Partners v. Maui Gas Ventures LLC
| Decision Date | 09 March 2018 |
| Docket Number | CIV. NO. 16-00611 DKW-KJM |
| Parties | DAIRY ROAD PARTNERS and GLENN NAKAMURA, Plaintiffs, v. MAUI GAS VENTURES LLC and PAUL CHENG, Defendants. |
| Court | U.S. District Court — District of Hawaii |
Dairy Road and Nakamura initiated this action on November 16, 2016. See Compl., Dkt. No. 1. On July 20, 2017, they filed what they termed a "Refiled" First Amended Complaint ("Second Amended Complaint" or "SAC"; Dkt. No. 40). Through the SAC, Plaintiffs seek monetary damages and equitable relief arising out of an alleged, fraudulently procured loan agreement with Maui Gas and Cheng.
For the reasons set forth below, the Court GRANTS Defendants' Motion to Dismiss the SAC. MTD, Dkt. No. 41. Count I of the SAC is hereby DISMISSED WITHOUT PREJUDICE while all other counts are DISMISSED WITH PREJUDICE.
On or about December 9, 2009, American Savings Bank, F.S.B. ("ASB") extended a $1,384,213 commercial loan to Dairy Road ("ASB Loan") that was guaranteed by Nakamura, Dairy Roads' General Partner. SAC ¶ 8, Dkt. No. 40. The ASB Loan granted ASB a lien and security interest in the property located at 380 Dairy Road, Kahului, Maui, Hawaii, Tax Map Key (2) 3-8-65-27 ("Subject Property").1 SAC ¶¶ 4, 8, Dkt. No. 40.
On March 3, 2013, after Dairy Road fell behind on its mortgage payments under the ASB Loan, ASB filed for foreclosure in the Second Circuit Court of the State of Hawaii, Civil No. 13-1-0283(3) ("Foreclosure Action"). SAC ¶ 12, Dkt. No. 40. Dairy Road also filed for Chapter 11 bankruptcy around that time. SAC ¶ 13 ().
While the Foreclosure Action was pending, Cheng—a "self-proclaimed investor from Texas" (Mem. in Opp'n at 2, Dkt. No. 45) who is the "principal and controlling person" of Maui Gas (SAC ¶ 7, Dkt. No. 40)—allegedly approached Nakamura for advice regarding his "interest in investing in commercial propertiesin Hawaii." SAC ¶ 11, Dkt. No. 40. Apparently, the two became friends, Nakamura "acquaint[ed] Cheng with the Subject Property," and based on Cheng's "promises that Cheng and [Maui Gas] could financially assist" Plaintiffs with their defaulted ASB Loan, Cheng, Nakamura and ASB began to negotiate a deal. SAC ¶¶ 11, Dkt. No. 40.2
Cheng represented to Nakamura and others "that Cheng was going to buy the ASB Loan on [Plaintiffs'] behalf to help [Dairy Road] gain some time to refinance or sell" (SAC ¶ 16) and to stop the Foreclosure Action (SAC ¶ 14). As discussed further below, in consideration for what Plaintiffs characterize as Cheng's offer to give Plaintiffs a chance to repay the note within a certain period of time, Cheng sought guaranteed rent proceeds from the various leases of the Subject Property, together with remediation of identified contamination on the property by Plaintiffs. Towards these ends, on September 9, 2014, Cheng emailed Nakamura's son, Garth:
Let's work on Dairy Road. Get me bank contact. Get me ESA report on contamination. I will just cold call the bank and say I want to buy the note.
SAC, Ex. 7.3 at 33, Dkt. No. 40-10. On September 17, 2014, Chuck Choi, Dairy Road's attorney, provided a copy of the complaint in the Foreclosure Action to Cheng. SAC, Ex. 7.3 at 36, Dkt. No. 40-10. Choi also asked Cheng to send a written proposal directly to ASB's attorney, Wayne Mau, and suggested specific language for him to do so:
I understand that [ASB] has a foreclosure case pending against Dairy Road Partners in Maui Circuit Court. However, I also understand that Dairy Road Partners' underground storage tanks have discharge issues that could cost Dairy Road or any other potentially responsible party significant sums to remediate. Nevertheless, I am willing to purchase the bank's Note, Mortgage and related loan documents for $400,000, which is approximately 30% of the outstanding principal balance due on the loan. If an agreement is reached and documented, I could close the transaction within a week or two.
On September 20, 2014, Cheng emailed a $300,000 purchase price proposal to ASB, with a copy to Choi. SAC ¶¶ 14-15, Dkt. No. 40; SAC, Ex. 7.4 at 5-8, Dkt. No 40-11). When no response from the bank was immediately received, Choi contacted ASB's attorney on September 26, 2014 and was told "that the bank wanted to review its environmental consultant's written report, which is expected next week[,]" before responding. See SAC, Ex. 7.1 at 5, Dkt. No. 40-8. By October 6, 2014, the negotiations were in the same posture, with ASB stillconsidering the environmental reports on the Subject Property3 before "putting together a formal written response to Mr. Cheng." SAC, Ex. 7.1 at 11, Dkt. No. 40-8.
A week later, ASB submitted a counter-offer (see SAC, Ex. 7.1 at 22, Dkt. No. 40-8 ()), and on October 15, 2014, Cheng contacted Choi asking for "an exact list of collateral securing the Dairy Road Note to ASB," and for various related financial statements and "underlying ground leases" (SAC, Ex. 7.1 at 21, Dkt. No. 40-8). At the same time, Choi made his own request, asking ASB for "a copy of Mr. Nakamura's report so that he can consider the bank's counter offer." SAC, Ex. 7.1 at 22, Dkt. No. 40-8.4
On October 15, 2014, Cheng emailed Choi a second time. Cheng reminded Choi that "health dept sign off" on remediation of the property was necessary "before I close" (SAC, Ex. 7.1 at 23, Dkt. No. 40-8) and that "I will insist on a lockbox control receipts account structure so I make sure I get monthly [rent] payments" (SAC, Ex. 7.4 at 12, Dkt. No. 40-11). Cheng followed up with Garth Nakamura the next day to find out "what is the best [Plaintiffs] are able to pay onthe deal so [Cheng] can get back to ASB." SAC, Ex. 7.4 at 13, Dkt. No. 40-11. Cheng's message included the following deal summary:
SAC, Ex. 7.4 at 13, Dkt. No. 40-11. Although the SAC contains no evidence of a specific response from Plaintiffs, Garth Nakamura subsequently began communicating with a Department of Health official regarding an underground storage tank precision test. See, e.g., SAC, Ex. 7.4 at 23-24; Dkt. No. 40-11.
On October 29, 2014, Cheng successfully purchased the ASB Loan, announcing to Plaintiffs that, "ASB accepted my offer—$400k," and "We areON." SAC, Ex. 7.4 at 15, Dkt. No. 40-11.5 Cheng offered Choi a few additional details:
Upon concluding negotiations with ASB over the loan purchase, Cheng turned to negotiating a loan modification with Dairy Road. As part of that process, he introduced Choi to both Alice Wong, his partner in Texas, and AnthonyBarbieri, his attorney. SAC, Ex. 7.1 at 31, Dkt. No. 40-8; see also SAC ¶ 32, Dkt. No. 40 (referring to Wong as Cheng's Texas "accountant"); SAC, Ex. 7.4 at 25, Dkt. No. 40-11. Cheng requested "a bunch of documents from [Plaintiffs] at their earliest convenience," to be forwarded to Barbieri and Wong, who would "be calling Choi to go over all the facts and . . . structures" (SAC, Ex. 7.1 at 31, Dkt. No. 40-8), including:
(SAC, Ex. 7.4 at 25, Dkt. No. 40-11). On November 10, 2014, Cheng followed up with Garth Nakamura, indicating that the following items were still outstanding:
SAC, Ex. 7.1 at 57, Dkt. No. 40-8. On November 17, 2014, Wong requested five additional documents from Garth Nakamura, including: "Rent roll," "All tenant leases and amendments," "Security deposit schedule," "Current insurance policies," and "Mortgage Tax payment status, if applicable." SAC, Ex. 7.1 at 61, Dkt. No. 40-8.
On November 18, 2014, Cheng wrote an email to Garth Nakamura entitled, "Proposal to Glenn Nakamura—Dairy Road Ventures Maui Gas Station":
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