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Philadelphia Indemnity Insurance Co. v. Ohana Control Systems, Inc.

United States District Court, D. Hawaii

January 30, 2018

PHILADELPHIA INDEMNITY INSURANCE COMPANY, a Pennsylvania corporation, Plaintiff,
OHANA CONTROL SYSTEMS, INC., a Hawaii corporation; AMIR BOROCHOV; and LINDA KINJO, Defendants.




         Defendant Ohana Control Systems, Inc., contracted with the State of Hawaii Department of Education (“DOE” or “State”) to install fire safety equipment in four public schools. To protect against Ohana's possible failure to complete the work, the State required Ohana to obtain construction performance bonds. Plaintiff Philadelphia Indemnity Insurance Company provided the bonds, requiring Ohana and its principals, Defendants Amir Borochov and Linda Kinjo, to execute a General Indemnity Agreement. Under the General Indemnity Agreement, Ohana, Borochov, and Kinjo agreed to indemnify Philadelphia for claims made against the bonds and to post collateral in an amount sufficient to secure any claims made against the bonds.

         Philadelphia's Complaint alleges that the State made claims under the construction performance bonds, and that Defendants have breached their obligations under the General Indemnity Agreement. Defendants have filed a Counterclaim, which Philadelphia seeks to dismiss for failure to state a claim upon which relief can be granted. The court grants Philadelphia's motion to dismiss the Counterclaim.

         II. BACKGROUND.

         In 2013, Ohana, a Hawaii corporation, contracted with the DOE to install or upgrade fire safety equipment at four schools on Oahu, Hawaii. See ECF No. 16, PageID #s 134, 139, 145, 148 (Counterclaim ¶¶ 11 (Puuhale Elementary School contract), 55 (Mililani Middle School contract), 92 (Benjamin Parker Elementary School contract), and 112 (Dole Middle School contract)). There is no dispute that Hawaii law required Ohana to obtain performance bonds to secure performance of the DOE fire safety equipment contracts. See Haw. Rev. Stat. § 103D-324; ECF 19, PageID # 170; ECF No. 27, PageID # 216. Philadelphia, a Pennsylvania corporation, agreed to issue the requisite bonds on behalf of Ohana. ECF No. 16, PageID # 133 (Counterclaim ¶ 9).

         Copies of the bonds were attached to the Complaint in this matter. See ECF Nos. 1-2 (Puuhale Elementary School Performance Bond), 1-3 (Dole Middle School Performance Bond), 1- 4 (Mililani Middle School Performance Bond), and 1-5 (Benjamin Parker Elementary School Performance Bond). The bonds required Philadelphia, in the event of Ohana's default on its obligations under the fire safety equipment contracts, to “remedy the Default, or take over the work to be performed . . . and complete such work, or pay moneys to [the DOE] in satisfaction of [Philadelphia's] performance obligation.” ECF No. 1-2, PageID # 34; ECF No. 1-3, PageID # 38; ECF No. 1-4, PageID# 42; ECF No. 1-5, PageID # 46.

         In return for Philadelphia's issuance of the performance bonds, Defendants Ohana, Borochov, and Kinjo agreed to indemnify Philadelphia for any claim made on the bonds. See ECF 1-1, PageID # 20. The General Indemnity Agreement provided, in relevant part:

Indemnitors [Ohana Control, Borochov, and Kinjo] agree to indemnify and hold harmless Surety [Philadelphia] from and against any Loss sustained or incurred: (a) by reason of having executed or being requested to execute any and all Bonds; (b) by failure of Indemnitors or Principals to perform or comply with any of the covenants or conditions of this Agreement or any other agreement; and (c) in enforcing any of the covenants or conditions of this Agreement or any other agreement.

Id. The General Indemnity Agreement also required Defendants to deposit collateral with Philadelphia in the event DOE made a claim against the performance bonds:

Indemnitors agree to deposit immediately upon demand by Surety an amount equal to the greater of: (a) the amount of any reserve established by Surety in its sole discretion to cover any actual or potential liability for any Loss or potential Loss for which Indemnitors would be obliged to indemnify Surety hereunder; or (b) the amount of any Loss or potential Loss (including legal, professional, consulting and expert fees and expenses) in relation to any claim or claims or other liabilities asserted against Surety as a result of issuing any Bond, as determined by the Surety in its sole discretion.

Id. at PageID # 21.

         On August 29, 2017, Philadelphia filed the Complaint in this action, alleging that the DOE had made claims on the performance bonds and that Defendants are therefore liable to Philadelphia under the General Indemnity Agreement. See ECF No. 1, PageID #s 3, 10-11. The Complaint further alleges that Defendants have failed to deposit collateral at Philadelphia's request in the amount of $341, 724, in violation of the General Indemnity Agreement. See Id. at PageID # 11.

         On October 31, 2017, Defendants filed an Answer and a Counterclaim. See ECF 16. The Counterclaim's factual allegations largely pertain to conduct of the DOE, which is not a party to this lawsuit. See Id. at PageID #s 134-50. According to the Counterclaim, Defendants have filed a lawsuit in Hawaii state court against the DOE and State of Hawaii. See ECF No. 16 at PageID # 139.

         The Counterclaim alleges that the DOE acted improperly by, among other things, falsely alleging that Ohana failed to meet its obligations under the fire safety equipment contracts. See Id. at PageID #s 137-38 (Counterclaim ¶¶ 36, 50). The Counterclaim further alleges that the DOE is “using” these false allegations “to make a false claim against Ohana's performance bond with Plaintiff Philadelphia Insurance.” Id. ¶¶ 52, 90, PageID #s 139, 145.

         Of the Counterclaim's 124 paragraphs of general factual allegations, only two of them describe conduct by Philadelphia:

9. Philadelphia induced Defendants to enter into the surety agreement and general indemnity agreement with Philadelphia with assurances that such documents were simple requirements necessary for Defendants to move forward with their construction contracts with the Department of Education (DOE), State of Hawaii.
10. Philadelphia's misrepresentations regarding the nature and meaning of the general indemnity agreement and surety agreement induced Defendants to enter into the agreements based on the promises of the potential for successful business.

Id., PageID #s 133-34. On the basis of these allegations, the Counterclaim asserts eight claims against Philadelphia: Count I (Complete or Pro Tanto Discharge), Count II (Breach of Contract), Count III (Breach of Implied Covenant of Good Faith and Fair Dealing), Count IV (Misrepresentation), Count V (Unjust Enrichment), Count VI (Breach of Duty to Investigate and Defend), Count VII (Declaratory Relief), and Count VIII (Punitive Damages). See Id. at PageID #s 150-55.

         III. Rule 12(b)(6) Standard.

         Philadelphia moves to dismiss the Counterclaim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Dismissal under Rule 12(b)(6) may be based on either: (1) lack of a cognizable legal theory, or (2) insufficient facts under a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988) (citing Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984)).

         To survive a Rule 12(b)(6) motion to dismiss, the factual allegations in a counterclaim “must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations . . . are true (even if doubtful in fact).” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted); accord Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“[T]he pleading standard Rule 8 announces does not require ‘detailed factual allegations, ' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”). The court takes all allegations of material fact as true and construes them in the light most favorable to the nonmoving party, and then evaluates whether the counterclaim “state[s] a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570; Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001); Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. Conclusory allegations of law, unwarranted deductions of fact, and unreasonable inferences are insufficient to defeat a motion to dismiss. Sprewell, 266 F.3d at 988; Syntex Corp. Sec. Litig., 95 F.3d at 926.

         On a Rule 12(b)(6) motion, the court's review is generally limited to the contents of the counterclaim. Sprewell, 266 F.3d at 988; Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir. 1996). If matters outside the pleadings are considered, the Rule 12(b)(6) motion is treated as one for summary judgment. See Keams v. Tempe Tech. Inst., Inc., 110 F.3d 44, 46 (9th Cir. 1997); Anderson v. Angelone, 86 F.3d 932, 934 (9th Cir. 1996). The court may “consider certain materials--documents attached to the [counterclaim], documents incorporated by reference in the [counterclaim], or matters of judicial notice--without converting the motion to dismiss into a motion for summary judgment.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). This court here ignores the declaration and other evidence submitted with the Opposition and focuses instead on whether the allegations within the four corners of the Counterclaim adequately state claims.


         Philadelphia argues that all counts fail to state a claim upon which relief can be granted. ECF No. 18. This court ...

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