David Sansone Co. v. Waiaha Ridge LLC
| Decision Date | 25 April 2022 |
| Docket Number | Civ. 20-00411 HG-RT |
| Court | U.S. District Court — District of Hawaii |
| Parties | DAVID SANSONE COMPANY, INC.; DAVID SANSONE; SANSONE COMPANY INC.; LOS PADRES CONSTRUCTION, INC.; AVILA PROPERTIES, LLC; SANSONE REAL ESTATE INVESTMENTS, LLC, Plaintiffs, v. WAIAHA RIDGE LLC; DANIEL B. BOLTON; JANET T. BOLTON; THE KONA COFFEE & TEA COMPANY, INC.; BOLTON, INC.; JOHN DOES 1-50; JANE DOES 1-50; DOE CORPORATIONS 1-50; DOE PARTNERSHIPS 1-50; DOE ENTITIES 1-50, Defendants. |
ORDER DENYING DEFENDANTS' MOTION TO DISMISS PLAINTIFFS' BREACH OF FIDUCIARY DUTY AND CONSPIRACY CLAIMS AND GRANTING DEFENDANTS' MOTION TO DISMISS PLAINTIFFS' UNFAIR METHODS OF COMPETITION CLAIM
On September 16, 2021, Plaintiffs David Sansone Company, Inc. David Sansone, Sansone Company, Inc., Los Padres Construction, Inc., Avila Properties, LLC, and Sansone Real Estate Investments, LLC (“Plaintiffs”) filed a Fourth Amended Complaint. The Fourth Amended Complaint asserts claims arising out of an agreement to acquire and develop real estate on the island of Hawaii.
On October 22, 2021, Defendants Waiaha Ridge LLC, Daniel B Bolton, Janet T. Bolton, The Kona Coffee & Tea Company Inc., and Bolton, Inc. (“Defendants”) filed a partial Motion to Dismiss. Defendants move to dismiss Count IV, the breach of fiduciary duty claim against all Defendants except Daniel Bolton, and Count VI, the unfair methods of competition claim against all Defendants. Defendants also assert that Plaintiffs have failed to plead a claim for civil conspiracy.
Defendants' Motion to Dismiss (ECF No. 81) is GRANTED, IN PART AND DENIED, IN PART.
On September 16, 2021, Plaintiffs filed their Fourth Amended Complaint. (ECF No. 67).
On October 22, 2021, Defendants filed a MOTION TO DISMISS, IN PART, PLAINTIFFS' FOURTH AMENDED COMPLAINT FOR FAILURE TO STATE A CLAIM. (ECF No. 81).
On November 10, 2021, Plaintiffs filed an OPPOSITION TO DEFENDANTS' MOTION TO DISMISS. (ECF No. 83).
On December 1, 2021, Defendants filed their Reply in support of their Motion to Dismiss. (ECF No. 86).
On January 5, 2022, the Court held a hearing on Defendants' partial Motion to Dismiss. (ECF No. 88).
The Complaint alleges:
In April 2006, Defendant Daniel Bolton (“Bolton”) and Plaintiff David Sansone (“Sansone”) entered into a joint business venture to acquire and develop real estate on the island of Hawaii. The Parties refer to the property as Waiaha Ridge. (Compl. at ¶¶ 45-47, ECF No. 67). Plaintiff Sansone alleges he agreed to the joint venture based on Defendant Bolton's representation that it would be a “50/50 partnership, ” each partner contributing half of the funds necessary to purchase and develop the property. (Id. at ¶¶ 46, 52). The venture was to be documented by the formation of an LLC in which the two partners would own equal shares. (Id.)
Plaintiffs allegedly advanced millions of dollars to Defendants from 2006 up until 2010, as the property was purchased and developed. (Id. at ¶ 48).
Plaintiff alleges that some of the funds were used improperly for activities outside the scope of the venture. Plaintiffs claim that Defendant Bolton used a portion of the funds to pay debt and purchase property unconnected to the joint venture. (Id. at ¶¶ 48, 109).
Further allegations include:
Defendant Bolton acquired the Waiaha Ridge property, but refused to document the Parties' relationship as originally proposed. (Id. at ¶¶ 59-61). The title to the acquired property is held by Defendant Waiaha Ridge LLC, an entity controlled and owned by Defendants Daniel and Janet Bolton (“the Boltons”). (Id. at ¶¶ 11, 53). Plaintiff Sansone is not a member of Waiaha Ridge LLC. (Id. at ¶ 53).
Defendants are said to be mishandling the development, sale, and use of the proceeds from the sale of subdivided portions of the property. (Id. at ¶¶ 77-79, 110). Plaintiffs allege they were overcharged by Defendant Bolton, Inc. for development work performed on the property. (Id. at ¶ 134).
Plaintiffs allege the sale of the remaining portions of the property will generate insufficient funds to repay their contribution and appropriate interest. (Id. at ¶79)
The Complaint states that in September 2020, in anticipation of litigation, the Boltons caused Waiaha Ridge LLC to mortgage the property in order to have the Boltons' interests in the property ahead of Plaintiffs and any other creditors. (Id. at ¶¶ 89-96, 154, 183).
The Court must dismiss a complaint as a matter of law pursuant to Federal Rule of Civil Procedure 12(b)(6) where it fails “to state a claim upon which relief can be granted.” Rule (8)(a)(2) of the Federal Rules of Civil Procedure requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” When considering a Rule 12(b)(6) motion to dismiss, the Court must presume all allegations of material fact to be true and draw all reasonable inferences in favor of the non-moving party. Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). Conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss. Id. at 699.
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 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. Id. (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).
The complaint “must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively” and “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.” AE ex rel. Hernandez v. Cnty of Tulare, 666 F.3d 631, 637 (9th Cir. 2012) (quotations omitted).
Count IV of the Complaint asserts a breach of fiduciary duty claim against all Defendants. (Compl. ¶¶ 115-20, ECF No. 67). Plaintiffs allege that Defendant Daniel Bolton owed them a fiduciary duty; that he breached that duty “with the complicity of” Defendants Waiaha Ridge LLC, Kona Coffee & Tea Company, Inc., Bolton, Inc., and Janet Bolton; and that Plaintiffs suffered damages. (Id.)
Defendants argue that Plaintiffs' breach of fiduciary duty claim against Defendants Waiaha Ridge LLC, Kona Coffee & Tea Company, Inc., Bolton, Inc., and Janet Bolton should be dismissed because Plaintiffs have only alleged that Defendant Daniel Bolton owed a fiduciary duty. (Defs.' Mot. at 5-6, ECF No. 81).
In order to state a breach of fiduciary duty claim, a plaintiff must plausibly allege:
Aquilina v. Certain Underwriters at Lloyd's Syndicate #2003, 407 F.Supp.3d 1016, 1048 (D. Haw. 2019).
Defendant Bolton's fiduciary duty is alleged to arise from his role as a partner in the Parties' joint venture. (Compl. ¶ 116). Plaintiffs claim that Defendant Bolton breached his duty by denying Plaintiffs an ownership interest in the property; misusing funds contributed by Plaintiffs; failing to pay interest on Plaintiffs' monetary contribution; and intentionally mortgaging the property to shield its remaining value from Plaintiffs. (Id. at ¶ 118). Plaintiffs claim they suffered damages. (Id. at ¶ 119).
The first element of Plaintiffs' claim -- the existence of a fiduciary duty -- depends on the allegation of the existence of a joint venture.
The rules governing partnerships are generally applicable to joint ventures. Shinn v. Edwin Yee, Ltd., 553 P.2d 733, 736 (Haw. 1976); see also Lau v. Valu-Bilt Homes, Ltd., 582 P.2d 195, 200 (Haw. 1978).
Under Hawaii law “the association of two or more persons to carry on as co-owners a business for profit forms a partnership.” Mroz v. Hoaloha Na Eha, Inc., 410 F.Supp.2d 919, 932 (D. Haw. 2005) (citing Hawaii Revised States § 425-109). An agreement between partners to form such an arrangement may be written, oral, or implied. Id. (quoting Hawaii Revised States § 425-101). A partnership may be found to exist in the absence of any formal contract. Id. Whether an agreement creates a partnership depends on the parties' intentions. Id. An agreement to co-own a business and share in its profits and losses is evidence of a partnership. Id. (citing Buffandeau v. Shin, 587 P.2d 1236, 1237 (Haw. 1978)).
Defendant Bolton and Plaintiff David Sansone are alleged to have entered into an agreement to be co-owners of a business, the goal of which was to acquire and develop property. (Compl. ¶¶ 45-47, ECF No. 67). The business was to be a “50/50 partnership” in which each partner would contribute half of the funds necessary to acquire the property. (Id. at ¶¶ 46, 52). The Parties anticipated they would share in the business's profits. (Id. at ¶ 47). The language of the Complaint alleges the formation of a joint venture or partnership.
Partners in a joint venture owe a fiduciary duty of loyalty and care to one another and to the partnership. Hawaii Revised Statutes § 425-123(a); see also Swan v. Tanjuakio, Civ. No. 21-00052 JMS-KJM, 2021 WL 1794756, at *6 (D. Haw. May 5, 2021).
Under Hawaii statutory law, a partner's duty of loyalty involves the following responsibilities:
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