Novva Ausrustung Group, Inc. v. Kajioka

Filing 19

ORDER. IT IS ORDERED that 14 Defendant Dean Kajioka's Motion to Strike is DENIED. Signed by Magistrate Judge Cam Ferenbach on 7/13/17. (Copies have been distributed pursuant to the NEF - ADR)

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UNITED STATES DISTRICT COURT 1 DISTRICT OF NEVADA 2 *** 3 NOVVA AUSRUSTUNG GROUP, INC., Case No. 2:17-cv-01293-RFB-VCF 4 Plaintiff, 5 6 ORDER vs. DEAN KAJIOKA, 7 MOTION TO STRIKE (ECF NO. 14) Defendant. 8 9 This matter concerns the allegedly fraudulent transfer of funds from Mojave Aluminum Company, 10 Inc. to Defendant Dean Kajioka. Before the Court are Kajioka’s Motion to Strike (ECF No. 14), Plaintiff 11 Novva Ausrustung Group. Inc.’s (“Novva’s”) Opposition to Defendant’s Motion to Strike (ECF No. 16), 12 and Defendant’s Reply (ECF No. 18). For the reasons stated below, the motion to strike is denied. 13 I. BACKGROUND 14 15 16 The instant dispute involves the planned development and construction of a 500,000 square-foot aluminum foundry plant in Barstow, California. See ECF No. 1 at 2, 4. In 2015, the complaint states that 17 Eric Po-Chi Shen, an individual and nonparty to the instant action, created Mojave Aluminum Company, 18 Inc. (“Mojave”), a California company, to build the aluminum foundry. Id. To fund this project, Mojave 19 entered into a loan agreement with Novva on May 4, 2015. Id. at 4. Under the agreement, Novva allegedly 20 loaned Mojave $1.8 million to be used “exclusively on the Barstow project.” Id. After Mojave failed to 21 make the scheduled principal and interest payments on May 3, 2016, Novva alleges that it investigated 22 and discovered that “Mojave’s funds and assets were gone.” Id. 23 A couple months later, Novva sued Mojave and Shen for breach of contract and fraud in California state court. Id. As part of the California 24 litigation, Novva discovered various transfers of monies from Mojave to various persons and entities, 25 1 including Defendant Kajioka, a Nevada licensed attorney associated personally and professionally with 1 2 Shen. See ECF No. 1 at 4. 3 According to the complaint, in 2015 and 2016, in a series of transfers, Shen caused $1.2 million 4 of Mojave’s funds to be transferred to an entity formed by Kajioka, International Constructor Group, LLC. 5 Id. at 5, 6. It also alleges that Shen caused $514,834.68 of Mojave’s funds to be transferred directly to 6 Kajioka despite Kajioka never performing any legitimate legal work for Mojave. Id. at 6. The complaint 7 alleges that these funds were transferred to Kajioka with actual intent to defraud, hinder or delay Novva 8 and other Mojave creditors. Id. Kajioka allegedly operated as a close confidant and insider to Shen in 9 misappropriating Mojave’s assets. Id. at 2. In May 2017, Novva filed the instant action against Kajioka 10 for fraudulent transfer under Cal. Civ. Code § 3439.04 and Nev. Rev. Stat. § 112.180. Id. at 6-7. 11 II. LEGAL STANDARD 12 13 14 Federal Rule of Civil Procedure 12(f) states that “[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” The purpose of a 15 Rule 12(f) motion to strike is “to avoid the expenditure of time and money that must arise from litigating 16 spurious issues by dispensing with those issues prior to trial ….” See Whittlestone, Inc. v. Handi-Craft 17 Co., 618 F.3d 970, 973 (9th Cir. 2010) (quoting Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 18 1993), rev’d on other grounds, Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994)); see also 2 James Wm. 19 Moore, Moore’s Federal Practice, § 12.37[3], 128-29 (3d ed. 2017) (“To prevail on this motion to strike, 20 the movant must clearly show that the challenged matter ‘has no bearing on the subject matter of the 21 22 litigation and that its inclusion will prejudice the defendants.’”). Rule 12(f) is not, however, “an appropriate avenue to challenge the truth of an allegation.” See 23 F.D.I.C. v. Johnson, No. 2:12-cv-00209-KJD, 2012 WL 5818259, at *6 (D. Nev. Nov. 15, 2012); see also 24 Boyd v. United States, 861 F.2d 106, 109 (5th Cir. 1988) (holding that falsity of a pleading does not 25 2 provide a sufficient basis for granting a motion to strike under Rule 12(f)); Manuel v. Lucenti, 2004 WL 1 2 2608355, *3 (N.D.Ill. 2004) (“Defendants therefore are moving to strike the disputed paragraphs from 3 plaintiffs’ complaint on the basis that it is highly improbable that the allegations are true, but Rule 12(f) 4 is not the appropriate mechanism to request such relief”); 2 Moore, supra, § 12.37[4], 132 (noting that 5 Rule 12(f) does not provide “any authority to strike a pleading or any allegations within it as … false … 6 [a]s the Ninth Circuit has pointed out, striking pleadings or allegations on this basis is effectively a 7 resolution of the merits, which is not appropriate at the pleading stage.”). 8 In deciding a motion to strike, courts may not resolve disputed and substantial factual or legal 9 issues. See Whittlestone, Inc., 618 F.3d at 973. If courts are “in doubt as to whether challenged matter 10 11 may raise an issue of fact or law, the motion to strike should be denied, leaving an assessment of the sufficiency of the allegations for adjudication on the merits.” See Sliger v. Prospect Mortg., LLC, 789 F. 12 Supp. 2d 1212, 1216 (E.D. Cal. 2011) (citing Whittlestone, Inc., 618 F.3d at 973). Rule 12(f) motions 13 14 15 should not, at bottom, be used as a means to have certain portions of a complaint dismissed or to obtain summary judgment as to those portions of the suit—these actions are better suited for a Rule 12(b)(6) 16 motion or a Rule 56 motion, not a Rule 12(f) motion. See Whittlestone, Inc., 618 F.3d at 974; see also 17 Yamamoto v. Omiya, 564 F.2d 1319, 1327 (9th Cir. 1977) (“Rule 12(f) is []neither an authorized nor a 18 proper way to procure the dismissal of all or a part of a complaint.[]” (citing 5A Charles Alan Wright, 19 Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure, § 1380, at 782 (3d ed. 2010))). 20 21 22 23 A matter stricken under Rule 12(f) must be either: (1) an insufficient defense; (2) redundant; (3) immaterial; (4) impertinent; or (5) scandalous. See Whittlestone, Inc., 618 F.3d at 973-74. An allegation is “immaterial” it if “has no essential or important relationship to the claim for relief or the defenses being pleaded.” See Fogerty, 984 F.2d at 1527. “Impertinent” matters consist of statements that do not pertain, 24 25 3 and are not necessary, to the issues in question. Id. The concepts of “impertinent” and “immaterial” 1 2 matters have considerable overlap. See 5C Wright et al., supra, § 1382, 463-64. 3 A Rule 12(f) motion to strike is an extreme and drastic remedy—it is heavily disfavored. See 4 Armed Forces Bank, N.A. v. FSG-4, LLC, No. 2:11-cv-654-JCM-CWH, 2011 WL 5513186, at *4 (D. Nev. 5 Nov. 10, 2011) (citing Colaprico v. Sun Microsystems, Inc., 758 F.Supp. 1335, 1339 (N.D.Cal. 1991) 6 (“[M]otions to strike should not be granted unless it is clear that the matter to be stricken could have no 7 possible bearing on the subject matter of the litigation.”).2 “Given their disfavored status, courts often 8 require a showing of prejudice by the moving party before granting the requested relief.” See Roadhouse 9 v. Las Vegas Metro. Police Dep’t, 290 F.R.D. 535, 543 (D. Nev. 2013) (quotation omitted). Whether to 10 grant a motion to strike lies within the discretion of the district court. See Whittlestone, Inc., 618 F.3d at 11 973; see also 5C Wright et al., supra, § 1382 at 433 (“The district court possesses considerable discretion 12 13 in disposing of a Rule 12(f) motion to strike ….”). III. DISCUSSION 14 15 The parties present one issue: In the context of a fraudulent transfer action under Nevada and 16 California law, whether certain factual allegations in the complaint are “immaterial” or “impertinent” and 17 should be stricken under Fed. R. Civ. P. 12(f). A couple general points must be noted. First, the purpose 18 of a complaint is to show that “the pleader is entitled to relief.” See Fed. R. Civ. P. 8(a)(2). Second, this 19 20 21 22 23 24 25 See also United States v. 729.773 Acres of Land, 531 F.Supp. 967, 971 (D. Haw. 1982) (“A motion to strike is a severe measure and it is generally viewed with disfavor.”); Bureerong v. Uvawas, 922 F.Supp. 1450, 1478 (C.D.Cal. 1996) (“[M]otions are generally disfavored because they are often used as delaying tactics, and because of the limited importance of pleadings in federal practice.”); 5C Wright et al., supra, § 1382 at 434-36 (“Rule 12(f) motions to strike … are not favored, often being considered purely cosmetic or ‘time wasters’ … [and] they should be denied unless the challenged allegations have no possible relation or logical connection to the subject matter of the controversy.”); 2 Moore, supra, § 12.37[1], 126 (“Courts disfavor the motion to strike, because it ‘proposes a drastic remedy.’”). 2 4 case is in its infancy at the pleadings stage. The motion to strike concerns the following allegations in the 1 2 3 complaint: i. Evidence obtained from Mojave and other sources revealed that Kajioka operated as a close confidant and insider in depleting Mojave’s assets rendering it insolvent 4 5 6 ii. 7 9 11 Paragraph 27 At the time of the illicit transfer of funds, Kajioka was a de facto insider and related party, acting as a close confidant for Shen and his interests in nonbusiness pursuits, such as racing and sports cars and expensive jewelry and watches. 8 10 Part of Paragraph 3 iii. Part of Paragraph 33 The fraudulent transfers from Mojave to defendant were made with actual intent to defraud because, among other indicia of fraud: 12 (a) The transfers were made to an insider or related party… 13 14 15 See ECF Nos. 14 at 9; 1 at 2, 6-7. Kajioka’s motion to strike objects to the allegation that Kajioka was an insider and an accomplice 16 to Shen’s “pillage of Mojave.” Id. at 7. Kajioka argues that he “performed extensive legal services on 17 behalf of Shen and/or Mojave” and, most important, was not an “insider” or “de facto insider” under 18 Nevada law. Id. at 19. In particular, Kajioka claims that “Novva’s Complaint has not set forth any factual 19 basis whereby Defendant Kajioka could be an ‘insider’ and/or ‘de facto insider’ pursuant to N.R.S. 20 §112.150(7), making the conclusory allegations that Defendant Kajioka is an ‘insider’ and/or ‘de facto 21 insider’ improper, contrary to Nevada law, immaterial, and impertinent.” See ECF No. 18 at 8; but see 22 23 ECF No. 14 at 3 (“The evidence will eventually prove that Defendant Kajioka … is not an ‘insider.’”). Kajioka further asserts that if these allegations are “allowed to proceed … then the burden of proof will 24 shift to Defendant Kajioka to ‘come forward with rebuttal evidence that the transfer was not made to 25 5 defraud the creditor.’” See ECF No. 14 at 14. Kajioka argues that this will significantly prejudice him by 1 2 forcing him “into the challenging task of proving a negative; i.e., proving that he did not accept any alleged 3 fraudulent transfers as he received the money in good faith and provided a reasonably equivalent value in 4 legal services.” See id. at 2, 12; see also ECF No. 18 at 12 (“If … Kajioka is alleged to have been an 5 ‘insider’ and/or ‘de facto insider,’ th[e]n it will be substantially more difficult for him to show objectively 6 that he did not know or had no reason to know of the transferor’s fraudulent purpose to delay, hinder, or 7 defraud the transferor’s creditors, significantly prejudicing … Kajioka.”). 8 Novva argues that Kajioka’s motion should be denied because Kajioka “has not identified a single 9 allegation … that is improper, immaterial, or impertinent under the applicable standard” and “has failed 10 11 to establish prejudice.” See ECF No. 16 at 7. Whether Kajioka is an insider in Shen’s alleged scheme to “plunder Mojave and defraud [Novva],” Novva claims is a “question of material fact” “not ripe for 12 adjudication at this early hour and … not properly decided on a motion to strike.” Id. at 2, 7. 13 14 15 After reviewing the subject allegations, the parties’ briefs, and applicable law the Court finds that striking the subject allegations in the pleading as “immaterial” or “impertinent” is not warranted. In 16 deciding a motion to strike, the Court’s role is limited to adjudicating whether—in the context of a 17 fraudulent transfer action—the allegations that Kajioka was an insider are either “immaterial” or 18 “impertinent” under Fed. R. Civ. P. 12(f). 19 The subject allegations are not immaterial. As Novva persuasively argues, whether Kajioka was 20 an insider relates directly to the Novva’s underlying claim “which seeks to show that Defendant Kajioka 21 22 23 actively and knowingly facilitated and benefitted from the fraudulent transfers that rendered Mojave insolvent.” See ECF No. 16 at 8; see also Fogerty, 984 F.2d at 1527 (“Immaterial matter is that which has no essential or important relationship to the claim for relief or the defenses being plead.”) (quoting 5A 24 Wright et al., supra, § 1382, at 706-07); Nev. Rev. Stat. §§ 112.180(2)(a) (“In determining actual intent 25 6 under paragraph (a) of subsection 1, consideration may be given, among other factors, to whether … [t]he 1 2 transfer or obligation was to an insider”), 112.190(2) (“A transfer made by a debtor is fraudulent as to a 3 creditor whose claim arose before the transfer was made if the transfer was made to an insider for an 4 antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that 5 the debtor was insolvent.”). 6 Nor are the allegations impertinent, because, similarly, whether Kajioka was an insider pertains 7 directly to the fraudulent transfer claim. See Fogerty, 984 F.2d at 1527 (“Impertinent matter consists of 8 statements that do not pertain, and are not necessary, to the issues in question.”) (quotation marks and 9 10 citation omitted). The motion to strike states that the subject allegations “are immaterial and/or impertinent,” but it does not meaningful argue why the allegations are immaterial or impertinent under 11 Fed. R. Civ. P. 12(f). See ECF Nos. 14 at 19; 18 at 5-6. Instead, the motion repeatedly asserts that the 12 allegations are improper—a category not recognized under the plain meaning of Fed. R. Civ. P. 12(f), see 13 14 15 16 Whittlestone, Inc., 618 F.3d at 973-74—because Kajioka is not an insider under state law. Id. The Court is not persuaded that the subject allegations have no possible relation or logical connection to the subject matter of the controversy. The allegations at issue do bear on the subject matter of the case. 17 Kajioka specifically asks this Court to determine whether he is an insider relying on Pat Clark 18 Sports, Inc. v. Champion Trailers, Inc., 487 F. Supp. 2d 1172 (D. Nev. 2007). See ECF No. 18 at 8-9, 12. 19 As the Court notes above, challenging the truth of an allegation, as Kajioka does here, is not appropriate 20 for a Rule 12(f) motion. Under Ninth Circuit law, courts may not resolve disputed and substantial factual 21 or legal issues in a motion to strike. See Whittlestone, Inc., 618 F.3d at 973 (“Whittlestone argues that … 22 23 courts may not resolve ‘disputed and substantial factual or legal issue[s] in deciding ... a motion to strike.’ We agree ….”). Kajioka in essence argues that he “is not an ‘insider’ or ‘de facto insider’ of Shen and/or 24 Mojave as statutorily defined pursuant to N.R.S. § 112.150(7),” therefore, such allegations “regarding … 25 7 Kajioka being an ‘insider’ or ‘de facto insider’ of Shen and/or Mojave” are “improper, immaterial, and/or 1 2 impertinent” and must be stricken from Novva’s complaint. See ECF No. 14 at 3-4. Kajioka’s reliance 3 on Pat Clark Sports, Inc. is misplaced because, inter alia, that case concerned a motion to dismiss for lack 4 of personal jurisdiction and for improper venue. 5 substantial issues. Kajioka’s attempt to have certain portions of the complaint dismissed or to obtain 6 summary judgment against Novva as to specific portions of the suit are better suited for a Rule 12(b)(6) 7 motion or a Rule 56 motion, not a Rule 12(f) motion. Kajioka’s motion to strike is denied. The allegations at issue here involve disputed and 8 ACCORDINGLY, and for good cause shown, 9 IT IS ORDERED that Defendant Dean Kajioka’s Motion to Strike (ECF No. 14) is DENIED. 10 IT IS SO ORDERED. 11 DATED this 13th day of July, 2017. 12 13 14 _________________________ 15 CAM FERENBACH UNITED STATES MAGISTRATE JUDGE 16 17 18 19 20 21 22 23 24 25 8

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