Goodwind Dev. Corp. v. West Bay Corp.

Opinion

2023 OCT l I PH 3: 0 I CLER,( o;: COURT

8Y:__ . _ ___ _

IN THE SUPERIOR COURT OF GUAM

GOODWIND DEVELOPMENT CIVIL CASE NO. CV0028-23 CORPORATION,

Plaintiff, DECISION AND ORDER GRANTING RULE 12(8)(6) MOTION TO DISMISS vs. COUNTERCLAIMS AND GRANTING RULE 12(F) MOTION TO STRIKE WEST BAY CORPOARTION and 21" CENTURY CORPORATION,

Defendants.

WEST BAY CORPOARTION and 21'1 CENTURY CORPORATION,

Counterclaimants,

vs.

GOODWIND DEVELOPMENT CORPORATION,

Counterclaim Defendants.

INTRODUCTION

This matter came before the Honorable John C. Terlaje on July 171\ 2023, for a Motion

Hearing on Goodwin Development Corporation's ("Counterclaim Defendant's") Motion to

Dismiss. Louie J. Yanza appeared for West Bay Corporation and 21'1 Century Corporation

("Counterclaimants"). Anita P. Arriolla appeared for the Goodwind Development Corporation.

Based on the relevant law and authorities the Court now issues the following decision and order CV0028-23 DECISION AND ORDER DENYING IN PART AND GRANTING IN PART Page 2 RULE 12(B)(6) MOTION TO DISMISS COUNTERCLAIMS

GRANTING Counterclaim Defendant's Motion to Dismiss and GRANTING Counterclaim

Defendant's Motion to Strike.

I. FACTUAL AND PROCEDURAL BACKGROUND

Goodwind Development Corporation ("GDC") initially filed their Verified Complaint on

January, 2023, alleging two separate breaches of two separate promissory notes by West Bay

Corporation ("West Bay") and 21" Century Corporation ("Century") respectively. West Bay and

Century then filed an Answer and Counterclaim to GDC's complaint on March 7th, 2023, alleging

several counterclaims for relief including fraud and misrepresentation. In response, GDC filed a

Motion to Dismiss Counterclaims and an Alternative Motion to Strike on April 17, 2023.

The relevant facts regarding the Motion to Dismiss are as follows:

I. The two promissory notes were prepared and signed "in or around May 2011." Comp!.,

5, 10 (Jan. 19, 2023).

2. "Pursuant to the Parties' agreement, they were to invest in a San Francisco garage

("Garage")." Defs' Ccls., 12-13 (March 6'\ 2023).

3. West Bay, whose sole shareholder is Rowena Tan Chua, was the nominee shareholder on

behalf of GDC. GDC invested $750,000.00 in SF Oakland Bay, LLC ("SFOB"), the owner

of the Garage, so that West Bay owned 75% of the shares in SFOB. The promissory note

was executed by West Bay to reflect that West Bay was majority owner of SFOB for tax

purposes." Id.

4. Century did in fact borrow $120,000.00 and executed its respective promissory note in

favor ofGDC. Id., 17-19. Counterclaim Defendants allege that the note has not been paid

since November 2011. Jd. Nevertheless, Counterclaimants allege that CDG demanded the CV0028-23 DECISION AND ORDER DENYING IN PART AND GRANTING IN PART Page3 RULE 12(B)(6) MOTION TO DISMISS COUNTERCLAIMS

Century note be paid within a year and that "Century paid off the note by November 30,

2011, through some form of payroll deduction of [Joseph Chua, Rowena's husband's]

salary," and that Century is no longer indebted to GDC. Id. ,i 19.

5. The West Bay note has not been paid since executing the promissory note. Defs' Ccls.

(March 6'\ 2023).

6. "After eleven (11) years and eight (8) months, GDC has now filed suit to recover on the

two promissory notes." Id. GDC did not any other demands for repayment of the

promissory notes during the above time period. Id. ,i 19.

II. LAW AND DISCUSSION

"A Rule 12(b)(6) motion tests the sufficiency ofa claim." Navarro v. Block, 250 F.3d 729,

732 (9th Cir. 2001). When reviewing a Rule 12(b)(6) motion, the Court must "construe the

pleading in the light most favorable to the non-moving party, and resolve all doubts in the non-

moving party's favor." First Hawaiian Bank v. Manley, 2007 Guam 2 ,i 9 (citation omitted).

Dismissal is appropriate only when the non-moving party "can prove no set of facts in support of

his claim which would entitle him to relief." Taitano v. Calve Fin. Corp., 2008 Guam 12 ,i 9

(quoting Vasquez v. Los Angeles City., 487 F.3d 1246, 1249 (9th Cir. 2007)). However, "[f]raud

claims are special matters that are subject to a heightened pleading standard." Ukau v. Wang, 2016

Guam 26 ,i 35. Although a plaintiff is not required "to prove a claim of fraud at the pleading stage,"

they must set forth the "claim with sufficient detail to provide notice to defendants as to what

particular fraudulent action is being alleged." Id. ,i 47. On the issue of fraud, there are five

elements: (1) a misrepresentation; (2) knowledge of falsity (or scienter); (3) intent to induce

defraud or induce reliance; (4) justifiable reliance; and (5) resulting damages. Trans Pac. Exp. Co.

v. Oka Towers Corp., 2000 Guam 3 ,i 23. CV0028-23 DECISION AND ORDER DENYING IN PART AND GRANTING IN PART Page4 RULE 12(B)(6) MOTION TO DISMISS COUNTERCLAIMS

A. The Counterclaimants Fail to Properly Plead Their 'Fraud-Related' Claims (Counterclaims 1, 2, 4, and 6)

Counterclaimants plead several claims related to fraud: "Fraud in the Inducement"

(Counterclaim 1), "Intentional Misrepresentation" (Counterclaim 2), "Constructive Fraud"

(Counterclaim 4), and "Rescission Based Upon Fraudulent Inducement" (Counterclaim 6). To

state a cause of action for fraud in the inducement, a plaintiff must allege ( 1) a misrepresentation

or false statement concerning a material fact, (2) knowledge by the person making the statement

that the representation is false, (3) intent by the person making the statement that the representation

induce another to act on it, and (4) reliance on the representation to the injury of the other party.

Susan Fixel, Inc. v. Rosenthal & Rosenthal, Inc. 842 So. 2d 204 (Fla. 3d DCA 2003). The elements

of intentional misrepresentation are the same as fraud. See Hemlani v. Flahtery, 2003 Guam 17.

The elements of a cause of action for constructive fraud are(!) a fiduciary relationship; (2) non-

disclosure; (3) intent to deceive; and (4) reliance and resulting injury. Gayle v. Hemlani 2000

Guam 25. Finally, the elements of recission based upon fraudulent inducement are the same as

fraud in the inducement. See Hemlani v. Flahtery, 2003 Guam 17. All four of the above mentioned

"fraud-related" claims require similar showings. "In all averments of fraud, the circumstances

constituting fraud shall be stated with particularity. Malice, intent, knowledge, or other conditions

of mind of a person may be averred generally." GRCP 9(b). Even under this somewhat inferential

standard, however, the alleged fraud intended in this case is very confusing on its face.

Although a plaintiff is not required "to prove a claim of fraud at the pleading stage," they

must set forth the "claim with sufficient detail to provide notice to defendants as to what particular

fraudulent action is being alleged." Ukau, 2016 Guam ,r 4 7. Here, the Counterclaimants seem to

allege that the Counterclaim Defendant, GDC, knowingly and fraudulently induced the CV0028-23 DECISION AND ORDER DENYING IN PART AND GRANTING IN PART Page 5 RULE 12(B)(6) MOTION TO DISMISS COUNTERCLAIMS

Counterclaimants into signing promissory notes under false pretenses in 2011 with the hopes of

executing a puzzling "long con" that would lead to GDC simply getting their money back eleven

years later. Defs' Ccls. (March 61\ 2023). The Counterclaimants then articulate a completely

contradictory conspiracy in the very same pleading, that all of this was orchestrated by a different

person, who has only come to power at GDC recently, and intends not fraud, but some sort of petty

revenge. 1 How it can be possible that one person at GDC intended fraud in 2011, when the

promissory notes were executed, but another person is only demanding repayment of the notes

now in 2022, intending revenge, (and this is all part of one intentional "fraudulent" scheme) is

unclear. This is fatal to the pleading as "a plaintiff must, at a minimum, identify the role of each

defendant in the alleged fraudulent scheme." See Swartz v. KPMG LLP, 476 F.3d 756, 765 (9 1h

Cir. 2007) (quoting Moore, 885 F.3d at 541).

Finally, Counterclaimant argues, yet again m the same pleading, that actually the

promissory notes were not signed under false pretenses after all. In fact, Counterclaim Defendant

made a proper demand on one of the promissory notes in 2011, payment was made by

Counterclaimant, and now Counterclaim Defendant wants to "double dip" and get paid again.

Defs' Ccls. ,r 17-19 (March 6111, 2023). Is this a part of the fraud claims? How many Promissory

Notes were allegedly fraudulent? The pleading "must be specific enough to give defendants notice

of the "who, what, when, where, and how of the misconduct charged." Taitano v. Calvo Finance

Corp, 2008 Guam 12, quoting Vess, 317 F.3d at 1106. Unfortunately, by the time one finishes

processing the prolific and contradictory claims, one is left deeply confused. Given the whirlwind

of contradictions in these pleadings it is unlikely that the counterclaim defendants can actually

1 The Court plans to strike the two names of the parties from the record, but the story told by the Defendant completely contradicts and precludes the fraud claims. Deis' Ccls. 'II 9-12 (March 6'', 2023). CV0028-23 DECISION AND ORDER DENYING IN PART AND GRANTING IN PART Page 6 RULE 12(B)(6) MOTION TO DISMISS COUNTERCLAIMS

understand what particular fraudulent action is actually being alleged. Ukau, 2016 Guam ,r 47. As

a consequence, the motion to dismiss Counterclaims 1, 2, 4, and 6 should be granted.

B. The Parole Evidence Rule Bars Counterclaimants' Negligent

Misrepresentation Claim (Counterclaim 3) and Breach of Contract Claim

(Counterclaim 7)

A written contract "supersedes all the negotiations or stipulations concerning it's matter

which preceded or accompanied the execution of the instrument." 18 G.C.A. § 86107 (1992),

Leong v. Deng, 2002 Guam 2 ,r 17. In interpreting such a contract, "the intention of the parties is

to be ascertained from the writing alone, if possible .... " 18 G.C.A. § 87105. For the parol evidence

rule to apply it must first be established that there is a written agreement which was intended to be

the final and complete embodiment of the parties' agreement. Craflworld Interiors, Inc. v. King

Enters., Inc., 2000 Guam 17. In general, the court must determine: (1) whether the parties intended

the writing to be the final and complete embodiment of their agreement, and (2) whether the parol

evidence contradicts the terms of the writing, for then it is inadmissible to do so, parol evidence is

only admissible to supplement or explain omissions or ambiguities. Craftworld, 2000 Guam 17,

citing Enrico Farms, Inc. v. HJ Heinz Co., 629 F.2d 1304, 1306 (9th Cir. 1980).

The two Promissory Notes are clear and unambiguous, as each provides that, "none of its

terms or provisions may be waived, altered, modified, or amended except as the Lender may

consent thereto in writing." Plfs Mot. To Dismiss Ccls; Alt. Mot. To Strike ,r 10 (April 16, 2023).

West Bay and Century argue persuasively that 6 GCA § 2511 establishes a broad exception to the

parol evidence rule regarding fraud and that, "evidence to prove that the instrument is void or

voidable for. .. fraud ... is admissible." Defs Opp. to Plfs Mot. To Dismiss; Alt. Mot. To Strike ,r

10 (May 14, 2023) citing Riversisland. Negligent misrepresentation (Counterclaim 3), however, CV0028-23 DECISION AND ORDER DENYING IN PART AND GRANTING IN PART Page 7 RULE l2(B)(6) MOTION TO DISMISS COUNTERCLAIMS

requires (1) a misrepresentation ofa past or existing material fact; (2) without reasonable grounds

for believing it to be true; (3) with intent to induce another's reliance on the fact misrepresented;

(4) ignorance of the truth and justifiable reliance thereon by the party to whom the

misrepresentation was directed, and (5) damages." Hamlani v. Flaherty, 2003 Guam 17 quoting

Pollack, 226 Cal. Reptr. 532, 537 (Ct. App. 1986). To be liable for negligent misrepresentation,

the defendant need act only negligently and not dishonestly or in bad faith. See Floranzano v.

Olson, 387 N. W.2d 168, 173 (Minn. 1986). Consequently, the parole evidence rule exception for

fraud does not apply here.

Further, Breach of Contract (Counterclaim 7) requires a plaintiff to prove (1) the existence

of the contract, (2) the plaintiffs performance or excuse for nonperformance, (3) the defendant's

breach, and (4) resulting damages to the plaintiff. Hemlani v. Hemlani, 2015 Guam 16. The

Counterclaimants failed to state this basic rule governing Breach of Contract in their counterclaim;

ifCounterclaimants had taken the time to do so, they might have noticed that none of the elements

contain anything about fraud. For this reason, the fraud exception does not apply, and the parol

evidence rule forbids the court from referencing extrinsic evidence to interpret, vary, or add to the

terms of an unambiguous written agreement. See Wasson v. Berg, 2007 Guam 16 1 11.

Consequently, the court grants the motion to dismiss the breach of contract counterclaim and grants

the motion to dismiss the negligent misrepresentation counterclaim.

C. Counterclaimants Improperly Claim a Breach of The Implied Covenant of

Good Faith and Fair Dealing for A Contract That Does Not Exist

(Counterclaim 5)

The "covenant of good faith and fair dealing, implied by law in every contract, exists

merely to prevent one contracting party form unfairly frustrating the other party's right to receive CV0028-23 DECISION AND ORDER DENYING IN PART AND GRANTING IN PART Page 8 RULE 12(B)(6) MOTION TO DISMISS COUNTERCLAIMS

the benefits of the agreement actually made." Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.

4th 1, 35, 44 Cal. Rptr, 2d 370,900 P.2d 619. A "covenant of good faith and fair dealing ... cannot

impose substantive duties or limits on the contracting parties beyond those incorporated in the

specific terms of their agreement. Quijano v. Atkins-Kroll, Inc., 2008 Guam 14 ,r 2 n.2, quoting

Guz v. Bechtel Nat'l Inc., 8 P. 3d 1089, 1110 (Cal. 2000).

Counterclaim Defendants argue that a breach of the implied covenant of good faith and fair

dealing, for the reasons above, "depends on a threshold finding that a contract existed between the

parties." Plfs Mot. To Dismiss Ccls; Alt. Mot. To Strike ,r 8 (April 16, 2023). Further,

Counterclaim Defendants believe that Counterclaimants, "cannot establish that there was a

contract in which Goodwind agreed not be repaid on the Promissory Notes and accordingly

[Counterclaim 5] must be dismissed." Id The reason that such a contract cannot be established,

according to Counterclaim Defendants, is that establishment would require the use of parol

evidence. Id. As discussed in Part C, the parol evidence rule forbids the court from referencing

extrinsic evidence to interpret, vary, or add to the terms of an unambiguous written agreement. See

Wasson v. Berg, 2007 Guam 16 ,r 11.

Again, Counterclaimants attempt to utilize a broad exception to the parol evidence rule

regarding fraud, particularly that, "evidence to prove that the instrument is void or voidable for ...

fraud ... is admissible." Defs Opp. to Plfs Mot. To Dismiss; Alt. Mot. To Strike ,r 10 (May 14,

2023) citing Riversisland. In this case, however, the Counterclaimants are not attempting to

demonstrate that a written contract (the Promissory Notes) was fraudulently conceived. Instead,

Counterclaimants assert that Counterclaim Defendants breached a covenant implied by a

completely different contract, in which both parties agreed that the Promissory Notes need not be

repaid. Defs' Ccls. (March 6'h, 2023). Presumably, this was an oral contract. Unfortunately, the CV0028-23 DECISION AND ORDER DENYING IN PART AND GRANTING IN PART Page 9 RULE 12(B)(6) MOTION TO DISMISS COUNTERCLAIMS

parol evidence rule bars evidence of a contract that contradicts the tenns of the contract at issue.

Crajiworld, 2000 Guam 17, citing Enrico Farms, Inc. v. HJ Heinz Co., 629 F.2d 1304, 1306 (9th

Cir. 1980). As yet another consequence of the parol evidence rule, the court grants the motion to

dismiss the breach of implied covenant of good faith and fair dealing counterclaim.

D. Counterclaimants Fail to State a Claim for Abuse of Process (Counterclaim 9)

"The common law tort of abuse of process arises when one uses the court's process for a

purpose other than that for which the process was designed." Rusheen v. Cohen, 37 Cal. 4th 1048,

1056-57 (2006) (citing 5 Witkin, Summary of Cal. Law (9 1h ed. 1988) Torts,§ 459, p. 547). "To

succeed in an action for abuse of process, a litigant must establish a willful act in the use of the

process not proper in the regular conduct of the proceedings." Id. Further, "the mere filing or

maintenance of a lawsuit - even for an improper purpose - is not a proper basis for an abuse of

process action." Oren Royal Oaks Venture v. Greenberg, Bernhard, Weiss & Karma, Inc., 42 Cal.

3d 1157, 1169 (1986).

In the motion currently before the Court, the Counterclaimants' abuse of process claim

depends entirely on the mere filing ofa lawsuit. Defs' Ccls. ,i 36-37 (March 61\ 2023). Specifically,

the initial suit filed by the Counterclaim Defendants over the Promissory Notes. Id. Generally,

courts do not find abuse of process under these circumstances. See Oren Royal Oaks Venture v.

Greenberg, Bernhard, Weiss & Karma, Inc., 42 Cal. 3d 1157, 1169 (1986). Counterclaimant draws

the Court's attention to a single Federal Court of Appeals case, where the mere maintenance of an

action against a corporate president to tender a promissory note, after the president tendered said

note, did constitute abuse of process ... " Guirl v. Guirl, 708 S.W. 2d 239 (Mo. Ct. App. 1986). The

plaintiff in Guirl, however, "admitted that the purpose in filing and maintaining the petition was

not the recovery of the balance due on the stock purchase notes, but to use the trust and the CV0028-23 DECISION AND ORDER DENYING IN PART AND GRANTING IN PART Page 10 RULE 12(B)(6) MOTION TO DISMISS COUNTERCLAIMS

Collateral Security Agreement to divest [the Defendant] from controlling interest in OAT." Id. at

246. In this case, Counterclaimant asserts without evidence that GCG brough their Complaint for

an ulterior and improper purpose other than resolving a legal dispute. Defs' Ccls. ,i 37 (March 6'\

2023). Given that no admission to an improper purpose has taken place, the court sides with the

general rule that merely suing someone is not abusive and grants the motion to dismiss the abuse

of process counterclaim.

E. The Statute of Limitations Bars Counterclaimant's Unjust Enrichment Claim

(Counterclaim 8)

The elements for a claim of unjust enrichment are "receipt of a beuefit and unjust retention

of the benefit at the expense of another. The theory of unjust enrichment requires one who acquires

a benefit which may not justly be retained to return either the thing or its equivalent to the

aggrieved party so as to not be unjustly enriched." Lyles v. Sangadeo-Patel. 171 Cal. Rprt. 3d 34,

40-41 (Cal. App. 2014). In this case, Counterclaimants allege GDC has been unjustly enriched,

"by having ownership of West Bay and SFOB without paying for its share of the SFOB loan and

other expenses, at the expense of West Bay and Century." Defs' Ccls. ,i 35 (March 6'\ 2023). The

statute oflimitations will begin to run "when the plaintiff suspects or should suspect that his injury

was caused by wrongdoing or that someone has done something wrong to him." Gayle v. Hemlani,

2000 Guam 25 ,i 24. The statute of limitations for unjust enrichment is three years. 7 G.C.A. §

11305(h). Counterclaimants had over ten years to notice that GDC was not paying their debts. As

a consequence, the court grants the motion to dismiss the unjust enrichment counterclaim.

F. Counterclaimants' Motion to Amend is Denied

This Court will, "deny a request to amend only when an apparent reason for denying the

amendment exists." M Electric Corp. v. Phil-Gets (Guam) Int'/ Trad. Corp., 2016 Guam 35, 42. CV0028-23 DECISION AND ORDER DENYING IN PART AND GRANTING IN PART Page 11 RULE 12(B)(6) MOTION TO DISMISS COUNTERCLAIMS

In the absence of, "undue delay, bad faith or dilatory motive on the part of the movant, repeated

failure to cure deficiencies by amendments previously allowed undue prejudice to the opposing

party by virtue of allowance of the amendment, futility of amendment. .. the leave sought should,

as the rules require, be freely given." Id. quoting Farnan, 371 U.S. at 182. In the case before us,

the Counterclaimant proposes amended counterclaims that appear almost identical to the

counterclaims analyzed here in this motion. Def's Opp. to Plf's Mot. To Dismiss; Alt. Mot. To

Strike (May 14, 2023). Further, the Counterclaimants' own admissions in their pleadings bar their

counterclaims, along with the statutory and parol evidence issues. See Lujan, 2018 Guam 27 ,i 13

(a motion to amend is futile when the complaint as amended would be subject to dismissal). As a

consequence of this futility, the Court denies the motion to amend.

G. The Court Moves to Strike Unnecessary Family Drama

Under Guam Rule of Civil Procedure Rule 12(1), the Court may strike any "redundant,

immaterial, impertinent, or scandalous" matter. An allegation is immaterial if it has no value in

developing the issues of the case. Oaks v. City of Fairhope, Alabama, 515 F.Supp. 1004, 1032

(S.D. Ala. 1981) (citing ZA, Moore's Federal Practice P 12.21(1) at 2420 (2d ed. 1979)).

Counterclaim Defendant argues that immaterial and scandalous matters are present in paragraphs

6, 8, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, and 53. Plf's Mot. To Dismiss Ccls; Alt. Mot. To

Strike (April 16, 2023). Most of what is alleged takes place long after the formation of the two

Notes at issue here. While some of the information potentially sheds light on GDC's present

motivation, none of this is relevant to the intent behind the signing of the Notes eleven years ago

or the validity thereof. Furthermore, the allegations contain senseless scandal about public figures.

As a consequence, the court moves to strike paragraphs 6, 8, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21,

22, and 53 from the record. CV0028-23 DECISION AND ORDER DENYING IN PART AND GRANTING IN PART Page 12 RULE 12(B)(6) MOTION TO DISMISS COUNTERCLAIMS

III. CONCLUSION AND ORDER Based on the foregoing, the Court GRANTS the Motion to Dismiss Counterclaims 1-9,

GRANTS the Motion to Strike, and DENIES the Motion to Amend.

SO ORDERED 5 October 2023.

l TERLAJE. \\I ' '.

r Cou'rt I , .of Guam I

SIERV!CE Viti iii-lVlJ.\rn,. I acknowledge that an electronic ~i}~}~riginal was e-mailed to:

Anti,

Appearing Attorneys: Anita P. Arriola, Esq., Arriola Law Firm, for Counterclaim Defendants Goodwind Development Corp. Louie J. Yanza, Esq., Law Office of Louie J. Yanza, for Counterclaimants West Bay Corporation and 21st Century Corporation