Adwalls Media, LLC v. Adwalls, LLC et al
Filing
210
ORDER REGARDING COUNTERCLAIM AND THIRD-PARTY COMPLAINT: 1) GRANTING MOTION FOR SUMMARY JUDGMENT AS TO COUNT I (BREACH OF PROMISE) WITH RESPECT TO ADWALLS MEDIA, LLC, BUT DENYING MOTION WITH RESPECT TO JAMES E. BLINN; 2) DENYING MOTION FOR J UDGMENT ON THE PLEADINGS AS TO COUNT II (FRAUDULENT MISREPRESENTATION RELATING TO PARTNERS) AND DENYING THE MOTION FOR SUMMARY JUDGMENT WITH RESPECT TO THE UNJUST ENRICHMENT CLAIM ASSERTED AGAINST JAMES E. BLINN, BUT GRANTING SUMMARY JUDGMENT WITH R ESPECT TO THE FRAUDULENT MISREPRESENTATION CLAIM; AND 3) GRANTING MOTION FOR JUDGMENT ON THE PLEADINGS AS TO COUNT V (FRAUDULENT MISREPRESENTATION CLAIM RELATING TO EXPERIENCE) re 128 , 130 - Signed by CHIEF JUDGE SUSAN OKI MOLLWA Y on 1/30/2015. "The motions for judgment on the pleadings and summary judgment filed by Adwalls Media and Blinn, ECF Nos. 128 and 130, are granted in part and denied in part." "With respect to the brea ch of promise claim asserted in Count I of the Counterclaim and Third-Party Claim, summary judgment is granted with respect to Adwalls Media but denied with respect to Blinn." "With respect to the fraudulent misrepresentation cl aim asserted in Count II of the Counterclaim and Third Party Complaint, the court denies the motion for judgment on the pleadings, but grants summary judgment in favor of both Adwalls Media and Blinn." "With respect to the un just enrichment claim asserted only against Blinn in Count II of the Third Party Complaint, the court denies the motion for judgment on the pleadings and denies the motion for summary judgment." With respect to the fraudulent misrepres entation claim asserted in Count V of the Counterclaim and Third Party Complaint, the court grants the motion for judgment on the pleadings and denies as moot the motion for summary judgment. Ad Walls is given leave to file an Amended Complaint no later than February 6, 2015, limited as discussed in this order. The court does not change any court-imposed deadline or the trial date." "The parties are directed to contact the Magistrate Judge within seven calen dar days to schedule a settlement conference at the earliest date available on the Magistrate Judge's calendar." (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notif ications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
ADWALLS MEDIA, LLC,
)
)
Plaintiff/
)
Counterclaim-Defendant, )
)
vs.
)
)
AD WALLS, LLC,
)
)
Defendant/
)
Counterclaimant.
)
_____________________________ )
AD WALLS, LLC,
)
)
Third-Party Plaintiff,
)
)
vs.
)
)
JAMES E. BLINN,
)
)
Third-Party Defendant.
)
_____________________________ )
CIVIL NO. 12-00614 SOM/BMK
ORDER REGARDING COUNTERCLAIM
AND THIRD-PARTY COMPLAINT:
1) GRANTING MOTION FOR
SUMMARY JUDGMENT AS TO
COUNT I (BREACH OF PROMISE)
WITH RESPECT TO ADWALLS
MEDIA, LLC, BUT DENYING
MOTION WITH RESPECT TO JAMES
E. BLINN;
2) DENYING MOTION FOR
JUDGMENT ON THE PLEADINGS AS
TO COUNT II (FRAUDULENT
MISREPRESENTATION RELATING TO
PARTNERS) AND DENYING THE
MOTION FOR SUMMARY JUDGMENT
WITH RESPECT TO THE UNJUST
ENRICHMENT CLAIM ASSERTED
AGAINST JAMES E. BLINN, BUT
GRANTING SUMMARY JUDGMENT
WITH RESPECT TO THE
FRAUDULENT MISREPRESENTATION
CLAIM; AND
3) GRANTING MOTION FOR
JUDGMENT ON THE PLEADINGS AS
TO COUNT V (FRAUDULENT
MISREPRESENTATION CLAIM
RELATING TO EXPERIENCE)
ORDER REGARDING COUNTERCLAIM AND THIRD-PARTY COMPLAINT:
1) GRANTING MOTION FOR SUMMARY JUDGMENT AS TO COUNT I (BREACH OF
PROMISE) WITH RESPECT TO ADWALLS MEDIA, LLC, BUT DENYING MOTION
WITH RESPECT TO JAMES E. BLINN; 2) DENYING MOTION FOR JUDGMENT ON
THE PLEADINGS AS TO COUNT II (FRAUDULENT MISREPRESENTATION
RELATING TO PARTNERS) AND DENYING THE MOTION FOR SUMMARY JUDGMENT
WITH RESPECT TO THE UNJUST ENRICHMENT CLAIM ASSERTED AGAINST
JAMES E. BLINN, BUT GRANTING SUMMARY JUDGMENT WITH RESPECT TO THE
FRAUDULENT MISREPRESENTATION CLAIM; AND 3) GRANTING MOTION
FOR JUDGMENT ON THE PLEADINGS AS TO COUNT V (FRAUDULENT
MISREPRESENTATION CLAIM RELATING TO EXPERIENCE)
I.
INTRODUCTION.
Ad Walls, LLC, had leases with owners of various
parking structures around the country that allowed Ad Walls to
sell and display advertising in the parking structures.
This
case arises out of the purchase of Ad Wall’s rights in those
leases by Adwalls Media, LLC.
This order addresses claims asserted in the
Counterclaim and Third-Party Complaint, ECF No. 7-1, filed by Ad
Walls, LLC.
That pleading combines the Counterclaim against
Adwalls Media with the Third-Party Complaint against James E.
Blinn, an Adwalls Media principal, such that each count is a
combined Counterclaim and Third-Party Complaint count.
In
essence, although designated as a Third-Party Defendant, Blinn
functions procedurally as an additional Counterclaim Defendant
under Rule 13(h) of the Federal Rules of Civil Procedure.
In the Counterclaim and Third-Party Complaint, Ad Walls
alleges that Blinn promised to pay $25,000 to Ad Walls personally
and made certain representations about Adwalls Media to Ad Walls.
Adwalls Media and Blinn challenge the Counterclaim and ThirdParty Complaint in both a motion to dismiss (which this court
treats as a motion for judgment on the pleadings) and a motion
for summary judgment.
Motions relating to claims asserted in
Adwalls Media’s underlying Complaint are addressed in a separate
order.
2
Count I of the Counterclaim and Third Party Complaint
asserts a breach of promise claim arising out of Blinn’s alleged
promise to pay Ad Walls $25,000.
Adwalls Media and Blinn do not
challenge the sufficiency of the allegations in Count I under
Rule 12 of the Federal Rules of Civil Procedure.
Instead, they
seek summary judgment as to Count I on the ground that a breach
of promise claim cannot be maintained in light of the integration
clause in the Asset Purchase Agreement (“Agreement”).
The court
agrees in part and grants partial summary judgment against Ad
Walls with respect to Count I of only the Counterclaim against
Adwalls Media, but not as to Count I of the Third-Party Complaint
against Blinn.
Because Blinn is not a party to the Agreement,
the integration clause in the Agreement provides Blinn with no
protection from parol evidence.
Count II of the Counterclaim and Third-Party Complaint
asserts that Blinn fraudulently misrepresented that he had
partners, when, according to Ad Walls, Blinn in fact had no
partners.
To the extent Adwalls Media and Blinn seek dismissal
of the fraudulent misrepresentation claim asserted in Count II as
insufficiently pled, the motion is denied.
However, to the
extent they seek summary judgment with respect to the fraudulent
misrepresentation claim asserted in Count II, the motion is
granted, as Ad Walls fails to raise a genuine issue of fact as to
whether any false representation about having partners was made.
3
Count II of the Third-Party Complaint also includes an
unjust enrichment claim against Blinn relating to Blinn’s alleged
promise to pay $25,000.
Ad Walls has clarified that no claim is
asserted for unjust enrichment against Adwalls Media.
To the
extent Blinn seeks dismissal of the unjust enrichment claim as
insufficiently pled, his motion is denied.
The court also denies
Blinn’s motion for summary judgment with respect to the unjust
enrichment claim.
Count III of the Counterclaim and Third-Party Complaint
has been withdrawn.
See ECF No. 202.
Count IV of the Counterclaim and Third-Party Complaint
was dismissed in an earlier order.
See ECF No. 50.
In Count V of the Counterclaim and Third-Party
Complaint, Ad Walls alleges that Adwalls Media and Blinn
fraudulently misrepresented that they had a professional,
experienced team that could take over the advertising business.
That claim is insufficiently pled, and the court grants the
motion for judgment on the pleadings with respect to Count V,
giving Ad Walls leave to file an Amended Counterclaim and ThirdParty Complaint only to address the factually insufficient
allegations in Count V.
Any such amended pleading must be filed
by February 6, 2015.
Count VI of the Counterclaim and Third-Party Complaint
has been withdrawn.
See ECF No. 202.
4
II.
STANDARDS
A.
Motion for Judgment on the Pleadings Standard.
The standard governing motions for judgment on the
pleadings brought under Rule 12(c) of the Federal Rules of Civil
Procedure was set forth in the court’s order of August 20, 2013.
See ECF No. 51.
B.
That standard is incorporated here by reference.
Summary Judgment Standard.
Summary judgment shall be granted when “the movant
shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.”
R. Civ. P. 56(a) (2010).
Fed.
See Addisu v. Fred Meyer, Inc., 198
F.3d 1130, 1134 (9th Cir. 2000).
Movants must support their
position that a material fact is or is not genuinely disputed by
either “citing to particular parts of materials in the record,
including depositions, documents, electronically stored
information, affidavits or declarations, stipulations (including
those made for the purposes of the motion only), admissions,
interrogatory answers, or other materials”; or “showing that the
materials cited do not establish the absence or presence of a
genuine dispute, or that an adverse party cannot produce
admissible evidence to support the fact.”
Fed. R. Civ. P. 56(c).
One of the principal purposes of summary judgment is to identify
and dispose of factually unsupported claims and defenses.
Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986).
5
Summary judgment must be granted against a party that fails to
demonstrate facts to establish what will be an essential element
at trial.
See id. at 323.
A moving party without the ultimate
burden of persuasion at trial--usually, but not always, the
defendant--has both the initial burden of production and the
ultimate burden of persuasion on a motion for summary judgment.
Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102
(9th Cir. 2000).
The burden initially falls on the moving party to
identify for the court those “portions of the materials on file
that it believes demonstrate the absence of any genuine issue of
material fact.”
T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors
Ass’n, 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp.,
477 U.S. at 323).
“When the moving party has carried its burden
under Rule 56(c), its opponent must do more than simply show that
there is some metaphysical doubt as to the material facts.”
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586 (1986) (footnote omitted).
The nonmoving party must set forth specific facts
showing that there is a genuine issue for trial.
Serv., Inc., 809 F.2d at 630.
T.W. Elec.
At least some “‘significant
probative evidence tending to support the complaint’” must be
produced.
Id. (quoting First Nat’l Bank of Ariz. v. Cities Serv.
Co., 391 U.S. 253, 290 (1968)).
See Addisu, 198 F.3d at 1134 (“A
6
scintilla of evidence or evidence that is merely colorable or not
significantly probative does not present a genuine issue of
material fact.”).
“[I]f the factual context makes the non-moving
party’s claim implausible, that party must come forward with more
persuasive evidence than would otherwise be necessary to show
that there is a genuine issue for trial.”
Cal. Arch’l Bldg.
Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468
(9th Cir. 1987) (citing Matsushita Elec. Indus. Co., 475 U.S. at
587).
Accord Addisu, 198 F.3d at 1134 (“There must be enough
doubt for a ‘reasonable trier of fact’ to find for plaintiffs in
order to defeat the summary judgment motion.”).
All evidence and inferences must be construed in the
light most favorable to the nonmoving party.
Inc., 809 F.2d at 631.
T.W. Elec. Serv.,
Inferences may be drawn from underlying
facts not in dispute, as well as from disputed facts that the
judge is required to resolve in favor of the nonmoving party.
Id.
When “direct evidence” produced by the moving party
conflicts with “direct evidence” produced by the party opposing
summary judgment, “the judge must assume the truth of the
evidence set forth by the nonmoving party with respect to that
fact.”
Id.
7
III.
ANALYSIS.
A.
The Court Grants Summary Judgment With Respect to
the Breach of Promise Claim Asserted in Count I
Against Adwalls Media, But Denies Summary Judgment
As To Blinn.
Count I asserts a “breach of promise” claim arising out
of Adwalls Media’s and Blinn’s failure to pay the $25,000 that Ad
Walls says Blinn agreed to personally pay on behalf of Adwalls
Media.
Adwalls Media and Blinn contend that this claim fails
because of the Agreement’s integration clause and because of a
lack of consideration.
1.
Factual Background of the Alleged $25,000
Promise.
In March 2010, Ad Walls, LLC, through its managers John
W. Rowe and Jeffrey D. Zimmerman, and Adwalls Media, LLC, through
its manager James E. Blinn, executed the Agreement in which Ad
Walls sold Adwalls Media the interests that Ad Walls had in
various leases in parking garages across the country.
No. 132-1.
See ECF
Those interests involved rights to sell and display
advertisements in the parking garages.
pay Ad Walls $500,000.
Adwalls Media agreed to
Id.
Ad Walls claims that Blinn made a side deal concerning
the sale of the leases.
On the day before the Agreement closed,
Zimmerman and Rowe allegedly had a telephone call with Blinn.
According to Zimmerman, during this call, Ad Walls and Adwalls
Media agreed that each would pay half the expenses of the deal,
8
that Adwalls Media agreed to pay Ad Walls $25,000 as Adwalls
Media’s share, and that language pertaining to the $25,000 would
be included in the finalized Agreement.
See Declaration of
Jeffrey D. Zimmerman ¶¶ 9-10, ECF No. 160-1, PageID #s 3601-02.
Zimmerman says that, later in that telephone call,
Blinn asked Rowe and me to do him a favor and
send the bill for the $25,000 Debt of AdWalls
Media to Blinn directly, with a 30-day
deadline for payment of the $25,000 Debt.
Blinn explained that he did not want his
“partners” to know about that additional
consideration to be paid by AdWalls Media,
and he asked that the Agreement not state the
$25,000 debt. Rowe and I agreed to have Ad
Walls invoice Blinn directly for the $25,000
Debt of AdWalls Media.
Id. ¶ 11, PageID # 3602; Decl. of John W. Rowe ¶ 3-5, ECF No.
160-6, PageID # 3660-61 (same).
On or about April 21, 2010, Ad Walls sent Blinn a bill
for the $25,000.
Zimmerman Decl. ¶ 13; Rowe Decl. ¶ 7; ECF No.
160-5, PageID # 3650 (copy of bill).
the bill.
Blinn originally questioned
Zimmerman Decl. ¶ 13; Rowe Decl. ¶ 7; April 22, 2010
e-mail from Blinn to Rowe, ECF No. 160-5, PageID # 3652 (“Are you
saying I agreed to pay $25,000 based on your justification.
I
remember a phone conversation where we agreed I would pay 50% of
the legal ffes [stet].
I don’t remember agreeing to a flat fee
of $25,000 unless I am missing something.”).
Zimmerman says that
Blinn subsequently said in phone calls or e-mails that he would
not renege on the $25,000 debt.
Zimmerman Decl. ¶ 13; Rowe Decl.
9
¶ 7; see, e.g., June 2, 2010 e-mail from Blinn to Rowe, ECF No.
160-5, PageID # 3656 (“In regards to the $25,000 I have an SBA
loan all lined up . . . .”).
To date, the $25,000 debt has not
been paid by either Blinn or Adwalls Media.
Zimmerman Decl.
¶ 17, PageID # 3604; Rowe Decl. ¶ 11, PageId # 3663.
2.
Adwalls Media, but Not Blinn, Is Entitled to
Summary Judgment as to Count I.
Adwalls Media is entitled to summary judgment as to
Count I for two reasons.
The first reason Adwalls Media is entitled to summary
judgment as to Count I is that the integration provisions in the
Agreement protect Adwalls Media from liability arising out of
Blinn’s alleged oral promise to pay an additional $25,000.
Paragraph 12.5 of the Agreement states: “This Agreement
contains the entire agreement between the parties with respect to
the subject matter hereof.
This Agreement merges and supersedes
all prior agreements and understandings, written or oral, with
respect thereto.”
Paragraph 12.1 of the Agreement further
states: “This Agreement may only be amended, modified,
superseded, or terminated, by written instrument and any of the
terms, covenants, representations, warranties, or conditions
hereof may be waived, only by a written instrument by the party
waiving compliance.”
Id., PageID # 2730. Given this language, Ad
Walls and Blinn argue that the Agreement constitutes the entire
10
agreement between the parties and cannot be varied by any oral
agreement to pay $25,000.
On its face, the Agreement appears to have been
intended to be the parties’ final agreement.
At least with
respect to the amount Adwalls Media was obligated to pay Ad
Walls, the Agreement was unambiguous.
$500,000.
Adwalls Media was to pay
When the Agreement was signed the day after Blinn’s
alleged oral promise to pay an additional $25,000, any attempt to
require Adwalls Media to pay more than the unambiguously stated
amount was subject to the integration provisions quoted above.
See Restatement (Second) of Contracts § 209(1) (Westlaw 2015)
(“An integrated agreement is a writing or writings constituting a
final expression of one or more terms of an agreement.”), and
§ 210(1) (Westlaw 2015) (“A completely integrated agreement is an
integrated agreement adopted by the parties as a complete and
exclusive statement of the terms of the agreement.”).
The Hawaii Supreme Court has stated,
The parol evidence rule generally precludes
the use of extrinsic evidence to vary or
contradict the terms of an unambiguous and
integrated contract—a writing the parties
have adopted as the expression of their final
agreement. The rule applies to exclude both
oral and written extrinsic evidence. It also
operates to exclude evidence that varies or
contradicts both the express and the implied
terms of a written agreement.
Pancakes of Haw., Inc. v. Pomare Props. Corp., 85 Haw. 300, 310,
944 P.2d 97, 107 (Ct. App. 1997).
11
When there is a “single final
memorial of the understanding of the parties,” the parol evidence
rule excludes “all prior and contemporaneous negotiations.”
Id.
In other words, “parol evidence is generally not admissible to
vary or contradict the terms of a fully integrated agreement.”
Id. at 311, 944 P.2d at 108.
However, Hawaii courts have recognized that the parol
evidence rule does not apply to contracts that have been
“conceived in fraud.”
Honolulu Fed. Sav. & Loan Ass’n v. Murphy,
7 Haw. App. 196, 200, 753 P.2d 807, 811 (1988) (“where it appears
that a written agreement has been ‘conceived in fraud,’ the parol
evidence rule is inapplicable”).
Pancakes of Hawaii is illustrative of the fraud
exception to the parol evidence rule.
In that case, the
plaintiff, Pancakes of Hawaii, had operated two successful
restaurants on Oahu.
The defendant, Pomare Properties
Corporation, had been hired as the managing agent for a shopping
center located on Maui.
Pomare, in turn, hired Sofos Realty
Corporation to handle its managing and leasing duties.
Lee
Carter was a salesman for Sofos and approached Pancakes of
Hawaii, asking it to open a restaurant in the Maui shopping
center.
Sofos allegedly told Pancakes of Hawaii that he was in
the process of signing up enough tenants that the shopping center
would soon be 85% occupied or that he expected to reach that
figure at some time in the future.
12
Pancakes signed a lease
agreement and built a restaurant in the shopping center.
The
shopping center was never more than 35% occupied, and this lack
of foot traffic caused the restaurant to suffer huge financial
losses.
Pancakes sued for fraud, misrepresentation, and a breach
of the duty of good faith and fair dealing.
Pancakes of Hawaii,
85 Haw. at 303, 944 P.2d at 100.
The trial court granted summary judgment in favor of
Sofos, determining that any statements made by Carter were barred
by an integration clause in the lease agreement.
304, 944 P.2d at 101.
Id., 85 Haw. at
The Intermediate Court of Appeals for the
State of Hawaii reversed.
Although the court noted that the
parol evidence rule generally bars evidence of prior or
contemporaneous agreements or representations in fully integrated
agreements, it recognized an exception to this rule when fraud is
alleged.
Id., 85 Haw. at 310-11, 944 P.2d at 107-08.
The court
held, “because Pancakes made allegations of fraud, summary
judgment should not have been granted” based on the integration
clause and the parol evidence rule.
Like the claimant in Pancakes of Hawaii, Ad Walls has
argued in connection with the present motion that Blinn, acting
on behalf of Adwalls Media, was engaged in fraud and deliberately
excluded the reference to the $25,000 from the Agreement with the
intent of not paying the $25,000.
13
See ECF No. 159, PageID
# 3585.
Ad Walls cannot escape the effect of the Agreement’s
integration provisions by relying on this assertion.
In the first place, it is notable that it is Blinn’s
oral promise that Ad Walls claims was conceived in fraud.
The
fraud exception to the bar on parol evidence appears to
contemplate that the underlying written agreement have been
conceived in fraud for parol evidence to be considered.
Blinn’s
alleged oral fraud cannot act to trump the integration language
in the previously negotiated Agreement, a written agreement that
Ad Walls is not asserting was conceived in fraud.
Apparently recognizing this, Ad Walls says that Count I
is not premised on the allegation that Blinn orally promised to
alter the Agreement.
Rather, Ad Walls says, Count I asserts
that, in a separate side deal, Blinn offered additional
consideration to Ad Walls for conveying Ad Walls’ interests to
Adwalls Media.
But the reference to the side deal is exactly the
kind of thing the integration clause was designed to avoid.
Notably, the side deal Ad Walls says it ultimately entered into
was with Blinn personally, not with Adwalls Media, so if the side
deal is enforced, it should be against Blinn.
The second reason that Count I fails against Adwalls
Media is that the unified Counterclaim and Third-Party Complaint
that Ad Walls filed, while including claims of fraudulent
misrepresentation, simply does not allege the fraud theory
14
advanced by Ad Walls in connection with the present motion.
That
is, the pleading containing Count I does not assert that Blinn
promised to pay $25,000 while having no intent to pay.
It does
allege that Blinn did not pay, but failure to pay at a later date
is not necessarily fraud.
Even a debtor’s denial of indebtedness
might be nothing more than a breach of contract.
Allegations of
fraud must be particular under Rule 9(b) of the Federal Rules of
Federal Procedure.
The court cannot discern in the pleading an
actual claim of fraud of the type now being described by Ad
Walls.
At most, in Count II, Ad Walls does assert with
particularity a fraudulent misrepresentation claim relating to
Blinn’s alleged statement that he had partners that he wanted to
keep in the dark about the additional $25,000 debt.
As noted
later in this order, that claim is not supported by any evidence.
For this court to read Count I as encompassing the fraud theory
advanced by Ad Walls in connection with the present motion would
require considerable interpretive contortions by this court,
would render the parol evidence rule a nullity, and would likely
require major supplementation by the parties to their preexisting discovery, not to mention give rise to new motions and a
need to continue the imminent trial date.
15
Given the analysis above, the court grants summary
judgement in favor of Adwalls Media with respect to the breach of
promise claim asserted in Count I of the Counterclaim.
The court does not reach the same result with respect
to the breach of promise claim asserted against Blinn in Count I
of the Third-Party Complaint.
Although Blinn signed the
Agreement on behalf of Adwalls Media, he was not personally a
party to the Agreement.
To the extent Count I is asserted
against him in his individual capacity, the integration clause
does not apply to him.
See Interwave Tech., Inc. v. Rockwell
Automation, Inc., 2006 WL 401843, *4 n.4 (E.D. Pa. Feb. 16, 2006)
(“an integration clause does not apply to a non-party to the
contract acting in an individual capacity”); Sunquist Information
Sys., Inc. v. Dean Witter Reynolds, Inc., 40 F. Supp. 2d 644, 656
(W.D. Pa. 1999) (ruling that an integration clause does not bar
claims against an agent of a corporation that was not a party to
the contract executed by the corporation containing the
integration clause).
Given the nonapplicability of the integration clause to
Blinn, this court need not identify a fraud claim in Count I to
allow the breach of promise claim to proceed against him.
None
of the reasons that cause the court to grant summary judgment in
favor of Adwalls Media is relevant to Blinn, and there are
clearly triable issues going to Blinn’s liability on the alleged
16
$25,000 promise that preclude summary judgment in his favor as to
Count I.
3.
Count I Does Not Fail For Lack of
Consideration.
Adwalls Media and Blinn argue that the breach of
promise claim asserted in Count I fails because of a lack of
consideration.
“‘It is well-settled that consideration is an
essential element of, and is necessary to the enforceability or
validity of, a contract.’”
Balogh v. Balogh, 134 Haw. 29, 57,
332 P.3d 631, 659 (2014) (quoting Douglass v. Pflueger Haw.,
Inc., 110 Haw. 520, 534, 135 P.3d 129, 143 (2006)).
“Consideration may take many forms; it is well established that
‘[f]orbearance to exercise a right is good consideration for a
promise.’” Balogh, 134 Haw. at 57, 332 P.3d at 659 (quoting
Shannon v. Waterhouse, 58 Haw. 4, 7, 563 P.2d 391, 393 (1977)).
A question of fact exists as to whether consideration
was given for the $25,000 promise.
According to Rowe and
Zimmerman, the parties agreed that Adwalls Media would pay an
additional $25,000 to cover the costs of Ad Walls’ sale of its
interests to Adwalls Media.
Blinn made his alleged promise the
day before the Agreement was signed.
Whether or not Blinn’s
promise could be said to have been consideration for the closing
of the Agreement, Blinn allegedly wanted to keep references to
the additional $25,000 out of the Agreement.
To the extent Blinn
obtained that secrecy through promising to pay the additional
17
$25,000 personally, that secrecy might be consideration.
On the
present record, this court cannot conclude that there was a lack
of consideration.
B.
Count II Sufficiently Pleads a Fraudulent
Misrepresentation Claim Relating to Blinn’s
Partners and an Unjust Enrichment Claim, But
Summary Judgment is Granted on the Fraudulent
Misrepresentation Portion of Count II.
Count II of the Counterclaim and Third-Party Complaint
contains both a fraudulent misrepresentation claim and an unjust
enrichment claim.
1.
The court examines both claims.
Although Ad Walls Sufficiently Alleges a
Fraudulent Misrepresentation Claim Relating
to the Existence of Blinn’s Partners, Ad
Walls Produces No Evidence Supporting that
Claim.
Although Count II speaks of a “misrepresentation,” in
its Opposition to the present motion, Ad Walls acknowledges that
Count II is intended to be read as asserting a fraudulent
misrepresentation claim.
See ECF No. 156, PageID # 3523-24.
To succeed on a fraudulent misrepresentation claim, Ad
Walls must show that “(1) false representations were made by
defendants; (2) with knowledge of their falsity (or without
knowledge of their truth or falsity); (3) in contemplation of
plaintiff’s reliance upon these false representations; and
(4) plaintiff did rely upon them.”
Ass’n of Apartment Owners of
Newtown Meadows v. Venture 15, Inc., 115 Haw. 232, 263, 167 P.3d
225, 256 (quoting Shoppe v. Gucci Am., Inc., 94 Haw. 368, 386, 14
18
P.3d 1049, 1067 (2000)).
Fraudulent misrepresentation claims are
subject to the heightened pleading requirements of Rule 9(b).
Radford v. Wells Fargo Bank, 2011 WL 1833020 (D. Haw. May 13,
2011) (applying Rule 9(b) to a plaintiff’s fraudulent
misrepresentation claim).
Rule 9(b) of the Federal Rules of Civil Procedure
requires a party to “state with particularity the circumstances
constituting fraud or mistake.”
Allegations of fraud must be
“specific enough to give defendants notice of the particular
misconduct which is alleged to constitute the fraud charged so
that they can defend against the charge and not just deny that
they have done anything wrong.”
Bly-Magee v. California, 236
F.3d 1014, 1019 (9th Cir. 2001).
A party alleging fraud must
therefore “set forth more than the neutral facts necessary to
identify the transaction.”
Kearns v. Ford Motor Co., 567 F.3d
1120, 1124 (9th Cir. 2009).
Fraud claims must allege the “time,
place, and specific content of the false representations as well
as the identities of the parties to the misrepresentation.”
Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004).
In other words, “[a]verments of fraud must be accompanied by the
who, what, when, where, and how of the misconduct charged.”
Kearns, 567 F.3d at 1124 (quotation marks omitted).
Count II sufficiently alleges a claim of fraudulent
misrepresentation.
Count II begins by incorporating by reference
19
all prior paragraphs.
The prior paragraphs include allegations
that the parties entered into an agreement for the sale of the
leases on or about March 19, 2010.
Counterclaim and Third-Party
Complaint ¶ 9, ECF No. 7-1, PageID # 40.
The prior paragraphs
further allege that, on the previous day, March 18, 2010, Jeffrey
D. Zimmerman and John W. Rowe of Ad Walls received a cellular
telephone call from James E. Blinn of Adwalls Media while
Zimmerman and Rowe were in a car on the way back from a meeting
in Kaneohe, Hawaii.
Id. ¶ 10.
Allegedly, the parties discussed
“all final deal points, including the legal expenses incurred for
the Asset Purchase Agreement.”
Id.
The prior paragraphs go on
to say that the parties agreed that Adwalls Media would pay Ad
Walls $25,000 for its expenses, including attorneys’ fees, and
that language concerning the $25,000 would be included in the
final version of the Asset Purchase Agreement.
# 41.
Id. ¶ 11, PageID
The prior incorporated paragraphs say that, later in the
telephone call, Blinn asked Rowe and Zimmerman
to do him a favor and send the bill for the
$25,000 . . . to Blinn directly, with a 30day deadline for payment of the $25,000 Debt.
Blinn explained that he did not want his
‘partners’ to know about that additional
consideration to be paid by AdWalls Media
LLC, and he asked that the Asset Purchase
Agreement not state the $25,000 debt. Rowe
and Zimmerman agreed to have Ad Walls, LLC
invoice Blinn directly for the $25,000 Debt
of AdWalls Media LLC.
20
Id. ¶ 12.
The prior paragraphs then discuss Blinn’s alleged
statements confirming the $25,000 debt, as well as his refusal to
pay the same.
In Count II itself, Ad Walls alleges that Blinn’s
statement that he did not want his partners to find out about the
additional $25,000 in consideration was false in that “it appears
that Blinn had no such ‘partners.’”
Ad Walls contends that Blinn
referred to nonexistent partners “as a means to have AdWalls
Media LLC avoid having to pay the promised $25,000 Debt, as part
of the consideration for the Asset Purchase Agreement.”
Id.
¶ 44, PageID # 48.
These allegations sufficiently allege a claim of false
representation: (1) a false representation made by Blinn–-that
Blinn had partners from whom Blinn wanted to keep information
about the additional $25,000 consideration; (2) with knowledge of
the representation’s falsity (or without knowledge of its truth
or falsity)–-Blinn allegedly knew he actually had no partners and
was referring to partners only to provide a reason not to include
language concerning the additional consideration in the
Agreement; and (3) and (4) in contemplation of Ad Wall’s reliance
on the false representation, which Ad Walls did rely on–-Ad Walls
billed Blinn directly for the $25,000 instead of mentioning that
amount in the Agreement.
Accordingly, to the extent Adwalls
Media and Blinn seek judgment on the pleadings on the ground that
21
Ad Walls does not sufficiently plead a fraudulent
misrepresentation claim in Count II, the motion is denied.
Ad Walls urges the court to read the fraudulent
misrepresentation claim alleged in Count II of the Counterclaim
and Third-Party Complaint as going far beyond a representation
about whether Blinn had partners.
Ad Walls says that, because
Count II incorporates all paragraphs preceding Count II, any
representation described in any paragraph preceding Count II must
be deemed to be encompassed as a fraudulent representation
covered by Count II.
This argument stretches the concept of
“notice pleading” too far.
Under Ad Walls’ theory, Count II
could consist of a single paragraph stating that all prior
paragraphs are incorporated by reference.
This would be
particularly confounding because Count V of the Counterclaim and
Third-Party Complaint also purports to include a fraudulent
misrepresentation claim and also incorporates all prior
paragraphs by reference.
A sued party would have no way of
telling from the pleading which representation fell under which
count.
In designating its claims by counts, Ad Walls signaled
that it was relying on different legal theories and focusing on
differing facts with respect to the different theories.
Particularly because a fraudulent misrepresentation claim must be
pled with particularity, Ad Walls cannot force a defendant to
guess which representation is at issue.
22
The court is moreover concerned that what Ad Walls is
urging creates a risk that Ad Walls might argue that Count II
should be read as asserting a claim not just of fraud in the form
of fraudulent misrepresentation, but of fraud through other means
as well.
Rule 9(b) was designed to avoid this very risk.
Having limited Count II to a claim of fraudulent
misrepresentation relating to the existence of Blinn's partners,
the court turns to the motion for summary judgment on that claim
brought by Adwalls Media and Blinn.
Adwalls Media and Blinn submit the Operating Agreement
of Adwalls Media, which shows Blinn as a 39% owner, William R.
Blinn as a 19.5% owner, Gregory Blinn as a 19.5% owner, Peter
Ragosa as a 19.5% owner, and Donald Coomber as 5% owner.
No. 144-1, PageID # 3306.
See ECF
While these ownership percentages
puzzlingly add up to more than 100%, it is clear that Blinn did
have “partners” in the form of other members of the LLC.
Ad
Walls counters with no evidence that this is not so.
Accordingly, the court is left with no triable issue concerning
whether Blinn’s representation about having partners was false.
The court acknowledges that Count II ascribes bad
motive to Blinn in his reference to partners.
However, this
court need not address motive in the context of Count II’s
fraudulent misrepresentation claim because the alleged motive is
premised on the unsupported allegation that Blinn lacked
23
partners.
Count II purports to state a fraudulent
misrepresentation claim, not a fraud claim, so whatever dark
motive Ad Walls may impute to Blinn, it must be tied to a clearly
identified misrepresentation.
As the court has noted, only one
such statement is identified in Count II.
The court grants
summary judgment to Adwalls Media and Blinn on the fraudulent
misrepresentation claim in Count II.
2.
Count II Sufficiently Alleges an Unjust
Enrichment Claim Against Blinn, and That
Claim May Proceed.
Count II of the Third-Party Complaint asserts a claim
of unjust enrichment based on the $25,000 promise.
The
Opposition to the motion for judgment on the pleadings makes it
clear that this claim is asserted only against Blinn.
No. 156, PageID # 3526-28.
See ECF
To the extent Count II of the
Counterclaim can be read as asserting an unjust enrichment claim
against Adwalls Media, that claim is deemed withdrawn.
To bring an unjust enrichment claim, a plaintiff must
allege two elements: “(a) receipt of a benefit without adequate
legal basis by Defendants; and (b) unjust retention of that
benefit at the expense of Plaintiffs.”
Porter v. Hu, 116 Haw.
42, 54, 169 P.3d 994, 1005 (Haw. Ct. App. 2007) (citing Small v.
Badenhop, 67 Haw. 626, 636, 701 P.2d 647, 654 (1985)).
“A claim
for unjust enrichment permits a party to seek restitution for
benefits improperly conferred on an opposing party as a result of
24
a wrongful act.”
Hawaiian Ass’n of Seventh-Day Adventists v.
Wong, 130 Haw. 36, 49, 305 P.3d 452, 465 (2013).
Count II sufficiently alleges a claim of unjust
enrichment against Blinn.
It alleges that Blinn received a
benefit in the form of Ad Walls’ concession not to include the
additional $25,000 in the Agreement so that Blinn’s partners
would not know about it.
Allegedly, Blinn then unjustly retained
the benefit of the deal, either as a member of Adwalls Media,
which had a lower obligation under the Agreement (meaning that
Blinn’s obligation in his role as an LLC member was lower), or in
his personal capacity when he failed to pay the $25,000 he said
he would pay.
The Rule 12(c) motion with respect to the unjust
enrichment claim asserted against Blinn is therefore denied.
Turning to Blinn’s motion for summary judgment with
respect to the unjust enrichment claim, the court is unpersuaded
by Blinn’s argument that Ad Walls is not entitled to equitable
relief because the parties’ rights and duties are governed by a
contract.
To the extent the contract Blinn is referring to is
the Agreement, Blinn is not a party to that contract.
Certainly
the integration clause in the Agreement cannot be said to bar a
claim of unjust enrichment against a nonparty.
Blinn’s rights
are simply not governed by any clause in that document.
Of course, Ad Walls cannot obtain a double recovery by
pursuing both a breach of promise claim and an unjust enrichment
25
claim based on the same alleged $25,000 promise.
For that
reason, if contract-based liability for the $25,000 is
established, Blinn may move to dismiss the equity-based claim for
the same.
But the claims have different elements, and there is
no reason Ad Walls must elect between them at this point.
See
Am. Jur. Equity § 184 (2014) (“Where legal and equitable claims
are pleaded alternatively, the equitable claim may be dismissed
on proof of liability under the legal count.”).
There is a genuine issue of fact as to whether Blinn
received a benefit that he should not unjustly retain.
Blinn’s
motion for summary judgment with respect to the unjust enrichment
claim asserted in Count II of the Third-Party Complaint is
denied.
C.
Count V Asserts an Insufficiently Pled Fraudulent
Misrepresentation Claim Relating to Adwalls Media
and Blinn’s Experience.
Like Count II, Count V of the Counterclaim and ThirdParty Complaint asserts a claim of “misrepresentation.”
This
court construes Count V as attempting to assert a fraudulent
misrepresentation claim.
In so doing, the court is relying on Ad
Wall’s citations to law relating to intentional
misrepresentation.
See ECF No. 156, PageID # 3530.
misrepresentation is “fraudulent misrepresentation.”
Meadows, 115 Haw. at 263, 167 P.3d at 256.
Newtown
The Opposition does
not discuss negligent misrepresentation at all.
26
Intentional
As set forth earlier in the discussion of Count II, to
state a claim of fraudulent misrepresentation, Ad Walls must
allege that “(1) false representations were made by defendants;
(2) with knowledge of their falsity (or without knowledge of
their truth or falsity); (3) in contemplation of plaintiff’s
reliance upon these false representations; and (4) plaintiff did
rely upon them.”
256.
Newtown Meadows, 115 Haw. at 263, 167 P.3d at
Because the fraudulent misrepresentation claim asserted in
Count V is subject to the heightened pleading requirements of
Rule 9(b), see Radford, 2011 WL 1833020, Count V must allege the
“time, place, and specific content of the false representations
as well as the identities of the parties to the
misrepresentation.”
Edwards, Inc., 356 F.3d at 1066.
The fraudulent misrepresentation claim asserted in
Count V is based on a claim that Blinn told an unidentified
person at Ad Walls that Adwalls Media had an “experienced,
professional team that could take over the sales in the markets
transferred to Adwalls Media.”
Complaint ¶ 34.
Counterclaim and Third-Party
Paragraphs 33 and 65 allege that the parties
contemplated that Adwalls Media would take the place of Encompass
Media Group, Inc., and that Ad Walls terminated its relationship
with Encompass based on Adwalls Media’s representation that it
had an “experienced, professional team” capable of doing what
Encompass had done.
Paragraph 35 alleges that Adwalls Media
27
ultimately took no steps to do what Encompass had done.
Although
some detail about the alleged misrepresentation is provided,
Count V indicates only generally when the alleged
misrepresentation was made and does not state to whom it was
made, simply alleging that it was made to Ad Walls.
Accordingly,
Adwalls Media and Blinn’s Rule 12(c) motion is granted with
respect to Count V of the Third-Party Claim.
Given the timing of the Rule 12(c) motion, the court
earlier expressed concern that granting the motion would result
in a need to continue the trial.
Having considered the matter
further, the court leaves the trial date in place.
The court
gives Ad Walls leave to file an Amended Counterclaim and ThirdParty Complaint that adds only factual allegations curing the
deficiencies identified in this order in Count V.
Any such
amended pleading must be filed by February 6, 2015.
Only that
limited amendment is being allowed.
The parties’ briefs suggest that, despite the deficient
pleading, the basis for Count V was understood.
It therefore
does not appear that additional discovery is likely to be needed
following the amendment.
Zimmerman says that, as part of the Agreement, Ad Walls
terminated its relationship with Encompass, which was Ad Wall’s
agent and had generated substantial revenue for Ad Walls.
Zimmerman Decl. ¶ 20.
Zimmerman says that the parties
28
See
contemplated that Adwalls Media, having allegedly represented
that it had an “experienced, professional team,” would take over
tasks previously performed by Encompass.
Id. ¶¶ 21-22.
However,
according to Zimmerman, Adwalls Media failed to generate any
revenue for Ad Walls.
Id. ¶ 23.
Zimmerman claims that Ad Walls
did not have an “experienced, professional team” that could do
what Encompass had done.
Id. ¶ 24.
In their motion for summary judgment concerning
Count V, Adwalls Media and Blinn claimed to have a “highly
qualified” team such that any representation concerning the
professionalism and experience of their team was not false.
See
Deposition of James Edward Blinn at 42, ECF No. 135-1, PageID
# 2832 (calling his team “highly qualified”).
Blinn testified
that Adwalls Media’s salespeople included Bill McKissock, Lee
Seegars, Alex Shuck, and Cambra Ransome.
2831-32.
Id. at 41-42, PageID #s
Blinn testified that he himself had 30 years of
experience, and that McKissock had 20-plus years of experience.
Id. at 267-68, PageID # 2848.
Whether these years translated
into being qualified to perform services previously performed by
Encompass remains in dispute.
Adwalls Media and Blinn also challenge Ad Walls’ claim
that it terminated Encompass as a condition precedent to the
signing of the Agreement.
In his deposition, Zimmerman testified
that Ad Walls terminated Encompass because it was making
29
contracts and offers for ad placement that conflicted with the
agreement Ad Walls had with Encompass.
See Deposition of Jeffrey
David Zimmerman at 159, ECF No. 147-1, PageID # 3351.
A draft
version of the Agreement, however, required Ad Walls to terminate
Encompass.
See ECF No. 160-3, ¶ 3.3, PageID # 3632.
In short,
it appears to this court that there are clear questions of fact
precluding summary judgment, and that those questions would
likely continue to prevent Adwalls Media and Blinn from winning
any new summary judgment motion they might bring following an
amendment of Count V.
If Adwalls Media and Blinn nevertheless wish to file
another dispositive motion concerning Count V, they must seek
leave of court before doing so.
Any such motion for leave of
court must attach the proposed dispositive motion and must
explain how the motion differs from the motion the court is now
deciding and why the new motion could not have been brought
earlier.
IV.
CONCLUSION.
The motions for judgment on the pleadings and summary
judgment filed by Adwalls Media and Blinn, ECF Nos. 128 and 130,
are granted in part and denied in part.
With respect to the breach of promise claim asserted in
Count I of the Counterclaim and Third-Party Claim, summary
30
judgment is granted with respect to Adwalls Media but denied with
respect to Blinn.
With respect to the fraudulent misrepresentation claim
asserted in Count II of the Counterclaim and Third Party
Complaint, the court denies the motion for judgment on the
pleadings, but grants summary judgment in favor of both Adwalls
Media and Blinn.
With respect to the unjust enrichment claim asserted
only against Blinn in Count II of the Third Party Complaint, the
court denies the motion for judgment on the pleadings and denies
the motion for summary judgment.
With respect to the fraudulent misrepresentation claim
asserted in Count V of the Counterclaim and Third Party
Complaint, the court grants the motion for judgment on the
pleadings and denies as moot the motion for summary judgment.
Walls is given leave to file an Amended Complaint no later than
Ad
31
February 6, 2015, limited as discussed in this order.
The court
does not change any court-imposed deadline or the trial date.
The parties are directed to contact the Magistrate
Judge within seven calendar days to schedule a settlement
conference at the earliest date available on the Magistrate
Judge’s calendar.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, January 30, 2015.
/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge
Adwalls Media, LLC, et al. v, Ad Walls, LLC, Civ. No. 12-00614 SOM/BMK; ORDER REGARDING
COUNTERCLAIM AND THIRD-PARTY COMPLAINT:
1) GRANTING MOTION FOR SUMMARY JUDGMENT AS TO COUNT I (BREACH OF PROMISE) WITH RESPECT
TO ADWALLS MEDIA, LLC, BUT DENYING MOTION WITH RESPECT TO JAMES E. BLINN;
2) DENYING MOTION FOR JUDGMENT ON THE PLEADINGS AS TO COUNT II (FRAUDULENT
MISREPRESENTATION RELATING TO PARTNERS) AND DENYING THE MOTION FOR SUMMARY JUDGMENT
WITH RESPECT TO THE UNJUST ENRICHMENT CLAIM ASSERTED AGAINST JAMES E. BLINN, BUT
GRANTING SUMMARY JUDGMENT WITH RESPECT TO THE FRAUDULENT MISREPRESENTATION CLAIM; AND
3) GRANTING MOTION FOR JUDGMENT ON THE PLEADINGS AS TO COUNT V (FRAUDULENT
MISREPRESENTATION CLAIM RELATING TO EXPERIENCE)
32
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