's rights, and seeks reimbursement of its attorneys' fees, costs, pre-judgment interest, and such other relief as the Court deems just. [Id. at pg. 22.]

         After the Complaint was filed, between March and May of 2018, Plaintiff attempted to serve discovery requests upon Defendants and communicate with Defendants' counsel. [Motion, Decl. of Glenn T. Melchinger (“Melchinger Decl.”), at ¶¶ 4-7.] Plaintiff asserts Defendants' counsel would only sporadically respond, and Defendants' document production and responses to Plaintiff's discovery requests were extremely late and insufficient. [Id.] Although Plaintiff's representative, Rina Bovrisse, flew in from Japan to personally attend the settlement conference in Honolulu, Hawai`i in June of 2018, Yamazaki did not, apparently due to issues with his visa. [Id. At ¶ 13.] Plaintiff asserts Yamazaki's ability to visit the United States is now limited. [Id. at ¶ 14.]

         After filing the instant Motion, Plaintiff filed a complaint in the Tokyo District Court on December 26, 2018 (“Japan Action”). [Pltf.'s Amended Suppl. Submission of Exhibit “D-1” (English Translation of Exhibit “D”) in Supp. of Motion, filed 1/3/19 (dkt. no. 47), Decl. of Youko Smith (“Smith Decl.”), Exh. D-1 at 1-4 (English translation of complaint filed on 12/26/18 in Tokyo District Court (“Japan Complaint”)).[2] The Japan Complaint appears to name Heima Yamazaki as the sole Defendant in the Japan Action, although the factual allegations are largely the same as the Complaint. The Japan Complaint alleges, inter alia, that: Plaintiff entered into the Advisory Agreement with GMA on February 3, 2017; Plaintiff provided trade-secret information concerning operating and managing an international preschool; Plaintiff supplied advice and business connections related to the opening of a Voyage School in Hawai`i; and Yamazaki breached the Advisory Agreement by refusing to pay for Plaintiff's services, and by applying for a trademark registration of the Voyage School in Hawai`i. [Id. at pg. 2.] Plaintiff alleges Yamazaki's actions constitute an “act of infringement under Torts (Article 709, Civil Code)” and seeks damages in the amount of 25, 453, 412 yen, with an additional rate taxed at five percent per day after the Japan Complaint is served upon Yamazaki. [Id. at pgs. 1, 3.] Plaintiff also appears to allege a claim for unjust enrichment. [Id. at pg. 3.]

         In the instant Motion, Plaintiff seeks a stay pending the resolution of the Japan Action, or in the alternative, an amendment of the Rule 16 Scheduling Order, [filed 9/18/18 (dkt. no. 34), ] to continue the June 3, 2019 trial date and all related deadlines for at least six months. Plaintiff asserts that the Japan Action should proceed first because: the primary witnesses and evidence are located in Japan - including Yamazaki, who now has difficulty returning to the United States; the Japan Action is based on the same nucleus of operative facts as the instant matter; and staying the instant action and proceeding before a Japan court would promote judicial economy since the evidence in this case is primarily in Japanese.

         STANDARD

         Plaintiff moves to stay these proceedings in light of the Japan Action based on the doctrine of international abstention. Plaintiff cites to Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), and argues that all factors weigh in favor of granting a stay. [Mem. in Supp. of Motion at 5.] Where there is a parallel proceeding pending in a foreign country, the international abstention doctrine permits federal district courts to decline exercising jurisdiction over a proceeding under “exceptional circumstances.” See Neuchatel Swiss Gen. Ins. Co. v. Lufthansa Airlines, 925 F.2d 1193, 1194-95 (9th Cir. 1991) (citing Colorado River, 424 U.S. at 818, 96 S.Ct. at 1246); see also Mujica v. Occidental Petroleum Corp., 381 F.Supp.2d 1134, 1157 (C.D. Cal. 2005) (“The international abstention doctrine ‘allows a court to abstain from hearing an action if there is a first-filed foreign proceeding elsewhere.'” (quoting Supermicro Computer, Inc. v. Digitechnic, S.A., 145 F.Supp.2d 1147, 1149 (N.D. Cal. 2001))). “Abstention is rooted in concerns of international comity, judicial efficiency and fairness to litigants.” Cummins-Allison Corp. v. SBM Co., CIVIL NO. 12-00207 HG-KSC, 2013 WL 12198836, at *4 (D. Hawai`i Aug. 5, 2013) (citation and internal quotation marks omitted). The international abstention doctrine has been adopted by the Eleventh and Seventh Circuits, and the Ninth Circuit has employed a Colorado River analysis to determine whether a stay is appropriate where there is a parallel judicial proceeding pending. See Mujica, 381 F.Supp.2d at 1157 (citing Finova Capital Corp. v. Ryan Helicopters, U.S.A. Inc., 180 F.3d 896 (7th Cir. 1999); Turner Entm't Co. v. Degeto Film GmbH, 25 F.3d 1512 (11th Cir. 1994); Neuchatel, 925 F.2d at 1194).

         In Neuchatel, the Ninth Circuit reviewed a district court's decision to stay the case before it based on the factors in Colorado River, where there was a parallel judicial proceeding pending in Geneva, Switzerland. Neuchatel, 925 F.2d at 1194. The Ninth Circuit held that the district court erred since there were no “exceptional circumstances” present to warrant a stay. Id. at 1195. Applying the guidance in Neuchatel, this Court looks to the following eight factors in Colorado River to address the instant Motion:

(1) which court first assumed jurisdiction over any property at stake; (2) the inconvenience of the federal forum; (3) the desire to avoid piecemeal litigation; (4) the order in which the forums obtained jurisdiction; (5) whether federal law or state law provides the rule of decision on the merits; (6) whether the state court proceedings can adequately protect the rights of the federal litigants; (7) the desire to avoid forum shopping; and (8) whether the state court proceedings will resolve all issues before the federal court.

         R.R. Street & Co. v. Transport Inc. Co., 656 F.3d 966, 978-79 (9th Cir. 2011) (citing Holder v. Holder, 305 F.3d 854, 870 (9th Cir. 2002) (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 15-16, 23, 26, 103 S.Ct. 927 (1983); Travelers Indem. Corp. v. Madonna, 914 F.2d 1364, 1367-68 (9th Cir. 1990); Colorado River, 424 U.S. at 818-19, 96 S.Ct. 1236)). The United States Supreme Court has made it abundantly clear that abstention is the narrow exception to a federal district court's “virtually unflagging” obligation to hear jurisdictionally sufficient claims. See Colorado River, 424 U.S. at 817. Only in exceptional circumstances where the “clearest of justifications” support either a stay or dismissal, is it appropriate for a court to ...


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