Jared & Donna Murayama 1997 Trust v. NISC Holdings, LLC

• Decision Date: 07 June 2012
• Docket Number: Record No. 111377.
• Citation: 727 S.E.2d 80
• Parties: JARED AND DONNA MURAYAMA 1997 TRUST v. NISC HOLDINGS, LLC, et al.
• Court: Virginia Supreme Court

727 S.E.2d 80

JARED AND DONNA MURAYAMA 1997 TRUST

v.NISC HOLDINGS, LLC, et al.

Record No. 111377.

Supreme Court of Virginia.

June 7, 2012.

J. Chapman Petersen, Fairfax (Jason F. Zellman, Fairfax; E.F. Mano DeAyala; Shelby Kelley; Surovell Isaacs Petersen & Levy; Buck Keenan; Bracewell & Giuliani, on briefs), for appellant.

Lisa S. Blatt (Randall K. Miller, McLean; Nicholas DePalma, McLean; Carolyn Pearce; Arnold & Porter, on brief), for appellees.

Present: All the Justices.

Opinion by Justice ELIZABETH A. McCLANAHAN.

Appellant, the Jared and Donna Murayama 1997 Trust (the “Trust”), through its Trustee, Jared Murayama (“Murayama”), challenges the circuit court's order sustaining a demurrer to the Trust's second amended complaint. In that complaint, the Trust sought damages arising from a settlement agreement between the Trust, Murayama and two of the defendants, NISC Holdings, LLC (“NISC”) and Omen LLC (“Omen”), which transaction included NISC's repurchase of the Trust's voting stock in NISC (the “settlement agreement”). The Trust claimed it was damaged from selling the stock to NISC for substantially less than its fair market value as a result of the Trust's reliance on fraudulent omissions and misrepresentations of the defendants: (i) NISC; (ii) Omen, a company NISC previously acquired from the Trust; (iii) DC Capital Partners, LLC and DC Capital Partners Investments, LLC (collectively “DC Capital Partners”), NISC's largest shareholder; and (iv) Thomas Campbell (“Campbell”), the chairman of NISC and the managing member of DC Capital Partners (the appellees in this appeal).¹

The circuit court sustained the defendants' demurrer upon determining that the Trust's allegations, as amplified by the settlement agreement, established that, as a matter of law, the Trust did not reasonably rely upon the defendants' alleged fraudulent omissions and misrepresentations regarding the value of the NISC stock at the time of the settlement. The circuit court reached that conclusion based upon both the language of the settlement agreement and the allegations regarding the adversarial relationship between Murayama and the defendants that precipitated the settlement. Agreeing with the circuit court, we will affirm its judgment sustaining the demurrer.

I. BACKGROUND

Because the circuit court decided this case upon a demurrer, we will summarize the facts as alleged in the Trust's second amended complaint. Kaltman v. All Am. Pest Control, Inc., 281 Va. 483, 486, 706 S.E.2d 864, 866 (2011). We will also include in the summary relevant provisions of the settlement agreement, as the defendants properly submitted the agreement for the circuit court's consideration through its motion craving oyer.²Ward's Equip. v. New Holland N. Am., Inc., 254 Va. 379, 382, 493 S.E.2d 516, 518 (1997). “In doing so, we consider the facts stated and all those reasonably and fairly implied in the light most favorable to the nonmoving part[y], [the Trust].” Kaltman, 281 Va. at 486, 706 S.E.2d at 866 (citing Yuzefovsky v. St. John's Wood Apartments, 261 Va. 97, 102, 540 S.E.2d 134, 137 (2001)).

At all times relevant to this action, Murayama was the manager of the Trust. In 2007, the Trust was the majority owner of Omen, a Maryland based information and technology management company that Murayama founded and managed for several years. In June 2007, DC Capital Partners, a Virginia limited liability company, formed NISC, a Delaware limited liability company located in Virginia, for the purpose of acquiring and consolidating information management and technology companies serving various federal government agencies. On June 29, 2007, NISC purchased Omen from the Trust. As consideration for the sale, the Trust received 48.78 percent of the Class A voting stock in NISC, a cash sum of $1,425,000 payable in November 2008, Class B non-voting shares in NISC, and a seat on NISC's board of managers. The Trust appointed Murayama to that position, which he held for the next two and a half years—until December 9, 2009, when the settlement agreement was executed. In addition, by that same date, as a result of NISC's subsequent acquisitions of additional companies, the Trust's Class A membership interest in NISC was diluted to 5.41 percent. Also following NISC's purchase of Omen, NISC hired Murayama as an advisor to Campbell, NISC's chairman.

In a significant development leading to the instant dispute, Murayama became involved with “a native Hawaiian organization known as Hawaii 5–0,” which was “owned by ... a charitable, not-for-profit foundation.” According to the Trust, in January 2009, Murayama discussed with Campbell Murayama's “prospective role” at Hawaii 5–0, and “became a part-time uncompensated advisor to Hawaii 5–0” after receiving Campbell's “express consent.” Significantly, the Trust allegesthat “Hawaii 5–0 did not compete with NISC and Mr. Murayama did not violate any non-competition agreements with NISC.” Further, “[a]t no time prior to November 2009 did [d]efendants ever express to Mr. Murayama any concern about his involvement with Hawaii 5–0.”

NISC and Omen, however, advanced a completely different view of Murayama's activities involving Hawaii 5–0 in relation to NISC and Omen. On November 9, 2009, NISC and Omen filed a lawsuit in Fairfax County Circuit Court against Hawaii 5–0 and several former NISC and Omen employees who became employed by Hawaii 5–0.³ While Murayama was not named as a defendant in the action, the complaint stated in detail how he allegedly conspired with the named defendants “to steal business from NISC/Omen, raid NISC/Omen's employees, and take corporate opportunities belonging to NISC/Omen for their own benefit.” Pled in twenty-one counts, the sixty-page complaint alleged conspiracy, breach of contract, tortious interference, conversion, and violations of the Virginia Computer Crimes Act and Uniform Trade Secrets Act, among others, and sought a preliminary injunction and millions of dollars in compensatory, treble, and punitive damages.

Referring to Murayama no less than sixty-four times, the complaint alleged that he owed non-competition, non-solicitation, fiduciary and confidential obligations to NISC and Omen, and breached them by his unlawful activities with the named defendants. As an example, the complaint alleged that Murayama and his former co-shareholder of Omen, Robert Bregante, violated their agreements with NISC and Omen—entered into when they sold Omen to NISC—not to compete with NISC or Omen and not to solicit NISC or Omen's customers or employees. Murayama and Bregante allegedly engaged in “a systematic campaign to recreate the Omen business under the Hawaii 5–0 umbrella, thus effectively stealing back what they had just sold to NISC/Omen.” NISC and Omen then alleged, in regard to their trade secrets claim, that Bregante and defendant Andrew Ganias, former chief financial officer of Omen and present chief financial officer of Hawaii 5–0, “conspired with Murayama, who remains not only an employee but a member of NISC/Omen's Board of Managers, to misappropriate NISC/Omen's trade secrets and other proprietary information. For example, Murayama emailed ... Bregante and Ganias NISC/Omen's highly confidential financial statements which ... Bregante and Ganias then used to advance Hawaii 5–0's business interests.”

As a further example of Murayama's alleged wrongdoing, the NISC/Omen complaint stated that Murayama sent emails to his “co-conspirators” in March 2009 in which he told them that he had to “ ‘stay below radar for technically [sic] am still an employee of Omen,’ ” and that they needed a different “ ‘front man’ ” because he had to “ ‘stay low for now.’ ” He also allegedly assured one of his co-conspirators, however, that when Hawaii 5–0 would eventually need a local president, “ ‘by that time yours truly should be available.’ ”

NISC and Omen also stated in their complaint that Murayama engaged in the alleged unlawful activities in his capacity as a member of NISC's board of managers and a business adviser to them both, for which they paid him an annual salary of $275,000.

Within three days of filing their complaint, NISC and Omen delivered it to Murayama's counsel, along with a demand in the form of a proposed settlement agreement. Counsel for NISC and Omen made it “clear” that the proposed agreement was being offered as an alternative to adding Murayama and the Trust to the lawsuit. The proposal was thus presented to Murayama “as a prepackaged deal that would include him [and] the Trust, as well as the named defendants.” Trust's Second Am. Compl. ¶ 24 (emphasis in original). Central to the terms of the proposal was the requirement that the Trust return its Class A membership stock to NISC “ even without compensation if NISC's lender did not approve the payment to buy back the shares. According to the proposed settlement agreement, the [Trust's] Class A [m]embership [i]nterest was worth approximately $1,000,000 dollars.” Id. (emphasis in original).

Following the parties' negotiations through their respective counsel over the terms of the ultimate settlement, the Trust, Murayama, NISC and Omen (along with certain named defendants in the NISC/Omen lawsuit) executed the settlement agreement on December 9, 2009. The settlement agreement expressly recited that NISC and Omen believed that Murayama was involved in the conduct at issue in the NISC/Omen lawsuit, and that they contemplated amending their complaint to add Murayama and the Trust as defendants. Having settled their disputes pursuant to the terms of the settlement agreement, however, NISC and Omen therein released all claims they had against the Trust and Murayama and certain named defendants in the NISC/Omen lawsuit “arising at any time before the execution” of the settlement agreement, without any of the released parties paying any money.

NISC and Omen did so in exchange for the Trust's agreement to sell its NISC Class A membership interest to...