Jared v. Nisc Holdings

PRESENT: All the Justices

JARED AND DONNA MURAYAMA 1997 TRUST
OPINION BY
v. Record No. 111377 JUSTICE ELIZABETH A. McCLANAHAN
JUNE 7, 2012
NISC HOLDINGS, LLC, ET AL.

FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Jonathan C. Thacher, Judge

Appellant, the Jared and Donna Murayama 1997 Trust (the

"Trust"), through its Trustee, Jared Murayama ("Murayama"),

challenges the circuit court's order sustaining a demurrer to

the Trust's second amended complaint. In that complaint, the

Trust sought damages arising from a settlement agreement between

the Trust, Murayama and two of the defendants, NISC Holdings,

LLC ("NISC") and Omen LLC ("Omen"), which transaction included

NISC's repurchase of the Trust's voting stock in NISC (the

"settlement agreement"). The Trust claimed it was damaged from

selling the stock to NISC for substantially less than its fair

market value as a result of the Trust's reliance on fraudulent

omissions and misrepresentations of the defendants: (i) NISC;

(ii) Omen, a company NISC previously acquired from the Trust;

(iii) DC Capital Partners, LLC and DC Capital Partners

Investments, LLC (collectively "DC Capital Partners"), NISC's

largest shareholder; and (iv) Thomas Campbell ("Campbell"), the
chairman of NISC and the managing member of DC Capital Partners

(the appellees in this appeal). 1

The circuit court sustained the defendants' demurrer upon

determining that the Trust's allegations, as amplified by the

settlement agreement, established that, as a matter of law, the

Trust did not reasonably rely upon the defendants' alleged

fraudulent omissions and misrepresentations regarding the value

of the NISC stock at the time of the settlement. The circuit

court reached that conclusion based upon both the language of

the settlement agreement and the allegations regarding the

adversarial relationship between Murayama and the defendants

that precipitated the settlement. Agreeing with the circuit

court, we will affirm its judgment sustaining the demurrer.

I. BACKGROUND

Because the circuit court decided this case upon a

demurrer, we will summarize the facts as alleged in the Trust's

second amended complaint. Kaltman v. All Am. Pest Control,

Inc., 281 Va. 483, 486, 706 S.E.2d 864, 866 (2011). We will

also include in the summary relevant provisions of the

settlement agreement, as the defendants properly submitted the

agreement for the circuit court's consideration through its

1
The Trust also named International Business Machines
Corporation ("IBM") as a defendant but non-suited its claims
against IBM after dismissal of the second amended complaint.

2
motion craving oyer. 2 Ward's Equip. v. New Holland N. Am., Inc.,

254 Va. 379, 382, 493 S.E.2d 516, 518 (1997). "In doing so, we

consider the facts stated and all those reasonably and fairly

implied in the light most favorable to the nonmoving part[y],

[the Trust]." Kaltman, 281 Va. at 486, 706 S.E.2d at 866

(citing Yuzefovsky v. St. John’s Wood Apartments, 261 Va. 97,

102, 540 S.E.2d 134, 137 (2001)).

At all times relevant to this action, Murayama was the

manager of the Trust. In 2007, the Trust was the majority owner

of Omen, a Maryland based information and technology management

company that Murayama founded and managed for several years. In

June 2007, DC Capital Partners, a Virginia limited liability

company, formed NISC, a Delaware limited liability company

located in Virginia, for the purpose of acquiring and

consolidating information management and technology companies

serving various federal government agencies. On June 29, 2007,

NISC purchased Omen from the Trust. As consideration for the

sale, the Trust received 48.78 percent of the Class A voting

stock in NISC, a cash sum of $1,425,000 payable in November

2008, Class B non-voting shares in NISC, and a seat on NISC's

board of managers. The Trust appointed Murayama to that

2
What is referred to herein as the "settlement agreement"
actually consisted of two documents, one entitled the
"Settlement Agreement" and the other entitled the "Murayama
Financial Claims Settlement Agreement," both of which were
executed together on December 9, 2009.

3
position, which he held for the next two and a half years –

until December 9, 2009, when the settlement agreement was

executed. In addition, by that same date, as a result of NISC's

subsequent acquisitions of additional companies, the Trust's

Class A membership interest in NISC was diluted to 5.41 percent.

Also following NISC's purchase of Omen, NISC hired Murayama as

an advisor to Campbell, NISC's chairman.

In a significant development leading to the instant

dispute, Murayama became involved with "a native Hawaiian

organization known as Hawaii 5-0," which was "owned by . . . a

charitable, not-for-profit foundation." According to the Trust,

in January 2009, Murayama discussed with Campbell Murayama's

"prospective role" at Hawaii 5-0, and "became a part-time

uncompensated advisor to Hawaii 5-0" after receiving Campbell's

"express consent." Significantly, the Trust alleges that

"Hawaii 5-0 did not compete with NISC and Mr. Murayama did not

violate any non-competition agreements with NISC." Further,

"[a]t no time prior to November 2009 did [d]efendants ever

express to Mr. Murayama any concern about his involvement with

Hawaii 5-0."

NISC and Omen, however, advanced a completely different

view of Murayama's activities involving Hawaii 5-0 in relation

to NISC and Omen. On November 9, 2009, NISC and Omen filed a

lawsuit in Fairfax County Circuit Court against Hawaii 5-0 and

4
several former NISC and Omen employees who became employed by

Hawaii 5-0. 3 While Murayama was not named as a defendant in the

action, the complaint stated in detail how he allegedly

conspired with the named defendants "to steal business from

NISC/Omen, raid NISC/Omen’s employees, and take corporate

opportunities belonging to NISC/Omen for their own benefit."

Pled in twenty-one counts, the sixty-page complaint alleged

conspiracy, breach of contract, tortious interference,

conversion, and violations of the Virginia Computer Crimes Act

and Uniform Trade Secrets Act, among others, and sought a

preliminary injunction and millions of dollars in compensatory,

treble, and punitive damages.

Referring to Murayama no less than sixty-four times, the

complaint alleged that he owed non-competition, non-

solicitation, fiduciary and confidential obligations to NISC and

Omen, and breached them by his unlawful activities with the

named defendants. As an example, the complaint alleged that

Murayama and his former co-shareholder of Omen, Robert Bregante,

violated their agreements with NISC and Omen – entered into when

they sold Omen to NISC – not to compete with NISC or Omen and

not to solicit NISC or Omen's customers or employees. Murayama

and Bregante allegedly engaged in "a systematic campaign to

3
A copy of the NISC/Omen complaint is attached as Exhibit 1
to the Trust's second amended complaint.

5
recreate the Omen business under the Hawaii 5-0 umbrella, thus

effectively stealing back what they had just sold to NISC/Omen."

NISC and Omen then alleged, in regard to their trade secrets

claim, that Bregante and defendant Andrew Ganias, former chief

financial officer of Omen and present chief financial officer of

Hawaii 5-0, "conspired with Murayama, who remains not only an

employee but a member of NISC/Omen's Board of Managers, to

misappropriate NISC/Omen's trade secrets and other proprietary

information. For example, Murayama emailed . . . Bregante and

Ganias NISC/Omen's highly confidential financial statements

which . . . Bregante and Ganias then used to advance Hawaii 5-

0's business interests."

As a further example of Murayama's alleged wrongdoing, the

NISC/Omen complaint stated that Murayama sent emails to his "co-

conspirators" in March 2009 in which he told them that he had to

" 'stay below radar for technically [sic] am still an employee

of Omen,' " and that they needed a different " 'front man' "

because he had to " 'stay low for now.' " He also allegedly

assured one of his co-conspirators, however, that when Hawaii 5-

0 would eventually need a local president, " 'by that time yours

truly should be available.' "

NICS and Omen also stated in their complaint that Murayama

engaged in the alleged unlawful activities in his capacity as a

6
member of NICS's board of managers and a business adviser to

them both, for which they paid him an annual salary of $275,000.

Within three days of filing their complaint, NISC and Omen

delivered it to Murayama's counsel, along with a demand in the

form of a proposed settlement agreement. Counsel for NISC and

Omen made it "clear" that the proposed agreement was being

offered as an alternative to adding Murayama and the Trust to

the lawsuit. The proposal was thus presented to Murayama "as a

prepackaged deal that would include him [and] the Trust, as well

as the named defendants." Trust's Second Am. Compl. ¶ 24

(emphasis in original). Central to the terms of the proposal

was the requirement that the Trust return its Class A membership

stock to NISC "even without compensation if NISC's lender did

not approve the payment to buy back the shares. According to

the proposed settlement agreement, the [Trust's] Class A

[m]embership [i]nterest was worth approximately $1,000,000

dollars." Id. (emphasis in original).

Following the parties' negotiations through their

respective counsel over the terms of the ultimate settlement,

the Trust, Murayama, NISC and Omen (along with certain named

defendants in the NISC/Omen lawsuit) executed the settlement

agreement on December 9, 2009. The settlement agreement

expressly recited that NISC and Omen believed that Murayama was

involved in the conduct at issue in the NISC/Omen lawsuit, and

7
that they contemplated amending their complaint to add Murayama

and the Trust as defendants. Having settled their disputes

pursuant to the terms of the settlement agreement, however, NISC

and Omen therein released all claims they had against the Trust

and Murayama and certain named defendants in the NISC/Omen

lawsuit "arising at any time before the execution" of the

settlement agreement, without any of the released parties paying

any money.

NISC and Omen did so in exchange for the Trust's agreement

to sell its NISC Class A membership interest to NISC for

$2,000,000. Murayama was also obligated to resign from NISC's

board of managers.

As to the value of the NISC Class A membership interest

transferred under the settlement agreement, Murayama and the

Trust therein "acknowledge and agree that they are fully aware

that NISC is considering and pursuing a range of strategic

alternatives, including a sale of the company or a qualified

public offering, that could ultimately result in a different

valuation" of the Class A shares than the $2,000,000 being paid

pursuant to the terms of the agreement. Murayama and the Trust

also "acknowledge and agree that they have had sufficient

opportunity to confer with their financial advisors concerning

the [a]greement."

8
 The settlement agreement also provided standard mutual

disclaimers and releases. In particular, Murayama and the Trust

"irrevocably and unconditionally release[d]" and "forever

discharge[d]" NISC and Omen from all claims "known or unknown,

arising at any time before the execution of this [a]greement,

whether based on: . . . fraud . . . or any other theory of

recovery . . . and all claims which Murayama . . . or [the]

Trust may now have or may have had, arising from in any way

whatsoever connected with their prior employment, membership on

[b]oards of [m]anagers, or ownership of a Class A [m]embership

[i]nterest in NISC . . . ." The settlement agreement further

provided that each party to the agreement "acknowledges that it

or he has relied upon its or his own judgment and the advice of

counsel and financial advisors in making this [a]greement."

The Trust alleges that up to the time of the execution of

the settlement agreement on December 9, 2009, Murayama and the

Trust, in fact, did not know and the defendants in the instant

action did not disclose to them any information regarding the

defendants' specific pursuits to sell NISC. In fact, according

to the Trust's allegations, the defendants "knowingly and

intentionally withheld [that] information" from the Trust and

Murayama, even though they were entitled to it based on

Murayama’s position as a member of NISC's board of managers.

The Trust alleges that, because Murayama held that position up

9
until the time the settlement agreement was executed, "the Trust

reasonably assumed it would have known of such activity and

reasonably relied on [d]efendants that such events did not

exist. In fact, NISC and Omen['s] attorney, Mr. Keiser,

represented in telephone conversations with the Trust’s counsel

that a sale of NISC was not in the works or imminent."

Furthermore, the Trust alleges that the defendants owed the

Trust fiduciary duties, which would include duties to "disclose

the value of the [NISC] Class A shares, the impending sale of

[NISC], that other offers were made to acquire [NISC], [and]

NISC's dealings with IBM."

Murayama and the Trust only learned after execution of the

settlement agreement, however, that IBM entered into a

confidentiality agreement with NISC in August 2009 "to perform

due diligence ahead of acquiring NISC." Then in November 2009,

in the process of obtaining assistance in the sale of NISC from

several financial advisors, the defendants represented that

NISC's value exceeded $367,000,000. The financial advisor

ultimately retained by the defendants valued NISC at more than

$400,000,000. Accordingly, prior to December 9, 2009, the

defendants offered to sell NISC to at least three different

companies for an amount in excess of $400,000,000. In addition,

prior to that date, IBM made an offer to purchase NISC for an

amount in excess of $300,000,000. And in a meeting of NISC's

10
board of managers in November 2009, to which Murayama was not

invited, those present were informed that NISC had received

purchase offers in excess of $300,000,000, and that "the sale of

NISC was imminent."

NISC and IBM then announced publicly on January 20, 2010,

that IBM had acquired NISC. The purchase price was

$367,000,000. After learning of this sale, along with the

information summarized in the preceding paragraph, the Trust

instituted the instant action, claiming Murayama "had been duped

by [d]efendants into giving up the Trust's [NISC] shares for

$2,000,000, a price far below market value." The Trust alleged

that the sale of NISC to IBM would have resulted in a

distribution of approximately $9,000,000 to the Trust. On that

basis, the Trust sought judgment against the defendants in the

amount of $7,000,000 in compensatory damages, $350,000 in

punitive damages, and attorney's fees. As set forth in the

Trust's second amended complaint, the Trust sought these damages

upon claims of fraud in the inducement (Count I), negligent

misrepresentation (Count II), breach of fiduciary duty and duty

of good faith and fair dealing (Count III), abuse of process

(Count IV), and unjust enrichment (Count V).

Having prevailed on their demurrer to essentially the same

allegations in the Trust's first amended complaint, the

defendants demurred to the Trust's second amended complaint.

11
Significantly, however, we note that in allegations set forth in

the first amended complaint, which were omitted in the second

amended complaint, the Trust admitted that, despite Murayama's

membership on the NISC board of managers, "Mr. Murayama was

prevented from having access to the books, records and

activities of NISC and its affiliates. Mr. Campbell repeatedly

ignored and/or refused Mr. Murayama’s requests for such

information." (Emphasis added.)

By order dated February 14, 2011, the circuit court

sustained the second demurrer for the same reason it sustained

the first demurrer. As explained in its letter opinion

accompanying the order, the court concluded that the Trust's

allegations demonstrated as a matter of law that it did not

reasonably rely upon the defendants' alleged fraudulent

misrepresentations and omissions related to the value of the

Trust's NICS Class A membership stock transferred under the

terms of the settlement agreement.

The circuit court reasoned that consideration of the facts

alleged "inescapably leads to the conclusion that [the] Trust

was not justified in its reliance and had every reason to

question the [d]efendants['] silence and statements regarding

any sale of NISC and the value of [the] Trust's shares." The

court specifically noted that "the parties' relationship had

clearly developed into an adversarial one at the time of the

12
settlement negotiations"; that the settlement agreement

contained "an explicit no reliance clause"; and that the

agreement disclosed that "NISC was considering a range of

options, including a stock sale, that could ultimately lead to a

different valuation of [the] Trust's shares." These facts would

have "arouse[d] the suspicions of an ordinary person," the court

determined. Yet, the Trust "saw fit to trust itself in the

hands of the [d]efendants instead of demanding information and

investigating as a reasonable person would have." The court

thus sustained the demurrer to the second amended complaint, and

did so with prejudice.

We granted the Trust an appeal from the judgment sustaining

the demurrer to the second amended complaint on the following

assignments of error:

1. The trial court erred in sustaining the [d]emurrer to
the [s]econd [a]mended [c]omplaint when there was a material
contested issue of fact relating to the "reasonableness" of the
Trust's reliance on the fraudulent conduct of the NISC
[d]efendants, which concealed their pending sale of the
[c]ompany for $367 million.

2. The trial court erred in sustaining the [d]emurrer to
the [s]econd [a]mended [c]omplaint when the NISC defendants had
a duty to inform the Trust (and Jared Murayama) about its
negotiations to sell [NISC], the pending sale to IBM, and
professional valuations of [NISC] made prior to sale.

3. The trial court erred in sustaining the [d]emurrer to
the [s]econd [a]mended [c]omplaint, and thus dismissing the
allegations in toto, before the Trust had any opportunity to
take discovery on its allegations of fraud.

13
 II. ANALYSIS

In our review of the circuit court's decision sustaining a

demurrer, we are guided by well-established principles. The

purpose of a demurrer is to determine whether a complaint states

a cause of action upon which the requested relief may be

granted. Code § 8.01-273; Dunn, McCormack & MacPherson v.

Connolly, 281 Va. 553, 557, 708 S.E.2d 867, 869 (2011). A

demurrer tests the legal sufficiency of the facts properly

alleged in the challenged pleading and the inferences fairly

drawn from those facts, all of which are accepted as true. Id.

A demurrer does not admit, however, the correctness of the

pleader's legal conclusions. Dodge v. Randolph-Macon Woman's

College, 276 Va. 1, 5, 661 S.E.2d 801, 803 (2008). Because the

circuit court's ruling on a demurrer presents an issue of law,

we review the decision de novo. Dunn, McCormack & MacPherson,

281 Va. at 557, 708 S.E.2d at 869.

Upon allegations in its pleadings of fraudulent procurement

of the settlement agreement by the defendants, the Trust has

sought to have set aside those terms of the agreement (i) that

established the price paid to the Trust for its NISC stock, and

(ii) that released the defendants from all such fraud claims by

the Trust and Murayama, so as to allow the Trust to pursue an

award of an additional $7,000,000 for the stock as compensatory

damages, along with $350,000 in punitive damages.

14
 As we explained in Metrocall of Delaware, Inc. v.

Continental Cellular Corp., 246 Va. 365, 373-74, 437 S.E.2d 189,

193 (1993) (internal citations omitted) (emphasis added):

[A] written, mutual release memorializing a compromise
and settlement may be rescinded for fraud in its
procurement. And, the wrong of fraud requires an
intentional, knowing misrepresentation by a defendant
of a material fact upon which a plaintiff has relied
to its detriment. Concealment of a fact that is
material to the transaction, knowing that the other
party is acting on the assumption that no such fact
exists, is as much fraud as if existence of the fact
were expressly denied. But to establish fraud, it is
essential that the defrauded party demonstrates the
right to reasonably rely upon the misrepresentation.
[S]ome courts label this requirement "justifiable
reliance."

In its second amended complaint, the Trust has plainly

alleged facts demonstrating, when taken as true, that the

defendants made material misrepresentations to the Trust and

Murayama regarding the value of the Trust's NISC stock.

Specifically, the defendants misrepresented to the Trust and

Murayama in the proposed settlement agreement that the stock was

worth approximately $1,000,000 when, in fact, it was worth

nearly ten times that amount based on values being placed on

NISC by the company, as well as others, at that time. The

defendants likewise misrepresented to the Trust and Murayama the

value of the Trust's NISC stock when the defendants indicated in

the settlement agreement that the stock was worth $2,000,000 -

15
the amount the plaintiffs actually paid the Trust for the stock

under the terms of the agreement following negotiations.

As Metrocall makes clear, however, to withstand the

defendants' demurrer and establish a cause of action based on

fraud, the Trust also had to demonstrate in its pleadings that

the Trust and Murayama, acting on behalf of the Trust as its

trustee, reasonably relied upon the misrepresentations and

omissions by the defendants that allegedly constituted the

fraud. Absent such reasonable or " 'justifiable reliance,' " no

fraud is established. Id. at 374, 437 S.E.2d at 194.

In Metrocall, on facts analogous to those here presented,

this Court affirmed the trial court's dismissal of the

plaintiffs' action for rescission of a prior settlement of

litigation between the same parties or their privies based on

allegations of defendants' fraud in the inducement of the

settlement. Id. at 376-77, 437 S.E.2d at 195. The plaintiffs

in Metrocall, as parties holding a minority interest in Norfolk

Cellular Telephone Company ("NCTC"), initiated the original

litigation against the majority entity (the managing general

partner of NCTC), claiming it was guilty of a number of improper

and fraudulent acts. The parties subsequently reached a

settlement of their dispute, which included an extensive general

release. As part of the settlement, the plaintiffs also agreed

to transfer their NCTC interests to the defendant majority

16
entity and its affiliates for an agreed sum. After the

plaintiffs' sale of their NCTC interests was consummated, the

majority group sold those interests to a third party for a price

significantly greater than that paid to the plaintiffs. Id. at

367, 437 S.E.2d at 190.

Much like the claims of the Trust in the instant case, the

plaintiffs in Metrocall subsequently filed consolidated actions

claiming that, during the negotiations to settle the prior

litigation, "the defendants were simultaneously and covertly

conducting negotiations to sell the entire partnership to the

third party for the higher price." Id. Indeed, the plaintiffs

alleged that during the settlement negotiations, the defendants

falsely represented that they would not sell the plaintiffs'

NCTC interests to any third party. Id. at 368, 437 S.E.2d at

190. The plaintiffs further alleged that they detrimentally

relied upon the defendants' misrepresentations and omissions of

material information in regard to those negotiations, and would

not have entered into the prior settlement agreement had they

been aware of those negotiations. Id. at 367-70, 437 S.E.2d at

189-191. The plaintiffs also alleged that the defendants'

subject actions constituted a breach of their fiduciary duties

owned to the plaintiffs during the negotiations, "even though

defendants were plaintiffs' adversaries in litigation." Id. at

369-73, 437 S.E.2d at 191-93.

17
 We held that the plaintiffs had no right, as a matter of

law, "reasonably to rely upon any misrepresentations or

concealment of facts by the defendants in connection with the

settlement and execution of the [settlement agreement]; there

was no justifiable reliance." Id. at 374, 437 S.E.2d at 194. A

compelling consideration for the Court was the fact that the

plaintiffs had negotiated the subject settlement to litigation

in which they were alleging that the defendants were guilty of a

number of improper and fraudulent acts. Id. at 375, 437 S.E.2d

at 194. The Court reasoned that, "when negotiating or

attempting to compromise an existing controversy over fraud,

dishonesty, and self-dealing, it is unreasonable to rely on the

representations of the allegedly dishonest party." Id. at 375,

437 S.E.2d at 195. In other words, the Court explained, there

is "no logical basis" for parties who are "represented by

counsel and involved in an adversarial relationship" to expect

"full disclosure to the adverse parties, prior to settlement."

Id. at 375, 437 S.E.2d at 194.

As the United States Court of Appeals for the Ninth Circuit

Court recently stated in rejecting an attempt to set aside a

settlement including a sale of stock:

Parties involved in litigation know that they are
locked in combat with an adversary and thus have every
reason to be skeptical of each other's claims and
representations. They can use discovery to ferret out
a great deal of information before even commencing

18
 settlement negotiations. They can further protect
themselves by requiring that the adverse party supply
the needed information, or provide specific
representations and warranties as a condition of
signing the settlement agreement. Such parties stand
on a very different footing from those who enter into
an investment relationship in the open market, where
it's reasonable to presume candor and fair dealing,
and access to inside information is often limited.
There are also very important policies that favor
giving effect to agreements that put an end to the
expensive and disruptive process of litigation.

Facebook, Inc. v. Pacific Nw. Software, Inc., 640 F.3d 1034,

1039 (9th Cir. 2011) (internal citations omitted).

Though the Trust and Murayama did not sue NISC or the other

defendants in this case for fraud in the litigation that was the

subject of the settlement agreement challenged here, Metrocall's

application of the underlying principle of reasonable reliance

in fraud claims provides guidance for our application of that

principle to the facts here presented. In its broader context,

Metrocall dictates that parties to a settlement agreement that

were in an adversarial relationship and represented by counsel

at the time of negotiation and settlement, as in the instant

case, will be strictly held to this reasonable reliance standard

under Virginia law when seeking to vitiate the settlement based

on claims of detrimental reliance on the misrepresentations

and/or omissions of information by the adversary.

The Trust argues that the circuit court erred in deciding

the reasonable reliance issue adverse to the Trust as a matter

19
of law rather than allowing the issue to be decided by a jury as

a disputed issue of fact. On the facts alleged, the Trust

asserts, "it is entirely credible that the Trust was not

'alerted' to the potential fraud and thus reasonably relied on

the statements and actions of the NISC [d]efendants." We

disagree. As the circuit court correctly determined, careful

consideration of the facts alleged, viewed in their totality,

compels the conclusion that the Trust was not justified in its

reliance on any misrepresentations and omissions by defendants

regarding the value of the Trusts' shares in the company.

Once the defendants filed the NISC/Omen complaint, alleging

numerous, significant unlawful acts committed by Murayama, as a

"co-conspirator," against NISC and Omen in a multi-million

dollar lawsuit, and threatened to name both Murayama and the

Trust as defendants in the lawsuit if the Trust did not agree to

transfer its NISC Class A stock to NISC, the defendants clearly

became the adversaries of both Murayama and the Trust. At that

point, the Trust and Murayama had every reason to be skeptical

of the defendants' actions and representations in regard to such

demand. This was particularly so when the defendants'

allegations against Murayama in that lawsuit are viewed as

false, as they must be upon our review, given that the Trust

alleges that neither Murayama nor Hawaii 5-0 was guilty of the

conduct charged in the NISC/Omen complaint. From that

20
perspective, Murayama and the Trust reasonably should have

viewed the defendants' actions as most egregious, and

"alert[ing]" them to question the defendants' actions,

representations and motives.

In their initial demand, the defendants represented that

the Trust's NISC Class A stock was worth approximately

$1,000,000, but even then the defendants were demanding that it

be transferred to them without any compensation to the extent

NISC's lender would not approve the payment to buy the stock.

Over the course of negotiations through the parties' respective

counsel, the defendants then changed their purported valuation

of the stock and represented in the settlement agreement that it

was worth $2,000,0000 - constituting a one-hundred percent

increase from the defendants' representation as to the stock's

value just four weeks earlier.

In addition, as to the defendants' pursuit of a sale of

NISC, the Trust received conflicting representations from the

defendants. During negotiations over the settlement agreement,

the defendants' counsel communicated to the Trust's counsel that

"a sale of NISC was not in the works or imminent." However, in

the settlement agreement, the defendants represented just the

opposite, expressly stating that "NISC was considering a range

of options, including a stock sale, that could ultimately lead

to a different valuation of [the] Trust's shares." The Trust

21
also acknowledged in its allegations that Murayama, in his

capacity as a member of NISC's board of managers, had requested,

but was "repeatedly" denied, access to the books, records and

activities of NISC.

We hold, as did the circuit court, that these facts

established as a matter of law that the Trust did not reasonably

rely on any misrepresentations and omissions by defendants in

regard to the value of the Trust's NISC stock for purposes of

determining its sale price under the terms of the settlement

agreement.

The Trust, therefore, will be held to the terms of the

settlement agreement, in which it expressly released the

defendants from any known or unknown claims based on fraud or

any other theory of recovery "arising from or in any way

whatsoever connected with [its] ownership of a Class A

[m]embership [i]nterest in NISC."

Finally, the Trust contends that the circuit court erred as

a matter of law in dismissing the second amended complaint

without permitting any discovery or investigation. Rule

4:1(d§ 2) states: "Discovery shall continue after a demurrer

. . . addressing one or more claims or counter-claims has been

filed and while such motion is pending decision – unless the

court in its discretion orders that discovery on some or all

issues in the action should be suspended." (Emphasis added.)

22
See also, Titan America, LLC v. Riverton Inv. Corp., 264 Va.

292, 306-08, 569 S.E.2d 57, 65 (2002).

Pending its ruling on the demurrers to the Trust's first

and second amended complaints, the circuit court suspended

discovery by orders dated August 27, 2010 and January 7, 2011,

and by a ruling from the bench at the end of the parties'

hearing on the demurrer to the second amended complaint on

January 28, 2011. The Trust agreed to the first order, objected

to the second order, and stated no objection to the third ruling

by the court to continue the suspension of discovery.

Assuming arguendo that this assignment of error was not

waived, we cannot conclude that the circuit court abused its

discretion in suspending discovery - pending its ruling on the

demurrer to the second amended complaint - where the allegations

in that complaint, taken as true, established that the Trust did

not reasonably rely upon the defendants in determining the value

of the stock it sold to NISC.

III. CONCLUSION

For the reasons stated, we will affirm the judgment of the

circuit court.

Affirmed.

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