United States District Court, D. Hawaii
GRANTING DEFENDANT TOM MATSUDA'S MOTION TO DISMISS FIRST
AMENDED COMPLAINT FILED MARCH 17, 2017, DEFENDANT CLIFF
ALAKAI'S PRE-ANSWER MOTION TO DISMISS FIRST AMENDED
COMPLAINT FILED ON MARCH 17, 2017, AND DEFENDANT JEFFREY
KISSEL'S SUBSTANTIVE JOINDER TO DEFENDANT MATSUDA'S
AND DEFENDANT ALAKAI'S MOTIONS TO DISMISS FIRST AMENDED
COMPLAINT FILED ON MARCH 17, 2017
C. Kay, United States District Judge
reasons set forth below, the Court GRANTS Defendant Tom
Matsuda's Motion to Dismiss First Amended Complaint Filed
March 17, 2017 (ECF No. 37), Defendant Cliff Alakai's
Pre-Answer Motion to Dismiss First Amended Complaint Filed on
March 17, 2017 (ECF No. 40), and Defendant Jeffrey
Kissel's Substantive Joinder to Defendant Tom
Matsuda's Motion to Dismiss First Amended Complaint Filed
March 17, 2017 and to Defendant Cliff Alakai's Pre-Answer
Motion to Dismiss the First Amended Complaint Filed on March
17, 2017 (ECF No. 41). The Court dismisses all counts in the
First Amended Complaint WITH PREJUDICE, and Plaintiff's
First Amended Complaint is hereby DISMISSED.
2010, the Affordable Care Act (“ACA”) required
states to establish health exchanges to facilitate, for
individuals and entities, the selection, purchase, and
enrollment in private health insurance plans. First Amended
Complaint (“FAC”) ¶ 11, ECF No. 36. As a
result, the State of Hawaii established the Hawaii Health
Connector (“HHC” or the “Connector”),
the State's health insurance exchange. Id.
¶ 12. To assist with its obligations, and in particular,
to implement necessary information technology programs and
systems, HHC retained Plaintiff Mansha Consulting, LLC
(“Mansha” or “Plaintiff”).
Id. ¶¶ 10, 14, 15.
entered into a contract with HHC (the “IPMO
Contract”) which totaled over 21 million dollars.
Id. ¶ 15. The IPMO Contract was funded through
grants from the federal government, and accordingly, payment
to Mansha was to be supplied by the Centers for Medicare and
Medicaid Services (“CMS”), the responsible
federal agency. Id. ¶ 16.
began work under the IPMO contract on or around April 2013.
Id. ¶ 17. Beginning with the invoice dated
September 1, 2014 and thereafter, HHC failed to forward
Mansha's invoices for payment. Id. ¶ 18.
Following several months of unpaid invoices, each of which
was in the amount of $677, 842.61 plus excise taxes, Mansha
on or around December of 2014, ceased further work under the
IPMO Contract. Id. ¶ 19. From July 2014 to
December 2014, Mansha continued its work under the contract
based on statements and acts by the Defendants, who were
directors and/or officers of HHC, that payment would be made
to Mansha based on its invoices and erroneous reasons for
nonpayment. Id. ¶¶ 5-7, 19.
HHC collapsed. Id. ¶ 20. Since HHC's
collapse, Mansha has attempted to recover its losses by
demanding compensation from HHC directly, retaining Counsel
to address the matter with HHC, contacting CMS directly, and
communicating with other relevant third parties. Id.
relation to Defendants' actions in mishandling the
invoice payments, Mansha alleges negligent misrepresentation,
negligence, and breach of fiduciary duty claims against
Defendants Tom Matsuda (“Matsuda”) and Jeffrey
Kissel (“Kissel”) and a breach of fiduciary duty
claim against Defendant Cliff Alakai (“Alakai”).
Id. ¶¶ 22, 27, 32. As a result of these
actions, Mansha claims, inter alia, that its value
as a company has been diminished, a pending acquisition of
Mansha was derailed, and that it has lost millions of
dollars. Id. ¶¶ 25, 30, 42.
contains the following allegations against each of the
only alleges a claim for breach of fiduciary duty against
Defendant Alakai. Id. ¶ 32. Defendant Alakai
was a member of the Board of Directors for HHC during the
relevant time period and at some point might have served as a
treasurer for the Board of Directors. Id. ¶
Alakai knew or should have known that HHC became insolvent
and had a duty to Mansha to, inter alia, avoid any
actions that unduly risked assets which could be used to pay
Mansha's claim. Id. ¶¶ 39-40. Mansha
alleges that Alakai refused to forward Mansha's invoices
for payment by CMS. Id. ¶ 40. Mansha alleges
that because of this conduct Alakai was grossly negligent in
carrying out his fiduciary duties to Mansha and breached his
fiduciary duty to Mansha. Id. ¶¶ 41-42.
alleges negligent misrepresentation, negligence, and breach
of fiduciary duty claims against Defendant Matsuda.
Id. ¶¶ 22, 27, 32. Defendant Matsuda was
the Interim Executive Director of HHC “from a date
unknown” until approximately October 2014. Id.
¶ 23a. Matsuda was responsible for HHC's overall
administration. Id. ¶ 23b.
basis for Plaintiff's negligent misrepresentation claim,
Mansha alleges that Matsuda negligently misinformed Mansha
that the invoices were not being forwarded to CMS because
there was a restriction on funds initiated by either CMS or
HHC. Id. ¶¶ 23d-e. Mansha later learned
that although such a restriction may have existed for a short
period of time, the restrictions had been cleared and its
invoices could have been paid. Id. ¶ 23e.
Matsuda also made erroneous assurances to Mansha that it
would be paid on its submitted invoices, in effect urging
Mansha to “hang in there.” Id. ¶
23f. As a result of this misinformation, Mansha forwent
action which it otherwise would have taken and which could
have prevented damage to Mansha. Id. ¶ 23g.
Plaintiff further alleges that the duty owed by Matsuda to
Mansha is imposed by Restatement (Second) of Torts § 552
to exercise reasonable care in obtaining or communicating
information for the guidance of others in their business
transactions. Id. ¶ 23j.
basis for its negligence claim against Matsuda, Plaintiff
alleges that Matsuda owed Mansha a duty to take reasonable
steps to prevent damage to Mansha which could foreseeably
result from these negligent misrepresentations. Id.
¶¶ 28h-i. Because Matsuda failed to take any such
action, he breached his duty to Mansha. Id. For its
breach of fiduciary duty claim against Matsuda, Plaintiff
makes the same allegations as it does against Defendant
Alakai. Id. ¶¶ 39-42.
alleges negligent misrepresentation, negligence, and breach
of fiduciary duty claims against Defendant Kissel.
Id. ¶¶ 22, 27, 32. Defendant Kissel was
HHC's Executive Director starting in October 2014 and was
responsible for HHC's overall administration.
Id. ¶¶ 24a-b. Plaintiff's claims
against Kissel are substantially the same as Plaintiff's
claims against Matsuda. See id. ¶¶ 24b-k,
filed a Complaint against Defendants on October 28, 2016. ECF
No. 1. The Complaint raised claims for negligence and
negligent breach of fiduciary duty against all
Defendants. Id. On December 5, 2016, Matsuda
filed a Motion to Dismiss Complaint Filed October 28, 2016.
ECF No. 12. Mansha filed its Opposition on December 30, 2016.
ECF No. 19. Alakai and Kissel filed a Non-Substantive Joinder
to Matsuda's Motion to Dismiss on December 30, 2016. ECF
No. 21. Matsuda filed a Reply on January 20, 2017. ECF No.
26. On December 30, 2016, Alakai and Kissel also filed a
Pre-Answer Motion to Dismiss Complaint Filed on October 28,
2016. ECF No. 20. Plaintiff filed its Opposition on January
13, 2017. ECF No. 25. Alakai and Kissel filed a Reply on
January 20, 2017. ECF Nos. 27-28. On January 20, 2017 Matsuda
filed a Non-Substantive Joinder to Defendants Alakai and
Kissel's Reply. ECF No. 29. The Court held a hearing on
both motions to dismiss on February 2, 2017. On February 16,
2017, the Court entered an Order granting Defendants'
motions to dismiss the Complaint without prejudice
(“February 16, 2017 Order”). ECF No. 34.
March 17, 2017, Plaintiff filed its First Amended Complaint,
alleging claims for negligent misrepresentation, negligence,
and breach of fiduciary duty. ECF No. 36. As previously
discussed, Plaintiff alleges all of these claims against
Defendants Matsuda and Kissel but only breach of fiduciary
duty against Defendant Alakai. Id.
March 31, 2017, Defendant Matusda filed a Motion to Dismiss
First Amended Complaint Filed March 17, 2017 (“Matsuda
Motion”). ECF No. 37. On April 6, 2017, Defendant
Alakai filed a Pre-Answer Motion to Dismiss First Amended
Complaint Filed on March 17, 2017 (“Alakai
Motion”). ECF No. 40. On that same date, Defendant
Kissel filed a Substantive Joinder to Defendant Matsuda's
Motion to Dismiss First Amended Complaint Filed March 17,
2017 and to Defendant Cliff Alakai's Pre-Answer Motion to
Dismiss First Amended Complaint Filed on March 17, 2017
(“Kissel Joinder”). ECF No. 41.
13, 2017, Plaintiff filed oppositions to Defendants'
Motions and Kissel's Joinder (“Pl. Alakai
Opp.” and “Pl. Matusda Opp.”). ECF Nos. 45,
46. On July 20, 2017, Defendants Matsuda and Alakai filed
replies (“Matsuda Reply” and “Alakai
Reply”) to Plaintiff's oppositions. ECF Nos. 48,
50. Defendant Kissel also filed a reply in further support of
his Joinder (“Kissel Reply”). ECF No. 49. The
Court held a hearing on these Motions on August 3,
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.” Fed.R.Civ.P. 12(b)(6).
Rule 12(b)(6) is read in conjunction with Rule 8(a), which
requires only “a short and plain statement of the claim
showing that the pleader is entitled to relief.”
Fed.R.Civ.P. 8(a)(2). 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. Balistreri v. Pacifica Police
Dep't, 901 F.2d 696, 699 (9th Cir. 1988).
resolving a Rule 12(b)(6) motion, the Court must construe the
complaint in the light most favorable to the plaintiff and
accept all well-pleaded factual allegations as true.
Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d
777, 783 (9th Cir. 2012). The complaint “must contain
sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.'”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). “The plausibility standard . . . asks for more
than a sheer possibility that a defendant has acted
unlawfully.” Id. “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.'” Id. (quoting Twombly,
550 U.S. at 557).
the Court dismisses a complaint pursuant to Rule 12(b)(6) it
should grant leave to amend unless the pleading cannot be
cured by new factual allegations. OSU Student All. v.
Ray, 699 F.3d 1053, 1079 (9th Cir. 2012).
Count I: Negligent Misrepresentation
Whether Mansha's Negligent Misrepresentation Claim Must
Be Dismissed Pursuant to the Court's February 16, 2017
Matsuda and Kissel argue that Mansha's negligent
misrepresentation claim must be dismissed pursuant to the law
of the case. The Court's February 16, 2017 Order held:
[T]he allegations in the Complaint involve duties owed by
Defendants to HHC or duties that-if the Defendants had at
all-arose from the contract between HHC and Mansha.
. . .
Moreover, the negligent conduct alleged invokes duties that
would only arise from the contract between HHC and Mansha.
Mansha essentially claims that . . . Defendants Matsuda and
Kissel negligently misinformed Mansha about the reasons for
delay and the status of the payments, leading to additional
damages. See Compl. ¶¶ 26-28. These
allegations involve HHC's alleged failure to perform on
the contract, i.e., its failure to pay Mansha for its work.
They do not involve violations of any duty independently
recognized by Hawaii tort law. See Francis, 971 P.2d
at 708. As in Bernstein, Mansha has “failed to
establish any cognizable duty under [Hawaii] law apart from
and independent of [HHC's] contractual promises.”
827 F.2d at 482; see also Kelomar, 413 Fed.Appx. at
982-83 (“A person may not ordinarily recover in tort
for the breach of duties that merely restate contractual
obligations.” (quoting Aas v. Superior Court,
12 P.3d 1125, 1135 (Cal. 2000)).
16, 2017 Order at 14-16. In addition, the Court's
February 16, 2017 Order specifically held that affirmative
representations that Mansha would be paid did not give rise
to a tort claim:
Mansha attempts to argue that its allegations that Defendants
. . . made affirmative representations that Mansha would be
paid involved a duty independent from the contract between
Mansha and HHC. However, this claim attempts to “turn
a promise to perform into a statement of fact so that failure
to perform automatically shows a misrepresentation of
intention to perform.” Catamount Radiology, P.C. v.
Bailey, No. 1:14-CV-213, 2015 WL 3795028, at *14 (D. Vt.
June 18, 2015) (quoting Howard v. Usiak, 775 A.2d
909, 913 (Vt. 2001)). As noted by the Vermont Supreme Court
in Howard v. Usiak, if such a promise to perform
were actionable in tort, “any breach of contract would
be misrepresentation so that negligent breach would be a
tort.” 775 A.2d at 913. The court in Howard recognized
“the need to keep tort and contract theories separate
so that negligence concepts do not overrun the limitations on
contractual rights and remedies.” Id. The same
concerns were outlined by the Hawaii Supreme Court in
Francis, and are applicable here.
February 16, 2017 Order at 17.
FAC's allegations in the negligent misrepresentation
claim are substantively the same as those in the original
complaint's negligence claim. The only major difference
between these claims is that Mansha alleges that the duty
owed by Defendants to Mansha is imposed by Restatement
(Second) of Torts § 552 to exercise reasonable care or
competence in obtaining or communicating information for the
guidance of others in their business transactions. FAC
¶¶ 23j, 24j (citing State of Hawaii ex rel.
Bronster v. U.S. Steel Corp., 82 Haw. 32, 41, 919 P.2d
294, 303 (1996)). Therefore, pursuant to the law of the
case, which held that the conduct alleged invokes duties that
would only arise from the contract between HHC and Mansha,
Count I of the FAC must be dismissed because it fails to
allege any additional conduct that would give rise to an
independent duty in tort.
Court finds no basis to depart from the law of the case on
this issue. Under the law of the case doctrine, “a
court is generally precluded from reconsidering an issue that
has already been decided by the same court, or a higher court
in the identical case.” Thomas v. Bible, 983
F.2d 152, 154 (9th Cir. 1993). A court may have discretion to
depart from the law of the case where: (1) the first decision
was clearly erroneous; (2) an intervening change in the law
has occurred; (3) the evidence on remand is substantially
different; (4) other changed circumstances exist; or (5) a
manifest injustice would otherwise result. United States
v. Alexander, 106 F.3d 874, 876 (9th Cir. 1997). Failure
to apply the doctrine of the law of the case absent one of
the requisite conditions constitutes an abuse of discretion.
Thomas, 983 F.2d at 155.
its opposition, Mansha argues that this case gives rise to
independent tort duties rather than contract duties.
Specifically, Mansha argues that at the time of the alleged
negligent misrepresentations HHC was in breach of the
contract and any work Mansha continued to perform was
extra-contractual because Mansha was no longer obligated to
perform due to the contract breach. See Pl. Matsuda
Opp. at 18-20, 25-26. The Court finds this argument
problematic for several reasons. First, despite Mansha's
argument that it was not performing under the contract after
HHC's breach, Mansha's FAC alleges just the
opposite-“MANSHA only continued work under the IPMO
contract as a direct result of various negligent
misrepresentations by Defendants.” FAC ¶ 18
(emphasis added); see also id. ¶ 19
(“MANSHA continued to work under the IPMO
Contract based on reasonable reliance upon various
negligent statements and acts by Defendants . . .”).
The FAC, therefore, alleges that Mansha continued to work
under the contract and not that its work was
Mansha's FAC only alleges that Mansha was “faced
with a seeming breach by the Connector” but fails to
allege that HHC in fact breached the contract and that Mansha
was no longer obligated to perform under it. Id.
¶ 23h. Third, Mansha's argument assumes that a
breach by a party to a contract necessarily cancels the
contract. However, a breach by a party to a contract does not
always cancel the contract. See 23 Williston on
Contracts § 63:3 (4th ed.); 17A Am. Jur. 2d
Contracts § 549. Generally, if the breach is
material, the non-breaching party may have grounds to cancel
the contract. See id. If, on the other hand, the
breach is partial, the non-breaching party's remedy is
for damages, and the non-breaching party is still bound by
the contract and may not abandon performance. See
id. Mansha has failed to allege that there was a breach
that would serve as a basis for cancelling the contract. As
previously discussed, Mansha's FAC does not allege that
the contract was breached let alone cancelled.
the Court finds no basis to depart from the law of the case
and dismisses Count I with prejudice.
Whether the Economic Loss Rule Bars Mansha's Negligent
Court also finds that the economic loss rule bars
Mansha's negligent misrepresentation claim. Hawaii
recognizes the economic loss rule, which precludes recovery
in tort for purely economic damages. Commerce &
Indus. Ins. Co. v. Watts Water Techs., Inc.,
No. 15-00324 HG-KJM, 2016 WL 6471247, at *4 (D. Haw. Oct. 31,
2016). It “marks the fundamental boundary between the
law of contracts, which is designed to enforce expectations
created by agreement, and the law of torts, which is designed
to protect citizens and their property by imposing a duty of
reasonable care on others.” Leis Family Ltd.
P'ship v. Silversword Eng'g, 126 Haw. 532, 535,
273 P.3d 1218, 1221 (Haw. Ct. App. 2012) (internal quotation
marks and citation omitted). These tort standards are imposed
by society, without regard to any agreement. The doctrine
“was designed to prevent disproportionate liability and
allow parties to allocate risk by contract.”
Id. (internal quotation marks and citation omitted).
“Hawai‘i law will not allow tort
recovery in the absence of conduct that (1) violates a duty
that is independently recognized by principles of tort law
and (2) transcends the breach of the contract.”
Francis v. Lee Enters., Inc., 89 Haw. 234, 235, 971
P.2d 707, 708 (1999).
Maui Elec. Co. v. Chromalloy Gas Turbine, LLC, No.
CIV. 12-00486 SOM, 2015 WL 1442961, at *12-16 (D. Haw. Mar.
27, 2015), the court analyzed Hawaii case law on whether the
economic loss rule bars a claim for negligent
misrepresentation. The court held, “As this court reads
those cases, the contractually based negligent
misrepresentation claims are barred, but [those not based on
contractual obligations] survive.” Id. at *13;
compare State of Hawaii ex rel. Bronster v. U.S. Steel
Corp., 82 Haw. 32, 40, 919 P.2d 294, 302 (1996) (holding
that the tort of negligent misrepresentation was not
precluded by the economic loss doctrine), with City Exp.,
Inc. v. Express Partners, 87 Haw. 466, 469-70, 959 P.2d
836, 839-40 (1998) (distinguishing U.S. Steel and
holding that in the context of construction litigation a tort
action for negligent misrepresentation alleging damages
purely based on economic loss is not available to a party in
privity of contract with a design
Court finds this analysis persuasive, especially in light of
the previously discussed Hawaii rule that tort recovery is
not allowed in the absence of conduct that violates a duty
that is independently recognized by tort law and transcends
the breach of the contract. As previously discussed and
pursuant to the February 16, 2017 Order, the alleged
misrepresentations here are contract-based because they
relate to whether HHC was able to perform under its contract
with Mansha. The allegations here do not relate to
misrepresentations outside of the contract and do not
transcend a breach of contract action. The damages alleged
also do not relate to any specific harm arising from the
alleged misrepresentations that would not also exist from a
breach of contract claim.
Mansha argues that because Defendants in this case already
breached the contract at the time of the negligent
misrepresentation, the duty that Defendants owed to Mansha
was extra-contractual. Pl. Matsuda Opp. at 25. For the
reasons previously discussed, the Court does not find this
argument persuasive. Accordingly, the Court also dismisses
Count I because it is barred by the economic loss
Count II: Negligence
Whether Mansha Pleads a ...