Dairy Road Partners et al v. Maui Gas Ventures LLC, et al
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS REFILED FIRST AMENDED COMPLAINT re 41 - Signed by JUDGE DERRICK K. WATSON on 3/9/2018. "The Court hereby GRANTS Defendants' Motion to Dismiss. Dkt. No. 41. Count I of Plaintiffs' Refiled First Amended Complaint is DISMISSED WITHOUT PREJUDICE, and Counts IIV are DISMISSED WITH PREJUDICE. Any amended complaint with respect to Count I must be filed within thirty days of this disposition." (emt, )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
UNITED STATES DISTRICT COURT
DISTRICT OF HAWAI‘I
DAIRY ROAD PARTNERS and
CIV. NO. 16-00611 DKW-KJM
DEFENDANTS’ MOTION TO
DISMISS REFILED FIRST
MAUI GAS VENTURES LLC and
Dairy Road and Nakamura initiated this action on November 16, 2016. See
Compl., Dkt. No. 1. On July 20, 2017, they filed what they termed a “Refiled”
First Amended Complaint (“Second Amended Complaint” or “SAC”; Dkt. No.
40). Through the SAC, Plaintiffs seek monetary damages and equitable relief
arising out of an alleged, fraudulently procured loan agreement with Maui Gas and
For the reasons set forth below, the Court GRANTS Defendants’ Motion to
Dismiss the SAC. MTD, Dkt. No. 41. Count I of the SAC is hereby DISMISSED
WITHOUT PREJUDICE while all other counts are DISMISSED WITH
On or about December 9, 2009, American Savings Bank, F.S.B. (“ASB”)
extended a $1,384,213 commercial loan to Dairy Road (“ASB Loan”) that was
guaranteed by Nakamura, Dairy Roads’ General Partner. SAC ¶ 8, Dkt. No. 40.
The ASB Loan granted ASB a lien and security interest in the property located at
380 Dairy Road, Kahului, Maui, Hawaii, Tax Map Key (2) 3-8-65-27 (“Subject
Property”). 1 SAC ¶¶ 4, 8, Dkt. No. 40.
On March 3, 2013, after Dairy Road fell behind on its mortgage payments
under the ASB Loan, ASB filed for foreclosure in the Second Circuit Court of the
State of Hawaii, Civil No. 13-1-0283(3) (“Foreclosure Action”). SAC ¶ 12, Dkt.
No. 40. Dairy Road also filed for Chapter 11 bankruptcy around that time. SAC
¶ 13 (stating that the eventual dismissal of the bankruptcy case delayed
proceedings in the Foreclosure Action until December 24, 2014).
Cheng’s Interest in the Subject Property
While the Foreclosure Action was pending, Cheng—a “self-proclaimed
investor from Texas” (Mem. in Opp’n at 2, Dkt. No. 45) who is the “principal and
controlling person” of Maui Gas (SAC ¶ 7, Dkt. No. 40)—allegedly approached
Nakamura for advice regarding his “interest in investing in commercial properties
“The Subject Property is income producing, and its industrial uses include warehousing, general
office use, a service station and convenience store, and retail sale of gasoline, motor fuels, and
sundries, some of which is subleased by [Dairy Road].” SAC ¶ 9, Dkt. No. 40.
in Hawaii.” SAC ¶ 11, Dkt. No. 40. Apparently, the two became friends,
Nakamura “acquaint[ed] Cheng with the Subject Property,” and based on Cheng’s
“promises that Cheng and [Maui Gas] could financially assist” Plaintiffs with their
defaulted ASB Loan, Cheng, Nakamura and ASB began to negotiate a deal. SAC
¶¶ 11, Dkt. No. 40.2
Cheng represented to Nakamura and others “that Cheng was going to buy
the ASB Loan on [Plaintiffs’] behalf to help [Dairy Road] gain some time to
refinance or sell” (SAC ¶ 16) and to stop the Foreclosure Action (SAC ¶ 14). As
discussed further below, in consideration for what Plaintiffs characterize as
Cheng’s offer to give Plaintiffs a chance to repay the note within a certain period
of time, Cheng sought guaranteed rent proceeds from the various leases of the
Subject Property, together with remediation of identified contamination on the
property by Plaintiffs. Towards these ends, on September 9, 2014, Cheng emailed
Nakamura’s son, Garth:
Let’s work on Dairy Road. Get me bank contact. Get me ESA
report on contamination. I will just cold call the bank and say I
want to buy the note.
The Court has attempted to summarize the salient points associated with this negotiation process
in light of Plaintiffs’ decision to attach several hundred pages of email correspondence to the
SAC. These several hundred pages of emails comprise Exhibit 7 to the SAC, which is split into
four parts spanning overlapping time periods. See Ex. 7.1, Dkt. No. 40-8 (including emails dated
Sept. 23, 2014 to Dec. 23, 2014); Ex. 7.2, Dkt. No. 40-9 (emails from Dec. 11 to Dec. 29, 2014);
Ex. 7.3, Dkt. No. 40-10 (emails from Sept. 9 to Dec. 24, 2014); and Ex. 7.4, Dkt. No. 40-11
(emails from Sept. 18, 2014 to Dec. 11, 2014).
SAC, Ex. 7.3 at 33, Dkt. No. 40-10. On September 17, 2014, Chuck Choi, Dairy
Road’s attorney, provided a copy of the complaint in the Foreclosure Action to
Cheng. SAC, Ex. 7.3 at 36, Dkt. No. 40-10. Choi also asked Cheng to send a
written proposal directly to ASB’s attorney, Wayne Mau, and suggested specific
language for him to do so:
I understand that [ASB] has a foreclosure case pending against
Dairy Road Partners in Maui Circuit Court. However, I also
understand that Dairy Road Partners’ underground storage
tanks have discharge issues that could cost Dairy Road or any
other potentially responsible party significant sums to
remediate. Nevertheless, I am willing to purchase the bank’s
Note, Mortgage and related loan documents for $400,000,
which is approximately 30% of the outstanding principal
balance due on the loan. If an agreement is reached and
documented, I could close the transaction within a week or two.
SAC, Ex. 7.3 at 35–36 [Choi emails dated Sept. 17 and 18, 2014], Dkt. No. 40-10.
Cheng’s Offer to Purchase the ASB Loan
On September 20, 2014, Cheng emailed a $300,000 purchase price proposal
to ASB, with a copy to Choi. SAC ¶¶ 14–15, Dkt. No. 40; SAC, Ex. 7.4 at 5–8,
Dkt. No 40-11). When no response from the bank was immediately received, Choi
contacted ASB’s attorney on September 26, 2014 and was told “that the bank
wanted to review its environmental consultant’s written report, which is expected
next week[,]” before responding. See SAC, Ex. 7.1 at 5, Dkt. No. 40-8. By
October 6, 2014, the negotiations were in the same posture, with ASB still
considering the environmental reports on the Subject Property 3 before “putting
together a formal written response to Mr. Cheng.” SAC, Ex. 7.1 at 11, Dkt. No.
A week later, ASB submitted a counter-offer (see SAC, Ex. 7.1 at 22, Dkt.
No. 40-8 (writing, “I understand the bank countered Paul Cheng”)), and on
October 15, 2014, Cheng contacted Choi asking for “an exact list of collateral
securing the Dairy Road Note to ASB,” and for various related financial statements
and “underlying ground leases” (SAC, Ex. 7.1 at 21, Dkt. No. 40-8). At the same
time, Choi made his own request, asking ASB for “a copy of Mr. Nakamura’s
report so that he can consider the bank’s counter offer.” SAC, Ex. 7.1 at 22, Dkt.
On October 15, 2014, Cheng emailed Choi a second time. Cheng reminded
Choi that “health dept sign off” on remediation of the property was necessary
“before I close” (SAC, Ex. 7.1 at 23, Dkt. No. 40-8) and that “I will insist on a
lockbox control receipts account structure so I make sure I get monthly [rent]
payments” (SAC, Ex. 7.4 at 12, Dkt. No. 40-11). Cheng followed up with Garth
Nakamura the next day to find out “what is the best [Plaintiffs] are able to pay on
Choi requested a copy of the environmental reports from ASB. SAC, Ex. 7.1 at 15, Dkt. No.
ASB declined to provide its internal reports to Choi and further stated that because the proposed
sale would be between ASB and Cheng, ASB intended to deal directly with Cheng. SAC, Ex.
7.1 at 24, Dkt. No. 40-8.
the deal so [Cheng] can get back to ASB.” SAC, Ex. 7.4 at 13, Dkt. No. 40-11.
Cheng’s message included the following deal summary:
The general concept I am willing to do is as follows:
$15,000 to $20,000 a month depending on how much I have to
pay for the note.
Minimum term 4 years before buyout can take place.
Collateral control in “lockbox” style banking arrangement of
rent receipt from Savers and gas receipts up to the monthly
amount. This entails depositing automatically all receipts
monthly to the lock box and then after I get my monthly, I
release automatically all other amounts above that back to
Buy back from me any time after 4 years for my original
purchase price from ASB be it X or $750,000.
Otherwise, the deal just goes on for the rest of the length of the
Please advise as to your continuing interest.
SAC, Ex. 7.4 at 13, Dkt. No. 40-11. Although the SAC contains no evidence of a
specific response from Plaintiffs, Garth Nakamura subsequently began
communicating with a Department of Health official regarding an underground
storage tank precision test. See, e.g., SAC, Ex. 7.4 at 23–24; Dkt. No. 40-11.
Cheng’s Acceptance of ASB Counter-Offer
On October 29, 2014, Cheng successfully purchased the ASB Loan,
announcing to Plaintiffs that, “ASB accepted my offer—$400k,” and “We are
ON.” SAC, Ex. 7.4 at 15, Dkt. No. 40-11. 5 Cheng offered Choi a few additional
Ok. [ASB’s attorney] is going to brief me on the collateral
package and where the civil litigation stands. Let me get my
feet on the ground on his legal package and then we can have a
conference call with you[, Nakamura,] and Garth to see how we
can move the game forward.
I told [Nakamura] to hurry up now and . . . get the
environmental issue resolved be it $80k to clean up the test
wells or whatever.
SAC, Ex. 7.4 at 16–17, Dkt. No. 40-11. 6
Loan Modification Negotiations
Upon concluding negotiations with ASB over the loan purchase, Cheng
turned to negotiating a loan modification with Dairy Road. As part of that process,
he introduced Choi to both Alice Wong, his partner in Texas, and Anthony
Although Cheng’s original offer to ASB, dated September 20, 2014, was for $300,000 (see
SAC, Ex. 7.3 at 40, Dkt. No. 40-10), $400,000 was the ultimate purchase price (see SAC, Ex. 7.4
at 15, Dkt. No. 40-11). Aside from a reference to ASB’s October 15, 2014 counteroffer in an
email from Choi to ASB’s attorney (SAC, Ex. 7.1 at 22, Dkt. No. 40-8), the SAC contains no
other history explaining the $100,000 price difference.
Cheng posed three additional questions to Plaintiffs at the end of this October 29, 2014 email
regarding (A) whether Plaintiffs would have the “capital to pay for the $80k clean up,”
(B) whether they had the capital “to do a $100k renovation of the store interior,” and (C) when
Plaintiffs expected to “buy out their partners.” SAC, Ex. 7.4 at 16–17, Dkt. No. 40-11. Choi
answered that (A) “Clean-up costs: the State needs to approve the vendor’s proposal[,] but
[Nakamura] informs me that [Dairy Road] can borrow the money to fund this”;
(B) “Renovations: [Nakamura] may need to borrow money for this[;] [h]e indicated forming a
partnership with you”; and (C) “Settlement: I thought we had an agreement but Yamashitas are
now asking for releases which is something [Nakamura] is not willing to give without access to
financial information.” SAC, Ex. 7.1 at 31, Dkt No. 40-8.
Barbieri, his attorney. SAC, Ex. 7.1 at 31, Dkt. No. 40-8; see also SAC ¶ 32, Dkt.
No. 40 (referring to Wong as Cheng’s Texas “accountant”); SAC, Ex. 7.4 at 25,
Dkt. No. 40-11. Cheng requested “a bunch of documents from [Plaintiffs] at their
earliest convenience,” to be forwarded to Barbieri and Wong, who would “be
calling Choi to go over all the facts and . . . structures” (SAC, Ex. 7.1 at 31, Dkt.
No. 40-8), including:
Land Lease from HRT and all amendments
Lease of C store and office to Waiehu Partners and
amendments if any
Antenna Lease and all amendments
Savers Lease and all amendments
Gasoline Excise Taxes owed recap and correspondences
Insurance Policy and all correspondences on
Property and Casualty liability Insurance policy on C
store and improvements in place
Buyout Agreement from Junior Partners
Operating Plan from [Nakamura]/Garth going forward
and financial proposal for us
(SAC, Ex. 7.4 at 25, Dkt. No. 40-11). On November 10, 2014, Cheng followed up
with Garth Nakamura, indicating that the following items were still outstanding:
your proforma going forward
buyout of your partners
regaining control of the C Store
tank pressure test
final environmental cleanup cost estimate and funding
cap ex budget on updating C store
Savers building lease extension’
Outstanding Land lease payments—NEED RECAP
Outstanding bank escrow on #8 above—NEED RECAP
SAC, Ex. 7.1 at 57, Dkt. No. 40-8. On November 17, 2014, Wong requested five
additional documents from Garth Nakamura, including: “Rent roll,” “All tenant
leases and amendments,” “Security deposit schedule,” “Current insurance
policies,” and “Mortgage Tax payment status, if applicable.” SAC, Ex. 7.1 at 61,
Dkt. No. 40-8.
On November 18, 2014, Cheng wrote an email to Garth Nakamura entitled,
“Proposal to Glenn Nakamura—Dairy Road Ventures Maui Gas Station”:
Need a plan for:
Remediation costs. I need to know you are all going to perform
the necessary remediation whatever the test results next month
C-Store remodel. I need to know that you guys are going to
remodel the store so that you can compete.
Status: Buyout of [Dairy Road.]
SAC, Ex. 7.4 at 33, Dkt. No. 40-11. At the same time, as a “Counter back to
[Plaintiffs],” Cheng offered to “Keep present note—we remain as lender only[,]”
apparently without any modification, or to “Revise Terms of Note” according to a
detailed plan appearing therein. See SAC, Ex. 7.4 at 34–39 [Revision Plan], Dkt.
No. 40-11. The next day, Cheng offered additional ideas on how to structure any
modification: “[w]e can raise the buyback price, apply some of the upfront
payments towards the buyback and end up in the same place” and solicited from
Dairy Road other “good ideas to make us both comfortable.” SAC, Ex. 7.4 at 40–
41, Dkt. No. 40-11.
On November 24, 2014, Dairy Road indicated that it was taking Cheng’s
advice to heart. Garth Nakamura advised that Plaintiffs were “trying to work on
our numbers and also trying to put together a creative solution that will be in the
best interest for both parties.” SAC, Ex. 7.4 at 42–43, Dkt. No. 40-11. Cheng
responded enthusiastically: “Everything is open to discussion. I am not a one
concept guy. Give just me something that makes sense and we will do it.
Mahalo… Tell [Nakamura] don’t think I am not a friend, etc., Just want to
understand the margins of the deal.” SAC, Ex. 7.4 at 48, Dkt. No. 40-11.
The parties continued to exchange details and other information via email
over the next few weeks, and when Garth shared with Cheng “a future project [his]
father [(Nakamura) was] looking into that includes a gas station, c-store, fast
food,” Cheng responded: “Let’s get our deal done first.” SAC, Ex. 7.4 at 48, Dkt.
As of December 10, 2014, Plaintiffs acknowledge that “Cheng was still
offering [Dairy Road at least] three options”:
I met with my partners and we are amenable to the following options:
If you do not want to make a deal, we will go immediately to
foreclosure. We will sell to the highest bidder at the auction. If no
one comes, then we will keep it and hire someone to run the
If you do want to make a deal, we offer the following 3 Options:
Option 1: 12 months and we give you a one time 30 day window to
buy us out at the 12th month for $500,000. Monthly payment is:
$7,500.00 per month in the interim. Buyout price is at $500,000.00.
Option 2: 24 months and we give you a one time 30 day window to
buy us out at the 24th month. Monthly payment is $7,500 for the first
12 months, and then $9,000 per month for the 2nd twelve months,
Buyout price is at $560,000.00.
Option 3: 36 months and we give you a one time 30 day window to
buy us out at the 36th month. Monthly payment is $7,500 for the first
12 months, and then $9,000 per month for the 2nd twelve months and
$11,000 per month for the third twelve months, Buyout price is at
$620,000.00 at the 36th month window.
After 36 months, if no buyout takes place, we will foreclose but we
will always entertain an offer to extend the lease.
Buyout price is the same for each 12 month period whether you pay
us off at the first or the last month of each 12 month period.
Nakamura to remediate immediately and or obtain clean Health
Department permit to operate.
No financing allowed on any of the leasehold properties or against
any leases during the time of lease.
SAC, Ex. 7.4 at 50–51, Dkt. No. 40-11 [hereinafter Options Email]; SAC ¶ 25,
Dkt. No. 40; see also SAC, Ex. 7.4 at 50, Dkt. No. 40-11 (forwarding Options
Email to Garth Nakamura).
On December 11, 2014, Cheng elaborated on the alternatives he had
proposed the previous day:
Here are some of the non-monetary terms we need on the deal with
He and his partners and the purchasing entity takes on all liability and
indemnifies us from any and all issues including retribution from ASB
He produces a Health Department permit to continue to operate the
gas station within 45 days from December 15, 2014 or begins fully
funded remediation within 30 days from December 15.
He starts renovation of the store with a fully funded budget, plans we
approve asap but not later than 60 days after December 15, 2014[.]
If he fails to do any or all of the above, he can still buy us out at
whatever price we allow him on the proposal before us but he will
have to do so within 15 days from the last default date from items 1, 2
or 3 above or we foreclose and he voluntarily agrees to a friendly
foreclosure and deeds the properties to us.
SAC, Ex. 7.4 at 54, Dkt. No. 40-11. Several days later, on December 15, 2014,
Choi responded with a draft proposal or term sheet of his own. See SAC, Ex. 7.1
at 70–72, Dkt. No. 40-8. On December 19, 2014, Choi followed up with Cheng
stating, “I think the ball is in your court?” SAC, Ex. 7.1 at 76, Dkt. No. 40-8.
On December 23, 2014, apparently following several telephone
conversations between the principals, Choi circulated what he referred to as a
“proposed final term sheet.” SAC, Ex. 7.4 at 57–58, Dkt. No. 40-11. In response,
Cheng told Choi to “[w]ork it out with Tony Barbieri,” because “[w]e are not
closing the deal unless he’s satisfied with the details.” SAC, Ex. 7.4 at 57, Dkt.
No. 40-11. Barbieri subsequently wrote to Choi with “[a] few things, all of which
we need to get worked out before the loan modification agreement goes into
effect.” SAC, Ex. 7.2 at 9, Dkt. No. 40-9. Those “things” included several
estoppel agreements to be executed by the Borrower, Guarantor and subtenants, “a
Reconciliation of all outstanding rents in escrow and rents not paid from all the
subtenants,” and/or “documentation . . . that all rents are current.” SAC, Ex. 7.2 at
9, Dkt. No. 40-9. Notwithstanding these outstanding items, Barbieri sent a draft
loan modification agreement to Choi on December 24, 2014. SAC, Ex. 7.2 at 20,
Dkt. No. 40-9 (referring to the “First Loan Modification Agreement,” Dkt. No. 409 at 23–40).
Over the next several days, the parties, led by Barbieri and Choi, continued
to negotiate and discuss the terms of the loan modification agreement. See e.g.
SAC, Ex. 7.4 at 71–73, Dkt. No. 40-11; SAC, Ex. 7.2 at 46–48, Dkt. No. 40-9.
Among other things, Choi wrote to Barbieri on December 29, 2014 with the
following request: “I know this is a moot point, but could I get a copy of the option
(to satisfy my client’s curiosity).” SAC, Ex. 7.2 at 53–54, Dkt. No. 40-9. In
response, Barbieri asked, “What option?” SAC, Ex. 7.2 at 53, Dkt. No. 40-9. Choi
answered, “The agreement whereby ASB agreed to sell the paper to [Cheng].”
SAC, Ex. 7.2 at 53, Dkt. No. 40-9. To which Barbieri responded: “Unfortunately
that document is subject to various confidentiality provisions so I cannot disclose it
to you at this time. And besides, as you already pointed out, it is a moot point.”
SAC, Ex. 7.2 at 53, Dkt. No. 40-9.
The next day, regarding upcoming rent payments that were to be made
directly to Cheng, Barbieri informed Choi, “We sent letters to all the subtenants.”
SAC, Ex. 7.3 at 6, Dkt. No. 40-10. Choi responded with some concern regarding
the consequences of subtenant rents going to the new lender on “the borrower’s
ability to operate its business.” SAC, Ex. 7.3 at 15, Dkt. No. 40-10. And Barbieri
then asked Choi, “[w]hat business does Dairy Road have aside from owing [sic]
the property?” before inviting Choi to call him the following day. SAC, Ex. 7.3 at
15, Dkt. No. 40-10.
At some point shortly thereafter, negotiations over the loan modification
agreement ceased.7 That is evident because, on January 12, 2015, Cheng’s
attorney contacted the court in the Foreclosure Action and advised that Maui Gas
was the “new owner of the ASB Loan” and would presumably be substituting in
place of ASB as plaintiff. SAC ¶ 29, Dkt. No. 40. Moreover, “on May 14, 2015,
[Maui Gas] filed for summary judgment against [Dairy Road] and against
Nakamura for the entire principal loan balance as well as an immediate money
The correspondence that Plaintiffs included in Exhibit 7 to the SAC ends with emails between
Barbieri and subtenants of the Subject Property. See, e.g., SAC, Ex. 7.3 at 29–30, Dkt. No. 4010. The exhibits offer no further insight into the negotiations or the reasons why the loan
modification agreement was never executed.
judgment against Nakamura [as Guarantor], subsequently awarded in the amount
of $1,270,933.79.” SAC ¶ 30, Dkt. No. 40.
Plaintiffs initiated the instant lawsuit on November 16, 2016. Compl., Dkt.
No. 1. Defendants filed a joint Motion to Dismiss on April 10, 2017. See Dkt. No.
21. On May 22, 2017, in addition to filing their Memorandum in Opposition (Dkt
No. 27) to the April 10, 2017 motion, Plaintiffs filed a “First Amended Complaint”
(Dkt. No. 28) without leave of court, followed by a belated Ex Parte Motion for
Leave to File First Amended Complaint on May 23, 2017 (Dkt. No. 29). After a
June 19, 2017 Rule 16 Scheduling Conference before the Magistrate Judge (see
EP, Dkt. No. 37), the Magistrate Judge denied the Ex Parte Motion (Dkt. No. 36).
On July 6, 2017, the Magistrate Judge signed a Stipulation Regarding First
Amended Complaint and Order (Dkt. No. 39), in which the parties agreed that the
May 22, 2017 complaint would “be deemed withdrawn without prejudice.”
Pursuant to the same Stipulation and Order, Plaintiffs then filed another amended
complaint, which they styled as a “Refiled First Amended Complaint,” hereinafter
referred to as the “SAC.” SAC, Dkt. No. 40. The SAC asserts five claims for
relief: Fraud or Misrepresentation (“Count I”; SAC ¶ 34); Breach of Contract
(“Count II”; SAC ¶¶ 35–36); Promissory Estoppel (“Count III”; SAC ¶¶ 37–38);
Specific Performance of the buy-back agreement with Cheng (“Count IV”; SAC
¶¶ 39–40); and Breach of Fiduciary Duty (“Count V”; SAC ¶¶ 41–42). 8
Defendants filed their Motion to Dismiss (“MTD”) the SAC on August 21,
2017. MTD, Dkt. No. 41. Plaintiffs opposed the MTD on September 28, 2017
(Opp’n, Dkt. No. 45), to which Defendants replied on October 5, 2017 (Reply in
Supp., Dkt. No. 46). The parties appeared before this Court at a hearing on the
MTD on November 16, 2017. See EP, Dkt. No. 48. The Court took matters under
advisement, and the instant disposition follows.
Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6)
A motion to dismiss under Federal Rule of Civil Procedure (“FRCP”)
12(b)(6) challenges a complaint’s compliance with the pleading requirements of
the Federal Rules.
The Court may dismiss a complaint under the rule for “failure to state a
claim upon which relief can be granted” when there is a “lack of a cognizable legal
theory or the absence of sufficient facts alleged.” UMG Recordings, Inc. v. Shelter
Capital Partners, LLC, 718 F.3d 1006, 1014 (9th Cir. 2013) (quoting Balistreri v.
Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990)). In other words,
Plaintiffs apparently sought leave to file these claims, or reasonable facsimiles, as counterclaims
in the Foreclosure Action, but their motion was denied by the state court judge without prejudice.
SAC ¶ 31, Dkt. No. 40.
plaintiffs are required to allege “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 Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see
also Weber v. Dep’t of Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir. 2008). “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 Twombly, 550 U.S. at 556).
Factual allegations that only permit the Court to infer “the mere possibility of
misconduct” do not constitute a short and plain statement of the claim showing that
the pleader is entitled to relief as required by FRCP 8(a)(2). Id. at 677, 679
(explaining that Rule 8 “does not require ‘detailed factual allegations,’ but it
demands more than an unadorned, the-defendant-unlawfully-harmed-me
Courts considering a motion under Rule 12(b)(6) are generally limited to
reviewing the contents of the complaint. See Sprewell v. Golden State Warriors,
266 F.3d 979, 988 (9th Cir. 2001); Campanelli v. Bockrath, 100 F.3d 1476, 1479
(9th Cir. 1996). If matters outside the pleadings are considered, the Rule 12(b)(6)
motion is treated as one for summary judgment. See Keams v. Tempe Tech. Inst.,
Inc., 110 F.3d 44, 46 (9th Cir. 1997); Anderson v. Angelone, 86 F.3d 932, 934 (9th
Cir. 1996). Courts may, however, “consider certain materials—documents
attached to the complaint, documents incorporated by reference in the complaint,
or matters of judicial notice—without converting the motion to dismiss into a
motion for summary judgment.” United States v. Ritchie, 342 F.3d 903, 908 (9th
Cir. 2003). Documents whose contents are alleged in a complaint and whose
authenticity is not questioned by any party may also be considered in ruling on a
Rule 12(b)(6) motion. See Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006);
Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005); Heartland Payment Sys.,
Inc. v. Central Pac. Bank, 2012 WL 488107, *2 (D. Haw. Feb. 13, 2012).
For purposes of ruling on a Rule 12(b)(6) motion, the court “accept[s]
factual allegations in the complaint as true and construe[s] the pleadings in the
light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & Marine
Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). However, conclusory allegations of
law, unwarranted deductions of fact, and unreasonable inferences are insufficient
to defeat a motion to dismiss. See Iqbal, 556 U.S. at 678 (explaining that the
construed-as-true/light-most-favorable tenet “is inapplicable to legal conclusions”);
Sprewell, 266 F.3d at 988; see also Twombly, 550 U.S. at 555 (“While a complaint
attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual
allegations . . . , a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement
to relief’ requires more than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.” (internal citations omitted)).
Moreover, the court need not accept as true allegations that contradict matters
properly subject to judicial notice, nor must it assume that allegations contradicted
by the exhibits attached to the complaint are true. Sprewell, 266 F.3d at 988.
Rather, the Ninth Circuit has explained, “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 v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).
Motion to Dismiss Count I Under FRCP 9(b)
Claims sounding in fraud must also satisfy FRCP Rule 9(b), which requires
a party to “state with particularity the circumstances constituting fraud or mistake”
and provides that “[m]alice, intent, knowledge and other conditions of a person’s
mind may be alleged generally.” “[C]ircumstances must be alleged with enough
specificity “to give defendants notice of the particular misconduct . . . so they can
defend against the charge and not just deny that they have done anything wrong.”
Kearns v. Ford Motor Co., 567 U.S. F.3d 1120, 1124 (9th Cir. 2009) (internal
quotation marks omitted)). To that end, Rule 9(b) demands detailed allegations
setting forth “the time, place, and nature of the alleged fraudulent activities.”
Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 540 (9th Cir. 1989); see also
Illinois Nat’l Ins. Co. v. Nordic PCL Const., Inc., 870 F. Supp. 2d 1015, 1036–37
(D. Haw. 2012) (explaining that allegations of fraud “must be accompanied by ‘the
who, what, when, where, and how’ of the misconduct charged”) (quoting Vess v.
Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)). “[M]ere conclusory
allegations of fraud are insufficient.” Moore, 885 F.2d at 540.
“Because a dismissal of a complaint or claim grounded in fraud for failure to
comply with Rule 9(b) has the same consequence as a dismissal under Rule
12(b)(6), dismissals under the two rules are treated in the same manner.” Vess, 317
F.3d at 1107.
Leave to Amend
Under Rule 15(a)(2) of the FRCP, leave to amend a party’s pleading “should
[be] freely give[n] . . . when justice so requires.” See Lopez v. Smith, 203 F.3d
1122, 1127 (9th Cir. 2000) (en banc) (explaining that “the underlying purpose of
[FRCP] Rule 15 . . . [is] to facilitate decision on the merits, rather than on the
pleadings or technicalities”) (quoting Noll v. Carlson, 809 F.2d 1446, 1448 (9th
Cir. 1987)). Further, the Ninth Circuit has explained that “a district 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.” Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242,
247 (9th Cir. 1990) (citing Bonanno v. Thomas, 309 F.2d 320, 322 (9th Cir. 1962);
Erlich v. Glasner, 352 F.2d 119, 122 (9th Cir. 1965)). Nonetheless, leave to
amend may be denied for “undue delay, bad faith or dilatory motive on the part of
the movant, repeated failure to cure deficiencies by amendments previously
allowed, undue prejudice to the opposing party by virtue of allowance of the
amendment, futility of amendment, etc.” Mayes v. Leipziger, 729 F.2d 605, 608
(9th Cir. 1984) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)).
For the reasons set forth below, the Motion to Dismiss is GRANTED.
Counts II–V are DISMISSED WITH PREJUDICE. However, because facts may
exist that would allow Plaintiffs’ fraud claims to proceed, Count I is DISMISSED
WITHOUT PREJUDICE AND WITH LEAVE TO AMEND.
Fraud/Misrepresentation (Count I)
“[F]raud in the inducement is fraud which induces the transaction by
misrepresentation of motivating factors such as value, or extent, usefulness, age, or
other characteristic of the property.” Schmidt v. Fid. Nat’l Title Ins. Co., 2009 WL
10676787, *12 (D. Haw. Sept. 30, 2009) (quoting Adair v. Hustace, 640 P.2d 294,
299 (Haw. 1982), abrogated by Ass’n of Apt. Owners of Royal Aloha v. Certified
Mgmt., Inc., 386 P.3d 866 (Haw. 2016), as amended) (internal brackets omitted).
In Hawai‘i, a party claiming fraud must establish four elements: “(1) false
representations were made by defendants, (2) with knowledge of their falsity . . . ,
(3) in contemplation of plaintiff’s reliance [thereon], and (4) plaintiff did rely on
them.” Shoppe v. Gucci Am., Inc., 14 P.3d 1049, 1067 (Haw. 2000) (quoting TSA
Int’l, Ltd. v. Shimizu Corp., 990 P.2d 713, 725 (Haw. 1999), as amended). The
party claiming fraud bears the burden to “establish these elements by clear and
convincing evidence.” TSA Int’l, 990 P.2d at 725 (quoting Hawaii’s Thousand
Friends v. Anderson, 768 P.2d 1293, 1301 (1989)) (additional citations omitted)).
Plaintiffs have not met this burden.
In the SAC, Plaintiffs maintain that the “very central essence” of the parties’
agreement was that Defendants would “stop any foreclosure so as to provide
[Plaintiffs] with breathing room and refinancing options.” SAC ¶ 30, Dkt. No. 40.
Plaintiffs allege that Defendants, “knowing that [Dairy Road] would be damaged
as a result of their false promises” (SAC ¶ 34(b)), misrepresented that: (1)
Defendants “intended to help” Plaintiffs, (2) Defendants “would purchase the ASB
[L]oan indirectly for” Plaintiffs, (3) Defendants “would give [Plaintiffs] time to
buy back the property,” (4) Plaintiffs “would have three options for buying back
the property and that they could choose any one of the three,” (5) “upon the
purchase of the ASB [L]oan,” Defendants “would not foreclose” and would
dismiss the Foreclosure Action, (6) “there would be no foreclosure deficiency
judgment against” Plaintiffs, and (7) Plaintiffs “would benefit from the discounted
price negotiated and paid to ASB” (SAC ¶ 34(a)). Plaintiffs contend that they were
induced by these seven fraudulent misrepresentations “to divulge confidential
proprietary information to [Defendants] under false pretenses and false promises
that Cheng was going to assist them, when in fact Cheng and [Maui Gas] never
intended to assist [Dairy Road] to save the [S]ubject [P]roperty from foreclosure
. . . .” SAC ¶ 34, Dkt. No. 40; see also Opp’n at 7, Dkt. No. 45.
According to Defendants, however, these allegations fail to plead a viable
claim for either Misrepresentation or Fraud in Count I under the stringent pleading
requirements set forth in Rule 9(b) of the FRCP. See Mem. in Supp. at 23, Dkt.
No. 41-1. Defendants are correct.
Rule 9(b) Pleading Requirements for Fraud
“An allegation of fraud is sufficient” under Rule 9(b) “if it ‘identifies the
circumstances constituting fraud so that the defendant can prepare an adequate
answer from the allegations.’” Heartland, 2012 WL 488107 at *4 (quoting
Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993)). To sufficiently “identif[y]
the circumstances constituting fraud,” a plaintiff must identify facts providing
details of the alleged fraudulent activity such as times, dates, and places.
Neubronner, 6 F.3d at 672 (citing Gottreich v. San Francisco Inv. Corp., 552 F.2d
866, 867 (9th Cir. 1977); Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir.1985));
see also Moore, 885 F.2d at 540 (noting that the rule requires detailed allegations
of fraud setting forth “the time, place, and nature of the alleged fraudulent
activities”). Moreover, beyond setting forth the objective facts necessary to
identify the allegedly fraudulent statements or transactions, a plaintiff “must set
forth what is false or misleading about [a given] statement, and why it is false.”
Vess, 317 F.3d at 672 (quoting Decker v. GlenFed, Inc., 42 F.3d 1541, 1548 (9th
Striking a balance “between the need to protect defendants from having to
defend factually baseless litigation and the need to afford plaintiffs an adequate
opportunity to develop factual bases for legitimate claims” via discovery, the Ninth
Circuit has held that “Rule 9(b) may be relaxed with respect to matters within the
opposing party’s knowledge.” Neubronner, 6 F.3d at 672 (citing Wool v. Tandem
Comps. Inc., 818 F.2d 1433, 1439 (9th Cir. 1987); Moore, 885 F.2d at 540;
DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247–48 (2d Cir.
1987); In re Worlds of Wonder Secs. Litig., 694 F. Supp. 1427, 1433 (N.D. Cal.
1988)). However, “this exception does not nullify Rule 9(b),” for even when
“allegations of fraud [are] based on information and belief,” the pleadings
nonetheless “do not satisfy Rule 9(b) if the factual bases for the belief are not
included.” Heartland, 2012 WL 488107, *4 (citing Neubronner, 6 F.3d at 672).
Here, the seven “misrepresentations” listed in the pleadings do not meet
these standards. Specifically, the SAC’s fraud/misrepresentation allegations do not
identify when each of the alleged misrepresentations was made, who made each of
them, to whom each representation was made, or the circumstances surrounding the
communication (i.e., the where and how) of the falsehood. See Moore, 885 F.2d at
540; Nordic PCL, 870 F. Supp. 2d at 1036–37 (requiring allegations to be
“accompanied by ‘the who, what, when, where, and how’ of the misconduct
charged” (quoting Vess, 317 F.3d at 1106)).
Plaintiffs appear to recognize their deficiencies and have attempted to cure
them by adding a new paragraph to the third version of their complaint. 9 That
paragraph introduces and attaches hundreds of pages of emails as Exhibit 7 to the
SAC that are presumably intended to identify the “date, parties, content, and
timeline . . .” of the supposed fraud. SAC ¶ 32, Dkt. No. 40. Yet this strategy
fails to identify for the Court—or Defendants—the specific location(s) within the
voluminous Exhibit 7 of representations that allegedly constitute fraud. See Mem.
in Supp. at 20, 22, 24, Dkt. No. 41-1 (noting that Plaintiffs fail to specify what
“false pretenses” were used other than “vague implied” promises and when those
That paragraph reads, in full,
All of the above assurances and representations and reliances are
fully documented and embodied throughout the above-referenced nearly
four months of emails variously exchanged cross-referencing the tied
together the negotiations between Cheng (representing himself and his
Texas companies), attorney Choi (representing [Dairy Road] and
Nakamura), the Nakamuras (Glenn and his Son Garth), attorney Mau
(representing ASB), attorney Gelber (representing a lessee), accountant
Wong (representing Cheng and his companies) and/or attorney Barbieri
(representing Cheng and his companies) during the months of September,
October, November, and December 2014, some of which are set forth in
Exhibit 7 attached hereto, incorporated herein as to date, parties, content,
and timeline, as requested by [Maui Gas] and Cheng in their insincere
objections to the content of the original Complaint herein.
SAC ¶ 32, Dkt. No. 40.
promises were made). Plaintiffs provide no authority for the proposition that such
a blind reference to several hundred pages of documents—whether “incorporated
herein as to date, parties, content, and timeline” or otherwise—can satisfy Rule
9(b)’s heightened standard, and the Court knows of none.10 See Moore, 885 F.2d
Common Law Fraud/Misrepresentation
Even assuming Plaintiffs’ factual allegations are true, and are supported by
the voluminous record, Plaintiffs’ allegations do not state a claim for fraud. See
Shoppe, 14 P.3d at 1067 (citations omitted).
In most instances, fraud is actionable only if the first element—material
(mis)representation—“relate[s] to a past or existing material fact and not the
occurrence of a future event.” TSA Int’l, 990 P.2d at 725 (emphasis omitted)
(citing Stahl v. Balsara, 587 P.2d 1210, 1214 (1978)).
See, e.g., Heartland, 2012 WL 488107 at *3 (noting that “[s]ome courts have held that fraud
claims fail to satisfy Rule 9(b)’s heightened pleading requirement when they rely on shotgun or
puzzle pleadings.” (footnotes omitted)) (citing Wagner v. First Horizon Pharm., Corp., 464 F.3d
1273, 1280 (11th Cir. 2006); In re Metro. Secs. Litig., 532 F. Supp. 2d 1260, 1279 (E.D. Wash
2007); In re Autodesk, Inc. Secs. Litig., 132 F. Supp. 2d 833, 842 (N.D. Cal. 2000)). Cf. Kamaka
v. Goodsill Anderson Quinn & Stifel, 176 P.3d 91, 113 n.23 (2008) (“This court is not obligated
to sift through the voluminous record to verify an appellant's inadequately documented
contentions.” (quoting In re Guardianship of Carlsmith, 151 P.3d 692, 715–16 (Haw. 2007));
Rundgren v. Bank of N.Y. Mellon, 2010 WL 11470586, *2 (D. Haw. Oct. 29, 2010) (“[T]he court
rejects that the court, on its own, must pore through [plaintiff’s] documents [attached to the
complaint] to sua sponte raise potential arguments for [p]laintiff—judges are not ‘like pigs,
hunting for truffles [in the record].’”) (quoting United States v. Dunkel, 927 F.2d 955, 956 (7th
Cir. 1991)). But see GlenFed, 42 F.3d at 1548 n.7 (holding that the specific complaint at issue
satisfied Rule 9(b) even though its organization made the nature of the fraud “difficult to
Fraud cannot be predicated on statements which are promissory
in their nature, or constitute expressions of intention, and an
actionable representation cannot consist of mere broken
promises, unfulfilled predictions or expectations, or erroneous
conjectures as to future events, even if there is no excuse for
failure to keep the promise, and even though a party acted in
reliance on such a promise.
Stahl, 587 P.2d at 1214; Shoppe, 14 P.3d at 1068; see, e.g., Prim Liab. Co. v. PaceO-Matic, Inc., 2012 WL 263116, *9 (D. Haw. Jan. 30, 2012) (“[Party]’s
contractual promises cannot form the basis of a fraud claim.”); Courter v. Karolle,
2013 WL 2468360, *9 [FOF 16] (D. Haw. June 6, 2013) (“[Defendant’s] claim for
fraud must fail as a matter of law because the false statement forming the basis of
the claim (i.e., that [plaintiff] promised to hold title to [the subject property] in
name only, and to allow [defendant] to transfer title back to himself whenever he
wished) are promissory in nature and, therefore, insufficient to support a claim for
The first three alleged misrepresentations—that (1) Defendants intended to
help the Plaintiffs;11 (2) Defendants would purchase the ASB Loan indirectly on
Plaintiffs’ behalf;12 and (3) Defendants would give Plaintiffs time to buy back the
See, e.g., SAC ¶¶ 11 (“Nakamura was induced to acquaint Cheng with the Subject Property of
[Dairy Road], with promises that Cheng and [Maui Gas] could financially assist him . . . .”); 15
(referring to “Cheng’s promise of financial assistance to Nakamura and [Dairy Road]”); 16
(“Cheng represented . . . that Cheng was going to buy the ASB Loan . . . to help [Dairy Road]
. . . .”).
See, e.g., SAC ¶¶ 15 (describing Cheng’s September 20, 2014 offer to ASB, “which began
Cheng’s negotiations to acquire the Subject Property with the blessings of [Dairy Road] and
property 13—even if true, are “promissory in nature and, therefore, insufficient to
support a claim for fraud.” Courter, 2013 WL 2468360 at *9 [FOF 16]
(concluding after a bench trial that “[the defendant]’s [counter]claim for fraud must
fail as a matter of law because the false statement forming the basis of the claim
(i.e., that [the plaintiff had] promised to hold title to [the subject property] in name
only, and to allow [the defendant] to transfer title back to himself whenever he
wished) are promissory in nature and, therefore, insufficient to support a claim for
fraud.”); Honolulu Fed. Sav. & Loan Ass’n v. Murphy, 753 P.2d 807, 204 (Haw.
Ct. App. 1988) [hereinafter HonFed] (“[B]ecause the bank’s alleged
representations as to how it intended to go about collecting the note in the event of
default were promises as to future acts, they were insufficient as a matter of law to
constitute fraud in the procurement of the guaranty.” (quoting Rogers v. C & S
Nat’l Bank, 274 S.E.2d 722, 723 (Ga. Ct. App. 1980)) (internal brackets omitted)).
indirectly on its behalf”); 16 (“[S]tarting approximately September 17, 2014 and terminating on
December 26, 2014, . . . Cheng represented to Nakamura and to Choi and to Garth . . . that
Cheng was going to buy the ASB Loan on their behalf . . . .”). Cf., e.g., SAC ¶ 18 (“Cheng
explained to Nakamura that he and Alice Wong and others on his Texas staff . . . needed
confidential proprietary information about the Subject Property from [Dairy Road] available only
from [Dairy Road], or Cheng could not do the deal on behalf indirectly of Nakamura . . . .”).
See, e.g., SAC ¶¶ 16 (“Cheng represented to Nakamura and to Choi and to Garth . . . that
Cheng was going to buy the ASB Loan . . . to help [Dairy Road] gain some time to refinance or
sell . . . .”); 17 (“Cheng represented that they . . . would be . . . giving [Dairy Road] additional
time to work out a refinance or sale, Cheng being compensated by being paid a premium by
[Dairy Road].”); 21 (“The agreement between the parties to stop any foreclosure sale and to
provide additional time for [Dairy Road] to refinance or sell the Subject Property was further
memorialized in a series of written drafts prepared by Cheng’s side . . . .”).
And the remaining alleged misrepresentations—that (4) Plaintiffs would have three
buy-back options to choose from; 14 (5) Defendants would not foreclose on
Plaintiffs upon the purchase of the ASB Loan;15 (6) there would be no foreclosure
deficiency judgment against Plaintiffs; 16 and (7) Plaintiffs would benefit from the
discounted price negotiated and paid to ASB 17—are clearly predictions of future
events, rather than misstatements of existing fact. See HonFed, 753 P.2d at 813;
Stahl, 587 P.2d at 1213–14 (holding that each of the defendant-astrologer’s alleged
misrepresentations were prophesy relating to future events, not material facts that
were actually false at the time the representations were made (citing Peine v.
Murphy, 377 P.2d 708, 712 (Haw. 1962)). So without more, Plaintiffs may not
See, e.g., SAC ¶¶ 23 (alleging that “it was not a question of whether the parties could reach
agreement, but merely which alternative Nakamura and [Dairy Road] would accept, one of many
and at their election or so they and Choi were told by Cheng, Wong, and Barbieri”); 25 (stating
that “the parties had,” by October 29, 2014, “negotiated, accepted and agreed upon virtually
every material contract term of their arrangement with only Nakamura needing to elect among
proposed alternative refinancing terms,” and that Cheng was still offering [Dairy Road] three
options in writing as late as December 10, 2014, telling Nakamura that all he would have to do
was pick one.”).
See, e.g., SAC ¶ 17 (alleging that “Cheng specifically t[old] Nakamura that upon acquiring the
ASB [L]oan Cheng would not foreclose but instead give Nakamura time to refinance”). Cf., e.g.,
SAC ¶ 21 (referring to Cheng’s “promises to give [Dairy Road] the option of paying off its first
mortgage once acquired by Cheng through one of his companies for a premium”).
See, e.g., SAC ¶¶ 14 (“Cheng approached Nakamura, proposing to buy [the] ASB Loan and
stopping the Foreclosure Action . . . .”); 21 (describing Cheng’s “promises to assist [Dairy Road]
in stopping the Foreclosure Action”).
See, e.g., SAC, Ex. 7.4 at 34–39, Dkt. No. 40-11 (informing Garth that “[t]he benefits of a
purchase of the Note” by Cheng to Dairy Road, would be: “Mitigation of foreclosure risks[,]
Reasonable payment stream due to lower initial cost, Limited Liability in case the business
fails[,] Flexible Terms[, and] Buyback Options”).
base Count I on such statements. Heartland, 2012 WL 488107 at *6 (the alleged
statement that plaintiff “would benefit as a result of [a] ‘large and valuable
merchant base in Hawaii’ . . . does not allege a factual misrepresentation, instead
offering a prediction,” and noting further that “[i]f [plaintiff] takes issue with
[defendant]’s representation that it had a ‘large and valuable merchant base,’ it
fails to allege . . . or explain . . . what makes this statement false.”).
“Promissory” representations like those listed in the SAC may be actionable
as fraud “if [the representation was] made without the present intent to perform.”
HonFed, 753 P.2d at 813 (“Absent [any fraudulent] intent [not to perform its
alleged promise], we must hold that ‘[b]ecause the bank’s alleged representations
as to how it intended to go about collecting the note in the event of default were
promises as to future acts, they were insufficient as a matter of law to constitute
fraud in the procurement of the guaranty.’” (quoting Rogers v. C & S, 274 S.E.2d
at 723)); Eastern Star, Inc., S.A. v. Union Bldg. Materials Corp., 712 P.2d 1148,
1159 (Haw. Ct. App. 1985) (“It is true that ‘fraud cannot be predicated on
statements which are promissory in their nature,’ but a promise made without the
present intent to fulfill the promise is actionable as fraud.” (internal citations
omitted)). To recover for a future promise, however, there must be some
affirmative evidence of fraudulent intent. HonFed, 753 P.2d at 203 (citing Aloha
Petroglyph, Inc. v. Thomas, 619 P.2d 518, 519 (Haw. Ct. App. 1980)). Here, there
is none. Plaintiffs have not alleged facts establishing that “[Defendants] never
intended to honor [their] promises.” SAC ¶ 34(a), Dkt. No. 40.
Several examples illustrate this omission. First, Plaintiffs place great stock
on an October 29, 2014 email from Cheng to Choi that reads in relevant part, “We
are ON.” Dkt. No. 40-11 at 15. This email came immediately on the heels of
Cheng’s purchase of Defendants’ loan from ASB. Plaintiffs state that these three
words somehow indicate that Cheng purchased the loan “on behalf of [Dairy
Road] and Nakamura” (SAC ¶ 24, Dkt. No. 40 (emphasis added)), and “had . . .
negotiated, accepted, and agreed upon virtually every material contract term” of a
loan modification agreement with Nakamura. SAC ¶ 25, Dkt. No. 40. Just how
these three words accomplish all of that, and how they evidence fraudulent intent,
Plaintiffs do not explain. Read in context, all these words appear to mean is that
Cheng had wrapped up the ASB Loan purchase and would be turning his attention
to attempting to reach a second deal—this time, with Defendants—to modify their
loan. There is nothing misleading or fraudulent about that because that is precisely
what Plaintiffs’ voluminous record demonstrates Cheng did.
Second, Plaintiffs place equal stock on Barbieri’s two-word question—
“What option?”—in a December 29, 2014 email exchange with Choi. SAC, Ex.
7.2 at 53, Dkt. No. 40-9. Plaintiffs appear to believe that this question implied that
Defendants were denying having provided several buyback options to Nakamura in
an email from Cheng on December 10, 2014. See Opp’n at 4, Dkt. No. 45.
Plaintiffs read much from nothing. Barbieri’s email was a response to Choi’s
request for a copy of an unspecified “option.” SAC, Ex. 7.2 at 53–54, Dkt. No. 409. Why Choi (not Barbieri) even used the term “option” is not clear, since he later
clarified that the document he wanted was the Cheng-ASB agreement to purchase
Defendants’ loan. Id. In other words, the December 29 email exchange had
nothing to do with Cheng’s December 10 buyback proposal. And even if it had,
how it evidences fraudulent intent on the part of Defendants is a mystery.
Third, Plaintiffs assert that despite Cheng’s representations to the contrary,
he never intended to work out a new loan with Plaintiffs, and this is demonstrated
by Defendants injecting new environmental remediation prerequisites into the deal
at the eleventh hour. See SAC ¶ 25, Dkt. No. 40. This allegation is completely
contradicted by the record and is entitled to no deference. Sprewell, 266 F.3d at
988; see also Iqbal, 556 U.S. at 678; Starr, 652, F.3d at 1216. What Plaintiffs own
record demonstrates is that Cheng was concerned about the property’s
environmental condition from the very beginning. As early as September 9, 2014,
more than a month before he had even reached a deal with ASB, Cheng advised
Nakamura that to work out a loan modification, he needed to see the “ESA report
on contamination.” SAC, Ex. 7.3 at 33, Dkt. No. 40-10. The significance of
environmental problems was also known early on to Defendants’ attorney, Chuck
Choi, as Choi addressed it only a week later in a draft September 17 email to ASB
that he prepared for Cheng. SAC, Ex. 7.3 at 35–36 (“I also understand that Dairy
Road Partners’ underground storage tanks have discharge issues that could cost
Dairy Road or any other potentially responsible party significant sums to
remediate.”). And as if that was not enough to dispel Plaintiffs’ conjecture, Cheng
made clear as early as October 15, 2014 that “health dept sign off” on remediation
of the property would be necessary “before I close.” SAC, Ex. 7.1 at 23, Dkt. No.
Plaintiffs, in other words, have offered nothing by way of fraudulent intent,
other than conclusory statements that “[Defendants] never intended to honor [their
alleged] promises” (SAC ¶ 34(a)), that are not supported—and in some cases,
contradicted—by the very record Plaintiffs have introduced as part of their
complaint. Stahl, 587 P.2d at 1213–14 (“[T]he record is absolutely bare as to any
evidence to show whether the [defendant] had any knowledge of or knew at the
time when the [subject] representations were communicated by [defendant] that
they were false[.]”).
Accordingly, Plaintiffs’ claim for fraud/misrepresentation (Count I) is
Breach of Contract (Count II)
At the core of the instant dispute is Plaintiffs’ contention that the parties
reached a loan modification agreement—the “very central essence” of which “was
to stop any foreclosure so as to provide [Plaintiffs] with breathing room and
refinancing options.” SAC ¶ 30, Dkt. No. 40. In Count II, Plaintiffs allege that
they have suffered damage as a result of Defendants’ breach of this contract.
To prevail on a claim for breach of contract in Hawai‘i, a party must prove:
“(1) the contract at issue; (2) the parties to the contract; (3) whether Plaintiff
performed under the contract; (4) the particular provision of the contract allegedly
violated by Defendants; and (5) when and how Defendants allegedly breached the
contract.” Keahole Point Fish LLC v. Skretting Canada Inc., 971 F. Supp. 2d
1017, 1040 (D. Haw. 2013) (quoting Evergreen Eng’g, Inc. v. Green Energy Team
LLC, 884 F. Supp. 2d 1049, 1059–60 (D. Haw. 2012)). As proof of the purported
agreement they seek to enforce, Plaintiffs offer three things: (1) an unsigned, draft
Term Sheet and Letter of Intent (SAC, Ex. 3 [Term Sheet], Dkt. No. 40-4), (2) an
unsigned and undated, draft “First Loan Modification Agreement” (SAC, Ex. 4
[First Modification Agreement], Dkt. No. 40-5); and (3) the parties’ alleged part
performance of these agreements in the form of Plaintiffs providing confidential
proprietary information to Defendants upon purchase of the ASB Loan (see SAC
¶¶ 18–20, Dkt. No. 40). Defendants, in contrast, characterize their purchase of the
ASB Loan as an “independent transaction between ASB and Mr. Cheng” that “was
not dependent on the proposed loan modification.” Reply at 6–7, Dkt. No. 46
(citing MTD at 9, Dkt. No. 41-1). They assert that no independent loan
modification agreement with Plaintiffs was ever consummated. Id.
None of the evidence Plaintiffs provide establishes the existence of “the
contract at issue” or any “particular provision of the contract allegedly violated”
that may be enforced by the Court. Keahole, 971 F. Supp. 2d at 1040.
Accordingly, the MTD is GRANTED as to Count II.
The Unsigned Documents Plaintiffs Cite Are Not Contractually
As evidence of an alleged agreement between Cheng and Nakamura “to stop
any foreclosure sale and to provide additional time for [Dairy Road] to refinance or
sell the Subject Property” (SAC ¶ 23, Dkt. No. 40), the pleadings describe “a series
of written drafts prepared by Cheng’s side”—including an unsigned, but “very
detailed ‘Term Sheet and Letter of Intent’” (Dkt. No. 40-4) and an unsigned and
undated “First Loan Modification Agreement” (Dkt. No. 40-5).
Under the Hawai‘i Statute of Frauds, HRS § 656-1(4), no action may be
brought based “[u]pon any contract for the sale of lands . . . or of any interest in or
concerning them . . . unless the promise, contract, or agreement . . . is in writing,
and is signed by the party to be charged therewith . . . .” It is undisputed that this
writing requirement is applicable because, as Defendants note, “[t]here is no
question that the agreement that Plaintiffs claim Defendants breached concerns a
contemplated modification of the ASB [L]oan, which was secured by a mortgage
on the Subject Property.” Mem. in Supp. at 25, Dkt. No. 41-1 (citing Au v.
Republic State Mortg. Co., 2013 WL 1339738, *6 (D. Haw. Mar. 29, 2013) (loan
modification agreements subject to the statute of frauds)). At best, the documents
on which Plaintiffs rely “speak only of the possibility of an agreement without
[the parties actually] agreeing to anything.” Eckerle v. Deutsche Bank Nat’l Trust,
2011 WL 4971128, *4 (D. Haw. Oct. 18, 2011), aff’d, 580 Fed. Appx. 527 (9th
The fact that the parties may have “jointly worked for months . . . constantly
exchanging emails, to come up with a plan to allow Defendants to approach ASB
and to purchase the Plaintiffs’ mortgage loan at a discount” (Opp’n at 2–3, Dkt.
No. 45 (citing SAC ¶ 17, Dkt. No. 40)) is irrelevant. Plaintiffs’ voluminous
submissions do not contain any actual agreement, nor do they allege one. See
Northern Trust, NA v. Wolfe, 2012 WL 1983339, *21–22 (D. Haw. May 31, 2012)
(finding oral agreement not to reinstitute foreclosure proceedings barred by statute
of frauds and dismissing breach of contract claim)
Nothing Else in the SAC Establishes the Existence of an
The Court acknowledges that in some circumstances, a written and signed
contract is not necessary to state a breach of contract claim. For instance, an
implied contract exists “where the intention of the parties is not expressed, but an
agreement in fact, creating an obligation, is implied or presumed from their acts.”
Kemp v. Haw. Child Support Enforcement Agency, 141 P.3d 1014, 1038 (Haw.
2006). The Hawai‘i Supreme Court has found such an obligation “in the case
where a person performs services for another, who accepts the same, the services
not being performed under such circumstances as to show that they were intended
to be gratuitous, or where a person performs services for another on request.” Id.
(quoting Durette v. Aloha Plastic Recycling, 100 P.3d 60, 74 (Haw. 2004) (internal
citations and quotation marks omitted)).
The essential element of an implied contract, as with all contracts, “is an
apparent mutual intent to form a contract.” Rogers v. Fukase, 2010 WL 4812772,
*6 (D. Haw. Nov. 16, 2010) (quoting Kemp, 141 P.3d at 1038). “[T]he intent to
incur mutual obligations is implied from the actions of the parties.” Id. Indeed,
“[i]t is a fundamental principle of law that there must be mutual assent or a
meeting of the minds on all essential elements or terms in order to form a binding
contract.” Carson v. Saito, 489 P.2d 636, 638 (Haw. 1971) (quoting Honolulu
Rapid Transit Co. v. Paschoal, 51 Haw. 19, 26, 449 P.2d 123, 127 (Haw. 1968));
accord Rennick v. O.P.T.I.O.N. Care, Inc., 77 F.3d 309, 315 (9th Cir. 1996)
(citation omitted). Such mutual assent, at minimum, must include “an offer, an
acceptance, and consideration.” In re Estate of Tahilan v. Friendly Care Home
Health Servs., Inc., 731 F. Supp. 2d 1000, 1006 (D. Haw. 2010) (quoting Douglass
v. Pflueger Haw., Inc., 135 P.3d 129, 134 (Haw. 2006)); cf. Restatement (Second)
of Contracts § 71 (1981) (consideration is supplied by bargained for performance).
No such mutual assent is evident for at least two reasons. First, as described
in part above, Defendants consistently conditioned any deal with Plaintiffs on
consideration in the form of environmental remediation of the Subject Property,
and it is undisputed that not only did no such remediation occur, but nothing akin
to part performance by Plaintiffs was even attempted. See Reply at 7–8, Dkt. No.
46 (noting that Defendants “repeatedly demanded environmental remediation and
confirmation of ‘no further action’ needed,” but “these conditions were never
met”) (citing SAC, Ex. 7.2 at 11, Dkt. Nos. 40-9 (email listing production of health
department permit to continue operation as a required term of the proposed deal);
SAC, Ex. 7.1 at 57, Dkt. No. 40-8 (including final environmental cleanup cost and
“tank pressure test” in due diligence cost estimates)).
Second, the SAC describes a chronology that cannot be mistaken for an
implied agreement. In late December 2014, near the very end of the emails offered
by Plaintiffs as part of the SAC, Cheng told Choi unequivocally that “We are not
closing the deal unless [Barbieri is] satisfied with the details” (SAC, Ex. 7.4 at 57,
Dkt. No. 40-11), and Barbieri informed Choi that there were details that remained,
“all of which [the parties would] need to get worked out before the loan
modification agreement goes into effect,” specifically including environmental
remediation issues (SAC, Ex. 7.2 at 2, Dkt. No. 40-9). Aside from remediation,
among the remaining loose ends were several estoppel agreements to be executed
by the borrower, guarantor, and Subject-Property tenants. See SAC, Ex. 7.2 at 9,
Dkt No. 40-9. The SAC shows that as of December 30, 2014, Barbieri had still
“never heard back from” at least one of the Subject Property’s tenants regarding
the estoppel agreements. SAC, Ex. 7.3 at 30, Dkt. No. 40-10; see also SAC, Ex.
7.3 at 6, Dkt. No. 40-10 (reminding Choi that before Barbieri could finalize any
agreement, Barbieri would “need to get [Cheng]’s approval . . . first”).
Unable to find or infer the existence of a binding contract, the Court
GRANTS Defendants’ Motion to Dismiss Count II of the SAC.
Promissory Estoppel (Count III)
“Under Hawaii law, the four elements of promissory estoppel are:
(1) There must be a promise; (2) The promisor must, at the time
he or she made the promise, foresee that the promisee would
rely upon the promise (foreseeability); (3) The promisee does in
fact rely upon the promisor’s promise; and (4) Enforcement of
the promise is necessary to avoid injustice. The “essence” of
promissory estoppel is “detrimental reliance on a promise.”
Hi-Tech Rockfall Const., Inc. v. Cty. of Maui, 2009 WL 529096, *9–10 (D. Haw.
Feb. 26, 2009) (quoting Gonsalves v. Nissan Motor Corp. in Haw., Ltd., 58 P.3d
1196, 1211–12 (Haw. 2002)). A promise is “a manifestation of intention to act or
refrain from acting in a specified way, so made as to justify a promisee in
understanding that a commitment has been made.” Gonsalves, 58 P.3d at 1212.
Here, the SAC alleges:
Plaintiffs were promised by Defendants  assistance in
stopping the foreclosure; promised  three options to choose
from,  promised the ability to cancel the mortgage loan for a
later premium,  promised that the foreclosure would be
halted,  promised that they would share in the advantage of
the discounted purchase price.
Opp’n at 14, Dkt. No. 45.
Plaintiffs claimed to have detrimentally relied on these promises by: (1)
“ignoring other refinancing alternatives,” (2) “not objecting to ASB’s sale to
Cheng and [Maui Gas],” (3) “giving ASB a waiver of liability,” and (4)
“instruct[ing]” that “confidential proprietary information about the Subject
Property from [Dairy Road] available only from [Dairy Road], . . . be freely given
to Cheng[.]” SAC ¶¶ 17, 18, Dkt. No. 40.
As for ignoring other refinancing alternatives, Plaintiffs specify that “[Dairy
Road] and Nakamura could have paid the $400,000 discounted buyout price
themselves to ASB then and there in 2014 through others, or sold the property, or
could have exercised beforehand any of Cheng’s three options aforesaid at that
time, and would have had they been alerted to Cheng’s true plans.” SAC ¶ 26,
Dkt. No. 40.18 However, as Defendants have pointed out, “Plaintiffs fail to explain
how [this] is plausible in light of their undisputed and long-standing default and
ongoing foreclosure litigation at the time.” Reply at 9. Moreover, Plaintiffs do not
allege that Defendants demanded “exclusive” negotiations with Plaintiffs, so
“nothing precluded Plaintiffs from seeking other options.” Reply at 9, Dkt. No. 46.
As for the contention that they would have objected to ASB’s sale of the
defaulted loan to Cheng if they had known of Cheng’s “true plans,” the Court is
unable to discern support for this argument anywhere in the pleadings. See TeMoak Tribe of W. Shoshone of Nev. v. U.S. Dep’t of Interior, 608 F.3d 592, 614
n.23 (9th Cir. 2010) (explaining that when a party fails to support an argument
beyond a bare assertion, courts deem the argument to be waived); Entm’t Res.
Grp., Inc. v. Genesis Creative Grp., Inc., 122 F.3d 1211, 1217 (9th Cir. 1997); see
also Local R. 7.6 (requiring factual support for each assertion of fact in any motion
or appeal). There is, for instance, no indication that Plaintiffs has standing to
object, nor is there any indication that ASB would have listened. Indeed, when
Choi attempted to put himself between Cheng and ASB during the early ASB Loan
See also, e.g., SAC ¶¶ 11 (stating that “promises that Cheng and [Maui Gas] could financially
assist him . . . induced Nakamura based on reasonable reliance upon the promises of Cheng to
ignore other financial alternatives, such as a sale or refinancing”); 14 (“Had Cheng not offered to
help, Nakamura would have sought to secure a discounted ASB payoff and refinanced elsewhere
through family and friends”); 16 (“Cheng represented to Nakamura and to Choi and to Garth
Nakamura that Cheng was going to buy the ASB Loan on their behalf to help [Dairy Road] gain
some time to refinance or sell, upon which witnessed promise [Plaintiffs] relied, ignoring other
purchase negotiations, ASB advised that it would not deal with Choi and would
only deal directly with Cheng. SAC, Ex. 7.1 at 24, Dkt. No. 40-8.
Regarding the suggestion that Plaintiffs “relied to their detriment” on
Cheng’s alleged promises by “giving ASB a waiver of liability” (SAC ¶ 17) for
“wrongful foreclosure” (SAC ¶ 22), Plaintiffs ignore that reliance is not necessarily
detrimental. Here, Cheng purchased the loan, and in doing so, stepped into the
shoes of ASB. Whatever defenses to foreclosure Plaintiffs had could presumably
have likewise been asserted against Cheng in the Foreclosure Action. Plaintiffs in
that sense lost nothing by virtue of the change in the holder of their note.
Last, regarding the sharing of confidential proprietary information, Plaintiffs
contend that between October 29 and November 17, 2014, Cheng and his agents
requested information from Plaintiffs regarding Dairy Road’s sub-agreements with
the lessees operating on the Subject Property, including copies of leases, insurance
policies, various environmental reports, and budgets, among other things. See e.g.
SAC, Ex. 7.1 at 57, 61, Dkt. No. 40-8; SAC, Ex. 7.4 at 25, Dkt. No. 40-11.
Plaintiffs suggest that these requests establish that Defendants required this
information in order to complete their purchase of the ASB Loan. See SAC ¶ 20,
Dkt. No. 40 (“Without [Dairy Road’s] assistance, such information would have
been difficult, if not absolutely impossible to readily acquire as a part of any
necessary due diligence prior to the purchase of the ASB Loan by anyone.”). Even
assuming the truth of these allegations, however, the timing of these information
requests precludes Plaintiffs’ conclusion that the information was provided to their
detriment. That is, ASB had already accepted Cheng’s offer on October 29 before
Defendants’ first information request on November 7. See SAC, Ex. 7.1 at 31, 57,
61, Dkt. No. 40-8; SAC, Ex. 7.4 at 25, Dkt. No. 40-11. In fact, Defendants sent
their “Proposal to Glenn Nakamura—Dairy Road Ventures Maui Gas Station” the
day after Defendants’ final request for information on November 17, 2014. SAC,
Ex. 7.1 at 61, Dkt. No. 40-8; SAC, Ex. 7.4 at 83, Dkt. No. 40-11. The plausible
inference then is that Defendants sought the information Plaintiffs characterize as
proprietary in order to structure a potential buyback deal between themselves and
Plaintiffs, and not in order to purchase the ASB Loan. See, e.g., Dement v. Atkins
& Ash, 631 P.2d 606, 609 (Haw. Ct. App. 1981) (“[T]he facts clearly indicate that
[plaintiff] is complaining about what did and did not happen after she signed the
[document]. They show that she became aware of [defendant]’s alleged
commitment that she would not have to pay fees of any kind, not to [defendant] or
to the architect(s) or to the engineer, after she signed the [document] and therefore
it cannot be said to have induced her to sign [it]. Consequently, it is impossible for
[plaintiff] to establish all of the elements necessary to prove fraudulent
Lacking the requisite detrimental reliance, Plaintiffs’ claim for Promissory
Estoppel fails as a matter of law. Count III is DISMISSED.
Specific Performance (Count IV)
According to Plaintiffs, “having established their right to relief,” they “can
elect damages or specific performance of their agreements with the Defendants.”
Opp’n at 15, Dkt. No. 45.
Contrary to Plaintiffs’ assertions (Opp’n at 15), however, specific
performance is a remedy—not an independent claim. Moreover, “[s]pecific
performance is by definition limited to the enforcement of contract duties.”
Clarkin v. Reimann, 638 P.2d 857, 864 (Haw. Ct. App. 1981) (quoting
Introductory Note, Topic 3, Ch. 16, Restatement of Law (Second), Contracts 2d
(1979)). In light of the Court’s holding, supra, that there is no enforceable
contract, specific performance cannot lie.
Breach of Fiduciary Duty (Count V)
In Count V of the SAC, Plaintiffs allege that
[Dairy Road] and Nakamura entered into a fiduciary
relationship with Cheng by being induced to and freely sharing
confidential proprietary information with him . . . , their being
financially vulnerable and taken advantage of by Cheng who
claimed to have and who had superior knowledge regarding
how to deal with ASB as a lender . . . , in effect having entered
into a joint venture with one another in order to carry out a
specific plan to stop the . . . foreclosure action by purchasing
the [S]ubject [P]roperty at a discount from ASB in the name of
[Maui Gas] as a fiduciary on behalf of [Dairy Road] to the
profit of both, which induced Nakamura and [Dairy Road] to
agree, giving up other refinancing alternatives.
SAC ¶ 41, Dkt. No. 40. Plaintiffs further allege that “Cheng and [Maui Gas] have
breached that confidential relationship . . . by rushing to foreclosure and denying
[Plaintiffs] their bargained for buyout options . . . while profiting with unjust
enrichment that should be disgorged.” SAC ¶ 42, Dkt. No. 40. As a result,
Plaintiffs seek “a decree of this Court” as to these facts and argue that Defendants’
actions “entitl[e] [Dairy Road] and Nakamura to . . . specific performance of their
agreement with Cheng, and an award of actual damages plus attorney’s fees and
court costs.” SAC ¶ 42, Dkt. No. 40. Defendants, on the other hand, contend that
“Plaintiffs have failed to allege any facts supporting the notion that they and
Defendants were in a relationship of trust or confidence.” Mem. in Supp. at 31,
Dkt. No. 41-1. Defendants are correct.
In Hawai‘i, a “fiduciary relation exists between parties where there is a
relation of trust and confidence between them, that is, where confidence is reposed
by one party and the trust accepted by the other.” Courter, 2013 WL 2468360 at
*9 (quoting Kaiser v. First Hawaiian Bank, 30 F. Supp. 2d 1255, 1265 (D. Haw.
1997)); see also Pulawa v. GTE Hawaiian Tel., 143 P.3d 1205, 1214 (Haw. 2006)
(explaining that under Hawaii law, a duty may only be imposed where there is a
“special relationship” between the parties); Blair v. Ing, 21 P.3d 452, 465 (Haw.
2001). “Friendship or admiration for another,” however, “generally does not
create the type of relationship of trust required to give rise to a fiduciary duty.”
Courter, 2013 WL 2468360 at *9 (citing Hawkins v. First Horizon Home Loans,
2010 WL 4823808, *11 (E.D. Cal. Nov. 22, 2010)) (“Even if [the defendant]’s
version of the events is true, a close friendship is simply insufficient to support a
claim for fraud.” (citing Shoppe, 14 P.3d at 1067)). Moreover “a conventional
business relationship between parties dealing at arm’s length does not give rise to
fiduciary duties.” Lahaina Fashions, Inc. v. Bank of Haw., 319 P.3d 356, 375
(Haw. 2014) (quoting Roni LLC v. Arfa, 74 A.D.3d 442, 444 (N.Y. App. 2010));
Hawkins, 2010 WL 4823808 at *11 (“Absent special circumstances[,] a loan
transaction is an at arms-length transaction and there is no fiduciary relationship
between the borrower and a lender.” (quoting Oaks Mgmt. Corp. v. Superior Ct.,
51 Cal. Rptr. 3d 561 (Cal. Ct. App. 2006)) (brackets and ellipses omitted).
Notwithstanding these principles, Plaintiffs contend that “[i]n Hawaii,” the
relationship of trust and confidence between parties is fiduciary in nature when it
“aris[es] out of circumstances in which confidential information is divulged and/or
where there is a superior relationship between them based upon the specialized
knowledge and/or experience and/or professional standing of one of the parties.”
Opp’n at 16–17, Dkt. No. 45 (citing Kaiser, 30 F. Supp. 2d 1255; Otaka, Inc. v.
Klein, 791 P.2d 713 (Haw. 1990)). Plaintiffs’ conclusions aside, they offer no
Hawaii case or other law that imposes a duty in the type of prospective lenderborrower relationship present here. Indeed, the cases on which Plaintiffs rely do
not stand for the broad proposition offered. For example, in Kaiser, the district
court neither addressed the divulgence of confidential information nor considered
the duties owed between parties when only one has professional expertise. 19 30 F.
Supp. 3d at 1266. The court’s analysis of the fiduciary duty issue turned on the
terms of a Custodial Account between a bank and a life insurance company, which
defined the nature of the duties to be imposed. Id. (“The court will not impose a
fiduciary duty that adds additional, potentially contradictory duties to an express
agreement of sophisticated parties negotiated at arm’s length.”). And in Otaka, the
nature of the duty imposed was driven by the special attorney-client relationship in
that case that is nowhere present here. 791 P.2d at 717.
Accordingly, because the Court declines to impose a duty that the Hawaii
courts have yet to even hint at recognizing, Plaintiffs’ claim for Breach of
Fiduciary Duty fails as a matter of law, and Count V is DISMISSED.
Limited Leave To Amend is Appropriate As To Count I.
The Court grants leave to amend in this case with respect to Count I only.
Counts II–V are dismissed with prejudice.
Under FRCP 15(a)(2), once a responsive pleading has been filed, a party
“may amend its pleading only with the opposing party’s written consent or the
Moreover, it is not clear that Plaintiffs’ premise of a “superior relationship” is even true, given
that both sides were represented by counsel (Choi for Plaintiffs, Barbieri for Defendants)
throughout the period in question.
court’s leave,” which should be given “freely . . . when justice so requires.” See
Joy v. Hawai‘i, 2008 WL 4483798, *2 (D. Haw. Sept. 26, 2008) (“[T]he
underlying purpose of Rule 15(a) . . . was to facilitate decisions on the merits,
rather than on technicalities or pleadings.” (quoting In re Morris, 363 F.3d 891,
894 (9th Cir. 2004)). “Courts may decline to grant leave to amend only if there is
strong evidence of ‘undue delay, bad faith or dilatory motive on the part of the
movant, repeated failure to cure deficiencies by amendments previously allowed,
undue prejudice to the opposing party by virtue of allowance of the amendment, or
futility of amendment, etc.’” Sonoma Cty. Ass’n of Retired Emps. v. Sonoma Cty.,
708 F.3d 1109, 1117 (9th Cir. 2013) (quoting Foman, 371 U.S. at 182) (some
brackets omitted); Finazzo v. Hawaiian Airlines, 2007 WL 1080095, *5 (D. Haw.
Apr. 6, 2007) (citing Foman, supra). “Where there is lack of prejudice to the
opposing party and the amended complaint is obviously not frivolous, or made as a
dilatory maneuver in bad faith, it is an abuse of discretion to deny such a motion.”
Howey v. United States, 481 F.2d 1187, 1191 (9th Cir. 1973).
Here, although Plaintiffs have not requested leave to amend, 20 and this
would not be the first amendment to their original complaint,21 there is no evidence
The Court raised the issue of dismissal without prejudice sua sponte at the November 16, 2017
hearing and gave both sides an opportunity to comment. Nonetheless, Plaintiffs’ counsel failed
to make a case for dismissal without prejudice, choosing instead to rebut unrelated factual points
asserted by the defense.
before the Court suggesting that Plaintiffs’ filing and subsequent withdrawal-bystipulation (Dkt. No. 39) of the May 22, 2017 FAC was done “as a dilatory
maneuver in bad faith.” Howey, 481 F.2d at 1191. Moreover, “permitting an
amendment” will not “produce an undue delay in litigation,” nor have Defendants
shown or even argued that they will be prejudiced. Jackson v. Bank of Haw., 902
F.2d 1385, 1387–88 (9th Cir. 1990); cf. Hurn v. Ret. Fund Tr. of Plumbing, 648
F.2d 1252, 1254 (9th Cir. 1981) (“The delay [a]ffected by permitting an
amendment to the complaint cannot alone justify the denial of leave to amend.”)).
Accordingly, the Court’s decision on amendment turns on futility. See Cook,
Perkiss & Liehe, 911 F.2d at 247 (“[A] district 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.” (citing
Bonanno, 309 F.2d at 322; Erlich, 352 F.2d at 122)). See generally Bonin v.
Calderon, 59 F.3d 815, 845 (9th Cir. 1995) (“Futility of amendment can, by itself,
justify the denial of a motion for leave to amend.”). Amendment is futile where
the proposed claims are duplicative of existing claims, patently frivolous, and/or
legally insufficient. See Miller v. Rykoff-Sexton, 845 F.2d 209, 214 (9th Cir. 1988)
Although the SAC filed July 20, 2017 (Dkt. No. 40) represents Plaintiffs’ actual second
amendment to their original complaint filed November 16, 2016 (Dkt. No. 1), however,
Plaintiffs’ purported “First Amended Complaint,” filed without seeking leave of court on May
22, 2017 (Dkt. No. 28), was eventually withdrawn by stipulation on July 6, 2017 (Dkt. No. 39)
and was not adjudicated. Thus, the SAC filed July 20, 2017 (Dkt. No. 40) is technically
Plaintiffs’ second version of their pleadings.
(“[A] proposed amendment is futile only if no set of facts can be proved . . . that
would constitute a valid and sufficient claim.”), abrogated by Iqbal, 556 U.S. at
678 (proper pleading standard is now plausibility).
In the instant case, the Court has determined that Counts II (Breach of
Contract), III (Promissory Estoppel), IV (Specific Performance), and V (Breach of
Fiduciary Duty), each fail as a matter of law. Accordingly, amendment of these
claims would be futile. Leave to amend Counts II through V is DENIED. See
Bonin, 59 F.3d at 845.
In contrast, amendment of Count I may not be futile. As discussed above,
the Court dismissed Plaintiffs’ Count I fraud claim because the pleadings do not
satisfy FRCP 9(b)’s requirement for pleading fraud with particularity and do not
set forth a factual basis for the assertion that various statements were made without
the intent to fulfill them. Unlike Counts II–V, “the underlying facts or
circumstances relied upon” by Plaintiffs in Count I “may be a proper subject of
relief” for fraud/misrepresentation, and Plaintiffs “ought to be afforded an
opportunity to [test their] claim on the merits.” Foman, 371 U.S. at 182. Because
the Court cannot say that there is no set of facts that might give rise to a valid
claim for fraud/misrepresentation, Count I is DISMISSED WITHOUT
PREJUDICE, and Plaintiffs are granted limited leave to amend the SAC as to
Count I only to attempt to cure the deficiencies identified in this Order. Cf.,
Neubronner 6 F.3d at 671 (9th Cir. 1993) (affirming dismissal with prejudice of
fifth amended complaint where plaintiffs consistently failed to plead with the
requisite particularity (citing Semegen, 780 F.2d at 731)).
Any amended complaint must designate itself as the “Third Amended
Complaint” and may not incorporate any part of the original Complaint (Dkt. No.
1), the FAC (Dkt. No. 28), or the SAC (Dkt. No. 40); rather, any specific
allegations must be re-written in their entirety. See King v. Atiyeh, 814 F.2d 565,
567 (9th Cir. 1987), overruled in unrelated part by Lacey v. Maricopa Cty., 693
F.3d 896, 927–28 (9th Cir. 2012) (en banc). Claims dismissed without prejudice
that are not re-alleged in an amended complaint may be deemed voluntarily
dismissed. See Lacey, 693 F.3d at 928. Failure to file an amended complaint
consistent with the guidance provided by this Order will result in the dismissal of
this action with prejudice.
The Court hereby GRANTS Defendants’ Motion to Dismiss. Dkt. No. 41.
Count I of Plaintiffs’ Refiled First Amended Complaint is DISMISSED
WITHOUT PREJUDICE, and Counts II–V are DISMISSED WITH PREJUDICE.
Any amended complaint with respect to Count I must be filed within thirty days of
IT IS SO ORDERED.
DATED: March 9, 2018 at Honolulu, Hawai‘i
Dairy Road Partners v. Maui Gas Ventures LLC, CIV. NO. 16-00611 DKW-KJM,
ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS REFILED
FIRST AMENDED COMPLAINT
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