Lindstrom v. Moffett Properties

Filing 36

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT MICHAEL REID'S MOTION TO DISMISS re 23 - Signed by JUDGE DERRICK K. WATSON on 4/5/2017. "For the foregoing reasons, Reid's Motion to Dismiss is GRANTED as to Count I II (Breach of Express and Implied Warranties), Count IV (Rescission), and Count V (Tortious Breach of Contract) those claims are dismissed with prejudice. The claims for intentional misrepresentation (Count VI) and fraud (Count VII) are dismissed with leave to amend. The Lindstroms are granted limited leave to file an amended complaint, consistent with the terms of this Order, by no later than May 1, 2017. The Motion is DENIED as to Count I (Breach of Contract) and C ount VI (Negligent Misrepresentation)." (emt, )CERTIFICATE OF SERVICEParticipants registered to receive 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 HAWAI‘I

THORIN JOHN LINDSTROM and
KRISTIN KATHLEEN LINDSTROM,
Plaintiffs,

CIVIL NO. 16-00079 DKW-RLP

ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT
MICHAEL REID’S MOTION TO
DISMISS

vs.
MOFFETT PROPERTIES; WILLIAM
B. MOFFETT; and MICHAEL REID,
Defendants.

ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANT MICHAEL REID’S MOTION TO DISMISS

INTRODUCTION
Plaintiffs Thorin John Lindstrom and Kristin Kathleen Lindstrom allege
various state-law claims arising out of their purchase of undeveloped real property
from seller Michael Reid and realtor Defendants William B. Moffett and Moffett
Properties. The Lindstroms claim that they were unable to build on the property
because of grading and fill work that defendants did not disclose.
Because the Complaint sufficiently states claims against Reid for breach of
contract and negligent misrepresentation, the Motion to Dismiss is DENIED IN
PART as to those causes of action. For the reasons detailed below, Reid’s Motion

is GRANTED IN PART with respect to the Lindstroms’ claims for breach of
warranties, rescission, tortious breach of contract, intentional misrepresentation
and/or fraud. The Lindstroms are GRANTED LEAVE TO AMEND only their
intentional misrepresentation and/or fraud claims.
BACKGROUND
I.

Plaintiffs’ Complaint
This case arises from the Lindstroms’ purchase of Lot 35 A, located at 108 A

Pua Niu Way, Lahaina, Hawaii 96791 (“Property”), from Reid for the sum of
$1,227,444.25. Complaint ¶ 7. Following an initial offer and counter offer, the
Lindstroms and Reid entered into a Purchase Contract for the Property, with the sale
closing on April 15, 2014. Complaint ¶¶ 7, 10, Ex. A (2/26/2014 Counter Offer),
Dkt. No. 1; Mem. in Supp. of Mot., Declaration of Michael Reid, Ex. A (Purchase
Contract), Dkt. No. 23-3. Moffett Properties acted as the real estate broker for both
buyer and seller in the transaction under a dual agency agreement. Complaint ¶ 22.
Defendant William B. (“Buz”) Moffett, an employee of Defendant Moffett
Properties, showed the Lindstroms the Property. Complaint ¶ 8. Non-party
George Van Fischer, another employee of Moffett Properties, represented Reid in
the sale. See Complaint, Ex. A (Counter Offer); Ex. B (3/7/14 Seller Disclosure),
Dkt. No. 1.

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The Lindstroms submitted an offer on February 25, 2014. Reid countered on
February 26, 2014. Reid’s Counter Offer included an “As Is” Condition
Addendum and Seller’s Real Property Disclosure Statement. See Counter Offer;
Seller Disclosure; Purchase Contract; see also Pls.’ Mem. in Opp’n, Ex. A
(Addendum to Seller Disclosure), Dkt. No. 30-1; Reply, Ex. A (Addendum to Seller
Disclosure), Dkt. No. 34-2. The Counter Offer provided that fill existed on the
Property and that it was being sold “as is” without warranties. For their part, the
Lindstroms allege that—
As part of the contract, Reid provided a Seller’s Real Property
Disclosure Statement (“Disclosure Statement”) to Plaintiffs
pursuant to H.R.S., Chapter 508D, Exhibit B. The Disclosure
Statement dated March 7, 2014 stated there was filled land on the
Property; however, the Disclosure Statement failed to disclose
the extent of the actual grading and fill. Further the Disclosure
Statement failed to disclose the grading and fill were
substantially in excess of what was permitted by the grading
permit (G-RS 2005/202) previously filed with the Maui Building
Department.
Complaint ¶ 9.
According to the Lindstroms, “[a]s an inducement to [them] to purchase the
Property, Moffett showed the Property to [the Lindstroms] and deliberately and
intentionally failed to disclose a hidden and dangerous defect in and on the Property
resulting from the improper grading and fill of the Property.” Complaint ¶ 8. The
Lindstroms allege, “[o]n information and belief, [Defendants] knew or should have
known of [(1)] the hidden defect on the Property due to the excess and improper
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grading and fill on the Property[,]” Complaint ¶ 16, and “[(2)] the failure to conduct
the proper soil investigation and the failure to obtain the proper grading permit, as
well [as] the grading and fill on the Property without any grading permit or in excess
of what the grading permit allowed.” Complaint ¶ 17.
After closing, the Lindstroms hired Marty Cooper, a Maui architect, to
prepare plans and specifications to build a residence on the Property. Complaint
¶ 10. Following the submission of the plans and specifications to the Maui
Building Department for a building permit, the Lindstroms’ permit application was
denied and they were informed, allegedly for the first time, that there was improper
grading and fill located on the only feasible building area on the Property.
Complaint ¶ 11. The Lindstroms also hired Kenneth Stewart, a geotechnical
engineer, who conducted a survey of the Property, and found that no soil
investigation was performed as required by the Maui Grading Code. Moreover,
according to the Lindstroms, the Maui Public Works Department denied any soil
report having been submitted to that department. Complaint ¶ 12.
The Complaint alleges that excessive and improper grading and fill has
resulted in a very high probability of future settlement of the filled soil, as well as a
high probability of ground movement due to the lack of proper materials and
compaction of the materials used for the fill. The Property accordingly has a value
substantially less than the price the Lindstroms paid to Reid based on the defective

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condition. The Lindstroms claim that the cost to remedy the defective condition is
substantial and, even if remedial work is done, it is unknown if the condition could
be remedied. Complaint ¶¶ 13-14.
The Lindstroms filed their Complaint on February 23, 2016, asserting the
following causes of action: (1) breach of contract against Reid (Count I); (2) breach
of contract and fiduciary duty against Moffett Properties (Count II); (3) breach of
express and implied warranties against Reid (Count III); (4) rescission (Count IV);
(5) tortious breach of contract against Reid (Count V); (6) intentional and negligent
misrepresentation against all Defendants (Count VI); (7) fraud against all
Defendants (Count VII); and (8) unfair and deceptive trade practices against Moffett
Properties (Count VIII).
Reid seeks dismissal of the claims brought against him. No other Defendant
has joined in Reid’s Motion.
STANDARD OF REVIEW
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.” 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

5

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).
Pursuant to Ashcroft v. Iqbal, “[t]o survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that
is plausible on its face.’” 555 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 554, 570 (2007)). “[T]he tenet that a court must accept as true
all of the allegations contained in a complaint is inapplicable to legal conclusions.”
Id. Accordingly, “[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550
U.S. at 555). Rather, “[a] claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at
556). Factual allegations that only permit the court to infer “the mere possibility of
misconduct” do not constitute a short and plain statement of the claim showing that
the pleader is entitled to relief, as required by Rule 8(a)(2). Id. at 679.
A court may consider certain documents attached to a complaint, as well as
documents incorporated by reference into a complaint “if the plaintiff refers
extensively to the document or the document forms the basis of the plaintiff’s
claim.” United States v. Ritchie, 342 F.3d 903, 909 (9th Cir. 2003); see also id. at
908 (A court may “consider certain materials—documents attached to the

6

complaint, documents incorporated by reference in the complaint, or matters of
judicial notice—without converting [a Rule 12(b)(6)] motion to dismiss into a
motion for summary judgment.”).
DISCUSSION
Reid moves to dismiss the claims against him with prejudice. Because the
Lindstroms sufficiently state claims for breach of contract (Count I) and negligent
misrepresentation (Count VI), the Motion is denied as to those claims. The Motion
is granted with respect to Count III (Breach of Express and Implied Warranties),
Count IV (Rescission), and Count V (Tortious Breach of Contract)—those claims
are dismissed with prejudice. The Lindstroms’ claims for intentional
misrepresentation (Count VI) and fraud (Count VII) are dismissed with leave to
amend, with instructions below.
I.

Count I (Breach of Contract)
Reid moves to dismiss Count I both because it fails to allege the elements of a

breach of contract cause of action and because any such claim is barred as a matter of
law by the terms of the Purchase Contract itself. The Court disagrees on both
accounts. Because the Lindstroms sufficiently state a claim for breach of contract,
the Motion is denied as to Count I.

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A.

Count I States A Claim For Breach Of Contract

A breach of contract claim must set forth (1) the contract at issue; (2) the
parties to the contract; (3) whether plaintiff performed under the contract; (4) the
particular provision of the contract allegedly violated by defendants; and (5) when
and how defendants allegedly breached the contract. See Evergreen Eng’rg, Inc. v.
Green Energy Team LLC, 884 F. Supp. 2d 1049, 1059 (D. Haw. 2012); see also
Otani v. State Farm Fire & Cas. Co., 927 F. Supp. 1330, 1335 (D. Haw. 1996) (“In
breach of contract actions, however, the complaint must, at minimum, cite the
contractual provision allegedly violated. Generalized allegations of a contractual
breach are not sufficient . . . the complaint must specify what provisions of the
contract have been breached to state a viable claim for relief under contract law.”)).
The Complaint satisfies those elements here.
The Lindstroms allege in Count I that the “existence of the defect on the
Property, as well as the failure to disclose the excessive grading and fill, and that
grading was conducted without any grading permit or in excess of what the grading
permit allowed and other failures by Reid, constitute a breach of the contract by
Reid.” Complaint ¶ 19. Moreover, they assert that Reid revealed only part of the
material information in his possession that he was required by the Purchase Contract
to disclose in full. See Complaint ¶¶ 9, 16, 17; see also Purchase Contract; Seller
Disclosure. As a result, the Lindstroms purportedly sustained damages. See

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Complaint ¶¶ 14, 20. These allegations sufficiently state a claim for breach of
contract.
Reid argues that the claim is not plausible because “[i]n order for that
disclosure [that Reid was not aware of any grading issues] to constitute a breach of
the agreement, [the] Lindstroms would have to allege that Mr. Reid in fact knew of
the grading issues. They make no such allegation.” Reply at 5. To the contrary,
the Complaint alleges that Reid knew or should have known of (1) “the hidden
defect on the Property due to the excessive and improper grading and fill on the
Property,” Complaint ¶ 16; and (2) “the failure to conduct the proper soil
investigation and the failure to obtain the proper grading permit, as well [as] the
grading and fill on the Property without any grading permit or in excess of what the
grading permit allowed.” Complaint ¶ 17. Assuming the truth of these allegations
for purposes of the instant Motion, Count I plausibly alleges “sufficient factual
content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Iqbal, 555 U.S. at 678 (citing Twombly, 550
U.S. at 556).
B.

The Purchase Contract Does Not Bar Count I As A Matter Of Law

Reid also argues that, because the existence of fill on the Property was
disclosed to the Lindstroms, and the Purchase Contract obligated them to ascertain
the extent of the “defect” through their own inspection, they cannot maintain a

9

breach of contract action as matter of law. Reid contends that the Lindstroms may
not assert a claim based upon his failure to fully disclose any defect because they
elected to purchase the Property notwithstanding the information provided in the
Seller Disclosure and verbiage in the “As Is” Addendum that “there may be latent
defects, hidden defects, or defects which time may reveal.” Complaint, Ex. A
(Counter Offer).
The Purchase Contract requires that Reid provide to the Lindstroms a Seller
Disclosure in good faith and with due care, and that he shall disclose all material
facts relating to the subject property that (1) are within Reid’s knowledge or control;
(2) can be observed from visible, accessible areas; or (3) are required to be disclosed
under Hawaii Revised Statutes §§ 508D-4.5 (relating to any release or waiver of
construction defects by Reid) or 508D-15.1 See Purchase Contract; see also Am.

1

The relevant statutory sections provide as follows:
“Disclosure statement” means a written statement prepared by the seller, or at the
seller’s direction, that purports to fully and accurately disclose all material facts
relating to the residential real property being offered for sale that:
(1) Are within the knowledge or control of the seller;
(2) Can be observed from visible, accessible areas; or
(3) Are required to be disclosed under sections 508D-4.5 and 508D-15.
“Material fact” means any fact, defect, or condition, past or present, that would be
expected to measurably affect the value to a reasonable person of the residential
real property being offered for sale. The disclosure statement shall not be
construed as a substitute for any expert inspection, professional advice, or warranty
that the buyer may wish to obtain.

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Mem. in Supp. at 5-6. The Purchase Contract further provides that “[t]he
Disclosure Statement is NOT a warranty of any kind. Under Chapter 508D, the
Disclosure Statement shall not be construed as a substitute for any expert inspection,
professional advice, or warranty that Buyer may wish to obtain.” Purchase
Contract at 6. See also Seller Disclosure (“THIS DISCLOSURE IS NOT A
WARRANTY OF ANY KIND BY SELLER OR BY ANY AGENT
REPRESENTING SELLER AND IS NOT A SUBSTITUTE FOR ANY EXPERT
INSPECTION, PROFESSIONAL ADVICE, OR WARRANTY THAT BUYER
MAY WISH TO OBTAIN.”).
Reid argues that, because he disclosed the existence of fill on the Property in
the Disclosure Statement, see Complaint, Ex. B, the Lindstroms were accordingly on
notice of fill and “should have investigated further, particularly given the other
provisions in the Purchase Contract,” including the right to inspect with
professionals of their choosing. Am. Mem. in Supp. at 6 (citing Purchase Contract
§ J-1). Coupled with the “As Is” Condition Addendum of the Purchase Contract,
Reid asserts that the Lindstroms cannot maintain a breach of contract claim because

HRS § 508D-1. Section 508D-4.5 provides that “[a]ny release from or waiver of liability . . . by a
seller to any government agency, contractor as defined in section 444-1, or engineer, architect,
land surveyor, or landscape architect licensed . . . for any defect, mistake, or omission in the design
or construction of any residential real property that measurably affects the value of the residential
real property is a material fact that shall be contained in a disclosure statement.” Finally, Section
508D-15 defines when sellers are required to disclose the location of real property within certain
designated boundary zones.

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they agreed that they were responsible for ascertaining the condition of the property
and identifying any defects associated with it, including those noted in the
Disclosure Statement. See Am. Mem. in Supp. at 7.
The Lindstroms argue in opposition that the Addendum to the Seller
Disclosure failed to provide the required explanation for all items that Reid checked
on the Disclosure Statement, including for item 41 relating to “filled land” on the
Property. According to the Lindstroms, by checking Box 41 on the Seller
Disclosure and then failing to offer additional information that Reid had regarding
the filled land, Reid breached his contractual obligation under the Purchase
Contract. That is, they allege that Reid breached the Purchase Contract by
disclosing only part of the “material information” in his possession regarding the
condition of the Property. See Complaint ¶¶ 9, 16, 17, 19. Notably, the terms of
the Purchase Contract required Reid to “fully and accurately disclose in writing to a
buyer all ‘material facts’ concerning the property.” Seller Disclosure. Whether
Reid complied with this requirement or breached this term is a question of fact that
the Court cannot determine at present. At this stage of the proceedings, viewing the
pleadings under a Rule 12(b)(6) standard, the Court agrees that the Lindstroms’
breach of contract claim is not categorically barred as a matter of law based upon the
terms of the Purchase Contract and the allegations in the Complaint. Accordingly,
the Motion is denied as to Count I.

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II.

Count III (Breach of Express and Implied Warranties)
Count III alleges that Reid made unspecified “express and/or implied

warranties to [the Lindstroms that] the Property was free of all defects, including
excessive and improper grading and fill.” Complaint ¶ 26. The Purchase
Contract, however, disclaims all warranties, express and implied, in the “As Is”
Addendum and Seller Disclosure. In opposition to the Motion, the Lindstroms
acknowledge that they cannot maintain any claim based on express warranty. See
Mem. in Opp’n at 10. Instead, they argue that Count III rests on the implied
warranty of habitability implied in Hawaii law. See id. (citing Lemle v. Breeden,
462 P.2d 470, 474, 51 Haw. 426, 433 (1969)).
The Lindstroms’ argument is without merit for two reasons. First, as noted
above, the Purchase Agreement’s “As Is” Addendum explicitly disclaims all
warranties, including implied warranties. See Purchase Agreement, “As Is”
Addendum ¶ 5 (“[T]he Property will be sold and transferred at closing in “AS IS”
CONDITION, WITHOUT ANY REPRESENTATIONS OR WARRANTIES,
EXRESSED OR IMPLIED.”). Second, the implied warranty of habitability does
not apply under the circumstances here, where the allegations involve the purchase
of an undeveloped parcel of land. See, e.g., Barber v. Ohana Military
Communities, LLC, 2014 WL 3529766, at *6 (D. Haw. July 15, 2014) (“A property
owner breaches the implied warranty of habitability if he leases his property with a

13

defect or unsafe condition that is ‘of a nature and kind which will render the
premises unsafe, or unsanitary and thus unfit for living.’”) (quoting Armstrong v.
Cione, 736 P.2d 440, 445 (Haw. Ct. App. 1987)); Doe v. Grosvenor Ctr. Assocs.,
104 Hawai‘i 500, 514, 92 P.3d 1010, 1024 (Ct. App. 2004) (Noting that Hawaii
courts have not extended the implied warranty of habitability beyond residential
leases to commercial leases, and declining to do so where a tenant of a commercial
sub-lease suffered a physical attack in an office building.); Lemle v. Breeden, 51
Haw. 426, 462 P.2d 470 (1969) (recognizing the doctrine of implied warranty of
habitability and finding rat infestation of leased premises constituted a breach).
The Lindstroms cannot maintain a claim for breach of the implied warranty of
habitability for the purchase of an undeveloped parcel of real property where the
Purchase Contract itself disclaims implied warranties. Accordingly, Reid’s Motion
is granted with respect to Count III. Because amendment would be futile, the claim
for breach of warranties is dismissed without leave to amend.
III.

Count IV (Rescission)
The Lindstroms agree that rescission is a remedy and not an independent

claim for relief. See Mem. in Opp’n at 11; see also Campollo v. Bank of Am., 2011
WL 2457674, at *5 (D. Haw. June 16, 2011) (“[R]escission ‘is only a remedy, not a
cause of action.’ A right of rescission thus ‘rises or falls with [the] other claims.’”)
(citing Bischoff v. Cook, 118 Haw. 154, 163, 185 P.3d 902, 911 (Ct. App. 2008), and

14

Ballard v. Chase Bank USA, N.A., 2010 WL 5114952, at *8 (S.D. Cal. Dec. 9,
2010)).
Reid’s Motion is granted with respect to Count IV. Because amendment
would be futile, the stand-alone claim for rescission is dismissed without leave to
amend. Rescission may be available if the Lindstroms are entitled to such a remedy
through an independent cause of action. See Complaint, Prayer for Relief ¶ F.
IV.

Count V (Tortious Breach of Contract)
The Lindstroms appear to concede that Hawaii does not recognize a claim for

tortious breach of contract. Mem. in Opp’n at 11 (citing Francis v. Lee Enters., 89
Hawai‘i 234, 971 P.2d 707 (1999), and Kapunakea Partners v. Equilon Enters. LLC,
679 F. Supp. 2d 1203, 1218-19 (D. Haw. 2009)). To the extent they do not, the
Court finds that the claim is unavailable as a matter of law. The Lindstroms are not
entitled to recovery in tort for “emotional distress, mental anguish, [and] other
damages,” Complaint ¶ 34, in the absence of conduct that both violates a duty that is
independently recognized by principles of tort law and transcends the breach of the
contract. See Francis, 89 Hawai‘i at 244, 971 P.2d at 708 (1999) (Abolishing
tortious breach of contract cause of action, while explaining that “Hawai‘i law will
not allow a recovery in tort, including a recovery of punitive damages, 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.”).

15

The Lindstroms’ reliance on Kapunakea does not alter this outcome. That is
because the issue addressed in Kapunakea was whether Hawaii courts would
recognize a cause of action under certain circumstances for “tortious interference
with a prospective business advantage”—a claim that is not implicated in the present
real property dispute.2
Accordingly, Reid’s Motion is granted with respect to Count V. Because
amendment would be futile, dismissal of the claim for tortious breach of contract is
without leave to amend.
V.

Count VI (Negligent Misrepresentation)
Although Count VI alleges both negligent and/or intentional

misrepresentation, the Court takes up these two causes of action separately, and

2

In Kapunakea, the district court explained the “tortious interference with a prospective business
advantage” issue as follows—
if a court were to conclude that a breach of contract could satisfy the
improper interference element of the tort of tortious interference with a
prospective business advantage under Hawai‘i law, it would be tantamount
to resurrecting the tort of tortious breach of contract, albeit in certain limited
circumstances. Given that the Francis [v. Lee Enterprises, 89 Hawai‘i 234,
971 P.2d 707 (1999),] court abolished the tort of tortious breach of contract,
the Court predicts that, if presented with the question, the Hawai‘i Supreme
Court would hold that a breach of contract, even if done for improper
purposes, does not without more give rise to improper interference for
purposes of a tortious interference with a prospective business advantage
claim.
Kapunakea, 679 F. Supp. 2d at 1219.

16

addresses the intentional misrepresentation claim below together with the
Lindstroms’ Count VII claim for fraud.
Count VI states that Defendants “negligently misrepresented the condition of
the Property by failing to disclose to [the Lindstroms] the excessive and improper
grading and fill, and that grading was conducted without any grading permit or in
excess of what the grading permit allowed.” Complaint ¶ 36. Additionally, the
Lindstroms allege that Defendants “misrepresented the condition of the Property by
failing to make the required disclosures, which failures directly and proximately
caused damage to Plaintiffs.” Complaint ¶ 36.
In a negligent misrepresentation claim, Hawai‘i law requires that “(1) false
information be supplied as a result of the failure to exercise reasonable care or
competence in communicating the information; (2) the person for whose benefit the
information is supplied suffered the loss; and (3) the recipient relies upon the
misrepresentation.” Blair v. Ing, 95 Hawai‘i 247, 269, 21 P.3d 452, 474 (2001)
(citing Restatement (Second) of Torts § 552); see also Peace Software, Inc. v.
Hawaiian Elec. Co., Inc., 2009 WL 3923350, at *6 (D. Haw. Nov. 17, 2009) (relying
on Blair for the Hawai‘i standard for negligent misrepresentation). Because a
negligent misrepresentation claim does not require intent, it is generally not subject
to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b).
See id. at *8; Queen’s Med. Ctr. v. Kaiser Found. Health Plan, Inc., 948 F. Supp. 2d

17

1131, 1156 (D. Haw. 2013) (“[N]egligent representation claims do not need to be
pled with particularity under Rule 9(b).”).
Reid seeks dismissal based upon the Lindstroms’ purported failure to plead
the reliance element of their negligent misrepresentation claim. Under the totality
of the circumstances, however, the Lindstroms plausibly allege reliance on
Defendants’ ostensible misrepresentations and omissions. For example, in another
section of the Complaint, the Lindstroms allege that they considered Defendants’
purported misrepresentations in their decision to purchase the Property, “which they
would not have done had the true facts about the Property been disclosed.”
Complaint ¶ 40; see also Complaint ¶¶ 8-14, 36-37. The absence of specific words
in the Complaint, such as “justifiable reliance” or that the Lindstroms “reasonably
relied upon” Reid’s alleged misrepresentations, is not fatal to the negligent
misrepresentation claim for purposes of the instant Motion. See, e.g., Glen Holly
Entm’t, Inc. v. Tektronix, Inc., 352 F.3d 367, 380 (9th Cir. 2003) (Holding that
“reliance may be established on the basis of circumstantial evidence showing the
alleged fraudulent misrepresentation . . . substantially influenced the party’s choice,
even though other influences may have operated as well.”) (emphasis in original)
(citation and quotation signals omitted); see also Queen’s Med. Ctr., 948 F. Supp. 2d
at 1152 (footnote omitted) (“Regarding the fourth requirement, Plaintiff
[sufficiently] pleads reliance upon Kaiser’s representations in the form of continuing

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to provide services and accepting payment on the bills.”) (citing Three Rivers
Provider Network, Inc. v. Meritain Health, Inc., No. 07CV1900 WQH(BLM), 2008
WL 2872664 at *10 (S.D. Cal. 2008) (holding that plaintiff adequately alleged
reliance by stating that it continued to work with defendant based on the
representations)).
Accordingly, viewing the Complaint in its entirety, the Court finds that the
Lindstroms adequately state a claim for negligent misrepresentation, including the
element of reliance. Any challenge to the reasonableness of the Lindstroms’
reliance raises a fact issue that cannot be resolved on a motion to dismiss. Reid’s
Motion is therefore denied with respect to Count VI’s negligent misrepresentation
claim.
VI.

Count VI (Intentional Misrepresentation) And Count VII (Fraud)
Count VII alleges that—
39.

[F]ailing to disclose to Plaintiffs the excessive and
improper grading and fill on the Property, and failing to
disclose grading was conducted without any grading
permit or in excess of what the grading permits allowed,
constituted fraud by Defendants.

40.

Plaintiffs were induced by the fraudulent statements and
omissions by Defendants to purchase the Property, which
they would not have done had the true facts about the
Property been disclosed.

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Complaint ¶¶ 39-40. The Lindstroms also allege that Moffett “deliberately and
intentionally failed to disclose a hidden and dangerous defect on the Property[.]”
Complaint ¶ 8.
With respect to Defendants’ knowledge of the Property’s condition, the
Complaint states, in relevant part—
16.

On information and belief, Realty, Moffett, and Reid
(collectively, “Defendants”) knew or should have known
of the hidden defect on the Property due to the excessive
and improper grading and fill on the Property.

17.

On information and belief, Defendants knew or should
have known of the failure to conduct the proper soil
investigation and the failure to obtain the proper grading
permit, as well [as] the grading and fill on the Property
without any grading permit or in excess of what the
grading permit allowed.

Complaint ¶¶ 16-17.
Under Hawaii law, the elements of intentional misrepresentation or fraud are
as follows: “(1) false representations were made by defendants, (2) with knowledge
of their falsity (or without knowledge of their truth or falsity), (3) in contemplation
of plaintiff’s reliance upon these false representations, and (4) plaintiff did rely upon
them.” Shoppe v. Gucci America, Inc., 94 Hawai‘i 368, 386, 14 P.3d 1049 (2000);
see also Queen’s Med. Ctr. v. Kaiser Found. Health Plan, Inc., 948 F. Supp. 2d
1131, 1151 (D. Haw. 2013) (same).

20

Reid moves to dismiss the claims sounding in fraud for failure to comply with
Federal Rule of Civil Procedure 9(b). Allegations of fraudulent conduct are
sufficient under Rule 9(b) if they “identif[y] the circumstances constituting fraud so
that the defendant can prepare an adequate answer from the allegations.”
Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993) (citations and quotations
omitted). To sufficiently identify the circumstances that constitute fraud, a plaintiff
generally must identify the times, dates, places, or other details of the alleged
fraudulent activity. Id. A plaintiff must plead these evidentiary facts and must
explain why the alleged conduct or statements are fraudulent:
Averments of fraud must be accompanied by “the who, what,
when, where, and how” of the misconduct charged. Cooper v.
Pickett, 137 F.3d 616, 627 (9th Cir. 1997) (internal quotation
marks omitted). “[A] plaintiff must set forth more than the
neutral facts necessary to identify the transaction. The plaintiff
must set forth what is false or misleading about the statement,
and why it is false.” Decker v. GlenFed, Inc. (In re GlenFed,
Inc. Sec. Litig.), 42 F.3d 1541, 1548 (9th Cir. 1994).
Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003).
Reid attacks the particularity of the averments of fraud alleged in the
Complaint “on information and belief,” i.e., that he “knew or should have known”
facts regarding the condition of the Property that were not disclosed. See
Complaint ¶¶ 16-17.
In order to support a claim of fraud on “information and belief,” a plaintiff
must set forth the source of the information and the reasons for the belief. “Claims
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made on information and belief are not usually sufficiently particular, unless they
accompany a statement of facts on which the belief is founded.” Shroyer v. New
Cingular Wireless Services, Inc., 622 F.3d 1035, 1042 (9th Cir. 2010); see also
Neubronner, 6 F.3d at 672 ([“[A] plaintiff who makes allegations on information
and belief must state the factual basis for the belief.”); Puri v. Khalsa, 2017 WL
66621, at *5 (9th Cir. Jan. 6, 2017) (“Allegations of fraud based on information and
belief may suffice as to matters peculiarly within the opposing party’s knowledge, so
long as the allegations are accompanied by a statement of the facts upon which the
belief is founded.”) (citation omitted).
The Court agrees that the Complaint provides no factual basis for the
allegations on information and belief that Reid “knew or should have known” of the
latent condition on the Property. That is, there is no explanation for the factual
basis giving rise to the Lindstroms’ belief that Reid knew or should have known of
the Property’s defects, which they themselves did not discover. See United States
v. Marshall Med. Ctr., 2015 WL 2235461, at *3 (E.D. Cal. May 12, 2015) (“‘Factual
basis’ means that the complaint must contain facts, rather than general
circumstances.”); see also Puri, 2017 WL 66621, at *6 (allegations made on
information and belief “are appropriate regarding matters known only to the
defendants, but only insofar as the complaint also explains the basis for the belief”).
Because the Complaint and relevant documents do not provide sufficient details

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underlying the Lindstroms’ belief that the statements or omissions were made or
withheld with the requisite knowledge, the allegations do not satisfy the
particularized pleading requirement of Rule 9(b).
In sum, based upon the failure to satisfy the particularity requirements of Rule
9(b), the Lindstroms’ fraud-based allegations in Counts VI and VII are dismissed.
Because amendment may be possible, the Lindstroms are granted leave to amend
their intentional misrepresentation and fraud claims, addressing the deficiencies
identified in this Order, by no later than May 1, 2017.
CONCLUSION
For the foregoing reasons, Reid’s Motion to Dismiss is GRANTED as to
Count III (Breach of Express and Implied Warranties), Count IV (Rescission), and
Count V (Tortious Breach of Contract)—those claims are dismissed with prejudice.
The claims for intentional misrepresentation (Count VI) and fraud (Count VII) are
dismissed with leave to amend. The Lindstroms are granted limited leave to file an
///

///

///

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amended complaint, consistent with the terms of this Order, by no later than May 1,
2017.
The Motion is DENIED as to Count I (Breach of Contract) and Count VI
(Negligent Misrepresentation).
IT IS SO ORDERED.
DATED: April 5, 2017 at Honolulu, Hawai‘i.

Lindstrom et al. v. Moffett Props. et al., CV. NO. 16-00079 DKW-RLP; ORDER GRANTING
IN PART AND DENYING IN PART DEFENDANT MICHAEL REID’S MOTION TO
DISMISS

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