Adwalls Media, LLC v. Adwalls, LLC et al
Filing
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ORDER GRANTING IN PART, DENYING IN PART MOTION TO DISMISS COMPLAINT re 26 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 8/20/13. "The court denies Ad Walls' Motion to Dismiss with respect to Count II, but grants Ad Walls' Motion to Dismiss with respect to Counts I, III, and IV. Given this court's ruling as to piercing the veil of a limited liability company, Count II survives only against Ad Walls." (emt, )CERTIF ICATE OF SERVICEParticipants registered to receive electronic notifications 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,
vs.
ADWALLS, LLC; JOHN W. ROWE;
JEFFREY D. ZIMMERMAN; JOHN
DOES 1-5,
Defendants.
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CIVIL NO. 12-00614 SOM/BMK
ORDER GRANTING IN PART,
DENYING IN PART MOTION TO
DISMISS COMPLAINT
ORDER GRANTING IN PART, DENYING IN PART
MOTION TO DISMISS COMPLAINT
I.
INTRODUCTION.
Plaintiff Adwalls Media, LLC (“Adwalls Media”) filed a
Complaint against Defendant Ad Walls, LLC (“Ad Walls”), John W.
Rowe, Jeffrey D. Zimmerman, and John Does 1-5.1
See ECF No. 1.
Ad Walls installed advertising displays in parking garages.
¶ 11.
Id.
Adwalls Media, alleging that it entered into a contract to
take over those displays, sues Defendants for alleged alter ego
liability, breach of contract, intentional misrepresentation, and
breach of the covenant of good faith and fair dealing.
Id.
Ad
Walls has filed a Counterclaim, as well as a Third-Party
Complaint against James Blinn, Adwalls Media’s managing member.
ECF No. 7.
1
Although the caption lists as a Defendant “Adwalls, LLC,”
the Answer is filed by “Ad Walls, LLC.”
Now before the court is Defendants’ Motion to Dismiss,
which, coming after the filing of Defendants’ Answer, is
technically a motion for judgment on the pleadings.
This court
denies the motion as to Count II (the contract claim) and grants
the motion in all other respects.
II.
BACKGROUND.
On or about March 17, 2010, Adwalls Media allegedly
entered into a written Asset Purchase Agreement (“Agreement”)
with Ad Walls to purchase assets owned by Ad Walls in New York
City, Boston, Baltimore, Philadelphia, and Washington, D.C.
ECF No. 1, ¶ 12.
See
The assets allegedly included Ad Walls’
exclusive rights and interests in leases to install advertising
displays in certain parking garages.
Id. ¶ 13.
Additionally,
Article IX of the Agreement stated, in pertinent part:
Following the Closing date, each party hereto
shall execute and deliver, or cause to be
executed and delivered, such other documents
and instruments, and will do and perform all
other acts as may reasonably be required by
such other party to evidence the validity of,
or to perfect the full and proper performance
of this Agreement. If any portion of the
Purchased Assets is not capable of being
assigned or transferred to Purchaser at the
Closing Date as a result of a failure to
obtain a required consent or approval, Seller
shall (a) provide Purchaser with all of the
rights and benefits of such Purchased Assets
accruing after the Closing Date (until it is
so assigned), and (b) use its best efforts to
create any arrangement designed to provide
such rights and benefits to Purchaser.
2
Id. ¶ 16.
As consideration, Adwalls Media says it paid $50,000 in
earnest money and $450,000 at closing, which took place on or
around March 19, 2010.
Id. ¶ 14, 17.
According to Adwalls
Media, most of the assets for which Adwalls Media paid valuable
consideration turned out to be nontransferrable.
Id. ¶ 18.
Adwalls Media alleges that Ad Walls breached the
Agreement by failing to deliver the assets or to use its best
efforts to make arrangements to provide the assets.
III.
Id. ¶ 19.
STANDARD.
The standard for a motion for judgment on the pleadings
brought under Rule 12(c) of the Federal Rules of Civil Procedure
is “functionally identical” to that governing a Rule 12(b)(6)
motion.
United States ex rel. Caffaso v. Gen. Dynamics C4 Sys.,
Inc., 637 F.3d 1047, 1054 n.4 (9th Cir. 2011).
Under Rule 12(c),
“Judgment on the pleadings is properly granted when, accepting
all factual allegations as true, there is no material fact in
dispute, and the moving party is entitled to judgment as a matter
of law.”
Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir.
2012) (quoting Fleming, 581 F.3d at 925); accord Jensen Family
Farms, Inc. v. Monterey Bay Unified Air Pollution Control Dist.,
644 F.3d 934, 937 n.1 (9th Cir. 2011).
Under Rule 12(b)(6) of the Federal Rules of Civil
Procedure, a party “may assert the following defense[] by motion:
3
. . . (6) failure to state a claim upon which relief can be
granted[.]”
Dismissal under Rule 12(b)(6) may be based on
either: (1) lack of a cognizable legal theory, or
(2) insufficient facts under a cognizable legal theory.
Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.
1988) (citing Robertson v. Dean Witter Reynolds, Inc., 749 F.2d
530, 533-34 (9th Cir. 1984)).
Review is generally limited to the contents of the
complaint.
Sprewell v. Golden State Warriors, 266 F.3d 979, 988
(9th Cir. 2001); Campanelli v. Bokrath, 100 F.3d 1476, 1479 (9th
Cir. 1996).
However, courts may “consider certain materials –
documents attached to the complaint, documents incorporated by
reference in the complaint, or matters of judicial notice –
without converting the motion to dismiss into a motion for
summary judgment.”
(9th Cir. 2003).
United States v. Ritchie, 342 F.3d 903, 908
Additionally, documents whose contents are
alleged in a complaint and whose authenticity are not questioned
by any party may also be considered in ruling on a Rule 12(b)(6)
motion to dismiss.
All allegations of material fact are taken as true and
construed in the light most favorable to the nonmoving party.
Fed’n of African Am. Contractors v. City of Oakland, 96 F.3d
1204, 1207 (9th Cir. 1996).
Conclusory allegations of law,
unwarranted deductions of fact, and unreasonable inferences are
4
insufficient to defeat a motion to dismiss.
Sprewell, 266 F.3d
at 988; Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir.
1996).
“[T]o survive a Rule 12(b)(6) motion to dismiss,
factual allegations must be enough to raise a right to relief
above the speculative level, on the assumption that all the
allegations in the complaint are true even if doubtful in fact.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal
quotation marks omitted); accord Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (“the pleading standard Rule 8 announces does not
require ‘detailed factual allegations,’ but it demands more than
an unadorned, the-defendant-unlawfully-harmed-me accusation”).
“While a complaint attacked by a Rule 12(b)(6) motion
to dismiss does not need detailed factual allegations, a
plaintiff’s obligation to provide the ‘grounds’ of his
‘entitlement to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do.”
Twombly, 550 U.S. at 555.
The
complaint must “state a claim to relief that is plausible on its
face.”
Id. at 570.
“A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.”
Iqbal, 556 U.S. at 677.
“Naked assertions
devoid of further factual enhancement” that suggest only a “mere
5
possibility of misconduct” are not enough to state a claim for
relief.
Id. at 698.
Additionally, “[t]hreadbare recitals of
elements of a cause of action supported by mere conclusory
statements” do not suffice.
IV.
Id. at 679.
ANALYSIS.
A.
Count II is Sufficient to State a Claim for
Relief.
Count II alleges that Ad Walls failed to perform its
obligations under the Agreement, thereby committing a material
breach of the Agreement.
Id. ¶ 29.
To allege a breach of
contract claim, a complaint must, at a minimum, cite the
contractual provisions that were allegedly violated.
Otani v.
State Farm Fire & Cas. Co., 927 F. Supp. 1330, 1335 (D. Haw.
1996).
Although Adwalls Media’s allegations about Ad Walls’
alleged nonperformance of the Agreement could be more detailed,
the court is inclined to rule that they are sufficient to state a
claim for relief that is plausible on its face.
Because the only
contractual provision specifically referred to in the Complaint
is Article IX, the court is inclined to conclude that it is fair
to read Count II as restricted to alleging a breach of only that
provision.
That is, Adwalls Media is alleging that Ad Walls
failed to transfer or assign the leases and failed to use its
best efforts to provide such a transfer or assignment.
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During the hearing on the present motion, Ad Walls
argued that Count II should be dismissed because Adwalls Media
allegations regarding Article IX’s conditions precedent were
insufficient.
Although Article IX is clearly identified in the
complaint, Ad Walls did not, in its original moving papers, say
anything at all about pleading requirements relating to the
condition precedent in Article IX.
It was not until Ad Walls
filed its reply memorandum that it raised this issue.
Local Rule
7.4 states, “Any argument raised for the first time in the reply
shall be disregarded.”
Even if this court considers Ad Walls’ argument as to
the insufficiency of the condition precedent allegations, the
court is unpersuaded.
Rule 9(c) of the Federal Rules of Civil
Procedure states, “In pleading conditions precedent, it suffices
to allege generally that all conditions precedent have occurred
or have been performed.
But when denying that a condition
precedent has occurred or been performed, a party must do so with
particularity.”
There is no affirmative requirement that
plaintiffs plead that the conditions precedent have been met.
“Rule 9(c) does not expressly require that performance of
conditions be pled, it merely sets forth the manner in which such
pleadings should be made.”
Kiernan v. Zurich Cos., 150 F.3d
1120, 1124 (9th Cir. 1998).
7
This court has previously had occasion to apply Rule
9(c).
In Shim v. PNC Bank, N.A., 2010 WL 3566733 (D. Haw. Sept.
14, 2010), this court noted that "the reference in Rule 9(c) to
conditions precedent simply distinguishes what suffices when an
allegation of performance is made from what satisfies when
performance is denied."
Id. at
*2 (citing with approval Kapahu
v. BAC Home Loans Serv., L.P., 2010 WL 2734774, *4 (D. Haw. July
8, 2010) (Judge Seabright)).
Cf. Tessera, Inc. v. UTAC (Taiwan)
Corp., 2012 WL 1067672 (N.D. Cal., March 28, 2012) (granting a
motion to dismiss and noting the insufficient detail regarding
whether a condition precedent had been satisfied).
Adwalls Media
appears to be alleging that the condition precedent was met,
i.e., that Ad Walls did not or could not obtain consents to
transfer or assign the assets to Adwalls Media.
This court reads
Count II as complaining about the alleged post-closing inaction
by Ad Walls, not performance of the condition precedent.
Because
Adwalls Media does not appear to be denying in Count II that a
condition precedent was performed, the court is unpersuaded by Ad
Walls’ argument that the particularity requirement of Rule 9(c)
has been triggered, much less violated.
B.
Counts I and III are Insufficiently Pled.
Count I alleges that, because Rowe and Zimmerman
completely dominated and controlled Ad Walls, they are personally
liable for Ad Walls’ alleged breach of the Agreement.
8
See ECF
No. 1 ¶ 24.
Adwalls Media alleges that Ad Walls is a limited
liability company in Hawaii.
Id. ¶ 5.
Pursuant to section 428-
303(b) of the Hawaii Revised Statutes, the standard for piercing
the veil of an LLC is at least as stringent as that for piercing
the veil of a corporation.
Hawaii courts give deference to the
integrity of separate entities and treat a corporation and its
shareholders as distinct legal entities.
Indeed, Hawaii courts
are reluctant to disregard the corporate entity.
Chung v. Animal
Clinic, Inc., 63 Haw. 642, 645, 636 P.2d 721, 723 (1981).
The
corporate form can only be set aside when “recognition of the
corporate fiction would bring about injustice and inequity or
when there is evidence that the corporate fiction has been used
to perpetrate a fraud.”
Robert’s Hawaii Sch. Bus, Inc. v.
Laupahoehoe Trans. Co., Inc., 91 Haw. 224, 241-42, 982 P.2d 853,
854 (1999)(quoting Chung, 63 Haw. at 645, 636 P.2d at 723).
The Ninth Circuit lists three factors to be considered
when a party requests the piercing of a corporate veil: (1) the
amount of respect that shareholders give to the separate identity
of the corporation; (2) the degree of injustice that recognizing
the corporate entity would impose on the plaintiff; and (3) the
fraudulent intent of the incorporators.
Seymour v. Hull &
Moreland Eng’g, 605 F.2d 1105, 1111 (9th Cir. 1979).
Adwalls Media does not allege any facts going to its
alter ego claim.
Adwalls Media’s allegations of alter ego status
9
are instead only conclusory.
Adwalls Media merely alleges that
Rowe and Zimmerman “exercised complete domination over Adwalls
with respect to the agreement” and that their “complete
domination and control of Adwalls was and is an abuse of the
corporate form.”
See ECF No. 1, ¶¶ 20-24.
Such allegations are
insufficient, particularly because they are coupled with the
assertion that Rowe and Zimmerman sought “to defeat the en[d]s of
justice, perpetrate a fraud, and/or otherwise evade the law,” all
without any specific factual allegations.
Id. at 23.
Count III seeks rescission of the Agreement based on
Defendants’ alleged intentional misrepresentations.
Adwalls
Media claims that Defendants made false representations “with the
knowledge or belief of their falsity,” and intentionally induced
Adwalls Media to rely on those representations.
Id. ¶¶ 32-35.
Additionally, the Complaint alleges that Adwalls Media
justifiably relied on those false representations when it entered
into the Agreement, and that Ad Walls permitted Adwalls Media to
sign the Agreement knowing that the terms of the contract were
misrepresented.
Id. ¶¶ 36-37.
Adwalls Media’s Complaint provides no factual support
for its misrepresentation claim.
Although the Rule 8 pleading
standard does not require detailed factual allegations, Adwalls
Media must do more than baldly state that misrepresentation has
occurred.
Adwalls Medial merely provides legal conclusions.
10
In addition, 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).
Additionally, when, as in Counts I and III, there are
allegations of fraud asserted against multiple defendants, a
complaint must identify the fraud committed made by each
defendant.
2007).
Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir.
Rule 9(b) does not allow a complaint to “merely lump
multiple defendants together but ‘require[s] plaintiffs to
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differentiate their allegations when suing more than one
defendant . . . and inform each defendant separately of the
allegations surrounding his alleged participation in the fraud.’”
Id. at 764-765.
A plaintiff must attribute particular fraudulent
statements or actions to an individual defendant.
Moore v.
Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989).
At a minimum, a plaintiff must identify the role of each
defendant in the allegedly fraudulent action.
Swartz, 476 F.3d
at 765.
Adwalls Media’s allegations are insufficient to
properly plead claims of fraud justifying alter ego liability or
constituting intentional misrepresentation.
Counts I and III are
not specific enough to give each Defendant notice of the
particular fraudulent conduct allegedly committed by that
Defendant.
Adwalls Media does not allege how the corporate form
was being used by Rowe and Zimmerman to perpetrate a fraud.
Nor
does the Complaint allege even generally how, where, when, or by
whom intentional misrepresentations were made.
Counts I and III
are insufficiently pled and are dismissed.
C.
Count IV is Dismissed.
Count IV alleges that Defendants acted in bad faith and
breached the Agreement’s implied covenant of good faith and fair
dealing.
Id. ¶ 42.
“bad faith.”
In essence, Count IV asserts the tort of
See Best Place, Inc. v. Penn Am. Ins. Co., 82
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Hawaii 120, 128, 920 P.2d 334, 342 (1996) (adopting the tort of
bad faith for breach of implied covenant of good faith and fair
dealing in an insurance contract).
However, Hawaii law
recognizes tort claims for breach of good faith or fair dealing
only in the insurance context, not in actions brought on other
types of contracts.
Id. at 132, 920 P.2d at 346.
Because the
Agreement between Adwalls Media and Ad Walls is not an insurance
contract, and because Adwalls Media advances no reason or
authority for treating the Agreement as akin to an insurance
contract, Count IV is dismissed.
See Gold Refinery, LLC v. Aloha
Island Gold, LLC, Civil No. 11-00522 SOM-RLP, 2012 WL 518396, at
*7 (D. Haw. Feb. 15, 2012) (dismissing claim for bad faith
brought on a non-insurance contract).
It may be that a bad faith
claim is cognizable outside the insurance context, but it clearly
is not cognizable with respect to all contracts.
Adwalls Media
does not show that it is cognizable here.
Furthermore, Adwalls Media does not provide any factual
support for alleging “intentional acts” or “conduct” by
Defendants that was either in bad faith or in breach of any
covenant of good faith and fair dealing.
Adwalls Media fails to
state a viable claim in Count IV, and it is dismissed.
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VI.
CONCLUSION
The court denies Ad Walls’ Motion to Dismiss with
respect to Count II, but grants Ad Walls’ Motion to Dismiss with
respect to Counts I, III, and IV.
Given this court’s ruling as
to piercing the veil of a limited liability company, Count II
survives only against Ad Walls.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, August 20, 2013.
/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge
Adwalls Media, LLC v. Adwalls, LLC, John W. Rowe, Jeffrey D. Zimmerman, and John Does
1-5, Civ. No. 12-00614 SOM/BMK; ORDER GRANTING IN PART, DENYING IN PART MOTION TO
DISMISS COMPLAINT
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