Benihana of Tokyo, LLC v. Angelo, Gordon & Co. et al

Filing 35

ORDER OVERRULING OBJECTIONS AND ADOPTING MAGISTRATE JUDGE'S FINDINGS AND RECOMMENDATION TO GRANT PLAINTIFF'S MOTION TO REMAND re: 25 . Signed by JUDGE ALAN C KAY on 6/1/2015. (afc) Doc nos. re: Objec tions to F&R: 28 , 30 , 34 . CERTIFICATE 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

BENIHANA OF TOKYO, LLC, as
)
successor to BENIHANA OF TOKYO, )
INC.,
)
)
Plaintiff,
)
)
v.
)
)
ANGELO, GORDON & CO., BENIHANA, )
INC., as successor to BENIHANA )
NATIONAL CORP., and NOODLE TIME,)
INC.,
)
)
Defendants.
)
)

Civ. No. 15-00028 ACK-RLP

ORDER OVERRULING OBJECTIONS AND ADOPTING MAGISTRATE JUDGE’S
FINDINGS AND RECOMMENDATION TO GRANT PLAINTIFF’S MOTION TO REMAND
For the following reasons, the Court hereby OVERRULES
Defendants’ Objections and ADOPTS the Magistrate Judge’s Findings
and Recommendation to Grant Plaintiff’s Motion to Remand, entered
April 17, 2015. (Doc. No. 25.)
PROCEDURAL AND FACTUAL BACKGROUND
This case arises out of a dispute between the parties
over their business relationship regarding the Benihana
restaurants. In late 1994, Plaintiff Benihana of Tokyo, LLC
(“BOT”) and Defendant Benihana, Inc. (“BI”) entered into an
Amended and Restated Agreement and Plan of Reorganization
(“ARA”), under which they divided the business of the Benihana

restaurants between them. (First Amended Compl. (“FAC”) (Doc. No.
1-1) ¶¶ 12-20.) Under the ARA, Defendant BI has the right to
operate all of the Benihana restaurants in the United States,
Central America, South America, and the Caribbean, and Plaintiff
BOT has the right to operate all the restaurants outside of those
regions. (Id. ¶ 13.) Under a separate license agreement,
Plaintiff BOT has the right to operate the Benihana restaurants
in Hawaii, with the exception of a certain area on Maui. (Id. ¶¶
17-19.)
In the instant suit, Plaintiff BOT alleges that the
business relationship between Plaintiff and BI began to
deteriorate in 2012, when Defendant Angelo, Gordon & Co. (“AGC”)
acquired BI. (Id. ¶¶ 21-29.) Specifically, Plaintiff alleges that
when it rejected multiple offers for its purchase from AGC, AGC
and BI “went on the offensive,” engaging in a “concerted effort
to force an unwilling BOT to sell,” and “a strategy aimed at
inflicting damage” to BOT’s reputation and finances. (Id. ¶ 24.)
Plaintiff alleges that BI has refused to uphold its duties under
the ARA and licensing agreement for the Hawaii Benihana
restaurants by, among other things, publishing “false and
misleading” statements on BI’s website regarding Benihana’s 50th
anniversary. (Id. ¶ 25.) Plaintiff BOT also alleges that, as a
part of their efforts to harm BOT’s reputation and finances, “AGC
and BI initiated a plan to litigate multiple cases against BOT,”

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“forcing BOT to initiate its own litigation simply to protect its
interests.” (Id. ¶¶ 27, 33-84.) Plaintiff BOT alleges that
“Defendants have continually reminded BOT that the excessive
litigation could end if BOT simply acquiesced and agreed to
sell.” (Id. ¶ 28.)
Plaintiff BOT filed its original complaint in the
instant action in the Circuit Court of the First Circuit of
Hawaii on October 3, 2014.1/ (Doc. No. 6-3.) On December 22,
2014, Plaintiff filed its First Amended Complaint, including
additional factual information. (Doc. No. 1-1.) The First Amended
Complaint asserts five claims against the Defendants: common law
unfair competition, unfair competition under Hawaii Revised
Statutes Section 480-2, breach of contract, deceptive trade
practices under Hawaii Revised Statutes Section 481A-3, and false
advertising under Hawaii Revised Statutes Section 708-871. (Id.
at 20-24.)

1/

Before Plaintiff BOT filed the action in state
court, it filed an action alleging the same five claims against
the same Defendants in federal court. See Benihana of Tokyo, LLC
v. Angelo, Gordon & Co., Benihana, Inc., Noodle Time, Inc, and
Benihana National Corp., Civil No. 14-00442 ACK-BMK, filed
September 30, 2014. According to Plaintiff, it mistakenly
asserted in that action that there was complete diversity between
the parties, but Plaintiff BOT and Defendant AGC are both
citizens of New York. (See Mot. to Remand at 3.) Plaintiff BOT
asserts that after it realized its error, it voluntarily
dismissed the federal suit on October 3, 2014, without ever
serving Defendants. (Id.) On the same day, it re-filed its
complaint in state court.
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Defendants removed this action on January 26, 2015.2/
(Doc. No. 1. ) On March 3, 2015, Plaintiff BOT filed its Motion
to Remand, arguing that remand to state court is appropriate
because this Court lacks subject matter jurisdiction. (Doc. No.
18.) Specifically, Plaintiff BOT asserts that there is no
complete diversity among the parties because Plaintiff and
Defendant AGC are both citizens of New York. Defendants counter
that Defendant AGC was fraudulently joined as a sham defendant to
defeat jurisdiction and, thus, jurisdiction is proper in federal
court.
On April 17, 2015, Magistrate Judge Puglisi issued his
Findings and Recommendation to Grant Plaintiff’s Motion to
Remand. (Doc. No. 25 (“4/17/15 F&R”).) Defendants filed their
Objections to the Findings and Recommendation on May 1, 2015.
(Doc. No. 28.) Plaintiff BOT filed its response to the Objections
on May 15, 2015. (Doc. No. 30.) On May 20, 2015, Defendants filed
a Motion for Leave to File Reply in Further Support of their

2/

On the same date, Defendants filed a Motion to Dismiss,
or in the Alternative, Transfer Venue to the Southern District of
New York. (Doc. No. 2.) On February 2, 2015, Defendants filed a
second Motion to Dismiss, arguing that venue in this forum is
improper, the First Amended Complaint fails to state a claim, and
that the Court lacks personal jurisdiction over Defendant AGC.
(Doc. No. 10.) On April 21, 2015, the Court notified the parties
that it would address the Motion to Remand before setting a
hearing date for Defendants’ two motions. (Doc. No. 27.)
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Objections.3/ (Doc. No. 31.)
STANDARD
A district court reviews de novo those portions of a
magistrate judge’s findings and recommendation to which an
objection is made and may accept, reject, or modify, in whole or
in part, the findings and recommendation made by the magistrate
judge. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b); Local Rule
74.2. The district court may accept those portions of the
findings and recommendation that are not objected to if it is
satisfied that there is no clear error on the face of the record.
United States v. Bright, 2009 WL 5064355, *3 (D. Haw. Dec. 23,
2009); Stow v. Murashige, 288 F. Supp. 2d 1122, 1127 (D. Haw.
2003).
The district court may receive further evidence or
recommit the matter to the magistrate judge with instructions. 28
U.S.C. § 636(b)(1). It may also consider the record developed
before the magistrate judge. Local Rule 74.2. The district court
must arrive at its own independent conclusions about those
portions of the magistrate judge’s report to which objections are
made, but a de novo hearing is not required. United States v.
Remsing, 874 F.2d 614, 617 (9th Cir. 1989); Bright, 2009 WL
5064355, *3; Local Rule 74.2.

3/

While the Court finds it largely duplicative and
unnecessary, the Court will nevertheless GRANT Defendants’ Motion
for Leave and consider their Reply.
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DISCUSSION
In the 4/17/15 F&R, the magistrate judge found that
Defendant AGC was not fraudulently joined and thus, in light of
the lack of complete diversity among the parties, this Court
lacks diversity jurisdiction over the instant matter. The basis
for diversity jurisdiction is set forth in 28 U.S.C. § 1332,
which states in relevant part that “[t]he district courts shall
have original jurisdiction of all civil actions where the matter
in controversy exceeds the sum or value of $ 75,000, exclusive of
interest and costs, and is between . . . [c]itizens of different
States . . ..” 28 U.S.C. § 1332(a)(1).
Defendants challenge the magistrate judge’s finding of
a lack of diversity of citizenship. Judge Puglisi concluded that,
because Defendant AGC was not fraudulently joined, and Plaintiff
BOT and Defendant AGC are both citizens of New York, the Court
lacks diversity jurisdiction over the instant matter. In their
Objections, Defendants assert that Defendant AGC was fraudulently
joined and that its presence should therefore not be considered
in evaluating whether there is diversity of citizenship. In the
absence of Defendant AGC, complete diversity of citizenship
exists. The critical question is therefore whether Defendant AGC
was fraudulently joined.
“Joinder of a non-diverse defendant is deemed
fraudulent, and the defendant’s presence in the lawsuit is

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ignored for purposes of determining diversity, ‘if the plaintiff
fails to state a cause of action against a resident defendant,
and the failure is obvious according to the settled rules of the
state.’” Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067
(9th Cir. 2001) (quoting McCabe v. Gen. Foods Corp., 811 F.2d
1336, 1339 (9th Cir. 1987)). “Fraudulent joinder must be proven
by clear and convincing evidence,” Hamilton Materials Inc. v. Dow
Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007) (citing
Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 461 (5th Cir.
1998)), as “there is a general presumption against fraudulent
joinder,” id. (citing Dodson v. Spiliada Maritime Corp., 951 F.2d
40, 42 (5th Cir. 1998)).
In evaluating the issue of fraudulent joinder, “[t]he
court may conduct a Rule 12(b)(6)-type analysis, looking
initially at the allegations of the complaint to determine
whether the complaint states a claim under state law against the
in-state defendant.” Smallwood v. Illinois Cent. R.R. Co., 385
F.3d 568, 573 (5th Cir .2004) (en banc). The removing defendant
must show “that there is no possibility, based on the pleadings,
that a plaintiff can state a cause of action against the
non-diverse defendant in state court.” Pampillonia, 138 F.3d at
461. All ambiguities in state law must be resolved in the
plaintiff’s favor. Dodson, 951 F.2d at 42. In addition to
examining the complaint, “the court may consider the plaintiff’s

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factual assertions (whether in a brief, an affidavit, or in some
other form), that elaborate on the allegations of the complaint,
so long as those factual assertions are not inconsistent with the
allegations of the complaint.” Lovell v. United Airlines, Inc.,
Civ. No. 09-00146 ACK-LEK, 2009 WL 3172729 at *3 (D. Haw. Oct. 2,
2009) (citations omitted). “[T]he plaintiff has at least as much
latitude in responding to . . . a claim of fraudulent joinder as
he would have in responding to a motion to dismiss for failure to
state a claim.” Id. (quoting Conk v. Richards & O’Neil, LLP, 77
F. Supp. 2d 956, 961 (S.D. Ind. 1999)). With these principles in
mind, the Court turns to the validity of BOT’s claims against
Defendant AGC.
As an initial matter, Defendants argue that Plaintiff’s
failure to specifically name AGC in each of the five counts of
the First Amended Complaint is justification in and of itself for
denying remand. (Obj. at 7.) The Court disagrees. There is no
dispute that Plaintiff BOT failed to specifically name AGC in
each of the counts in the First Amended Complaint; however,
notwithstanding this omission, on its face the complaint clearly
contemplates that the claims be brought against not only
Defendant BI, but also against AGC. Indeed, the complaint
contains numerous allegations supporting Plaintiff’s assertion
that it is bringing the claims as against AGC.
Specifically, each of the numbered counts states that

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it “refers to and realleges” all of the prior allegations,
thereby incorporating those allegations specifically regarding
Defendant AGC’s alleged conduct. (FAC ¶¶ 85, 90, 95, 102, 107.)
And as the magistrate judge noted, the incorporated paragraphs
include numerous allegations clearly implicating AGC in the harms
alleged.
For example, the First Amended Complaint states that
the relationship between BOT and BI was “good” until “AGC
acquired BI.” (Id. ¶ 20.) BOT asserts that “AGC exacerbated any
existing issues” between BOT and BI when it acquired BI. (Id.
¶ 30.) BOT alleges that AGC was the impetus behind the attempt to
purchase BOT, (id. ¶¶ 22-24,) and that it was BOT’s rejection of
the purchase offer that set off the dispute between the parties.
Thus, BOT alleges that when it rejected the purchase offer “AGC
and BI went on the offensive,” and “in a concerted effort to
force an unwilling BOT to sell, the Defendants . . . engaged in a
strategy aimed at inflicting damage to BOT’s well-developed
reputation and simultaneously financially degrading the company.”
(Id. ¶ 24.)
BOT further alleges that “AGC and BI initiated a plan
to litigate multiple cases against BOT,” thereby damaging its
reputation and finances. (Id. ¶ 26.) The First Amended Complaint
also contains allegations implicating AGC in BI’s attempt to
terminate the licensing agreement with BOT. (See id. ¶¶ 46, 60.)

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Finally, in a paragraph that appears directly before the
enumerated counts, Plaintiff summarizes the factual allegations
against “Defendants” and states that “they have engaged in unfair
competition and made false statements, in violation of Hawaii
law. In addition, Defendants have breached the ARA.” (Id. ¶ 84.)
Thus, based on the allegations in the First Amended
Complaint, the Court is satisfied that Defendant AGC is one of
the individuals that engaged in the conduct for which Plaintiff
seeks a remedy. In light of this, Plaintiff’s failure to
specifically name AGC in each numbered count is therefore
insufficient to support a finding of fraudulent joinder. See
Alderman v. Pitney Bowes Mgmt. Svcs., 191 F. Supp. 2d 1113, 1115
(N.D. Cal. 2002) (where a plaintiff failed to specifically name
the defendant in question in each count, holding that, “because
plaintiff has avowed her desire to seek individual liability
against the defendants in question and can, undoubtedly, so seek
liability under the facts alleged and the causes of action pled
in plaintiff’s complaint, the court determines that defendant has
not carried its burden of demonstrating fraudulent joinder”); see
also Hunter v. Philip Morris USA, 582 F.3d 1039, 1044 (9th Cir.
2009) (“[I]f there is any possibility that the state law might
impose liability on a resident defendant under the circumstances
alleged in the complaint, the federal court cannot find that
joinder of the resident defendant was fraudulent, and remand is

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necessary.” (quoting Florence v. Crescent Res., LLC, 484 F.3d
1293, 1299 (11th Cir. 2007))); Parks v. The New York Times Co.,
308 F.2d 474, 477 (5th Cir. 1962) (“[D]etermination of fraudulent
joinder is to be based on whether there was a real intention on
colorable grounds to procure a joint judgment. Doubt as to
whether under the state law a case of joint liability is stated .
. . will not render the joinder fraudulent.”).
Moreover, as to the substance of the allegations
themselves, Defendants have failed to demonstrate that all of
Plaintiff’s claims against AGC must “obvious[ly]” fail under
“settled” Hawaii law. McCabe v. Gen. Foods Corp., 811 F.2d 1336,
1339 (9th Cir. 1987).
First, as to the claims for common law unfair
competition and unfair competition under Hawaii Revised Statutes
Section 480-2, these claims are based upon allegations of
“unnecessary litigation” and “publishing misleading and false
statements” on Defendant BI’s website. (FAC ¶¶ 87, 92.) As
discussed above, there are clearly factual allegations in the
First Amended Complaint referencing Defendant AGC’s role in these
actions. (Id. ¶¶ 17-18, 27, 29.) Moreover, Defendants have not
demonstrated that such allegations are clearly insufficient to
support a claim under Hawaii’s broad definition of unfair

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competition.4/ See, e.g., Han v. Yang, 931 P.2d 604, 619 (Haw.
App. 1997) (noting that Hawaii’s unfair competition statute “was
constructed in broad language in order to constitute a flexible
tool to stop and prevent fraudulent, unfair or deceptive business
practices”).
Defendants argue, however, that AGC had no involvement
in the alleged litigation and website statements and, thus, these
causes of action must fail as to AGC. (Obj. at 12.) To support
this argument, Defendants cite the affidavit of D. Forest Wolfe,
General Counsel of AGC, in which Mr. Wolfe states that AGC has
never itself initiated litigation against BOT, or instructed BI
to do so, and that AGC has no control over BI’s website. (Obj.,
Ex. A.) This statement is somewhat contradicted, however, by an
email chain submitted by Plaintiff in support of the Motion to

4/

The Court is unpersuaded by Defendants’ perfunctory
argument that Plaintiff’s unfair competition claims must fail
because “engaging in litigation cannot constitute unfair
competition, because such a claim would violate Supreme Court
precedent applying the Noerr-Pennington doctrine.” (Obj. at 18;
Reply at 4 n.4.) This argument, essentially raising a First
Amendment defense to the unfair competition claims, asks the
Court “to go to the merits of Plaintiff’s case against all
defendants and an analysis of federal law.” Hunter, 582 F.3d at
1045. However, the Ninth Circuit has clearly stated that such an
analysis would go beyond the scope of the Court’s proper inquiry
for purposes of fraudulent joinder. Id. (rejecting a defendant’s
preemption argument brought to support a claim of fraudulent
joinder); see also Correa v. ADP, Inc., Civ. No. 13-00488 HG-KSC,
2013 WL 6799944, at *7 (D. Haw. Dec. 19, 2013) (Courts do not
consider possible defenses that go to the merits of the case in
determining whether the joinder of a defendant was fraudulent).

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Remand, which appears to show Richard Leonard, the Managing
Director of AGC, discussing, among other things, the ongoing
litigation between BOT and BI, suggesting that AGC may have had
some role in the ongoing dispute between BI and BOT. (Doc. No.
23, Ex. 1.) As discussed above, when determining whether removal
is proper, the Court must “resolve[] all ambiguity in favor of
remand to state court.” Hunter, 582 F.3d at 1042. Thus, the Court
is required to resolve the apparent factual dispute as to AGC’s
role in the allegedly unfair trade practices in Plaintiff’s
favor. As such, the Court cannot conclude that, as Defendants
assert, BOT’s allegations against AGC are merely conclusory and
have no plausible basis in fact. The Court therefore finds that
Defendants have failed to demonstrate by clear and convincing
evidence that Plaintiff’s unfair competition claims “obviously
fail” under Hawaii law. See Hamilton Materials, Inc. v. Dow
Chemical Corp., 494 F.3d 1203, 1206 (9th Cir. 2007).
Having determined that Plaintiff BOT appears to have at
least one potentially valid claim as against Defendant AGC, the
Court need not examine the other claims in the First Amended
Complaint to conclude that Defendants have failed to demonstrate
fraudulent joinder here.5/ See, e.g., Cnty. of Hawaii v. Univev,

5/

The Court notes that Defendants spend much ink in their
Objections and Reply on the proper standard for “piercing the
corporate veil.” (See Obj. at 14-17; Reply at 9-11.) These
arguments are unavailing, however, as the Court concludes that
the allegations in the First Amended Complaint are sufficient to
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LLC, No. CV 09-00368 ACK-LEK, 2010 WL 520696, at *10 (D. Haw.
Feb. 11, 2010) (noting that “a plaintiff need only have one
potentially valid claim against a non-diverse defendant” to
survive a fraudulent joinder challenge (quoting Knutson v.
Allis–Chalmers Corp., 358 F. Supp. 2d 983, 993 (D. Nevada
2005))). Defendants have failed to show by clear and convincing
evidence that there is no possibility that Plaintiff can state a
cause of action against Defendant AGC. Accordingly, the Court
finds that Defendants improperly removed this action, and that
remand to the First Circuit, State of Hawaii is proper. See 28
U.S.C. § 1447(c).
CONCLUSION
For the foregoing reasons, the Court OVERRULES
Defendants’ Objections and ADOPTS the magistrate judge’s Finding
and Recommendation to Grant Plaintiff’s Motion to Remand.
IT IS SO ORDERED.
DATED:

Honolulu, Hawaii, June 1, 2015

________________________________
Alan C. Kay
Senior United States District Judge

plausibly state a claim against Defendant AGC as a co-actor, and
not under an alter ego theory.
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