Dairy Road Partners et al v. Maui Gas Ventures LLC, et al
Filing
62
ORDER Granting Defendants' Motion To Dismiss The Third Amended Complaint Without Leave To Amend re 56 55 ."The Court hereby GRANTS Defendants' Motion to Dismiss (Dkt. No. 56) the Third Amended Complaint (Dkt. No. 55). Plaintiffs' TAC is DISMISSED WITHOUT LEAVE TO AMEND." Signed by JUDGE DERRICK K. WATSON on 8/16/2018. (cib, )
UNITED STATES DISTRICT COURT
DISTRICT OF HAWAI‘I
DAIRY ROAD PARTNERS and
GLENN NAKAMURA,
CIV. NO. 16-00611 DKW-KJM
Plaintiffs,
ORDER GRANTING
DEFENDANTS’ MOTION TO
DISMISS THE THIRD AMENDED
COMPLAINT WITHOUT LEAVE
TO AMEND
vs.
MAUI GAS VENTURES LLC and
PAUL CHENG,
Defendants.
Dairy Road and Nakamura initiated this action on November 16, 2016. See
Compl., Dkt. No. 1. On July 20, 2017, they filed a Second Amended Complaint
(“SAC”), 1 seeking monetary damages and equitable relief arising out of an alleged,
fraudulently procured loan agreement with Maui Gas and Cheng. Dkt. No. 40. On
March 9, 2018, this Court dismissed the SAC, allowing leave to amend only the
Count I claim for Fraud/Misrepresentation. Dkt. No. 54. Plaintiffs filed their
Third Amended Complaint (“TAC”) on April 9, 2018. Dkt. No. 55.
For the reasons set forth below, the Court GRANTS Defendants’ Motion to
Dismiss the TAC (Dkt. No. 56) without leave to amend.
1
Plaintiffs styled the SAC as a “Refiled First Amended Complaint.”
1
BACKGROUND
On 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 Road’s General Partner. TAC ¶ 8, Dkt. No. 55. 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”). 2 TAC
¶¶ 4, 8, Dkt. No. 55.
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”). TAC ¶ 12, Dkt.
No. 55. Dairy Road also filed for Chapter 11 bankruptcy around that time. TAC
¶ 13 (stating that the eventual dismissal of the bankruptcy case delayed
proceedings in the Foreclosure Action until December 24, 2014).
Facts According To The TAC
While the Foreclosure Action was pending, Cheng—“an investor from
Texas” who is the “principal and controlling person” of Maui Gas (TAC ¶ 7, Dkt.
No. 55)—allegedly approached Nakamura for advice regarding his “interest in
investing in commercial properties in Hawaii.” TAC ¶ 11, Dkt. No. 55.
2
“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].” TAC ¶ 9, Dkt. No. 55.
2
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. TAC ¶ 11, Dkt. No. 55.3 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”
(TAC ¶ 16) and to stop the Foreclosure Action (TAC ¶ 14). To this end, Cheng
emailed a $300,000 purchase price proposal to ASB on September 20, 2014. TAC
¶ 15, Dkt. No. 55; see TAC, Ex. B, Dkt. No. 55-4 at 2–3. On October 29, 2014,
after negotiations, Cheng successfully purchased the ASB Loan, announcing to
Plaintiffs that, “ASB accepted my offer—$400k,” and “We are ON.” TAC, Ex. E
[“We are ON” E-mail], Dkt. No. 55-4 at 27.
In their latest pleadings, Plaintiffs also describe a “luncheon meeting called
by Cheng at a restaurant in Lahaina,” attended by Cheng, Nakamura, Garth
Nakamura, and others, which allegedly represents when “[t]he entire episode with
Cheng and the Plaintiffs began.” TAC ¶¶ 35–36, Dkt. No. 55. Although the exact
timing of this luncheon meeting is unclear, it necessarily pre-dated Cheng’s
3
The following summary of the parties’ “negotiation” process is based solely on the contents of
the TAC and its exhibits. Further background facts revealed elsewhere in the record are
discussed in relation to the TAC’s factual allegations, infra.
3
purchase of the ASB Loan on October 29, 2014. See TAC ¶¶ 19–20, Dkt. No. 55.
According to the TAC:
37. Cheng told everyone at the luncheon meeting that he
liked Nakamura and wanted to help Nakamura by
contemporaneously buying the Note from ASB at a discount
and working with Nakamura whereby Cheng would allow
Nakamura to buy back the property from him immediately, but
in order to do so Cheng said he needed information on the
property contemporaneously detailed in Paragraph 19 above.
Those promises were not future promises but present promises
to buy the ASB mortgage loan now, to stop the foreclosure
now, to give Nakamura binding buy back options now, which
triggered Plaintiffs’ reliance and change of position and induced
their conduct now.
38. At that luncheon meeting at the restaurant Cheng
specifically told everyone: “I want to help you guys.” “I’ll be
much easier to deal with than any bank.” He then insisted on a
handshake “to solidify the deal.” I will scare ASB about
possible environmental contamination and ASB will offer me a
better deal.”
TAC ¶¶ 37–38, Dkt. No. 55 (alleging further that “[e]veryone attending the
luncheon was impressed by Cheng and reasonably believed that Cheng wanted to
help Nakamura” (TAC ¶ 39)).
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, Dairy Road’s attorney, to both Alice Wong, his partner in
Texas, and Anthony Barbieri, his attorney. See TAC ¶ 23, Dkt. No. 55 (referring
to Wong as Cheng’s Texas “accountant”). “[D]uring all of the cooperation,
4
information sharing, and back-and-forth written correspondence and offers that
ensued, there was no indication that Cheng would take over the ASB note and
ASB’s position as foreclosing plaintiff [in the Foreclosure Action] and by credit
bidding at auction take over the [Subject] [P]roperty and evict Nakamura and
[Dairy Road].” TAC ¶ 40, Dkt. No. 55.
As of December 10, 2014, Plaintiffs acknowledge that “Cheng was still
offering [Dairy Road at least] three options” to buy back the loan:
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
operations.
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.
5
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.
Paul Cheng
TAC, Ex. F, Dkt. No. 55-4 at 28–30 [hereinafter Options Email]; TAC ¶ 26, Dkt.
No. 55; see also TAC, Ex. F, Dkt. No. 55-4 at 28 (forwarding Options Email to
Garth Nakamura).
Barbieri sent a draft loan modification agreement to Choi on December 24,
2014. TAC, Ex. J, Dkt. No. 55-5 at 21–40 (email), 23–40 (“First Loan
Modification Agreement”). Plaintiffs contend by that time, Cheng was “fully
aware that the property was fully protected by insurance . . . except for boilerplate
conditions” that Nakamura allegedly “never had a chance to satisfy because days
later Cheng acted like he never knew Nakamura.” TAC ¶ 41, Dkt. No. 55; see
TAC, Ex. H, Dkt. No. 55-4 at 34 (Nov. 6, 2014 email), 35–41 (Sept. 19, 2014
“Reservation of Rights to Provide Coverage” letter from Berkeley Insurance to
Garth Nakamura)). The pleadings also state that “[t]here were conditions to be
satisfied in the ‘First Loan Modification Agreement,’ but those conditions were
6
conditions subsequent and not conditions precedent to contract.” TAC ¶ 41, Dkt.
No. 55.
Just a few days after sending the draft, Cheng, “through his Texas attorney[,]
was still asking Nakamura and [Dairy Road] to sign a ‘First Loan Modification
Agreement.’” TAC ¶ 41, Dkt. No. 55. However, Plaintiffs contend that “when
Choi . . . inquired of Barbieri as to Nakamura’s deal with Cheng, [Barbieri]
inconsistently emailed Choi back: ‘What option?’—making it clear that Cheng had
never intended to go forward with his promises.” TAC ¶ 29, Dkt. No. 55.
At some point shortly thereafter, negotiations over the loan modification
agreement ceased. 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. TAC ¶ 30, Dkt. No. 55. 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 judgment against
Nakamura [as Guarantor], subsequently awarded in the amount of $1,270,933.79.”
TAC ¶ 31, Dkt. No. 55.
Procedural History
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.
7
21. On May 22, 2017, in addition to filing their Memorandum in Opposition to the
April 10, 2017 motion (Dkt. No. 27), 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 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.”4 The SAC
asserted claims for Fraud/Misrepresentation, Breach of Contract, Promissory
Estoppel, Specific Performance, and Breach of Fiduciary Duty. SAC ¶¶ 34–42,
Dkt. No. 40.
Attached as Exhibit 7 to the SAC were several hundred pages of e-mail
communications, setting forth Dairy Road’s negotiations with Maui Gas. See
SAC, Ex. 7.1, Dkt. No. 40-8 (including emails dated Sept. 23, 2014 to Dec. 23,
2014); SAC, Ex. 7.2, Dkt. No. 40-9 (emails from Dec. 11 to Dec. 29, 2014); SAC,
4
As indicated above, the Refiled First Amended Complaint (Dkt. No. 40) is hereinafter referred
to as the Second Amended Complaint or “SAC.”
8
Ex. 7.3, Dkt. No. 40-10 (emails from Sept. 9 to Dec. 24, 2014); and SAC, Ex. 7.4,
Dkt. No. 40-11 (emails from Sept. 18, 2014 to Dec. 11, 2014). On March 9, 2018,
this Court granted Defendants’ motion to dismiss the SAC, permitting leave to
amend only Plaintiffs’ claims except for Fraud/Misrepresentation. Order Granting
Defs.’ Mot. to Dismiss Refiled First Am. Compl. at 3 n.2, Dkt. No. 54 [hereinafter
Order Dismissing SAC].
On April 9, 2018, Plaintiffs filed their Third Amended Complaint (Dkt. No.
55), setting forth the basis for Dairy Road’s re-asserted allegations of fraud and/or
misrepresentation. Conspicuously absent from the exhibits attached to the TAC,
however, are a majority of the e-mail communications provided in SAC Exhibit 7.
Instead, the TAC attaches a handful of specific e-mails, each as a separate exhibit
that is devoid of context offered by the surrounding e-mail “threads” previously
visible to the Court via SAC Exhibit 7, including—Cheng’s October 29, 2014 “We
are ON” Email (TAC, Ex. E, Dkt. No. 55-4 at 26–27); Garth Nakamura’s
November 6, 2014 e-mail attaching the September 19, 2014 “Reservation of Rights
to Provide Coverage” letter from Berkeley Insurance (TAC, Ex. H, Dkt. No. 55-4
at 34 (e-mail), 35–41 (ins. letter)); Cheng’s December 10, 2014 “Options Email” to
Choi, which was forwarded to Garth Nakamura the same day (TAC, Ex. F, Dkt.
No. 55-4 at 28–30); and Barbieri’s December 24, 2014 e-mail to Choi, attaching an
9
unsigned, undated copy of the “First Loan Modification Agreement” (TAC, Ex. J,
Dkt. No. 55-5 at 21–22 (e-mail), 23–40 (unsigned agreement)).
Defendants filed their Motion to Dismiss the TAC on April 23, 2018. MTD,
Dkt. No. 56. Defendants contend that Plaintiffs’ operative pleading once again
fails to plead a viable fraud claim, and that even if it did, Plaintiffs’ fraud claim is
foreclosed by the TAC’s own exhibits as well as the exhibits Plaintiffs offered with
the July 2017 SAC. Mem. in Supp. of MTD the TAC at 3, 10–12, 16, 25–26, Dkt.
No. 56-1. Plaintiffs opposed the MTD on May 25, 2018 (Mem. in Opp. to MTD
the TAC, Dkt. No. 58), to which Defendants replied on June 1, 2018 (Reply in
Supp. of MTD the TAC, Dkt. No. 59). The Court elected to adjudicate the MTD
without a hearing under Local Rule 7.2. Entering Order, Dkt. No. 60. The instant
disposition follows.
LEGAL STANDARDS
Motion To Dismiss Pursuant To Federal Rule Of Civil Procedure 12(b)(6)
The Court may dismiss a complaint under Federal Rule of Civil Procedure
(“FRCP”) 12(b)(6) 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 are required to allege “sufficient
10
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, thedefendant-unlawfully-harmed-me accusation”).
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,
11
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. Cent. 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
12
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 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.
“[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 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
13
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
14
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)).
DISCUSSION
I.
The Scope Of Review
“Generally, the scope of review on a motion to dismiss for failure to state a
claim is limited to the contents of the complaint,” Marder, 450 F.3d at 448 (citing
Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1141 n. 5 (9th Cir. 2003)),
which includes any exhibits attached to the pleadings. 5 See FRCP 10(c); Oxendine
v. Kaplan, 241 F.3d 1272, 1275 (10th Cir. 2001). If “matters outside the pleadings
are presented to and not excluded by the court,” the motion must generally be
treated as one for summary judgment under FRCP 56. See FRCP 12(d); Kyne v.
Ritz-Carlton Hotel Co., 835 F. Supp. 2d 914, 922 (D. Haw. 2011) (citing Bank
Melli Iran v. Pahlavi, 58 F.3d 1406, 1408 (9th Cir. 1995)).
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.” Ritchie, 342 F.3d at 908; S.E.C. v. Lyndon, 27 F. Supp. 3d
5
The “pleadings” include the complaint, answer to the complaint, and if the court orders one, a
reply to an answer.” FRCP 7(a).
15
1062, 1072 (D. Haw. 2014) (citing Ritchie, supra); cf. Coto Settlement v.
Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010) (“On a motion to dismiss, we may
consider materials incorporated into the complaint or matters of public record.”)
(citing, inter alia, Intri–Plex Techs., Inc. v. Crest Grp., Inc., 499 F.3d 1048, 1052
(9th Cir. 2007)).
A.
Incorporation By Reference
The Federal Rules of Civil Procedure allow for incorporation of the contents
of a superseded complaint, including any exhibits attached thereto, where those
contents are referenced in subsequent pleadings. FRCP 10(c) (“Statements in a
pleading may be adopted by reference in a different part of the same pleading or in
another pleading or in any motion.”); see Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 551 U.S. 308, 322 (2007) (explaining that courts ruling on 12(b)(6) motions
to dismiss may take into consideration “documents incorporated into the complaint
by reference”). “[T]he mere mention of the existence of a document,” however, is
“insufficient.” Coto Settlement, 593 F.3d at 1038 (citing Ritchie, 342 F.3d at 908–
09)). Indeed, incorporation by reference ordinarily occurs only where the
superseding complaint’s reference is “direct and explicit in order to enable the
responding party to ascertain the nature and extent of the incorporation.” 5A
16
Charles Alan Wright et al., Federal Practice & Procedure § 1326 (3d ed. 2004)
(collecting cases). 6
The Ninth Circuit also considers extrinsic documents on which the
complaint “necessarily” relies to be incorporated by reference. Marder, 450 F.3d
at 448. That is, where “the complaint necessarily relies upon [the] document or the
contents of the document are alleged in a complaint, the document’s authenticity is
not in question and there are no disputed issues as to the document’s relevance[,]”
the court may consider that documentary evidence as part of its Rule 12(b)(6)
review, even where those documents are not attached to the pleadings. Coto
Settlement, 593 F.3d at 1038 (citing, inter alia, Knievel, 393 F.3d at 1076); see
Tunac v. United States, --- F.3d --- , 2018 WL 3614044, *8 (9th Cir. July 30, 2018)
(“Although ‘mere mention of the existence of a document is insufficient to
incorporate the contents of a document,’ the document is incorporated when its
contents are described and the document is ‘integral’ to the complaint.” (quoting
Coto Settlement, supra)); cf. Warren, 328 F.3d at 1141 n.5 (“[W]hile a court must
6
Compare, e.g., Carroll v. Fort James Corp., 470 F.3d 1171, 1176 (5th Cir. 2006) (holding that
claims from original complaint not re-asserted in an amended complaint were incorporated by
reference into the amended complaint where there was no indication that either the defendant or
the court was confused about the nature and extent of the incorporation because, in part, “the
[incorporating] clause was sufficiently specific, and the pleading history of the case sufficiently
simple” (citation omitted)), with United States v. Int’l Longshoremen’s Ass’n, 518 F. Supp. 2d
422, 462 (E.D.N.Y. 2007) (“The Government’s failure to specifically identify which portions of
the hundreds of pages of exhibits it intends to incorporate by reference into the Amended
Complaint makes it impossible for the Court or the defendants to ascertain the nature and extent
of the incorporation, and the purported incorporation is therefore invalid.”).
17
generally refrain from considering extrinsic evidence in deciding a 12(b)(6)
motion, it may consider documents on which the complaint “necessarily relies”
and whose “authenticity . . . is not contested.”) (citing Lee v. City of Los Angeles,
250 F.3d 668, 688 (9th Cir. 2001)); Fecht v. The Price Co., 70 F.3d 1078, 1080 n.1
(9th Cir. 1995) (“[D]ocuments whose contents are alleged in a complaint and
whose authenticity no party questions, but which are not physically attached to the
pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss.”)
(quoting Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.), cert. denied, 512 U.S.
1219 (1994), overruled on other grounds by Galbraith v. Cty. of Santa Clara, 307
F.3d 1119 (9th Cir. 2002)), cert. denied, 517 U.S. 1136, (1996). 7
If the rule were otherwise, a plaintiff with a deficient claim could survive a
Rule 12(b)(6) motion “by not attaching a dispositive document upon which the
plaintiff relied,” GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381,
1385 (10th Cir. 1997), or “by deliberately omitting references to documents upon
which [plaintiff’s] claims are based.” Parrino v. FHP, Inc., 146 F.3d 699, 705,
706 n.4 (9th Cir. 1998) (citing Pension Benefit Guar. Corp. v. White Consol.
7
Incorporation by reference is particularly common where a copy of the extrinsic document
relied upon is attached to the defendant’s Rule 12(b)(6) motion. See Daniels-Hall v. Nat’l Educ.
Ass’n, 629 F.3d 992, 998 (9th Cir. 2010) (“Although generally the scope of review on a motion
to dismiss for failure to state a claim is limited to the [pleadings], 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.’” (quoting Marder, 450 F.3d at 448)).
18
Indus., 998 F.2d 1192, 1196 (3d Cir. 1993)), rev’d by statute on other grounds, 28
U.S.C. § 1453(b), as recognized in Abrego Abrego v. Dow Chem. Co., 443 F.3d
676, 681 (9th Cir. 2006) (per curiam). Further, “[w]hen a complaint refers to a
document and the document is central to the plaintiff’s claim, the plaintiff is
obviously on notice of the document’s contents,” so the rationale for conversion to
summary judgment—to allow the plaintiff an opportunity to respond in kind—
“dissipates.” GFF Corp., 130 F.3d at 1385; see Parrino, 146 F.3d at 706 n.4
(“Where . . . an attached document is integral to the plaintiff’s claims and its
authenticity is not disputed, the plaintiff ‘obviously is on notice of the contents of
the document and the need for a chance to refute evidence is greatly diminished.’”
(quoting Pension Benefit Guar. Corp., 998 F.2d at 1196–97)).
These principles are on evident display here. As part of their SAC, Plaintiffs
attached hundreds of emails at SAC Exhibit 7. See Dkt. Nos. 40-8, 40-9, 40-10,
and 40-11. These emails chronicled the negotiations history between ASB and
Cheng on the one hand, and between Cheng and Plaintiffs on the other. The Court
highlighted many of these emails in its Order dismissing the SAC (Dkt. No. 54),
explaining how Plaintiffs’ fraud and misrepresentation claim was contradicted by
the very record they relied on and appended to their pleadings. Now, in a
transparent attempt to survive Rule 12(b)(6), Plaintiffs simply omit the majority of
those emails from the TAC, instead relying on a select few that lack the context of
19
the complete record Plaintiffs previously filed. Plaintiffs’ subterfuge reaches no
different result for several reasons.
First, while not appending the majority of emails comprising SAC Exhibit 7,
the TAC explicitly refers to them. Dairy Road asserts that “an exchange of several
hundred pages of email correspondence between Cheng and Choi and Nakamura’s
[s]on Garth Nakamura and Cheng’s Texas accountant Alice Wong and his Texas
Attorney Anthony Barbier[i]” “starting approximately September 17, 2014 and
terminating on December 26, 2014” (TAC ¶ 16) contains evidence that “Cheng
specifically [told] Nakamura that upon acquiring the ASB [L]oan[,] Cheng would
not foreclose but instead give Nakamura time to refinance” (TAC ¶ 17).8 The
TAC also states that “[a]ll of [the] assurances and representations and reliances are
fully documented and embodied in detail throughout . . . nearly four months of
emails variously exchange in the correspondence between Cheng, Choi, Wong
and/or Barbieri during the months of September, October, November and
December 2014.” TAC ¶¶ 23, 40 (referring to “all of the cooperation, information
sharing, and back-and forth written correspondence and offers” between the
parties). From these statements, it is evident both that the TAC “necessarily relies
upon” the four-months-long e-mail exchange, Coto Settlement, 593 F.3d at 1038
8
The contents of these emails, including whether they are what Plaintiffs purport them to be, are
discussed, infra.
20
(citing, inter alia, Knievel, 393 F.3d at 1076; Parrino, 146 F.3d at 705, 706 n.4);
Warren, 328 F.3d at 1141 n.5 (citing Lee, 250 F.3d at 688), and that the exchange
“contents are alleged” in the pleadings, Fecht, 70 F.3d at 1080 n.1 (citing Branch,
14 F.3d at 454).
Second, the TAC quotes from portions of SAC Exhibit 7 not otherwise
provided with the TAC’s attachments. See, e.g., TAC ¶ 29, Dkt. No. 55 (“On
December 29, 2014, when Choi, for instance, inquired of Barbieri as to
Nakamura’s deal with Cheng, [Barbieri] inconsistently emailed Choi back: ‘What
option?’—making it clear that Cheng had never intended to go forward with his
promises to Nakamura, but from the beginning had lied to Nakamura[.]”). Doing
so enables the Court to “consider the full text” of the email exchange in ruling on
the motion to dismiss. Cooper v. Pickett, 137 F.3d 616, 623 (9th Cir. 1997) (“[A]
court ruling on a motion to dismiss may consider the full texts of documents which
the complaint quotes only in part.”) (citing Fecht, 70 F.3d at 1080 n.1; In re Stac
Elecs. Sec. Litig., 89 F.3d 1399, 1405 n.4 (9th Cir. 1996)).
Third, there is nothing in the record indicating that either party disputes the
authenticity of the four-months-long email exchange reproduced in full in SAC
Exhibit 7. In fact, Plaintiffs acknowledge that they included those materials with
the SAC in order to provide the Court with “a complete statement of the
underlying facts” and to offer “the written evidence of what became in effect a
21
joint venture leading up to an attractive, highly discounted buyout of the ASB
mortgage loan, at first supposedly for the mutual benefit of all parties.” Mem. in
Opp. to MTD the SAC at 18, Dkt. No. 45. Dairy Road therefore “obviously is on
notice of the contents” of the four months of e-mails and does not quarrel with
their authenticity, such that the Court need not convert the MTD into a motion for
summary judgment. GFF Corp., 130 F.3d at 1385; see Parrino, 146 F.3d at 706
(citation omitted) (considering letter submitted by defendants in ruling on 12(b)(6)
motion where the amended complaint “frequently referred to and quoted from the
letter, and alleged that the letter alone satisfied the statute of frauds,” and the
plaintiff also “referred to the letter (in some instances as the contract itself)
throughout its brief”).
Accordingly, the contents of SAC Exhibit 7 are incorporated by reference
into the TAC and may be considered by the Court in evaluating Defendants’
motion, without converting the MTD into a motion for summary judgment. See,
e.g., Prince-Rivers v. Fed. Express Ground, 731 Fed. Appx. 298, § II(B) n.2 (5th
Cir. 2018) (per curiam) (noting that the court could still consider the content of an
EEOC Charge of Discrimination, which had been attached to previous, superseded
versions of the complaint, but which was not attached to the latest version, because
“[t]he charge was referenced in the [operative] complaint . . , was attached to [a]
22
motion to dismiss, and is essential to the legal argument at issue.” (citation
omitted)). 9
B.
Judicial Notice
Under Federal Rules of Evidence (“FRE”) 201(b)(2), 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.” Courts considering motions to dismiss may therefore
take judicial notice of “matters of public record, orders, items appearing in the
record of the case, and exhibits attached to the complaint” without the need to
convert the dismissal motion into a motion for summary judgment. 5A Wright &
Miller § 1357, at 299; see United States v. 14.02 Acres of Land More or Less in
Fresno Cty., 547 F.3d 943, 955 (9th Cir. 2008) (citing Lee, 250 F.3d at 688); Gen.
Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080–82 (7th Cir.
1997) (“In ruling on a motion to dismiss, the court may take judicial notice of
matters of public record, including pleadings and orders in previous cases.”
9
Compare Parrino, 146 F.3d at 706 (considering “FHP Group Application Plan” attached to
motion to dismiss that was “crucial to plaintiff’s claims, but not explicitly incorporated in [the]
complaint,” where the original complaint and first amended complaint “both ma[de] reference to
the FHP ‘group plan’ and its ‘cost containment program,’” “[b]ecause [plaintiff’s] claims
rest[ed] on his membership in FHP’s plan and on the terms of the plan,” and because “[t]he FHP
Group Application plan includes key terms regarding the plan covering [plaintiff], and its
authenticity was not disputed by the parties”), with Cooper, 137 F.3d at 623 (holding that
transcripts could not be considered in ruling on a motion to dismiss because, although the
complaint contained “allegations about the conference calls,” it did “not expressly mention or
refer to the transcripts, or even identify their existence,” and, in fact, “the transcripts themselves
apparently did not exist at the time plaintiffs filed their complaint”).
23
(collecting cases in support)). Facts are considered to be readily ascertainable for
this purpose where, among other things, neither party has opposed them. See, e.g.,
Kinnett Dairies, Inc. v. Farrow, 580 F.2d 1260, 1277 n.33 (5th Cir. 1978) (taking
judicial notice of depositions made part of the record in prior proceedings where,
among other things, opposing party “did not object” to such notice).
Here, the parties have never disputed the authenticity or reliability of SAC
Exhibit 7’s contents. In fact, both parties relied on those contents in arguing
Defendants’ Motion to Dismiss the SAC. See, e.g., Mem. in Supp. of MTD the
SAC at 2–3, 7–11, 14, 16–17, 22, 24, Dkt. No. 41-1 (quoting from and citing to
various e-mails contained in SAC Exhibit 7); Mem. in Opp. to MTD the SAC at
18–20, Dkt. No. 45 (explaining that the contents of SAC Exhibit 7 offer “a
complete statement of the underlying facts” and constitute “written evidence” of
the alleged negotiated agreement, and quoting from several of SAC Exhibit 7’s
emails contained therein); Reply in Supp. of MTD the SAC at 1–2, 4–6, 7–8, 10–
11, Dkt. No. 46. Defendants also support their current motion to dismiss with
reference to SAC Exhibit 7. See, e.g., Mem. in Supp. of MTD the TAC at 10–12,
16–17, 25–26, Dkt. No. 54 (quoting from SAC Exhibit 7 via this Court’s Order
Dismissing SAC); Reply in Supp. of MTD the TAC at 3–4, Dkt. No. 59.
SAC Exhibit 7 is also part of the Court-generated record in this case insofar
as the Order Dismissing SAC extensively quotes its contents. See Order
24
Dismissing SAC at 2–15, Dkt. No. 54 (reciting background facts relevant to this
matter in detail). This also renders those contents open to consideration in
deciding the instant Rule 12(b)(6) motion. See, e.g., Reyn’s Pasta Bella, LLC v.
Visa USA, Inc., 442 F.3d 741, 746 (9th Cir. 2006) (drawing its background facts
from the “court’s recitation of similar allegations” made in an order in another,
related case, and granting request to “take judicial notice of [briefs, a hearing
transcript, and] several other pleadings, memoranda, expert reports, etc,” because
“[w]e may take judicial notice of court filings and other matters of public record”)
(citing Holder v. Holder, 305 F.3d 584, 866 (9th Cir. 2002); Burbank-GlendalePasadena Airport Auth. v. City of Burbank, 136 F. Supp. 1360, 1364 (9th Cir.),
cert. denied, 525 U.S. 873 (1998)); In re Visa Check/Mastermoney Antitrust Litig.,
192 F.R.D. 68, 71–74 (E.D.N.Y. 2000), aff’d, 280 F.3d 124 (2d Cir. 2001)); cf.
Kinnett Dairies, 580 F.2d at 1279 n.35 (explaining that its recitation of the facts in
the matter “is culled from several record sources,” including at least one report not
otherwise admitted into evidence during prior proceedings).
Accordingly, the doctrines of incorporation by reference and judicial notice
each permit this Court to consider the contents of SAC Exhibit 7 in adjudicating
the instant MTD without converting it into a motion for summary judgment. See,
e.g., Am. Auto. Ins. Co. v. Haw. Nut & Bolt, Inc., 2016 WL 8677213, *1 n.1 (D.
Haw. Dec. 16, 2016) (taking judicial notice of underlying complaint and insurance
25
policies attached to the motion to dismiss, and noting that consideration of those
documents, which are referenced in the pleadings, was also appropriate under
“incorporation by reference”) (citing FRE 201; Coto Settlement, 593 F.3d at
1038)), adhered to, 2017 WL 5892255 (D. Haw. Sept. 27, 2017).
II.
Plaintiffs’ Fraud/Misrepresentation Claim Is Still Insufficiently Pled.
“[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).
The TAC falls short on all these fronts.
26
Plaintiffs have maintained 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.” TAC ¶ 31, Dkt. No. 55.
Specifically, Plaintiffs allege that “in order to induce immediate change of
behavior,” “Cheng and his attorneys and accountants” made statements
misrepresenting “contemporaneously” that: (1) Defendants “intended to help”
Plaintiffs (TAC ¶ 44(a)); (2) Defendants “would purchase the ASB [L]oan
indirectly for” Plaintiffs (TAC ¶ 44(b)); (3) Defendants “would give [Plaintiffs]
time to buy back the property” (TAC ¶ 44(c)); (4) Plaintiffs “would have three
options for buying back the property and that they could choose any one of the
three” (TAC ¶ 44(d)); (5) “upon the purchase of the ASB [L]oan,” Defendants
“would not foreclose” and would dismiss the Foreclosure Action (TAC ¶ 44(e));
(6) “there would be no foreclosure deficiency judgment against” Plaintiffs (TAC
¶ 44(f)); and (7) Plaintiffs “would benefit from the discounted price negotiated and
paid to ASB” (TAC ¶ 44(g)).10
Plaintiffs contend that they “were damaged as a result of” these seven “false
promises” by: being “induced contemporaneously not to seek a buyout of their
mortgage directly with ASB for the same significantly reduced buy out price
10
These seven misrepresentations are identical to those alleged in the SAC, except that Plaintiffs
now specify that each is an example of Defendants “contemporaneously” misrepresenting
something “in order to induce immediate change of behavior.” Compare, e.g., SAC ¶ 34(a), Dkt.
No. 40, with TAC ¶¶ 44(a)–(g), Dkt. No. 55.
27
secured by Cheng” (TAC ¶ 45(a)); “agree[ing] that ASB could deal directly with
Cheng” and “provid[ing] ASB with assurances through Cheng that they would not
sue ASB for selling their mortgage loan to him” (TAC ¶ 45(b)); “shar[ing] their
proprietary and confidential business information with Cheng” (TAC ¶ 45(c));
“s[eeking] other means of refinancing with their other investors and close friends”
(TAC ¶ 45(d)); “incur[ing] legal fees and costs hiring attorneys to arrange contract
terms with Cheng and his attorneys and accountants in Texas” (TAC ¶ 45(e));
forgoing “buyers for their businesses on the property” (TAC ¶ 45(f)); and
“defend[ing] against ASB on claims that they had against ASB as foreclosing
plaintiff had they not spent all of their money for attorneys dealing with Cheng in
the second half of 2014” (TAC ¶ 45(g)).
Defendants argue that these allegations—although somewhat more detailed
than their previous counterparts in the SAC—still fail to plead a viable claim for
either Misrepresentation or Fraud under the stringent pleading requirements set
forth in Rule 9(b) of the FRCP. See Mem. in Supp. of MTD the TAC at 19–24,
Dkt. No. 56-1. Defendants are correct.
A.
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
28
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));
Moore, 885 F.2d at 540. 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 Cir. 1994)). 11
Here, the seven “misrepresentations” described in the pleadings do not meet
these standards. Plaintiffs generally assert that “[a]ll of the above assurances and
representations and reliances are fully documented and embodied in detail
throughout the above-referenced nearly four months of emails variously exchanged
in the correspondence, between Cheng, Choi, Wong and/or Barbieri during the
11
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 at *4 (citing Neubronner, 6 F.3d at
672).
29
months of September, October, November, and December 2014.” TAC ¶ 23, Dkt.
No. 55. In other words, just as they did in the SAC, Plaintiffs once again rely
heavily on SAC Exhibit 7 to make their case. 12 As this Court previously noted,
however, the negotiations history chronicled in the emails cited by Plaintiffs do
nothing of the sort. See, e.g., Order Dismissing SAC at 31, Dkt. No. 54 (“There is
nothing fraudulent or misleading” about Cheng’s email announcing to Plaintiffs
that “We are ON” “because that is precisely what Plaintiffs’ voluminous record
demonstrates Cheng did”). An additional example of that is Plaintiffs’ continued
complaint that Cheng falsely promised to provide at least three buyback options
with Plaintiffs being allowed to choose from among any of the three. The record
evidences that Cheng did exactly that. Cheng did provide three buyback options
from which Plaintiffs could have selected. TAC, Ex. F, Dkt. No. 55-4 at 28–30
(“We offer the following 3 options”). Plaintiffs may not have been amenable to
the choices, but they were certainly offered. In short, Plaintiffs’ own record
largely contradicts their protestations of fraud by failing to evidence falsities
perpetrated by Defendants. Vess, 317 F.3d at 672 (requiring plaintiff to explain
how a statement is false in order to satisfy Rule 9(b)). Accordingly, the TAC does
little to address the pleadings deficiencies previously identified by the Court.
12
The “nearly four months of emails” referenced by Plaintiffs are contained in full in SAC
Exhibit 7. See Dkt. Nos. 40-8, 40-9, 40-10, and 40-11.
30
B.
Common Law Fraud/Misrepresentation
1.
Representations Regarding Future Events Or Predictions Are
Not Actionable.
In most instances, fraud is actionable only if the first element—false
(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)). This requirement concerns
the subject of the alleged statement itself, and it applies regardless of whether the
statement was made in order to induce present action or some action in the future.
As the Hawai‘i Supreme Court has explained:
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., 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
fraud.”); Prim Liab. Co. v. Pace-O-Matic, Inc., 2012 WL 263116, *9 (D. Haw.
31
Jan. 30, 2012) (“[Party]’s contractual promises cannot form the basis of a fraud
claim.”).
Here, the first three alleged misrepresentations—(1) Defendants intended to
help the Plaintiffs 13; (2) Defendants would purchase the ASB Loan indirectly on
Plaintiffs’ behalf 14; and (3) Defendants would give Plaintiffs time to buy back the
property15—are “promissory in nature and, therefore, insufficient to support a
claim for fraud.” Courter, 2013 WL 2468360 at *9; see Honolulu Fed. Sav. &
Loan Ass’n v. Murphy, 753 P.2d 807, 813 (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,
13
See, e.g., TAC ¶¶ 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]
. . . .”); 37 (“Cheng told everyone at the luncheon meeting that he . . . wanted to help Nakamura
. . . .”); 38 (“At the luncheon meeting at the restaurant Cheng specifically told everyone: ‘I want
to help you guys.’”).
14
See, e.g., TAC ¶¶ 15 (discussing “Cheng’s negotiations to acquire the Subject Property with the
blessings of [Dairy Road] and indirectly on its behalf”); 16 (“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., TAC ¶¶ 18 (“Cheng explained to Nakamura that he . . . needed confidential proprietary
information . . . or Cheng could not do the deal on behalf indirectly of Nakamura . . . .”); 42
(noting that Nakamura “believ[ed] that Cheng was in part proceeding as a friend on [Plaintiffs’]
behalf”).
15
See, e.g., TAC ¶¶ 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 . . . .”); 21 (describing Cheng’s “promises to give [Dairy
Road] contemporaneously the option of paying off its first mortgage once acquired by Cheng”
(emphasis added)); 24 (referring to “[t]he agreement between the parties . . . to provide
additional time for [Dairy Road] to refinance or sell the Subject Property”).
32
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)). This remains true notwithstanding the
language Plaintiffs added to the TAC—specifying that each statement was
misrepresented “contemporaneously” and “in order to induce immediate change of
behavior.” Compare TAC ¶¶ 45(a)–(c), Dkt. No. 55, with SAC ¶ 34(a), Dkt. No.
40.
Additionally, the TAC’s remaining alleged misrepresentations—
(4) Plaintiffs would have three buy-back options to choose from 16; (5) Defendants
would not foreclose on Plaintiffs upon the purchase of the ASB Loan 17; (6) there
16
See, e.g., TAC ¶¶ 24 (“[I]t 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 . . . .”); 26 (stating that by
October 29, 2014, the parties “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, there being
no terms not otherwise waived by Cheng and by [Maui Gas]”); 37 (describing Cheng’s “present
promises” at the luncheon meeting “to give Nakamura binding buy back options now”).
17
See, e.g., TAC ¶ 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.,
TAC ¶¶ 16 (“Cheng represented . . . that Cheng was going to buy the ASB Loan . . . to help
[Dairy Road] gain some time to refinance or sell . . . .”); 21 (describing Cheng’s “promises” to
“immediately stop[] the Foreclosure Action” and to “give [Plaintiffs] contemporaneously the
option of paying off its first mortgage once acquired by Cheng”); 37 (“Cheng told everyone at
the luncheon meeting that he . . . wanted to help Nakamura by contemporaneously buying the
Note from ASB . . . and . . . allow[ing] Nakamura to buy back the property from him
immediately . . . .”); 40 (“[T]here was no indication that Cheng would take over the ASB note
and ASB’s position as foreclosing plaintiff . . . .”); 43 (describing “false promises that Cheng
would . . . . assist Nakamura and [Dairy Road] to save the subject property from foreclosure”).
33
would be no foreclosure deficiency judgment against Plaintiffs 18; and (7) Plaintiffs
would benefit from the discounted price negotiated and paid to ASB 19—are each
clearly predictions of future events or expressions of intention, 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)). The TAC’s self-serving conclusion
that these “promises were not future promises but present promises of immediate
present performance” (TAC ¶ 37, Dkt. No. 55) does not make the alleged
misrepresentations any less “promissory in nature,” Courter, 2013 WL 2468360 at
18
See, e.g., TAC ¶¶ 14 (“Cheng approached Nakamura, proposing to buy [the] ASB Loan and
stopping the Foreclosure Action . . . .”); 21 (describing Cheng’s “promises to contemporaneously
assist [Dairy Road] in immediately stopping the Foreclosure Action”); 24 (referencing “[t]he
agreement between the parties to stop any foreclosure sale”); 31 (stating that “the very central
essence” of the parties’ “agreement” “was to stop any foreclosure so as to provide them with
breathing room and refinancing options”); 40 (“[T]here was no indication that Cheng would . . . ,
by credit bidding at auction take over the property and evict Nakamura and [Dairy Road].”).
19
See, e.g., TAC ¶¶ 14 (describing Cheng’s proposal to “buy out the ASB Loan at a discount,
which appeared to be a more attractive alternative to Nakamura th[a]n negotiating directly with
ASB”); 17 (referring to “Cheng’s financial assistance by his discounted purchase of the ASB
Loan”). Cf. TAC ¶¶ 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 . . . .”); 25
(describing Cheng’s October 29, 2014 email as “triumphantly,” stating “that ASB had accepted
his steeply discounted, increased buyout offer of $400,000”); 37 (discussing Cheng’s statements
at the luncheon that he “wanted to help Nakamura by contemporaneously buying the Note from
ASB at a discount and working with Nakamura”); 38 (“Cheng specifically told everyone [at the
parties’ luncheon] . . . [that he would]” scare ASB about possible environmental contamination,
resulting in a better deal.).
34
*9, nor does it change the fact that the promises did involve future acts, such as
Defendants’ alleged promise not to foreclose on the ASB Loan, which was made
before Defendants actually acquired that loan and therefore had to have been made
in advance of any opportunity by Defendants to honor it, see HonFed, 753 P.2d at
813. Similarly, even if Cheng did “specifically t[ell] everyone” at the luncheon
meeting: “I will scare ASB about possible environmental contamination” in order
to secure a “better deal” (TAC ¶ 38), that statement explicitly involves an
expression of intention to act a particular way in the future, and, indeed, Cheng did
not even “beg[i]n negotiations to acquire the Subject Property” from ASB until
approximately September 20, 2014 (TAC ¶ 15), after the statement was allegedly
made.
Plaintiffs thus may not base their claim of fraud/misrepresentation on such
promissory statements. See Heartland, 2012 WL 488107 at *6 (explaining that 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”).
35
2.
Evidence Of Fraudulent Intent Is Lacking.
“Promissory” representations like those advanced in the TAC may be
actionable as fraud if the representation was made without the present intent to
perform. Eastern Star, Inc., S.A. v. Union Bldg. Materials Corp., 712 P.2d 1148,
1159 (Haw. Ct. App. 1985) (citations omitted). However, there must be some
affirmative evidence of fraudulent intent. HonFed, 753 P.2d at 813 (citing Aloha
Petroglyph, Inc. v. Thomas, 619 P.2d 518, 519 (Haw. Ct. App. 1980)). And here,
just as before, Plaintiffs have not alleged sufficient facts in the TAC to establish
that “Cheng had never intended to go forward with his promises to Nakamura.”
TAC ¶ 29, Dkt. No. 55. Several examples illustrate this omission.
First, Plaintiffs cite to the October 29, 2014 “We are ON” email (Dkt. No.
55-4 at 27) as evidence that once Cheng had acquired the ASB Loan, “virtually
every material contract term of their arrangement” had been agreed upon. TAC
¶ 26, Dkt. No. 55. The record, however, demonstrates precisely the opposite.
Soon after Cheng’s October 29 email, Cheng requested specific information from
Plaintiffs necessary to the formation of any buyback agreement. In fact, the parties
exchanged numerous emails that made clear a contract between them not only had
36
yet to be reached, but was uncertain.20 Thus, the “We are ON” email hardly
supports Plaintiffs’ allegations. 21
20
See, e.g., Order Dismissing SAC at 7 n.6, Dkt. No. 54 (noting that once Cheng acquired the
ASB Loan, he forwarded questions to Dairy Road 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”
(quoting SAC, Ex. 7.4 at 16–17, Dkt. No. 40-11)). Similarly, Cheng informed Plaintiffs on
October 30, 2014 that he would be putting them in touch with his accountant and lawyer in order
to “go over all the facts and . . . structures” involved in any potential deal.” Order Dismissing
SAC at 8, Dkt. No. 54 (quoting SAC, Ex. 7.1 at 31, Dkt. No. 40-8). On November 7, 2014,
Cheng requested “a bunch of documents from [Plaintiffs] at their earliest convenience” in order
to “coordinat[e] the closing with ASB” (Order Dismissing SAC at 8, Dkt. No. 54 (quoting SAC,
Ex. 7.4 at 25, Dkt. No. 40-11)), and on November 10, 2014, Cheng followed up with Choi and
Garth Nakamura, indicating that nine items were still outstanding (see Order Dismissing SAC at
8, Dkt. No. 54 (quoting SAC, Ex. 7.1 at 57, Dkt. No. 40-8)). In a November 18, 2014 e-mail,
Cheng asked Garth Nakamura to provide him with a plan for “Remediation costs,” “C Store
remodel,” and “Status: Buyout of [Dairy Road]” (Order Dismissing SAC at 9, Dkt. No. 54
(quoting SAC, Ex. 7.4 at 33, Dkt. No. 40-11)), and he provided a “counter back to [Plaintiffs]”
offering 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 (Order
Dismissing SAC at 9, Dkt. No. 54 (quoting SAC, Ex. 7.4 at 34–39 [Revision Plan], Dkt. No. 4011)). Cheng offered Plaintiffs additional ideas on how to structure any modification in order to
“make us both comfortable” on November 19, 2014 (Order Dismissing SAC at 9–10, Dkt. No.
54 (quoting SAC, Ex. 7.4 at 40–41, Dkt. No. 40-11)); on November 24, 2014, he indicated that
“[e]verything is open to discussion” (Order Dismissing SAC at 10, Dkt. No. 54 (quoting SAC,
Ex. 7.4 at 43, Dkt. No. 40-11)); and when Garth Nakamura shared with Cheng “a future project
[his] father [(Nakamura) was] looking into,” Cheng responded: “Let’s get our deal done first”
(SAC at 10, Dkt. No. 54 (quoting SAC, Ex. 7.4 at 48, Dkt. No. 40-11)).
21
As this Court previously stated:
Just how these three words [(“We are ON”)] . . . 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.
Order Dismissing SAC at 31, Dkt. No. 54.
37
Second, Plaintiffs rely heavily on Cheng’s December 10, 2014 email to Choi
entitled, “Nakamura Settlement Offer,” which spelled out the three possible
options for structuring a deal that Plaintiffs quote in the TAC. See TAC ¶ 26, Dkt.
No. 55; TAC, Ex. F [Options Email], Dkt. No. 55-4 at 28–30. Cheng elaborated
on the Options Email just a day later, specifying “some of the non-monetary terms
we need on the deal,” including: (1) Nakamura “and his partners and the
purchasing entity tak[ing] on all liability and indemnif[ying] us from any and all
issues including retribution from ASB upon purchase”; (2) Nakamura “produc[ing]
a Health Department permit to continue to operate the gas station within 45 days
from December 15, 2014 or begin[ning] fully funded remediation within 30 days
from December 15”; and (3) Nakamura “start[ing] renovation on the store with a
fully funded budget, plans we approve asap but not later than 60 days after
December 15, 2014.” Cheng also clearly stated the potential consequences if
Plaintiffs failed to satisfy these non-monetary terms:
If [Nakamura] 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.
Order Dismissing SAC at 12, Dkt. No. 54 (emphasis added) (quoting Ex. 7.4 at 54,
Dkt. No. 40-11). Additionally, the Options Email clearly states: “If you do not
want to make a deal, we will go immediately to foreclosure. We will sell to the
38
highest bidder at the auction. If no one comes, then we will keep it and hire
someone to run the operations.” SAC, Ex. E, Dkt. No. 55-4 at 29. This
correspondence illustrates at least three things: first, that Cheng did provide loan
modification options, contrary to Plaintiffs’ fraud claim assertion that he did not;
second, that the loan modification negotiations were in flux and that an actual
agreement was far from a done deal, contrary to Plaintiffs’ fraud claim assertions;
and third, that environmental issues were of material concern to Cheng throughout
the negotiations, once again, contrary to Plaintiffs’ fraud claim assertions.
Third, although the Plaintiffs contend that “[t]he agreement between the
parties . . . was further memorialized in a series of written drafts prepared by
Cheng’s side,” including “a very detailed ‘Term Sheet and Letter of Intent’ . . . and
a ‘First Loan Modification Agreement’” (see TAC ¶ 24 (citing TAC, Ex. C [Term
Sheet & LOI], Dkt. No. 55-4 at 4–6; TAC, Ex. D [First Loan Modification
Agreement], Dkt. No. 55-4 at 7–25)), SAC Exhibit 7 contains emails that
contradict Plaintiffs’ contention that “it was not a question of whether the parties
could reach an agreement, but merely which alternative Nakamura and [Dairy
Road] would accept[.]” TAC ¶ 24, Dkt. No. 54. Indeed, the December 15, 2014
message to which the Term Sheet & LOI was attached came from Choi and
represented his—and not Cheng’s—draft proposal or term sheet. See Order
Dismissing SAC at 12, Dkt. No. 54 (citing SAC, Ex. 7.1 at 70–72, Dkt. No. 40-8);
39
cf. Order Dismissing SAC at 12, Dkt. No. 54 (noting that Choi sent Cheng a
December 19, 2014 e-mail stating, “I think the ball is in your court?” (quoting
SAC, Ex. 7.1 at 76, Dkt. No. 40-8)).
Additionally, the day before the draft Loan Modification Agreement was
circulated, Choi circulated what he referred to as a “proposed final term sheet.”
Order Dismissing SAC at 12, Dkt. No. 54 (quoting SAC, Ex. 7.4 at 57–58, Dkt.
No. 40-11). In response, Barbieri noted that there were “[a] few things, all of
which we will need to get worked out before the loan modification agreement goes
into effect.” Order Dismissing SAC at 13, Dkt. No. 54 (quoting SAC, Ex. 7.2 at 9,
Dkt. No. 40-9). Then, “[n]otwithstanding these outstanding items,” Barbieri sent
the draft loan modification agreement that appears in TAC Exhibit J (Dkt. No. 55-5
at 21–22) to Choi, which was both unsigned and undated. Order Dismissing SAC
at 13, Dkt. No. 54 (citing SAC, Ex. 7.2 at 20, 23–40, Dkt. No. 40-9). 22 The draft
documents themselves, in other words, do not stand for the propositions Plaintiffs
offer. See Mem. in Supp. of MTD the TAC at 13–15, 16–17, 24–26, Dkt. No. 561.
Fourth, Plaintiffs contend that Barbieri’s two-word question—“What
option?”—in a December 29, 2014 email exchange with Choi demonstrates
22
There is no evidence or even allegation that these outstanding items were ever resolved, or that
the draft loan modification agreement was ever signed.
40
Cheng’s fraudulent intent. TAC ¶ 29, Dkt. No. 55 (“On December 29, 2014, when
Choi, for instance, inquired of Barbieri as to Nakamura’s deal with Cheng, he
inconsistently emailed Choi back: “What option?”— making it clear that Cheng
had never intended to go forward with his promises to Nakamura . . . .”). Aside
from offering that email without its surrounding “thread,” the TAC asserts
identical facts on this point as the SAC. Compare SAC ¶ 28, Dkt. No. 55, with
TAC ¶ 29, Dkt. No. 55. The Court has already explained why Plaintiffs’ own
evidence forecloses this argument:
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. 40-9. 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.
Order Dismissing SAC at 31–32, Dkt. No. 54; see also id. at 13 (quoting the
message thread in greater detail). Plaintiffs have offered nothing in their latest
pleadings to convince the Court otherwise.
Fifth, the record still contradicts Plaintiffs’ assertion that Cheng never
intended to work out a new loan with Plaintiffs, as allegedly demonstrated by
Defendants injecting “new” environmental remediation and other non-monetary
prerequisites into the deal at the eleventh hour. TAC ¶ 26, Dkt. No. 55. According
41
to Plaintiffs, “Cheng’s early inquiries about environmental contamination at the
site were put to rest at the time when Cheng bought the ASB mortgage as a result
of insurance coverage disclosed to Cheng, as set forth in Exhibit “H”, as a result of
which he bought the property at auction anyway.” TAC ¶ 32, Dkt. No. 55.
Thereafter, Plaintiffs assert, Cheng had no reason to be concerned with the
environmental contamination associated with the gas station operations on the
property, and his decision to reassert those concerns as part of the loan
modification agreement negotiations shows that he never intended to go through
with the deal.
However, as noted by Defendants (Mem. in Supp. of MTD the TAC at 14–
15, Dkt. No. 56-1), the insurance cited by Plaintiffs was actually a Reservation of
Rights letter. In addition to requesting more information about on-site pollution
releases and tank integrity tests, the letter states that the insurance would only
cover pollution “resultant from a release of the contents from any covered storage
tank system.” TAC, Ex. H, Dkt. No. 55-4 at 41. Such conditional coverage hardly
represents the guarantee that might have made Cheng’s environmental concerns
evaporate. See TAC ¶ 41, Dkt. No. 55 (asserting that Defendants were “fully
aware that the property was fully protected by insurance”).
Finally, the only other new facts that Plaintiffs introduce in the TAC—
regarding a luncheon meeting when “[t]he entire episode with Cheng and the
42
Plaintiffs began” (TAC ¶¶ 35–39, Dkt. No. 55)—similarly fail to support a claim
for fraudulent intent. Indeed, as Defendants have noted (Mem. in Supp. of MTD
the TAC at 3–4, Dkt. No. 59), the purported misrepresentations at that luncheon
meeting are the same as the alleged false promises pled elsewhere in the TAC (and
in the SAC before it), which this Court has already addressed (Order Dismissing
SAC at 27–28, Dkt. No. 54 (citing Courter, 2013 WL 2468360 at *9; HonFed, 753
P.2d at 813)).
Plaintiffs, in short, have offered nothing beyond conclusory statements that
“Cheng had only intended to take advantage of [Dairy Road] and Nakamura from
the beginning of their negotiations” and “had never intended to go forward with his
promises to Nakamura.” TAC ¶¶ 28–29, Dkt. No. 55. Those conclusory
statements are not only not supported by the record, but, in many cases, they are
contradicted by Plaintiffs’ exhibits to the TAC, as well as by the exhibits Plaintiffs
previously attached to the SAC. 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 is DISMISSED.
43
III.
Leave To Amend Is Denied.
“[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, 911 F.2d at 247
(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.”). Just as before, the
Court’s decision on amendment of Plaintiffs’ claim turns on futility. See Order
Dismissing SAC at 49–51, Dkt. No. 54.
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), abrogated in other part by Iqbal, 556 U.S. at
678. Claims may also be futile where their defeat on any future summary
judgment motion is inevitable. Johnson v. American Airlines, Inc., 834 F.2d 721,
274 (9th Cir. 1987) (denying leave to amend, stating that “courts have discretion to
deny leave to amend a complaint for ‘futility,’ and futility includes the inevitability
of a claim’s defeat on summary judgment” (citations omitted)); Gabrielson v.
Montgomery Ward & Co., 785 F.2d 762, 766 (9th Cir. 1986) (“[A]ny amendment
would have been futile in that it could be defeated on a motion for summary
judgment[.]”). Here, any future summary judgment motion would undoubtedly
44
include the voluminous record of e-mail correspondence between the parties, the
contents of which, as previously noted, squarely contradict Dairy Road’s fraud/
misrepresentation claims in the TAC and the basic assumptions underlying them
(e.g., that there was a binding contract between the parties, etc). See Sprewell, 266
F.3d at 988 (“[T]he court need not . . . assume that allegations contradicted by the
exhibits attached to the complaint are true.”); Roth v. Garcia Marquez, 942 F.2d
617, 625 (9th Cir. 1991) (citing Ott v. Home Savings & Loan Ass’n, 265 F.2d 643,
646 n. 1 (9th Cir. 1958)); see also Iqbal, 556 U.S. at 678; Starr, 652 F.3d at 1216.
As such, and because Plaintiffs have previously been afforded the opportunity to
amend their claims, without success, it is evident that any further opportunity to
amend would be futile. Johnson, 834 F.2d at 274; Gabrielson, 785 F.2d at 766.
Leave to amend is therefore DENIED. See Associated Builders, Inc. v.
Alabama Power Co., 505 F.2d 97, 100 (5th Cir. 1974) (“If the appended document,
to be treated as part of the complaint for all purposes under Rule 10(c), [FRCP],
reveals facts which foreclose recovery as a matter of law, dismissal is
appropriate.”) (citing Jacksonville Newspaper Printing Pressmen & Assistants’
Union No. 57 v. Florida Publ’g Co., 468 F.2d 824 (5th Cir. 1972), cert. denied 411
U.S. 906 (1973)); see also Cook, Perkiss & Liehe, 911 F.2d at 247 (citing
Bonanno, 309 F.2d at 322; Erlich, 352 F.2d at 122)); Bonin, 59 F.3d at 845.
45
CONCLUSION
The Court hereby GRANTS Defendants’ Motion to Dismiss (Dkt. No. 56)
the Third Amended Complaint (Dkt. No. 55). Plaintiffs’ TAC is DISMISSED
WITHOUT LEAVE TO AMEND.
IT IS SO ORDERED.
DATED: August 16, 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 THE THIRD
AMENDED COMPLAINT WITHOUT LEAVE TO AMEND
46
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