Suit vs prospective hotel buyer junked

The Superior Court has dismissed the amended lawsuit filed by the minority shareholders of Hafa Adai Hotel against the former prospective buyers of the hotel.

Associate Judge Juan T. Lizama ruled that the second amended complaint filed by the Guerrero and Tenorio shareholders fails to allege the elements needed to maintain any of the three claims asserted against defendants Morgan Stanley Japan Limited and Marianas Holdings LLC.

Lizama said that, although plaintiffs have alleged irreparable injury, they have not pleaded the other elements necessary for injunctive relief.

In particular, the judge pointed out, plaintiffs have not shown a violation of the law, as the allegations in support of the other claims are inadequate.

Lizama said the motions to compel discovery and to stay discovery are dismissed as the dismissal renders them moot.

Juan T. Guerrero, Jesus T. Guerrero, Carmen Guerrero Borja, Guerrero Family Trust, Jose C. Tenorio Trust, AJT Trust, and the estate of Santiago C. Tenorio sued the Saipan Hotel Corp., which operates the hotel, and its parent company, Pacific Development Inc.

The plaintiffs also named Kinki Nippon Tourist Ltd. and PDI’s majority shareholder and SHC board Pedro J.L. Igitol as co-defendants.

Court records show that the plaintiffs are the minority shareholders in two corporations, Saipan Hotel Corp. and PDI. Kinki Nippon is the majority shareholder of PDI.

Saipan Hotel Corp. owns in fee simple the property underlying the Hafa Adai Hotel and the staff housing.

Plaintiffs alleged that defendants conspired to reorganize Saipan Hotel Corp. and PDI and sell the hotel, in the process seriously diluting the value of the shares held by plaintiffs.

Plaintiffs’ first amended complaint added Morgan Stanley Japan Limited and Marianas Holdings LLC to their action on grounds that Morgan Stanley assisted the majority shareholders in wrongfully diluting plaintiffs’ shares, and breaching the majority shareholders’ fiduciary duty to plaintiffs.

Last year, Lizama dismissed the first amended complaint for failure to allege facts sufficient to maintain a claim against Morgan Stanley.

Following the argument on the motion for dismissal of the first amended complaint, plaintiffs acquired from Kinki Nippon additional information relating to Morgan Stanley.

The second amended complaint filed in November 2005 alleged that during the first half of 2004, Morgan Stanley was engaged in negations with the majority shareholders to buy the hotel and two other hotel properties.

The complaint said Morgan Stanley and Kinki Nippon entered into a confidentiality agreement requiring Morgan Stanley to refrain from communicating with minority shareholders.

The plaintiffs alleged that Morgan Stanley hired SHC’s legal counsel to assist in due diligence and that the company also hired the accounting firm that had previously been used by minority shareholders.

Morgan Stanley submitted a Y4.2 billion yen bid to Kinki Nippon, the complaint said.

The complaint alleged, among other things, that Morgan Stanley knew or should have known that corporate formalities between Kinki Nippon and Saipan Hotel Corp. were a sham, since Morgan Stanley had access to Kinki Nippon’s loans to Saipan Hotel Corp.

In his order issued last week, Lizama said that while the second amended complaint adds 10 specific factual allegations regarding Morgan Stanley’s conduct, plaintiffs have failed to make direct allegations on every material point necessary to sustain a recovery on any legal theory.

“Further, the allegations do not support an inference that evidence on material points will be introduced at trial,” he said.

“Having failed to plead actual knowledge, the complaint cannot maintain a cause of action for aiding and abetting a breach of fiduciary duty,” the judge said.

Assuming the majority shareholders had effectuated their plan, Lizama said, plaintiffs would still be required to show that Morgan Stanley aided and abetted this plan.

“Plaintiffs have not alleged actual knowledge on the part of Morgan Stanley. Standing alone, the fact that KNT could not have sold the SHC hotel without Morgan Stanley’s advice does not make Morgan Stanley liable as an aider and abettor,” Lizama said.