Ambassador Hotel Co. v. Wei-Chuan Investment

• Decision Date: 14 April 1999
• Docket Number: WEI-CHUAN
• Citation: 189 F.3d 1017
• Parties: (9th Cir. 1999) THE AMBASSADOR HOTEL COMPANY, LTD. a Taiwan Corporation, Plaintiff-counter-defendant Appellee, v.INVESTMENT, Defendant, and JAU H. HUANG, HUEI SHYONG HUANG, SIMON SHEN,CONSTRUCTION & DEVELOPMENT, INC., Defendants-counter-claimants counter-defendants-Appellants, v. KOPIN INTERNATIONAL, INC., Defendant-counter-claimant-Appellee. 97-56423
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1017

189 F.3d 1017 (9th Cir. 1999)

THE AMBASSADOR HOTEL COMPANY, LTD. a Taiwan Corporation, Plaintiff-counter-defendant Appellee, v. WEI-CHUAN INVESTMENT, Defendant, and JAU H. HUANG, HUEI SHYONG HUANG, SIMON SHEN, WEI-CHUAN CONSTRUCTION & DEVELOPMENT, INC., Defendants-counter-claimants counter-defendants-Appellants, v. KOPIN INTERNATIONAL, INC., Defendant-counter-claimant-Appellee.

97-56423

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted April 14, 1999--Pasadena, California

Decided August 31, 1999

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Robert A. Olson and Laura Boudreau, Greines, Martin, Stein & Richland, Beverly Hills, California, for the defendants-counter-claimants-counter-defendants-appellants.

Patrick K. Huang and Judith M. Mitchell, Huang & Mitchell, Los Angeles, California, for plaintiff-counter-defendant-appellee Ambassador Hotel Co., Ltd., and counter-defendantcounter-claimant-appellee Kopin International, Inc.

Appeal from the United States District Court for the Central District of California; Robert M. Takasugi, District Judge, Presiding. D.C. No. CV-90-06626-RMT.

Before: Diarmuid F. O'Scannlain and A. Wallace Tashima, Circuit Judges, and Edward C. Reed, Jr.,^* District Judge.

REED, District Judge:

Defendants Wei-Chuan Construction and Development, Inc. ("WCC"), Jau H. Huang, Huei Shyong Huang and Simon Shen appeal the judgment of the district court in favor of plaintiff Ambassador Hotel Co., Ltd. ("Ambassador") and counter-claimant Kopin International, Inc. ("Kopin") (together, "plaintiffs"). In the action below, Ambassador brought federal securities fraud, common-law fraud and breach of contract claims that arose from its decision to join a hotel venture proposed by the defendants, which failed. Defendants counterclaimed against Ambassador and added claims against Kopin, alleging that Kopin mismanaged the project. In turn, Kopin counterclaimed, asserting claims against defendants for fraud, breach of fiduciary duty, and breach of contract.

The district court found defendants liable for violations of the federal securities laws, fraud, breach of contract, and breach of fiduciary duty. Defendants argue that the evidence in the case does not support the judgment. Defendants also challenge the district court's award of damages to both Ambassador and Kopin as double recovery for Ambassador based on Ambassador's ownership of Kopin stock. Finally, defendants challenge the district court's award of punitive damages to Ambassador. We have jurisdiction pursuant to 28 U.S.C. S 1291, and we affirm in part and reverse in part. We have filed contemporaneously with this opinion a memorandum disposition, which addresses those issues not resolved herein.

FACTS

In 1985, brothers Jau Huang and Huei Huang formed Wei-Chuan Carson. The company purchased a vacant lot in Carson, California, for $2,025,000. The company then transferred the property to WCC.¹ In April, 1986, WCC obtained a $10 million construction loan, using the property as security. WCC then began construction of a hotel on the Carson property.

By the end of 1986, however, loan funds had been substantially depleted.² Lack of funds forced WCC to halt construction completely in the first quarter of 1988. WCC failed to make payments on the construction loan, and by April 15, 1988, the loan was delinquent. At this point, the structure was approximately sixty percent complete. In June, 1988, WCC, through its officers, asked Ambassador to become its partner in the hotel project.³ Representatives from Ambassador visited the site that month. WCC agents told Ambassador representatives that the estimated cost of the hotel structure, or shell, was $16,600,000. WCC also provided its visitors with a brochure which detailed the items included in that price.

On June 17, 1988, WCC and Ambassador signed an agreement, or memorandum of understanding ("Summarized Minutes of Investment and Joint Venture Meeting"), which identified various changes and upgrades that would occur if Ambassador did sign on to the hotel project. The upgrades included the following items: (a) the addition of a Chinese restaurant; (b) several additions to the planned Japanese restaurant; (c) the creation of a "VIP" floor; and (d) the use of furnishings and amenities appropriate to a four-star hotel. During the meeting, when Ambassador representatives asked about the potential cost impact of the agreed-upon upgrades, WCC agents stated that the upgrades could be accommodated without problem. Jau Huang later told Michael Chang, Ambassador's General Manager, that the cost of the hotel shell was $16,600,000. Jau Huang also stated that the cost of fixtures and finishes would depend upon the quality of the equipment and furnishings used in the hotel.

On July 18, 1988, WCC representative Jeff Chen presented the project to Ambassador's board of directors in Taiwan. Jeff Chen also provided to the board a written investment report or prospectus, prepared by Jeff Chen, Jau Huang, and Huei Huang. The prospectus placed the total cost of the hotel project at $22 million.

Following Jeff Chen's presentation, on July 22, 1988, Ambassador and WCC signed an agreement to enter into a joint venture ("Memorandum"). Under the terms of the agreement, the two parties were to form a corporation, called Kopin International, Inc. The agreement fixed the share capital of the new corporation at $12 million. The $12 million capital contribution was to be funded by the parties: Ambassador was to contribute 60%, or $7.2 million, and WCC was to contribute 40%, or $4.8 million. The parties also agreed that Kopin would obtain an additional $10 million bank loan. Kopin was to use the loan proceeds and additional capital funds to pay for the completed hotel. Any increase of project costs above the $22 million budget figure would have to be approved by Kopin's Board of Directors.⁴ Upon completion of the hotel shell, WCC was to convey it to Kopin for the actual cost of construction as determined by an independent audit, not to exceed $16.6 million. Kopin was to provide for furnishings, fixtures and equipment ("FF&E"). Finally, Kopin was to operate the hotel.

Some time after the parties signed the agreement, WCC informed Ambassador that Wei-Chuan Investment ("WCI") and Ho-Yu Investment Company would satisfy the financial obligation made to the project by WCC. WCI was to contribute $4.3 million and Ho-Yu Investment Company was to contribute $500,000.

Kopin was incorporated September 7, 1988. The Board of Directors named later that month included Michael Chang, as chairman of the board, Jau Huang, as vice chairman of the board, and Jeff Chen, as vice president and secretary. Soon after Kopin incorporated, Huei Huang left California for Taiwan; he had no further involvement with the hotel project. Simon Shen took over as project superintendent.

During that same month, interior designer Robert Hsueh completed an FF&E budget which took into account the proposed upgrades. The budget came to $7.2 million, $3 million more than the $4.2 million FF&E budget set forth in the investment prospectus presented to Ambassador and incorporated into the $22 million budget for Kopin. Apparently acting on instructions from Jau Huang, Robert Hsueh did not dis-close this $7.2 million figure when he presented his preliminary plans to Ambassador for its approval. After Ambassador transferred its first partial capital contribution into Kopin's account, Jau Huang informed Ambassador of the shortfall. The parties later agreed to increase Kopin's cash capital by $2 million; Ambassador was to invest an additional $1.2 million, and WCC was to invest an additional $0.8 million. Apparently, Ambassador agreed to the increase only because WCC had threatened to stop work on the hotel.

Ambassador later deposited in the Kopin account the full amount of its obligation to the project, including the additional $1.2 million. Thus, Ambassador contributed a total of $8.4 million to Kopin. Ho-Yu Investment Company contributed $0.5 million to Kopin and thereby satisfied its financial obligation in full. WCI, however, never fully satisfied its obligation; the District Court found the capital contribution made by WCI deficient by approximately $2.8 million. In addition, WCC never paid in the additional $0.8 million that was its share of the increased cash capital amount.

After the formation of Kopin, shell construction resumed. WCC began to incorporate changes made necessary by the upgrades agreed to by the parties. However, at this point the engineers and builders did not have updated architectural, mechanical or electrical plans from which to work. Builders worked from outdated plans and from interior design plans, which had not yet been coordinated with approved construction plans. In constructing the hotel, WCC deviated from structural plans to such an extent that in the end, serious structural defects threatened the safety of the building.

Because the construction loan had gone into default, WCC agreed to make scheduled deposits into an account monitored by bank loan officers. Jau Huang had signature authority on the Kopin bank account and used Kopin funds to make these required deposits. WCC then used funds in the monitored account to pay various construction expenses. In this way, Kopin paid for shell construction expenses on an ongoing basis. Jau Huang also paid some amounts to WCI from the Kopin account. Given this activity, the district court found that between October, 1988, and March, 1989, Jau Huang misappropriated approximately $3.9 million from the Kopin account.

In July, 1989, Michael Chang signed loan documents from Bank of California on Kopin's behalf. In executing the loan documents, Mr. Chang relied on the representations made to him by Jau Huang. Mr. Chang does not read or speak English well; he believed that Kopin had obtained a new loan to take out the construction loan...