Alii Security Systems, Inc. v. Professional Security Consultants

Citations: 139 Haw. 1; 383 P.3d 104; 2016 Haw. App. LEXIS 429Docket: NO. CAAP-13-0002936

Court: Hawaii Intermediate Court of Appeals; September 29, 2016; Hawaii; State Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Alii Security Systems, Inc. (Alii) appeals the Circuit Court's October 24, 2012 order granting Professional Security Consultants and Professional Security Consultants, Inc.'s (PSC) motion to dismiss or for summary judgment, and the July 24, 2013 final judgment. Alii's lawsuit alleged that PSC tortiously interfered with its contractual relationship and prospective business advantage with the Department of Transportation, State of Hawaii (DOT). PSC contended that Alii's complaint failed to state a valid claim and was barred by statute, leading to the circuit court's dismissal of the case.

In 2008, DOT awarded Alii a three-year contract for security services in Oahu’s commercial harbors, with options for two one-year extensions. In a late 2010 meeting, DOT Operations Supervisor Bill Davis indicated that an extension would likely be granted due to Alii's satisfactory performance. Following this, Alii sought written confirmation for the extension. However, in June 2011, DOT informed Alii that the contract would go out for bid instead of being renewed due to material changes. They offered a short extension while preparing a new contract.

On July 25, 2011, DOT requested proposals for the new contract, which was awarded to PSC on November 1, 2011, with Alii as the second-lowest bidder. Alii's formal bid protest was denied as untimely and lacking sufficient detail. After an unsuccessful hearing with the Office of Administrative Hearings, Alii's appeal to the circuit court was also denied on similar grounds of inadequate content. Alii subsequently appealed this decision to the higher court, which affirmed the circuit court's ruling.

Alii initiated the legal action on February 14, 2012, against PSC, asserting three claims: Count I for Tortious Interference with Contractual Relations (TICR), Count II for Tortious Interference with Prospective Business Advantage (TIPBA), and Count III for punitive damages. Alii accused PSC of undermining its contractual relationship and prospective business dealings with the DOT through various deceptive actions, including misrepresentations about qualifications and capabilities. 

In Count I, Alii argued that a contractual relationship existed between itself and the DOT, of which PSC was aware, and claimed PSC intentionally induced DOT to breach this contract, resulting in damages to Alii. In Count II, Alii asserted it had a definite prospective business advantage with DOT that PSC interfered with, causing damages. 

On August 21, 2012, PSC filed a motion to dismiss under HRCP Rule 12(b)(6) or for summary judgment under HRCP Rule 56, arguing that Count I did not sufficiently establish essential elements of the claim and that both counts were barred by HRS § 103D-704's exclusivity provisions. PSC later withdrew the summary judgment request, focusing solely on the dismissal under Rule 12(b)(6). 

In a September 14, 2012 reply, PSC maintained that Alii's TICR claim failed because nonrenewal of a contract does not equate to breach, and the TIPBA claim was also barred by the statute. Following a hearing on September 20, 2012, the circuit court granted PSC’s motion to dismiss, ruling that Alii's complaint did not provide adequate facts for the TICR claim and that the TIPBA claim was barred by the exclusivity provisions of HRS § 103D-704.

HRS § 103D-101(b) mandates that all participants in public procurement must act in good faith and adhere to ethical purchasing practices. HRS § 103D-704 establishes that the procedures and remedies outlined in this part are the exclusive means for individuals aggrieved by contract solicitations or awards, or related disputes, to resolve their claims. The court determines that HRS § 103D imposes obligations on both government officials and prospective bidders. Since Alii’s Complaint is related to the solicitation and award of a contract, Alii's claims for damages are barred under the exclusivity provisions of HRS § 103D-704. Alii appealed on August 21, 2013, arguing the circuit court erred by (1) incorrectly treating PSC’s motion as a Rule 12(b)(6) motion instead of a Rule 56 summary judgment motion; (2) erroneously concluding that Alii’s claims were barred by the Exclusive Remedy Provision of the Procurement Code; and (3) dismissing Alii’s TICR claim due to insufficient factual allegations. The standard of review for an HRCP Rule 12(b)(6) dismissal is de novo, requiring the court to accept the plaintiff's allegations as true and view them favorably; dismissal is warranted only if the plaintiff cannot prove any facts supporting a claim for relief. The grant of summary judgment is also reviewed de novo, where it is deemed appropriate if the evidence shows no genuine issue of material fact and the moving party is entitled to judgment as a matter of law, with all evidence viewed in favor of the non-moving party.

The circuit court incorrectly determined that Alii's tortious interference with prospective business advantage claim was barred by the Exclusive Remedy Provision of HRS § 103D-704. Alii argued that this provision only prevents civil actions for damages against government agencies. Statutory interpretation requires understanding the legislature's intent, primarily derived from the statute's language and context. Ambiguities in the statute may necessitate reference to legislative history and the law's purpose. HRS chapter 103D, the Hawai'i Public Procurement Code, outlines remedies for challenging government contract awards. The Exclusive Remedy Provision states that the remedies outlined in the statute are the sole means for individuals aggrieved by contract-related issues to resolve their claims. However, HRS § 103D-704 does not explicitly prohibit civil actions. The relevant provisions for challenging solicitations and awards, suspensions and debarments, and contract controversies primarily address disputes involving governmental bodies and contractors, which does not encompass private tort claims between competing bidders. Consequently, the statutory protest proceedings do not adequately address claims between such bidders, suggesting a lack of jurisdiction for the chief procuring officer over these disputes.

Part VII of the Procurement Code outlines the contracting agency's authority, responsibilities, and the procedures for addressing challenges to the award and solicitation processes, while explicitly excluding the resolution of claims between competing bidders. The legislature aimed to enhance state procurement laws to promote economy, efficiency, and effectiveness in acquiring goods, services, and public construction. Key objectives include simplifying and modernizing procurement laws, ensuring equitable treatment in the procurement system, fostering competition, and increasing public confidence in procurement procedures. The code establishes a swift protest process, requiring protests to be filed within five working days and allowing the chief procurement officer to proceed with contract awards despite timely protests to protect state interests. It mandates that public projects cannot advance while protests are pending, indicating a legislative intent to expedite dispute resolution related to contract awards. The interpretation of the Exclusive Remedy Provision suggests that barring suits between bidders contradicts the intent to maximize procurement efficiency and accountability, as it would remove the agency from potential litigation responsibility.

The procurement process's efficiency remains intact despite a suit for damages not delaying contract performance. Alii does not dispute the contract award to PSC but challenges PSC's alleged tortious behavior. Alii clarified in court that its case would not impact the DOT's ongoing contract with PSC. The Procurement Code does not provide remedies for Alii's injuries since it does not seek relief from an agency decision. PSC cites HRS § 103D-101(b), which outlines ethical duties for bidders, emphasizing good faith and business integrity in public procurement. However, these duties focus on transparency and fairness, lacking sufficient enforcement for disputes between bidders. The ABA Model Procurement Code, adopted by seventeen states, includes an 'exclusive remedies' provision in five states, including Hawai'i, which limits remedies against governmental agencies but does not preclude actions between bidders. Thus, the circuit court mistakenly dismissed Count II, as the legislative context suggests the Exclusive Remedy Provision is meant to limit agency-related claims only. Conversely, the court correctly dismissed Count I (TICR) because Alii failed to adequately plead its case, as PSC argued that there was no breach of contract since the contract with DOT had expired and was not renewed. The court found that the Complaint did not present sufficient facts to support a TICR claim.

Alii contends that DOT's termination of its contract constituted a breach due to a violation of the duty of good faith and fair dealing. To establish a tortious interference with contract relations (TICR) claim under Hawai'i law, a plaintiff must demonstrate: (1) a valid contract with a third party; (2) the defendant's awareness of this contract; (3) intentional inducement by the defendant for the third party to breach the contract; (4) lack of justification from the defendant; (5) actual breach by the third party; and (6) resulting damages to the plaintiff. Hawai'i law mandates that a breach must occur for a TICR claim to succeed, which is distinct from the Restatement (Second) of Torts that recognizes non-performance without breach as sufficient.

Commercial contracts in Hawai'i are governed by a statutory duty to perform in good faith (HRS § 490:1-304), incorporating an implied covenant that neither party will undermine the other's contractual benefits. However, tort claims for breach of good faith are generally not recognized outside the insurance context. Alii's contract with DOT was initially for three years with potential twelve-month extensions, meaning that without an agreed extension, no contract existed for additional periods, and any indications from DOT regarding renewal did not constitute a binding agreement. Consequently, since no contract was formed, no breach could occur, leading the circuit court to correctly dismiss Alii’s TICR claim. The court's order granting the motion to dismiss and the final judgment were partially affirmed and partially vacated, with instructions for further proceedings. Professional Security Consultants and Professional Security Consultants, Inc. are noted as separate entities.

Changes to the contract included the introduction of a third class of security guard, the removal of Kewalo Basin from the list of commercial harbor facilities, the requirement for 33 C.F.R. 105 certification, and the elimination of background checks for security guards. Although the contract was awarded on November 1, 2011, its term begins only upon the issuance of a Notice to Proceed by the State. Under HRS § 103D-701, aggrieved bidders or contractors may protest contract awards to the chief procurement officer. The case was overseen by Honorable Rhonda A. Nishimura.

Hawai'i law outlines the elements for claims of Tortious Interference with Contractual Relations (TICR) and Tortious Interference with Prospective Business Advantage (TIPBA). TICR requires proving a contract between the plaintiff and a third party, the defendant's knowledge of this contract, intentional inducement to breach, lack of justification, breach by the third party, and resulting damages. TIPBA requires a prospective contractual relationship, knowledge of this relationship by the defendant, intentional interference without justification, failure of the third party to consummate the contract, and damages.

The circuit court determined that Count III was not a distinct cause of action. PSC raised defenses of claim and issue preclusion, but these were not addressed in the court's October 24, 2012, order, which dismissed all of Alii's claims with prejudice. The dismissal order incorrectly referred to PSC’s motion as "Plaintiff’s Motion," but this was deemed a harmless typographical error. The original Final Judgment was filed on February 20, 2013, which Alii appealed on March 21, 2013, but the appeal was dismissed due to lack of jurisdiction. A second Final Judgment was recorded on July 24, 2013. 

The legislature affirms that circuit courts hold subject matter jurisdiction over civil actions, and such jurisdiction is presumed unless explicitly limited by statute. The Hawai'i Supreme Court has ruled that statutory remedies typically do not negate existing common law remedies unless explicitly stated. The Alaska Supreme Court has recognized that its exclusive remedy provision permits private causes of action against public officials engaging in misconduct.