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Alii Security Systems, Inc. v. Professional Security Consultants

Intermediate Court of Appeals of Hawaii

September 29, 2016

ALII SECURITY SYSTEMS, INC., Plaintiff-Appellant,
v.
PROFESSIONAL SECURITY CONSULTANTS; PROFESSIONAL SECURITY CONSULTANTS, INC., Defendants-Appellees and DOE DEFENDANTS 1-10, Defendants

         APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CIVIL NO. 12-1-0430)

          Christopher A. Dias (of counsel) for Plaintiff-Appellant.

          Jeffrey A. Griswold (Lyons, Brandt, Cook & Hiramatsu) for Defendants-Appellees.

          FOLEY, PRESIDING JUDGE, LEONARD AND REIFURTH, JJ.

          OPINION

          FOLEY, J.

         Plaintiff-Appellant Alii Security Systems, Inc. (Alii) appeals from the October 24, 2012 "Order Granting Defendants Professional Security Consultants and Professional Security Consultants, Inc.'s Motion To Dismiss Or, In The Alternative, For Summary Judgment, Filed August 21, 2012" (Order); and July 24, 2013 Final Judgment (Judgment), both entered in the Circuit Court of the First Circuit[1] (circuit court).

         In the underlying action, Alii sought damages from Defendants-Appellees Professional Security Consultants and Professional Security Consultants, Inc. (together, PSC)[2] for PSC's alleged tortious interference with Alii's contractual relationship and tortious interference with Alii's prospective business advantage with the Department of Transportation, State of Hawai'i (DOT). PSC moved to dismiss the complaint, arguing that Alii failed to state a claim upon which relief could be granted and that the claims were statutorily barred. The circuit court granted the motion. On appeal, Alii seeks to have the Order vacated and the Judgment set aside.

         I. BACKGROUND

         In July of 2008, the DOT awarded Alii a three-year contract to provide security services in Oahu's commercial harbors. The contract term commenced in September of 2008, terminated in September of 2011, but provided for two optional one-year extensions. In late 2010, Alii met with DOT Operations Supervisor Bill Davis (Davis) to discuss the manner of exercising the option for the first one-year extension. In this meeting, Davis allegedly told Alii that the contract required Alii to write a letter to the DOT district manager seeking written confirmation of the extension. Davis allegedly stated that he expected "the extension would be routinely granted because of Alii['s] satisfactory performance." Alii thereafter sent a letter to DOT documenting the "agreement" to extend the contract and requesting "confirmation of the extension."

         In a June 22, 2011 meeting, DOT informed Alii that instead of being renewed, the contract would go out for bid because of "material changes[3] and a significant increase in the scope of the contract." DOT thereafter offered to extend the contract with Alii for a 6 to 9 month period while the new contract was being assembled, and Alii agreed. The contract was set to terminate around April 2012. On or about July 25, 2011, DOT issued its request for proposals for the new Harbors Contract. The contract was to be awarded to "the lowest responsive and responsible bidder whose proposal complies with all the prescribed requirements." Alii and PSC were two of thirteen bidders. The contract was awarded to PSC on November 1, 2011.[4] Alii was the second-lowest bidder.

         On November 30, 2011, Alii filed a formal bid protest with the director of DOT challenging the award pursuant to Hawaii Revised Statutes (HRS) § 103D-701 (2012 Repl.).[5] The protest was denied as untimely and lacking sufficient content. Alii requested a hearing with the Office of Administrative Hearings of the Department of Commerce and Consumer Affairs (DCCA) to contest the denial of its protest. The hearings officer affirmed the denial in its February 24, 2012, "Findings of Fact, Conclusions of Law, and Decision" (FOFs/COLs and Decision). Alii appealed the FOFs/COLs and Decision to the circuit court, [6] which affirmed the hearings officer's denial on the grounds of inadequate contents of the protest. Alii then appealed the circuit court's decision to this court, which affirmed the circuit court decision. See Alii Sec. Sys., Inc., v. Dep't. of Transp., No. CAAP-12-0000790 (App. Feb. 13, 2014) (mem).

         A. PROCEDURAL HISTORY

         Alii filed the present action on February 14, 2012, alleging three counts against PSC: Count I, Tortious Interference with Contractual Relations (TICR)[7]; Count II, Tortious Interference with Prospective Business Advantage (TIPBA)[8]; and Count III, punitive damages.[9] Alii alleged that PSC

disrupted [Alii's] existing contractual relationship and its prospective business advantage with the DOT by, inter alia, knowingly misrepresenting possessing necessary qualifications, making materially false statements to the DOT, making materially false statements to the [DCCA], falsely representing the capability to perform the requirements of the successor contract, falsely, representing being a business entity licensed to transact business in Hawaii, providing false Hawaii principal office addresses, inducing the DOT to terminate its Contract with [Alii], and inducing the DOT to award the successor contract to [PSC].

         As to Count I, Alii alleged that the three-year security contract created a contractual relationship between Alii and DOT, that PSC had knowledge of the contract, that PSC intentionally induced DOT to breach the contract, that there was no justification for PSC's actions, that DOT breached the contract, and that Alii suffered resulting damages.

         As to Count II, Alii alleged that it had a "business relationship and/or prospective advantage or expectancy" with DOT "which was sufficiently definite, specific, and capable in the sense that at all material times there was a reasonable probability of it maturing into a contract" providing "future economic benefit" to Alii, that PSC had knowledge of the expectancy, that PSC intentionally interfered with the expectancy, that the impairment of the expectancy was the legal and proximate result of the interference by PSC, and that Alii suffered resulting damages.

         On August 21, 2012, PSC filed a motion to dismiss the complaint under Hawai'i Rules of Civil Procedure (HRCP) Rule 12(b)(6), or in the alternative, for summary judgment under HRCP Rule 56 (Motion to Dismiss or for Summary Judgment).[10] PSC contended that Count I "fail[ed] to allege fact [sic] sufficient to establish two of the necessary elements of the claim for tortious interference with contract[ual relations], " and that both Counts I and II are barred by the exclusivity provisions of HRS § 103D-704 (2012 Repl.) (the Exclusive Remedy Provision). PSC attached several documents and exhibits in support of its Motion to Dismiss or for Summary Judgment. In a September 14, 2012 reply memorandum in support of the Motion to Dismiss or for Summary Judgment, PSC subsequently withdrew the HRCP Rule 56 motion for summary judgment portion, stating that "it is unnecessary for the court to consider matters outside of the pleadings in order to confirm that the Complaint fails to state a claim upon which relief can be granted and should be dismissed" under HRCP Rule 12(b)(6). In the reply memorandum, PSC limited the basis of the HRCP Rule 12(b)(6) portion of the Motion to Dismiss or for Summary Judgment to two arguments: (1) that Alii failed to state a valid TICR claim because "the nonrenewal of [Alii's] prior contract does not constitute a breach of contract" and (2) that the TIPBA claim was barred by the exclusive remedy provisions of HRS § 103D-704. After a September 20, 2012 hearing on PCS's Motion to Dismiss or for Summary Judgment, the circuit court issued the Order granting the motion to dismiss and held:

The Court having reviewed all memoranda, declarations and affidavits, and exhibits submitted thereto, having heard and considered the arguments of counsel, being fully apprised of the circumstances of the case and having viewed the record and construing the allegations of the Complaint in the light most favorable to [Alii], finds and declares as follows:
Plaintiff's Motion[11] is granted as to Count I of the Complaint on the ground that the Complaint fails to allege the necessary facts to sustain a cause of action for [TICR].
Plaintiff's Motion [(See n.11)] is granted as to Count II of the Complaint because [Alii's] claim for damages relating to a solicitation or award is barred by the exclusivity provisions of Section 103D-704 of the [HRS].
. . . .
HRS § 103D-101[(b)] provides that, "Any actual or prospective bidder, offeror, (contractor), or business taking part in the conduct of public procurement, shall act in good faith to practice purchasing ethics[.]"
Furthermore, HRS § 103D-704 provides, "The procedures and remedies provided for in this part, and the rules adopted by the [p]olicy [b]oard, shall be the exclusive means available for persons aggrieved in connection with the solicitation or award of a contract, a suspension or debarment proceeding, or in connection with a contract controversy, to resolve their claims or differences[.]"
The Court determines that HRS § 103D imposes duties not only on government officials but also any prospective bidder. Because [Alii's] Complaint seeks relief in connection with the solicitation of the award of .a contract, [Alii's] exclusive means of remedy are governed by HRS § 103D. As such, [Alii's] claims for damages are barred by the exclusivity provisions of HRS § 103D-704.
Alii filed this timely appeal[12] on August 21, 2013.

         B. POINTS OF ERROR ON APPEAL

         On appeal, Alii contends the circuit court committed

         (1) reversible error in treating PSC's motion as an HRCP Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted rather than as an HRCP Rule 56 motion for summary judgment;[13]

         (2) reversible error in concluding that Alii's claims were barred by the Exclusive Remedy Provision of the Procurement Code; and

         (3) reversible error in dismissing Alii's TICR claim for failure to allege the necessay facts to sustain a cause of action.

         II. STANDARD OF REVIEW

A trial court's ruling on [an HRCP Rule 12(b)(6)] motion to dismiss is reviewed de novo. The court must accept plaintiff's allegations as true and view them in the light most favorable to the plaintiff; dismissal is proper only if it appears beyond doubt that the plaintiff can prove no set ...

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