Combs v. CASE BIGELOW & LOMBARDI

N()'I` F(`)R PU.I*ZLI(§TA'I"I()NV IN WP§S'|"S I'IA\\/}\l‘l !UC}’()R”I`S AN’I) l’.¢\(f.ll*“l(.` RIYP()R'TI`G`R

w §§

NG. 28773
IN THE INTERMEDIATE COURT OF APPEALS

OF THB STATE OF HAWAIY[

Civi1 No. O5»l-O166 ” w
GUY ST. CLAIR COMBS; MARION WILCOX COMBS; THE S@@TT “J
MICHAEL ST. CLAIR COMBS IRREVOCABLE TRUST; THE GUY
ST. CLAIR COMBS, 111 IRREVOCABLE TRUST; THE MARTHA
COMBS TRUST; CATHERINE ANNE MOORE~AIRTH; CHARLES SLOGGETT;
CARLA JORDAN; KRISTEN J. LA DOW; ROBERT B. JORDAN;
MICHAEL P. JQRDAN; JONATHAN W. FISHER; ANTHONY H. FISHER;
GALEN M. FISHER; TIMOTHY W. FISHER; RICHARD SLOGGETT, JR.;
GERALD W. FISHER; THE CATHERINE ANNE MOORE~AIRTH
REVGCABLE TRUST; THOMAS JOHNSTON; ANNE SLOGGETT HAMILTON;
ARTHUR W. SLOGGETT; SUSAN CHAMBERLAIN; ERIK PETERSON;
PATRICK FISHER; and SHERRI SLOGGETT-SHANKS,
PlaintiffS-AppellantS/Cr0SS AppelleeS,
v.

CASE BIGELOW & LOMBARDI, a law c0rporati0n; DANIEL CASE;
JAMES CRIBLEY; DENNIS LOMBARDI; TOD TANAKA,
Defendants-AppelleeS/Cr0SS-AppellantS,
and
STEPHEN M. CASE; ALPS INVESTMENT LLC; ALPS ACQUISITION
SUB, INC.; THE STEPHEN M. CASE REVOCABLE TRUST; KA PUE
HANA, LLC; THE GROVE FARM COMPANY, INC.; HUGH M. KLEBAHN;
DONN A CARSWELL; PAMELA W. DOHRMAN; ROBERT D. MULLINS;
WILLIAM D. PRATT; RANDOLPH MOORE; JOHN DOES 1-lO; JANE
DOES 1-10; DOE PARTNERSHIPS 1-lO; DOE CORPORATIONS 1-lO;
DOE LIMITED LIABILITY COMPANIES 1-lO; ROE "NON-PROFIT"
CORPORATIONS l~lO; and ROE GOVERNMENTAL ENTITIES 1-lO,
DefendantS~AppelleeS

and

Civil N0. O6~l-Ol7O
MICHAEL FISHER; SCOTT G. FISHER; PATRICK FISHER;
BARBARA PERRY FISHER, INDIVIDUALLY AND AS TRUSTEE ON
BEHALF OF THE CHARLES FISHER TRUST, PlaintiffS,
v.

STEPHEN M. CASE; ALPS INVESTMENT LLC; THE STEPHEN M. CASE
REVOCABLE TRUST; KA MFE HANA, LLC; THE GROVE FARM COMPANY
INC.; CASE BIGELOW & LOMBARDI, a law c0rpOrati0n;
DANIEL CASE; JAMES CRIBLEY; DENNIS LOMBARDI; TOD TANAKA;
JOHN DOES 1-lO; JANE DOES 1-lO; DOE PARTNERSHIPS 1-lO; DOE
CORPORATIONS 1-10; DOE LIMITED LIABILITY COMPANIES 1-lO;
DOE "NON-PROFIT" CORPORATIONS 1~lO; and DOE GOVERNMENTAL
ENTITIES 1-lO, DefendantS

I

APPEAL FROM THE CIRCUIT COURT OF THE FIFTH CIRCUIT

O'l` F()R PU Bl,l(T,zX'l`]()N IN' WES"I"S I“I.»\\\’A.l‘l’ REPOR’I`S ANI) I’¢XC.IF]C REIP()RTE'IR

MEMORANDUM OPINl0N
{Ey: Foley, ?reaiding J.; and Circuit JudgeS
Del Rosario and Kim, in place of Nakamura, C.J.,
and Fujise and Leonard, JJ., all recuaed)

PlaintiffS-AppellantS/CroSS~AppelleeS Guy St. Clair
CombS; Marion wilcox Comhe; The Scott Michael St. Clair CombS
irrevocable Truet; The Guy St. Clair Combe 111 Irrevocable TruSt;
The Martha CombS TruSt; Catherine Anne Moore-Airth; CharleS
Sloggett; Carla Jordan; KriSten J. La DoW; Robert B. Jordan;
Michael P. Jordan; Jonathan W. FiSher; Anthony H. FiSher; Galen
M. FiSher, Timothy W. Fieher, Richard Sloggett, Jr.; Gerald W.
FiSher; The Catherine Ann Moore~Airth Revocable TruSt; ThomaS
Johnston; Anne Sloggett Hamilton; Arthur W. Sloqgett; SuSan
Chamberlain; Erik PeterSon; Patrick FiSher; and Sherri Sloggett~
Shanke (collectively, AppellantS) appeal from the "Stipulation
and Order for Entry of Final Judgment PurSuant to Rule 54(b) of
the Hawaii Rulee of Civil Procedure" (Final Judgment) filed on
September 1l, 2007 in the Circuit Court of the Fifth Circuit
(circuit court).3
The Final Judgment incorporated by reference the

circuit court'S February 23, 2007 "Order Granting (l) Motion to
DiSmiSS by Defendante CaSe Bigelow & Lombardi and JameS Cribley
PurSuant to [Hawafi RuleS of Civil Procedure (HRCP) RuleS]
12(b)(6) and 9(b), or in the Alternative, Motion for a Stay as to
these DefendantS; (2) DefendantS DenniS Lombardi and Tod Tanaka'S
Motion to Dismiss PurSuant to HRCP [Rulee] l2(b)(6) and 9(b); and
(3) Defendant Daniel H. CaSe'S Motion to DiSmiSs PurSuant to HRCP
[RuleS] l2(b)(6) and 9(b), or in the Alternative Motion for a
Stay as to Daniel H. CaSe, and Adopting Defendants CaSe Bigelow &
Lombardi and JameS Cribley'S Memorandum in Support of Their
Motion to DiSmiSS Filed on or About October 3, 2006" (Order

Granting MotionS to DiSmieS).

1 The Honorable Kathleen N. A. Watanabe preSided.

2

N()T FOR PIJBI,,IC,`A'I`[ON' IN WES'!"S IlAV\"z-\fl°l R`ICPOR'I`S AN il) P¢AC`]'F`IC RI€P(`)'IF{"|`I‘§`,R

In accordance with the Order Granting Motions to
Eismiss, the circuit court entered final judgment in favor of
Defendants~Appellees/Cross~Appellants Case Bigelow & Lombardi
{CB&L), James Cribley (Cribley), Dennis Lombardi (Lombardi), Tod
Tanaka (Tanaka), (collectively, Attorney Appellees) and Daniel
Case {Case) on Counts I (Legal Malpractice), ll (Negligence/Gross
Negligence), III §Breach of Fiduciary Duty), VIll (Fraud), lX

(Constructive Fraud), X (Negligent Misrepresentation), XI

{lnnocent Misrepresentation},* XII (Conspiracy to Defraud), XIII
{Securities Fraud ~- Title 26 H.R.S. § 485~25 (Securities
Fraud)), XIV CInjurious Falsehood),3 XVl (Participation in Breach

of Fiduciary Duty}, XVIII {Unjust Enrichment), and XIX (Punitive
Damages) of Appellants‘ Second Amended Complaint, filed
August 30, 2006.

On appeal, Appellants contend the circuit court erred
by

(l) ruling that Appellants have no standing to sue
Attorney Appellees and Case,

(2) dismissing all claims against Attorney Appellees
and Case despite material issues of fact regarding whether
Attorney Appellees breached duties owed to Appellants, and

(3) awarding costs to Case and the former Board of
Directors“ of The Grove Farm Company, Inc. (Grove Farm) in
Tsukamoto et al. v. Grove Farm CompanV, Inc., Hawafi Supreme

Court Nos. 28626 & 28722 (consolidated).

2 The circuit court dismissed this count with prejudice on June 2l,
2006, prior to the filing of the Second Amended Complaint. On appeal,
Appellants do not dispute the dismissal of the count.

” »The circuit court dismissed this count with prejudice on June 2l,
2006, prior to the filing of the Second Amended Complaint. On appeal,
Appellants do not dispute the dismissal of the count.

° Appellants and the plaintiffs in Tsukamoto sued the following former
members of the Board of Directors of Grcve Farm: Hugh W. Klebahn (Klebahn)
(Chairman of the Board and Chief Executive Officer), Donn A. Carswell, Pamela
W. Dohrman, Robert D. Mullins, william D. Pratt, and Randolph Moore
{collectively, Former Directors).

NO'I` F(`)R l"l,`liBLI(`.`i.=’\'l`i(.i)N IN WlljS'l"S I»I.»X\"V.»Xl"l RIZ§MP()IR”I`S AND PACII"V!C REP()’RTER

Gn cross~appeal, A"torney Appellees and Case argue that
the circuit court erred by denying Cribley, Lombardi, Tanaka, and
CB&L's Motion for Attorneys' Fees (Attorney Appellees' Motion for
Attorneys' Fees) and Case's Motion for Attorneys’ Fees.

I. BACKGROUND

This case concerns the sale of Appellants‘ shares in
Grove Farm to Case’s son, Stephen Case (Stephen) (the
transaction). Case, an attorney at CB&L, represented Stephen in
the sale. Cribley, Lombardi, and Tanaka, also attorneys at CB&L,
represented Grove Farm. Neither Attorney Appellees nor Case
represented Appellants directly.

In their Second Amended Complaint, Appellants argued
that by representing both the Grove Farm shareholders
(alternatively, “Grove Farm Shareholders" and "the
Shareholders"), including Appellants, and Stephen in the
transaction, Attorney Appellees and Case had negligently breached
their fiduciary duties to Appellants. Appellants also argued
that Attorney Appellees and Case had fraudulently induced
Appellants to sell their shares in Grove Farm to Stephen for less
than fair market value by materially misrepresenting Grove Farm's
financial condition and future prospects and Attorney Appellees
and Case's relationship to the transaction to induce Appellants
to accept Stephen's offer and, thereby, enrich themselves.

On October 2, 2006, Attorney Appellees and Case filed

the following motions to dismiss (collectively, Motions to

'Dismiss):

(l) CB&L and Cribley's "Motion to Dismiss Pursuant to
HRCP [Rules] l2(b)(6) and 9(b), or in the Alternative, Motion for
a Stay as to These Defendants" (CB&L/Cribley's Motion to
Dismiss);

(2) Lombardi and Tanaka's “Motion to Dismiss Pursuant
to HRC? [Rules] l2(b)(6) and 9(b)" (Lombardi/Tanaka's Motion to
Dismiss) (the above motion and this motion collectively, Attorney

Appellees’ Motions to Dismiss); and

N(.`)'I" l*-`(f)'[{ I’I_,`FIS.I.,!(,`.A\"I`I()N IN W}ZS'I"S I~Ii»\VV/\_l"l REP()I{'.I`S AND PACI]*`]C RI*I~'P(,)R'I`I*I!§{

{3) Case’s "Motion to Dismiss Pursuant to HRCP {Rules}
l2{b}(6) and §9>(h}, or in the Alternative Motion for a Stay as
to Daniel H. Case and adopting Defendants Case Bigelow & Lombardi
and James Cribley’s Memorandum in Support of Their Motion to
Dismiss Filed on or About 0ctober 3, 3006" (Case's Motion to
Dismiss).

fn the Motions to Dismiss, Attorney Appellees5 and Case
argued6 the following:

(l) Appellants lacked standing to assert their claims
because they failed to show that Attorney Appellees or Case owed
Appellants a duty;

(2) Appellants' claims grounded in fraud ~~ Counts
VllI (Fraud), IX (Constructive Fraud), X (Negligent
Misrepresentation), XII (Conspiracy to Defraud), and XIII
(Securities Fraud) -- should be dismissed because Appellants
failed to make specific allegations, as required under HRCP Rule
9(b); and

(3) Appellants' fraud and misrepresentation claims
should fail because Attorney Appellees made no misrepresentation
to Appellants and Appellants could not establish reliance on any
such misrepresentations.

0n November 3, 2006, Appellants filed "Plaintiffs'
Consolidated Opposition to (l) the Attorney Defendants' Motion to
Dismiss or in the Alternative for a Stay as to Certain
Defendants; (2) [Lombardi and Tanaka‘s] Motion to Dismiss; and
{3) All Substantive Joinders to these Motions" (Opposition to the

Motions to Dismiss). Appellants argued that Attorney Appellees

and Case

owed fiduciary, statutory and common law duties to Grove
Farm and its constituent [S}hareholders as counsel to {Grove
Farm], counsel to the directors and company Eoard, [and]
counsel to Special Committee. At base, they helped a third~

5 Lombardi/Tanaka's Motion to Dismiss provided that Lombardi and Tanaka
joined in CB&L/Cribley‘s Motion to Dismiss.

Case‘s Motion to Dismiss provided that Case "adopt[edl the arguments
set forth in {CB&L/Cribley's Motion to Dismiss]."

5

N()'l` l'<`(_)l`{ I’IHYTZ'I.JIC¢X'|`ION lN V\"'¥.‘.`.~S'I"S IIf-\\’v'./\]‘l MRAISrP()IK’I`S l) PACIP`!C Rl*fli’()l{'l`.}'_`,`!{

party ~~ their “
from Grove Farm
violated du

to make disclow

cheat, defraud and profit
. In the process, they

ur alia to maintain client confidences,

s to clients and to refrain from profiting
th~Wselves or aiding other people to profit from information
th y learned in a fiduciary capacity. As counsel in the
transaction, they also owed duties to speak up, and to
disclose any information known to the law firm that was
material to {S}hareholders’ decision to sell. The breach of
these duties gave rise inter alia to §Appellants‘] claims
against the attorney §Appellees and Casel.

(Footnote omitted.) Appellants argued that Attorney Appellees
and Case owed duties to Appellants "just like the directors did
because Grove Farm was being sold" and “public policy
considerations require that attorneys owe a duty to shareholders
when advising a company board and special committee in connection
with a potential sale or merger."

The circuit court filed its Order Granting Motions to
Dismiss with prejudice.

On March 5, 2007, Appellants filed a "Motion for
Partial Reconsideration of the Court's [Order Granting Motions to
Dismiss] and for Reinstatement of [Case], [Cribley], and [CB&L]
as Party Defendants Herein," which the circuit court denied on
June 7, 2007.

On September 25, 2007, Case filed a Motion for
Attorneys' Fees and Costs, and Attorney Appellees filed their
Motion for Attorneys' Fees and a Motion for Taxation of Costs.
The circuit court awarded costs to Attorney Appellees and Case,
but denied their requests for attorneys' fees.

II. STANDARDS OF REVIEW

A. Dismissal of Complaint

This court reviews a dismissal of a complaint under
HRCP Rule l2(b)(6} de novo. Bacerra v. MacMillan, lll Hawafi
ll7, ll9, l38 P.3d 749, 751 (2GO6). HRCP Rule l2(b)(6) provides

that "the following defenses may at the option of the pleader be

made by motion: . . . (6} failure to state a claim upon which

relief can be granted."

N()'I` l*"()il PI_`;"{ZLIC;A"l"i()N !N WI<`,S'I"S .fi,,~&\\’,\,l"¥ REP()R'I`S AND PeX(__`.‘l`l`*"lfC REPORTFR

B. Standing

"Because standing is a jurisdictional issue that may he
addressed at any stage of a case, an appellate court has
jurisdiction to resolve questions regarding standing, even if
that determination ultimately precludes jurisdiction over the

merits." Kandohanohano v. State, 114 HawaFi 302, 324, 162 P.3d

696, 718 (2007) {internal quotation marks, citation, and brackets
omitted}.
"Whether the circuit court has jurisdiction to hear
the plaintiffs' complaint presents a question of law,
reviewable de novo. A plaintiff without standing is not
entitled to invoke a court‘s jurisdiotion. Thus, the issue
of standing is reviewed de novo on appeal." Right to Know
Comm. v. City Couhcji, City & County of Honolulu, ll7
Hawari l, 7, 175 P.3d lll, 117 (App. 2007) iinternal
quotation marks and citations omitted).

County of KauaYi v. Office of lnfo. Practices, State of HawaiUq
l20 HawaiU_34, 39, 200 P.3d 403, 408 (App. 2009}.

C. Duty of Care

The appellate courts address "whether a defendant owes
a duty of care to a particular plaintiff as a question of law
under the right/wrong standard." Blair v. lng, 95 Hawafi 247,
253, 21 P.3d 452, 458 (200l) (Blair I).

D. Harmless Error

Hawaii Rules of Evidence Rule lO3(a) provides in
relevant part: "Error may not be predicated upon a ruling which
admits or excludes evidence unless a substantial right of the
party is affected."

E. Statutory Interpretation

"The standard of review for statutory construction is
well-estahlished. The interpretation of a statute is a question
of law which this court reviews de novo. where the language of
the statute is plain and unambiguous, our only duty is to give
effect to its plain and obvious meaning.“ Lihertv Mut. Fire Ins.
Co. v. Dennison, lO8 Hawaid.380, 3S4, 120 P.3d lll5, lll9

(2G05) {internal quotation marks and citation omitted).

;\'()'I` I"()}K Pl_.?Bll,iff'lA'l`l()Ni IN WE`,S'!"S `H¢»\\NIAI°l Rl`:’§l’()R'I`S ANI) I’A(.t`.`l`l*`[(,`. REP()I~’.'I`I€IR

F. Attorney‘s Fees

This court reviews the circuit court*s denial

nd granting cf attorney s fees under the abuse of
discretion standard. Tho trial court abuses its
discretion if it bases its ruling on an erroneous view
of the law or on a clearly erroneous assessment of the
evidence. Stated differently, an abuse of discretion
occurs where the trial court has clearly exceeded the
bounds of reason or disregarded rules or principles of
law or practice to the substantial detriment of a
party litigant.

Ranger §ms. so, /. 103 Hawaii 26, 30, 79 P.3d ll9,
123 {2003) £quot1 r,r ;'l Ltd. v. Shimj:u Corp., 92
Hawari 243, 253, 993 P.Zd 7l3, 723, reconsideration denied,
(1999)}.

price v. ms Hawai‘i ins c@., :nc., 107 Hawai‘i 106, iio, iii
P.3d l, 5 (2005).
III.

A. APPEAL

1. Motions to Dismiss

In the Order Granting Motions to Dismiss, the circuit
court did not specify on what grounds it granted the motions.

a. Standing

0n appeal, Appellants maintain, in sum, that (l)
because the subject transaction was a sale, the directors of
Grove Farm owed a fiduciary duty to Appellants (although normally
directors of a corporation do not owe individual shareholders
such a duty); (2) because "attorney duties and directors' duties
are in a real sense intertwined, and follow one another,"
Attorney Appellees and Case owed a fiduciary duty to Appellants
(although attorneys representing corporations normally do not owe
individual shareholders such a duty); and (3) Attorney Appellees
and Case breached their fiduciary duties to Appellants.
Appellants largely base their argument on various state and
federal cases outside of this jurisdiction. x

In the Motions to Dismiss, Attorney Appellees and Case
argued that Appellants lacked standing to assert their claims
because Attorney Appellees and Case owed Appellants no duty,

including a duty to report to Appellants alleged violations on

N()'I` T<`()I{ PI_)"BI.,I (;`i/\'I`l(,)i"v’ IN WfECS'I"’S I~*L\\’V`AI‘I l`{]%II’(_)R'l`S AND I’z\Cl`,l'*"l.C I{}`C.P()R'I`.El{

the mart of Former Directors. Attorne‘ A ellees and Case
- j

contended th t Ropellants' claims belonged to Grove Farms only.
a e

12éh){6) provides in relevant part that
1se, in law cr fact, to a claim for relief in any
pleading . . . shall he asserted in the responsive pleading
thereto if one is required, except that the following defenses
may at the option of the pleader he made by motion: . . . (6)
failure to state a claim upon which relief can be granted[.]“
“It is well~sett1ed that courts must determine as a
threshold matter whether they have jurisdiction to decide the
issues presented. 1f a party is found to lack standing, the
court is without subject matter jurisdiction to determine the
action." Hawaii Med. Ass'n v. Hawaii Med. Serv. Ass'n, Inc., 113
Hawaid_77, 94, 148 P.3d l179, 1196 (2006) (citations omitted).
1n Hanabusa v. Lingle, 119 HawaiH_341, 347, 198 P.3d
604, 610 (2008), the HawaiU.Supreme Court stated the following

with regard to standing:

“Standing is concerned with whether the parties have
the right to bring suit." Motti v. Miyahira, 95 Hawaid
381, 388, 23 P.3d 716, 723 (2001) (quoting Fele Defense Fund
v. Funa Geothermal Ventwre, 77 Hawaii 64, 67, 881 P.2d
l210, 1213 (l994}).

lt is well settled that the crucial inquiry with
regard to standing is whether the plaintiff has alleged such
a personal stake in the outcome of the controversy as to
warrant his or her invocation cf the court’s remedial powers
on his or her beha1f. fn re Appiication of Matson
Navjdstion Co. v. FederaZ Deposit Ins. Corp., 81 Hawafi
270, 275, 916 P.2d 6SO, 685 {1996). In deciding whether the
plaintiff has the requisite interest in the outcome of the
litigation, we employ a three-part test: (1) has the
plaintiff suffered an actual or threatened injury as a
result of the defendant's wrongful conduct; (2} is the
injury fairly traceable to the defendant's actions; and (3)
would a favorable decision likely provide relief for
plaintiff's injury. Bush v. Watson, 81 Hawaii 474, 479,
918 P.2d 1130, 1135 (1996}.

With respect to the first prong of this test,
the plaintiff "must show a distinct and palpable
injury to himself [or herself.j" Life of the Land v.
Land dee Commission of State of Hawaii, 63 Haw. 166,
173 n.6, 623 P.2d 43l, 446 n.6 {l981). The injury
must be "distinct and palpable, as opposed to
ahstract, conjectural, or merely hypothetical." Doyle
v. Oklahoma Ear Ass'n, 998 F.2d 1559, 1566 (1Gth Cir.
l993) (citations omitted).

N(t)'l` I?`(f)l{ I’LF'B!_,IC,.`A'I`I()N |N \\"I§S'l"§>` HA\V.AI‘I REP(’)R’TS AND PA.C`.IP`IC Rtl:II’(.).R'I`l§LI{

F.3d at 724, quoting Rrjnaks vz
.- Cuurt, 91 Hawari 5l, 55,
The re uirement of a "distinct

L/.¢‘,Ci

and palpable in*1‘y" :s a plaintiff to have suffered
an "injury in fac ." Mcttj, 95 Hawai`i at 391, 23 P.3d at
"/`2`1@ .

Although Appellants do not do so on appeal, in this
discussion we distinguish between Case, who represented Stephen,
and Attorney Appellees, who represented Grove Farm in the
transaction.

(l) Breach of Fiduciary Duty

1n their Second amended Complaint, Appellants argued
that Case and Attorney Appellees breached their fiduciary duties
to Appellants. Appellants maintained that Case and Attorney
Appellees' duties extended to Appellants "both directly under the
circumstances and as intended and known third~party beneficiaries
of the attorney~client relationships between Attorney {Appel1ees]
and Grove Farm, its subsidiaries, its Board of Directors and the
Special Committee of the Board." Appellants did not explain in
their Second Amended Complaint how they were third~party
beneficiaries, nor do they do so in the instant appea1.

(a) Case

we recently held in a related case, Tsukamoto v. Grove
Farm Co.[ 1nc., No. 28626, 2009 WL 5117005, at 32-34 (Hawafi
App. December 29, 2009), that Grove Farm Shareholders did not
have standing to bring their breach~of-fiduciary~duty claim
against Case. After the Shareholders filed their Second Amended
Complaint, Case filed a Motion for Summary Judgment, in which he
argued that he was entitled to be dismissed by summary judgment
because he had no duty to the Shareholders since neither he nor
CB&L had ever been an attorney for them and the Former Directors
had no duties to them. ;d; at 30. Case added that there was no
conflict of interest when he acted as Stephen's agent in
Stephen's purchase of Grove Farm. ;d; Case also argued that the
Shareho1ders could not show that a genuine issue of material fact

existed with regard to the conspiracy to defraud claim. Id.

10

N(f)"l` li`()l#{ P Ulil?l;](l.`/\'|"I(`)N .{N V\~'.MI;`CS"I"S I'I.~=\\\"AI`I R¥élil,’(')R"l`S ANI) P.~‘XCTIP"!C RI£ l’f)l'{'l`_l+ffR

we agreed in IsuLamggo that the Shareholders lacked
standing to bring their breach»of~fiduciary-duty claim against
Case and held that Case iad no duty to the Shareholders because
(1) there was no contractual relationship between Case and the
shareholders and (2) Case represented Stephen and not Grove Farm
or the Shareholders in the transaction. L§; at *32. we also
concluded that there was no merit to the Shareholders' allegation
that Case owed a duty to them just because he was a partner and
chairman of the board of CB&L, ;d4

Like the Shareholders in I§u§amptQ, Appellants in this
case do not have standing to bring their breach~of~fiduciary
claim against Case.

(b) Attorney Appe11ees

"1t is a well[~]established rule both in Hawafi and in
a majority of the States that the relation of directors to the
corporations they represent is a fiduciary one." Taniguchi v.
Ass'n of Apt. 0wners of King Manor, Inc., 114 HawaiU_37, 50, 155
P.3d ll38, 1151 (2007) (internal quotation marks and citation
omitted). Although the "established law is that corporate
officers, directors, or shareholders are not personally liable
for the tortious conduct of the corporation or its agents,"
Eastern Star, 1nc., S.A. v. Union Bldg. Materials Corp., 6 Haw.
App. 125, 134, 712 P.2d 1148, 1155 (1985) (internal quotation
marks and citation omitted), where the officers, directors, or
shareholders actively or passively participate in the tortious
conduct, "they are not shielded by the corporation and will be
personally liable" for such. ;d; at 135, 712 P.2d at 1155
(internal quotation marks and citation omitted).

"[S]tockholders . . . of a corporation do not have the
right to pursue an action on their own behalf when the cause of
action accrues to the corporation." Joy A. McElrov, M.D., lnc.
v. Maryl Group, lnc., 107 HawaiU.423, 431, 114 P.3d 929, 937
(App. 2005} (internal quotation marks and citation omitted).
"Where the basis of the action is a wrong to the corporation,

redress must be sought in a derivative action." Chambrella v.

ll

I\ (`)'l` FOR I’L"Bl__,lC`/X'I`{(`)N IN \VES' "S il»l'A\~’\".-XI°[ I{}CP()I{"I`S A..N`I) I’.ACH<"IC l?l`f*`,l’()li-!'I`I`!Il?l

RutLedge, 69 Haw. 27l, 230, ?40 P.2d l008, 1013 (l9B7} (internal
quotation marks and citation omitted}. However, "[ilf the injury
is one to the plaintiff as a shareholder and to him individually,
and not to the corporation, as where the action is based on a
contract to which he is a party, or on a right belonging
severally tc him, or on a fraud affecting him directly, it is an
individual action." §d; at 280, 740 P.2d at l0l3~l4 (internal
quotation marks, citation, brackets, and footnote omitted).

fn the instant case, Appellants argue that because they
have standing to bring an individual action against Former
Directors, they also have standing to bring an individual action
against Attorney Appellees because “attorney duties and
directors' duties are in a real sense intertwined, and follow one
another." Appellants offer no authority for this contention, and
we find none in this jurisdiction.

ln Tsukamoto, we addressed for the first time the issue
of whether shareholders of a closely held corporation have
standing to sue an attorney representing that corporation for
breach~of~fiduciary duty, notwithstanding that the attorney is
not acting as counsel for those shareholders. 2009 WL 5ll7005,
at *32-33. There, we cited to a number of cases outside this
jurisdiction before adopting "the generally accepted rule that an
attorney for a closely held corporation owes no duty to
individual shareholders." ;d; ln support for our holding, we
cited to Hawai`i Rules of Professional Conduct Rule l¢l3.
Isukamoto, 2009 WL 5ll7005, at *33. Finally, we held that the
circuit court had not been wrong to dismiss the breach~of-
fiduciary~duty claim against Case. ;d; at *32.

In Tsukamoto, we also discussed whether the
Shareholders had standing under the theory that they were third-
party beneficiaries of the attorney~client relationship between
Grove Farm and its attorneys. 2009 WL 5ll7005, at *34. Citing
to Blair l, 95 Hawafi at 255, 21 P.3d at 460, we held that the
Shareholders were not third-party beneficiaries because there was

no evidence in the record on appeal that Grove Farm had retained

12

:`v'()"l` F()I{ `}"LV}`_§LICT.'~\.’I`I()N lN W IE`.S'I"S Ii{./\\N"AI°{ RICPOR'I`S As\‘l) PA(i`/II"IC RI§}’ORTEI{

attorneys for the purpose of conf@”ring a benefit to the

1
Sharehoiders. I§gkamotQ, 2009 WL 5ll7005, at *34.

Given the foregoing, appellants in this case lack

10

standing to a sert their breach~of~fiduciary-duty claim against
Attorney Appellees.
(2) Negligence Claims
The Second Amended Complaint claimed that Case and
Attorney Appellees committed legal malpractice, negligence/gross
negligence, and negligent misrepresentation (negligence claims)
against Appellants. lt is a "basic principle that a negligence
action lies only where there is a duty owed by the defendant to
the plaintiff." Birmingham v. Fodor's Travel Publ'ns, Inc., 73
Haw. 359, 366, 833 P.2d 70, 74 (l992). As we have already
discussed, neither Case nor Attorney Appellees owed a duty to
Appellants. Therefore, Appellants lacked standing to assert
negligence claims against Case and Attorney Appellees.
(3) Participation in Breach of Fiduciary
Duty
The Second Amended Complaint alleged against Case a

claim based on the tort of participation~in-breach-of-fiduciary
duty. We are unable to find a case in this jurisdiction
construing that tort. Nevertheless, a survey of cases in other
jurisdictions reveals no requirement that a fiduciary
relationship exist between the party who allegedly participated
in a breach-of-fiduciary duty and the party who was harmed by it.
See, e.g., Meadows v. Hartford Life Ins. Co., 492 F.3d 634, 639
(5th Cir. 2007) ("To establish a claim for knowing participation
in a breach of fiduciary duty, a plaintiff must assert: (l) the
existence of a fiduciary relationship; (2) that the third party
knew of the fiduciary relationship; and (3) that the third party
was aware that it was participating in the breach of that
fiduciary relationship."); In re Greater Se. Cmty. Hosp. Corp. I,
353 B.R. 324, 359-60 (Bankr. D. D.C. 2006) (internal quotation
marks and citation omitted) ("Aiding and abetting the breach of

fiduciary duty occurs when the defendant knows that the other's

l3

N()`}` F(')IZ }’I.F`Bl.,I(',T.-X'l`l()l'\` II\’ VS~'ES'I"S I'I.A\\"»'Xl‘l l`{!?§P()R'I`S .»\FNI) }FACI'P"IC REP()R'I`I§]I

conduct constitutes a breach of duty and gives substantial
assistance or encouragement to the other's nonetheless."};

_z__<; -,_,;j;;@,;;.g~__\;;;_~§_:_<;;;_;¢_;;, 307 ahead ii:~, 125, 760 N.Y.s..za 1512 169

1N.Y. App. Div. 2003} ("A claim for aiding and abetting a breach
of fiduciary duty reguires: {1) a breach by a fiduciary of
obligations to another, (2) tiat the defendant knowingly induced
or participated in the breach, and {3) that plaintiff suffered
damage as a result of the breach.").

Appellants had standing to assert participation in
breach of fiduciary duty against Case, and the circuit court
should not have dismissed that claim on the basis that Appellants
lacked standing. Nevertheless, the court‘s error was harmless
because Appellants failed to state a claim upon which relief
could be granted, pursuant to HRCP Rule 12(b)(6), since, as we
have already discussed, Attorney Appellees had no fiduciary duty
to Appellants.

(4) Fraud Claims

The Second Amended Complaint alleged that Case and
Attorney Appellees committed constructive fraud, securities
fraud, fraud, and conspiracy to defraud.

(a) C0nstructive Fraud

In Wolfer v. Mutual Life Ins. Co. of New York, 3 Haw.

App. 65, 76-77, 641 P.2d 1349, 1357 (l982), this court stated the

following:

Constructive fraud is defined as an act done or
omitted which is construed as a fraud by the court because
of its detrimental effect upon public interests and public
or private confidence, even though the act is not done or
omitted with an actual design to perpetrate actual fraud or
injury. 37 Am. Jur. 2d, Fraud and Deceit, § 4.

Constructive fraud often exists where the parties to a
transaction have a special confidential or fiduciary
relation which affords the power and means to one to take
undue advantage of, or exercise undue influence over, the
other. §Q;, § 5.

Relationships between trustee and beneficiary,
principal and agent, and attorney and client are familiar
examples in which the principle of fiduciary or confidential
relationship applies in its strictest sense. Its operation,
however, is not limited to dealings between parties standing
in such relations, but extends to all instances when a

l4

N()T F()R I~"I.}']'BI,.`I(§.`ATT()N .!N \\"}éfS'I"S I'{z&\¥"z\l.‘_`f RE`P()RTS AND P.ACI_I+`!C REPOR'I`ICIK

fiduciary or confidential relation exists as a fact, in
which there ' confic 1 reposed on one side and a
r auiting superiority and influence on the other. Id_,

`§ 16.

{Emphases added.) in the instant case, as we have already
discussed, Case and Attorney Appellees had no fiduciary duty to
Appellants. Further, the evidence on appeal reveals no special
confidential relationship between appellants and Case or Attorney
Appellees. appellants had no standing to assert their
constructive fraud claim against Case and Attorney Appellees.
(b) Securities fraud
Hawaii Revised Statutes (HRS} § 485»25(b) (l993}
provides:
§485~25 Fraudulent and other prohibited practices.

(b> lt is unlawful for any person who receives any
consideration from another person primarily for advising the
other person as to the value of securities or their purchase
or sale, whether through the issuance of analyses or reports
or otherwise:

(l) To employ any device, scheme, or artifice to
defraud the other person; or

(2) To engage in any act, practice, or course of
business which operates or would operate as a
fraud or deceit upon the other person.

(Emphasis added.) Because, as we have discussed, Appellants had
no attorney~client relationship with Case or Attorney Appellees,
neither Case nor attorney Appellees "receive[d] any consideration
from“ Appellants "for advising" Appellants. HRS § 485~25(b).
Therefore, based on the plain language of HRS § 485-25(b),
Appellants had no standing to assert a securities-fraud claim
against Case or Attorney Appellees.
(c) Fraud and Conspiracy to Defraud

In Tsukamoto, we held that a fraud claim requires no
fiduciary relationship between the party alleging fraud and the
party against whom fraud is being alleged. 2009 WL 5ll7005, at
*35. Hence, here, Appellants have standing to bring their fraud
and conspiracy-to~defraud claims against Case and Attorney

Appellees despite the absence of a fiduciary relationship between

15

:`~i()'l" }1`(')1{ Pl_i'l%LF(`UX"I`I(_)N l,§\‘ WI¥`,S'F’S H.A»\\/'/\I‘I RI§`I"()R'I`S AN]) I’A.C_TH"IC, RIE.P()I{"I`I€JfI-l

Appellants and Case or attorney Appellees, and the circuit court
abused its discretion by dismissing those counts on the basis of
Appellants’ lack of standing. Nevertheless, the error was
harmless because hppellants failed to state a claim upon which
‘ef could be granted, pursuant to HRCP Rule l2(b)(6), with
regard to those counts.
T

.¢,

n the Second Amended Complaint, Appellants argued, in
relevant part, the following:
ill On September l5, l999, a letter” signed by Klebahn
and reviewed and edited by Cribley was sent to Appellants. The
letter misled Grove Farm Shareholders by implying there was no
outside capital source available when actually Saxon»Ravenscraig
Group (Saxon~Ravenscraig), an eager bona fide outside investor,
was willing to act as source for the sort of capital infusion

Klebahn said was needed. Cribley was aware of the letter, and

7 The letter stated, in relevant part, the following:

The assets of [Grove Farm] are encumbered beyond a prudent
level and the funds being generated from down sized [sic]
operations are just barely sufficient to cover operating costs
including current debt service. An engineering study regarding

we Kukui Grove Shopping Center indicates that {Grove Farm] will
have to spend approximately $l.5 million over the next two years
to repair the Center. Interest by prospective tenants in the
Center is minimal. The former JC Penny and Woolworth spaces
(approximately 70,0GO square feet) remain vacant. Extensive
contacts with prospective national tenants have proved negative.
Prospects show interest, visit the property, and then reject any

further consideration.
~k'k*k

Grove Farm cannot save its way into prosperity; the economy
must help. lt will take a large amount of new capital to realize
Grove Farm‘s potential. These funds will have to come either from
the sale of assets or from an outside source investor. lt is
capital requirement that puts a lid on the value of [Grove Farm]

stock today.
‘ki<‘k

The challenge for the Board is to find an infusion of
capital into [Grove Farm}. No alternative will remain unexplored.
We will do what is necessary. No stone will be left unturned as
we analyze alternatives and chart a course.

(Brackets in original omitted; ellipses and asterisks within paragraphs
omitted.)

16

`;\’(.')'I` F()}Z Pl,f"Bh]CA'|`I()N IN \\/}BIS'!"S PI.A\\'.AVI°I R.EI’()R'[`S .¢XND I’ACI,I"I(_`I RI.'“,l’()RTPyIvR

attorney Appellees did not correct or supplement the information
provided in it.

§2} Klebahn wrote and sent and Cribley reviewed,
edited, and/or approved a letter dated November 3G, 1999 to Grove
arm Shareholders, in which Klebahn stated that Grove Farm's
value, according to a County of KauaH.assessment, was $27.5
million and Grove Farm's adjusted value, according to Klebahn,
was $l2.8 million. Klebahn failed to mention that Grove Farm's
value in 1999 was $l56 million and that the $27.5 million figure
largely reflected only the value of Grove Farm's agricultural
land.

{3} On December l3, l999, Scott Blum (Blum) formally
submitted an offer to acquire Grove Farm’s stock for $2l million,
or $l25 per share. Attorney Appellees, along with Former
Defendants, relayed the Blum offer to Shareholders, without
telling the Shareholders about Saxon~Ravenscraig's offer.

(4) Cribley drafted a letter, sent to Shareholders on
February 2, 2000, that was "calculated to lead and in fact led
[Grove Farm] [S]hareholders to believe that qualified,
independent outside advisors were being retained" to advise a
special committee made up of Grove Farm board members (Special
Committee) on strategic alternatives available to Grove Farm and
valuate Grove Farm. However, "Defendants" did not honor the
"pledges" contained in the letter. On CB&L's suggestion, the
Special Committee chose Aspen venture Group (Aspen) to advise
them, when Aspen was a "front," set up by Michael Burns, a
convicted white~collar felon, "who used it as a Trojan horse to
get inside Grove Farm in preparation for a take-over bid."
Attorney Appellees either did not know that Aspen was an
inappropriate or unbiased choice or knew of Burns’s conviction
and disregarded or suppressed the information.

(5} At a May 8, 2000 Grove Farm Shareholders’ meeting,
the Special Committee made available to the Shareholders Aspen's
first written report, valuing Grove Farm’s shares at $86 to $98

each. Aspen had written a second report on the strategic

17

NO'I` I*`()R P`L'ISI,I(f`.»*\'l`I(f)Ni l?\' W}"IS'I"S l~li\\l\".»'\l`l REP().P{'I`S ANI) P,'\(,`,ll*`l(.`. RP_`,¥’()R'I"[»`,R

alternatives available to Grove Farm, but the Special Committee
provided the Shareholders with only a summary of the report.

also at that meeting, attorney appellees failed to inform
Shareholders that tax assessment records showed Grove Farm‘s real
estate holdings to be worth more than $8O million above and
beyond its total debts and that Grove Farm had millions of

dollars in cash on hand and expected to have millions more in

§§
C`J

Further, at the meeting, Cribley, knowing it to be false,

I\)

1 ed that Grove Farm land could not be "condominiumize[d]" and

71

FT ('T ©
{jz
(`T

ated that individual real estate parcels outside the Kukui

C'J

Grove Shopping Center area and Lihue~Puhi Housing Development“
{Housing Development) could not be sold, which he knew or should
have known was not true.

(6) The Special Committee failed to inform Grove Farm
shareholders that Kauad.County had approved a request to rezone
a l6.9 acre parcel of Grove Farm property (the l6.9 acre parcel),
thereby enabling Grove Farm to sell it outright for $lO to $3O
million or more. Attorney Appellees failed to inform
Shareholders that Hyatt had wanted to lease the rezoned land "for
$l.2 million per year (plus future CPI increases)“ to improve
cash flow.

(7) On June 2, 2000, a letter authored by Cribley was
sent to Grove Farm Shareholders, explaining that the Special
Committee was going to stage an auction of Grove Farm among
competing bidders who would be treated equally, but Attorney
Appellees "employed and manipulated the five-step process
[bidders were required to follow] to favor Stephen."

(3) On July ll, 2000, Klebahn reported to the Special
Committee, but failed to tell Combs, that the Kukui Grove

5 Paragraph 56 of the Second Amended Complaint provides:

56. As of 2000, {Grove Farm] held title to a 989-acre
portion of Grove Farm commonly referred to as the Lihue~Puhi
Housing Development (the "Housing Development"). This project
included the Billy Casper Golf Course, the Hyatt Golf Course
a sewer property and numerous real estate parcels[.]

- /

l8

;’\‘()'I` F`()R P\.f'l'%l_.lCi’x'l`l()N IN WI¥§S"I"'S HAVV`LAI‘I I'~UL`POR'[`S .»\NI) ]’.@\Cll*`l(§ RPIP(`)IZTICR

shopping Center was worth S20 million net of debt and repairs and
drove Farm had sufficient cash to meet its obligations through
the first three months of 200l. attorney appellees continued to
actively and openly oollude with Former Directors to defraud
Grove Farm Shareholders into selling their shares to Stephen for
less than fair market value.
(9) attorney appellees continued to tout Aspen’s

'on of Grove Farm, even when the commercial loan department

<1
;»,
y .J
;::
w
('T
j..)

of Eank of Hawaii (BOH) notified the Special Committee on

5 7, 2000 that Kauaii County had assessed Grove Farm's value
6 million for 2000, which BOH stated was "significantly
erent" than Aspen's $l29 million valuation.

(l0) Attorney appellees did not notify Grove Farm
shareholders that Sears began leasing an additional 42,l50 square
feet in the Kukui Grove Shopping Center, representing $500,000 in
additional revenue per year, despite Attorney Appellees‘ promise
to keep Shareholders abreast of any material developments.

(ll) Prior to the December l, 2000 vote on whether to
sell Grove Farm to Stephen, Grove Farm Shareholders were not made
aware of a contract by Schuler Homes to buy developed residential
lots in the Housing Development for $2.3 million.

(l2) Grove Farm Shareholders were never told that in
September and October 2000, Scott Parker of Trust for Public
Lands offered to purchase "the entire Ahupuaa of Mahaulepu."

(l3) Grove Farm Shareholders were not told that CB&L
had commissioned an appraisal of Grove farm for Stephen, and
Shareholders were not privy to the appraisal results.

(l4) At no time before December l, 2000 did Case or the
other CB&L partners inform Grove Farm Shareholders that a BOH
internal real estate appraisal memorandum revealed that the
revised market value of Grove Farm land was $l52,700,000.

(l5) The October 30, 2000 offer letter by Wattson~

Breevast was not sent to Grove Farm Shareholders.

19

NO'I` 13 ()R l"l}`l;¥[,l(l`i~\'l`il()?\l IN \MN"}?IS"I"S ¥{.»\‘»/VAI`! RI§P(`)R'[`S ANI) PACIFIC REPOR”I`ER

(l6) A "Prospectus" or "ProXy Statement"“ principally
drafted by Case and Cribley and disseminated to Grove Farm
shareholders by Case and CB&L partners "materially misrepresented
the financial condition of lGrove Farml, and its relationship to
{CB&L] and ALPS."”

appellants argued that had Grove Farm Shareholders
"known of all material information germane to the value of [Grove
Farm], the proposed sale to ALPS would not have garnered approval
of the requisite seventy-five percent (75%) supermajority of the

Shareholders."

3 The introduction to the Proxy Statement provides in relevant part:

[Grove Farm]. . . has agreed to be acquired by ALPS
Investment LLC. . . through a merger transaction. As a result of
the merger, each of [Grove Farm's] stockholders . . . will receive

$l52.00 for each share of common stock that they own.

A special meeting of stockholders (the "Special Meeting")
will be held at 9:00 a.m. on December l, 2000 . . . to vote on the
merger proposal. [Grove Farm's] Board of Directors has approved
the merger and recommend that [Grove Farm‘s] stockholders vote FOR
the merger proposal at the Special Meeting. Information about the
merger and the Special Meeting is contained in this Proxy
Statement.

At the Special Meeting, [Grove Farm's] stockholders will be
asked to consider and vote upon a proposal to approve the
Agreement and Plan of Merger dated October l7, 2000 (the "Merger
Agreement") between [Grove Farm], ALPS Investment LLC and ALPS
Acguisition Sub, Inc. ("Acquisition Sub").

The Board of Directors believes that the Merger Agreement is
fair and in the best interests of the stockholders and recommends
that you vote FOR approval of the Merger Agreement.

The Proxy Statement included chapters entitled "Overview," "The Merger
Transaction," "The Merger Agreement," and "The Meeting and Voting."

10 ALPS lnvestment LLC (ALPS LLC} was a company engaged in general
investments and owned by the Stephen M. Case Revocable Living Trust. Sheehan
v. Grove Farm Co., lnc., ll4 Hawaii 376, 38l, 163 P.3d l79, l84 (2005). ALPS
LLC was managed by Ka Poe Hana LLC, of which the president was John Agee and
the owners were Mr. and Mrs. Stephen Case. §d; ALPS LLC submitted a Merger
Agreement to Grove Farm‘s Board of Directors. ;d; The Merger Agreement
provided that ALPS Acquisition Sub, Inc., a corporation formed by ALPS LLC for
the purpose of merging with and into Grove Farm, would merge with and into
Grove Farm with Grove Farm as the surviving corporation. ld; at 381 & n.4,
l63 P.3d at l84 & n.4.

20

N()'l` F(`)I{ P[FIBI;I(Y¢\'I`I(`)N IN W{SS’I"S il*l'.»\W..»\I‘l RIY`,I’€_)R'I`S ANI) ‘l’,z\(ll}’*`l(f REP(_M)R'I`E!{

(i) Fraud

fn their 0pposition to the Motions to Dismiss,
appellants argued that Case and Attorney appellees made
"misleading statements to the [Grove Farm] [S]hareholders" that
"Grove Farm was in severe risk of having to go into bankruptcy
and greatly overstated the negative impact of such a bankruptcy."
appellants also maintained that Case and attorney Appellees
committed fraud by omission:

The SAC {Second Amended Complaint] describes numerous
omission §sic3 by [Attorney Appelleesl. They failed to
correct misrepresentations by other Defendants and/or to
disclose additional material facts, that would have
completely changed the [S]hareholders['] outlook on the sale
of Grove Farm. {Appellantsl relied to their detriment on
the incorrect vision of the situation, created in part by
§Attorney Appellees’] omission, when they entered into the
unfavorable sale of Grove Farm.

(Footnote omitted.) In support of this argument, Appellants
cited to BMW of North America, Inc. v. Gore, in which the United
States Supreme Court held that "actionable fraud requires a
material misrepresentation or omission " 517 U.S. 559, 579
(l996) (emphasis in original omitted and emphasis added) (citing
to Restatement (Second) of Torts § 538 (l977); W. Keeton, D.
Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts
§ lO8 (5th ed. l984)).

Count VIII of the Second Amended Complaint provides in
pertinent part:

COUNT VIII
(Fraud ~- All Defendants)

343. The Prospectus was materially misleading in that
it contained material misinformation and omitted known
information material to the decision being put to
[S]hareholders . . . . The supplemental proxy statement was
likewise materially misleading and further failed to cure
the materially false and misleading nature of the original
Prospectus.

344. Through their above-alleged written letters,
reports, proxy statements, and meetings with the
{Slhareholders, including {Appellants], [Attorney Appellees]
and {Former Directors] provided factual information
concerning the decision to sell and the ALPS [Merger]
Agreement that they knew or should have known was materially
false and/or misleading. In other instances, [Attorney
Appellees] and [Former Directors] omitted and/or failed to

21

N()l` F(_)¥Z PK,,’IZL}(Y.»X'I`ION li'N W[‘.`,S'I"S F'IAX\'I~\I°I R`_lZ`.P()I~’.'I`S AND P,ACY}I<"ICY R[CPOR'!`P}I{

in r
and th

o
t £l

€;`”l”
A

H1W
r_,@

.¢_
\

L

\'

L

WQYQBf.

345, {Case} in particular had actual and legal
control over ana is responsible for the entire process
outlined above, including but not limited to the flawed
"auction" proc- run by his law firm, the contents of the
CB&L~anthored transactional documents and the contents of
the Prospectus and supplemental proxy statement. He knew or
should have known the "auction" process had been a sham and
that Prospectus and other post»October l7, 2009
communications to Shareholders were materially false and
misleading.

34B. Defendants made the foregoing material

misstatements and withheld material information from the
{S]hareholders with the intention to and for the purpose of
misleading the necessary seventy-five percent (75%)
supermajority of [S}hareholders to vote in favor of the ALPS
[Merger] Agreemcnt. They did so intentionally and for the
purpose of inducing [S]hareholders, including [Appellants],
to act. The Shareholders, including [Appellants],
reasonably relied on Defendants' affirmative misstatements
and Defendants’ material omissions to their detriment in
voting to sell to {Stephen], ALPS Investment and Acquisition
Sub. As a direct and proximate result, {Appellants‘] family
company was sold unnecessarily and at a price far below its
true value. [Appellants] were damaged in an amount to be
proven at trial.

The elements of fraud 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. Hawaii's Thousand Friends v. Anderson, 70 Haw. 276,
286, 768 P.2d l293, 1301 (l989) (emphasis added). "Fraud is

never presumed." Shoppe v. Gucci Am., Inc., 94 Hawafi 368, 386,
l4 P.3d lO49, lO67 (2000} (quOting TSA IHt’l, Ltd. V. ShimiZU
Corp., 92 HawaiYi 243, 255, 990 P.2d 7l3, 725 (l999)). In their

Second Amended Complaint and Opposition to the Motions to
Dismiss, Appellants fail to adduce any evidence with respect to
their reliance on the alleged fraud; hence, their claim that Case
and Attorney Appellees fraudulently induced Appellants to sell
their Grove Farm shares for less than fair market value fails as

a matter of law.

22

N(f)"l` l*`()_ll `PI,.?`B_I.,I(I¢X'I`I(`)Ni I.N WIFZS'I"S IIA WAl°l RICP(`)|'{"!`S A_Nfl) P,A,CIFI(I REI’OR'I`EI»`{

(ii) Conspiracy to Defraud

The claim for conspiracy to defraud provides in

COUNT XII
(Conspiracy to defraud [~~] all defendants)

3S9. CEO Klehahn, with the tacit approval of the

Y‘: mar Uirectors§, conspired with {Casel, {Attorney
Appellees], and €Stephen}, to defraud the {S}hareholders
into believing that $l52 per share was the highest price
which could he attained in order to ensure that RLPS would
be the purchaser of {Grove Farm] and that {CB&Ll would
continue to represen {Grove Farm].

3§O. The Attorney Defendants knew that they could
ensure that {CB&L] continued to represent [Grove Farm] by
ensuring that ALPS was the successful purchaser. {Attorney
Appellees} also knew that they could ensure that ALPS was
the successful purchaser if {CB&L} continued to represent
{Grove Farm] and [Stephen], ALPS Investment and Acquisition
Suh during the negotiations.

36l. On or about September 22, 2000, [Case] and
Klebahn agreed that [CB&L] would continue to represent
[Grove Farm} in connection with [Former Directors'] attempt
to sell all or substantially all of {Grove Farm‘s] shares.

362. Over the course of the following few weeks, the
[Former Directors] and [Attorney Appelleesj, including
{Case] as agent for [Stephen] and the two ALPS entities,
developed a plan to defraud the [S]hareholders and ensure
that ALPS was the successful purchasers [sic].

363. First, they agreed that [CB&L] would continue to
represent [Grove Farm] even though Case was acting as his
son’s agent in the transaction. This would ensure that
[Case and Stephen] remained privy to confidential
information concerning ALPS’ competitors.

364. Second, no formal restrictions of any kind were
placed upon [Case’s] ability to contact and discuss the
transaction and any background information with his partners
who were directly involved with [Grove Farm] and its efforts
to find a merger partner. Case had access to confidential
information in the possession of CB&L concerning [Grove
Farm]. No other representatives or principles of other
potential purchaser{s] were given similar access.

365. Third, it was agreed that {Cribley] and CEO
Klehahn would provide the [Case and Stephen] with
confidential and proprietary information concerning
competing offers, the internal voting of the Board, and
their "strike price." This information was not provided to
other interested parties or their principals or agents.

366. Fourth, they agreed to inhibit and deter other
interested parties from making competing and superior offers
for the shares. ln order to do so, [CB&L] was slow to
produce materials and information to the other interested

23

NO'|` l"`()[?. I"l.'fl:§l_,l(i`..»%."l`l()N IN ‘A/‘}*IS'}"S }IAVV,'\I"I RI%`)PO!I'_I`S A.NI) PACI]<`I(.` RI¥IP().IZ.'FVPII{

pnrt€ »d onerous and unsttrsctive terms
snd d of L@tephen}, ALPS Investment or
ACgu ‘onscn to would~be competing
hidd

3€7. Fifth, they placed the ALPS' offer for fsst~
trdck Bosrd npprovsl. Although there wore other serious

parties whose interests in purchasing fGrove Furm} predated
ALPS and who were supposedly then in active negotiation with
§Grove Fsrm}, LGrove Fsrml, through {Klebshn] with knowledge
snd participation of {CB&L§ and {Former Directorsl, failed
to provide the parties with nn opportunity to meet or heat
the ALPS offer prior to voting in favor of it st the

october l7, 2"OG board mesting.

36S. Sixth, since they knew that the Wnttson-Breevast
offer of $l7G per share under the same material terms end
conditions ss the ALPS Merger Agreement was 3 superior
acquisition offer, they agreed that the Board would not
further compromise [CB&L] by requesting a formal written
legal opinion on that issue from CB&L or any other law firm.

369. Seventh, after additional questions continued to
surface concerning the "Case" conflicts of interest, they
agreed that the Board would at the eleventh hour end st
great expense to [Grove Fsrm] retain another law firm to
"give cover" to that chsrge.

370. when questions concerning the conflict of
interest surfeced, Csse and his law firm were obligated to
either seek an advisory opinion concerning the conflict from
the Office of Disciplinsry Counsel or advise {Grove Farm] to
obtain independent counsel solely to review the matter.

They did neither.

37l. As a result of their collective acts in
furtherance of the conspiracy, ALPS became the successful
purchaser of [Grove Fsrm] for far less than it was worth.
CB&L continues to this day to represent [Grove Farm]. All
of the [Former Directors] received the benefits of s six[~]
year, tail-end E&O insurance policy covering their actions
in connection with the ALPS Merger.

372. Several of the [Former Directors] additionally
profited from the conspiracy[.]

373. As a result of [the] foregoing, [Appellants]
have been damaged in an amount which will be proven at
trial.

According to the Hawafi Supreme Court, "the accepted
definition of a [civil] conspiracy is a combination of two or
more persons or entities by concerted action to accomplish a
criminal or unlawful purpose, or to accomplish some purpose not
in itself criminal or unlawful by criminal or unlawful means."
Robert's HawsFi Sch. Bus, Inc. v. Laupahoehoe Transp. Co., 91

HaWaid.224, 252 D.28, 982 P.2d S53, 881 n.28 (l999} (iDt€rHal

24

N()"l` F`(“)l{ I’l.»‘f$l_.'l(fh~¥`l`l(,`)f"*v' IN W CS' "’S l~lA\v"v'/\I`l RIlP()R’I`S .=\ND P,ACTIF`IC R_I§IPOR"I`I€I{

quotation marks, citation, and brackets in original omitted). In

529 U.S. 494, 5G1~O3 (2GOO§, {footnote omitted}

By 1 3 ic as widely accepted that a plaintiff
could bring suit for civil conspiracy only if he had been
injured by an c: that “ itself tortious, See, e.g., 4
E tatement §Second} of Torts § 376, Comment h {l977§ ("The
:,‘e common plan, design or even express agreement is not
;iough for liability in itself, and there must be acts of a
tortious character in carrying it into execution"); W.
Prosser, Law of Torts § 46, p. 293 (lth ed. 197l) {"1t is
only where means are emplcyed, or purposes are accomplished,
which are themselves tortious, that the conspirators who
have not acted but have promoted the act will be held
liable“ (footnotes omitted)); Satin v. 5atin, 69 A.D.2d 761,
762, 414 N.Y.S.2d 570 {l979) {Memorandum Decision} ("There
is ic tort of civil conspiracy in and of itself. There must
first be pleaded specific wrongful acts which might ~
constitute an independent tort"); Cohen v. Bcwdoin, 288 A.2d
1OG, 110 (Me. 1972} ("ԤClonspiracy' fails as the basis for
the imposition of civil liability absent the actual
;. finn of some independently recognized tort; and when
such separate tort has been committed, it is that tort, and
not the fact of combination, which is the foundation of the
civil liability); Earp v. Dotroit, 16 Mich. App. 271, 275,
167 N.W.2d 841, 845 (l969) ("Recovery may be had from
parties on the theory of concerted action as long as the
elements of the separate and actionable tort are properly
proved"); Mills v. Hanse1l, 378 F.2d 53 (C.A.5 1967) (per
curjam) (affirming dismissal of conspiracy to defraud claim
because no defendant committed an actionable tort); J. & C.
Ornamental iron Co. v. Watkins, ll4 Ga. App. 688, 69l, 152
S.E.2d 6l3, 615 (l966) ("[The plaintiff] must allege all the
elements of a cause of action for the tort the same as would
be required if there were no allegation of a conspiracy");
Losperance v. North American Aviation, Inc., 217 Cal. App.
2d 336, 345, 31 Cal. Rptr. 873, 878 (l963) ("[Clonspiracy
cannot be made the subject of a civil action unless
something is done which without the conspiracy would give a
right of action" (internal quotation marks omitted));
Middlesex Concrete Products & Excavating Corp. v. Carteret
.}f`ndu.<,'. ASS:,";., 37 N.J. 507, 516, 181 A.Zd 774, 779 (1962)
("[Al conspiracy cannot be made the subject of a civil
action unless something has been done which, absent the
conspiracy, would give a right of action"); Chapman v.
Follcr., 148 F. Supp. 769, 772 (W.D. Mo. l957) (holding that
a plaintiff who charged the defendants with "conspiring to
perpetrate an unlawful purpose" could not recover because
the defendants committed no unlawful act); Olmsted, Inc. v.
Maryland Casuaity Co., 218 Iowa 997, 998, 253 N.W. 804
(1934) ("[A] conspiracy cannot be the subject of a civil
action unless something is done pursuant to it which,
without the conspiracy, would give a right of action");

'»/. F`e.",tO.-*?, 65 U.S. 407, 24 HOW. 407, 410, 16 L. ECl.
696 (l860) ("[T]he act must be tortious, and there must be
consequent damage").

wm v { .'
....'»:i

Consistent with this principle, it was sometimes said
that a conspiracy claim was not an independent cause of
action, but was only the mechanism for subjecting co~

25

N(')'I` F`()R l’l?I¥l,.I(.`l_»t-\'l`I()N I§\' \\"`PIS'I"S il#lAVV/Xl`l` Rlfjl"()R'l`S A‘Nl) P¢XC`,II*"IC R.VEP(_)I{"I`}`I`I{

`\§ty when one of their member committed
. .e ,. o n>”, 365 S.W.2d 496, &99, 590
i9G3} fain a .~v:d ccnsp'racy by or agreement between
defendants of itself actiorable. Some wrongful
to the p intiff s damage mi have been done by one or
of the defendnnts, and the _ tr of a crnspiracy merely
` lia: "

il

.rs on tr* of the various defendants as joint
"¢. ' "$tam v. WQZCh, 705 F.2d 472, 479
(C.A.D.C. l9B3) f"Since liability for civil conspiracy
depends on performance of some underlying tortious act, the
conspiracy is not independently actionable; rather, it is a
means for establishing vicarious liability for the
underlying tort“).

Because Appellants‘ fraud claim failed as a matter of
law, their conspiracy to defraud claim must likewise fail.
(5) Unjust Enrichment

The Second Amended Complaint provides in relevant part:

COUNT XVIII
(Unjust Enrichment ~ [Former Directors] and Attorney [Appellees])

400. After unlawfully benefiting [sic] from the deal,
[Stephen] handsomely rewarded those who aided him. Attorney
[Appellees] and [Former Directors] were given numerous
benefits and rights worth hundreds of thousands (or
millions) of dollars, as alleged above.

40l. These benefits constitute unjust enrichment of
the [Former Directorsl and Attorney [Appelleesl, as they
arose out of and are traceable to their unlawful actions.
Principles of equity dictate that they should not be allowed
to keep these benefits.

1n POrter V. Hu, 116 HaWaiu.42, 54~55, 169 P.3d 994,
lOO6~O7 (App. 2007), this court described unjust enrichment as it
is known in HawaiU¢

The Hawafi Supreme Court most recently addressed the
subject in Durette v. Aloha Plastic Recycling, Inc., 105
Hawai`i 490, 100 P.3d 60 (2004}:

Unjust enrichment, as a claim for relief, is not
clearly defined in either [HRS] or our jurisprudence.
As far as we can tell, our best explanation of unjust
enrichment has been as follows:

lt is a truism that "[a] person confers a
benefit upon another if he gives to the other
possession of or some other interest in money,
land, chattels, or cho[jses in action, . . .
or in any way adds to the other‘s security o
advantage." Restatement of Restitution § 1
comment b (l937). One who receives a benefit is
of course enriched, and he would be unjustly
enriched if its retention would be unjust. Id.
§ 1 comment a. And it is axiomatic that "[a]
person who has been unjustly enriched at the

/

26

, NO`I` I*`()i{ I’l.SBLIyC,`./\'I`IC)N IN \N"`Iv§S'L"S H.-X‘v\/AI‘I RI‘_`.I’()‘I{'I`S AN\M) PA (FII"IC R]E}’()ill'{`l*_ll{

expense of another is required to make

1tution to the other." !d. § l. we realize
rt enrichment is a broad and imprecise term

definition. But in deciding whether

hould be restitution here, we are guided
derlying conception of restitution, the
of injustice. dee A. Denning, ins
Haw 65 (l953}.

Id. at 502, 100 P.3d at 72 (footnotes and emphasis in
original omitted) ;quoting . ll v. Eudenhop, 67 Haw. 626,
<L'>Z?§~}€\, 701 P.l~ld 647, 654 il$?-t:§}`/. 31 ‘falid "Claim for

the retention of that benefit would be unjust."
To, 105 HawaiH.at 504, 180 P.3d at 74 {internal
quotation marks, citation, and brackets omitted).

We find no authority for the notion that a claim of
unjust enrichment requires a fiduciary relationship between
parties to a transaction. Therefore, Appellants have standing to
assert unjust enrichment against Attorney Appellees, and the
circuit court erred by dismissing that claim. Nevertheless, the
error was harmless because, as we have discussed, Appellants
lacked standing to assert their breach of fiduciary duty claim,
their negligence~based claims, and their constructive fraud and
securities fraud claims, and they failed to state a claim upon
which relief could be granted with regard to their participation
in breach of fiduciary duty claim and their fraud and conspiracy
to defraud claims. j

(6) Punitive Damages

Punitive damages are a remedy. See, e.q., Masaki v.
Gen. Motors Corp., 71 Haw. 1, 6, 780 P.2d 566, 570 (1989)
(holding that punitive damages "are awarded only when the
egregious nature of the defendant's conduct makes such a remedy
appropriate"). “{A] claim for punitive damages is . . . purely
incidental to a separate cause of action." Ross v. Stouffer
HOtel Co. (Hawaiuj, Ltd., 76 HaWaid.454, 466, 879 P.2d lO37,
1049 (l994). Hence, we need not address whether Appellants have

standing to request punitive damages.

27

N ()"1` F`OR PllBll,l(`.»'\'l`l()N I“N \‘v"l€.S'.l`*S IlA\\"/Xl‘l Rl:`.'l’()il'l"$ .~'-\ND I’P.C,.`,¥Flf(.` RI§I’().R".|_"VPII{

2. Costs

Appellants argue that the circuit court in I§ugamQgQ
erred by awarding costs to Case and Former Directors. we have
already addressed this point in I§ugamQ;Q. 2009 WL 5ll7005, at
wis~4s.

B. CEUJSS~JAPPEDJ.

Attorney Appellees argue that the circuit court erred
by denying Attorney Appellees' Motion for Attorneys‘ Fees because
appellants requested attorneys' fees in the Second Amended
Complaint and Appellants' allegations against Attorney appellees
derived from duties allegedly flowing from CB&L's contractual
relationship with Grove Farm. Cribley, Lombardi, Tanaka, and
CB&L brought the motion pursuant to HRS § 607-14 (Supp. 2008).
That statute provides for attorneys' fees in actions in the
nature of assumpsit:

§607~14 Att0rneys' fees in actions in the nature of
assumpsit, etc. In all the courts, in all actions in the
nature of assumpsit and in all actions on a promissory note
or other contract in writing that provides for an attorney's
feo, there shall be taxed as attorneys' fees, to be paid by
the losing party and to be included in the sum for which
execution may issue, a fee that the court determines to be
reasonable; provided that the attorney representing the
prevailing party shall submit to the court an affidavit
stating the amount of time the attorney spent on the action
and the amount of time the attorney is likely to spend to
obtain a final written judgment, or, if the fee is not based
on an hourly rate, the amount of the agreed upon fee. The
court shall then tax attorneys' fees, which the court
determines to be reasonable, to be paid by the losing party;
provided that this amount shall not exceed twenty-five per
cent of the judgment,

"Assumpsit is a common law form of action which allows
for the recovery of damages for the non~performance of a
contract, either express or implied, written or verbal, as well
as quasi contractual obligations." Schulz v. Honsador, Inc., 67
HaW. 433, 435, 690 P.2d 279, 281 (l984) (CitatiOn Omitted),
overruled on other grounds by Blair v. lng, 96 Hawafi 327, 33l,
31 P.3d l84, l88 (200l) (Blair Il), Whether an action is in
assumpsit "is determined from the facts stated in, and the issues
raised by, the plaintiff's complaint, declaration, or petition."

Schul2, 67 Haw. at 436, 690 P.2d at 282 (guoting 63 Am. Jur. 2d

28

1”\’()"1` I*`()l{ }"[FBLI('F.~S.'I"!(,')N IN \\'I€S'F'S }I.»\\Y`\’,»‘\.l`il RECPOR'I`S ANI) P.ACT`II*`!(,,‘ ‘Rvli.`.POR'l`l*ifll

§rcdpgpsW§iahility 906 §l98é}}. "Where there is doubt as to

3
whether an action is in assumpsit or in tort, there is a
presumption that the suit is in assumpsit." §lai;WL§, 96 HawaFi
at 332} 31 P.3d at 189 (internal quotation marks and citation
“urther, "{wlhen there is doubt as to whether or hot
the plaintifffs complaint is in assumpsit or in tort, a
plaintiff's prayer for attorneys' fees has been cited as a
significant indication that the action sounded in assumpsit."
healy-Tibbits Constr. Co. v. Hawaiian Indep. Refinerv, lnc., 673
F.Zd ZS~’&, 286 59th Cir. 1982}.

fn Attorney Appellees‘ Motion for Attorneys‘ Fees,
Cribley, Lombardi, Tanaka, and CB&L cited to Blair ll in support
of their attorneys' fees reguest. In Blair I, Joan Hughes
(Hughes) and her husband, Lloyd Hughes (Lloyd), were trustees of
a revocable living trust agreement (Hughes Trust), of which their
daughters {the plaintiffs) were the sole, named residual
beneficiaries. ld; at 250-51, 21 P.3d at 455-56. When Lloyd
died, Joan retained a certified public accountant (the CPA) to
prepare the necessary federal and state estate tax forms. ld; at
251, 21 P.3d at 456. When Joan died, the plaintiffs became
successor co-trustees of the Hughes Trust. ld;

1n carrying out their duties as co-trustees, plaintiffs
learned from various attorneys that the tax return prepared by
the CPA contained several costly errors and omissions. ;d; The
plaintiffs filed claims against the CPA for professional
malpractice and breach of implied contract, alleging that the CPA
had breached his duty to them as intended third-party
beneficiaries to the Hughes Trust. ;d; The Circuit Court of the
Second Circuit dismissed the claim against the CPA, finding that
the requirements of negligent misrepresentation had not been met
because the plaintiffs were merely incidental beneficiaries of
the Hughes Trust. ;d¢ at 252, 21 P.3d at 457. The plaintiffs

appealed, id. and the Hawafi.Supreme Court upheld the Second

__._;l

29

N()l"’f` l~`(',)l€ }’l}l§llil(jf.'x'i"l'(,)!¥ IN VVIIS"I"S ‘l:.{_,»'\'vV/A.I‘{ `Rl§l’(.)l{'!`$ AN}) PAC.Tll`*"IC RI‘§P()!'{'I`|*.`I{

Circuit Ccurt's ru1ing. 1dg at 270, 21 P.3d at 475; see also

@lairWL§, 96 HawaiE.at 323, 31 P.3d at 185.

after the HawaFi Supreme Court filed its Notice and
Judgment, the C§A timely filed a request for compensation for
necessary expenses and attorneys' fees, pursuant to HRS § 607-14,
wiich the supreme court granted in part and denied in part.
1air_1;, 96 Hawari at 328-29, 31 P.3d at 185-86. The supreme
court held that the CPA was entitled to attorneys' fees because
the breach of implied contract and negligence claims both arose
out of the alleged implied contract between Joan and Lloyd. 1d.
at ¢32, 31 P.3d at 189. The supreme court stated that

{wlithout the implied contract, which could create a

cognizable duty, [the plaintiffsl would have no negligence

claim. Further, the damages alleged were more closely akin

to contract damages than to tort damages because they were

ec»nomic damages arising out of the alleged frustrated

expectation that {the CPA] would take advantage of certain

tax-saving devices. Thus, based on the complaint in this

case, the essential character of the action against [the

CPA] as “in the nature of assumpsit," as provided under HRS
§ 607'-1¢1.

1dg at 189-90, 31 P.3d at 332-33 (citations omitted).

Blair 11 is inapposite to this case because there, the
plaintiffs pled breach of implied contract, whereas here,
Appellants pled no breach of contract, either express or implied.
Further, unlike the plaintiffs in Blair I1, Appellants were not
beneficiaries of any contract between Attorney Appellees and
Grove Farm and, as we have discussed, Attorney Appellees had no
duty to Appellants. Last, the damages Appellants requested in
the Second Amended Complaint are more closely akin to tort
damages, not economic damages arising out of any frustrated
expectation on the part of Appellants.

Given the foregoing, the circuit court did not abuse
its discretion by denying the Attorney Appellees‘ Motion for
Attorneys’ Fees.

IV. CONCLUSION
The "Stipulation and Order for Entry of Final Judgment

Pursuant to Rule 54(b) of the Hawaii Rules of Civil Procedure"

30

.\‘()'I` FOI~`{ PU`!BL!CT.~X'I`I()N IN ‘v\"lCS'l_"S l'IA\“\/»X.I‘I, R`PIP()R"I`S AN`I) P.AC.`II*`IC R}?`,P()R'I`l€l'{

£ilQd cm S@ptQmb@r l1, 2007 in twa CirCui& C0urt of the Fifth
CiyQwit 13 affiIm€d.

:)zx'l"zz:z:¢ z»z@n@lulu, Hawew;‘:, January 27, ;20;10.

Un the bri@fz:

Udmon M. S@naha

,@

,, , _
fay Pl&intiffS-App@llant3/ ¢@{ ` /W;> ¢::j
CrcSs»App@l1@eS. VX `

PreSidinq Judge
G@Orge W. Playdcm, Jr.
R. Aar0n Cr@pS
{Reinwa1d O'C0mn0r &
Playd0n LLP)

for D@f@ndantS»Appellees/ _ . wN/ ”\
Cr0SS~App@llantS. g¢LMOCdQ4H€%&@%¢%H

Acting ASs0ciate Judge

f

¢22».,./.¢.@.._........._

Acting ASS0ciate Judge

31