DAVID ALAN EZRA, District Judge.
On August 2, 2010, the Court heard Plaintiff's Motion for Summary Judgment, or in the Alternative, for Order Striking Defense and Defendant's Motion to Dismiss. Douglas J. Sameshima, Esq., appeared at the hearing on behalf of Plaintiff; Defendant Michael Folkes appeared pro se. After reviewing the motion and the supporting and opposing memoranda, the Court
The facts of this case have already been detailed in a prior order by this Court (Doc. # 12) and are summarized below only as is relevant to the instant motion.
This matter involves a loan made by Agnes Tahilan ("Tahilan"), now deceased, to Defendant Michael Folkes ("Folkes") in May 2006. The loan was made so that Folkes might purchase Friendly Care Home Health Services, Inc. ("Friendly Care").
The events leading up to the loan are generally undisputed. Folkes and Tahilan
Folkes, with his wife, became owner of Friendly Care in 2006 and that same year, Folkes became President of Friendly Care. (Doc. # 5, Ex. 1 ¶¶ 2-3.) This was made possible in part due to Tahilan's funding, which she wired to Folkes' bank account in California. (Id. ¶ 7.)
Although it is undisputed that Tahilan made the loan to Folkes, the parties dispute the nature of that loan. Since Tahilan's death, the majority of the loan principal has not been paid, and the parties dispute whether Tahilan and Folkes entered into an oral agreement that upon Tahilan's death the loan would be forgiven. (Doc. # 5 at 4; Doc. # 8 at 8-9.)
On December 2, 2008, the Estate of Agnes Tahilan ("Plaintiff") filed suit in the State of Hawai'i Circuit Court of the Second Circuit against Folkes, Friendly Care, and unnamed individuals, corporations, partnerships, and governmental units. (Doc. # 1, Ex. A.) The action was removed to this Court on September 11, 2009. (Doc. # 1.)
On September 16, 2009, Friendly Care filed a motion to dismiss based on lack of personal jurisdiction, or in the alternative, improper venue. (Doc. # 5.) On November 2, 2010, the Court granted Friendly Care's Motion. (Doc. # 12.) Accordingly, Plaintiff's claims against Friendly Care were dismissed without prejudice, and Friendly Care is no longer a defendant from this action. (Id.)
In the Complaint, Plaintiff asserts eight causes of action. Counts I, II, and VI are contract claims brought against Folkes for borrowing money and not paying back the principal or interest. Count III requests that Folkes hold any remaining funds in a constructive trust. Counts IV and V are negligent and fraudulent misrepresentation claims against Folkes. Count VIII is a claim against Folkes for allegedly using Friendly Care as an alter ego. Count VII is a conspiracy to commit fraud claim against Folkes for allegedly conspiring to take monies obtained from Tahilan.
On May 12, 2010, Plaintiff filed a Motion for Summary Judgment, or in the Alternative, for Order Striking Defense. ("MSJ," Doc. # 29-3.) On June 23, 2010, Folkes filed an Opposition to Plaintiff's Motion. ("Opp'n to MSJ," Doc. # 39.) On the same day, Folkes filed a Motion to Dismiss, or in
Federal Rule of Civil Procedure ("Rule") 56 requires summary judgment to be granted when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c): see also Porter v. Cal. Dep't of Corr., 419 F.3d 885, 891 (9th Cir.2005); Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000). A main purpose of summary judgment is to dispose of factually unsupported claims and defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
Summary judgment must be granted against a party that fails to demonstrate facts to establish what will be an essential element at trial. See id. at 323, 106 S.Ct. 2548. The burden initially falls upon the moving party to identify for the court those "portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact." T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987) (citing Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548).
Once the moving party has carried its burden under Rule 56, the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial" and may not rely on the mere allegations in the pleadings. Porter, 419 F.3d at 891 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). If the nonmoving party produces direct evidence of a material fact, the court may not assess the credibility of this evidence nor weigh against it any conflicting evidence presented by the moving party. The nonmoving party's evidence must be taken as true. T.W. Electrical Service, Inc. v. Pacific Electrical Contractors Ass'n, 809 F.2d 626, 632 (9th Cir.1987) (internal citations omitted).
However, the nonmoving party may not rely on the mere allegations in the pleadings in order to preclude summary judgment. Instead, the nonmoving party must set forth, by affidavit or as otherwise provided in Rule 56, specific facts showing that there is a genuine issue for trial. Id. at 630 (citation omitted) (emphasis added). The opponent "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). If the factual context makes the non-moving party's claim or defense implausible, the party must come forward with more persuasive evidence than would otherwise be necessary to show that there is a genuine issue of trial. Id. at 587, 106 S.Ct. 1348.
Pursuant to Rule 12(b)(6), a motion to dismiss will be granted where the plaintiff fails to state a claim upon which relief can be granted. Review is limited to the contents of the complaint. See Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir.1994). A complaint may be dismissed as a matter of law for one of two reasons: "(1) lack of a cognizable legal theory, or (2) insufficient facts under a cognizable legal claim." Robertson v. Dean Witter Reynolds. Inc., 749 F.2d 530, 534 (9th Cir.1984) (citation omitted). Allegations of fact in the complaint must be taken as true and construed in the light most favorable to the plaintiff. See Livid Holdings Ltd. v.
A complaint need not include detailed facts to survive a Rule 12(b)(6) motion to dismiss. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In providing grounds for relief, however, a plaintiff must do more than recite the formulaic elements of a cause of action. See id. at 556-57, 127 S.Ct. 1955; see also McGlinchy v. Shell Chem. Co., 845 F.2d 802, 810 (9th Cir.1988) ("[C]onclusory allegations without more are insufficient to defeat a motion to dismiss for failure to state a claim.") (citation omitted). "The tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions," and courts "are not bound to accept as true a legal conclusion couched as a factual allegation." Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal quotations and citations omitted). Thus, "bare assertions amounting to nothing more than a formulaic recitation of the elements" of a claim "are not entitled to an assumption of truth." Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir.2009) ("the non-conclusory `factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.") (internal quotations and citations omitted).
A court looks at whether the facts in the complaint sufficiently state a "plausible" ground for relief. See Twombly, 550 U.S. at 570, 127 S.Ct. 1955. A plaintiff must include enough facts to raise a reasonable expectation that discovery will reveal evidence and may not just provide a speculation of a right to relief. Id. at 586, 127 S.Ct. 1955. When a complaint fails to adequately state a claim, such deficiency should be "exposed at the point of minimum expenditure of time and money by the parties and the court." Id. at 558, 127 S.Ct. 1955 (citation omitted). If a court dismisses the complaint or portions thereof, it must consider whether to grant leave to amend. Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.2000) (leave to amend should be granted "if it appears at all possible that the plaintiff can correct the defect") (internal quotations and citations omitted).
Plaintiff and Defendant's motions are inextricably intertwined, and therefore, the Court will discuss both motions together below. State law governs the resolution of substantive issues in this diversity action. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Snead v. Metro. Prop. & Cas. Ins. Co., 237 F.3d 1080, 1090 (9th Cir.2001).
In its Motion for Summary Judgment, Plaintiff moves the Court to order summary judgment in its favor as to the monies allegedly owed to Plaintiff by Folkes, or, in the alternative, find that Folkes may not assert that he is excused from repayment of the monies alleged to be owing due to the death of Tahilan. (MSJ.) Plaintiff's entire Motion is based on its argument that, allegedly, Folkes' only defense to his obligation to pay back the loan from Tahilan is that Tahilan made him an oral promise that the loan would be forgiven after her death, that this oral promise is governed by Hawai'i Revised Statute ("HRS") § 656-1, the Hawai'i Statute of Frauds (the "Statute"), and that the Statute operates to bar Folkes' defense. (MSJ at 10-11.) Plaintiff does not move as to any specific count and appears to use the entirety of its memorandum in support to argue its alternative Motion.
In his Motion to Dismiss, Folkes similarly argues that pursuant to the Statute, the case against him should be dismissed. (See Mot. at 1-2). In support, Folkes states that a loan of $200,000 was made by
In order for an oral contract to be enforceable, there must be an offer, an acceptance, and consideration. Douglass v. Pflueger Hawaii, Inc., 110 Haw. 520, 135 P.3d 129 (Haw.2006). Consideration is an essential element of, and is necessary to the enforceability or validity of, a contract. Id.; Restatement (Second) Contracts § 71. It is well settled that "[a] contract need not be in writing unless a statute requires it. Conversely, an oral or parol contract is unenforceable where a statute requires it to be in writing." Credit Associates of Maui, Ltd. v. Carlbom, 98 Haw. 462, 50 P.3d 431, 436 (Haw.2002) (citing) 17A Am. Jur.2d Contracts § 181, at 193 (1991) (footnote omitted).
The Court first notes that the Statute of Frauds is an affirmative defense, which must be particularly plead. Fed. R. Civ, P. 8(c) ("In responding to a pleading, a party must affirmatively state any avoidance or affirmative defense, including: ... statute of frauds [.]"). Although Plaintiff claims that Defendant failed to so plead (Opp'n to Mot at 4), Defendant asserts the Statute in his answer to Plaintiff's Complaint. (See Doc. # 8 ¶ 60.)
The Hawai'i Statute of Frauds sets forth the circumstances under which a contract is required to be in writing.
HRS § 656-1. "The Hawai'i Statute of Frauds `is substantially the same as the original English Statute of Frauds [,]' which `was enacted almost 300 years ago to prevent "many fraudulent practices, which are commonly endeavored to be upheld by perjury and subornation of perjury".'" Credit Associates of Maui, Ltd., 50 P.3d at 436 (quoting McIntosh v. Murphy, 52 Haw. 29, 469 P.2d 177, 179 (1970)). In order for the Statute to apply, the promise, contract, or agreement must be within one of the enumerated categories.
Defendant argues HRS § 656-1(5) applies to the instant case. (Opp'n at 1.) Defendant appears to argue that the loan was within the Statute, but argues that the loan was only oral in nature. In support of the existence of an oral contract, Defendant asserts:
(Opp'n at 2.)
Defendant, proceeding pro se, is apparently confused regarding application of the Statute. Here, the fact that the loan was never in writing and the alleged promise to forgive the loan was likewise not in writing, does not automatically place either alleged obligation, whether a promise, gift or contract, within the Statute.
According to Folkes, Tahilan agreed to loan Folkes $200,000 to allow Folkes to complete the purchase of Friendly Care. (MSJ, Declaration of Michael Lee Folkes "Folkes Decl.," Ex. 1 ¶ 6.) Folkes accepted the offer and agreed to pay Tahilan back after he received the proceeds from a Small Business Administration ("SBA") loan. (Id.) Tahilan then borrowed the funds for the loan through a home equity line of credit in the amount of $250,000, used some of the money to consolidate her credit card debt, and loaned Folkes $219,560.64. (Id. ¶ 7.) Allegedly, Folkes informed Tahilan that he only needed $200,000, but Tahilan insisted he take the entire amount. (Id.) Tahilan wired the money to Folkes on or about May 15, 2006. (Id.)
Thereafter, Folkes received the proceeds of the SBA loan but allegedly realized that he needed additional capital to meet Friendly Care's operating expenses. (Id. ¶ 8.) Tahilan allegedly orally agreed with Folkes that Friendly Care could continue
In June of 2006, Friendly Care allegedly made a principal payment on the loan in the sum of $19,560.64. (Id.) Tahilan never acknowledged receipt of the funds. (Id.) Later, at some unknown date, Tahilan allegedly informed Folkes that she did not care about repayment of the borrowed funds and that "upon her demise, whenever that may occur, Friendly Care was to cease making interest payments and the loan was to be forgiven." (Id. ¶ 12.) Tahilan died at the age of 54. (MSJ, Ex. 2 ¶ 12.) Tahilan allegedly had a heart valve problem and, according to Folkes, "was not in the best of health." (Folkes Decl. ¶ 12.)
Plaintiff asserts that contrary to Folkes' contention that Tahilan made the promise before her death, that Tahilan was in fact worried about her financial condition when she died. (MSJ at 11.) Plaintiff's argument is supported by the Declaration of Imelda Balbores, Decedent Tahilan's sister and her Personal Representative, who states that Decedent was worried about being able to pay her bills and would work one to two jobs in addition to her regular employment in order to earn more money. (MSJ, Ex. 2 ¶¶ 14-15.)
It is well settled that oral contracts invalidated by the HRS § 656-1(5) because they are not to be performed within a year include only those which absolutely cannot be performed within that period. Credit Associates of Maui, Ltd., 50 P.3d at 436. A promise which is not likely to be performed within a year, and which in fact is not performed within a year, is not within the Statute if at the time the contract was made there was a possibility in law and in fact that full performance could be completed before the expiration of a year. See Credit Associates of Maui. Ltd., 50 P.3d at 436 ("The test for determining the applicability of subsection (5) of HRS § 656-1, the counterpart of subdivision 5 of section 4 of the original Statute of Frauds, `is not how long the performance will take, but when will it be complete.'") (quoting J. Calamari & J. Perillo, The Law of Contracts § 19.17, at 743 (4th ed.1998)).
If by its terms, performance is possible within one year, however unlikely or improbable that may be, the agreement or promise is not within this subdivision of the Statute of Frauds. Credit Associates of Maui, Ltd., 50 P.3d at 436 (quotation omitted). It is immaterial whether or not the actual period of performance exceeded one year. (Id.) As the court emphasized, the one year section of the Statute
(Id.) (emphasis added).
Here, the original loan was to be paid off by the loan proceeds from the SBA. Subsequently, the loan was allegedly modified to be paid back to Tahilan "if and when it became comfortable for Friendly Care to repay the principal, it would do so in a time and manner acceptable to Friendly Care [,]" and Friendly Care was to pay Tahilan's interest payments on her
Moreover, part performance on an oral agreement with the acceptance of benefits and reliance on the oral agreement will take the agreement outside the Statute where allowing a promisor to repudiate would constitute injustice upon the promisee. McIntosh v. Murphy, 52 Haw. 29, 469 P.2d 177 (1970); Credit Associates of Maui, Ltd., 50 P.3d 431; Hawaiian Trust Co., Ltd. v. Cowan, 4 Haw.App. 166, 663 P.2d 634 (1983). Here, it is undisputed that Folkes, through Friendly Care, paid interest and part principal on the loan. Plaintiff asserts that to allow Defendant to now negate the agreement would serve as an injustice on the Estate of Tahilan that, in effect, loaned the money to Defendant.
In its Motion for Summary Judgment, Plaintiff argues that although the loan is not invalidated by the Statute, Folkes may not rely on Tahilan's alleged promise to forgive the loan because such a promise is within the Statute and is one for which a writing is required. In support, Plaintiff relies on HRS § 656-1(7). (MSJ at 6.) Plaintiff additionally seems to argue that here, Tahilan's alleged promise to forgive the debt was an "oral contract to make a will" and cites Shannon v. Waterhouse, 58 Haw. 4, 563 P.2d 391 (1977) for the proposition that such a promise is within the Statute. (MSJ at 9.) As Plaintiff concedes, the Statute is primarily used as a defense, not as a means for asserting a cause of action. (MSJ at 10.)
As to HRS § 656-1(7), Defendant argues that: 1) he is not requiring performance of the estate so subdivision 7 is not applicable; 2) a written will is not being contested; and 3) there is no written document that meets the standard of HRS § 656-1(5) and therefore no cause to remove the case from the Statute of Frauds.
The Court finds that contrary to Folkes' assertion that he is not "charging the estate" as stated in subdivision 7, Folkes is requiring performance of Tahilan's Estate by requesting that Tahilan's Estate honor Tahilan's alleged forgiveness of the loan to Folkes "upon her demise." HRS § 656-1(7). Accordingly, subdivision 7 applies to the case at hand because Folkes wishes to enforce an "agreement which by its terms is not to be performed during the lifetime of the promisor." Id.
A contractual agreement, must be supported by consideration. See Stanford Carr Development Corp. v. Unity House, Inc., 111 Haw. 286, 141 P.3d 459, 476 (Haw.2006) (citation omitted). As the Hawai'i Supreme Court has stated: Consideration is defined as a bargained for exchange whereby the promisor receives some benefit or the promisee suffers a detriment. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. The performance may consist of (a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation.
Young v. Allstate Ins. Co., 119 Haw. 403, 198 P.3d 666, 690-91 (Haw.2008) (internal quotations and marks omitted). Here, Tahilan's alleged statement that "upon her demise, whenever that may occur, Friendly Care was to cease making interest payments and the loan was to be forgiven []" was not bargained for because it provided no benefit to Tahilan and did not obligate Folkes to do anything in return. Douglass, 135 P.3d 129, 134 (citing Restatement (Second) Contracts § 71 ("To constitute consideration, a performance or a return promise must be bargained for")).
In contrast, a gift is, or imports, a transfer of property gratuitously, without consideration. Almeida v. Almeida, 4 Haw.App. 513, 669 P.2d 174, 178 (1983) ("A `gift' is generally defined as a voluntary transfer of property by one person to another without any consideration or compensation therefor." (quotation omitted)). To constitute a gift, the essential elements are (1) donative intent, (2) delivery, and (3) acceptance. Id. (citation omitted). Accordingly, a gift is only operative if given in the lifetime of the donor:
AMJUR GIFTS § 6 (citing Shourek v. Stirling, 652 N.E.2d 865 (Ind.Ct.App., 1995) ("A gift inter vivos, as distinguished from a testamentary gift or one made in contemplation of death, is one by which the donee becomes, in the lifetime of the donor, the absolute owner of the thing given."); Howell v. Herald, 197 S.W.3d 505 (Ky.2006), as modified. (Feb. 24, 2006) and as modified on denial of reh'g, (Aug. 24, 2006); Hill v. Baker, 102 A.2d 923 (Del.Super.Ct.1953); Gruen v. Gruen, 68 N.Y.2d 48, 505 N.Y.S.2d 849, 496 N.E.2d 869 (1986)); see also Welton v. Gallagher, 2 Haw.App. 242, 630 P.2d 1077 (1981). Here, Tahilan did not give Folkes a gift inter vivos because Tahilan's death was necessary for forgiveness of the loan to be operative.
A gift may also be given "causa mortis" whereby it is made in expectation of the donor's death.
AMJUR GIFTS § 7 (citing Pelton v. Meeks, 993 F.Supp. 804 (D.Nev.1998) (applying Nevada law); Stang v. McVaney, 44 P.3d 41 (Wyo.2002); Albinger v. Harris, 310 Mont. 27, 48 P.3d 711 (2002); Woo v. Smart, 247 Va. 365, 442 S.E.2d 690 (1994)); Welton, 630 P.2d at 1083 (citation omitted). Here it is not alleged that Tahilan was in contemplation of death or in peril of death at the time she allegedly forgave the loan.
Instead, taking all facts in the light most favorable to Folkes as the non-moving party, Tahilan's loan forgiveness may only be seen as testamentary as it was a gift conditioned on her death. Hawai'i law requires such a gift to be in writing:
Mercer v. Kirkpatrick, 22 Haw. 644 (Haw. Terr.1915); HRS § 560:2-502. HRS § 560:2-502 provides that a will must be
HRS § 560:2-502(a). There is no exception to the writing requirement for testamentary gifts. See HRS § 560:2-502(b). Therefore, the requirement that Tahilan's testamentary gift of loan forgiveness be in writing in order to be operative is required by both HRS § 656-1 and HRS § 560:2-502(b). There are no genuine issue of material fact as to this issue and the Court's determination is based on the facts as presented by Folkes. Accordingly, Tahilan's alleged loan forgiveness is not enforceable by this Court.
Plaintiff argues that absent any other legal excuse from payment, summary judgment should be granted on behalf of Plaintiff. (MSJ at 11.) However, although Plaintiff has successfully defended against Defendant's claim that Tahilan's alleged loan forgiveness is operative under the law, Plaintiff has failed to assert why summary judgment is appropriate as to any of its causes of action.
For the reasons stated above, the Court the Court
IT IS SO ORDERED.
