Kauai Scuba Center, Inc. et al v. Lexington Insurance Co.

Filing 23

ORDER GRANTING DEFENDANTS RULE 12(B)(6) MOTION TO DISMISS COMPLAINT re 9 . Signed by Judge BARRY M. KURREN on 2/16/2012. ~ For the foregoing reasons, the Court GRANTS Defendant's Rule 12(b)(6) Motion to Dismiss Complaint. All cl aims are dismissed except for Counts 1 and 4 as asserted by Kauai Scuba Center. Plaintiffs may file an Amended Complaint no later than March 16, 2012. (ecs, )CERTIFICATE OF SERVICEParticipants registered to r eceive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
KAUAI SCUBA CENTER, INC., ET )
AL.,
)
)
Plaintiffs,
)
)
vs.
)
)
LEXINGTON INSURANCE CO.,
)
)
Defendant.
)
______________________________ )

Civ. No. 11-00573 BMK
ORDER GRANTING
DEFENDANT’S RULE 12(B)(6)
MOTION TO DISMISS
COMPLAINT

ORDER GRANTING DEFENDANT’S
RULE 12(B)(6) MOTION TO DISMISS COMPLAINT
Before the Court is Defendant Lexington Insurance Company’s Rule
12(b)(6) Motion to Dismiss Complaint (Doc. 9.) The Court heard this Motion on
February 10, 2012. After careful consideration of the Motion, the supporting and
opposing memoranda, and the arguments of counsel, Lexington’s Motion is
GRANTED. As noted below, Plaintiffs may file an Amended Complaint no later
than March 16, 2012.
BACKGROUND
Plaintiff Damion McGinley is the sole officer and shareholder of
Plaintiff Kauai Scuba Center, Inc. On January 10, 2010, a fire destroyed Kauai
Scuba Center’s retail store, leased dive boat, dive equipment, computer equipment,

and all business records. The Kauai Fire Department determined that the cause of
the fire was arson, but concluded that McGinley had no involvement in setting the
fire.
Kauai Scuba Center is the named insured of a commercial property
insurance policy issued by Lexington. McGinley is not a named insured under the
policy. In May 2010, Lexington paid Plaintiffs for the fire damage pursuant to the
insurance policy.
On September 21, 2011, Plaintiffs filed this action against Lexington.
Both Plaintiffs assert the following claims: (1) Bad Faith Delay of Insurer to
Investigate and Pay Claim of Insured (Count 1); (2) Emotional Distress (Count 2);
(3) Punitive Damages (Count 3); and (4) Breach of Insurance Contract (Count 4).
DISCUSSION
Lexington seeks to dismiss all claims brought by McGinley, as well as
the emotional distress and punitive damages claims brought by Kauai Scuba
Center.
I.

McGinley’s Claims in Count 1 for Bad Faith Delay of Insurer to
Investigate & Pay Claim of Insured and Count 4 for Breach of
Insurance Contract Are Dismissed
Lexington argues that McGinley’s claims for Bad Faith Delay of

Insurer to Investigate and Pay Claim of Insured (Count 1) and Breach of Insurance
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Contract (Count 4) must be dismissed because McGinley is not a named insured
under the relevant insurance policy. Plaintiffs concede that the policy and the
relevant insurance certificate attached to their Complaint “do not include Damion
McGinley either [as] a named insured or an additional insured.” (Opp. at 3.) They
also concede that, because McGinley is not a named insured, he cannot assert the
claims in Counts 1 and 4. The Court therefore DISMISSES Counts 1 and 4 as
asserted by McGinley. Counts 1 and 4 as asserted by Kauai Scuba Center remain
in this case.
II.

Count 2 for Emotional Distress is Dismissed
Plaintiffs concede that Kauai Scuba Center may not assert a claim for

emotional distress. Ailetcher v. Beneficial Finance Co. of Hawaii, 632 P.2d 1071,
1075 (Haw. App. 1981) (“there is no mental distress which can be suffered by a
corporation”). Count 2 as asserted by Kauai Scuba Center is therefore
DISMISSED.
With respect to McGinley’s claim for emotional distress, Plaintiffs
argue that he is an “alter ego” of Kauai Scuba Center and that he may therefore
“‘reverse pierce’ the corporate veil in order to avail himself of the claim for
emotional distress.” (Opp. at 5.) Plaintiffs cite to Roepke v. W. Nat’l Mutual Ins.
Co., 302 N.W.2d 350 (Minn. 1981) in arguing that the Court should allow
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McGinley to reverse pierce the corporate veil. Although the Supreme Court of
Minnesota allowed the individual in that case to reverse pierce the corporate veil,
the court expressly “limit[ed] this holding to the facts peculiar to this case.” Id.
at 353. Importantly, the Hawaii Supreme Court has not recognized this theory of
reverse piercing the corporate veil.
Plaintiffs contend that McGinley may reverse pierce the corporate veil
because he is the “alter ego” of Kauai Scuba Center. “The Hawaii Supreme Court
has listed more than twenty factors to evaluate whether one entity is another’s alter
ego, among them whether the companies commingled funds, employed the same
people, have identical ownership, or have shared directors and officers with
supervisory or managerial responsibilities over both companies.” Suzuki v. Castle
& Cooke Resorts, 239 P.3d 1280, 1284 (Haw. Ct. App. 2010). Here, Plaintiffs, do
not provide any evidence regarding these factors and whether McGinley is in fact
an alter ego of Kauai Scuba Center. As such, Plaintiffs fail to meet their burden of
establishing that McGinley is an alter ego of Kauai Scuba Center.
Accordingly, because (1) the Roepke court limited its holding to the
“facts peculiar to this case,” (2) the Hawaii Supreme Court has not adopted the
theory of reverse piercing the corporate veil, and (3) Plaintiffs fail to establish that
McGinley is the alter ego of Kauai Scuba Center, the Court rejects Plaintiffs’
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argument that McGinley may bring a claim for emotional distress. Therefore, the
Court DISMISSES Count 2 as asserted by McGinley.
III.

Count 3 for Punitive Damages is Dismissed
Plaintiffs concede that “a claim for punitive damages is not an

independent tort, but is instead a remedy.” (Opp. at 4.) Count 3 is therefore
DISMISSED. Ross v. Stouffer Hotel Co. (Hawaii) Ltd., 879 P.2d 1037, 1049
(Haw. 1994) (“a claim for punitive damages is not an independent tort, but is
purely incidental to a separate cause of action”).
IV.

Leave to Amend
Plaintiffs seek leave to amend the Complaint with respect to Counts 1,

3, and 4. (Opp. at 2, 7.) The Court grants that request. Plaintiffs may file an
Amended Complaint no later than March 16, 2012.
CONCLUSION
For the foregoing reasons, the Court GRANTS Defendant’s Rule
12(b)(6) Motion to Dismiss Complaint. All claims are dismissed except for Counts
1 and 4 as asserted by Kauai Scuba Center. Plaintiffs may file an Amended
Complaint no later than March 16, 2012.

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DATED: Honolulu, Hawaii, February 16, 2012.
IT IS SO ORDERED.

/S/ Barry M. Kurren
Barry M. Kurren
United States Magistrate Judge

Kauai Scuba Center, Inc., et al. v. Lexington Insurance Co., Civ. No. 11-00573 BMK; ORDER
GRANTING DEFENDANT'S RULE 12(B)(6) MOTION TO DISMISS COMPLAINT.
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