Phila. Indem. Ins. Co. v. Ohana Control Sys., Inc.
289 F. Supp. 3d 1141
D. Haw.2018Background
- Ohana Control Systems contracted with Hawaii DOE to install/upgrade fire safety equipment at four schools; Hawaii law required performance bonds.
- Philadelphia Indemnity issued the required performance bonds and obtained a General Indemnity Agreement (GIA) from Ohana and its principals (Borochov, Kinjo) obligating them to indemnify Philadelphia and post collateral on demand.
- DOE made claims on the performance bonds; Philadelphia sued Ohana and its principals for indemnification and for failure to post $341,724 in requested collateral.
- Defendants filed a 8-count Counterclaim alleging (inter alia) pro tanto discharge, breach of contract, breach of implied covenant/good faith, misrepresentation, unjust enrichment, failure to investigate/defend, declaratory relief, and punitive damages.
- Philadelphia moved to dismiss under Rule 12(b)(6). The court reviewed only the Counterclaim and the bond/GIA documents attached to the Complaint.
- The court granted dismissal of the Counterclaim in full: Count I and Count VIII dismissed with prejudice; Counts II, III, IV, V, VI dismissed with leave to amend subject to specified pleading requirements; Count VII (declaratory relief) dismissed without leave to amend.
Issues
| Issue | Philadelphia's Argument | Defendants' Argument | Held |
|---|---|---|---|
| Whether non-surety indemnitors can claim "pro tanto" discharge/impairment-of-suretyship | Indemnitors cannot assert defenses available only to a surety; thus Count I fails as a matter of law | Defendants argued Philadelphia's conduct increased their risk and discharged them pro tanto | Dismissed with prejudice: only a surety (not indemnitors/principals) may assert impairment-of-suretyship defenses (court follows precedent) |
| Whether Counterclaim states breach of contract against Philadelphia | No: Counterclaim fails to identify contract provision, performance by Defendants, or specific breach; GIA gives Surety sole discretion to pay/compromise claims | Defendants contend Philadelphia prematurely sued and failed to investigate, allegedly violating bond/GIA obligations | Dismissed with leave to amend: pleading deficient; no GIA provision imposing investigatory-duty or barring suit; assertion of rights in court is not breach |
| Whether Counterclaim adequately pleads breach of implied covenant/good faith | Philly: allegations are conclusory and fail Rule 8 notice; unclear legal basis | Defendants rely on general duty of good faith (cite Hawaii statute and common law) | Dismissed with leave to amend: allowed if factual and legal basis pleaded; noting Hawaii law distinguishes bad-faith torts in limited contexts |
| Whether Counterclaim adequately pleads misrepresentation | Philadelphia: plaintiffs failed to identify any specific false statement; claims are conclusory and do not meet Rule 9(b) for fraud | Defendants allege Philadelphia misrepresented GIA/bond as mere formality and similar to insurance | Dismissed with leave to amend: intentional fraud must satisfy Rule 9(b); negligent misrep. must plead actionable misstatement with facts |
| Whether unjust enrichment and duty-to-investigate/defend claims are pleaded | Philadelphia: unjust enrichment fails because no plausible showing Philadelphia was unjustly benefited; other counts are redundant/vague | Defendants assert premiums paid and failure to perform/investigate justify relief | Dismissed with leave to amend: allegations insufficiently specific to show unjust retention or legal impossibility of remedy at law; duty-to-investigate claim mirrors deficient breach claim |
| Whether declaratory relief and punitive-damages counts stand independently | Philly: declaratory relief duplicates existing controversy and pending indemnity claim; punitive damages are a remedy, not independent claim | Defendants seek declaratory relief of non-liability and punitive damages as standalone relief | Declaratory relief dismissed without leave to amend (issue is already before the court); independent punitive-damages claim dismissed with prejudice (punitive damages remain available as remedy if substantive claim is properly pleaded) |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standards; legal conclusions insufficient)
- Balistreri v. Pacifica Police Dept., 901 F.2d 696 (9th Cir. 1988) (12(b)(6) dismissal grounds)
- Lumbermens Mut. Cas. Co. v. United States, 654 F.3d 1305 (Fed. Cir. 2011) (impairment-of-suretyship/pro tanto discharge doctrine)
- Hartford Fire Ins. Co. v. United States, 108 Fed. Cl. 525 (discussing tripartite surety relationship)
- Ross v. Stouffer Hotel Co., 879 P.2d 1037 (Haw. 1994) (punitive damages are remedial and incidental)
- Best Place v. Penn Am. Ins. Co., 920 P.2d 334 (Haw. 1996) (recognition of bad-faith tort in insurance context)
- Jou v. Nat'l Interstate Ins. Co. of Haw., 157 P.3d 561 (Haw. Ct. App. 2007) (scope of bad-faith tort vs. contract remedies)