ORDER 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

ALAN C. KAY, District Judge.

For the 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.

FACTUAL BACKGROUND

In 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.

Mansha 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.

Mansha 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 non-payment. Id. ¶¶ 5-7, 19.

Eventually, 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.

In 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.

The FAC contains the following allegations against each of the Defendants.

Plaintiff 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.1 Id. ¶ 33.2 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.

Plaintiff 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.

As the 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.

As the 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.

Plaintiff 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, 29b-i, 39-42.

PROCEDURAL BACKGROUND

Plaintiff 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.3 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.

On 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.

On 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.

On July 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, 2017.4

STANDARD

Federal 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).

In 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).

When 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).

DISCUSSION

I. Count I: Negligent Misrepresentation

a. Whether Mansha's Negligent Misrepresentation Claim Must Be Dismissed Pursuant to the Court's February 16, 2017 Order

Defendants 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:

February 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:

February 16, 2017 Order at 17.5

The 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)).6 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.

The 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.

Throughout 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 extra-contractual.

Second, 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. Accordingly, the Court finds no basis to depart from the law of the case and dismisses Count I with prejudice.

b. Whether the Economic Loss Rule Bars Mansha's Negligent Misrepresentation Claim

The 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).

In 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 professional).7

The 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.8 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.

Again, 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 rule.9

II. Count II: Negligence

a. Whether Mansha Pleads a Cognizable Negligence Claim

Defendants Matsuda and Kissel also move to dismiss Count II (Negligence) of the FAC pursuant to the Court's February 16, 2017 Order, which dismissed Mansha's negligence claim because it failed to allege that Defendants owed Mansha a cognizable duty recognized by Hawaii tort law apart from and independent of HHC's contractual promises. Defendants Matsuda and Kissel argue that Mansha's FAC fails to overcome the defects that were fatal to this claim as originally pled. The Court agrees.

Mansha's amended negligence claim is substantively the same as the negligence claim alleged in its original complaint.10 The only substantive difference is that Mansha deleted its allegation that Defendants owed Mansha "a duty to take reasonable care in carrying out [their] responsibilities, to protect MANSHA against foreseeable risks," which the February 16, 2017 Order held was conclusory and insufficient to withstand a motion to dismiss. Compl. ¶¶ 27g, 28g; February 16, 2017 Order at 16. In place of that allegation, Mansha has now alleged the following:

FAC ¶¶ 28g-h (emphasis in original); see also id. ¶¶ 29g-h (alleging the same as to Defendant Kissel).11 However, these allegations do not cure the issue the Court previously recognized in its February 16, 2017 Order—whether Defendants owed Mansha a cognizable duty independently recognized by Hawaii tort law apart from and independent of HHC's contractual promises.

Mansha argues in its opposition that its FAC establishes that Defendants owed a duty under its negligence cause of action. Mansha discusses Ah Mook Sang v. Clark, 130 Haw. 282, 308 P.3d 911 (2013) for the proposition that a duty exists for an individual who unreasonably created a heightened risk of harm through their affirmative actions to minimize the risk of that harm. Pl. Matsuda Opp. at 5-7. Mansha discusses the various factors delineated in Ah Mook Sang to determine whether a tort duty exists. However, the Court's February 16, 2017 Order already distinguished Ah Mook Sang from the present case because, inter alia: (1) it involved the risk of physical injury; (2) it emphasized that the duty at issue related to preventing physical harm from occurring and the physical harm at issue was death; and (3) defendant had a special relationship with plaintiff who was an invitee on his property. See February 16, 2017 Order at 19-21. None of these facts exist in the FAC.

Apart from this argument, all of the legal arguments Mansha makes in its opposition are related to its negligent misrepresentation count rather than its pure negligence count. In sum, Mansha has failed to support its claim that Defendants Matsuda and Kissel owed Mansha a duty under tort law to prevent economic injury. Mansha has not cited to any authority recognizing that a duty would exist under similar circumstances. Thus, the FAC fails to plead sufficient allegations to show a duty, independently recognized by tort law, to support its negligence claim. Accordingly, the Court grants Defendants Matsuda and Kissel's motion to dismiss Count II with prejudice.

b. Whether Plaintiff's Negligence Claim is Barred by the Economic Loss Rule

Defendants Matsuda and Kissel also argue that the Court should dismiss Plaintiff's negligence count because it is barred by the economic loss rule. In response, Plaintiff argues that the economic loss doctrine does not bar claims of negligent misrepresentation. However, Plaintiff does not clearly make an argument specific to its separate negligence claim.

As previously discussed, the economic loss rule 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). "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). "[N]egligence claims— specifically, those based on violations of contract specifications—fall within the purview of the economic loss rule." Ass'n of Apartment Owners of Newtown Meadows ex rel. its Bd. of Directors v. Venture 15, Inc., 115 Haw. 232, 292-93, 167 P.3d 225, 285-86 (2007), as corrected on denial of reconsideration (Sept. 20, 2007) (emphasis in original).

As previously discussed, Plaintiff has failed to plausibly allege that Defendants Matsuda and Kissel owed a duty to Mansha that is independently recognized by principles of tort law and transcends any claim for breach of contract. Rather, Plaintiff's negligence claim is based on contract violations. Therefore, the Court finds that the economic loss doctrine bars Plaintiff's negligence claim. Accordingly, the Court grants Defendants Matsuda and Kissel's motion to dismiss Count II of the FAC and dismisses Count II with prejudice.

III. Count III: Breach of Fiduciary Duty

a. Breach of Fiduciary Duty Claim Against Defendant Alakai

i. Whether Defendant Alakai Owed a Fiduciary Duty to Mansha

1. Whether the Trust Fund Doctrine Applies to the Conduct Alleged in the FAC

Defendant Alakai argues that the breach of fiduciary duty claim against him should be dismissed because he did not owe a fiduciary duty to Mansha under the trust fund doctrine. Mansha asserts that the trust fund doctrine, followed in Hawaii, serves as a basis for fiduciary duties to attach to the Defendants.

The trust fund doctrine imposes certain fiduciary duties on a corporation's directors when the corporation becomes insolvent. The theory underlying the doctrine is that when this occurs the assets of a corporation "exist for the benefit of all of its creditors and that thereafter no liens or rights can be created either voluntarily or by operation of law whereby one creditor is given an advantage over others." 15A William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 7369 (rev. vol. 2009). The assets at issue "may consist of property in the possession of the corporation, accounts receivable . . . claims of various kinds . . . [and] payments made to creditors in preference of the rights of other creditors. . ." Id. Under the trust fund doctrine, "[c]reditors may . . . look to the personal assets of the directors for breaching their fiduciary duty in improperly distributing the assets of the corporation." Id.

Very few cases in Hawaii have involved the trust fund doctrine and most of these cases are over a hundred years old. See, e.g., Hemenway v. Honolulu Clay Co., 18 Haw. 187 (Haw. Terr. 1907); Troy Laundry Mach. Co. v. Sanitary Steam Laundry Co., 18 Haw. 388 (Haw. Terr. 1907); California Feed Co. v. Club Stables Co., 10 Haw. 209 (Haw. Rep. 1896).12

The Supreme Court of the Republic of Hawaii recognized this doctrine, noting that:

California Feed Co., 10 Haw. at 212; see also Hemenway, 18 Haw. at 189 (stating that the "trust fund theory" "is that the capital stock of a corporation, and especially its unpaid portion, is a trust fund for the benefit of creditors").

Defendants argue that the trust fund doctrine under Hawaii law only prohibits self-dealing, for example by directors preferring themselves over other creditors, and does not prohibit other types of conduct.13 Although the Court will not go so far as to hold that the trust fund doctrine in Hawaii requires self-dealing, the Court agrees with Defendants that the conduct alleged here is insufficient for the trust fund doctrine to apply under Hawaii law.

The trust fund doctrine in Hawaii has only been applied to conduct involving self-dealing. Troy Laundry Mach. Co. v. Sanitary Steam Laundry Co., 18 Haw. 388 (Haw. Terr. 1907) involved allegations that a corporation's director engaged in self-dealing and discussed cases in other jurisdictions involving similar conduct. Hemenway v. Honolulu Clay Co., 18 Haw. 187 (Haw. Terr. 1907) examined the trust fund doctrine where stockholders of an insolvent corporation allegedly received shares in excess of what they paid. See 18 Haw. at 188.

Similarly, the cases Defendants mention from outside Hawaii have typically applied the trust fund doctrine in the context of self-dealing. In re Kallmeyer, 242 B.R. 492, 496 (B.A.P. 9th Cir. 1999), discussing Oregon law, states that pursuant to the trust fund doctrine, the corporation's directors hold its assets in trust for equal distribution among its creditors and cannot use those assets to prefer themselves as creditors to the prejudice of general creditors. "[A] director who breaches this fiduciary duty by misappropriating corporate assets for personal gain will be held liable under the trust fund doctrine." Id. In re: Shoe Pavilion Inc, No. 1:08-AP-01534-MT, 2013 WL 12114073 (Bankr. C.D. Cal. Feb. 21, 2013), report and recommendation adopted sub nom., In re: Shoe Pavilion, Inc., No. 1:08-AP-01534, 2013 WL 12113232 (C.D. Cal. May 30, 2013) discusses California law on the trust fund doctrine and states:

Id. (quoting Berg & Berg Enterprises, LLC v. Boyle, 178 Cal.App.4th 1020, 1040-41, 100 Cal.Rptr.3d 875, 893 (2009)) (internal citations omitted). California courts have typically found violations of the trust fund doctrine only in situations where there was self-dealing by directors or preferential treatment of creditors, and the "most frequently cited cases interpreting California's trust fund doctrine . . . involve acts that fall into one or both of these categories." Peter M. Gilhuly & Ted A. Dillman, Corporate Fiduciary Liability to Creditors and Interested/Director Transactions: Two Key Distinctions Between California and Delaware Fiduciary Duty Law That Come Under Scrutiny During Insolvency, 31 Cal. Bankr. J. 827, 830 (2012); see also id. at 831 ("While the Berg court's language suggests that any `preferential treatment of creditors' of an insolvent corporation is prohibited by the trust fund doctrine, almost all of the leading cases finding trust fund doctrine violations involve preferential payment to insider creditors." (emphasis in original)).

Moreover, other jurisdictions have expressly limited the trust fund doctrine to circumstances involving self-dealing. See, e.g., Bank of Am. v. Musselman, 222 F.Supp.2d 792, 798-99 (E.D. Va. 2002) (applying Virginia law and stating "because the trust fund doctrine does not operate in the absence of self-dealing, it is of no avail to plaintiffs here as there are no allegations that Hacker engaged in self-dealing acts to divert ECS assets from plaintiffs' reach"); St. James Capital Corp. v. Pallet Recycling Assocs. of N. Am., Inc., 589 N.W.2d 511, 517 (Minn. Ct. App. 1999) ("Absent self-dealings to the detriment of other creditors, the directors and officers of a corporation, once it becomes insolvent, are not transformed into a trust relationship and do not owe a legal duty to liquidate corporate assets in such a way as to minimize losses incurred by the corporation's creditors.").

Mansha alleges that despite notifications from Mansha, "Defendants failed to investigate and take reasonable action to effect proper forwarding and payment of MANSHA's invoices by CMS. . . Instead, Defendants neglected and refused to forward MANSHA's invoices for payment by CMS, thereby squandering, dissipating, and unduly risking an asset that could have been used to pay MANSHA," HHC's creditor. FAC ¶ 40.

The Court finds that this conduct alone is insufficient to give rise to the trust fund doctrine under Hawaii law. Hawaii case law has only applied the trust fund doctrine to cases involving self-dealing. As discussed herein, other jurisdictions have expressly limited the trust fund doctrine to conduct involving self-dealing. Plaintiff relies on California law—specifically the previously quoted language from the Berg decision—to support its argument. However, even California law, which does not expressly limit the trust fund doctrine to situations involving self-dealing or the preferential treatment of creditors, states that the trust fund doctrine does not create a broad fiduciary duty. In addition, as previously discussed, California has typically applied the trust fund doctrine to situations involving self-dealing or the preferential treatment of creditors, neither of which Plaintiff alleges here.

The conduct that Plaintiff asserts seeks to establish a broader fiduciary duty than the one created under the trust fund doctrine. Plaintiff does not claim that Defendants treated it differently than other creditors or that Defendants preferred themselves over Mansha. Accordingly, the Court dismisses this claim for breach of fiduciary duty under the trust fund doctrine with prejudice.14

2. Whether Mansha Must Allege that HHC Had Determined to Discontinue the Prosecution of Business for the Trust Fund Doctrine to Apply

Defendant Alakai argues that the FAC must be dismissed pursuant to the Court's February 16, 2017 Order because Mansha has not alleged that HHC determined to discontinue the prosecution of business. In a footnote, the February 16, 2017 Order states:

February 16, 2017 Order at 25 n.4. Accordingly, under the Court's prior holding, the trust fund doctrine does not apply unless the corporation is dissolved or becomes insolvent and determines to discontinue the prosecution of its business.

The Court finds no reason to depart from the law of the case as to this issue. In Sutton, which was quoted by the Hawaii case Troy Laundry, the court emphasized throughout its opinion that the trust fund doctrine did not apply unless the corporation determines to discontinue the prosecution of business. The court held:

63 F. at 500-03 (emphasis added)(internal quotation marks and citation omitted).

Plaintiff argues that the law of the case should not apply because Sutton mentioned the cessation of business only because it was relevant in the case and did not hold that the determination to discontinue business was a necessary element for the trust fund doctrine to apply. Pl. Alakai Opp. at 12. Given the clear and consistent language in Sutton, however, the Court disagrees. In addition, the cases Plaintiff discusses, which are quoted in Sutton, do not impact the Court's interpretation of Sutton.

In addition, other jurisdictions have found that the trust fund doctrine does not apply when a corporation is insolvent but still operating. See, e.g., Aurelius Capital Master, Ltd. v. Acosta, No. 3:13-CV-1173-P, 2014 WL 10505127, at *4 (N.D. Tex. Jan. 28, 2014) ("No Texas cases indicate that the trust fund doctrine has expanded to apply when a corporation is insolvent, but still operating."); In re Kallmeyer, 242 B.R. 492, 496 (B.A.P. 9th Cir. 1999) ("Oregon has adopted the trust fund doctrine which provides that directors of a corporation owe its creditors a fiduciary duty if either of the following occurs: (1) the corporation suspends its business and becomes insolvent or (2) the corporation's assets are placed in the possession of the court and it ceases to be a going concern." (citing Gantenbein v. Bowles, 103 Or. 277, 285, 203 P. 614, 617 (1922) (emphasis added)).

Pursuant to the Court's February 16, 2017 Order, Mansha's breach of fiduciary duty claim must have included allegations that HHC determined to discontinue the prosecution of business for the trust fund doctrine to apply. Because the FAC does not include such allegation, Mansha has failed to allege a plausible breach of fiduciary duty claim based on the trust fund doctrine. The Court, therefore, dismisses the breach of fiduciary duty claim as to Defendant Alakai, and as discussed herein, as to Defendants Matsuda and Kissel.

3. Whether Haw. Rev. Stat. § 414D-149(e) Modifies Any Duties Alakai Owed to Mansha under the Trust Fund Doctrine

Defendant Alakai argues that Haw Rev. Stat. § 414D-149(e) modifies any fiduciary duties that he would have under the trust fund doctrine.15 Haw Rev. Stat. § 414D-149(e), part of Hawaii's Nonprofit Corporation's Act, states: "A director shall not be deemed to be a trustee with respect to the corporation or with respect to any property held or administered by the corporation, including without limit, property that may be subject to restrictions imposed by the donor or transferor of the property." (emphasis added). Defendant Alakai argues that the trust fund doctrine cannot apply to directors of a non-profit corporation because, pursuant to Haw. Rev. Stat. § 414D-149(e), directors of non-profit corporations shall not be deemed to be trustees with respect to the corporation. The Court does not find this argument convincing for the following reasons.

Most importantly, if the Court were to adopt Defendant Alakai's purported reading of the statute, the trust fund doctrine in Hawaii would be nullified in the context of non-profit corporations. The Hawaii Supreme Court has held, "[S]tatutes which are in derogation of common law must be strictly construed . . . Where it does not appear there was legislative purpose in superseding the common law, the common law will be followed." Burns Int'l Sec. Servs., Inc. v. Dep't of Transp., 66 Haw. 607, 611, 671 P.2d 446, 449 (1983); see Lee v. Puamana Cmty. Ass'n, 109 Haw. 561, 575 n. 13, 128 P.3d 874, 888 n. 13 (2006) ("It is well settled that, in the absence of legislative intent to supersede the common law, such common law principles apply."); Watson v. Brown, 67 Haw. 252, 256, 686 P.2d 12, 14 (1984) (stating that "[a] statutory remedy is, as a rule, merely cumulative and does not abolish an existing common law remedy unless so declared in express terms or by necessary implication"); see also United States v. Bestfoods, 524 U.S. 51, 52 (1998) ("[T]o abrogate a common-law principle, a statute must speak directly to the question addressed by the common law."). The plain language of § 414D-149 and its legislative history reveal no legislative purpose to supersede the trust fund doctrine as established in Hawaii's common law.16 Critically, the plain language of the statute makes no reference to the duties directors owe the corporation upon insolvency and the legislative history does not specifically indicate that the statute was intended to apply during insolvency. Therefore, the Court cannot apply § 414D-149(e) to negate any fiduciary duties that Defendant Alakai would have under the trust fund doctrine.17

Furthermore, under the trust fund doctrine, directors are not deemed trustees in the literal sense, which would be necessary for § 414D-149(e) to apply here. Rather, the trust fund doctrine "references a situation analogous to a trust relationship where fiduciary duties arise . . ." In re Moeller, 466 B.R. 525, 534 (Bankr. S.D. Cal. 2012); see Troy Laundry, 18 Haw. at 390 ("`Although such directors and officers are not technical trustees, they hold, in respect of the property under their control, a fiduciary relation to creditors . . .'" (quoting Sutton Mfg. Co., 63 F. at 501)); In re Bonnie Classics, Inc., 116 F.Supp. 646, 647 (S.D.N.Y. 1953) ("[D]irectors are not trustees in the strict, technical sense of the term, but are considered in equity as bearing a fiduciary relation to the corporation and its stockholders."); see also 15A William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 7369 (rev. vol. 2009) ("The term trust fund doctrine is a misnomer to the extent it suggests an express or technical trust. . . the doctrine's reference to `trust' . . . references a situation analogous to a trust relationship where fiduciary duties arise . . ."). Accordingly, the Court does not find Defendant Alakai's argument regarding § 414D-149(e) convincing here.

ii. Whether Mansha's Breach of Fiduciary Duty Claim is Procedurally Defective Because it Failed to Join HHC

Defendant Alakai argues that "under modern law, a creditor may only bring an action under the trust fund doctrine derivatively, and must name the corporation and/or its receiver in the action." Alakai Motion at 15. A corporation is a necessary party in a derivative suit. See Meyer v. Fleming, 327 U.S. 161, 170 (1946).

Alakai discusses the landmark case of N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92 (Del. 2007), which altered the landscape of the trust fund doctrine under Delaware law. See Quadrant Structured Prod. Co., Ltd. v. Vertin, 115 A.3d 535, 544 (Del. Ch. 2015) (stating that Gheewalla "significantly altered the landscape for evaluating a creditor's breach-of-fiduciary-duty claim"). In that case, the court held that "individual creditors of an insolvent corporation have no right to assert direct claims for breach of fiduciary duty against corporate directors. Creditors may . . . [bring] derivative claims on behalf of the insolvent corporation or any other direct nonfiduciary claim . . . that may be available for individual creditors." Gheewalla, 930 A.2d at 103 (emphasis in original).18 The court reasoned that, "creditors are afforded protection through contractual agreements, fraud and fraudulent conveyance law, implied covenants of good faith and fair dealing, bankruptcy law, general commercial law and other sources of creditor rights." Id. at 99. The court further held, "Recognizing that directors of an insolvent corporation owe direct fiduciary duties to creditors. . . [would create] conflict between those directors' duty to maximize the value of the insolvent corporation . . . and the . . . direct fiduciary duty to individual creditors." Id. at 103.

Since Gheewalla, courts in Delaware have appeared to move away from holding that a corporation's directors have direct fiduciary duties to creditors, which is a central principle of the trust fund doctrine. See Quadrant Structured Prod. Co. v. Vertin, 102 A.3d 155, 172-76 (Del. Ch. 2014) (detailing the history of the case law on directors' fiduciary duties to creditors when a corporation is insolvent and stating that Gheewalla established that directors of an insolvent corporation do not owe fiduciary duties to creditors); CML V, LLC v. Bax, 6 A.3d 238, 253-54 (Del. Ch. 2010), aff'd, 28 A.3d 1037 (Del. 2011), as corrected (Sept. 6, 2011) ("Today, the trust fund doctrine has been largely discredited and abandoned, but its spirit lives on in the post-insolvency corporate creditor derivative action.").19

The Delaware Chancery Court has further explained that before Gheewalla, creditors could enforce the fiduciary duties that directors owed them through a direct action for breach of fiduciary duty, and under the trust fund doctrine, the directors' fiduciary duties to creditors included an obligation to manage the corporation as a trust fund for the creditors' benefit. Quadrant Structured Prod. Co., Ltd. v. Vertin, 115 A.3d 535, 544-47 (Del. Ch. 2015). However, this does not remain true post-Gheewalla. Id. at 546. Under Delaware law, the directors of an insolvent corporation do not owe any particular duties to creditors but continue to owe fiduciary duties to the corporation. Id. at 546-47. In addition, since Gheewalla, "[r]egardless of whether a corporation is solvent or insolvent, creditors cannot bring direct claims for breach of fiduciary duty. After a corporation becomes insolvent, creditors gain standing to assert claims derivatively for breach of fiduciary duty." Id.

Courts in some jurisdictions have adopted the Delaware rule from Gheewalla. See, e.g., GoHealth, LLC v. Simpson, No. 13 C 02334, 2013 WL 6183024, at *5 (N.D. Ill. Nov. 26, 2013) (predicting that the Illinois Supreme Court would follow Gheewalla and holding that individual creditors of a corporation do not have standing to bring a direct breach of fiduciary duty claim after a corporation's insolvency); Wells Fargo Bank, N.A. v. Konover, No. 3:05-CV-1924 (CFD), 2011 WL 1225986, at *16 (D. Conn. Mar. 28, 2011) (stating that the three Connecticut courts to address the issue of whether individual creditors can bring a direct breach of fiduciary duty claim against directors of an insolvent corporation have adopted the rule in Gheewalla and holding the same); Sanford v. Waugh & Co., 328 S.W.3d 836, 846-47 (Tenn. 2010) (adopting the Delaware Supreme Court's holding in Gheewalla and finding that although a creditor did not have a direct breach of fiduciary duty claim, he could have initiated a derivative claim on behalf of all of the insolvent corporation's creditors).20

Courts in other jurisdictions, however, have not adopted this rule. See, e.g., PCS Nitrogen, Inc. v. Ross Dev. Corp., 126 F.Supp.3d 611, 629 (D.S.C. 2015), appealed docketed, No. 16-1546 (4th Cir. May 12, 2016) ("The court concludes that South Carolina law recognizes a direct cause of action by a creditor against directors of an insolvent corporation for breach of fiduciary duties owed that creditor."); Koninklijke Philips Elecs. N. V. v. Nat'l Film Labs. Inc., No. CV 12-4576 GAF (FFMx), 2014 WL 12581759, at *4 (C.D. Cal. May 15, 2014) (stating that California case law "expressly permits non-derivative actions by creditors under the trust fund doctrine"); In re ms55, Inc., 420 B.R. 806, 819-20 (Bankr. D. Colo. 2009), aff'd, No. 10-CV-00042-PAB, 2011 WL 1084967 (D. Colo. Mar. 21, 2011) (contrasting Colorado law to Delaware's holding in Gheewalla and stating, "Under Colorado law, by contrast, directors of an insolvent corporation owe a limited duty to creditors not to favor their own interests at the expense of creditors" (emphasis in original)).

Under the trust fund doctrine in Hawaii, directors hold a fiduciary relation to creditors. See California Feed Co., 10 Haw. at 212. In In Re Ellis, in describing the trust fund doctrine, the Supreme Court of Hawaii noted that "the `trust fund theory' [] authorize[ed] the directors at the time of dissolution to serve as trustees." 487 P.2d 286, 289 (Haw. 1971). The court noted that "[i]n this capacity the former directors are proper and necessary parties to legal proceedings aimed at winding up the affairs of the dissolved corporation." Id. If the Court were to require a derivative suit in this instance, it would be departing from Hawaii's rule that directors of an insolvent corporation owe a fiduciary duty to its creditors and are proper parties in legal proceedings alleging a breach of that duty. See California Feed Co., 10 Haw. at 212; Troy Laundry, 18 Haw. at 390.

There has been no indication that the Hawaii Supreme Court would move away from this rule, which is central to the trust fund doctrine. Furthermore, as previously discussed, Delaware's holding in Gheewalla is not consistently followed in other jurisdictions. The Court, therefore, finds that pursuant to the trust fund doctrine, Mansha can allege a direct claim against HHC's directors.

iii. Whether the Breach of Fiduciary Duty Claim Against Defendant Alakai Must be Dismissed Because the FAC Does Not Adequately Allege a Breach

Defendant Alakai argues that the breach of fiduciary duty allegation against him must be dismissed because it is, at best, "an unadorned, the defendant-unlawfully-harmed-meaccusation." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). The FAC alleges that Alakai was a member of HHC's board of directors, that he was compensated, and that he was aware of HHC's insolvency. FAC ¶¶ 33, 36, 38. Mansha then alleges that Alakai breached his fiduciary duty to Mansha by "despite multiple notifications from MANSHA . . . fail[ing] to investigate and take reasonable action to effect proper forwarding and payment of MANSHA's invoices by CMS, which represented valuable assets to the Connector." Id. ¶ 40. Instead, "Defendants neglected and refused to forward MANSHA's invoices for payment by CMS, thereby squandering, dissipating, and unduly risking an asset that could have been used to pay MANSHA, a creditor to the Connector." Id. ¶ 41.

In his Reply,21 Alakai argues that Mansha must allege that Alakai had personal "notice of Mansha's claims" and must have had the "authority . . . to investigate or forward Mansha's invoices" to state a plausible breach of fiduciary duty claim. Alakai Reply at 2. The Court agrees. Although Mansha alleges that Defendants received multiple notifications from Mansha (FAC ¶ 40), Mansha does not allege that Alakai, as a director of HHC, had responsibility for the overall administration of HHC and control over the proper forwarding and payment of Mansha's invoices by CMS.22 For this reason, the Court finds that Mansha has failed to plausibly allege that Alakai breached his alleged fiduciary duty to Mansha and dismisses Count III as to Defendant Alakai on this additional basis.

b. Breach of Fiduciary Duty Claim Against Defendants Matsuda and Kissel

Defendants Matsuda and Kissel argue that Mansha's FAC should be dismissed because they did not owe a fiduciary duty to Mansha. Matsuda and Kissel first argue that the trust fund doctrine requires self-dealing. For the reasons previously discussed in Part III.a.iii.1, the Court holds that the conduct alleged in the FAC does not fall into the purview of the trust fund doctrine. Accordingly, the Court dismisses Count III as to Defendants Matsuda and Kissel.

Matsuda and Kissel also argue that Count III must be dismissed pursuant to the Court's February 16, 2017 Order, which held that they did not owe a fiduciary duty to Mansha under the trust fund doctrine because the complaint only referred to them as officers and not directors of HHC. See February 16, 2017 Order at 24-26. Similarly, in the FAC, Mansha has only referred to Matsuda as HHC's Interim Executive Director, FAC ¶¶ 23a, 28a-c, 34, and Kissel as HHC's Executive Director. FAC ¶¶ 24a, 29a-c, 35. Matsuda and Kissel therefore are not liable to Mansha under the trust fund doctrine because they were not directors of HHC, in addition to the other reasons discussed herein.

Mansha, citing to an excerpt of Troy Laundry, argues that Hawaii law is clear that the trust fund doctrine applies to both directors and officers.23 However, Mansha fails to note that in the Troy Laundry excerpt it discusses, the Supreme Court of the Territory of Hawaii was quoting a Seventh Circuit case, Sutton Mfg. Co. v. Hutchinson, 63 F. 496 (7th Cir. 1894).24 As previously discussed, the Court's February 16, 2017 Order distinguished Sutton from the present case, on the basis that the complaint did not allege that HHC determined to discontinue the prosecution of business. February 16, 2017 Order at 25 n.4.

Given this language in Sutton, the Court elaborates on its previous order and finds that officers, who have managing authority of the corporation, may have fiduciary duties under the trust fund doctrine in certain circumstances, such as where there has been a determination for the insolvent corporation to no longer continue business. However, none of these circumstances have been alleged here. For example, as previously discussed, the FAC does not allege that HHC "determined to discontinue the prosecution of business" at the time Defendants knew or should have known of HHC's insolvency. The FAC, therefore, fails to overcome the same defects that were fatal to this claim as originally pled. Accordingly, the Court dismisses Count III as to Defendants Matsuda and Kissel with prejudice.25

In sum, the Court dismisses all of Plaintiff's claims in the FAC. Because further amendment is futile, this dismissal is with prejudice, without leave to amend.26

CONCLUSION

For the foregoing reasons, 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. The Clerk of Court is DIRECTED to enter judgment in favor of Defendants and to close this case.

IT IS SO ORDERED.