Combs v. CASE BIGELOW & LOMBARDI

Annotate this Case
 

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

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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' 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

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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

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