HTK Hawaii, Inc. vs. Kevin Sun, et al.
Filing
77
ORDER: (1) DENYING DEFENDANTS' MOTION TO TRANSFER VENUE, DOC. NO. 58 ; AND (2) GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS, DOC. NO. 61 . Signed by JUDGE J. MICHAEL SEABRIGHT on 1/25/2016. ~ The only claim remaining in the FAC is HTK's claim for declaratory judgment (Count I). The court grants HTK leave to file a Third Amended Complaint asserting claims for unjust enrichment, breach of contract, and breach of the covenant of good faith and fair dealing (i.e., HTK may address the deficiencies the court identified in Counts II through IV in HTKs FAC). In addition, HTK's SAC contains claims for fraud and conversion; HTK may replead those claims in any Third Amended Complaint as well. (ecs, )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
HTK HAWAII, INC.,
)
)
Plaintiff,
)
)
vs.
)
)
KEVIN SUN; NICOLE YANG,
)
)
Defendant.
)
)
________________________________ )
CIV. NO. 15-00114 JMS-RLP
ORDER: (1) DENYING
DEFENDANTS’ MOTION TO
TRANSFER VENUE, DOC. NO. 58;
AND (2) GRANTING IN PART
AND DENYING IN PART
DEFENDANTS’ MOTION TO
DISMISS, DOC. NO. 61
ORDER: (1) DENYING DEFENDANTS’ MOTION TO TRANSFER
VENUE, DOC NO. 58; AND (2) GRANTING IN PART AND DENYING IN
PART DEFENDANTS’ MOTION TO DISMISS, DOC. NO. 61
I. INTRODUCTION
On April 2, 2015, Plaintiff HTK Hawaii, Inc. (“HTK”) brought this
action against Defendants Kevin Sun (“Mr. Sun”) and Nicole Yang (“Ms. Yang”)
(collectively, “Defendants”), seeking, among other things, a declaratory judgment
that a document entitled “Contract Agreement For HTK California” (the
“Document”) is not an enforceable contract.
Two motions are presently before the court. First, Defendants argue
that the court should transfer venue pursuant to 28 U.S.C. § 1404(a) to the United
States District Court for the Central District of California. Doc. No. 58, Motion to
Transfer. Second, Defendants argue that, in the alternative, the court should
dismiss the case pursuant to Federal Rule of Civil Procedure 12(b)(6). Doc. No.
61, Motion to Dismiss. Based on the following, the court DENIES Defendants’
Motion to Transfer, and DENIES IN PART and GRANTS IN PART Defendants’
Motion to Dismiss.
II. BACKGROUND
A.
Factual Background
1.
Allegations of Complaint
HTK is “a domestic corporation organized under the laws of the State
of Hawaii, with its principal place of business in Honolulu, Hawaii.” Doc. No. 51,
First Amended Complaint (“FAC”) ¶ 1. William Hsia is the President of HTK
and his wife, Kimberly, is the Treasurer. Doc. No. 65-1, Hsia Decl. ¶ 4 (“Hsia
Decl.”). Mr. Sun and Ms. Yang, also a married couple, are residents of the State
of California. FAC ¶¶ 2, 3.
In or around 2012, Mr. Hsia became friends with Mr. Sun. Id. ¶ 10.
“At some point, the Hsias, on behalf of HTK, and the Suns began discussing ways
HTK could expand its California sales and operations.” Id. Toward that end, Mr.
Sun signed a non-disclosure agreement, id. ¶ 11, and “began working as an
independent contractor for HTK to learn the shave ice supply business.” Id. ¶ 12.
2
Mr. Sun continued working as an independent contractor for HTK through 2014.
Id. ¶ 19.
HTK alleges that, “in late 2013, Defendants traveled to Hawaii to
meet with HTK’s officers and discuss the role they could play in the potential
expansion of HTK’s California operations. While they were in Hawaii, the parties
began preliminary negotiations regarding the expansion.” Id. ¶ 13. Ultimately,
the parties drafted the “[Document] with the intention of possibly entering into a
partnership agreement to further expand HTK’s operations in California.” FAC
¶ 15.
Although not attached to the FAC, the court considers the Document,
Doc. No. 59-6, because the parties do not question the Document’s authenticity
and the FAC relies on the Document. See Harris v. Cty. of Orange, 682 F.3d
1126, 1132 (9th Cir. 2012). The Document recites that “[t]he [Defendants] are
hereby agreeing to purchase and be responsible for 50% of all gross and profits of
HTK Hawaii’s sales in the mainland for the sum of $250,000 paid over the period
of three years starting January 2014.” See Doc. No. 59-6. The Document outlines
various “contract terms and conditions,” including, for example, the selling price,
a salary for Mr. Sun, and the sharing and accounting of expenses. Id. The
Document is signed by Mr. and Mrs. Hsia as sellers and Defendants as buyers. Id.
3
According to HTK, “[t]he parties did not intend for the [Document] to
be a final binding contract between them. Rather, the [p]arties understood that the
[Document] was a step in the negotiation process, and that a formal contract would
need to be negotiated and executed between HTK and Defendants.” FAC ¶ 15.
The Complaint further alleges that, “[b]ased on Defendants’ representations, HTK
understood that the [Document], and any potential partnership, was premised on
Defendants’ ability to meaningfully expand HTK’s California sales and obtain
new customers.” Id. ¶ 17. However, “[t]he [Document] did not identify the actual
business entity that would be sold, nor did it contain a timeline for the creation of
such an entity or subsidiary of HTK.” Id. ¶ 18.
At some point during this negotiation process, “HTK made [a]
$99,077.62 good faith payment to Defendants.” Id. ¶ 38. Ultimately, HTK alleges
that “[s]ignificant disagreements arose between the Parties, and it became clear
that any potential business relationship regarding HTK’s California operation
would never materialize.” Id. ¶ 22. HTK further alleges that, “[o]n December 8,
2014, after the relationship between the Parties had deteriorated, the Defendants
unilaterally and without [] HTK’s knowledge or consent, filed Articles of
Incorporation for Hawaiian Snow California, an S-corporation organized under
laws of [the] state of California.” Id. ¶ 23.
4
HTK complains that Defendants “have subsequently attempted to
enforce the [Document] as a binding contract, despite the fact there was never any
intent by the Parties for the [Document] to be binding.” Id. ¶ 24. HTK also
alleges that, despite Defendants’ position that the Document is binding,
Defendants have failed to “act in furtherance of the [Document], and their conduct
clearly shows their intent that the [Document] was not a binding agreement.” Id.
¶ 35. Specifically, HTK alleges the following deficiencies:
A.
B.
C.
D.
E.
F.
Defendants never made a single payment toward
the $250,000 purchase price contained in the
[Document].
Defendants never paid any of the expenses for
HTK’s California operations for 2014, even
though the [Document] provided that the Suns
would share all inventory and other expenses for
the mainland business.
Defendants admitted that they did not have any
ability to make any payments toward the inventory
expenses or alleged purchase price contained in
the [Document].
Defendants admitted that Mr. Sun was looking for
other business opportunities and employment
outside of HTK during the time [Document] was
allegedly in effect.
Defendants did not significantly expand HTK’s
California business or obtain new customers to
fulfill the purpose [of] creating the new HTK
subsidiary anticipated by the [Document].
The [Document] purports to sell an interest in a
subsidiary and/or partnership related to HTK;
however, no such subsidiary was ever created that
5
was legally linked to HTK.
Id. ¶ 26.
2.
Additional Facts Relevant to Defendants’ Motion to Transfer1
HTK is a Hawaii corporation that sells shave ice products, and its
office, officers, employees, operations, accountant, and bank are all located in
Hawaii. Hsia Decl. ¶¶ 1, 3. HTK also transacts business on the mainland,
including in California. Id. ¶ 11. In mid-2013, Mr. Sun began managing HTK’s
operations in California. Doc. No. 60, Kevin Sun Decl. ¶ 5 (“Sun Decl.”).
Toward that end, on June 4, 2013, Mr. Sun signed an Employee Confidentiality
and Non-Disclosure Agreement, which provides that, among other things, the
agreement is governed by the laws of Hawaii.2 Doc. No. 59-5, Defs.’ Ex. 5 at 3.
The parties subsequently began negotiating a partnership agreement.
Before the parties signed the Document, “Kevin Sun travelled [sic] from
California to Hawaii to meet with [Mr. Hsia], as well as HTK’s other officers and
1
The court considers these facts in regard to Defendants’ Motion to Transfer only and not
in regard to Defendants’ Motion to Dismiss.
2
The parties dispute whether Mr. Sun was an employee or an independent contractor of
HTK. Mr. Hsia asserts that HTK engaged Defendants as an independent contractor to expand
HTK’s operations in California and elsewhere on the mainland. Hsia Decl. ¶ 13. In support of
the assertion that Mr. Sun was an independent contractor (as opposed to an employee), HTK
presents Mr. Sun’s 1099-MISC form, which shows that HTK compensated him as a nonemployee. See Doc. No. 65-2, Pl.’s Ex. A.
6
employees.” Hsia Decl. ¶ 13. “At that meeting in Honolulu, [the parties] began
negotiating a potential business relationship between HTK and [Defendants].” Id.
¶ 14. Subsequent negotiations were conducted primarily by telephone and email,
see, e.g., Doc. No. 60-1, Defs. Ex. A, although the Hsias also visited California to
discuss the partnership. Sun Decl. ¶ 7. See also Doc. No. 60-2, Defs.’ Ex. B
(email stating that Kim Hsia will be in California on December 6, 2013 and “will
discuss with you further in person”). Ultimately, the Hsias executed the
Document in December 2013, Doc. No. 59-6, and sent it to Defendants in
California, where Defendants signed it. Sun Decl. ¶ 8.
HTK subsequently began paying Mr. Sun an annual sum of $36,000,
Doc. No. 59-6, and Defendants managed orders made by customers located on the
mainland, shipped products for these orders, examined possible warehouses for
the partnership, and marketed the business, all from California. Sun Decl. ¶ 9; see
also Doc. No. 60-4, Defs.’ Ex. D (checks from HTK to Mr. Sun). HTK’s website
described Mr. Sun as “our current California office representative” who “helps our
mainland customers,” and who “has traveled around the States and has a good
knowledge of the mainland sales market.” See Doc. No. 59-1, Defs.’ Ex. 1.
Despite being located in California, however, Mr. Sun’s business cards provided
by HTK stated HTK’s Hawaii address. See Doc. No. 65-4, Pl.’s Ex. C.
7
Under the parties’ arrangement, HTK and the Suns worked jointly to
meet orders for customers -- a customer would purchase products from HTK, who
would ship those products to HS International, who in turn would deliver the
products to the customer. Sun Decl. ¶ 11; see also Doc. No. 60-5, Defs.’ Ex. E
(invoices). In carrying out this arrangement, HTK states that HTK did not itself
own or rent any real property or warehouse space in California, and instead used
Sonical International in El Monte, California as a “drop shipper,” a third-party
distribution hub and customs broker, to ship goods between HTK’s suppliers and
customers. Hsia Decl. ¶¶ 6-7; see also Doc. No. 59-2, Defs.’ Ex. 2 (invoices from
Sonical to HTK charging for “storage,” “in/out charge,” and “pallelt [sic] fee”).
By contrast, Defendants claim that HTK does have a California office. Sun Decl.
¶ 10.
Mr. Sun also took steps to establish a business in California. For
example, Mr. Sun (1) filed registrations to do business in California under the
name “HS International,” which lists both Mr. Sun and Mr. Hsia as the registered
owners, Doc. No. 59-7, Defs.’ Ex. 7; (2) obtained an employer identification
number from the Internal Revenue Service for HS International (which Mr. Hsia
also signed), Doc. No. 59-11, Defs.’ Ex. 11 at 1-3; (3) filed articles of
incorporation for “Hawaiian Snow California Corporation” with the California
8
Secretary of State, Doc. No. 59-10, Defs’ Ex. 10; and (4) applied for a business
account for HS International with JP Morgan Chase Bank listing himself and Mr.
Hsia as partners, Doc. No. 59-11, Defs.’ Ex. 11 at 4-6.
According to Defendants, on July 24, 2014, HTK provided Mr. Sun a
check in the amount of $99,077.62, writing “Bonus” in the memo line. Doc. No.
60-6, Defs.’ Ex. F. Defendants claim this check was half the profits from January
through July 2014. Sun Decl. ¶ 12. By the end of 2014, however, HTK refused to
close the financial books for the California business and refused to share profits
for the second half of 2014. Id. ¶ 13. The Hsias then suggested a new partnership
agreement, which resulted in an email from Mr. Hsia on January 9, 2015, stating
that he had his attorney “draft a legal document for the partnership with
amendments to the controlling power.” See Doc. No. 60-7, Defs.’ Ex. G. After
Ms. Yang expressed a desire to seek legal advice, the Hsias told Defendants that
they felt Defendants had threatened legal action, and the Hsias subsequently
stopped paying Mr. Sun. Id.; see also Sun Decl. ¶¶ 15-16.
The parties now dispute whether the Document is binding. Toward
that end, both HTK and Defendants filed lawsuits in separate forums -- HTK in
Hawaii, and Defendants in the Superior Court of California (County of Los
9
Angeles), Doc. No. 27-13, Defs.’ Ex. 13.3
B.
Procedural Background
On January 12, 2015, HTK filed its Complaint in the Circuit Court of
the First Circuit of the State of Hawaii. Doc. No. 1-1, Compl. Defendants
removed to this court on April 2, 2015. Doc. No. 1, Notice of Removal.
On September 8, 2015, HTK filed its FAC. Doc. No. 51. The FAC
asserts claims for declaratory judgment (Count 1) and unjust enrichment (Count
II). Id. In the alternative, the FAC also alleges claims for breach of contract
(Count III), breach of the covenant of good faith and fair dealing (Count IV), and
rescission (Count V). Id.
On November 20, 2015, HTK filed a Second Amended Complaint
(“SAC”). Doc. No. 57. Three days later, Defendants filed a Motion to Change
Venue, Doc. No. 58, and a Motion to Dismiss, Doc. No. 61 (collectively,
“Defendants’ Motions”). Defendants’ Motions address the FAC and not the SAC.
On January 6, 2016, the court held a hearing on Defendants’ Motions.
Doc. No. 72. At the hearing, the parties agreed that the FAC and not the SAC was
the relevant pleading for analyzing Defendants’ Motions.
3
On December 17, 2015, the California Court stayed Defendants’ case in favor of the
Hawaii action. Doc. No. 71-2, Ex. A.
10
III. STANDARDS OF REVIEW
A.
Transfer of Venue
Section 1404(a) provides: “[f]or the convenience of parties and
witnesses, in the interest of justice, a district court may transfer any civil action to
any other district or division where it might have been brought.” 28 U.S.C.
§ 1404(a) The purpose of § 1404(a) is “to prevent the waste of time, energy and
money and to protect litigants, witnesses and the public against unnecessary
inconvenience and expense.” Van Dusen v. Barrack, 376 U.S. 612, 616 (1964)
(internal quotation marks omitted).
In deciding a motion to transfer venue, the court must consider each
of the factors enumerated in § 1404(a) -- whether the action could have been
brought in the proposed transferee district, the convenience of the parties, the
convenience of the witnesses, and the interests of justice. See Jones v. GNC
Franchising, Inc., 211 F.3d 495, 498-99 (9th Cir. 2000); see also Hatch v.
Reliance Ins. Co., 758 F.2d 409, 414 (9th Cir. 1985). In determining whether
transfer is appropriate, the Ninth Circuit has articulated several non-exclusive
factors that the district court may consider, including:
(1) the location where the relevant agreements were
negotiated and executed, (2) the state that is most
familiar with the governing law, (3) the plaintiff’s choice
11
of forum, (4) the respective parties’ contacts with the
forum, (5) the contacts relating to the plaintiff’s cause of
action in the chosen forum, (6) the differences in the
costs of litigation in the two forums, (7) the availability
of compulsory process to compel attendance of unwilling
non-party witnesses, and (8) the ease of access to sources
of proof.
Jones, 211 F.3d at 498-99.
In weighing these factors, the court remains mindful of what the
United States Supreme Court has termed “the plaintiff’s venue privilege.” Atl.
Marine Const. Co. v. U.S. Dist. Court for the W. Dist. of Texas, 134 S. Ct. 568,
581 (2013) (“Because plaintiffs are ordinarily allowed to select whatever forum
they consider the most advantageous (consistent with jurisdictional and venue
limitations), we have termed their selection ‘the plaintiff’s venue privilege.’”)
(citation omitted). See also Van Dusen, 376 U.S. at 634 (“There is nothing,
however, in the language or policy of § 1404(a) to justify its use by defendants to
defeat the advantages accruing to plaintiffs who have chosen a forum which,
although it was inconvenient, was a proper venue.”). That is, even though “courts
have developed a bewildering variety of . . . formulations to describe the weight to
be accorded [to] the plaintiff’s initial choice of forum,” see 15 Fed. Prac. & Proc.
Juris. § 3848 (4th ed.), “[t]here is normally a strong presumption in favor of
honoring the plaintiff’s choice of forum.” Creative Tech., Ltd. v. Aztech Sys. Pte.,
12
Ltd., 61 F. 3d 696, 703 (9th Cir. 1995).
Ultimately, “[t]he [c]ourt balances these factors and will transfer the
action if the other forum is clearly more convenient.” Robinson Corp. v. AutoOwners Ins. Co., 304 F. Supp. 2d 1232, 1243 (D. Haw. 2003) (emphasis added).
And, significantly, the court does not give every factor equal weight. Because
“[t]he plaintiff’s choice of forum is entitled to significant weight . . . , the
defendant must make a strong showing of inconvenience to warrant transfer to
another district.” Id. (quotation marks omitted).
The moving party has the burden of showing that the convenience of
parties and the interest of justice heavily favors transfer in order to overcome the
presumption in favor of the plaintiff’s choice of forum. See Decker Coal Co. v.
Commonwealth Edison Co., 805 F.2d 834, 843 (9th Cir. 1986); Commodity
Futures Trading Comm’n v. Savage, 611 F.2d 270, 279 (9th Cir. 1979). Further,
“[w]eighing of the factors for and against transfer involves subtle considerations
and is best left to the discretion of the trial judge.” Savage, 611 F.2d at 279; see
also Jones, 211 F.3d at 498 (“[T]he district court has discretion to adjudicate
motions for transfer according to an individualized, case-by-case consideration of
convenience and fairness.” (quotations marks omitted)).
13
B.
Rule 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss
a claim for “failure to state a claim upon which relief can be granted[.]” To
survive a motion to dismiss, “a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)); see Weber v. Dep’t of Veterans Affairs, 521 F.3d 1061, 1065
(9th Cir. 2008). This tenet -- that the court must accept as true all of the
allegations contained in the complaint -- “is inapplicable to legal conclusions.”
Iqbal, 556 U.S. at 678. Accordingly, “[t]hreadbare recitals of the elements of a
cause of action, supported by mere conclusory statements, do not suffice.” Id.
(citing Twombly, 550 U.S. at 555); see also Starr v. Baca, 652 F.3d 1202, 1216
(9th Cir. 2011) (“[A]llegations in a complaint or counterclaim may not simply
recite the elements of a cause of action, but must contain sufficient allegations of
underlying facts to give fair notice and to enable the opposing party to defend
itself effectively.”).
Rather, “[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 678 (citing
14
Twombly, 550 U.S. at 556). In other words, “the factual allegations that are taken
as true must plausibly suggest an entitlement to relief, such that it is not unfair to
require the opposing party to be subjected to the expense of discovery and
continued litigation.” Starr, 652 F.3d at 1216. Factual allegations that only
permit the court to infer “the mere possibility of misconduct” do not show that the
pleader is entitled to relief as required by Rule 8. Iqbal, 556 U.S. at 679.
IV. DISCUSSION
A.
Transfer of Venue Pursuant to 28 U.S.C. § 1404(a)
The court evaluates the Defendants’ Motion to Transfer by analyzing
both the relative merits of (1) the plaintiff’s choice of forum and (2) the
enumerated § 1404(a) considerations. The court addresses each in turn.
1.
Plaintiff’s Choice of Forum
HTK selected Hawaii as its forum, HTK is a citizen of Hawaii,
Hawaii is a proper venue for this action, and there is no evidence that HTK filed
this action in bad faith. Defendants argue that the strong presumption in favor of
HTK’s choice of forum is overcome in this case “because the events giving rise to
this case occurred in California, and because HTK filed this anticipatory suit to
forum shop.” Doc. No. 58, Mot. to Transfer at 15. The court disagrees.
With regard to Defendants’ flat assertion that “the events giving rise
15
to this case occurred in California,” the evidence is, at best, mixed. Significantly,
Defendants ignore that the “document at the heart of [HTK’s] declaratory
judgment action,” id. at 1 -- i.e., the Document -- did not emerge from thin air.
Defendants do not dispute that, before the parties signed the Document, “Kevin
Sun travelled [sic] from California to Hawaii to meet with [Mr. Hsia], as well as
HTK’s other officers and employees.” Hsia Decl. ¶ 13. “At that meeting in
Honolulu, [the parties] began negotiating a potential business relationship between
HTK and [Defendants].” Id. ¶ 14. It is therefore evident that, at a minimum, the
foundations for the Document occurred in Honolulu. And, although Defendants’
evidence indicates that some subsequent events occurred in California, much of
Defendants’ evidence also demonstrates an ongoing connection to Hawaii. See,
e.g., Doc No. 59-3, Defs.’ Ex. 3 (various invoices from California billed to HTK in
Hawaii).
In addition, the court is not persuaded by Defendants’ assertion that
HTK’s lawsuit was an “anticipatory lawsuit.” Mot. to Transfer at 14-15.
“Generally, a suit is anticipatory when the plaintiff files suit upon receipt of
specific, concrete indications that a suit by the defendant is imminent.”
Youngevity Int’l. v. Renew Life Formulas, Inc., 42 F. Supp. 3d 1377, 1383 (S.D.
Cal. 2014). But merely threatening litigation does not necessarily provide
16
“specific, concrete indications” that a defendant is “planning to file an imminent
lawsuit.” Id. at 1384.
Defendants rely on Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d
622, 628 (9th Cir. 1991) for the proposition that “[a]nticipatory suits are
disfavored because they are aspects of forum-shopping.” And, in an effort to
prove that HTK was forum shopping, Defendants cite to a January 9, 2015 email
from Mr. Hsia to Mr. Sun stating:
Maybe you did not get your wife’s email as to why I
have to defend my company and myself. Your wife has
clearly threatened us with legal action. Do not blame us
for being defensive . . . .When she clearly states she
wants to get lawyers involved in the negotiation then we
have the right to defend.
All we did was have our attorney draft a legal document
for the partnership with amendments to the controlling
power and we can all sit down and talk about who is
“entitled” to what. However you guys made our
negotiation effort turn into possible litigation.
Doc. No. 60-7.
The court disagrees that this email indicates that HTK filed an
“anticipatory lawsuit” in order to forum shop. Although Mr. Hsia’s email states
that Defendants “threatened [HTK] with legal action,” the email does not offer any
“specific, concrete indications” that Defendants threatened to “file an imminent
17
lawsuit.” See Youngevity Int’l, 42 F. Supp. 3d at 1383. Rather, Mr. Hsia’s email
complained that Defendants “made [HTK’s] negotiation effort turn into a possible
litigation,” Doc. No. 60-7, thereby suggesting that the parties were still open to
resolving their dispute without a lawsuit. See Youngevity Int’l, 42 F. Supp. 3d at
1383 (“To the contrary, Renew Life may have filed the Florida Action following
Youngevity’s demand letter because it realized resolution of the matter outside the
judicial context was impossible. Accordingly, the Court finds the Florida Action
was not an anticipatory suit.”).
Defendants’ authorities are not to the contrary. Indeed, the cases
Defendants cite all involve situations where “the operative facts have not occurred
within the forum of original selection and that forum has no particular interest in
the parties or the subject matter.” See Pac. Car & Foundry Co. v. Pence, 403 F.2d
949, 954. See also Kawamoto v. CB Richard Ellis, Inc., 225 F. Supp. 2d 1209 (D.
Haw. 2002) (rejecting plaintiff’s choice of forum because “‘[a] plaintiff’s choice
of forum is normally only given substantial deference if the plaintiff is a resident
of the district in which the action is brought’”) (quoting Miracle Blade, LLC v.
Ebrands Commerce Grp., LLC, 207 F. Supp. 2d 1136, 1155 (D. Nev. 2002));
Sweet-Reddy v. Vons Cos., 2007 WL 841792, at *2 (N.D. Cal. Mar. 20, 2007)
(“[I]f the plaintiff’s forum lacks any significant contact with the activities alleged
18
in the complaint, the plaintiff’s choice of forum will be given considerably less
weight.”).
Given the foregoing, the court finds that HTK’s choice of forum
deserves the substantial weight traditionally given to a plaintiff’s choice of forum.
Creative Tech., 61 F.3d at 703. That is, HTK is entitled to “the plaintiff’s venue
privilege.” Atl. Marine Const. Co., 134 S. Ct. at 581.
2.
§ 1404(a) Considerations
The court next examines the § 1404(a) factors to determine whether
the Defendants have made the required “strong showing of inconvenience to
warrant upsetting the plaintiff’s choice of forum.” Decker Coal Co., 805 F.2d at
843.
a.
Convenience of the parties
The parties dispute which forum is more convenient. The court finds
that the convenience of the parties is a neutral factor: HTK is in this forum and
Defendants are in the Central District of California, and the forums are therefore
equally inconvenient for each party. See Cochran v. NYP Holdings, Inc., 58 F.
Supp. 2d 1113, 1120 (C.D. Cal. 1998) (“A transfer will not be ordered if the result
is merely to ‘shift’ the inconvenience from one party to another.”). As such, the
court finds this factor is neutral.
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b.
Convenience of the witnesses
The parties also dispute the convenience of the witnesses. “The
relative convenience to the witnesses is often recognized as the most important
factor to be considered in ruling on a motion under § 1404(a).” Saleh v. Titan
Corp., 361 F. Supp. 2d 1152, 1160 (S.D. Cal. 2005) (quotation marks and citations
omitted). Moreover, “while the convenience of party witnesses is a factor to be
considered, the convenience of non-party witnesses is the more important factor.”
Id. (quotation marks, citations, and alterations omitted). “In determining whether
this factor weighs in favor of transfer, the court must consider not simply how
many witnesses each side has and the location of each, but, rather, the court must
consider the importance of the witnesses.” Id. (quotation marks and citations
omitted). See also Gates Learjet Corp. v. Jensen, 743 F.2d 1325, 1335-36 (9th
Cir. 1984) (holding, in a forum non conveniens case, that a district court should
first “examine[] the materiality and importance of the anticipated witnesses’
testimony and then determine[] their accessibility and convenience to the forum”);
Norwood v. Kirkpatrick, 349 U.S. 29, 32 (1955) (explaining that, although district
courts have broader discretion under § 1404(a) than under the forum non
conveniens doctrine, the relevant factors remain the same and that the plaintiff’s
choice of forum must still be given appropriate deference).
20
HTK states that its “officers, employees, bank and CPA are all
located in Hawaii.” Doc. No. 65, Pl.’s Opp’n at 27. Defendants have also
submitted declarations from three non-party witnesses on the mainland who have
declared they will not travel to Hawaii to testify at trial because of personal and
professional hardships. Mot. to Transfer at 24. See also Sun Decl. ¶¶ 21-23.
Specifically, Defendants identified: (1) Scott Leotti, a California customer of
HTK; (2) Richard Chen, an accountant for HS International; and (3) Charlie Lee,
owner of Sonical International Inc., which stores products for HTK and HS
International.” Id. See also Doc. No. 67, Reply at 8. But because Mr. Lee
subsequently communicated to HTK that he wished to “formally retract and void
[his] signature” from his declaration and stated that he would, in fact, agree to be a
witness if the case proceeds in Hawaii, Doc. No. 65-5, Pl.’s Ex. D, the court
evaluates the relative importance of Mr. Leotti and Mr. Chen to the action.
Defendants argue that these two witnesses “will establish that the
parties interpreted the [Document] as a binding contract.” Mot. to Transfer at 8-9.
By contrast, HTK disputes these individuals will be material witnesses, let alone
competent witnesses with relevant knowledge. Opp’n at 27. As to Mr. Leotti,
HTK points out that he “is a single customer of HTK, and there is no evidence that
he could not be deposed in California if necessary.” Id. at 27-28. With regard to
21
Mr. Chen, HTK observes: “Mr. Chen is apparently an accountant for HS
International, and claims to be familiar with certain financial documents, despite
the fact that he has never spoken to HTK’s officers, has never spoken to HTK’s
accountant, [and] relied solely on Defendants for their assessment of HTK
California’s operations.” Id. at 28. HTK further points out that there is no
evidence that Mr. Leotti could not be deposed in California. Id. In response,
Defendants complain that they “should not have to rely on deposition transcripts
to present their case.” Reply at 9 (citing Costco Wholesale Corp. v. Liberty Mut.
Ins. Co., 472 F. Supp. 2d 1183, 1194 (S.D. Cal. 2007)).
In weighing the parties’ arguments, the court typically “must analyze
the comparative importance of non-party witnesses beyond the subpoena power of
the respective courts.” Costco Wholesale Corp., 472 F. Supp. 2d at 1194.
Significantly, Defendants have not persuaded the court that either Mr. Leotti or
Mr. Chen will be an important witness in this action. Costco Wholesale Corp.,
472 F. Supp. 2d at 1194 (“The court considers not simply how many witnesses
each side has and the location of each, but also the importance of the witnesses.”)
(quotation marks, citations, and alterations omitted). Rather, at best, both Mr.
Leotti and Mr. Chen appear to be ancillary to this action.
Moreover, the court finds that Defendants failed to “show not only
22
that the witnesses who would be inconvenienced are key witnesses, but also that
their testimony cannot effectively be presented by deposition.” See 1 A.L.R. Fed.
15, § 8(a), cmt. (1969). First, Defendants have not meaningfully refuted HTK’s
argument that Mr. Leotti and Mr. Chen could be deposed in California, if
necessary. Accordingly, there is no evidence that Mr. Leotti and Mr. Chen will be
completely unavailable or that their testimony cannot effectively be presented by
deposition. And although Defendants argue that “deposition testimony is
disfavored because a party should not be forced to rely on trial by deposition
rather than live witnesses,” Costco Wholesale Corp., 472 F. Supp. 2d at 1194 n.13,
today’s modern technology permits the use of the court’s videoconferencing
capabilities to obtain Mr. Leotti’s and Mr. Chen’s live testimony from California,
if necessary. Accordingly, this hardship carries less weight than in years past.
Thus, while the court recognizes that Hawaii is an inconvenient forum for Mr.
Leotti and Mr. Chen, there is no evidence that this inconvenience will
meaningfully deprive Defendants of either Mr. Leotti or Mr. Chen’s testimony.
Based on the foregoing, the court finds that the “convenience of the
witnesses” factor weighs in favor of California, but only slightly.
c.
The interests of justice
The final § 1404(a) factor -- “the interests of justice” -- is the most
23
nebulous of the factors, and evaluating this factor necessarily requires considering
the totality of the circumstances. Jones, 211 F. 3d at 498 (observing the district
court’s discretion to decide a motion to transfer venue under § 1404(a) according
to an “individualized, case-by-case consideration of convenience and fairness” and
holding that the district court must “weigh multiple factors in its determination
whether transfer is appropriate in a particular case”) (quotation marks and citations
omitted). Toward that end, the court turns to some of the concrete factors the
Ninth Circuit has articulated for a court’s consideration on a § 1404(a) motion,
including:
(1) the location where the relevant agreements were
negotiated and executed, (2) the state that is most
familiar with the governing law, (3) the plaintiff’s choice
of forum, (4) the respective parties’ contacts with the
forum, (5) the contacts relating to the plaintiff’s cause of
action in the chosen forum, (6) the differences in the
costs of litigation in the two forums, (7) the availability
of compulsory process to compel attendance of unwilling
non-party witnesses, and (8) the ease of access to sources
of proof.
Id. at 498-499.4
With regard to the first Jones factor, the Document was first
discussed when Mr. Sun was in Honolulu, Hsia Decl. ¶¶ 13-14, and subsequent
4
Because the third and the seventh Jones factors were addressed above, the court will
not duplicate that analysis here.
24
negotiations took place over the phone and by email. Thus, this factor slightly
favors Hawaii.
With regard to the second Jones factor, the parties dispute which
venue is most familiar with the governing law. Further, the parties disagree as to
whether Hawaii or California law applies, and the parties’ briefing is of little help.
And without this help, the court is reluctant to determine whether Hawaii or
California law will apply to this action. Ultimately, though, the legal issues raised
in the FAC are straightforward; while Hawaii law and California law differ with
regard to some Counts in certain respects, the court is confident that either venue
could effectively apply the governing law (whatever that may be) with little
difficulty. Indeed, both venues are experienced at doing so. See, e.g., Moddha
Interactive, Inc. v. Philips Elec. N. Am. Corp., 92 F.Supp.3d 982, 994 (D. Haw.
2015) (applying California law); Shankar v. United States Dep’t of Homeland
Security, 2014 WL 523960, at *9 (N.D. Cal. Feb. 6, 2014) (applying Hawaii law).
The court therefore finds this factor is neutral.
With regard to the fourth Jones factor, HTK is a Hawaii corporation
with its office, officers, employees, operations, accountant, and bank all located in
Hawaii, Hsia Decl. ¶¶ 1-3, and Mr. Sun managed HTK’s operations in California.
Sun Decl. ¶ 5. It is undisputed that Mr. Sun signed an “employee confidentiality
25
agreement” with HTK which clearly stated it would “be governed by the laws of
the state of HAWAII.” Doc. No. 59-5. Accordingly, the court rejects
Defendants’ claim that they “have little to no contacts with Hawaii.” Mot. to
Transfer at 16. While the court acknowledges that both the Hsias and HTK had
contacts with California, the court finds that Hawaii is the forum where the most
relevant, meaningful, and sustained contact occurred.
With regard to the fifth Jones factor, the court considered this factor
at length when discussing plaintiff’s choice of forum. And, for the reasons
previously discussed, the court finds this factor favors Hawaii.
With regard to the sixth Jones factor, the court is persuaded that
granting Defendants’ motion would delay the August 2, 2016 trial date. See York
v. Jordan, 2014 WL 309639, at *7 (D. Haw. Jan. 28, 2014) (finding “court
congestion and time to trial” weighed in favor of Hawaii when evaluating a
motion to transfer venue to the Central District of California). Although delaying
a trial date does not necessarily raise a party’s costs, these factors are logically
intertwined. See, e.g., Fed. R. Civ. P. 1 (requiring that the Federal Rules of Civil
Procedure be “employed by the court and the parties to secure the just, speedy, and
inexpensive determination of every action and proceeding”).
By contrast, the court is not convinced by Defendants’ arguments
26
regarding relative costs. The fact that Defendants identified thirteen witnesses in
their initial disclosures does not necessarily affect the relative costs of proceeding
in Defendants’ preferred venue. In any event, the court’s weighing of witnesses
on a § 1404(a) motion must be qualitative, not quantitative. See, e.g., Saleh, 361
F. Supp. 2d at 1160. Moreover, the court is not in a position to evaluate whether
HTK, as a corporation, is able to “‘more easily travel for litigation than could
individuals who are parties to the action.’” Reply at 14 (quoting Miracle v. The
New York Post, 87 F. Supp. 2d 1060, 1073-74 (D. Haw. 2000)). There is no
evidence in the record suggesting that HTK is flush with the resources of a “large
corporation,” 87 F. Supp. 2d at 1073, as was the case in Miracle; neither party has
submitted a ledger of its available funds. Finally, the status of both the Hsia’s
California property and HTK’s business activities in California is disputed.
Ultimately, “neither party has made a definitive showing of relative
costs,” York, 2014 WL 309639 at *6, but the court finds that this factor weighs
slightly in favor of Hawaii because the inevitable delay in the trial date in
California is the most likely factor to raise costs. See Fed. R. Civ. P. 1.
Finally, with regard to the eighth Jones factor, the court finds that this
factor is neutral. Both parties have advanced various legitimate reasons as to why
their “proof” resides in their respective preferred forum. Ultimately, the court
27
finds that this factor is neutral.
In light of the foregoing analysis, the court finds that the interests of
justice favor Hawaii as the forum.
d.
Weighing the § 1404(a) factors
In sum, the court’s findings regarding the three § 1404(a) factors are
mixed: while the convenience of the parties is neutral, the convenience of the
witnesses slightly favors California, and the interests of justice favor Hawaii.
When all the relevant facts are considered, Defendants have failed to meet their
burden of making a “strong showing of inconvenience to warrant upsetting the
plaintiff’s choice of forum.” Decker Coal Co., 805 F.2d at 843. Accordingly, the
court determines in its discretion that, when viewed together, the § 1404(a) factors
do not warrant upsetting HTK’s choice of forum. Id. The court therefore DENIES
Defendants’ Motion to Transfer.
B.
Motion to Dismiss
1.
Standing
Defendants first argue that HTK lacks standing to bring suit because
HTK is neither a party nor a signatory to the Document. Doc. No. 61, Mot. to
Dismiss at 8. “[T]he standing question is whether the plaintiff has alleged such a
personal stake in the outcome of the controversy as to warrant his invocation of
28
federal-court jurisdiction and to justify exercise of the court’s remedial powers on
his behalf.” Warth v. Seldin, 422 U.S. 490, 498-99 (1975) (internal quotation
marks omitted). That is, “[s]tanding addresses whether the plaintiff is the proper
party to bring the matter to the court for adjudication.” Chandler v. State Farm
Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010). A plaintiff has Article
III standing to bring a suit when a plaintiff adequately establishes: “(1) an injury in
fact (i.e., a ‘concrete and particularized’ invasion of a ‘legally protected interest’);
(2) causation (i.e., a ‘fairly . . . trace[able]’ connection between the alleged injury
in fact and the alleged conduct of the defendant); and (3) redressability (i.e., it is
‘likely’ and not ‘merely ‘speculative’ that the plaintiff’s injury will be remedied by
the relief plaintiff seeks in bringing suit).” Sprint Comm’cns. Co. v. APCC Servs.,
Inc., 554 U.S. 269, 273-74 (2008) (quoting Lujan v. Defenders of Wildlife, 504
U.S. 555, 560-561 (1992)).
HTK clearly meets these requirements. HTK bases its suit on an
“injury in fact”: the Defendants’ alleged attempts to “enforce the [Document] as a
binding contract, despite the fact there was never any intent by the Parties for the
[Document] to be binding.” FAC ¶ 24. This injury is made concrete and
particularized by HTK’s allegation that “HTK made the $99,077.62 good faith
payment to Defendants,” id. ¶ 38, which unjustly enriched the Defendants because
29
“there was no binding agreement,” id. ¶ 40, and also because Defendants “fail[ed]
to pay any expenses for HTK’s California operations.” Id. ¶ 41. HTK alleges that
Defendants “caused” that injury. And if HTK prevails, this suit will “redress” that
injury because Defendants will have to pay HTK what they owe. The court thus
concludes that HTK has standing as a party in interest to litigate this action.
Defendants’ arguments to the contrary are unpersuasive. Although
“[a] breach of contract claim generally requires that the parties be in privity of
contract,” Peters v. Lexington Ins. Co., 836 F. Supp 2d 1117, 1123 (D. Haw.
2011), a third-party such as HTK may enforce the contract where it was “expressly
entered into for the intended benefit of the third party.” Andrew Smith Co. v.
Paul’s Pak, Inc., 754 F. Supp. 2d 1120, 1133 (N.D. Cal. 2010). Here, HTK
alleges that “the Hsias and Defendants drafted [the Document] with the intention
of possibly entering into a partnership agreement to further expand HTK’s
operations in California” as a “step in the negotiation process” with the
understanding “that a formal contract would need to be negotiated and executed
between HTK and Defendants.” FAC ¶ 15. See also id. ¶ 10 (alleging that Hsias
entered into negotiations with the Defendants “on behalf of HTK”). Because HTK
alleges the signatories to the Document (i.e., the Hsias and the Defendants) created
the Document for the intended benefit of a third party (i.e., HTK), HTK has
30
standing.
2.
HTK’s Declaratory Judgment Claim (Count I)
HTK’s declaratory judgment claim asks the court to find that the
Document is not a valid contract. Defendants argue that HTK’s declaratory
judgment claim “clearly fails as a matter of law because the [Document]
demonstrates on its face that it is a binding, valid contract, and HTK has not
alleged any basis for concluding otherwise. This is a pure issue of law that the
court can, and should, decide now.” Doc. No. 69, Reply at 3. The court disagrees.
Under both California and Hawaii, a valid contract requires mutual
assent. See, e.g., Uyeshiro v. Irongate Azrep BW LLC, 2014 WL 414219, at *7 (D.
Haw. Feb. 3, 2014) (applying Hawaii law and finding that “[i]t is axiomatic that
‘there must be a meeting of the minds on all essential elements or terms in order to
create a binding contract.’”) (quoting United Public Workers, AFSCME v. Dawson
Int’l, 113 Haw. 127, 141, 149 P.3d 495, 509 (2006)); First Nat’l Mortg. Co. v.
Fed. Realty Inv. Tr., 631 F. 3d 1058, 1065 (9th Cir. 2011) (applying California law
and finding that “[c]reation of a valid contract requires mutual assent”) (citing
Kruse v. Bank of Am., 202 Cal. App. 3d, 38, 59, 248 Cal. Rptr. 217, 229 (1988)).
Further, in both California and Hawaii, mutual assent is determined by objective
criteria such as the conduct of the parties. See Marin Storage & Trucking, Inc. v.
31
Benco Contracting & Eng’g, Inc., 89 Cal. App. 4th 1042, 1050, 107 Cal. Rptr. 2d
645, 52 (2001); Douglass v. Pfleuger Hawaii, Inc., 110 Haw. 520, 531, 135 P. 3d
129, 141 (2006) (“The existence of mutual assent or intent to accept is determined
by an objective standard.”).
HTK clearly alleges that “[t]he parties never had mutual assent,”
FAC ¶ 34, because “[t]he parties did not intend for the [Document] to be a final
binding contract between them. Rather, the Parties understood that the
[Document] was a step in the negotiation process, and that a formal contract would
need to be negotiated and executed between HTK and Defendants.” Id. ¶ 15.
Moreover, looking at objective criteria, such as the parties’ conduct,
see, e.g., FAC ¶ 26, HTK alleges “sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678.
Given HTK’s detailed factual allegations in support of a critical
deficiency of the Document -- i.e., mutual assent -- the court DENIES Defendants’
motion to dismiss HTK’s claim for declaratory judgment (Count I).
3.
HTK’s Unjust Enrichment Claim (Count II)
Defendants next ask this court to dismiss HTK’s unjust enrichment
claim (Count II). Under both Hawaii and California law, the elements of unjust
enrichment are: (1) receipt of a benefit; and (2) unjust retention of the benefit at
32
the expense of another. In re ConAgra Foods, Inc., 908 F. Supp.2d 1090, 1113
(C.D. Cal. 2012) (citing Lectrodryer v. SeoulBank, 77 Cal. App. 4th 723, 726, 91
Cal. Rptr. 2d 881 (2000)); Cootey v. Countrywide Home Loans, Inc., 2011 WL
2441707, at *12 (D. Haw. June 14, 2011) (citing Porter v. Hu, 116 Haw. 42, 53,
169 P.3d 994, 1005 (Haw. App. 2007)). Moreover, Hawaii and California law
both provide that an unjust enrichment claim is only proper where there is no
adequate remedy at law. Klohs v. Wells Fargo Bank, N.A., 901 F. Supp. 2d 1253,
1264 (D. Haw. 2012) (applying Hawaii law), Paracor Fin., Inc. v. Gen. Elec.
Capital Corp., 96 F.3d 1151, 1167 (9th Cir. 1996) (applying California law).
HTK alleges that Defendants have been unjustly enriched in two
ways. First, HTK alleges that Defendants were “unjustly enriched by taking the
$99,077.62 paid by HTK when there was no binding agreement.” FAC ¶ 40.
Second, HTK alleges that Defendants were “unjustly enriched by failing to pay
any expenses for HTK’s California operations.” Id. ¶ 41. HTK fails to state an
unjust enrichment claim on both fronts.
With regard to the $99,077.62, HTK alleges that, in June 2014, HTK
paid this sum “to Defendants as a good faith commitment to continue discussions
and negotiations regarding the potential partnership.” Id. ¶ 20. Nowhere,
however, does HTK allege any facts showing that Defendants were unjustly
33
enriched by accepting this payment (i.e., that HTK did not receive the intended
benefit of its payment). Significantly, HTK does not allege that Defendants
refused to continue the discussions and negotiations regarding the potential
partnership that formed the basis of HTK’s payment to Defendants. Accordingly,
HTK has failed to plead that Defendants were unjustly enriched by taking the
$99,077.62 payment.
With regard to the second portion of Count II, the FAC is unclear as
to what benefits Defendants received when they allegedly “never paid any of the
expenses for HTK’s California operations for 2014, including inventory, shipping
costs, and other expenses.” Id. ¶ 39. Although HTK alleges that the Document
“provided that Defendants would pay for 50% of the inventory and other expenses
of HTK’s California operations,” id. ¶ 16, HTK nowhere alleges when Defendants
were supposed to pay HTK, nor does HTK allege how much the 50% of the
inventory and “other” expenses amount to (nor does HTK allege that Defendants
have knowledge as to the amount of their alleged share of the expenses). As such,
HTK fails to provide Defendants with fair notice as to the nature of its unjust
enrichment claim. See, e.g., Cootey, 2011 WL 2441707, at *12.
Accordingly, the court GRANTS Defendants’ motion to dismiss
HTK’s claim for unjust enrichment (Count II) with leave to amend. See Lopez v.
34
Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (stating that the court “should grant
leave to amend even if no request to amend the pleading was made, unless it
determines that the pleading could not possibly be cured by the allegation of other
facts”).
4.
HTK’s Breach of Contract Claim (Count III)
Defendants next move to dismiss HTK’s breach of contract claim
(Count III).5 “[T]he elements of a cause of action for breach of contract are (1) the
existence of the contract, (2) plaintiff’s performance or excuse for
nonperformance, (3) defendant’s breach, and (4) the resulting damages to the
plaintiff.” Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821, 250 P.3d 1115,
1121 (2011). See also Evergreen Eng’g, Inc. v. Green Energy Team LLC, 884 F.
Supp. 2d 1049, 1059 (D. Haw. 2012) (applying Hawaii law).
HTK identifies four ways that Defendants allegedly breached the
Document:
A.
B.
C.
5
Defendants never paid any of the expenses for
HTK’s California operations for 2014;
Defendants never made a single payment toward
the alleged $250,000 purchase price contained in
the [Document];
Defendants admitted that they did not have any
ability to make any payments toward inventory
HTK’s Counts III, IV and V are pled in the alternative.
35
D.
expenses or the alleged purchase price contained
in the [Document];
Defendants did not meaningfully expand HTK’s
California business or obtain new customers.
FAC ¶ 46. The court is not persuaded that any of these allegations amount to a
“breach” of the Document.
First, as HTK itself acknowledges, the Document does not contain a
time line. Id. ¶ 18. Although the Document states that the parties “will share all
rent, mortgage expenses as well as all supply inventory, improvement costs (sic)
that are relating to HTK Hawaii’s mainland business,” Doc. No. 59-6, the
Document does not provide any time frame indicating when Defendants’ share of
expenses would become due to HTK. Thus, HTK’s allegation that “Defendants
never paid any of the expenses for HTK’s California operations for 2014,” FAC
¶ 46.A, without more, does not amount to an allegation that Defendants breached
the Document because neither the FAC nor the Document provide any indication
that Defendants’ share of expenses is past due.
Second, the Document gives Defendants until January 2017 to pay
the purchase price listed in the Document. See Doc. No. 59-6 (“Selling price of
$250,000 paid through 3 years starting January 2014.”). There is no indication
from either the FAC or the Document that Defendants were obligated to make a
36
payment toward the purchase price prior to January 2017. To the contrary, the fact
that the Document grants Defendants three years with zero percent interest to pay
the $250,000 provides a plausible reason why the Defendants have not yet made a
payment (i.e., Defendants could store their money in a high-interest savings
account). In any event, there is no indication that the Defendants’ failure to make
a payment at this juncture constitutes a breach of the Document.
Third, HTK’s allegation that “Defendants admitted that they did not
have any ability to make any payments toward inventory expenses or the alleged
purchase price contained in the [Document],” FAC ¶ 46, does not establish a
breach for the same reasons discussed above. That is, because neither the
Document nor the FAC indicate that Defendants are past due on any payments to
HTK, this allegation does not amount to a breach of the Document. To the extent
that HTK is instead attempting to plead that Defendants’ conduct constituted an
anticipatory breach of the Document, the FAC fails to allege facts that allow the
court to plausibly infer that Defendants’ statements were a clear, absolute, and
unequivocal refusal to perform under the Document. See, e.g., In re James E.
O’Connell Co., Inc., 799 F.2d 1258, 1261 (9th Cir. 1986) (observing that, under
California law, an anticipatory breach includes “a clear, positive, unequivocal
refusal to perform”) (quotation marks and citations omitted). See also
37
Constantino v. U.S. Bank, N.A., 2011 WL 4435388, at *8 (D. Haw. Sept. 23, 2011)
(explaining that, under Hawaii law, there is no repudiation absent a “distinct,
unequivocal and absolute refusal to perform under the terms of the agreement”)
(quotation marks and citations omitted).
Fourth, the Document only requires that “William [Hsia] and Kevin
[Sun] will both work towards expanding mainland business, establishing legal
licensing, warehouse, etc, [sic], as soon as condition permits.” Doc. No. 59-6.
Significantly, the Document does not require Defendants to “meaningfully”
expand HTK’s mainland business, nor does the Document require Defendants to
acquire new customers. Moreover, neither the Document nor the FAC indicate
when “condition [will] permit[]” Defendants to expand their business. That is,
once again, the lack of a concrete time line in the Document and the failure to
allege any time frame in the FAC means that this allegation also fails to allege
Defendants breached the Document.
Accordingly, the court GRANTS Defendants’ Motion to Dismiss
Count III with leave to amend.
5.
HTK’s Breach of the Covenant of Good Faith and Fair Dealing
Claim (Count IV)
Defendants next move to dismiss HTK’s claim for breach of the
38
covenant of good faith and fair dealing (Count IV). The parties disagree as to
whether Hawaii or California law applies. Either way, Count IV fails to state a
claim.
Under Hawaii law, Count IV essentially asserts the tort of “bad faith,”
and this claim “may be justified in actions brought on insurance contracts, but not
necessarily in actions brought on other types of contract.” See Best Place, Inc. v.
Penn Am. Ins. Co., 82 Haw. 120, 132, 920 P.2d 334, 346 (1996) (adopting the tort
of bad faith for breach of implied covenant of good faith and fair dealing in an
insurance contract). Put differently, “[i]t 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, LLC v. Adwalls, LLC, 2013 WL
4482501, at *5 (D. Haw. Aug. 20, 2013). Because the Document is not an
insurance contract, and because HTK neither offers a rationale as to why this court
should treat the Document as the functional equivalent of an insurance contract
nor explains how a bad faith claim applies here, Count IV is not cognizable under
Hawaii law. See Gold Refinery, LLC v. Aloha Island Gold, LLC, 2012 WL
518396, at *7 (D. Haw. Feb. 15, 2012) (dismissing claim for bad faith brought on
a non-insurance contract).
By contrast, California does recognize a claim for breach of the
39
implied covenant of good faith and fair dealing as “implied by law in every
contract, including insurance contracts.” Coleman v. Gulf Ins. Grp., 41 Cal. 3d
782, 794, 718 P.2d 77, 83 (1986). Under California law, a plaintiff must allege:
(1) the plaintiff and the defendant entered into a contract;
(2) the plaintiff did all or substantially all of the things
that the contract required him to do or that he was
excused from having to do; (3) all conditions required
for the defendant’s performance had occurred; (4) the
defendant unfairly interfered with the plaintiff’s right to
receive the benefits of the contract; and (5) the
defendant’s conduct harmed the plaintiff.
Woods v. Google, Inc., 889 F. Supp. 2d 1182, 1194 (N.D. Cal. 2012) (citations
omitted). It is the plaintiff’s burden to establish “‘that the conduct of the
defendant, whether or not it also constitutes a breach of a consensual contract
term, demonstrates a failure or refusal to discharge contractual responsibilities.’”
Id. (quoting Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371,
1395, 272 Cal. Rptr. 387 (1990)).
Count IV alleges that Defendants breached the covenant of good faith
and fair dealing in various ways, including:
Defendants’ admitted inability to pay the alleged
purchase price contained in the [Document]; Defendants’
admitted inability to pay their share of expenses for
HTK’s California operations; Defendants’ inability to
meaningfully expand HTK’s California operations and
obtain new customers; Defendants’ admission that Mr.
40
Sun was looking for alternative business opportunities
and employment while at the same time attempting to
enforce the [Document] as a bonding [sic] contract; and
Defendants’ filing of the Articles of Incorporation of
Hawaiian Snow California without HTK’s consent.
FAC ¶ 50. The first three of these allegations duplicate Count III. With regard to
these three allegations, the court concludes, much like it did in Count III, that
HTK failed to allege “all conditions required for the defendant’s performance had
occurred.” Woods, 889 F. Supp. 2d at 1194. The court therefore turns to HTK’s
last two allegations in paragraph 50 of the FAC.
First, HTK alleges that Defendants breached the covenant of good
faith and fair dealing because of “Defendants’ admission that Mr. Sun was looking
for alternative business opportunities and employment while at the same time
attempting to enforce the [Document] as a bonding [sic] contract.” Id. But the
Document only provides that the parties “will not open another related business
without the other party’s knowledge.” Doc. 59-6. Nowhere does the Document
forbid Defendants from “looking for alternative business opportunities and
employment” in general. See FAC ¶ 50.
While not entirely clear, it may be the case that HTK is trying to
allege that the type of opportunities Defendants were pursuing were related to
HTK’s business. For example, HTK alleges that Defendants “filed for Articles of
41
Incorporation for Hawaiian Snow California, an S-corporation organized under
laws of state of California” without the knowledge or consent of the Hsias, id.
¶ 23, but HTK never alleges that Hawaiian Snow California is a “related business”
to HTK. It is certainly possible that Hawaiian Snow California, like HTK, sells
shave ice, but HTK has not pleaded any facts that would make this assumption
plausible. Moreover, HTK has not pleaded that registering Hawaiian Snow
California is the same thing as “open[ing] another related business.” Doc. 59-6.
That is, HTK never pleads that Hawaiian Snow California was “open” for business
in the manner that was proscribed by the Document, and the act of registering a
corporation is not the same thing as the act of opening that corporation for
business. As such, HTK fails to allege that “all conditions required for the
defendant’s performance had occurred.” Woods, 889 F. Supp. 2d at 1194.
Second, HTK alleges that “Defendants’ fil[ed] . . . the Articles of
Incorporation of Hawaiian Snow California without HTK’s consent.” FAC ¶ 50.
But the Document nowhere requires Defendants to seek HTK’s consent before
filing any legal documents. Instead, the Document merely states that “William
[Hsia] and Kevin [Sun] will both work towards . . . establishing legal licensing.”
Doc. No. 59-6. The document does not, however, indicate that Mr. Sun must first
seek HTK’s consent prior to doing so. Nor does the FAC allege that the parties
42
understood the Document to mean that Mr. Sun must first seek HTK’s consent.
Accordingly, HTK again failed to allege that “all conditions required for the
defendant’s performance had occurred.” Woods, 889 F. Supp. 2d at 1194.
Based on the foregoing, the court GRANTS Defendants’ Motion to
Dismiss Count IV with leave to amend.
6.
HTK’s Rescission Claim (Count V)
Defendants next move to dismiss HTK’s claim for rescission (Count
V). Whether applying Hawaii or California law, rescission is a remedy and not an
independent cause of action. See Newcomb v. Cambridge Home Loans, Inc., 861
F. Supp. 2d 1153, 1164 (D. Haw. 2012) (applying Hawaii law); Bischoff v. Cook,
118 Haw. 154, 163, 185 P.3d 902, 911 (Haw. Ct. App. 2008). See also
Whiterock v. Old Republic Default Mgmt. Servs., 2015 WL 3453749, at *7 (N.D.
Cal. May 29, 2015) (applying California law and citing Mangindin v. Washington
Mut. Bank, 637 F. Supp. 2d 700, 709 (N.D. Cal. 2009)); Chohrach v. Bank of Am.,
N.A., 2012 WL 2920800, at *6 (E.D. Cal. July 17, 2012) (applying California
law); Nakash v. Superior Court, 196 Cal. App. 3d 59, 69-70, 241 Cal. Rptr. 578,
584 (Ct. App. 1987) (“Rescission is not a cause of action; it is a remedy.”)
(citations omitted). Accordingly, the court GRANTS Defendants’ Motion to
Dismiss as to Count V. Because granting leave to amend rescission as a stand43
alone claim would be futile, this claim is dismissed without leave to amend.6 See,
e.g., McQuillion v. Schwarzenegger, 369 F.3d 1091, 1099 (9th Cir. 2004)
(explaining that a futile claim is properly dismissed without leave to amend).
IV. CONCLUSION
For the foregoing reasons, the court (1) DENIES Defendants’ Motion
to Transfer and (2) GRANTS in part and DENIES in part Defendants’ Motion to
Dismiss. The only claim remaining in the FAC is HTK’s claim for declaratory
judgment (Count I). The court grants HTK leave to file a Third Amended
Complaint asserting claims for unjust enrichment, breach of contract, and breach
of the covenant of good faith and fair dealing (i.e., HTK may address the
deficiencies the court identified in Counts II through IV in HTK’s FAC). In
addition, HTK’s SAC contains claims for fraud and conversion; HTK may replead
those claims in any Third Amended Complaint as well.
///
///
///
6
To be clear, at this time the court is not dismissing (or addressing) the FAC’s request for
rescission of any contract as a potential remedy. See FAC at 14 (“demand[ing] judgment against
Defendants . . . [f]or rescission of any contract”). That is, if HTK chooses to file a Third
Amended Complaint, it may be the case that rescission is an appropriate remedy underlying one
or more of its claims.
44
If HTK elects to file a Third Amended Complaint, it must do so no later than
February 19, 2016.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, January 25, 2016.
/s/ J. Michael Seabright
J. Michael Seabright
Chief United States District Judge
HTK Hawaii, Inc. v. Sun, Civ. No. 15-00114 JMS-RLP, Order: (1) Denying Defendants’ Motion
to Transfer Venue, Doc. No. 58; and (2) Granting in Part and Denying in Part Defendants’
Motion to Dismiss, Doc. No. 61
45
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