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Terrance C. Cabalce, et al., George v. Vse Corporation

November 29, 2012


The opinion of the court was delivered by: J. Michael Seabright United States District Judge

(Related Cases)


This consolidated Order rules on Motions to Dismiss (and related Motions to Strike) the Third-Party Complaints in the following four related actions: Cabalce et al. v. VSE Corp. et al., Civ. No. 12-00373 JMS-RLP ("Cabalce"); Kelii et al. v. VSE Corp. et al., Civ. No. 12-00376 JMS-RLP ("Kelii"); Freeman et al. v. VSE Corp., et al., Civ. No. 12-00377 JMS-RLP ("Freeman/Sprankle"); and Irvine et al. v. VSE Corp., et al., Civ. No. 12-00391 JMS-RLP ("Irvine"). In each of these actions, Defendant/Third-Party Plaintiff VSE Corporation ("VSE") asserts the same claims in its Third-Party Complaints against Third-Party Defendant United States of America ("the United States" or "the government").*fn1 Because many of the relevant pleadings and arguments are identical, it is appropriate to issue this consolidated Order in each action.

Specifically, the court has before it (1) the United States' Motions to Dismiss VSE's Third-Party Complaints; (2) related Motions by the Plaintiffs in Cabalce, Freeman/Sprankle, and Irvine to Strike VSE's Third-Party Complaints; and (3) various procedural and substantive joinders in both sets of Motions. Based on the following, the Motions are GRANTED. VSE's Third-Party Complaints against the United States are DISMISSED.


The Motions to Dismiss are brought pursuant to Federal Rules of Civil Procedure 12(b)(1) (lack of subject matter jurisdiction) and 12(b)(6) (failure to state a claim). Accordingly, the court begins by assuming the veracity of well-pleaded factual allegations in the Third-Party Complaints to assess whether claims are plausible. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Further, in addressing subject matter jurisdiction, the court may consider evidence outside the pleadings, construed in the light most favorable to the non-moving party.*fn2 See, e.g., Autery v. United States, 424 F.3d 944, 956 (9th Cir. 2005) (explaining that a court is not confined to the pleadings when addressing a Rule 12(b)(1) motion); Dreier v. United States, 106 F.3d 844, 847 (9th Cir. 1996) (stating that, when considering evidence in a Rule 12(b)(1) motion, courts construe disputes of fact in favor of the non-movant). Applying these principles, the court sets forth the following factual background.

A. Factual Background

On April 8, 2011, five people died in an explosion and fire in or near a commercial storage facility located at 94-990 Pakela Street, Waipahu, Hawaii. Doc. No. 1-2, Compl. ¶ 14; Doc. No. 1-1, Fallon Decl. ¶¶ 3, 43. The storage facility "is located in a cave approximately 250 feet long and 15 feet wide," with "double steel doors at the entrance[.]" Doc. No. 1-2, Compl. ¶ 17 (Kelii). The decedents -- Bryan Dean Cabalce, Justin Joseph Kelii, Robert Kevin Donor Freeman, Neil Benjiman Sprankle, and Robert Leahey -- were employees of Third-Party Defendant Donaldson Enterprises, Inc. ("Donaldson"). At least some of the decedents were likely working and handling fireworks being held in the storage facility. Id. ¶ 20, 22.*fn3 Although the exact cause of the explosion has not yet been determined, it is undisputed that fireworks were directly involved.

The fireworks were part of a large cache (over 1,600 cartons) that had been forfeited to the government from two separate seizures after a joint investigation by United States Immigration and Customs Enforcement ("ICE"), the Bureau of Customs and Border Protection ("CBP"), and the Bureau of Alcohol, Tobacco, Firearms and Explosives ("ATF"). Doc. No. 9-1, Third-Party Compl. ¶¶ 20-21, 25, 29, 35. Donaldson was a subcontractor that VSE had retained to, among other duties, destroy the fireworks. Id. ¶¶ 21, 23; Doc. No. 1-2, Compl. ¶ 15 (Kelii). In turn, VSE was a government contractor for the Treasury Executive Office for Asset Forfeiture ("TEOAF"), which is an office of the United States Department of the Treasury. Doc. No. 1-1, Fallon Decl. ¶ 4.

1. VSE's Prime Contract with TEOAF

Among other functions, TEOAF supports federal law enforcement agencies, such as ICE, CBP, and ATF, with maintaining chain of custody of items seized in connection with prosecution of violations of federal law. This support includes receiving, transporting, storing, managing, and disposing of seized or forfeited items. Id. ¶¶ 5-11. But TEOAF does not perform these support services directly. Instead, since 2006, it has had a multi-million-dollar*fn4 contract with VSE to perform the support functions on a nationwide basis. Doc. 9-1, Third-Party Compl. ¶¶ 13-15; Doc. No. 1-1, Fallon Decl. ¶¶ 8-11 & Ex. E. "TEOAF depends on the involvement of such contractors to carry out its functions, as TEOAF does not maintain the necessary internal resources." Doc. 9-1, Third-Party Compl. ¶ 21. A CBP official, Eugene Relacion, confirms that "[c]ertain seized items are managed by contractors nationwide, for further security and other types of control, and due to limited federal resources, as was the case with the . . . fireworks at issue" in these actions. Doc. No. 45-7, Relacion Decl. ¶ 3.

Under the contract, when the government orders consignment of seized items, VSE cannot reject them -- it is required to accept, preserve, and protect the items until instructed by the government to take further action (such as to destroy them). Doc. No. 1-2, Fallon Decl. ¶¶ 16-18. Ownership of seized items, however, is not transferred to VSE. Rather, once items are forfeited, the government retains actual ownership. Id. ¶ 19.

VSE's contract requires it to "provide all services, materials, supplies, supervision, labor, and equipment, except that specified [in the contract] as Government-furnished, to perform all property management and disposition work set forth in [the contract]." Doc. No. 1-7, Fallon Decl. Ex. E ¶ C.3. VSE is "responsible for the performance and conduct of Project Personnel at all times," including "any subcontracted personnel." Id. ¶¶ C. & C. The contract specifies that "Project Personnel assigned to render services under the Contract shall at all times be employees of [VSE] (or a subcontractor at any tier) and under the direction and control of [VSE]" and "shall not at any time during the Contract period be employees of the U.S. Government." Doc. No. 1-8, Fallon Decl. Ex. E (pt. 2) ¶ H.29.

The contract delegates responsibility for safety and hazardous materials -- VSE must "ensure that all safety regulations, training requirements, and certification requirements have been met by Project Personnel and documented," Doc. No. 1-7, Fallon Decl. Ex. E ¶ C., and "is responsible for detecting, identifying, and managing hazardous materials[.]" Id. ¶ C.3.5.4; see also Doc. No. 1-8, Fallon Decl. Ex. E (pt. 2) ¶ H.23.3(A). When disposing items, VSE is required to "destroy General Property, including hazardous materials, in accordance with federal, state, and local laws" and its responsibilities include "determining what materials are hazardous in accordance with state and federal law; . . . preparing and submitting any required reports[; and] completing any necessary training requirements related to disposal, handling, and destruction of hazardous waste." Doc. No. 1-7, Fallon Decl. Ex. E. ¶¶ C. & C. In doing so, it "shall follow . . . professional recommendations for control of humidity and temperature, cleanliness, and handling of materials, to include hazardous materials." Doc. No. 1-8, Fallon Decl. Ex E (pt. 2) ¶ H.23.3(B). Moreover, the contract requires VSE to "take proper safety and health precautions to protect the work, the workers, and public and property of others." Id. ¶ H.31.

The contract also has broad indemnity-related clauses. It provides that VSE "shall be responsible for all damages to persons or property that occurs as a result of its, its subcontractors, or any of its or its . . . subcontractor's employees's fault or negligence." Id. It declares that VSE "is 'an Independent Contractor' and shall obtain all necessary insurance to protect Project Personnel from liability arising out of the Contract." Id. ¶ H.17. Further, under the contract, VSE agreed: to indemnity and hold the Government and its employees harmless in connection with any loss or liability from . . . injuries to or death of persons (including the agents and employees of both parties) if such . . . injury or death arises out of, or is caused by, performance of work under the Contract, unless such . . . injury, or death is caused solely by the active negligence of the Government or its employees.


2. The Seizures and Consignment of Fireworks to Donaldson

At the time of the April 8, 2011 explosion, fireworks from two government seizures were being held at the storage facility -- the "Haleamau Seizure" and the "Chang Seizure." Doc. No. 9-1, Third-Party Compl. ¶ 21. The "Haleamau Seizure" consisted of 1,370 cartons of fireworks seized by ICE agents on February 4, 2009. Id. ¶ 29. The "Chang Seizure" consisted of 296 cartons seized on January 13, 2010. Id. ¶ 35. Although ICE seized the fireworks, CBP managed the seizures for the government. Id. ¶ 24. Donaldson took custody of the fireworks as a subcontractor retained by VSE to handle, store, and (when ordered to do so) destroy them.*fn5 Id. ¶¶ 19, 23; Doc. No. 1-1, Fallon Decl. ¶¶ 15, 19, 22. Donaldson held a "Type 20 - Manufacturer of High Explosives" federal license/permit issued pursuant to 18 U.S.C. Chapter 40 (§ 841 et seq.) (regarding "importation, manufacture, distribution and storage of explosive materials"). Doc. No. 56-3, VSE's Opp'n Ex. 2.

Specifically, on March 29, 2010, Donaldson took custody of the 296 cartons from the "Chang Seizure," consisting of four types of fireworks on seventeen pallets. Doc. No. 1-16, Fallon Decl. Ex. L; Doc. No. 9-1, Third-Party Compl. ¶ 39. These fireworks had been forfeited to the government on March 22, 2010. Doc. No. 1-19, Fallon Decl. Ex. O. On March 24, 2010, CBP had issued a disposition order, directing that one carton of each type of fireworks be separated and preserved for evidentiary use. Doc. No. 9-1, Third-Party Compl. ¶ 40. And on April 16, 2010, CBP ordered the remaining 292 cartons to be destroyed.*fn6 Id. ¶ 41; Doc. No. 1-21, Fallon Decl. Ex.Q.

3. Government Approval of the Destruction Plan for the "Chang Seizure," and the April 8, 2011 Explosion After the government ordered destruction of the 292 cartons, Donaldson submitted a step-by-step "Disposal of Commercial Grade Fireworks Plan" to VSE on April 26, 2010. Doc. No. 45-3, Watson Decl. Ex. A at 5-6. VSE then submitted a corresponding "Property Destruction Plan" to CBP on April 28, 2010, describing how Donaldson personnel would prepare the seizure for destruction at the Koko Head Firing Range, overseen by a representative of Co-Defendant Blanchard Associates, Inc. Doc. No. 1-22, Fallon Decl. Ex. R. VSE's Property Destruction Plan contained a "Material Safety Data Sheet," setting forth numerous health and safety warnings and instructions, such as:

Unusual Fire and Explosion Hazards: Fireworks 1.3G MAY MASS EXPLODE IN A FIRE. DO NOT ALLOW FIREWORKS TO GET WET - Hazardous Decomposition May Result in a FIRE or EXPLOSION. EXPLOSION MAY OCCUR IF EXPOSED TO SPARKS OR FLAME. . . . .

Conditions to Avoid: - Open Flames, Sparks, High Temperatures, Friction or Impact.

Incompatibility (Materials to Avoid): - Do No Allow Fireworks to Get Wet. . . . .

Conditions to Avoid: - Storage in High Temperatures, Moist or Wet Conditions. Keep away From Open Flame or Sparks. . . . .

Steps to Be Taken in Case Material is Released or Spilled: - If Fireworks are spilled, carefully pick up the material and place in a Cardboard Carton. Keep OPEN FLAMES and Sparks AWAY and NO SMOKING. Waste Disposal Method: - Fireworks that fail to go off should be soaked in a bucket of water and returned to the source where it was obtained. Dry Components or powder should be carefully swept up and placed in a cardboard container then soaked with water. Burning of Fireworks Waste must be performed in compliance with local and state laws.


Work/Hygienic Practices: - Store Fireworks in a Cool Dry and Well Ventilated area. Protect Against Physical Damage and Moisture. Fireworks should be isolated from all Heat Sources, Sparks and Open Flame. No Smoking.

Doc. No. 45-8, Relacion Decl. Ex. A at 5-6.

Under the prime contract's terms, the government retains some oversight responsibilities regarding destruction of property. In particular, the contract provides that "[VSE] shall destroy General Property as prescribed and directed by the responsible seizing or blocking agency designated representative [e.g., ICE or CBP] on the disposition order." Doc. No. 1-7, Fallon Decl. Ex. E ¶ C. VSE's responsibilities for destruction include "[n]otifying the seizing or blocking agency official issuing the disposition order for destruction within at least five (5) working days, of location, date, and time of destruction in order to permit the agency unannounced verification of the destruction[.]" Id. ¶ C. The contract further provides that "[a]ll destructions must be coordinated and approved by the responsible seizing or blocking agency designated representative." Id. ¶ C. Accordingly, CBP officials approved VSE's Property Destruction Plan on April 28, 2010. Doc. No. 45-8, Relacion Decl. Ex. A at 3.

On June 10, 2010 -- only after Donaldson received an "emergency burn permit" from the State of Hawaii Department of Health -- VSE authorized Donaldson to proceed with destruction. See Doc. No. 45-3, Watson Decl. Ex. B (VSE email stating "you [Donaldson] are authorized to start preping [sic] seizure (soaking) contents for destruction."). The expectation was to finish within ninety days. Id. But, by March 28, 2011, only about twenty-eight percent of those fireworks had been destroyed. Doc. No. 45-6, Watson Decl. Ex. D. Destruction was temporarily suspended, apparently (according to an email from Donaldson to VSE) while Donaldson implemented a procedure to "take out the small plastic tube that's located and enclosed at the bottom of the cardboard tube [of the fireworks]," which would "allow [Donaldson] to dispose of more firework by volume on multiple burns on any given burn day." Id.*fn7 Destruction was expected to resume in April 2011. Id.

On April 8, 2011, however, a fire and explosion occurred at the storage facility. "The blast from the explosion was so great that debris was blown over 150 feet from the front doors of the storage unit. Three vehicles parked outside of the storage unit caught fire and burned from the intense heat and fire from the explosion." Doc. No. 1-2, Compl. ¶ 25 (Kelii). Donaldson employees Bryan Cabalce, Justin Kelii, Robert Freeman, Neil Sprankle, and Robert Leahey died during the incident.

B. Procedural Background

1. The Cabalce, Kelii, Freeman/Sprankle, and Irvine Actions

On May 24, 2012, suits were filed on behalf of all five decedents. Plaintiffs Terrance D. Cabalce, individually and as personal representative of the Estate of Bryan Dean Cabalce, and Gail Cabalce filed an action in the Circuit Court of the First Circuit, State of Hawaii ("State Circuit Court"), seeking damages for the death of Bryan Cabalce. See Doc. No. 1-2, Compl. (Cabalce). Three similar suits were also filed in State Circuit Court by (1) George Joseph Kelii, individually and as co-personal representative of the Estate of Justin Joseph Kelii; and other Plaintiffs, see Doc. No. 1-2, Compl. (Kelii); (2) Heather Freeman, individually and as personal representative of the Estate of Robert Kevin Donor Freeman, and Martin William Sprankle, individually and as personal representative of the Estate of Neil Benjiman Sprankle; and other Plaintiffs, see Doc. No. 1-2, Compl. (Freeman/Sprankle); and (3) Charlize Leahey Irvine, individually and as personal representative of the Estate of Robert Leahey, and other Plaintiffs, see Doc. No. 1-2, Compl. (Irvine).

All four actions assert state-law claims sounding in negligence, wrongful death, ultra-hazardous activity, and premises liability. Each names the same Defendants: VSE; Thomas E. Blanchard and Associates, Inc.; Richard Bratt; HIDC Small Business Storage LLC; Hawaiian Island Development Co., Inc.; Hawaiian Island Homes Ltd.; Hawaiian Island Commercial Ltd.; and Ford Island Ventures, LLC. See, e.g., Doc. No. 1-2, Compl. ¶¶ 5-12 (Cabalce). Notably, none of the actions names the United States as a Defendant.

On June 29, 2012, VSE removed Cabalce to this court pursuant to 28 U.S.C. ยงยง 1441, 1442 & 1446, and immediately filed an Answer and a Third-Party Complaint against Donaldson and the United States. See Doc. No. 4 (Cabalce). On July 2, 2012, VSE removed Kelii and Freeman/Sprankle, and also immediately filed Answers and Third-Party Complaints against Donaldson and the United States. See Doc. No. 4 (Kelii) & Doc. No. 5 (Freeman/Sprankle). Similarly, on July 12, 2012, VSE removed Irvine (although it did not immediately file an Answer and Third-Party Complaint). ...

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