Honolulu Disposal Service v. American Ben. Plan

• Decision Date: 20 April 2006
• Docket Number: No. Civ.05-00012JMS/KSC.,Civ.05-00012JMS/KSC.
• Citation: 433 F.Supp.2d 1181
• Court: U.S. District Court — District of Hawaii
• Parties: HONOLULU DISPOSAL SERVICE, INC. and Alii Refuse Corp., Plaintiffs, v. AMERICAN BENEFIT PLAN ADMINISTRATORS, INC.; John Does 1-10; Jane Does 1-10; and Doe Partnerships, Corporations, or Entities 1-20, Defendants.

433 F.Supp.2d 1181

HONOLULU DISPOSAL SERVICE, INC. and Alii Refuse Corp., Plaintiffs, v. AMERICAN BENEFIT PLAN ADMINISTRATORS, INC.; John Does 1-10; Jane Does 1-10; and Doe Partnerships, Corporations, or Entities 1-20, Defendants.

No. Civ.05-00012JMS/KSC.

United States District Court, D. Hawai`i.

April 20, 2006.

Paul A. Schraff, Dwyer Schraff Meyer Grant & Green, Honolulu, HI, for Plaintiffs.

Dianne W. Brookins, Ellen Godbey Carson, Alston Hunt Floyd & Ing, Honolulu, HI, for Defendants.

ORDER GRANTING DEFENDANT AMERICAN BENEFIT PLAN ADMINISTRATORS, INC.'S MOTION FOR SUMMARY JUDGMENT

SEABRIGHT, District Judge.

ORDER GRANTING DEFENDANT AMERICAN BENEFIT PLAN ADMINISTRATORS, INC.'S MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

Plaintiff Honolulu Disposal, Inc. ("HDS") seeks to recover over $6.75 million from Defendant American Benefit Plan Administrators, Inc. ("ABPA"). HDS spent this $6.75 million defending and settling a case brought by its former employees who had not received pension benefits promised them under a series of written Collective Bargaining Agreements ("CBAs"). HDS claims that it did not know that these written CBAs required HDS to make these pension payments, because HDS did not know what was in the written CBAs. Instead, HDS believed its oral side agreement with The Laborers International Union of North America, Local 368, AFL-CIO ("the Union") — which did not require HDS to make pension payments on behalf of the former employees — set forth the terms of HDS's pension payment requirements. But while HDS claims that it did not know what was in its own CBAs, HDS also contends that ABPA — an outside auditor hired by the pension plan Trustees — should have known what was in the CBAs, should have known that the oral modifications were invalid, and should have told HDS to make the required pension payments. HDS further argues that ABPA's statements to the pension plan Trustees (that HDS had made all the required pension payments) were negligent misrepresentations and that HDS was justified in relying on these misrepresentations.

The court disagrees, and grants ABPA's motion for summary judgment.

II. BACKGROUND

HDS collects and disposes of garbage, and as such, employs several individuals as drivers. Between 1979 and 1996, HDS signed a series of CBAs with the Union. The plain language of the CBAs stated that all the drivers were "covered employees" under the CBAs and, as "covered employees," were entitled to pension benefits. Pursuant to an oral agreement between HDS and the Union, however, only two or three drivers were deemed to be "covered employees" under the CBAs. HDS, in turn, only made contributions to the pension plans for those two or three employees, rather than all the drivers. Pace v. Honolulu Disposal Serv., Inc., 227 F.3d 1150, 1153-55 (9th Cir.2000).

The other drivers eventually realized that they were covered by the plain language of the CBAs, but that they were not getting pension benefits or other benefits given to "covered employees." In 1997, four drivers sued HDS, the pension plan Trustees ("the Trustees"), and others in the United States District Court for the District of Hawaii. HDS defended the case by arguing that the oral modifications to the CBAs were valid, such that the plaintiffs (the other drivers not deemed to be "covered employees") were not covered by the terms of the CBAs and thus not entitled to pension benefits. Id. at 1154-55 ("HDS, the Union, and the Trust Funds moved for summary judgment, contending that HDS and the Union had an oral agreement limiting the bargaining unit — and thus the coverage of the CBAs — to only a couple of employees not including the Drivers.").

The district court granted summary judgment in favor of HDS and the other defendants in the Pace suit, concluding that the oral modifications to the CBAs were valid and that the Pace plaintiffs were therefore not "covered employees." The Ninth Circuit reversed. The court held that the oral modifications were irrelevant, inasmuch as the parol evidence rule barred consideration of the oral agreements where the written CBAs were facially clear. Id. at 1160. HDS settled with the Pace plaintiffs for $5.75 million and alleges that it spent over one million dollars in attorneys' fees litigating the matter.

In the instant case, HDS seeks to pass the blame (and the cost) for failure to comply with its own CBAs on to someone else, and it now turns to ABPA.

ABPA performed a series of payroll audits of HDS in the 1980s and 1990s. See, e.g., Plaintiff's Concise Statement of Facts ("Plaintiff's Concise") Exs. 9-15. ABPA was hired by the Trustees to ensure that HDS was making its required pension contributions. Plaintiffs Concise at 1, Defendant's Concise Statement of Facts ("Defendant's Concise") at 3. In other words, ABPA was the Trustees' auditor, not HDS's auditor. Even though HDS did not hire ABPA, HDS believes it should be allowed to recover from ABPA because ABPA was negligent in conducting the audits. Again, HDS contends that ABPA should have known or should have discovered that HDS was required to make pension contributions on behalf of all its drivers; HDS also argues that ABPA negligently misrepresented that there were no discrepancies between HDS's reports to the Trustees and HDS's payroll (i.e., HDS contends that ABPA negligently misrepresented that HDS was making all the contributions it was supposed to make). Essentially, HDS's argument is that it relied on ABPA to ensure that it (HDS) was making the required payments to the pension plans, and that ABPA's failure to uncover the discrepancies was the proximate cause of HDS's liability in the Pace suit. Thus, according to HDS, ABPA is responsible for HDS's expenditure of $6.75 million.

HDS and Alii Refuse Corp. ("Alii")¹ filed the instant Complaint, setting forth claims for negligence and negligent misrepresentation, against ABPA in the Hawaii First Circuit Court on November 24, 2004. ABPA removed the case to federal district court pursuant to 28 U.S.C. § 1441(b) (diversity of citizenship) on January 7, 2005. ABPA moved for summary judgment on December 7, 2005, and on March 6, 2006, the court heard arguments on the motion.

HDS first argues that ABPA is liable for negligence. As discussed infra, however, ABPA is entitled to summary judgment on this claim because ABPA owed no duty to HDS.

HDS next argues that ABPA is liable for negligent misrepresentation because it acted reasonably in relying on ABPA's assertions that HDS had made the required trust fund payments. As discussed infra, if HDS did, in fact, rely on ABPA's assertions, this reliance was not justified. For HDS to say that it acted reasonably in relying on ABPA to uncover a discrepancy between its oral and written contracts — when HDS could have discovered the discrepancy at any time had it simply read its own CBAs — is simply not plausible. Furthermore, viewing the facts in the light most favorable to HDS, HDS's negligence was greater than that of ABPA. Summary judgment is appropriate in this case because no reasonable finder of fact could find for HDS. Therefore, based on the following, the court GRANTS ABPA's motion.

III. STANDARD OF REVIEW

Summary judgment is appropriate when "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 a judgment as a matter of law." Fed.R.Civ.P. 56(c).

"One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses[.]" Celotex Corp. v. Catrett, 477 U.S. 317, 323-324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden initially lies with the moving party to show that there is no genuine issue of material fact. T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n., 809 F.2d 626, 630 (9th Cir. 1987). Nevertheless, "summary judgment is mandated if the non-moving party `fails to make a showing sufficient to establish the existence of an element essential to that party's case." Broussard v. Univ. of Cal. at Berkeley, 192 F.3d 1252, 1258 (9th Cir.1999) (quoting Celotex, 477 U.S. at 322, 106 S.Ct. 2548).

IV. ANALYSIS

HDS brings two claims for relief against ABPA: negligence and negligent misrepresentation. The court concludes that ABPA is entitled to summary judgment as to both claims.

A. Negligence

Where there is no duty, there can be no recovery in tort. See Dairy Road Partners v. Island Ins. Co., Ltd, 92 Hawaii 398, 419, 992 P.2d 93, 114 (2000) (listing the elements of a negligence claim, including "[a] duty or obligation, recognized by the law, requiring the defendant to conform to a certain standard of conduct, for the protection of others against unreasonable risks" (citations and block quote formatting omitted)). ABPA argues that it is entitled to summary judgment as to HDS's negligence claim because ABPA owed no duty to HDS. The court agrees.

The court has jurisdiction over this matter based on diversity of citizenship; as such, the court applies Hawaii state law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The Hawaii Supreme Court has stated the following with respect to a third-party negligence suit against an accountant:

Similar to the reasons supporting a duty under legal malpractice, justification for holding accountants liable includes: (1) the extent to which the transaction was intended to affect the plaintiff; (2) the foreseeability of harm to the plaintiff; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant's conduct and the injury; (5) the policy of preventing future harm; and (6) whether imposing liability imposed an undue burden upon the profession.

Blair v. Ing, 95 Hawai`i 247, 270, 21 P.3d 452, 475 (2001) (citing Lucas v. Hamm, 56 Cal.2d 583, 15 Cal.Rptr. 821, 364 P.2d 685, 687-88 (1...