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Greys Avenue Partners, LLC v. Theyers

United States District Court, D. Hawaii

January 3, 2020

GREYS AVENUE PARTNERS, LLC, et al., Plaintiffs,
v.
COLIN THEYERS, et al., Defendants.

          ORDER DENYING DEFENDANT'S MOTION TO DISMISS

          JILL A. OTAKE UNITED STATES DISTRICT JUDGE.

         In their First Amended Complaint, Plaintiffs Greys Avenue Partners, LLC and Castle Resorts & Hotels, Inc. (collectively, “Plaintiffs”) bring claims against Defendant Colin Theyers (“Defendant Theyers” or “Defendant”) for misrepresentation, fraud, conversion, violations of state and federal securities laws, and violation of the civil provisions of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). See ECF No. 9 (“FAC”). Defendant Theyers moves to dismiss the FAC under Federal Rule of Civil Procedure (“FRCP”) 12 on the grounds that personal jurisdiction is lacking, venue is improper, and Plaintiffs failed to state certain claims. See ECF No. 13. For the reasons stated below, Defendant Theyers' motion is denied.

         I. BACKGROUND

         A. Facts[1]

         This action arises from a series of agreements among various parties related to a joint venture to convert an office building in New Zealand into a hotel. See generally FAC. Greys Avenue Investments Limited (“GAIL”) owns the relevant property in New Zealand (the “Property”). FAC ¶ 11. Aaron Coupe is the sole shareholder of GAIL and Defendant Theyers is its director and manager. Id. ¶¶ 8-10. Defendant and Mr. Coupe are citizens of New Zealand. Id. ¶ 4; ECF No. 13-1 at 16.

         GAIL solicited Plaintiff Castle Resorts & Hotels, Inc. (“Castle”) to become involved in the project to convert the Property into a hotel. ECF No. 17-3 (“Mattson Decl.”) ¶ 3. Castle is a Hawai'i corporation with its principal place of business in Honolulu. FAC ¶ 2. Richard Wall, Gary Oda, and Jerry Ruthruff are all affiliated with Castle and were or are residents of Hawai'i.[2] ECF No. 17-2 (“Oda Decl.”) ¶ 2; Supp. Theyers Decl. ¶¶ 3-4, 16; FAC ¶ 1. Castle also has a sister company in New Zealand-NZ Castle Resorts & Hotels, Inc. (“NZ Castle”)-that was involved in the venture as the planned operator of the hotel after it opened. Mattson Decl. ¶ 12. Plaintiff Greys Avenue Partners, LLC (“GAP”) is also affiliated with Castle, as Mr. Oda is GAP's sole member. FAC ¶ 1; Oda Decl. ¶ 2; Supp. Theyers Decl. ¶ 12.

         Defendant first began negotiating with Castle in conjunction with this venture in early November of 2017. ECF No. 13-2 (“Theyers Decl.”) ¶ 5. He first met certain Castle representatives, namely Mr. Wall, Mr. Oda, and Mr. Ruthruff, in New Zealand in late November 2017. Supp. Theyers Decl. ¶ 3. During their trip to New Zealand, the Castle representatives engaged in detailed discussions with Defendant and Mr. Coupe regarding the conversion of the Property, including by reviewing an appraisal of the Property, reviewing income projections, addressing GAIL's existing debt levels, and conducting a site visit. See Id. ¶¶ 4-12. During this trip, the parties also negotiated certain terms regarding transferring the Property to a joint venture entity, Castle financing the necessary construction, the division of profits, and the assumption of GAIL's existing debts. Id. ¶¶ 12-14. Defendant memorialized these terms in a preliminary Heads of Agreement (“Preliminary HO A”), which was provided to the Castle representatives while in New Zealand before they returned to Hawai'i. Id. ¶ 15. Each side retained a New Zealand firm to review the Preliminary HOA. Id. ¶ 16.

         In December 2017, Defendant instructed GAIL's attorneys to prepare additional documents related to the parties' deal, including a shareholder's agreement for the joint venture entity-a New Zealand entity, Ascent Industries 33 Limited (“Ascent”)-that would hold the parties' interests. Id. ¶ 17; Theyers Decl. ¶ 2. Both sides also conducted due diligence, and continued to negotiate the HOA and corporate documents for Ascent. Supp. Theyers Decl. ¶ 19. In January 2018, Defendant provided Mr. Ruthruff with GAIL's updated balance sheet and addressed his questions regarding which assets and liabilities Ascent would assume. Id. ¶ 19. Defendant represented that the amount owed on GAIL's loan from the Bank of New Zealand secured by a mortgage on the Property was around $4.8 million, and that GAIL had other loans from the Bank of New Zealand totaling around $4 million that Mr. Coupe (who had assets outside GAIL's ownership secured in the Bank's favor) would retain. ECF No. 17-1 (Ex. 2).

         Defendant and Mr. Coupe agreed to travel to Honolulu in February 2018 to execute the final documents. Supp. Theyers Decl. ¶¶ 20-23; see also Oda Decl. ¶ 7 (“Mr. Theyers came to Honolulu to attempt to close the deal between GAIL and GAP”). Between November 2017 and February 2018, Mr. Oda authorized GAP's attorneys to negotiate the terms of a proposed deal with GAIL. Oda Decl. ¶ 5.[3]Prior to the February 2018 meeting in Honolulu, GAP was under no obligation to invest in the Property with GAIL. Id. ¶ 6. One day before Defendant met with Plaintiffs in Honolulu, Mr. Ruthruff sent Defendant a revised version of the HOA, which stated in relevant part: “GAIL shall forthwith contribute the Property to Ascent subject only to the current debt of approximately $14, 833, 195.73 payable to [Bank of New Zealand], $899, 642.68 payable to Summer Blue and Loan No. 1 of $47, 000.” ECF No. 18-9 ¶ 8.

         At the meeting at Castle's office in Honolulu in February 2018, Defendant and Mr. Oda discussed the terms of the deal. Oda Decl. ¶¶ 10-15. Mr. Oda asked whether the amount of GAIL's indebtedness that Ascent would assume could be reduced below $16.2 million, in light of the documentation Defendant sent Mr. Ruthruff indicating that the amount owed on a loan from the Bank of New Zealand and secured by the Property was only around $14.8 million. Id. ¶¶ 10-11. Defendant responded that this reduction was not possible because of the $14.8 million owed to the Bank of New Zealand and $900, 000 owed to a tenant of the Property. Id. ¶ 12. Mr. Oda also asked when title to the Property could be transferred to Ascent, and Defendant responded that title would be transferred as soon as a shareholder's agreement was finalized. Id. ¶¶ 13-14; see also Mattson Decl. ¶¶ 4-9. Satisfied with this information, Mr. Oda signed the HOA on behalf of GAP and Defendant signed the HOA on behalf of GAIL. Oda Decl. ¶ 15. The executed HOA provides in relevant part that “GAIL shall forthwith contribute the Property to Ascent subject only to the current debts in an amount not exceeding $16.2 million.” ECF No. 13-3 ¶ 8. Per the terms of the HOA, GAP was required to contribute $4 million to Ascent, $500, 000 of which was to be contributed upon execution of the HOA. Id. ¶ 9.

         In May 2018, GAIL, GAP, and Ascent executed the Shareholder's Agreement (“SHA”) that provided, among other things, that shares in Ascent would be split equally between GAIL and GAP and that Defendant and Mr. Oda would serve as Ascent's Directors. ECF No. 15. At another meeting at Castle's office in Honolulu in June 2018, Defendant delivered the stock certificate selling GAP its portion of Ascent's shares-50 shares for $1.00 per share-which Mr. Oda executed on behalf of GAP in the presence of a witness. Oda Decl. ¶ 17; ECF No. 17-1 (Ex. 5). That same day, Defendant held the sole Board of Directors' meeting for Ascent at Castle's office in Honolulu, the minutes of which reflect that Defendant called the meeting to order, the parties executed the share transfer, and Defendant noted for the record that the previously executed SHA was formally adopted. Oda Decl. ¶ 18; ECF No. 17-1 (Ex. 6); see also Supp. Theyers Decl. ¶ 29. At this meeting, Defendant also provided updates on the financial analysis of the venture and accounting for the joint venture. ECF No. 17-1 (Ex. 6).

         Plaintiffs later learned the Property was subject to a mortgage indebtedness of $18.7 million (not $14.8 million as Defendant represented) and that GAIL could not transfer title to the Property without repaying or refinancing this mortgage and because a current tenant had a right of first refusal. See FAC ¶ 17. GAP would not have entered into the HOA if it had known these facts. Oda Decl. ¶¶ 16, 19-21; FAC ¶¶ 15-20, 26-27. Castle similarly alleges it relied on Defendant's representations at the February 2018 Honolulu meeting when agreeing to incur and in fact incurring substantial expenses in performing “pre-opening services” aimed at the conversion of the Property into a hotel.[4] Mattson Decl. ¶¶ 12-14, 16-17; FAC ¶¶ 15-20, 26-27. Castle would not have been willing to or have incurred these obligations and expenses had it known these facts. See Mattson Decl. ¶¶ 12- 14, 16-17; FAC ¶¶ 15-20, 26-27.

         Pursuant to the agreements discussed above, GAP alleges it expended $2.9 million and Castle alleges it incurred expenses and expended services totaling over $250, 000. FAC ¶¶ 19-20, 26-27. Aside from misrepresentations about the mortgage on the Property and GAIL's ability to transfer the Property to Ascent, Plaintiffs allege that Defendant engaged in other misrepresentations that they relied on in agreeing to the venture. FAC ¶¶ 15-20, 35, 39. These misrepresentations include that: GAP's contribution of $4 million would be sufficient to convert the Property into a hotel (when it was not); that GAP's contributions would be deposited into an account that required both sides' signatures and would only be used to convert the Property into a hotel (when they were not); and that Defendant would maintain complete accounting records and provide GAP with real-time access to accounting records so that GAP would have detailed knowledge of the project's finances at all times (when he did not). See FAC ¶¶ 15-20, 35, 39. Because of Defendant's conduct, Ascent was unable to refinance the Property, the conversion to a hotel failed, and Plaintiffs' investments lost significant value. See Id. ¶¶ 21-22, 37, 40.

         B. Procedural History

         Plaintiffs initially filed a Complaint against Defendant and Mr. Coupe. ECF No. 1. Plaintiffs voluntarily dismissed all claims against Mr. Coupe, ECF No. 5, and then filed the FAC against Defendant and GAIL. ECF No. 9. Plaintiffs indicate they will dismiss all claims against GAIL, although they have not yet formally done so. ECF No. 17 at 2-3, 23. Plaintiffs bring claims against Defendant for misrepresentation, fraud, conversion, federal and state securities law violations, and a civil RICO violation. ECF No. 9. After Plaintiffs filed the FAC but before Defendant moved to dismiss the FAC, Mr. Coupe filed a Statement of Claim in New Zealand court against Plaintiffs and the individuals affiliated with Plaintiffs. ECF No. 13-7.

         Defendant moved to dismiss the FAC arguing he is not subject to the jurisdiction of Hawai'i courts, that venue in Hawai'i is improper, and that Plaintiffs failed to state certain claims. ECF No. 13. Plaintiffs oppose the motion. ECF No. 17.[5] The Court held a hearing on Defendant's motion on December 20, 2019.

         II. DISCUSSION

         A. Defendant's Motion to Dismiss under Rule 12(b)(2)

         Defendant first moves to dismiss the FAC under Rule 12(b)(2) on the basis that the Court lacks jurisdiction over him as a nonresident defendant.

         1. Legal Standard under Rule 12(b)(2)

         A plaintiff bears the burden of establishing personal jurisdiction over a nonresident defendant. See Love v. Associated Newspapers, Ltd., 611 F.3d 601, 608 (9th Cir. 2010); Schwarzenegger, 374 F.3d at 800. When no federal statute governs personal jurisdiction, [6] the district court applies the law of the forum state. See Boschetto v. Hansing, 539 F.3d 1011, 1015 (9th Cir. 2008). Hawaii's jurisdiction reaches the limits of due process set by the United States Constitution. See Cowan v. First Ins. Co. of Haw., 61 Haw. 644, 649, 608 P.2d 394, 399 (1980) (stating that Hawai's long-arm statute, Hawai'i Revised Statutes (“HRS”) § 634-35, [7] was adopted to expand the jurisdiction of Hawai'i courts to the extent permitted by the due process clause of the Fourteenth Amendment). Constitutional due process requires that a defendant “have certain minimum contacts” with the forum state “such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (internal quotation marks and citation omitted).

         There are two categories of personal jurisdiction: (1) general jurisdiction and (2) specific jurisdiction. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 413-15 (1984). Plaintiffs do not contend that the allegations in the FAC support the exercise of general jurisdiction, so the Court addresses only specific jurisdiction.

         As to specific jurisdiction, courts generally conduct a three-part inquiry- commonly referred to as the minimum contacts test-to determine whether a defendant has sufficient contacts with the forum to warrant the court's exercise of jurisdiction:

(1) The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the ...

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