U.S. Pacific Builders v. Mitsui Trust & Banking
| Decision Date | 06 April 1999 |
| Docket Number | Civil No. 95-00766 ACK. |
| Citation | 57 F.Supp.2d 1018 |
| Parties | U.S. PACIFIC BUILDERS, INC., et al., Plaintiffs, v. MITSUI TRUST & BANKING CO., et al., Defendants. |
| Court | U.S. District Court — District of Hawaii |
James H. Lawhn, Oliver Lau Lawhn & Ogawa, Honolulu, HI, for U.S. Pacific Builders, Inc.
Wallace B. Adams, Law Offices of Wallace B. Adams, Santa Rosa, CA, for Insurance Company of North America.
Richard B. Miller, Mark J. Bennett, McCorriston Miho Miller & Mukai, Louise K.Y. Ing, Alston Hunt Floyd & Ing, Honolulu, HI, John C. Griffith, Jr., The Mitsui Trust & Banking Co., Ltd., American Counsel, Tokyo, Japan, for Mitsui Trust & Banking Co., Ltd.
Ronald J. Verga, Edmunds Maki Verga & Thorn, Honolulu, HI, for Aloha Tower Associates.
Steven K. Hisaka, Hisaka Stonme Goto Yoshida Cosgrove & Ching, Honolulu, HI, for Charles Izzo D'Agostino Izzo Quirk, Thomas Quirk.
Arthur H. Kuwahara, Lee Kim Wong Yee & Lau, Honolulu, HI, for Aotani & Associates, Inc.
John S. Edmunds, Ronald J. Verga, Edmunds Maki Verga & Thorn, Honolulu, HI, for Aloha Tower Associates Piers 7, 8 and 9, Limited Partnership.
ORDER: (1) GRANTING IN PART AND DENYING IN PART MITSUI TRUST'S MOTION FOR A DETERMINATION THAT MITSUI TRUST IS NOT REQUIRED TO ARBITRATE AND CANNOT BE BOUND BY ANY AWARD RESULTING FROM ARBITRATION BETWEEN UNITED STATES PACIFIC BUILDERS AND ALOHA TOWER ASSOCIATES PIERS 7, 8, AND 9 LIMITED PARTNERSHIP; (2) DENYING UNITED STATES PACIFIC BUILDERS' COUNTER MOTION FOR PARTIAL SUMMARY JUDGMENT AND TO COMPEL ARBITRATION; (3) GRANTING IN PART AND DENYING IN PART INSURANCE COMPANY OF NORTH AMERICA'S MOTION THAT MITSUI TRUST IS BOUND BY ANY AWARD RESULTING FROM ANY ARBITRATION BETWEEN U.S. PACIFIC BUILDERS, INC. AND ALOHA TOWER ASSOCIATES PIERS 7, 8, AND 9 LIMITED PARTNERSHIP; AND (4) ADOPTING IN PART MAGISTRATE'S FINDINGS AND RECOMMENDATION
In this proceeding, United States Pacific Builders ("USPB") and Insurance Company of North America, Inc. ("INA") seek to hold Mitsui Trust ("Mitsui") liable under a letter agreement (the "Set-Aside Letter") for all amounts due and owing to USPB under a contract (the "Construction Contract") with Aloha Tower Associates Piers 7, 8, and 9 Limited Partnership ("ATA") to construct the Aloha Tower Marketplace. In their First Amended Complaint filed April 7, 1997, USPB and INA allege that Mitsui Trust is obligated to pay USPB the amounts determined to be due to USPB in an arbitration (the "Arbitration") between USPB, INA and ATA. The Arbitration has two phases ("Phase One" and "Phase Two"). Phase One resulted in a settlement on most issues and Phase Two was scheduled to begin in November, 1998. ATA is currently defunct and bankrupt. USPB and INA seek to require Mitsui to participate in Phase Two of the Arbitration, to bind Mitsui to the result of Phase Two if Mitsui is not required to arbitrate, and to bind Mitsui to Phase One of the Arbitration.
This case involves the development and construction of the Aloha Tower Marketplace (the "Project") located in Honolulu, Hawaii. On September 29, 1993, ATA, which owned the leasehold interest in the Marketplace, entered into a contract ("the Construction Contract") with USPB for construction of the Marketplace.
The Construction Contract contains an arbitration clause ("the Arbitration Clause") which provides that disputes arising from the Construction Contract or a breach of the Construction Contract shall be subject to arbitration. Specifically, the Construction Contract states that:
All claims, disputes and other matters in question between the Contractor and the Owner arising out of, or relating to, the Contract Documents or the breach thereof, ... shall be decided by arbitration ....
Article 4.5.1 of the Construction Contract between ATA and USPB dated September 29, 1993.
The Construction Contract also contains a provision which indicates in unambiguous language that it does not create a contractual relationship between anyone except ATA and USPB. Provision 1.1.2 of the Contract states, in relevant part:
The Contract Documents shall not be construed to create a contractual relationship of any kind (1) between the Architect and Contractor, (2) between the Owner and a Subcontractor or Sub-subcontractor, or (3) between any persons or entities other than the Owner and Contractor.
Provision 1.1.2 of Construction Contract between ATA and USPB dated September 29, 1993.
In connection with the Construction Contract, several other agreements were negotiated. These included: (1) a loan agreement entered into between Mitsui and ATA ("Loan Agreement"); (2) an assignment of the Construction Contract from ATA to Mitsui ("the Assignment") and an accompanying revocable license from Mitsui to ATA ("License") which permitted ATA to deal with USPB under the Construction Contract; (3) the Set-Aside Letter drafted by Mitsui; and (4) a Performance Bond and a Labor and Material Bond executed by INA. The Court will explore each of these agreements separately.
On September 29, 1993, Mitsui and ATA entered into a Loan Agreement in which Mitsui agreed to provide financing for the Aloha Tower Marketplace. The Loan Agreement included several key provisions. First, the Loan Agreement required that ATA execute a promissory note payable to Mitsui in the principal amount of the commitment. Second, the Loan Agreement required that ATA give Mitsui an assignment of the Construction Contract, an assignment of the Architect's Contract, and several other collateral assignments. In return, Mitsui would give ATA a revocable license to design and complete all aspects of the project. Third, the Loan Agreement provided that Mitsui would issue to the General Contractor a Set-Aside Letter, specifying the terms of the Loan Agreement and promising payment for outlays on behalf of the Project.
As required by the Loan Agreement, ATA executed an Assignment of the Construction Contract in favor of Mitsui on September 29, 1993. This Assignment was executed "as an inducement" for Mitsui's making of a $60,000,000 loan in favor of ATA to finance the costs in connection with the construction of Aloha Tower. See Mitsui's Mem. in Opp. to USPB's Mot. for Partial Summ. J. at Exh. 2.
USPB explicitly consented to the Assignment in a writing made part of the Assignment of Construction Contract ("the Contractor's Consent"). See USPB's Mem. in Supp. of Mot. for Partial Summ. J. at Exh. C, page 4. This consent provided that in the event ATA were in default under the Construction Contract, Mitsui could request performance of the Contract by USPB and reimburse USPB for its work in accordance with the Contract. Stated differently, this consent would allow Mitsui to "step into ATA's shoes" and complete the Project if it so chose.
The Assignment of the Construction Contract contains the following significant terms:
The Assignor, as an inducement for the Lender's making a $60,000,000.00 loan (the "Loan") in favor of the Assignor, to finance the costs in connection with the construction of the Aloha Tower festival marketplace located in Honolulu, Hawaii (the "Project"), hereby assigns to the Lender all of the right, title and interest of the Assignor in, to and under that certain Contract dated September 29, 1993, between Assignor, as the "Owner," and U.S. Pacific Builders, Inc., as the Contractor, relating to the construction of the Project (the "Contract").
* * * * * *
So long as there shall exist no Event of Default, the Assignor shall have a revocable license to deal with the Contractor as the Owner under the Contract and to enforce the covenants thereof. That revocable license shall be revoked automatically (without written notice) upon the occurrence of an Event of default.
AND, in consideration of the premises, the Assignor covenants that:
(1) If an Event of Default occurs, the Lender may, at its option, take all such actions and do all such things with respect to the Contract as could the Assignor, in the same manner and to the same extent that the Assignor, as Owner under the Contract, might reasonably so act. In furtherance thereof and not by way of limitation, the Lender is and shall be empowered to exercise all the rights and privileges of the Owner thereunder and to demand and sue for performance of the Contract.
(2) Nothing herein contained shall be construed to bind the Lender to the performance of any of the terms and provisions contained in the Contract, or otherwise to impose any obligation on the Lender until such time as the Lender shall have (a) acquired possession and ownership of the Assignor's interest in the land on which the Project is located, in foreclosure proceedings or by assignment of lease in lieu of foreclosure, and (b) expressly assumed in writing the obligations of the Owner under the Contract.
Id. at page 1-2 (emphasis added).
As these terms indicate, the Assignment of the Construction Contract was intended as security for the $60,000,000 loan Mitsui was simultaneously making to ATA for construction of the Project. If ATA defaulted on the loan, two events would occur. First, ATA would lose its License and thus lose its right to deal with USPB as the Owner under the Contract and enforce the Contract's covenants. Second, in the event of default, Mitsui could, at its option, acquire the rights and obligations of ATA's Contract with USPB by expressly assuming the Contract in writing. Thus, the Assignment and License were created to provide Mitsui with a security interest which would protect it if ATA defaulted on the loan.
Based on the record, it appears that Mitsui did not attempt to "stand in the shoes" of ATA under this Assignment, nor did Mitsui expressly assume the obligations of the Construction Contract in writing.
On October 4, 1993, Mitsui, ATA, and USPB executed a...
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