Hirota v. General Nutrition Corporation et al
Filing
34
ORDER DENYING DEFENDANT'S MOTION TO DISMISS PLAINTIFF'S COMPLAINT re 13 Motion to Dismiss. Signed by JUDGE LESLIE E. KOBAYASHI on 10/29/2015. GNC's Motion to Dismiss Plaintiff's Complaint, filed July 16, 2015 - which this Court has considered as a motion for summary judgment - is HEREBY DENIED. This Court ORDERS Plaintiff to file an amended complaint, consistent with the terms of this Order, by December 14, 2015. (eps)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
)
)
Plaintiff,
)
)
vs.
)
)
)
GENERAL NUTRITION
CORPORATION; USPLABS, LLC,
)
S.K. LABORATORIES, INC.; DOE )
DEFENDANTS 1-100,
)
)
Defendants.
)
_____________________________ )
KUULEI HIROTA,
CIVIL 15-00191 LEK-KSC
ORDER DENYING DEFENDANT’S MOTION TO DISMISS PLAINTIFF’S COMPLAINT
Before the Court is Defendant General Nutrition
Corporation’s (“GNC”) Motion to Dismiss Plaintiff’s Complaint
(“Motion”), filed on July 16, 2015.
[Dkt. no. 13.]
Plaintiff
Kuulei Hirota (“Plaintiff”) filed her memorandum in opposition on
September 22, 2015.1
[Dkt. no. 21.]
On September 25, 2015,
Party-in-Interest Howard M.S. Hu, the trustee in the Chapter 13
bankruptcy proceedings that Plaintiff is involved in (“the
Bankruptcy Trustee”), filed a joint notice of appearance and
position statement regarding the Motion.
[Dkt. no. 23.]
On
September 28, 2015, GNC filed a reply memorandum in further
support of the Motion (“Supplemental Reply”).
1
[Dkt. no. 25.]
GNC filed a reply on September 21, 2015, pointing out that
Plaintiff had not responded to the Motion. [Dkt. no. 20.] On
September 23, 2015, this Court issued an entering order declining
to strike Plaintiff’s untimely memorandum in opposition and
allowing GNC to file a response to the memorandum in opposition.
[Dkt. no. 22.]
Pursuant to this Court’s October 1, 2015 entering order (“10/1/15
EO”), [dkt. no. 29,] Plaintiff, GNC, and the Bankruptcy Trustee
each filed an additional position statement on October 13, 2015.
[Dkt. nos. 30, 31, 32.]
In the 10/1/15 EO, the Court found this matter suitable
for disposition without a hearing pursuant to Rule LR7.2(d) of
the Local Rules of Practice of the United States District Court
for the District of Hawai`i (“Local Rules”).
After careful
consideration of the Motion, supporting and opposing memoranda,
and the relevant legal authority, GNC’s Motion - which this Court
has considered as a motion for summary judgment - is HEREBY
DENIED for the reasons set forth below.
BACKGROUND
The instant case arises from Plaintiff’s purchase and
use of a dietary supplement - OxyElite Pro (“the Product”).
She
purchased the Product from a GNC store located within the State
of Hawai`i.
Plaintiff purchased and used the Product “from
November 2012 to September or October 2013, when she became
grievously ill.”
[Notice of Removal, filed 5/26/15 (dkt. no. 1),
Decl. of Michael R. Viera, Exh. A (Complaint) at ¶ 22.2]
The
Complaint alleges that Defendant USPlabs, LLC (“USPlabs”)
2
Plaintiff filed the Complaint in the State of Hawai`i
Circuit Court of the First Circuit on May 1, 2015. GNC removed
the action based on diversity jurisdiction. [Notice of Removal
at ¶ 5.]
2
contracted with Defendant SK Laboratories, Inc. (“SK Labs”) to
formulate the Product according to agreed upon instructions.3
[Id. at ¶ 13.]
The Complaint alleges that, on December 26, 2014,
Plaintiff “underwent a liver biopsy to determine the nature of
her illness,” and, on January 9, 2014, the “results of her liver
biopsy revealed that she had primary biliary cirrhosis.”
¶¶ 23-24.]
[Id. at
It is clear that one of these dates contains an
error, but this Court cannot determine whether the dates should
be December 26, 2013 and January 9, 2014 or December 26, 2014 and
January 9, 2015.
For purposes of the instant Motion, this Court
will assume that Plaintiff’s biopsy occurred on December 26,
2013.
On March 18, 2013, James Masao Hirota and Plaintiff
(“the Hirotas”) filed a Chapter 13 Voluntary Petition in the
United States Bankruptcy court for the District of Hawai`i
(“Bankruptcy Court”).
[In re Hirota, 13-BK-00424, dkt. no. 1.]
On June 12, 2013, the Bankruptcy Court filed the Order Confirming
Chapter 13 Plan (“Confirmation Order”).
[Id., dkt. no. 20.]
In the instant Motion, GNC emphasizes that: 1) the
Hirotas did not obtain a discharge in the bankruptcy proceeding,
and the proceedings were neither closed nor converted; 2) the
3
Plaintiff apparently has not served SK Labs. The Court
will therefore refer to USPlabs and GNC as “Defendants.”
3
Hirotas did not disclose Plaintiff’s claims arising from her use
of the Product during the bankruptcy proceedings; and 3) there is
no indication that the Bankruptcy Trustee abandoned the claims.
GNC therefore argues that Plaintiff lacks standing to pursue the
claims in this case because they are the property of the
bankruptcy estate and are under the Bankruptcy Trustee’s control.
In addition, in the Supplemental Reply, GNC argues that Plaintiff
should be judicially estopped from pursuing the claims because of
her failure to disclose them during the bankruptcy proceedings.
DISCUSSION
I.
Conversion of the Motion to a Motion for Summary Judgment
As a general rule, this Court’s scope of review in
considering a motion to dismiss is limited to the allegations in
the complaint.
See Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d
992, 998 (9th Cir. 2010).
“[A] court may consider evidence on
which the complaint necessarily relies if: (1) the complaint
refers to the document; (2) the document is central to the
plaintiff’s claim; and (3) no party questions the authenticity of
the copy attached to the 12(b)(6) motion.”
internal quotation marks omitted).
Id. (citations and
Ordinarily, consideration of
other materials requires the district court to convert a motion
to dismiss to a motion for summary judgment.
Yamalov v. Bank of
Am. Corp., CV. No. 10–00590 DAE–BMK, 2011 WL 1875901, at *7 n.7
(D. Hawai`i May 16, 2011) (citing Parrino v. FHP, Inc., 146 F.3d
4
699, 706 n.4 (9th Cir. 1998)).4
However, a district court ruling
on a motion to dismiss can also consider matters that are subject
to judicial notice.
Cf. Thomas v. Fin. Recovery Servs., No. EDCV
12–1339 PSG (Opx), 2013 WL 387968, at *2 (C.D. Cal. Jan. 31,
2013) (“It is well-settled that . . . matters that are subject to
judicial notice may also be considered in evaluating a motion for
judgment on the pleadings.” (citing Buraye v. Equifax, 625 F.
Supp. 2d 894, 896–97 (C.D. Cal. 2008); Amfac Mortg. Corp. v.
Ariz. Mall of Tempe, Inc., 583 F.2d 426, 429–30 & n.2 (9th Cir.
1978))).
A court may take judicial notice of “a fact that is not
subject to reasonable dispute because it . . . can be accurately
and readily determined from sources whose accuracy cannot
reasonably be questioned.”
Fed. R. Evid. 201(b)(2).
The Court can take judicial notice of the docket in the
Hirotas’ bankruptcy proceedings and of the filing of specific
documents in that case because the documents are public records,
and the accuracy of the Bankruptcy Court’s records cannot
reasonably be questioned.
See 11 U.S.C. § 107(a) (“[A] paper
filed in a case under this title and the dockets of a bankruptcy
court are public records[.]”); see also Reusser v. Wachovia Bank,
N.A., 525 F.3d 855, 857 n.1 (9th Cir. 2008) (“We take judicial
notice of the bankruptcy court order, because it is a matter of
4
Parrino was superseded by statute on other grounds, as
stated in Abrego Abrego v. The Dow Chemical Co., 443 F.3d 676,
681-82 (9th Cir. 2006) (per curiam).
5
public record.” (citations omitted)); Finley v. Rivas, CV
10–00421 DAE–KSC, 2010 WL 3001915, at *2 n.2 (D. Hawai`i July 31,
2010) (“This court ‘may take notice of proceedings in other
courts, both within and without the federal judicial system, if
those proceedings have a direct relation to matters at issue.’”
(quoting United States ex rel. Robinson Rancheria Citizens
Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992))).
In considering the instant Motion, however, this Court
finds that it is necessary to consider the contents of the
Hirotas’ filings in the Bankruptcy Court, not only the Bankruptcy
Court’s rulings or the fact that the Hirotas filed certain
documents.
This Court also finds that it is necessary to
consider Plaintiff’s declaration, filed with her October 13, 2015
Position Statement (“Plaintiff Declaration”).
[Dkt. no. 31-1.]
This Court therefore CONCLUDES that it must convert the instant
Motion to a motion for summary judgment.
I.
Standing
Plaintiff argues that GNC’s position that she lacks
standing to bring the claims in this case is based on case law
regarding Chapter 7 bankruptcy proceedings, not Chapter 13
proceedings.
[Pltf.’s Position Statement at 3.]
This Court
agrees.
In support of its argument that Plaintiff’s claims are
the property of the bankruptcy estate and under the Bankruptcy
6
Trustee’s control, GNC cites In re Reed, 178 B.R. 817, 823 (D.
Ariz. 1995), and In re Gulph Woods Corp., 116 B.R. 423, 428 (E.D.
Pa. 1990).
[Mem. in Supp. of Motion at 5.]
Both Reed and Gulph
Woods involved Chapter 7 bankruptcy proceedings, whereas the
Hirotas are involved in Chapter 13 proceedings.
The Ninth
Circuit has stated:
In [Chapter 7] liquidation proceedings, only the
trustee has standing to prosecute or defend a
claim belonging to the estate. The same cannot be
said for trustees under the reorganization
chapters. In those regimes, the debtor has
express authority to sue and be sued. Bankruptcy
Rule 6009, which applies to Chapters 7, 11 and 13,
directs that “[w]ith or without court approval,
the trustee or debtor in possession may prosecute
or may enter an appearance and defend any pending
action or proceeding by or against the debtor, or
commence and prosecute any action or proceeding in
behalf of the estate before any tribunal.” Fed.
R. Bankr. P. 6009 (emphasis added). [T]he Chapter
13 debtor has been considered analogous to Chapter
11, which grants the debtor full authority as
representative of the estate typical of a trustee.
See 11 U.S.C. § 1107.
In re DiSalvo, 219 F.3d 1035, 1039 (9th Cir. 2000) (alterations
and emphases in DiSalvo) (citation omitted).
Further, as the Bankruptcy Trustee noted, Plaintiff
“may claim some limited personal exemptions” under 11 U.S.C.
§ 522 to any recovery in this case, and she would be entitled to
any surplus that remains after the balance of the recovery is
paid to the creditors of the bankruptcy estate.
Trustee’s 10/13/15 Position Statement at 5.]
[Bankruptcy
Thus, even in light
of the bankruptcy proceedings, at the time Plaintiff filed the
7
Complaint in this case,5 she had an interest in her claims
arising from her use of the Product.
See In re Ly, 601 F. App’x
494, 496 (9th Cir. 2015) (“Prudential standing requires that a
party assert her own rights, rather than rely on the rights or
interests of a third party and allege an interest that is
arguably within the zone of interests protected or regulated by
the statute or constitutional guarantee in question.” (brackets,
citations, and internal quotation marks omitted)).
This Court FINDS that there are no issues of material
fact regarding Plaintiff’s standing, but CONCLUDES that GNC has
failed to establish that it is entitled to judgment as a matter
of law on the standing issue.
See Fed. R. Civ. P. 56(a) (“The
court shall grant summary judgment if the movant shows that there
is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.”).
To the extent that
GNC contends that Plaintiff lacks standing to pursue the claims
in this case, its Motion is DENIED.
II.
Judicial Estoppel
In its reply, GNC raised the issue of whether
Plaintiff’s failure to disclose her claims arising from her use
of the Product to the Bankruptcy Court judicially estops her from
pursuing the claims.
Plaintiff argues that this Court should not
5
“[S]tanding is determined as of the commencement of
litigation.” Yamada v. Snipes, 786 F.3d 1182, 1203 (9th Cir.
2015) (citations omitted).
8
consider the judicial estoppel argument because it is a new
argument that GNC improperly raised for the first time in the
Supplemental Reply.
See Local Rule LR7.4 (“Any argument raised
for the first time in the reply shall be disregarded.”).
Even
assuming, arguendo, that the judicial estoppel argument is
properly before it, this Court would reject the argument.
“[J]udicial estoppel is an equitable doctrine
invoked by a court at its discretion.” New
Hampshire v. Maine, 532 U.S. 742, 750, 121 S. Ct.
1808, 149 L. Ed. 2d 968 (2001) (internal quotation
marks omitted). “[I]ts purpose is to protect the
integrity of the judicial process by prohibiting
parties from deliberately changing positions
according to the exigencies of the moment.” Id.
at 749–50, 121 S. Ct. 1808 (citation and internal
quotation marks omitted).
Although judicial estoppel is “probably not
reducible to any general formulation of principle,
. . . several factors typically inform the
decision whether to apply the doctrine in a
particular case.” Id. at 750, 121 S. Ct. 1808
(citations and internal quotation marks omitted).
“First, a party’s later position must be ‘clearly
inconsistent’ with its earlier position.” Id.
“Second, courts regularly inquire whether the
party has succeeded in persuading a court to
accept that party’s earlier position, so that
judicial acceptance of an inconsistent position in
a later proceeding would create the perception
that either the first or the second court was
misled.” Id. (internal quotation marks omitted).
“A third consideration is whether the party
seeking to assert an inconsistent position would
derive an unfair advantage or impose an unfair
detriment on the opposing party if not estopped.”
Id. at 751, 121 S. Ct. 1808. “In enumerating
these factors, we do not establish inflexible
prerequisites or an exhaustive formula for
determining the applicability of judicial
estoppel. Additional considerations may inform
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the doctrine’s application in specific factual
contexts.” Id.
Ah Quin v. Cty. of Kauai Dep’t of Transp., 733 F.3d 267, 270-71
(9th Cir. 2013) (alterations in Ah Quin).
In bankruptcy cases,
the “basic default rule” is:
If a plaintiff-debtor omits a pending (or
soon-to-be-filed) lawsuit from the bankruptcy
schedules and obtains a discharge (or plan
confirmation), judicial estoppel bars the action.
The reason is that the plaintiff-debtor
represented in the bankruptcy case that no claim
existed, so he or she is estopped from
representing in the lawsuit that a claim does
exist. That basic rule comports fully with the
Supreme Court’s decision in New Hampshire: (1) the
positions are clearly inconsistent (“a claim does
not exist” vs. “a claim does exist”); (2) the
plaintiff-debtor succeeded in getting the first
court (the bankruptcy court) to accept the first
position; and (3) the plaintiff-debtor obtained an
unfair advantage (discharge or plan confirmation
without allowing the creditors to learn of the
pending lawsuit). The general rule also comports
fully with the policy reasons underlying the
doctrine of judicial estoppel: to prevent
litigants from playing “fast and loose” with the
courts and to protect the integrity of the
judicial system. New Hampshire, 532 U.S. at
749–50, 121 S. Ct. 1808.
Id. at 271 (some citations omitted).
However, the United States
Supreme Court recognized that “it may be appropriate to resist
application of judicial estoppel when a party’s prior position
was based on inadvertence or mistake.”
at 753.
New Hampshire, 532 U.S.
The Ninth Circuit has rejected the narrow interpretation
of “inadvertence” that other circuits apply.
The narrow
interpretation focuses on “whether the debtor knew about the
10
claim when he or she filed the bankruptcy schedules and whether
the debtor had a motive to conceal the claim,” and such a motive
is “nearly always present.”
Ah Quin, 733 F.3d at 271 (citation
omitted).
In Ah Quin, the Ninth Circuit stated that the
plaintiff’s re-opening of her bankruptcy proceedings and
amendment of her bankruptcy schedules to list the previously
omitted claim were key factors.
Id. at 272.
The Ninth Circuit
concluded that “where . . . the plaintiff-debtor reopens
bankruptcy proceedings, corrects her initial error, and allows
the bankruptcy court to re-process the bankruptcy with the full
and correct information, a presumption of deceit no longer
comports with New Hampshire” because two of the three New
Hampshire factors are no longer present - the bankruptcy court
does not accept the debtor’s initial position concealing the
claim, and the debtor does not obtain an unfair fair advantage.
Id. at 273-74.
Thus, the Ninth Circuit concluded that:
when the plaintiff-debtor has reopened the
bankruptcy proceedings and has corrected the
initial filing error, the narrow interpretations
of “mistake” and “inadvertence” do not apply. If
Plaintiff’s bankruptcy omission was mistaken, the
application of judicial estoppel in this case
would do nothing to protect the integrity of the
courts, would enure to the benefit only of an
alleged bad actor, and would eliminate any
prospect that Plaintiff’s unsecured creditors
might have of recovering.
In these circumstances, rather than applying
a presumption of deceit, judicial estoppel
11
requires an inquiry into whether the plaintiff’s
bankruptcy filing was, in fact, inadvertent or
mistaken, as those terms are commonly understood.
Courts must determine whether the omission
occurred by accident or was made without intent to
conceal. The relevant inquiry is not limited to
the plaintiff’s knowledge of the pending claim and
the universal motive to conceal a potential
asset-though those are certainly factors. The
relevant inquiry is, more broadly, the plaintiff’s
subjective intent when filling out and signing the
bankruptcy schedules.
Id. at 276-77.
In the instant case, construing the record in the light
most favorable to Plaintiff,6 this Court finds that she was not
aware of her injury and her potential claims arising from her use
of the Product, either when the Hirotas initiated the bankruptcy
proceeding or when the Bankruptcy Court issued the Confirmation
Order.
[Pltf. Decl. at ¶ 2 (“I did not declare any potential
settlement or award from a lawsuit against Defendants at that
time I entered bankruptcy because I did not know I had or would
have a claim.”).]
The Hirotas had a continuing duty to amend
their bankruptcy schedules to include later discovered assets.
See Fed. R. Bankr. P. 4002(a)(3) (stating that the debtor shall
“inform the trustee immediately in writing as to . . . the name
and address of every person holding money or property subject to
6
In considering a motion for summary judgment, “[a]ll
evidence and inferences must be construed in the light most
favorable to the nonmoving party.” Maui Elec. Co. v. Chromalloy
Gas Turbine, LLC, Civil No. 12–00486 SOM–BMK, 2015 WL 1442961, at
*4 (D. Hawai`i Mar. 27, 2015) (citing T.W. Elec. Serv., Inc. v.
Pac. Elec. Contractors Ass’n, 809 F.2d 626, 631 (9th Cir. 1987)).
12
the debtor’s withdrawal or order if a schedule of property has
not yet been filed pursuant to Rule 1007;”); In re Searles, 317
B.R. 368, 378 (B.A.P. 9th Cir. 2004) (construing that provision
“to mean a schedule, including an amended schedule, that lists
the specific property”), aff’d, 212 F. App’x 589 (9th Cir. 2006).
By not disclosing the claims to the Bankruptcy Court when she
became aware of them, Plaintiff took a position in the bankruptcy
proceeding that is inconsistent with her position in this case.
However, Plaintiff asserts that her failure to disclose was an
inadvertent mistake.
[Pltf. Decl. at ¶ 5.]
She states:
3.
At the time of the bankruptcy
proceedings, I was told that all future income
after entering bankruptcy would be my own. This
statement arose in relation to my husband’s future
income.
4.
I did not know until Defendants raised
the issue that the bankruptcy estate may have an
interest in the outcome of the present lawsuit.
. . . .
6.
I did not intend, nor would I ever
intend, to conceal assets from my bankruptcy
estate to which it has a lawful claim.
[Id. at pg. 2.]
Plaintiff corrected her error by filing amended
bankruptcy schedules.
See Pltf.’s Position Statement, Decl. of
Brian K. Mackintosh, Exh. 1 (Amended Schedules B and C).7
Further, Plaintiff’s counsel in the instant case -
7
The Hirotas filed the Amended Schedules with the
Bankruptcy Court on October 6, 2015. [In re Hirota, 13-BK-00424,
dkt. no. 29.]
13
Brian Mackintosh, Esq., and the Law Offices of Michael Green have been authorized to act as special counsel for the Bankruptcy
Trustee.
[In re Hirota, 13-BK-00424, dkt. nos. 27 (Bankruptcy
Trustee’s application to employ counsel), 28 (order granting
application).]
Plaintiff understands that: any settlement in
this case is subject to the Bankruptcy Court’s approval; her
counsel will be paid through the bankruptcy estate; counsel’s
compensation must be approved by the Bankruptcy Court; and any
proceeds from this action will be paid to the Bankruptcy Trustee
for distribution pursuant to the applicable statutory provisions
and rules.
Plaintiff also agrees to cooperate with the
Bankruptcy Trustee to make any necessary modifications to her
bankruptcy plan.
[Pltf. Decl. at ¶¶ 7-10.]
Under Ah Quin, this Court must determine whether
Plaintiff’s failure to disclose her claims arising from her use
of the Product to the Bankruptcy Court was “inadvertent or
mistaken, as those terms are commonly understood,” and this Court
must consider Plaintiff’s “subjective intent when filling out and
signing the bankruptcy schedules.”
See 733 F.3d at 276-77.
Viewing the current record in the light most favorable to
Plaintiff, this Court FINDS that there is no evidence of deceit,
and that the record supports a finding of mistake or
inadvertence.
Therefore, this Court, in its discretion,
14
CONCLUDES that judicial estoppel does not apply in the instant
case.
GNC’s Motion is DENIED as to the judicial estoppel
issue.
The denial is WITHOUT PREJUDICE, insofar as any Defendant
may revisit the judicial estoppel issue if the record, after
further development, supports a finding of deceit in the failure
to disclose the claims to the Bankruptcy Court.
III. Amending the Complaint
Although this Court has denied GNC’s Motion, this Court
ORDERS Plaintiff to file a amended complaint to reflect the fact
that Plaintiff’s counsel is prosecuting this action on behalf of
Plaintiff and the Bankruptcy Trustee.
In addition, this Court
GRANTS Plaintiff leave to add the Bankruptcy Trustee as a
co-plaintiff, if their counsel determines that the addition is
appropriate.
This Court emphasizes that it has not granted
Plaintiff leave to make any other changes, such as adding other
new parties, new claims, or new theories of liability.
If
Plaintiff wishes to do so, she must file a motion for leave to
amend pursuant to Fed. R. Civ. P. 15(a)(2).
The amended complaint must be filed by December 14,
2015.
This Court CAUTIONS Plaintiff that, if she fails to file
the amended complaint by December 14, 2015, or if the amended
complaint does not comply with the terms of this Order, this
15
Court may impose sanctions, including dismissal of Plaintiff’s
claims.
CONCLUSION
On the basis of the foregoing, GNC’s Motion to Dismiss
Plaintiff’s Complaint, filed July 16, 2015 - which this Court has
considered as a motion for summary judgment - is HEREBY DENIED.
This Court ORDERS Plaintiff to file an amended
complaint, consistent with the terms of this Order, by
December 14, 2015.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, October 29, 2015.
/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
KUULEI HIROTA VS. GENERAL NUTRITION CORP., ET AL.; CV 15-00191
LEK-KSC; ORDER DENYING DEFENDANT’S MOTION TO DISMISS PLAINTIFF’S
COMPLAINT
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