Case Notes

The case moved forward, but Kinwai's discovery tactics were so egregious that the court deemed them harassing and in bad faith. Ultimately, the North Carolina court found that IHFC did not breach the lease when it transferred Kinwai to a different showroom.

While the North Carolina case was still pending, Kinwai filed a second lawsuit, this one in U.S. District Court in Nevada. The defendants in that suit — IHFC and various of its business affiliates — moved to dismiss or, in the alternative, to transfer the case to the North Carolina district court that was handling the first lawsuit. In response, Kinwai amended its complaint to dismiss IHFC as a defendant and replace it with its Nevada landlord, WMCV Phase 2, LLC (WMCV). The remaining IHFC affiliates moved to dismiss the lawsuit against all parties and the Nevada district court did so. Kinwai appealed.

The Ninth Circuit noted that the standard of review for dismissals under the first-to-file rule is abuse of discretion (Alltrade Inc. v. Uniweld Prods. Inc., 946 F.2d 622, 625 (9th Cir. 1991)), but that district courts have wide latitude for applying the first-to-file rule. With this in mind, the appeals court could find no basis for determining that the Nevada district court abused its discretion. The court explained: “The Nevada court reviewed Kinwai's two lawsuits and found that the sequence of events, coupled with the similarity of the parties and issues, supported dismissal of Kinwai's suit.” The Nevada court relied on the NCDC's record and its own independent finding that the two lawsuits were substantially similar in that they involved essentially the same parties and factual allegations and Kinwai acted in bad faith by seeking disruptive, overbroad discovery, thereby multiplying court proceedings and increasing court costs — the very “gamesmanship” that the first-to-file rule was meant to impede. See, Kohn Law Grp. Inc. v. Auto Parts Mfg. Miss. Inc., 78 F.3d 1237, 1240 (9th Cir. 2015.)

Further, if Kinwai's Nevada suit were permitted to continue, the Ninth Circuit said, conflicting rulings from the Nevada and North Carolina courts could result. Kinwai had conceded this point in its own pleadings, in which it averred that all of the IHFC entities “operate as part of a single business enterprise with one common purpose under common control.”

For the above reasons, the Ninth Circuit found that the Nevada district court properly exercised its discretion by dismissing the Kinwai lawsuit.

Mailing Rent Check While Doing Unauthorized Acts Is Not Mail Fraud

A landlord could not prove its tenant was guilty of mail fraud for mailing rent checks that then allowed that tenant to stay in possession of the leased property in order to conduct allegedly improper business. AMA Realty LLC v. North Bergen Asphalt LLC, 2017 U.S. Dist. LEXIS 212483 (D. N.J. 2017).

Plaintiff AMA Realty owns commercial property; part of it has a building on it and another part it leased to a company that recycles asphalt and other materials. Plaintiff claimed that the leased property was supposed to have been used to store equipment and not for recycling, and that the recycling use breached the lease and damaged the plaintiff. AMA alleged that the recycling activity was not conducted according to law, because the New Jersey state permitting process and its environmental protection laws were not complied with. Further, the lessee allegedly dumped asphalt materials on AMA's adjacent property without authorization, damaging the property and exposing AMA to liability for cleaning it up. Additionally, build-up of recycling debris on the leased plot purportedly led to water runoff that flooded AMA's other property.

Among other things, the plaintiff sought recovery under the Racketeer Influenced and Corrupt Organizations Act (RICO), claiming the recycling leaseholder engaged in a scheme to defraud both the plaintiff and New Jersey's Department of Environmental Protection through use of the mails in violation of the mail fraud statute, U.S.C. Section 1341.

The court looked to the text of section 1341, which requires that for a person to be guilty of mail fraud they must have used the mail or interstate wires for the purpose of carrying out a “scheme or artifice to defraud.” So, where was the “fraud”? According to the plaintiff, the fraud involved here was that paying the rent helped to facilitate the alleged wrongful use of the leased property. The court was unconvinced by this logic, stating that “if it were to recognize Plaintiff's theory, then the mailing of any rent check would convert a potential breach of contract claim into actionable mail fraud. Using Defendants' example, a tenant in an apartment that prohibits pets would be liable for mail fraud if she sent in her rent check without disclosing that she, in fact, had a cat.” Plaintiff had provided no authority for this expansive reading of the mail fraud statute, nor could the court find any.