DAVID ALAN EZRA, District Judge.
On April 18, 2012, the Court heard Defendants Pacific Source, Inc. and Mark Mason's Motion to Dismiss First Amended Complaint, or in the Alternative, for Summary Judgment. Arnold Thielens Phillips II, Esq., appeared at the hearing on behalf of Plaintiffs Timothy J. Fitzgerald and Gordon P.A. Smith; Simon Kelvansky, Esq., and Nicole D. Stucki, Esq., appeared at the hearing on behalf of Defendants. After reviewing the motions and the supporting and opposing memoranda, the Court GRANTS IN PART AND DENIES IN PART Defendants' Motion to Dismiss, or in the Alternative, for Summary Judgment. (Doc. #59).
This case stems out of bonding agreements involving the construction of two separate properties on Maui. Defendant Pacific Source, Inc. ("PSI") is a material supplier in the State of Washington that also provides "materialmen's" construction bonds on projects pursuant to which it serves as a surety. (Doc. #13-1 ¶ 3.) Defendant Mark Mason ("Mason") is president of PSI. ("Mason Decl.," Doc. #60-1 ¶ 1.) Aloha Package Homes ("APH") was a company that provided homebuilding services, including designing homes, providing materials, and helping customers find a contractor. ("Parsons Aff.," Doc. #67-3 ¶ 3.) Virginia Parsons ("Parsons") was the sole member-manager of APH. ("Parsons Decl.," Doc. #69-1 ¶ 3.) For several years, PSI provided construction bonds for various APH projects and sold APH building materials for those projects. (Doc. #13-1 ¶ 4-7.) As surety, PSI would receive funds from the lenders of the projects and would pay the amounts owed to the subcontractors and other material suppliers. (
Plaintiffs Timothy J. Fitzgerald ("Fitzgerald") and Gordon P.A. Smith ("Smith") (collectively, Plaintiffs) each entered into bonding agreements with PSI for the construction of their respective homes. ("FAC," Doc. #56 ¶ 11; Docs. #60-5; 60-6.) Plaintiffs allege that PSI misused the bonded funds for their projects by diverting some of the funds to pay invoices for unrelated projects. (FAC ¶¶ 24-26; 37, 42, 56; 77-78.)
Plaintiffs assert that as a result of PSI's actions, they had to advance their own funds to complete the construction of their respective projects. (FAC ¶¶ 57, 79.) Fitzgerald further alleged that the advancement of his funds resulted in him filing for Chapter XIII bankruptcy protection. (FAC ¶ 58.)
On August 27, 2007, Fitzgerald and Parsons,
On or about December 17, 2007, Fitzgerald, Parsons, Martin and PSI entered into a Uniform Performance Bond, Assignment of Contract and Agreement Bond ("Vineyard Bond"). (Doc. #69-3.) On December 17, 2007, Fitzgerald and Parsons entered into a construction to mortgage contract with American Savings Bank.
On February 18, 2009, Fitzgerald, along with Parsons and her husband, Dale Parsons, signed a Limited Agreement of Guaranty and Indemnity, guaranteeing payment of all credit extended by PSI to APH. (Doc. #69-28.)
Plaintiffs allege that Defendants diverted Vineyard Project bonded funds to pay invoices for unrelated projects, and that during the construction, Mason, in his capacity as president of PSI, refused to pay a Request for Payment on the Vineyard Project. (FAC ¶¶ 22, 37, 51.) According to the FAC, this required Fitzgerald to pay for "any shortfall in the bond account if he wanted his home finished." (FAC ¶¶ 37, 51.) Plaintiffs allege that when construction was complete, Fitzgerald should have received unused money from the bond fund and expected to be reimbursed for "any advancement of his personal funds" to complete the project. (
In the fall of 2009, Smith contacted APH and met with Parsons and Fitzgerald to discuss designing and supplying the building materials for Smith's home. ("Smith Aff.," Doc. #67-2 ¶ 4.) On December 4, 2009, Smith and his wife (who is not a party in this action) contracted with APH to supply the materials and oversee the financial expenditures of the construction, including draws and payment disbursements. (
Lehua decided to use PSI for bonding the Smith Project. ("Parsons Aff.," Doc. #67-3 ¶ 22.) According to Plaintiffs, on January 19, 2010, Mason informed Parsons by phone that he would not bond the Smith Project unless she rewrote the construction contract and removed references to APH. (Parsons Aff. ¶ 23.) On or about January 25, 2010, the Smiths entered into a new construction contract ("Smith Construction Contract") with Lehua only; the contract eliminated references to APH, including any reference to an APH materials contract. (Doc. #67-11; Parsons Decl. Ex. 29.) The Smith Construction Contract states in part that "Owner hereby agrees to pay Contractor through Contractor's bonding entity, and Contractor's bonding entity agrees to distribute" the funds for the project. (Doc. #67-11.)
Unlike the Vineyard Construction Contract, the Smith Construction Contract also contains a "contingency/allowance" provision that states:
(Doc. #56-34; Doc. #69-34.) A January 29, 2010 Change Order by APH, which was approved by Smith, deleted certain kitchen materials and thus added $5,742.00 to the contingency amount, bringing the total amount allocated to contingency/allowance to $38,306.77. (Doc. #60-8.) The $38,306.77 is included in the $430,000.00 contract price. ("Duvauchelle Decl," Doc. #60-2 ¶ 11; Smith Aff. ¶ 13.)
On February 2, 2010, Smith, Lehua, and PSI signed a Uniform Performance Bond, Assignment of Contract and Agreement Bond ("Smith Bond") for the construction of a residence at 3076 Alaneo Place, Wailuku, Hawaii 96793 ("Smith Project"). (Doc. #60-6.) PSI was the surety on the bond, and as the surety, received money from the project lender and disbursed funds to subcontractors. ("Mason Decl.," Doc. #60-1 ¶ 3; Duvauchelle Decl. ¶ 8.)
Through January and February, APH continued to provide its services to Lehua and the Smiths. (Parsons Aff. ¶ 28.) On February 16, 2010, Parsons sent PSI a budget for the Smith Project that included $27,869 for APH. (Parsons Aff. ¶ 29; Doc. #67-12.) On February 18, 2010, Parsons submitted a Request for Payment for $27,869-$25,774 of which was requested from the first construction draw. (Parsons Aff. ¶ 31.) On or about February 22, 2010, a construction draw from the bonded Smith construction loan in the amount of $180,600 was funded to PSI's bonding account. (
On February 26, 2010, Mason sent Parsons an email stating: "We are applying the funds due APH from the Smith job, $25,774.00, as an offset against your account to Pacific Source." (Doc. #69-39.) PSI has stated that it received funds from the lender for Smith's project, a portion of which otherwise would be due to APH, but that it applied those funds as an offset against the outstanding debt APH owed PSI on a different construction project. (Doc. #13-1 ¶ 11.)
In a March 9, 2010 bonding statement, PSI listed a $106,850 "APH Material Package" and indicated that PSI paid $30,537.83 of that total. (Doc. #69-38.) Plaintiffs contend this was a false statement because APH was no longer supplying services to Smith and the funds extracted were not applied to the Alaneo Project. (FAC ¶¶ 72-73.)
Plaintiffs also allege that on April 6, 2010, PSI used Smith's funds to pay off Vineyard Project invoices that were improperly added to the APH aging statement. Plaintiffs further assert that as a result, Smith had to advance $33,437.55 of his own funds to complete the construction of his home. (FAC ¶ 79.)
On February 22, 2011, APH, Smith, Parsons, Dale Parsons, and Fitzgerald filed a Complaint against PSI and Mason. (Doc. #1.) The Complaint alleged a violation of the Equal Opportunity Act; debt collection violations; intent to defraud; breach of contract; breach of good faith and fair dealing; promissory estoppel; tortious interference with contractual relations; conversion; unjust enrichment; breach of fiduciary duty; intentional and/or negligent misrepresentation; malicious, wanton and intentional actions; and violation of Haw. Rev. Stat. chapter 480. (
At the December 5, 2011 hearing on the Motion to Dismiss, the Court was informed that the claims between Defendants and the Parsons and APH were released, and that the only claims remaining were that of Smith and Fitzgerald. Plaintiffs recently retained counsel Arnold Phillips, Esq., who made an oral motion to file an amended complaint. On December 6, 2011, the Court granted plaintiffs Smith and Fitzgerald leave to amend and denied Defendants' Motion to Dismiss without prejudice. (Doc. #48.)
On December 23, 2011, APH and Defendants filed a Stipulation for Dismissal of Complaint with Prejudice as to Plaintiff Aloha Package Homes LLC. (Doc. #53.) Also on December 23, 2011, Defendants and the Parsons filed a Stipulation for Dismissal of Complaint with Prejudice as to Plaintiffs Virginia Parsons and Dale J. Parsons, Jr. (Doc. #54.)
On January 19, 2012, Plaintiffs filed the present First Amended Complaint ("FAC") against PSI and Mason. ("FAC," Doc. #56.) The FAC alleges the following three claims: (1) Fraud (
On March 5, 2012, Defendants filed the instant Motion to Dismiss First Amended Complaint, or, In the Alternative, For Summary Judgment. ("Mot.," Doc. #59.) Defendants also filed a Concise Statement in Support of its Motion. ("Def's CSOF," Doc. #60.) Also on March 5, 2012, Defendants filed an Ex Parte Motion to Strike Declaration of Arnold Theilens [sic] Phillips II, Dated January 19, 2012 ("Motion to Strike"). ("Mot. to Strike," Doc. #62.)
On March 28, 2012, Plaintiffs filed an Opposition to Defendants' Motion to Dismiss ("Opposition"). ("Opp'n," Doc. #67.) Plaintiffs also filed a Concise Statement in Opposition. ("Pls' CSOF," Doc. #68.) Also on March 28, 2012, Plaintiffs filed a Declaration of Virginia Parsons. (Doc. #69.) Attached to the Virginia Parsons Declaration are the same exhibits attached to Phillips' Declaration and the FAC. (
On April 4, 2012, Defendants filed a Reply in support of their Motion to Dismiss ("Reply," Doc. #72), and a Reply in support of their Ex Parte Motion to Strike (Doc. #73).
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a motion to dismiss will be granted where the plaintiff fails to state a claim upon which relief can be granted. Review is limited to the contents of the complaint.
A complaint need not include detailed facts to survive a Rule 12(b)(6) motion to dismiss.
A court looks at whether the facts in the complaint sufficiently state a "plausible" ground for relief.
Summary judgment is granted under Federal Rule of Civil Procedure ("Rule") 56 when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c);
Summary judgment must be granted against a party that fails to demonstrate facts to establish what will be an essential element at trial.
Once the moving party has carried its burden under Rule 56, the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial" and may not rely on the mere allegations in the pleadings.
When "direct evidence" produced by the moving party conflicts with "direct evidence" produced by the party opposing summary judgment, "the judge must assume the truth of the evidence set forth by the nonmoving party with respect to that fact."
As a preliminary matter, Defendants have filed an Ex Parte Motion to Strike the January 19, 2012 Declaration of Plaintiffs' counsel Arnold Phillips, Esq. (Doc. #62.) Defendants contend that the Declaration, filed in support of the 35 exhibits attached to the FAC, should be stricken in its entirety because it inaccurately describes the exhibits, and because Phillips has no personal knowledge of the documents he is authenticating. (Doc. #62-1.) For example, Defendants note—and the Court observes—that several paragraphs of the Declaration refer to exhibits as "Plaintiff Fitzgerald's email," when the emails appear to be to or from Virginia Parsons. (
Plaintiffs have not objected to Defendants' Motion to Strike, but have, seemingly in response, filed a Declaration by former Plaintiff Virginia Parsons and attached to it the exhibits that were previously filed with the FAC. (Doc. #69.) In a Reply to their Motion to Strike, Defendants state that many of their "prior objections still stand" with respect to Parsons' Declaration. (Doc. #73.) Specifically, Defendants state that Parsons' Declaration inaccurately describes certain of the exhibits that it supports. (
Because Plaintiffs have resubmitted the exhibits with the Parsons' Declaration, the Court need not and does not consider Mr. Phillips' Declaration or the exhibits attached to the FAC. The Court therefore declines to grant Defendants' Ex Parte Motion to Strike. (Doc. #62.) To the extent that Plaintiffs' Opposition to Defendant's Motion to Dismiss and Concise Statement of Facts refer to the exhibits attached to the FAC, the Court considers the identically numbered exhibits attached to the Parsons' Declaration. Finally, the Court notes that it does not, in fact, consider the statements in Parsons' Declaration to be evidence.
Defendants allege that Plaintiffs' FAC should be dismissed because it does not set forth any cognizable cause of action against the Defendants and that, in the alternative, the indisputable facts establish that the Plaintiffs have no meritorious claim against Defendants. (Mot. at 2.)
Defendants make three primary legal arguments: (1) the Plaintiffs' construction contracts are "fixed-price contracts" in which any monies saved or cost overruns inure to the benefit or detriment of the general contractor, not Plaintiffs; (2) PSI fully performed its obligations under the Vineyard and Smith performance bonds because the projects were completed according to the construction contract specifications and free of liens; and (3) Mark Mason, having acted within his capacity as President of PSI, cannot be held personally liable for any of Plaintiffs' claims. ("Memo," Doc. #59-1 at 4-5.)
Defendants contend that Plaintiffs are not entitled to a return of any funds because the Construction Contracts were "fixed-price contracts" rather than "cost-plus contracts." (Memo at 9.) According to Defendants, because the contracts were fixed-price contracts, the general contractors, rather than the owners, "would ultimately receive the benefit under the contracts if the Projects were completed for less than agreed upon price, or . . . would lose money if the Projects ran over budget." (
Plaintiffs argue that Defendants' theory lacks merit because the construction contracts were for custom homes and were not fixed-price contracts. (Opp'n at 4.) Plaintiffs assert that they contracted with general contractors to supply labor only, with Plaintiffs controlling the materials supplied. (
Under a "lump sum," or "fixed price" contract, the contractor builds the home according to the contract specifications for a fixed price.
"[A]s a general rule, the construction and legal effect to be given a contract is a question of law."
"A contract is ambiguous when the terms of the contract are reasonably susceptible to more than one meaning."
Defendants assert that the Vineyard Construction Contract is plainly a fixed-price contract as to which any monies saved or cost overruns inure to the benefit or detriment of the contractor and that the contract supersedes any previous agreements. (Memo at 25.) Plaintiffs contend that the Vineyard Construction Contract incorporated "the agreements, documents and understandings between the parties" showing that the contract is not a fixed-price contract. (Opp'n at 5-6.) Plaintiffs specifically point to the contractor's proposal that predates the contract, as well as an addendum from the contractor. (Doc. #68 at 2, 4.)
As a preliminary matter, the Court finds that the construction contract is an integrated agreement; that is, it constitutes "a final expression of one or more terms of an agreement."
Defendants point to a provision in the GENERAL CONDITIONS section of the contract, which states:
(Doc. 60-3.) The Court finds that the above provision is an integration clause. The Court also notes that Plaintiffs are not arguing that the Vineyard Construction Contract is not a final embodiment of the agreements between the parties but rather that the previous agreements were incorporated into the Construction Contract. The Construction Contract appears to be a complete agreement. Thus, in the absence of contrary evidence, the Court determines that the Vineyard Construction Contract is integrated.
The Vineyard Construction Contract reads, in pertinent part:
(Doc. 60-3.) These provisions of the contract provide that the contractor agrees to furnish and pay for all material, labor and other items necessary to complete the Vineyard Project "for the sum of $392,599.00[.]" This shows that the contract is a fixed price contract because the language shows an ultimate sum to cover the total cost of the project.
Plaintiffs insist that the contracts are not "fixed price contracts," and state that the contractor agreed only to fix labor pricing and agreed with Plaintiffs and their respective lenders and PSI that the Plaintiffs would provide their own construction materials. They state that the construction budget set the parameters of the loan from the bank, but that any additions or change orders in addition to the budget would be an added expense borne by Plaintiffs.
Plaintiffs argue that the Vineyard Construction Contract incorporated the contractor's addendums stating the specific "labor only" he was providing. (Doc. #68 at 2-3, 4.) Plaintiffs point to two documents that they assert were incorporated into the Vineyard Construction Project: a pre-contract "Proposal" from Martin dated August 3, 2007, and a post-contract "Addendum to Contract and Job Cost Breakdown" from Martin dated December 17, 2007.
The Proposal, which was signed by Martin but not by Fitzgerald or Parsons, states, in relevant part:
The December 17, 2007 "Addendum," which is also signed by Martin but not by Fitzgerald or Parsons, states in relevant part:
(Doc. #69-2 at 4.)
As noted, the Proposal and the Addendum were signed by the contractor, but not by Fitzgerald or Parsons. The Construction Contract expressly provided that certain documents and "any supplemental instruments which are identified by the signatures of the Owner and the Contractor, shall comprise the Contract." (Doc. #69-2 at 1.) Plaintiffs assert that the copies of the Proposal and Addendum provided to the Court were "Owners' copies," and thus the necessity of their signatures was only for the contractor's benefit. (Opp'n at 6.) Plaintiffs assert that the lack of their signatures does not make the documents any less binding, as "there was consideration and a mutual assent or a meeting of the minds on all essential elements or terms to create a binding contract." (
Plaintiffs also argue that Defendants' fixed-price theory fails because the contract includes a change order provision. (Opp'n at 7.) The provision, under the contract's "GENERAL CONDITIONS" section, states:
(Doc. #60-3 at 2.) Plaintiffs appear to argue that this shows the contract between Smith and the contractor was only limited by the amount of cash provided by the lender; thus, the fixed-price theory is faulty. (Opp'n at 7.) This argument reflects a fundamental misunderstanding about fixed-price contracts. The "Changes by Owner" provision does not merely allow the owner to change the work, but it requires any changes to be agreed to by the contractor and represented in writing. Indeed, courts have recognized agreements containing change order provisions as fixed-price contracts.
In sum, the Court determines that the Vineyard Construction Contract is a fixed-price contract and Fitzgerald was not entitled to any of the bondedfunds. It follows that Fitzgerald cannot, as a matter of law, claim that he suffered an injury with respect to the Vineyard bonded funds. Accordingly, as the Court 1955 discusses below, Fitzgerald fails to state a claim for the causes of action in the FAC to the extent they are related to the Vineyard bonded funds.
The Smith Construction Contract contains a similar integration clause as that in the Vineyard Construction Contract,
The Smith Construction Contract defines Lehua as the Contractor "as hired by the Owner, to build a custom home" and provides, in relevant part:
(Doc. #60-4 at 1 (emphasis added).) The contract then lists amounts to be paid at various stages of the project.
Plaintiffs again argue that the Smith Construction Contract is not a fixed-price contract, noting that Lehua, the contractor, was not contracted to purchase materials for Smith and pointing out that the contract specifies that Lehua agrees to "manage payments for all materials." (Opp'n at 7.) Plaintiffs also point again to a "Change Orders" provision in the contract that is similar to that in the Vineyard Construction Contract. (Opp'n at 7-8.)
The Court disagrees. First, the Smith Construction Contract identifies the contractor as "hired by the Owner, to build a custom home[.]" That the Smith Construction Contract provides that Lehua covenants to furnish a bond and manage payments for materials, for which the Smiths will pay a set sum of money, does not preclude it from being a fixed-price contract. Here, under the plain and ordinary terms of the contract, Lehua will complete the home for a set price. As with the Vineyard Construction Contract, the Smith Construction Contract does not contain any references to a rate of profit for the contractor. Second, as stated above, the "Change Orders" provision does not affect the fixed-price aspect of a contract. Finally, Lehua president Sandra Duvauchelle stated in a declaration that the "Smith Construction Contract was a fixed-price contract, whereby Lehua Management Services contracted to build the Smith Project for the Owners, for the sum of $430,000.00." ("Duvauchelle Decl.," Doc. 60-2 ¶ 5.) Accordingly, the Court finds that the Smith Construction Contract is a fixed-price contract.
The Court recognizes, however, that the Smith Construction Contract also provides that the "total construction cost includes an owner contingency/allowance fund of $32,565.00 for building materials as specified per the materials contract that Owner has agreed to supply."
PSI asserts that it properly disbursed the contingency/allowance funds at the instruction of the general contractor, who had obtained Smith's approval. (Defs. Memo at 28.) Defendants rely primarily on the declarations of Duvauchelle and Mason. Duvauchelle stated that over the course of the contract, Lehua and the Smiths "agreed upon the allocation of portions of the contingency/allowance fund to certain project expenses[.]" (Duvauchelle Decl. ¶ 13.) Duvauchelle and Mason's declarations listed project expenses totaling $38,306.77, which they state PSI paid in accordance with the agreement between Lehua and the Smiths. (
Plaintiffs respond in part that Duvauchelle's declaration does not state that Smith approved "all" items allocated. In his declaration, Smith also stated that because he "did not have an accounting of the funds from either Ms. Duvauchelle or [PSI], I had no idea how much money was actually diverted and because I have never had a full reconciliation, I still do not know, nor did I approve the expenditure." (Smith Decl. ¶ 21.) Since the record is not adequately developed with respect to this issue, the Court finds the instant Motion for Summary Judgment to be premature. Defendant's Motion is therefore DENIED WITHOUT PREJUDICE as to Plaintiff Smith.
The elements of fraud under Hawaii law are: "(1) false representations made by the defendant, (2) with knowledge of their falsity (or without knowledge of their truth or falsity), (3) in contemplation of plaintiff's reliance upon them, and (4) plaintiff's detrimental reliance."
Federal Rule of Civil Procedure 9(b) requires that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). Under Ninth Circuit law, "Rule 9(b) requires particularized allegations of the circumstances constituting fraud."
In their pleadings, plaintiffs must include the time, place, and nature of the alleged fraud; "mere conclusory allegations of fraud are insufficient" to satisfy this requirement.
A motion to dismiss for failure to plead with particularity is the functional equivalent of a motion to dismiss under Rule 12(b)(6) for failure to state a claim.
Defendants argue that Plaintiffs' fraud claim fails to meet Rule 9(b)'s heightened pleading standard. Specifically, Defendants argue: "Plaintiffs have not described with particularity which alleged misstatements or omissions were made by either of the Defendants which Plaintiffs Fitzgerald or Smith, in their individual capacities, were in a position to have relied upon, given the limited nature of the contractual relationship between these Plaintiffs and the Defendants, or which alleged misstatements or omissions these Plaintiffs actually did rely upon to their personal detriment; and they have not made clear whether Plaintiffs Fitzgerald and Smith themselves, rather than APH, sustained damages." (Memo at 19-20.)
Plaintiffs assert that PSI's financial records and communications regarding the Vineyard and Smith project "bond statements, checks, invoices, and other accounting documents including the invoices to be paid from the bonded accounts contained material misstatements of fact and omitted facts necessary to make the facts stated therein not misleading[.]" (FAC ¶ 82.) For example, Plaintiffs allege that PSI emailed Fitzgerald through APH
The FAC identifies the time and nature of the alleged fraud, as well as, to a large extent, who allegedly made a fraudulent representation. However, Plaintiffs have not sufficiently asserted how they relied on the alleged misrepresentations beyond their conclusory allegations of reliance. For example, even assuming that the Smith Project bonding statement mentioned above was a representation to Smith and that Defendants harmed Smith by diverting funds, it is not clear that he even relied on the alleged misrepresentations or how such harm was a result of Smith's reliance. Accordingly, the Court DISMISSES WITHOUT PREJUDICE Count I for failure to plead sufficient facts to demonstrate a plausible claim.
As stated above, the Court finds that Fitzgerald was not entitled to the bonded funds. He therefore cannot claim detrimental reliance, a necessary element of fraud, with respect to the diversion of bonded funds. Accordingly, the Court DISMISSES Fitzgerald's fraud claim in this respect.
To prevail on a breach of contract claim, a party must demonstrate:
As stated above, the Court finds that Fitzgerald was not entitled to the bonded funds because the Vineyard Construction Contract was a fixed-price contract, and that therefore he cannot establish an injury resulting from the alleged breach, an element of a breach of contract claim. Therefore, the Court GRANTS Defendants' Motion for Summary Judgment as to Fitzgerald. Because discovery issues remain as to Smith, however, Defendants' Motion is DENIED WITHOUT PREJUDICE as to Smith's breach of contract claim.
The Hawaii Unfair and Deceptive Trade Practices Act states that "any person who is injured in the person's business or property by reason of anything forbidden or declared unlawful by this chapter . . . [m]ay sue for damages sustained by the person," including treble damages, and "[m]ay bring proceedings to enjoin the unlawful practice." Haw. Rev. Stat. § 480-13(a)(1), (2). Section 480-13 of the Hawaii Revised Statutes "establishes four essential elements: (1) a violation of chapter 480; (2) injury to plaintiff's business or property resulting from such violation; (3) proof of the amount of damages; and (4) a showing that the action is in the public interest or that the defendant is a merchant."
Section 480-2 provides that "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce is unlawful."
Plaintiffs allege that PSI's actions, including its accounting and billing practices, constitute unfair or deceptive acts or practices under chapter 480. (FAC ¶¶ 91-92.) Defendants contend that there was no privity of contract between PSI and Plaintiffs with respect to the alleged financial records and communications.
As stated above, the Court finds that Fitzgerald was not entitled to the bonded funds, and therefore cannot meet the second and third elements of his claim under chapter 480. Therefore, the Court GRANTS Defendants' Motion for Summary Judgment as to Fitzgerald.
Defendants argue that Mason should be dismissed as a defendant in his individual capacity, asserting that he was not a party to the performance bonds and that officers of a corporation are not personally liable for the corporation's contractual obligations or actions undertaken by them as agents of the corporation. (Memo at 29.)
Plaintiffs state that the present lawsuit was brought against PSI and President Mark Mason "and if evidence reveals, Mark Mason, as an individual." Although Plaintiffs' allegations largely refer to Mason "in his capacity as Surety and President of Pacific Source," Plaintiffs appear to support their suit against Mason individually by noting that he signed several email correspondence to Parsons "as `Mark' with no reference to the business or automatic signatory line." (Opp'n at 3 n.2.) These emails, included in exhibits attached to the FAC, show that Mason sent from the email address "mark@pacsource.com" and appear to relate to APH account issues. (Doc. #69-21, 69-22, 69-29.) The Court is not persuaded by Plaintiffs' reasoning.
Under Hawaii law, so long as there is no intent by the parties to have an officer or an agent of a company be personally liable for a contract that the company enters into, that officer or agent is not individually liable for contract claims arising out of the company's breach of the contract.
Here, Plaintiffs do not allege that the parties intended that Mason be personally liable when he signed the contract on behalf of PSI. Therefore, the Court DISMISSES WITHOUT PREJUDICE Plaintiffs' Breach of Contract claim as to Mason.
The Court, however, finds otherwise with regard to the fraud and UDAP claims. Under Hawai`i law, "it is well established that officers, directors, or shareholders of a corporation may be personally liable for the tortious conduct of the corporation, if they actively or passively participate in such wrongful conduct."
Corporate directors, officers, or agents may be held personally liable under the "civil" liability provisions of chapter 480 if they participate in a corporation's violation of that section.
Here, Plaintiffs allege that Mason participated in actions that at least in part form the basis of their fraud and UDAP claims. Therefore, the Court DENIES Defendants' Motion to Dismiss Plaintiffs' fraud and UDAP claims against Mason.
For the reasons set forth above, the Court DISMISSES Count I without prejudice as to Smith and DISMISSES Count I as to Fitzgerald. As to Count II, the Court GRANTS Defendants' Motion for Summary Judgment as to Fitzgerald and DENIES WITHOUT PREJUDICE Defendants' Motion as to Smith. With respect to Count III, the Court GRANTS IN PART and DENIES IN PART Defendants' Motion for Summary Judgment as to Fitzgerald, and DENIES WITHOUT PREJUDICE Defendants' Motion as to Smith. Finally, the Court GRANTS IN PART and DENIES IN PART Defendants' Motion to Dismiss claims against Mason. (Doc. #59.)
IT IS SO ORDERED.
Defendants also assert that Plaintiffs have provided no documentation supporting the assertion that Fitzgerald and Smith have personally advanced their own funds. (Memo at 11 n.9.) To the extent that Defendants are making this argument in part to show that there is no genuine issue that Plaintiffs suffered damages, this unsupported averment in a brief fails to show that an adverse party cannot produce admissible evidence to support the fact.
(Doc. #60-4.) The provision also provides that "[a]ny additional Addendums are listed below and are incorporated herein:"; this provision is followed by an empty box. (
