Awakuni v. Awana

• Decision Date: 24 August 2007
• Docket Number: No. 27184.,27184.
• Citation: 165 P.3d 1027
• Parties: Gail AWAKUNI; Janis Bush; Diane Kellet; Mona Stevenson; Sue Stock; Nancy Teruya and Raymond Uyeno, for Themselves and all other similarly situated Employees, Plaintiffs-Appellants, v. Bob AWANA; Harold Decosta; Mark Recktenwald; Katherine Thomason; Kathleen Watanabe; Willard Miyake; Joan Lewis; Gerald Machida; John Radcliffe; Dayton Nakaneiua; State of Hawai`i, Defendants-Appellees, and John Does 1-10, Defendants.
• Court: Hawaii Supreme Court

165 P.3d 1027

Gail AWAKUNI; Janis Bush; Diane Kellet; Mona Stevenson; Sue Stock; Nancy Teruya and Raymond Uyeno, for Themselves and all other similarly situated Employees, Plaintiffs-Appellants, v. Bob AWANA; Harold Decosta; Mark Recktenwald; Katherine Thomason; Kathleen Watanabe; Willard Miyake; Joan Lewis; Gerald Machida; John Radcliffe; Dayton Nakaneiua; State of Hawai`i, Defendants-Appellees, and John Does 1-10, Defendants.

No. 27184.

Supreme Court of Hawai`i.

August 24, 2007.

George W. Brandt, Bonnie Moore (Lyons, Brandt, Cook & Hiramatsu), Honolulu, and James N. Duca (Kessner Duca Umebayashi Bain & Matsunaga), Honolulu, on the briefs, for plaintiffs-appellants.

Brian P. Aburano, Deputy Attorney General, James Kawashima, Kristine Tsukiyama, (Watanabe Ing Kawashima & Komeiji LLP), Honolulu, Brian T. Ortelere, and Beth M. Henke (Morgan, Lewis & Bockius, LLP), on the briefs, for defendants-appellees.

NAKAYAMA, ACOBA, and DUFFY, JJ., and Circuit Judge MARKS, in place of LEVINSON, J., Recused; with MOON, C.J., concurring separately.

Opinion of the Court by DUFFY, J.

Plaintiffs-Appellants Gail Awakuni, Janis Bush, Diane Kellet, Mona Stevenson, Sue Stock, Nancy Teruya, and Raymond Uyeno, for themselves and all other similarly situated employees [hereinafter, Plaintiffs], appeal from the February 24, 2005 final judgment of the Circuit Court of the First Circuit, the Honorable Gary W.B. Chang presiding, which granted summary judgment in favor of Defendants-Appellees, the trustees of the Hawai`i Employer-Union Benefits Trust Fund (EUTF), Bob Awana, Harold Decosta, Mark Recktenwald, Katherine Thomason, Kathleen Watanabe, Willard Miyake, Joan Lewis, Gerald Machida, John Radcliffe, and Dayton Nakaneiua [hereinafter, EUTF Board or Trustees], and the State of Hawai`i [hereinafter, collectively with the Trustees, Defendants]. Based on the following, we affirm the final judgment of the circuit court.

I. BACKGROUND

A. Background on the EUTF

The EUTF was established to provide a single health benefits delivery system for State and county employees, retirees, and their dependents. Hawai`i Revised Statutes (HRS) §§ 87A-15,-31 (Supp.2001).<sup>1</sup> It replaced the Hawai`i Public Employees Health Fund (PEHF) on July 1, 2003. Act 88 of the 2001 Session Laws of Hawai`i, partially codified as HRS chapter 87A, sets forth the statutes governing the EUTF. It is administered by a board of ten trustees, appointed by the governor, who all serve without compensation. HRS §§ 87A-5,-8 (Supp.2001).² Five trustees represent the employee-beneficiaries and five trustees represent public employers. HRS § 87A-5.³ The EUTF Trustees were responsible for, inter alia, establishing the health benefits plan or plans. HRS § 87A-16 (Supp.2001).⁴

As mandated by HRS § 87A-25(4) (Supp. 2001),⁵ the EUTF procured and maintained fiduciary liability insurance and public officials and employment practices liability insurance. The EUTF is the named insured under the following policies underwritten by National Union Fire Insurance Company of Pittsburgh, Pennsylvania: (1) a Public Officials and Employment Practices Liability Policy in the amount of $3,000,000.00; and (2) a Fiduciary Liability Policy in the amount of $10,000,000.00. The policies cover the EUTF and its trustees, and the second policy also extends coverage to the State.

B. Deciding on a Rate Structure

The EUTF Trustees began meeting in January 2002. On June 28, 2002, Garner Consulting [hereinafter, Garner] was hired as a benefits plan consultant, and was asked to determine the economic effect that various rate structures would have on future participants in the EUTF plans. Garner determined that at that time, United Public Workers utilized a four-tier plan—i.e., one premium rate for single employees (individual rate), a second premium rate for employees with one dependent, a third rate for employees with two dependents, and a family rate for employees with three or more dependents—and the Hawai`i Government Employees Association utilized a three-tier plan—i.e., individual rate, individual plus one dependent rate, and family rate for employees with two or more dependents. Two-tier rate structures—i. e., an individual rate and a family rate for employees with one or more dependents—were being used by the PEHF, the Hawai`i State Teachers' Association, the University of Hawai`i Professional Assembly, the State of Hawai`i Organization of Police Officers, and the Hawai`i Fire Fighters Association (HFFA). Garner prepared charts for the Board, comparing the effects of implementing a two-tier structure as opposed to three-or four-tier structures. The charts showed that the smallest percentage of employees would be adversely affected by the EUTF using plans with a two-tier rate structure, i.e., approximately 92% would have the same or lower rates and 9% would have higher rates.

On or about August 8, 2002, the EUTF Board sent to the public employers and unions a "Summary of Health Benefits Plan" for their review and comment. The summary stated that the EUTF benefits committee had recommended that the EUTF adopt a two-tier rate structure. In response, it appears that only the County of Maui expressed concern over the use of a two-tier structure.

Just prior to issuing the request for proposals, the Board again considered the rate structure issue at a Board meeting. While at least one Trustee argued that a four-tier structure would be more equitable, other Trustees relied on the chart prepared by Garner and asserted, in relevant part, that: (1) a four-tier structure would increase the costs for those least able to afford it, i.e., families with two or more dependents; (2) it would be "more prudent to stick with the current 2-tier structure" because collective bargaining was "geared to a 2-tier structure" and "a move to a 4-tier structure may change the way collective bargaining is done"; and (3) "all plans are subject to inequity; large families are subsidized by others, high users are subsidized by lower users, etc."

After public meetings and consultation with public employers and unions, the EUTF Trustees established health benefits plans, effective July 1, 2003, with two tiers of insurance premium rates.

In or about April 2003, collective bargaining agreements setting forth public employer contributions to the EUTF health benefits plans were reached. The agreements provided for employer contributions on a two-tier basis.

In or about September 2003, the EUTF Board requested Garner to determine the effect of moving to a three-or four-tier rate structure. Garner requested proposed rates from the insurance carriers providing the EUTF health plans. One or more of the insurance carriers advised Garner that the proposed rates for three-or four-tier plans were dependent on all public employers and public sector unions agreeing to the same rate structure. If some chose different rate structures, the proposed rates would be different. Further, the current two-tier rates could also change if some public sector unions wanted to implement three-or four-tier plans for their members. Additionally, the Board sent a letter to the public employers and unions to see if they were interested in moving to a three-or four-tier rate structure. Only HFFA responded, stating that the existing two-tier structure should be maintained because "the unions have negotiated contribution rates based on the two-tier structure."

C. Procedural History

On February 26, 2004, Plaintiffs, State and County employees with only one dependent whose health insurance is obtained through the EUTF,⁶ brought the instant suit,⁷ on behalf of themselves and others similarly situated, against Defendants alleging, inter alia, that: (1) the EUTF Trustees, by offering only two tiers of insurance premium rates rather than three or four tiers of premium rates, breached their fiduciary duties of loyalty and impartiality owed to all the beneficiaries of the EUTF because the two-tier plan overcharges and unfairly discriminates against two-member families; (2) the State was vicariously liable for the actions of the Trustees; and (3) the State was directly liable for negligently training and advising the Trustees with respect to their duties and obligations to the beneficiaries of the EUTF.

On March 1, 2004, Defendants filed a "Motion to Dismiss Complaint or in the Alternative for Summary Judgment." The matter was heard on October 22, 2004. Both parties subsequently filed supplemental memoranda regarding the discretionary function exception to the State Tort Liability Act (STLA), HRS chapter 662. By order dated February 15, 2005, the circuit court, "having found no genuine issue as to any material fact and that Defendants are entitled to judgment as a matter of law," granted Defendants' motion for summary judgment. Final judgment was entered in favor of Defendants and against Plaintiffs on all claims on February 24, 2005. On March 17, 2005, Plaintiffs filed their timely notice of appeal.

On March 27, 2007, Defendants filed a timely motion to retain oral argument, which this court granted on April 26, 2007. Oral argument for this case was held on July 11, 2007.

II. STANDARDS OF REVIEW

A. Summary Judgment

We review the circuit court's grant or denial of summary judgment de novo. Hawaiì [sic] Community Federal Credit Union v. Keka, 94 Hawai`i 213, 221, 11 P.3d 1, 9 (2000). The standard for granting a motion for summary judgment is settled:

[S]ummary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. A fact is material if proof of that fact would have the effect of establishing or refuting one of the essential elements of a cause of action or defense asserted by the parties. The evidence must be viewed in the light most favorable to...