Kanaway Seafoods, Inc., et al. vs. Pacific Predator, AK Registration No. AK3565AN, et al.

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA
KANAWAY SEAFOODS, INC., et al.,
Plaintiffs,
v.
PACIFIC PREDATOR, et al.
Defendants.
Case No. 3:22-cv-00027-JMK-KFR
FINDINGS AND RECOMMENDATIONS ON
MOTION TO DISMISS UNDER 12(b)(6)
The Court recommends Defendants’ Motion to Dismiss at Docket 71 seeking
dismissal of portions of Plaintiffs’ Amended Complaint pursuant to Fed. R. Civ. P.
12(b)(6) be DENIED in its entirety. Plaintiffs’ Amended Complaint, which alleges
that Defendant Bryan Howey failed to timely repay money loaned to him contains
allegations that on their face are sufficient to state a claim for breach of contract.
Defendants cannot meet their burden under Rule 12(b)(6) to prove that no set of
facts exist that would entitle Plaintiffs to relief. In addition, the previously-imposed
bond amount remains reasonable and there is no basis to reduce it.
I. 	Relevant Proffered Facts1
Starting in 2019, Defendants Dana and Bryan Howey entered into a series of
agreements with Plaintiffs Liberty Packing LLC (“Liberty”), and Kanaway Seafoods
Inc. (“Kanaway”), doing business as Alaska General Seafoods (“AGS”). On or about
April 17, 2019, Defendants Dana and Bryan Howey entered into a Loan and Security
Agreement with Liberty (“the Loan Agreement”).2 Under the Loan Agreement,
Liberty was to loan the sum of $800,000 to Defendants Bryan and Dana Howey in
1 The Relevant Proffered Facts are limited to those facts necessary to decide the motions
before the Court. The Court does not intend for the Relevant Proffered Facts to constitute
binding findings of fact should this matter proceed to trial.
2 Doc 64-1.
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order to pay off an outstanding loan to ALPS Federal Credit Union.3 In exchange for
this loan, Defendants Bryan and Dana Howey agreed to enter into a Fishing
Agreement with AGS to deliver and sell seafood products to AGS for a fixed period.4
The Liberty loan was further documented by a Promissory Note dated April 17, 2019,
reciting loan terms (“the Liberty Note”).5
On or about June 30, 2019, Defendant Bryan Howey entered into a Promissory
Note with AGS in the principal amount of $23,949.32 (“the AGS Note”), documenting
a loan from AGS to Howey in that amount.6 In addition to the AGS Note, AGS loaned
Howey and the Pacific Predator (“the Vessel”), a 58-foot seiner used by Defendants
to commercially fish Alaskan waters, additional sums between 2019 and 2021 on an
“open account” to be repaid under standard AGS terms and conditions, which
included interest on the open amounts at 10% per annum (“AGS Open Account
Loan”). These funds were loaned on the credit of the Vessel and some of these funds
were used by Defendant Howey for necessaries of the Vessel, including but not
limited to a vessel permit lease.7
As to each of these loans, Plaintiffs allege in their Amended Complaint that
Defendants 	have 	failed 	to 	comply 	with 	their 	terms. 	According 	to 	Plaintiffs,
Defendants Bryan and Dana Howey, individually and through their company Alaska
Wild Exports, LLC. (“AWE”), allegedly defaulted on the obligations under the Liberty
Loan Agreement and Liberty Note by failing to make agreed principal and interest
payments, 	and 	failing 	to 	register 	the 	Vessel 	in 	Washington 	and 	provide
documentation of that registration to Liberty.8 Plaintiffs contend that these, and
other acts and omissions of Defendants, constitute default under both the Loan
3 Doc. 64 at 3.
4 Id.
5 Id. at 4.
6 Id. at 5.
7 Id.
8 Id.
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Agreement and Liberty Note.9 	Plaintiffs state that as of January 14, 2022, the
principal due on the Liberty Loan is $746,666.67, the accrued interest as of February
1, 2022, is $113,166.62, and interest continues to accrue at a rate of $368.22 per
day.10
With regard to the AGS matters, Plaintiffs claim that Defendant Howey never
repaid the AGS Note nor fully repaid the AGS Open Account Loan. Plaintiffs contend
that Defendant Bryan Howey failed to repay the sums loaned to him under the AGS
Note by September 30, 2019, so the $23,949.32 balance on the AGS Note remains
unpaid and interest continues to accrue.11 In addition, Plaintiffs state that by making
deliveries of fish to AGS, Defendant Howey repaid a total of $326,644.13 toward the
AGS Note and AGS Open Account Loan.12 	The result Plaintiffs allege is that the
unpaid balance on these two AGS loans stood at $115,953.48, which continues to
accrue interest.13 Plaintiffs further state that AGS advanced additional sums after
2021 for necessaries of the Vessel, and that the sums from the AGS Open Account
Loan that remain unpaid were advanced and used for necessaries of the Vessel.14
II. 	Procedural History and Motions Presented
On February 23, 2022, Plaintiffs Liberty, and Kanaway, doing business as AGS,
filed a complaint, in rem and in personam, against Defendants Bryan and Dana
Howey, AWE, and the Vessel. 	This complaint alleged breach of contract and
promissory 	note, 	and 	corporate 	disregard 	by 	Defendants; 	sought 	to 	foreclose
maritime liens; and sought a warrant to arrest the Vessel, pursuant to Rule C(3) of
the Supplemental Rules for Certain Admiralty and Maritime Claims (hereinafter
“Admiralty Rule”).15
9 Id.
10 Id.
11 Id.
12 Id. at 7.
13 Id.
14 Id.
15 Docs. 1 and 3.
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This Court issued a warrant for the arrest of the Vessel on March 16, 2022.16
Upon the execution of the arrest warrant, Defendants Bryan Howey, Dana Howey,
and AWE, owners of the Vessel, filed a motion for a hearing to either vacate the
arrest pursuant to Admiralty Rule E(4)(f), or set the amount of a special bond to
secure the release of the Vessel under Admiralty Rule E(4)-(5).17 The Court heard
argument on the motion on May 3, 2022,18 and ordered additional briefing on the
matter.
On July 29, 2022, the Court denied the motion to vacate the arrest, and granted
the motion to set a special bond to secure the release of the Vessel of $148,500. In
that order, the Court found that maritime liens existed, thus creating subject matter
jurisdiction over Plaintiffs’ claims. The Court declined at that time to issue a ruling
on the strength of Defendants’ argument that a “maritime lien cannot attach to a
limited entry permit,” and whether $46,964.32 of the unpaid balance, plus interest,
must be discounted from the bond amount.19
Plaintiffs filed an Amended Complaint on September 7, 2022.20
On September 25, 2022, Defendants filed a motion to dismiss a portion of the
Amended Complaint under Fed. R. Civ. P. 12(b)(1) for lack of admiralty jurisdiction.
The portion Defendants sought to have dismissed involved a claim relating to money
loaned by AGS to Defendants that was used by Defendants to pay for the temporary
emergency transfer of Alaska state limited entry fishing permits.21 The motion also
sought to reduce the Court’s previously-ordered special bond under Admiralty Rule
16 Doc. 7.
17 Doc. 15.
18 Doc. 28.
19 Doc. 52.
20 Doc. 64. The Amended Complaint included an itemized accounting of the losses alleged
by Plaintiffs. All of the original claims remained unchanged.
21 Doc. 66.
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E(6) by the amount of the money advanced for the permits.22 Plaintiffs responded in
opposition, and Defendants replied.23
The Court recommended this motion be denied because Plaintiffs’ Amended
Complaint 	contained 	allegations 	sufficient 	to 	invoke 	federal 	jurisdiction.24
Specifically, as it related to money advanced by Plaintiffs for Defendants’ purchase
of three limited entry fishing permits, maritime jurisdiction under 46 U.S.C. § 31342
existed because these permits could properly be considered necessaries essential for
the operation of Defendants’ commercial fishing enterprise.25
Shortly after, Defendants filed a second motion to dismiss under Fed. R. Civ.
P. 12(b)(6) for failure to state a claim regarding the AGS Note and for an award of
attorney’s fees and costs, along with another Admiralty Rule E(6) Motion to reduce
security and costs.26 Plaintiffs responded in opposition and Defendants replied.27
Defendants then filed a third motion to dismiss under Fed. R. Civ. P. 12(b)(1)
for lack of admiralty jurisdiction regarding Rule D “Petitory Action” and under the
Preferred Ship Mortgage Act, which Plaintiffs opposed.28 The Court recommended
this motion be denied because Plaintiffs’ action for possession of the Vessel was a
proper basis for jurisdiction pursuant to Admiralty Rule D.29
In this Order, the Court considers all filings related to Defendants’ motion to
dismiss under Rule 12(b)(6) to issue its report and recommendation to the District
Court.
//
//
22 Id.
23 Docs. 77 and 80.
24 Doc. 87.
25 Id.
26 Doc. 71.
27 Docs. 78 and 81.
28 Docs. 76, 82, and 83.
29 Doc. 87.
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III. 	Applicable Law and Analysis
a. Motion to Dismiss under Rule (12)(b)(6)
Federal Rule of Civil Procedure 12(b)(6) authorizes the Court to dismiss a
complaint that fails “to state a claim upon which relief can be granted.” The Court
may dismiss a complaint either because it lacks a cognizable legal theory or because
it lacks sufficient factual allegations to support a cognizable legal theory.30
On a Rule 12(b)(6) motion to dismiss, the Court accepts all well-pleaded
factual allegations as true and construes them in the light most favorable to the
nonmoving party.31 The Court may not dismiss a “complaint containing allegations
that, if proven, present a winning case ... no matter how unlikely such winning
outcome may appear to the district court.”32 Nonetheless, “conclusory allegations of
law and unwarranted inferences are insufficient to defeat a motion to dismiss.”33
“[O]nly 	pleaded 	facts, 	as 	opposed 	to 	legal 	conclusions, 	are 	entitled 	to
assumption of the truth.”34 A “formulaic recitation of the elements of a cause of
action” will not defeat a motion to dismiss.35 The complaint must contain sufficient
factual matter, accepted as true, to “state a claim to relief that is plausible on its
face.”36 “The plausibility standard ... asks for more than a sheer possibility that a
defendant has acted unlawfully. Where a complaint pleads facts that are ‘merely
consistent with’ a defendant's liability, it ‘stops short of the line between possibility
and plausibility of entitlement to relief.’”37 Moreover, the Court need not accept as
30 Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011).
31 Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777, 783 (9th Cir. 2012) (citation omitted).
32 Balderas v. Countrywide Bank, N.A., 664 F.3d 787, 791 (9th Cir. 2011).
33 Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (citations omitted).
34 United States v. Corinthian Colls., 655 F.3d 984, 991 (9th Cir. 2011) (citation omitted).
35 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations and quotations
omitted).
36 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).
37 Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556–57).
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true allegations that contradict the complaint's exhibits, documents incorporated by
reference, or matters properly subject to judicial notice.38
b. Plaintiffs’ Amended Complaint States a Claim upon Which Relief
Can Be Granted.
In their motion to dismiss under Rule 12(b)(6), Defendants make several
claims. Those arguments are summarized as follows:
1. 	In accordance with its terms, the AGS Note was paid for by performance
as of August 16, 2019.39
2. The unpaid balance in the AGS Note was “counted twice.”40
3. 	AGS waived its right to payment from Defendant Bryan Howey because
“AGS and Liberty [] vigorously assert they are completely independent
entities. Therefore, $23,949.32 in fishing proceeds AGS did not take to
pay off the note has been waived[.]”41
4. None of the agreements permit AGS to disregard the terms of its
promissory note.
5. 	Defendants are entitled to attorney’s fees and expenses of defense.42
Plaintiffs deny all allegations and contend that Defendants’ motion to dismiss
does not meet the Rule 12(b)(6) standard. Plaintiffs maintain that the Amended
Complaint sufficiently alleges that Plaintiff AGS loaned Defendant Bryan Howey
$23,949.32, that this loan was not paid by the due date, that it was not “counted
twice”, and that it remains unpaid, accruing interest and costs.43 Plaintiffs seek
repayment of the loaned funds, as well as interest, fees, and costs as applicable.44
38 Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008); Sprewell v. Golden State
Warriors, 266 F.3d 979, 988 (9th Cir. 2001).
39 Doc. 71 at 3-4.
40 Id. at 4.
41 Id. at 7.
42 Id. at 7-8.
43 Doc. 78 at 6.
44 Doc. 64.
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To prevail on a breach of contract claim under Washington state law,45
Plaintiff “must prove that a valid agreement existed between the parties, the
agreement was breached, and the plaintiff was damaged.”46 	Accepting all well-
pleaded factual allegations as true and construing them in the light most favorable
to the non-moving party, Plaintiffs’ Amended Complaint sufficiently pleads a breach
of contract upon which relief may be granted.47 	Specifically, by alleging that
Plaintiffs loaned Defendant Bryan Howey $23,949.32 under the AGS Note, Plaintiffs
allege a contract which imposed a duty on Defendants, namely, repayment of the
money loaned by September 30, 2019.48 By claiming that the AGS Note remains
unpaid, Plaintiffs allege breach of that contract.49 Finally, Plaintiffs’ Amended
Complaint alleges damages - repayment of the $23,949.32, plus accrued interest,
attorney’s fees, and costs in collecting on this debt. Plaintiffs’ Amended Complaint
contains sufficient facts to “state a claim to relief that is plausible on its face.”50
45 The Court notes that both parties have applied Washington law in this Rule 12(b)(6)
motion. In earlier pleadings, Defendants argued that Alaska law should be applied to
matters in this case. See e.g. Doc. 35, Defendants’ Opposition to Motion for Writ of
Replevin. Federal courts sitting in diversity apply the forum state's choice of law rules to
determine the controlling substantive law. See Klaxon Co. v. Stentor Elec. Mfg. Co., Inc.,
313 U.S. 487, 496 (1941). Alaska courts apply the choice-of-law rules set forth in the
Restatement (Second) of Conflict of Laws, and “unless [a] choice of law provision itself
was obtained by a misrepresentation it will be given effect.” Sparling v. Hoffman Const.
Co., Inc., 864 F.2d 635, 641 (9th Cir. 1988) (citing the Restatement (Second) Conflict of
Laws § 201 (1971)). Defendants have not alleged misrepresentation, and like the parties,
the Court is applying Washington law in its analysis of the motion.
46 Univ. of Washington v. Gov't Emp. Ins. Co., 200 Wn. App. 455, 467, 404 P.3d 559 (2017);
see also Nw. Indep. Forest Mfrs. v. Dep't of Labor & Indus., 78 Wn. App. 707, 712, 899 P.2d 6
(1995) (stating that elements of breach of contract are “(1) a duty imposed by the contract
(2) was breached [by Defendant], with (3) damages proximately caused by the breach”).
47 Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777, 783 (9th Cir. 2012) (citation omitted).
See also Kossick v. United Fruit Co., 365 U.S. 731 (1961) (The validity and interpretation of a
maritime contract is governed by federal maritime law, unless the “maritime but local” or
“non-preemption” doctrine applies).
48 Doc. 78 at 9.
49 Id.
50 Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570).
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In disputing these allegations, both in their motion to dismiss and their reply
to Plaintiffs’ opposition51, Defendants ask the Court to adjudicate matters beyond its
capacity at this stage in the proceeding. Defendants ask the Court to interpret the
contract, conduct accountings, determine whether Defendants paid off the AGS Note
by their performance, and determine if Plaintiffs properly applied credits to debts
or if they double counted. Such issues are appropriate for the trier of fact to
determine, not this Court in a Rule 12(b)(6) motion to dismiss for failure to state a
claim. As pled, Plaintiffs’ Amended Complaint alleges a cognizable legal theory for a
breach of contract claim as this Court must assess that claim pursuant to Rule
12(b)(6).52 Therefore, the Court recommends Defendants’ Motion to Dismiss under
Rule 12(b)(6) be denied.53
c. 	There is No Basis to Reduce the Previously-Ordered Security Under
Rule E(6) at Docket 71.
The Court previously set bond for the Vessel in the amount of $148,500, and
further justified its bond amount in its Report and Recommendation regarding
Defendants’ motions to dismiss under Rule 12(b)(1).54 This Court held that even if it
were the to accept Defendants’ argument that monies used for limited entry permits
cannot give rise to a maritime lien, a bond of $148,500 would still be reasonable
given that it was significantly less than the bond amount authorized under the law.
This fact remains true in the present motion to dismiss – $148,500 remains
significantly less than the bond amount authorized under law and the Court’s
findings and recommendations herein provides no basis to disturb its prior rulings.
51 Docs. 71 and 81.
52 Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011).
53 Since the Court recommends dismissal of the present motion to dismiss, findings and
recommendations relating to Defendant request for an award of attorney fees would be
premature at this time.
54 See Docs. 52 and 87.
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Accordingly, as it relates to repayment of the AGS Note, the Court recommends that
Defendants’ request to reduce its security for maritime lien claims55 be denied.
IV. 	Conclusion
Plaintiffs’ Amended Complaint contains allegations that on their face are
sufficient 	to 	state 	a 	claim 	for 	breach 	of 	the 	AGS 	Note 	under 	Rule 	12(b)(6).
Furthermore, there is also no basis to reduce the previously-ordered security. 	For
the reasons stated above, the Court recommends that Defendants’ Motion to Dismiss
at Docket 71 be DENIED in its entirety.
DATED this 9th day of March, 2023, at Anchorage, Alaska.
s/ Kyle F. Reardon
KYLE F. REARDON
United States Magistrate Judge
District of Alaska
NOTICE OF RIGHT TO OBJECT
Under 28 U.S.C. § 636(b)(1), a district court may designate a magistrate judge
to hear and determine matters pending before the Court. For dispositive matters, a
magistrate judge reports findings of fact and provides recommendations to the
presiding district court judge.56 A district court judge may accept, reject, or modify,
in whole or in part, the magistrate judge’s order.57
A party may file written objections to the magistrate judge’s order within 14
fourteen days.58 Objections and responses are limited to five (5) pages in length and
should not merely reargue positions previously presented. 	Rather, objections and
responses should specifically identify the findings or recommendations objected to,
the basis of the objection, and any legal authority in support. 	Reports and
recommendations are not appealable orders. Any notice of appeal pursuant to Fed.
R. App. P. 4(a)(1) should not be filed until entry of the district court’s judgment.59
55 Doc. 71 at 4.
56 28 U.S.C. § 636(b)(1)(B).
57 28 U.S.C. § 636(b)(1)(C).
58 Id.
59 See Hilliard v. Kincheloe, 796 F.2d 308 (9th Cir. 1986).
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