Mansha Consulting LLC v.Alakai et al

Filing 34

ORDER GRANTING DEFENDANT TOM MATSUDA, INDIVIDUALLY, AND AS A DIRECTOR AND/OR OFFICER OF HAWAII HEALTH CONNECTOR'S MOTION TO DISMISS COMPLAINT FILED OCTOBER 28, 2016 AND GRANTING DEFENDANTS CLIFF ALAKAI AND JEFFREY KISSEL'S PRE-ANSWER MOTION TO DISMISS FILED ON OCTOBER 28, 2016 re 12 , 20 , 21 - Signed by JUDGE ALAN C. KAY on 2/16/2017. "Mansha must file an amended complaint within thirty days of the entry of this Order or else judgment will be entered against it with respect to Defendants Matsuda, Alakai, and Kissel. Any amended complaint must correct the deficiencies noted in this Order or Mansha's claims against Defendants Matsuda, Alakai, and Kissel may be dismissed with prejudice." ; (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 HAWAII

MANSHA CONSULTING LLC,
Plaintiff,
vs.
CLIFF ALAKAI, et al.,
Defendants.

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ORDER GRANTING DEFENDANT TOM MATSUDA, INDIVIDUALLY, AND AS A
DIRECTOR AND/OR OFFICER OF HAWAII HEALTH CONNECTOR’S MOTION TO
DISMISS COMPLAINT FILED OCTOBER 28, 2016 AND GRANTING DEFENDANTS
CLIFF ALAKAI AND JEFFREY KISSEL’S PRE-ANSWER MOTION TO DISMISS
FILED ON OCTOBER 28, 2016
For the reasons discussed below, the Court GRANTS
Defendant Tom Matsuda, Individually, and as a Director and/or
Officer of Hawaii Health Connector’s Motion to Dismiss Complaint
Filed October 28, 2016, ECF No. 12, to which Defendants Cliff
Alakai and Jeffrey Kissel filed a joinder, ECF No. 21, and
GRANTS Defendants Cliff Alakai and Jeffrey Kissel’s Pre-Answer
Motion to Dismiss Complaint Filed on October 28, 2016, ECF No.
20.
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.

Compl. ¶ 13, ECF

No. 1.

As a result, the State of Hawaii established the Hawaii

Health Connector (“HHC” or the “Connector”), the State’s health
insurance exchange.

Id.

¶ 14.

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. ¶¶ 12, 16, 17.

Mansha entered into a contract with HHC (the “IPMO
Contract”) which totaled over 21 million dollars.

Id. ¶ 17.

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. ¶ 18.

Mansha

began work under the IPMO contract on or around April 2013.
¶ 19.

Id.

On September 1, 2014 and thereafter, HHC failed to

forward Mansha’s invoices for payment.

Id. ¶ 20.

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, was unable to continue to perform under the
IPMO Contract because of financial constraints.

Id. ¶ 21.

From

July 2014 to December 2014, Mansha continued its work under the
contract based on assurances by the Defendants, who were
directors and/or officers of HHC, that payment would be made to
Mansha based on its invoices.

Id. ¶¶ 12, 21.

2

Eventually, HHC collapsed.

Id. ¶ 22.

Since HHC’s

collapse, Mansha has attempted to recover its losses by
demanding compensation from HHC, contacting CMS directly, and
communicating with other relevant third parties.

Id.

In relation to Defendants actions in mishandling the
invoice payments, Mansha alleges that Defendants were negligent
and breached their fiduciary duties.

Id. ¶ 23.

As a result,

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.

With respect to the specific Defendants at issue in
the instant Motions to Dismiss, the Complaint contains the
following allegations.
Defendant Cliff Alakai (“Alakai”) was the Chairman of
the Board of Directors for HHC during the relevant time period
and at some point served as Treasurer for the Board of
Directors.

Id. ¶ 26(a).

Alakai’s duties in this role included

ensuring proper operation of HHC.

Id. ¶ 26(c).

Mansha informed

Alakai that the invoices were not being forwarded to CMS.
¶ 26(b).

Id.

Alakai failed to properly manage and oversee HHC with

respect to the handling of invoices and the issues raised by
Mansha, and took no actions to correct the issues.
¶¶ 26(d), (e).

3

Id.

Defendant Tom Matsuda (“Matsuda”) was the Interim
Executive Director of HHC “from a date unknown” until
approximately October of 2014.

Id. ¶ 27(a).

Matsuda’s duties

in this role included responsibility over the overall
administration of HHC including financial, personnel, and
operational requirements.

Id. ¶ 27(b).

Matsuda failed to

investigate and resolve the ongoing issues faced by Mansha and
misinformed Mansha about the reasons for delay of payment.

Id.

¶ 27(d).
In particular, 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.
¶¶ 27(d), (e).

Id.

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. ¶ 27(d).

As a result of this misinformation, Mansha

was unable to take action which would have resulted in proper
payment.

Id.

Matsuda also made erroneous assurances to Mansha

that it would be paid on its submitted invoices.

Id. ¶ 27(f).

Defendant Jeffrey Kissel (“Kissel”) was HHC’s
Executive Director starting in October of 2014.

Id. ¶ 28(a).

Kissel failed to properly ensure investigation and resolution of
ongoing issues faced by Mansha.

Id. ¶ 28(c).

Kissel made

similar statements as Matsuda regarding the reasons for delay,
4

including misinforming Mansha about the restrictions on funds.
Id. ¶¶ 28(d), (e).

In addition, Kissel erroneously reassured

Mansha that it would be paid according to its submitted
invoices. 1

Id. ¶ 28(e).
PROCEDURAL BACKGROUND
Plaintiff filed a Complaint against Defendants on

October 28, 2016.

The Complaint raises claims for negligence

and breach of fiduciary duty against all Defendants.
On December 5, 2016, Matsuda filed a Motion to Dismiss
Complaint Filed October 28, 2016.
Opposition on December 30, 2016.

ECF No. 12.
ECF No. 19.

Mansha filed its
Alakai and Kissel

filed a Non-Substantive Joinder to Matsuda’s Motion to Dismiss
on December 30, 2016.
January 20, 2017.

ECF No. 21.

Matsuda filed a Reply on

ECF No. 26.

On December 30, 2016, Alakai and Kissel filed a PreAnswer 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,

1

The Complaint also raises claims against Eric Alborg,
HHC’s Deputy Executive Director, and Diane Reich, HHC’s Chief
Financial Officer. Compl. ¶¶ 29(a), 30(a). On January 24,
2017, Mansha filed a Motion for Extension of Time to Serve these
Defendants noting that Mansha had diligently attempted personal
service. ECF No. 30. The Magistrate Judge granted Mansha’s
request on January 30, 2017, extending the time for service
until April 26, 2017. ECF No. 31.

5

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.
STANDARD
I.

Rule 12(b)(6)
Federal Rule of Civil Procedure (“Rule”) 12(b)(6)

authorizes the Court to dismiss a complaint that fails “to state
a claim upon which relief can be granted.”
12(b)(6).

Fed. R. Civ. P.

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.”
P. 8(a)(2).

Fed. R. Civ.

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
6

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).
II.

Statute of Limitations
“A claim may be dismissed as untimely pursuant to a

12(b)(6) motion ‘only when the running of the statute [of
limitations] is apparent on the face of the complaint.’”

U.S.

ex rel. Air Control Techs., Inc. v. Pre Con Indus., Inc., 720
F.3d 1174, 1178 (9th Cir. 2013) (alteration in original)
(quoting Von Saher v. Norton Simon Museum of Art at Pasadena,
592 F.3d 954, 969 (9th Cir. 2010)).

Moreover, “a complaint

cannot be dismissed unless it appears beyond doubt that the
plaintiff can prove no set of facts that would establish the
timeliness of the claim.”

Supermail Cargo, Inc. v. United

States, 68 F.3d 1204, 1207 (9th Cir. 1995).
7

DISCUSSION
I.

Count I: Negligence
A. Statute of Limitations as to Defendant Matsuda
Matsuda maintains that Plaintiff’s negligence claim

against him is time-barred by Hawaii’s statute of limitations.
Matsuda’s Mem. in Support of Motion to Dismiss (“Matsuda Mem.”),
at 7, ECF No. 12-1.

The Court disagrees.

In diversity cases, “federal courts generally apply
state statutes related to the commencement and tolling of
statutes of limitations.”

Aana v. Pioneer Hi-Bred Int’l, Inc.,

965 F. Supp. 2d 1157, 1178-79 (D. Haw. 2013) (quoting Heiser v.
Ass’n of Apartment Owners of Polo Beach Club, 848 F. Supp. 1482,
1484 (D. Hawaii 1993)).

In Hawaii, negligence claims are

subject to a two-year statute of limitations pursuant to Hawaii
Revised Statutes (“HRS”) § 657-7.

Id.

Specifically, HRS § 657-7 provides that causes of
action for personal injury “shall be instituted within two years
after the cause of action accrued.”

Under Hawaii law, a claim

“does not ‘accrue’ and the statute of limitations in § 657–7
does not begin to run, until the plaintiff knew or should have
known of the defendant’s negligence.”

Aana, 965 F. Supp. 2d at

1179 (citing Hays v. City & County of Honolulu, 917 P.2d 718,
720 (Haw. 1996)).

Accordingly, the “claim accrues ‘the moment

plaintiff discovers or should have discovered the negligent act,
8

the damage, and the causal connection between the former and the
latter.’” Id. (quoting Yamaguchi v. Queen’s Med. Ctr., 648 P.2d
689, 693–94 (Haw. 1982)).
Matsuda claims that the statute of limitations as to
him expired because the claim accrued on his last day as Interim
Executive Director of HHC.

Matsuda Mem., at 8.

The Complaint

provides that Matsuda was the Interim Executive Director until
“approximately October, 2014,” Compl. ¶ 27(a), and Matsuda
argues that “Plaintiff’s negligence claim against Matsuda is
expressly based on conduct that had to have occurred on or
before Matsuda’s last day as Interim Director,” Matsuda Mem., at
8.

Because the Complaint was filed on October 28, 2016, to be

timely, Plaintiff’s negligence claim must have accrued on
October 28, 2014 or later.

Matsuda attached a Declaration to

his Motion to Dismiss, claiming that he served as Interim
Executive Director until October 24, 2014.

Matsuda Decl. ¶ 4.

On this basis, Matsuda argues that the negligence claim is timebarred.
In the first instance, the Court agrees with Mansha
that it is inappropriate to consider Matsuda’s Declaration at
the Motion to Dismiss stage.

See Memorandum in Support of

Plaintiff’s Opposition to Defendant Tom Matusda’s Motion to
Dismiss (“Opp. to Matsuda Motion”), at 6 n.2, ECF No. 19-1.
Declaration is not subject to judicial notice nor has Matsuda

The

9

offered any justification for why it may be considered under
Rule 12(b)(6).

Thus, even if the Court were to accept Matsuda’s

argument that the negligence claim accrued on the last day he
served as Interim Executive Director, Matsuda’s argument fails.
It is not apparent on the face of the Complaint that the statute
of limitations has run.
at 1178.

See, e.g., Air Control Techs., 720 F.3d

The Complaint merely states that Matsuda served as the

Interim Executive Director until “approximately” October 2014.
Pursuant to Matsuda’s argument, if Matsuda had served as Interim
Executive Director until October 28, 2014 or later, Mansha’s
Complaint would be timely.
Moreover, as Mansha points out, and as noted above,
the negligence claim accrues at “the moment plaintiff discovers
or should have discovered the negligent act, the damage, and the
causal connection between the former and the latter.”
F. Supp. 2d at 1179 (citation omitted).

Aana, 965

Thus, Matsuda’s last

day as Interim Executive Director does not represent the day the
cause of action accrued if Mansha did not become aware of the
damage from Matsuda’s alleged negligence and the causal
connection between the damage and Matsuda’s negligence until
after Matsuda’s time in that position.

The Complaint alleges

that Matsuda informed Mansha that the reason the invoices were
not being forwarded to CMS was that a restriction on funds had
been initiated.

Compl. ¶ 27(e).
10

However, according to the

Complaint, Mansha “later learned that while this may have been
true for a short time, any such restrictions had been cleared
and MANSHA’s invoices could have been paid.”

Id.

This provides

an example of an allegedly negligent act that according to the
Complaint, Mansha may not have become fully aware of until after
Matsuda’s role as Interim Executive Director ended.
Under these circumstances, it cannot be said that the
running of the statute of limitations is apparent from the face
of the Complaint.

Accordingly, the Court denies Matsuda’s

Motion to Dismiss on this basis. 2
B. Whether the Complaint Sufficiently Alleges a Claim for
Negligence Against Defendants Matsuda, Alakai, and Kissel
Both Motions to Dismiss argue that Mansha’s negligence
claim against Defendants must be dismissed because Mansha has
failed to allege that Defendants’ conduct violated a duty owed
to Mansha independent of the contract between HHC and Mansha.
The Court agrees.

2

Mansha attaches to its Opposition to Matsuda’s Motion to
Dismiss a Declaration from a principal of Mansha providing that
he delivered an invoice dated October 1, 2014 to HHC, for which
the due date was October 31, 2014. Raheja Decl. ¶ 3. The
Declaration states that the first day the invoice would have
been late was November 1, 2014. Id. ¶ 4. On this basis, Mansha
argues that the earliest date the negligence claim could have
accrued would have been November 1, 2014, making the claim
timely. Opp. to Matsuda Motion, at 7. As with the evidence
submitted by Matsuda, the Court finds it inappropriate to
consider the Declaration submitted by Mansha in a Motion to
Dismiss.
11

The parties agree that Francis v. Lee Enterprises,
Inc., 971 P.2d 707 (Haw. 2002), applies to this case.

In

Francis, the Hawaii Supreme Court was asked to decide whether
Hawaii “recogniz[ed] a tortious breach of contract cause of
action in the employment context.”

Id. at 708.

The court

determined that although Hawaii law previously allowed for
tortious breach of contract claims, continuing to allow such
claims would “blur[] the distinction between . . . tort and
contract law.”

Id.

The court held that Hawaii law would

prohibit “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.”

Id.

The proposition that tort recovery is not available
where the duties alleged are not independent or separate from
contractual obligations has been recognized by other courts in
the Ninth Circuit.

In Bernstein v. GTE Directories Corp., for

example, plaintiffs were attorneys who contracted with the
defendant to place their contact information along with an
advertisement in a local telephone directory.
(9th Cir. 1987).

827 F.2d 480, 481

The defendant failed to place the attorneys’

information in the directory and the attorney plaintiffs sued
for breach of contract and negligence.

Id.

On appeal, the plaintiffs argued that the district
court incorrectly granted summary judgment on their negligence
12

claim, because the defendant negligently published the
directories and “breach[ed] its obligation to perform its
services in a skillful, careful, and diligent manner.”
482.

Id. at

Applying Nevada law, the court rejected the plaintiffs’

argument, finding that “the actions or omissions complained of”
did not “constitute a violation of duties imposed by law” and
instead involved “duties arising by virtue of the alleged
express agreement between the parties.”

Id. (quoting Bernard v.

Rockhill Development Co., 734 P.2d 1238, 1240 (Nev. 1987) (per
curiam)).

The court further held that the plaintiffs “failed to

establish any cognizable duty under Nevada law apart from and
independent of [the defendant’s] contractual promises.”

Id.

Accordingly, the defendant’s “nonperformance” was “actionable
only as a breach of contract.”

Id.

The Ninth Circuit reached a similar result in Kelomar,
Inc. v. Kulow, applying California law.
Cir. 2011).

413 Fed. Appx. 981 (9th

In Kelomar, the plaintiff, a melon grower, claimed

that the owner of a company that sold grower packing materials
owed a personal duty to ensure that the plaintiff’s melons were
properly labeled.

Id. at 982.

The court determined that there

was “no general duty to label melons correctly independent of a
contract” and that if the defendant had any such duty “it could
only arise from [the company’s] contract with [the plaintiff].”
Id.

The court held that even if the contract at issue imposed a
13

personal duty on the owner, the plaintiff “could not recover in
tort for the breach of that contractual duty.”

Id.

On this

basis, the court agreed with the district court that the
plaintiff “should seek its remedy in a breach-of-contract suit
against [the company].”

Id. at 983.

The Court agrees with Defendants that here, Plaintiff
has failed to allege a duty owed by the Defendants to Mansha
that is “independently recognized by principles of tort law.”
Francis, 971 P.2d at 708; see also White v. Sabatino, 415 F.
Supp. 2d 1163, 1173 (D. Haw. 2006) (noting that one of the
elements of a negligence claim is the assertion of “[a] duty or
obligation, recognized by the law, requiring the actor to
conform to a certain standard of conduct, for the protection of
others against unreasonable risks.”).

As discussed further

below, the allegations in the Complaint involve duties owed by
Defendants to HHC or duties that—if the Defendants had at all—
arose from the contract between HHC and Mansha, as in Bernstein
and Kelomar.

Accordingly, Mansha’s allegations are insufficient

to raise a claim for negligence.
First, the Complaint asserts that Defendants owed
certain duties given their roles as directors and officers of
HHC.

For instance, the Complaint states that Alakai, as

Chairman of the Board of the Connector, “had a duty to ensure
proper operation of the Connector, to oversee and ensure
14

appropriate and compliant conduct by Connector employees and
officers and . . . to investigate and resolve the issues raised
by MANSHA regarding the unpaid invoices.”

Compl. ¶ 26(c).

With

respect to Matsuda and Kissel, the Complaint notes that the
duties of the Executive Director of HHC included “responsibility
for the overall administration of the Connector, including all
policy, financial, personnel, and operational requirements of
the Connector.”

Compl. ¶¶ 27(b), 28(b).

As Defendants Alakai and Kissel note, however, these
duties were duties owed by Defendants to HHC through their
employment contract with HHC; they are not owed to third party
contractors, like Mansha.

Accordingly, the above-mentioned

allegations fail to assert a legally recognized duty as needed
to put forth a valid negligence claim against Defendants.

See

Restatement (Third) Of Agency § 7.02 (2006) (“An agent’s breach
of a duty owed to the principal is not an independent basis for
the agent’s tort liability to a third party.

An agent is

subject to tort liability to a third party harmed by the agent’s
conduct only when the agent’s conduct breaches a duty that the
agent owes to the third party.).
With respect to allegations in the Complaint regarding
a specific duty owed by Defendants to Mansha, the Complaint
merely states that Defendants “owed MANSHA a duty to take
reasonable care in the carrying out of [their] responsibilities
15

to protect MANSHA against foreseeable risks.”
27(g), 28(g).

Compl. ¶¶ 26(f),

The Court agrees with Defendants that this

allegation is conclusory and insufficient to withstand a motion
to dismiss.

See Ashcroft, 556 U.S. at 678 (noting that “the

tenet that a court must accept as true all of the allegations
contained in a complaint is inapplicable to legal conclusions”
and that “[t]hreadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not
suffice”).
Moreover, the negligent conduct alleged invokes duties
that would only arise from the contract between HHC and Mansha.
Mansha essentially claims that Defendants failed to investigate
and resolve the issues involving Mansha’s unpaid invoices and
failed to issue stop work orders for Mansha; and that Defendants
Matsuda and Kissel negligently misinformed Mansha about the
reasons for delay and the status of the payments, leading to
additional damages.

See Compl. ¶¶ 26-28.

These allegations

involve HHC’s alleged failure to perform on the contract, i.e.,
its failure to pay Mansha for its work.

They do not involve

violations of any duty independently recognized by Hawaii tort
law.

See Francis, 971 P.2d at 708.

As in Bernstein, Mansha has

“failed to establish any cognizable duty under [Hawaii] law
apart from and independent of [HHC’s] contractual promises.”
827 F.2d at 482; see also Kelomar 413 Fed. Appx. at 982-83 (“A
16

person may not ordinarily recover in tort for the breach of
duties that merely restate contractual obligations.” (quoting
Aas v. Superior Court, 12 P.3d 1125, 1135 (Cal. 2000)).
Mansha attempts to argue that its allegations that
Defendants Matsuda and Alakai made affirmative representations
that Mansha would be paid involved a duty independent from the
contract between Mansha and HHC.

However, this claim attempts

to “turn[] a promise to perform into a statement of fact so that
failure to perform automatically shows a misrepresentation of
intention to perform.”

Catamount Radiology, P.C. v. Bailey, No.

1:14-CV-213, 2015 WL 3795028, at *14 (D. Vt. June 18, 2015)
(quoting Howard v. Usiak, 775 A.2d 909, 913 (Vt. 2001)).

As

noted by the Vermont Supreme Court in Howard v. Usiak, if such a
promise to perform were actionable in tort, “any breach of
contract would be misrepresentation so that negligent breach
would be a tort.”

775 A.2d at 913.

The court in Howard

recognized “the need to keep tort and contract theories separate
so that negligence concepts do not overrun the limitations on
contractual rights and remedies.”

Id.

The same concerns were

outlined by the Hawaii Supreme Court in Francis, and are
applicable here.
Mansha also broadly asserts that Defendants owed a
general duty to “refrain from negligent conduct” and “behavior.”
Opp. to Matsuda Motion, at 8-9; Memorandum in Support of
17

Plaintiff’s Opposition to Defendant Alakai and Kissel’s Motion
to Dismiss (“Opp. to Alakai and Kissel Motion”), ECF No. 25, at
6-7.

However, as Defendants argue, Mansha’s support for this

claim is based on cases that are inapposite as they involve the
duty to refrain from conduct that imposes a risk of physical
injury on others.

Here, there is no physical injury alleged.

First, Mansha cites to a California case in which the
California Supreme Court noted that a director of a corporation
“owe[s] a duty of care, independent of the corporate entity’s
own duty, to refrain from acting in a manner that creates an
unreasonable risk of personal injury to third parties.”

Frances

T. v. Vill. Green Owners Ass’n, 723 P.2d 573, 581 (Cal. 1986).
Frances T. presented a unique set of facts.

In Frances T., an

owner of a condominium unit brought various claims, including a
negligence claim, against the condominium association and
individual members of its board of directors after she was
robbed and raped in her home.

Id. at 574-75.

The plaintiff

alleged that the defendants’ negligence stemmed from their
failure to install sufficient exterior lighting in the building
and from requiring plaintiff to remove the additional lighting
that she had installed.

Id. at 576.

With respect to the

individual directors, the court noted that the plaintiff had
alleged facts that the directors “had specific knowledge of a
hazardous condition threatening physical injury to the
18

residents, yet they failed to take any action to avoid the harm;
moreover, the action they did take may have exacerbated the risk
by causing plaintiff’s unit to be without any lighting on the
night she was attacked.”

Id. at 584 (emphasis added).

As noted above, Frances T., unlike the instant case,
involved a duty of care to avoid an unreasonable risk of
physical injury, and is accordingly distinguishable.

Frances T.

also included specific allegations that the directors were aware
of a “hazardous condition” that could cause “physical injury” to
the plaintiff.

A comparable set of allegations is not present

in the instant case.
Ah Mook Sang v. Clark, 308 P.3d 911 (Haw. 2013), cited
to by Mansha for the proposition that general duties of care are
heightened when a director or officer “creates a situation of
increased risk,” Opp. to Matsuda Motion, at 7 (emphasis
omitted), also involved the risk of great physical harm.

Ah

Mook Sang raised the following issue:
[W]hether a social host who invites a minor onto
his or her property and then directly serves
alcohol to the minor owes a duty of care to
prevent foreseeable injuries resulting from
consumption of the alcohol, or to render or
summon aid if injuries have occurred, while the
minor remains on the property as a guest.
Id. at 914.

The minor who was served the alcohol in Ah Mook

Sang died as a result of alcohol intoxication.

19

Id.

Quoting to the Restatement (Second) of Torts, the
court noted that, “If the actor does an act, and subsequently
realizes or should realize that it has created an unreasonable
risk of causing physical harm to another, he is under a duty to
exercise reasonable care to prevent the risk from taking
effect.”

Id. at 923 (emphasis added) (quoting Restatement

(Second) of Torts § 321(1)).

In finding that the social host

defendant owed the minor a duty of care, the court also cited to
the proposition “that ‘a possessor of land who invites someone
onto his/her property holds a special relationship with the
person on his/her property for so long as that person is on the
property.’”

Id. at 924 (citation omitted).

The court

determined based on the relevant authority that the defendant
“by providing large amounts of hard liquor to a fifteen-year-old
minor . . . knew or should have known that he created an
unreasonable risk of physical harm to [the minor] and thus
assumed the duty to prevent the harm from occurring.”
(emphasis added).

Id.

The court further noted that defendant

“[h]aving failed to prevent physical harm from occurring, and in
fact having caused the harm . . .
further harm from occurring.”

had the duty to prevent

Id.

Ah Mook Sang is clearly distinguishable.

The court

found that the defendant in Ah Mook Sang had a special
relationship with the minor as an invitee on his property.
20

The

court also emphasized that the duty at issue related to
preventing physical harm from occurring, and the physical harm
at issue in Ah Mook Sang was death.

Here, such factors are not

present.
Mansha also cites to Cahill v. Hawaiian Paradise Park
Corp. in attempt to support its claims.
1975).

543 P.2d 1356 (Haw.

In Cahill, the plaintiff sued a corporation that owned

and operated a radio station, its president, and its manager for
defamation.

Id. at 1358.

With respect to the plaintiff’s

claims against the corporation’s president, the court found the
president was not liable because he did not “participate[] in
the broadcast complained of.”

Id. at 1360.

The court noted

“that officers, directors or shareholders of a corporation are
not personally liable for the tortious conduct of the
corporation or its other agents, unless there can be found some
active or passive participation in such wrongful conduct by such
persons.”

Id.
Cahill, however, is distinguishable from the instant

case.

Namely, in Cahill, there was no contract between the

defendant corporation and the plaintiff.

The allegations thus

included assertions of a duty independently recognized by tort
law.

Here, the relationship between the parties arises from the

contractual relationship between HHC and Mansha; and as noted

21

above, Mansha has failed to sufficiently allege a duty owed by
the Defendants to Mansha.
The Court notes “[t]he general rule [] that a person
does not have a duty to act affirmatively to protect another
person from harm.”
1996).

Lee v. Corregedore, 925 P.2d 324, 329 (Haw.

Moreover, “[t]he fact that the actor realizes or should

realize that action on his [or her] part is necessary for
another’s aid or protection does not of itself impose upon him
[or her] a duty to take such action.”

Id. (alteration in

original) (quoting Restatement (Second) of Torts § 314 (1965)).
Importantly, the Hawaii Supreme Court has held that it is
“reluctant to impose a new duty upon members of our society
without any logical, sound, and compelling reasons taking into
consideration the social and human relationships of our
society.”

Id. at 336.
Here, Mansha has failed to support its claim that the

directors and officers of HHC owed duties to Mansha, a third
party contracting with HHC, to prevent economic injury.

Mansha

has not cited to Hawaii caselaw—or indeed any other authority—
recognizing that a duty would exist under similar circumstances.
In sum, Mansha’s Complaint fails to plead sufficient allegations
to show a duty independently recognized by the principles of
tort law owed by Defendants to Mansha.

22

Accordingly, the Court

grants the Motions to Dismiss with respect to Count I of the
Complaint WITHOUT PREJUDICE and WITH LEAVE TO AMEND. 3
II.

Count II: Breach of Fiduciary Duty
Defendants additionally argue that Mansha’s breach of

fiduciary duty claim should be dismissed because Defendants owed
no fiduciary duty to Mansha.

In turn, Mansha maintains that the

fiduciary duties owed to Mansha by Defendants stemmed from HHC’s
insolvency, pursuant to the trust fund doctrine.

The Court

finds that Mansha’s fiduciary duty claim against Defendants
should be dismissed.
Mansha claims that the trust fund doctrine, followed
in Hawaii, serves as a basis for fiduciary duties to attach to
Defendants in the instant case.

The trust fund doctrine is

recognized in some jurisdictions as imposing certain fiduciary
duties on a corporation’s directors when the corporation becomes
insolvent.

The basic concept of the doctrine is “that all of

the assets of a corporation, immediately on its becoming
insolvent, exist for the benefit of all of its creditors and
3

In their Reply, Defendants Alakai and Kissel assert that
Mansha’s claims are barred pursuant to the economic loss
doctrine. Alakai and Kissel Reply, at 6. The Court notes that
it is inappropriate to consider arguments raised for the first
time in Reply. See Local Rule 7.4 (“Any argument raised for the
first time in the reply shall be disregarded.”). Moreover,
given that the Court is dismissing the Complaint without
prejudice for the reasons discussed above, it need not consider
at this time this additional argument.

23

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).
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, 189 (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, 212 (Haw. Rep. 1896).

Moreover, the

Fletcher Cyclopedia of the Law of Private Corporations
acknowledges that “[p]erhaps no concept has created as much
confusion in the field of corporate law as has the ‘trust fund
doctrine.’”

Id.

Fletcher further notes that “[t]he doctrine

has been widely criticized . . . .”

Id.

Hawaii courts appear to have found that only directors
and not officers fall under the scope of the trust fund
doctrine.

In California Feed Co., the Supreme Court of the

Republic of Hawaii recognized the trust fund doctrine, noting
that
when . . . a corporation is hopelessly insolvent
and unable to carry out objects for which it is
created, the directors must be regarded as
trustees of the property for the benefit of the
creditors and stockholders, and it is then their
24

duty to wind up the affairs of the corporation
for the benefit of all concerned[.]
10 Haw. at 212 (emphases added).

As noted in California Feed,

it is the duty of the “directors” of the corporation “to wind
up” the corporation’s affairs, without reference to any duty
held by the corporation’s officers.

See id.

Troy Laundry, a case from the Supreme Court of the
Territory of Hawaii, dealt with the trust fund doctrine with
respect to claims that the corporation “by its directors, and
while it was insolvent, transferred and conveyed all of its
property to defendant” who was one of the corporation’s
directors.

18 Haw. at 389. 4

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.”
1971) (emphasis added).

487 P.2d 286, 289 (Haw.

The court noted that “[i]n this

4

The director at issue in Troy Laundry was also the
corporation’s vice-president, general manager, and principal
stockholder. 18 Haw. at 389.
Troy Laundry cites to a Seventh Circuit case which
discussed the trust fund doctrine as imposing duties on both
directors and officers. Id. at 390 (citing Sutton Mfg. Co. v.
Hutchinson, 63 F. 496 (7th Cir. 1894)). In Sutton, however, the
court described the duty of directors and officers as being
triggered “when a private corporation is dissolved or becomes
insolvent, and determines to discontinue the prosecution of
business.” 63 F. at 501 (emphasis added); see also id. at 502
(same). Here, the Complaint does not allege that HHC
“determin[ed] to discontinue the prosecution of business” at the
time Defendants knew or should have known of HHC’s insolvency.
See id.
25

capacity the former directors are proper and necessary parties
to legal proceedings aimed at winding up the affairs of the
dissolved corporation.”

Id.

Again, the court referred only to

the corporation’s directors and not its officers.
Here, the Complaint, in describing the Defendants at
issue under Count II, refers only to Alakai as being a director
of HHC, i.e., the Chairman of the Board.

See Compl. ¶ 37.

Matsuda and Kissel are referred to only as officers of HHC,
i.e., the Interim Executive Director and Executive Director,
respectively.

Id. ¶¶ 38-39.

Accordingly, Matsuda and Kissel

would not be liable under the trust fund doctrine, as they were
not directors of HHC.
With respect to Defendant Alakai, the Complaint
describes Alakai as a Chairman of the Board under Count II and
under Count I also notes that Alakai functioned as the Treasurer
for the Board of Directors “during some time.”

Id. ¶ 26(a).

As

stated in the Complaint, the establishment of HHC “was codified
in Hawaii Revised Statutes, §§ 435H-1—435H-12.”

Compl. ¶ 14.

Pursuant to HRS § 435H-2(a), HHC was established as a “Hawaii
nonprofit corporation organized and governed pursuant to chapter
414D, the Hawaii nonprofit corporations act.” 5

5

The Hawaii

Chapter 435H of the Hawaii Revised Statutes, which created
HHC, was repealed in 2016 after HHC ceased operations. See 2016
(continued . . . )
26

Nonprofit Corporations Act, in turn, under HRS § 414D-149(f)
provides in pertinent part as follows:
Any person who serves as a director to the
corporation without remuneration or expectation
of remuneration shall not be liable for damage,
injury, or loss caused by or resulting from the
person’s performance of, or failure to perform
duties of, the position to which the person was
elected or appointed, unless the person was
grossly negligent in the performance of, or
failure to perform, such duties.
Defendant Alakai asserts in his Motion to Dismiss that all of
the directors of HHC were uncompensated.

See Alakai and Kissel

Mem. in Support of Motion to Dismiss, at 3, ECF No. 20-1.

The

Court notes that Mansha’s Complaint does not allege that any of
HHC’s directors were remunerated for their services.
The Complaint also does not allege that Defendant
Alakai—or any of the other Defendants—were grossly negligent in
carrying out their duties.

Accordingly, Defendant Alakai is not

liable to Mansha, pursuant to HRS § 414D-149(f). 6

See DuBois v.

Ass’n of Apartment Owners of 2987 Kalakaua, 453 F.3d 1175, 1180-

( . . . continued)
Haw. Sess. Laws Act 44, § 3.
6

The Court notes that while Mansha has described the other
Defendants as officers in Count II, in the description of the
parties in ¶¶ 5-9 of the Complaint, each Defendant is referred
to as a “director and/or officer.” Accordingly, because of the
lack of clarity in the pleadings, in the event that Defendants
Matsuda and Kissel were directors of HHC, they likewise would
not be liable to Mansha pursuant to HRS § 414D-149(f).

27

81 (9th Cir. 2006) (affirming dismissal of a breach of fiduciary
claim against a condominium association’s directors where gross
negligence was not alleged as required by HRS § 414D-149(f)).
Therefore, the Court GRANTS the Motions to Dismiss
with respect to Count II of the Complaint WITHOUT PREJUDICE and
WITH LEAVE TO AMEND. 7
CONCLUSION
For the foregoing reasons, the Court GRANTS Defendant
Tom Matsuda, Individually, and as a Director and/or Officer of
Hawaii Health Connector’s Motion to Dismiss Complaint Filed
October 28, 2016, ECF No. 12, to which Defendants Alakai and
Kissel filed a joinder, ECF No. 21, and GRANTS Defendants Cliff
Alakai and Jeffrey Kissel’s Pre-Answer Motion to Dismiss
Complaint Filed on October 28, 2016, ECF No. 20.
Mansha must file an amended complaint within thirty
days of the entry of this Order or else judgment will be entered
against it with respect to Defendants Matsuda, Alakai, and
Kissel.

Any amended complaint must correct the deficiencies

7

Defendants Alakai and Kissel also claim that Mansha failed
to join HHC or its receiver as a party rendering the breach of
fiduciary claim procedurally defective. See Alakai and Kissel
Reply, at 16. Alakai and Kissel cite to Delaware and North
Carolina law to support their positions. Given that the Court
is dismissing the breach of fiduciary claim for the reasons
discussed above, the Court finds it unnecessary to consider
Defendants’ arguments at this time.
28

noted in this Order or Mansha’s claims against Defendants
Matsuda, Alakai, and Kissel may be dismissed with prejudice.
IT IS SO ORDERED.
DATED:

Honolulu, Hawaii, February 16, 2017.

________________________________
Alan C. Kay
Sr. United States District Judge

Mansha Consulting LLC vs. Cliff Alakai, et al., Civ. No. 16-00582 ACK-RLP,
Order GRANTING Defendant Tom Matsuda, Individually, and as a Director and/or
Officer of Hawaii Health Connector’s Motion to Dismiss Complaint Filed
October 28, 2016 and GRANTING Defendants Cliff Alakai and Jeffrey Kissel’s
Pre-Answer Motion to Dismiss Complaint Filed on October 28, 2016

29