Nakamoto v. Hartley, Civ. No. 90-00828 DAE.
| Decision Date | 01 March 1991 |
| Docket Number | Civ. No. 90-00828 DAE. |
| Citation | 758 F. Supp. 1357 |
| Parties | Gary and Susan NAKAMOTO, on behalf of themselves and all others similarly situated, Plaintiffs, v. Michael J. HARTLEY; Martin F. Goldman; Martin F. Goldman, a California Professional Corporation; Carl E. Press; Michael J. Roberts; Verner, Liipfert, Bernhard, McPherson & Hand, a District of Columbia Corporation, Defendants. |
| Court | U.S. District Court — District of Hawaii |
COPYRIGHT MATERIAL OMITTED
Elizabeth Joan Cabraser, Richard M. Heimann, William B. Hirsch, Lieff Cabraser & Heimann, San Francisco, Cal., Paul D. Alston, Paul, Johnson, Alston & Hunt, Honolulu, Hawaii, for plaintiffs.
Mark E. Recktenwald, Goodsill Anderson Quinn & Stifel, Honolulu, Hawaii, for Michael J. Roberts, Verner, Liipfert, Bernhard, McPherson & Hand.
Michael J. Hartley, George W. Ashford, Jr. and James Moore, Ashford & Nakamura, Honolulu, Hawaii, for Martin F. Goldman and Martin F. Goldman, a Cal. Professional Corp.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS AND GRANTING DEFENDANT GOLDMAN'S MOTION FOR CONTINUANCE
The motion to dismiss of defendants Michael J. Roberts ("Roberts") and Verner, Liipfert, Bernhard, McPherson & Hand ("VLBMH"), and the motion to continue trial of defendants Martin F. Goldman, the individual, and Martin F. Goldman, a Professional Corporation (collectively "Goldman"), came on for hearing before this court on February 25, 1991. William B. Hirsch, Esq. and Louise K.Y. Ing, Esq. appeared for plaintiffs Gary and Susan Nakamoto ("the Nakamotos" or "plaintiffs"); Mark E. Recktenwald, Esq. and Martin Anderson, Esq. appeared on behalf of defendants Roberts and VLBMH; and James R. Moore, Esq. appeared for defendant Goldman.1 Defendants Carl E. Press ("Press") and Michael J. Hartley ("Hartley"), who is pro se, did not appear. Robert F. Miller, Esq. appeared on behalf of Wyman W.C. Lai, Air Hawaii's bankruptcy trustee and the plaintiff in Lai v. Anthony, Civ. No. 88-00565 (D.Haw.), which has been consolidated with this case. See Order Granting Plaintiffs' Joint Motion For Consolidation Of Actions, filed by Senior Judge Martin Pence on February 19, 1991.
The court having reviewed the motions and the memoranda filed in support thereof and in opposition thereto, having heard oral argument of counsel, and being fully advised as to the premises herein, GRANTS IN PART and DENIES IN PART the motion to dismiss and GRANTS the motion to continue trial.
This securities fraud case arises out of the sale of airline ticket coupon books by the now defunct Air Hawaii. Each coupon book contained four (4) round-trip tickets for travel between Hawaii and either San Francisco or Los Angeles, as well as twenty (20) freely transferable one-way tickets. On November 19, 1985, the Nakamotos purchased one of these coupon books for $1,400.00.
Defendants Hartley, Press, and Goldman organized and operated Air Hawaii through Airwest International, Inc., a Nevada corporation wholly owned by N & C, Inc., a Hawaii corporation. Air Hawaii began flying on November 22, 1985 and remained in business for less than three months, ceasing to fly on February 19, 1986 when its two planes were repossessed. After a brief attempt to secure financing through the sale of additional coupon books, Air Hawaii filed for bankruptcy on March 14, 1986.
Air Hawaii's bankruptcy trustee filed a complaint on March 14, 1986 against the same defendants involved in the instant suit. See Lai v. Anthony, Civ. No. 88-00032 (D.Haw.). In addition to the claims he brought on behalf of Air Hawaii, the debtor corporation, the trustee appeared to assert claims on behalf of coupon book purchasers. The defendants moved to dismiss the coupon book claims on the ground that the trustee lacked standing to represent the purchasers' interests, and Senior Judge Martin Pence granted that motion on July 19, 1989. See Order Denying in Part and Granting in Part Roberts' and VLBMH's Motion to Dismiss at 12. As noted above, the trustee's action has been consolidated with the Nakamotos' suit.2
Defendant Roberts is an attorney with the Washington, D.C. firm of VLBMH. He represented Air Hawaii in its efforts to obtain necessary licenses from the Department of Transportation ("DOT") and a special exemption that allowed Air Hawaii to sell the coupon books before commencing flight operations.3 Defendants Hartley, Press, and Goldman were stockholders and directors of N & C, Inc., Air Hawaii's parent corporation, during the time that the events giving rise to this suit transpired. Plaintiffs allege that Hartley, Press, and Goldman financed, operated, and controlled Air Hawaii through their positions with N & C, Inc.
The Nakamotos filed their class action complaint on November 21, 1990. They allege that Air Hawaii failed because it was undercapitalized, maintaining that Hartley, Press, and Goldman intended to cover the airline's start-up and operations costs with the coupon book proceeds, thereby risking coupon book purchasers' money rather than their own. They also say defendants misrepresented to potential coupon book purchasers the extent of Air Hawaii's capitalization and the fact that Air Hawaii had no connection to the bankrupt Hawaii Express or its principals, Hartley and Press. See footnote 3 supra. The Nakamotos purport to represent a class of several thousand plaintiffs who purchased coupon books between October 1, 1985 and February 19, 1986.4
The Nakamotos assert seven claims for relief.5 They plead causes of action under: (1) the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961, et seq. ("RICO"); (2) the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) ("SEA"); (3) the Hawaii Uniform Securities Act, H.R.S. §§ 485-20 and 485-25; (4) the Hawaii antitrust statute, H.R.S. § 480-2; (5) the Hawaii common law of fraud; (6) the Hawaii common law of negligent misrepresentation;6 and (7) the Hawaii civil RICO statute, H.R.S. §§ 842-1, et seq.
Roberts and VLBMH argue that plaintiffs' first (federal RICO), second (SEA), third (Hawaii Securities Act), fifth (Hawaii antitrust statute), and eighth (Hawaii RICO) claims for relief are barred by the applicable statutes of limitation. They move to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiffs counter that the various limitations periods were tolled by either (1) the defendants' fraudulent concealment of plaintiffs' cause of action or (2) the filing of Lai v. Anthony against these same defendants by the Air Hawaii bankruptcy trustee.
Roberts and VLBMH move to dismiss plaintiffs' sixth claim for relief (fraud) for failure to plead with the particularity that Federal Rule of Civil Procedure 9(b) requires. Roberts and VLBMH do not address plaintiffs' seventh claim for relief (negligent misrepresentation) because they are specifically exempted from liability on that claim. See footnote 6, supra. Defendants Hartley and Goldman have joined in the motion to dismiss filed by Roberts and VLBMH. However, they have not filed supporting legal memoranda or offered any additional argument to support dismissal of the complaint as against them specifically. Defendant Press did not file a joinder.
Also before the court is defendant Goldman's motion for a six-month continuance of the trial currently set to begin April 2, 1991. Goldman notes that substantial discovery remains to be conducted in the Nakamoto case, and he points out that the hearing on plaintiffs' motion for class certification is currently set for just one week before trial. Plaintiffs have agreed to a four-month continuance.
Defendants have moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. In ruling on the motion, the court accepts the complaint's allegations as true and construes those allegations in the light most favorable to plaintiffs. Baker v. McNeil Island Corrections Ctr., 859 F.2d 124, 127 (9th Cir.1988). Where a party bases its motion to dismiss on the running of the applicable statutes of limitation, this court may grant the motion only if the assertions in the complaint will not permit plaintiffs to prove that the statute was tolled. Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir.1980).
A four-year statute of limitation governs civil federal RICO actions. Agency Holding Corp. v. Malley-Duff & Assocs., 483 U.S. 143, 107 S.Ct. 2759, 2767, 97 L.Ed.2d 121 (1987). The limitations period begins to run when the plaintiff knows or should know of the injury that forms the basis for the action. Stitt v. Williams, 919 F.2d 516, 525 (9th Cir.1990).
Plaintiffs appear to concede that the four-year limitations period began to run no later than March 14, 1986, when Air Hawaii filed for bankruptcy protection. See Complaint at 42, ¶ 103. By then, plaintiffs clearly had notice that the airline had been capitalized inadequately from the start. Plaintiffs filed their complaint on November 21, 1990, more than four years and eight months after the limitations period began to run. Thus, plaintiffs' federal RICO claim is time-barred unless otherwise tolled.
Plaintiffs contend the four-year limitations period was tolled during the sixteen months between March 14, 1988, when the trustee filed his complaint in Lai v. Anthony, and July 19, 1989, when Senior Judge Pence issued his order finding the trustee lacked standing to assert claims on behalf of injured coupon book purchasers like the Nakamotos. Plaintiffs say the trustee's action afforded defendants adequate notice of the coupon book purchasers' claims, despite the fact that the court ultimately found the trustee lacked standing to assert those claims. Finally, plaintiffs argue that because they reasonably believed ...
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