236 F. Supp. 3d 1267
D. Haw.2017Background
- Hawaii created the Hawaii Health Connector (HHC) under the ACA; Mansha Consulting contracted with HHC for IT services under a $21M-plus contract funded by federal grants administered through CMS.
- From September 2014 onward HHC purportedly failed to forward Mansha’s invoices to CMS; Mansha continued work through December 2014 then stopped after months of unpaid invoices.
- Mansha alleges directors/officers (Alakai, Matsuda, Kissel) negligently mishandled invoicing, misinformed Mansha about payment restrictions, and breached fiduciary duties, causing millions in damages and a failed acquisition.
- Mansha filed suit (negligence and breach of fiduciary duty) on October 28, 2016; Matsuda, Alakai, and Kissel moved to dismiss under Rule 12(b)(6).
- The court held the motions and dismissed both claims without prejudice, granting leave to amend within 30 days unless defects are cured.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether negligence claims against directors/officers survive 12(b)(6) | Mansha: defendants’ misrepresentations and failures to act created an independent tort duty to Mansha causing economic loss | Defs: duties arose from HHC employment/contract and thus are contractual, not tort; statute of limitations also raised for Matsuda | Court: negligence claim fails because no duty independent of contract alleged; Matsuda’s SOL defense rejected at this stage (not apparent on face) |
| Whether statements/promises to pay converted to tortious misrepresentation | Mansha: affirmative assurances created independent tort duty | Defs: promises to perform are contractual; allowing tort recovery would conflate contract and tort | Court: rejected Mansha’s attempt to convert promises into tort; such claims must remain in contract law unless independent tort duty shown |
| Whether fiduciary duties attach via trust-fund doctrine / insolvency | Mansha: HHC insolvency invoked trust-fund doctrine creating fiduciary duties to creditors/contractors like Mansha | Defs: trust-fund duties apply to directors only; statute shields uncompensated directors absent gross negligence | Court: dismissed fiduciary claim — officers (Matsuda, Kissel) not covered; Alakai (director) shielded by HRS §414D-149(f) absent allegation of gross negligence |
| Whether dismissal should be with or without prejudice / leave to amend | Mansha sought to proceed on tort and fiduciary theories | Defs sought dismissal, some argued additional defenses (economic loss rule, joinder) | Court: dismissed both counts WITHOUT PREJUDICE and GRANTED leave to amend; failure to amend timely may lead to judgment against Mansha |
Key Cases Cited
- Francis v. Lee Enters., Inc., 971 P.2d 707 (Haw. 2002) (tort recovery barred where duty is not independent of contract and conduct does not transcend contractual breach)
- Bernstein v. GTE Directories Corp., 827 F.2d 480 (9th Cir. 1987) (negligence claim fails where duty arises solely from contract)
- Kelomar, Inc. v. Kulow, [citation="413 F. App'x 981"] (9th Cir. 2011) (no independent tort duty where duty springs from contract)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard requires factual allegations plausibly showing entitlement to relief)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
- Frances T. v. Village Green Owners Ass’n, 42 Cal.3d 490 (Cal. 1986) (director may owe duty to avoid unreasonable risk of physical injury to third parties)
- Ah Mook Sang v. Clark, 308 P.3d 911 (Haw. 2013) (duty can arise where actor creates unreasonable risk of physical harm)
- Cahill v. Hawaiian Paradise Park Corp., 56 Haw. 522 (Haw. 1975) (officers/directors not personally liable for corporate torts absent active participation)