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Franke v. Yates

United States District Court, D. Hawaii

October 1, 2019

HANS FRANKE, et al., Plaintiffs,
v.
JULIA A. YATES, et al., Defendants.

          ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS

          Derrick K. Watson, United States District Judge.

         In this real estate contract dispute, Defendant Julia and Dennis Yates have moved pursuant to Federal Rule of Civil Procedure 12(b) to dismiss or stay the proceedings because of a parallel proceeding in Nevada state court that they assert warrants abstention under the Colorado River doctrine. Dkt. No. 17. At the same time, Defendant CRC, Inc. moves to dismiss this action for Plaintiffs’ failure to engage in pre-suit mediation. Dkt. No. 15. Because this case does not involve the “exceptional circumstances” necessary for abstention under Colorado River, and because nothing in the contract between CRC and Plaintiffs requires a pre-suit mediation, both motions are DENIED.

         FACTUAL & PROCEDURAL BACKGROUND

         A. Factual Background

         In 2005, Plaintiffs Hans and Louise Franke (collectively, the “Frankes”) purchased a two-million-dollar home in Hawaii (the “Property”). Dkt. No. 1, ¶ 11. Beginning in 2011, the Frankes agreed to rent the property to two Hawaii real estate agents, Defendants Julia and Dennis Yates (collectively the “Yates”). Id. at ¶¶ 12– 13. The rental contract related to this agreement was allegedly orchestrated by Defendant CRC II, Inc. (“CRC”), [1] the Yates’ employer. Id. at ¶¶ 13, 33. The Frankes maintain that the Yates “did not pay a fair rental value for the Property.” Id. at ¶ 13. The basis for this claim is evidently that Mr. Franke was “exceptionally vulnerable” because of his age and medical condition, such that the Yates essentially took advantage of him in negotiating the terms of the rental agreement. See Id . at ¶¶ 14, 15.

         Sometime around August 2013, the Yates proposed a new contractual arrangement in which the Yates would: (1) purchase a ten percent ownership interest in the Property; (2) reside at the Property while paying only the “monthly property costs”; (3) make upgrades to the Property; (4) pay “cash sums” to the Frankes; and (5) eventually sell the Property for a substantial profit. Id. at ¶¶ 16–18. The Yates, in turn, would receive a payout from the sale. Id. at ¶ 19. The Frankes do not allege that they accepted this proposed arrangement. But in any event, the Yates allegedly resided on the Property for nearly three years, performed “unnecessary” upgrades, and made cash “investments” in the Property which the Yates then sought to recoup from the Frankes. Id. at ¶¶ 22, 23. For at least part of this time, the Frankes were not present in Hawaii. See Id . at ¶¶ 23, 32.

         By 2016, the amount the Frankes were receiving from the Yates was insufficient to cover the mortgage on the Property, and the Yates agreed to sell the Property on behalf of the Frankes. Id. at ¶¶ 24–25. The Property sold in 2016 to a buyer that was a friend of the Yates. In the process of selling the Property, the Yates acted as the agents for both the Frankes and the buyer. Id. at ¶¶ 25–28. The Frankes aver that the Yates: (a) “did not make diligent efforts to maximize the sale price”; (b) “breached their fiduciary duty”; (c) “did not move reasonably quickly to sell the Property”; and (d) “sought the return of the funds that they had delivered” to the Frankes while residing at the Property. Id. at ¶¶ 27, 29–31.

         B. Procedural History

         On September 5, 2018, the Yates filed an action in Nevada state court against the Frankes, alleging that the Frankes “caused the escrow company to not pay” the Yates their agreed-upon amount at the closing of the sale of the Property. Dkt. No. 17-2, ¶¶ 12–13.[2] The Yates’ Nevada complaint asserts claims for breach of contract and unjust enrichment and seeks damages in excess of $139, 951. Id. at 3–4. The Frankes filed their answer, alleging (16) affirmative defenses including, inter alia, mitigation of damages; intervening fault; unclean hands; offset; equitable estoppel; fraud; unjust enrichment; and performance excused. Dkt. No. 17-3 at 6–7. The Frankes did not file any counterclaims.

         On January 8, 2019, the Frankes filed this lawsuit against the Yates and CRC, asserting claims for fraud; breach of fiduciary duty; elder abuse; breach of contract; unjust enrichment; and negligent hiring and supervision of employees. Dkt. No. 1. Less than a month later (and five months after the Yates originally filed suit), the Frankes removed the state court action to Nevada federal court.[3] That court remanded the case back to Nevada state court on August 26, 2019.[4] In the interim, however, Defendants filed the instant set of motions to stay or dismiss this action. Dkt. Nos. 15, 17.

         DISCUSSION

         I. Yates’ Motion to Stay or Dismiss Under Colorado River

          The Yates urge the Court to dismiss or stay this case under the abstention principles established in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976). Dkt. No. 17 at 8. But a stay or dismissal under Colorado River is unwarranted, and therefore this Court declines to abdicate its duty to exercise jurisdiction.

         Although abstention under Colorado River “rest[s] on considerations of wise judicial administration” and “comprehensive disposition of litigation, ” Montanore Minerals Corp. v. Bakie, 867 F.3d 1160, 1165 (9th Cir. 2017) (quoting Colo. River, 424 U.S. at 817), the Yates read Colorado River too broadly: “Abstention from the exercise of federal jurisdiction is the exception, not the rule.” 424 U.S. at 813. Federal courts are under a “virtually unflagging obligation . . . to exercise the jurisdiction given them, ” id. at 817, and for that reason, the mere “pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction.” Id. (quoting McClellan v. Carland, 217 U.S. 268, 282 (1910)).

         Under Colorado River, where there is a parallel, ongoing state court proceeding, “courts may refrain from deciding an action for damages only in ‘exceptional’ cases, and only ‘the clearest of justifications’ support dismissal.” See, e.g., R.R. St. & Co. v. Transp. Ins. Co., 656 F.3d 966, 978 (9th Cir. 2011) (quoting Colo. River, 424 U.S. at 818–19). Therefore, the question here is whether “exceptional” circumstances exist so as to warrant abstention. See ...


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