Case Title: Awakuni v. Awana. Concurring Opinion by J. Moon [pdf].

Citation: 115 Haw. 126

Docket Number: 

State: hawaii

Court: Hawaii Supreme Court

Date: 2007-08-24T00:00:00Z

Document:
++ FOR PUBLICATION IN WEST'S HAWAF‘I REPORTS AND PACIFIC REPORTER ***,

IN THE SUPREME COURT OF THE STATE OF HAWAT'T

 

 

 

‘000-=-
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,
ve.

ROB AWANA; HAROLD DECOSTA; MARK RECKTENWALD; KATHERINE ‘THOMASO}
KATHLEEN WATANABE; WILLARD MIYAKE; JOAN LEWIS; GERALD MACHIDA;
‘JOHN RADCLIFFE; DAYTON NAKANEIUA; STATE OF HAWAI'I,
Defendant s-Appellees,

 

 

and

JOHN DOES 1-10, Defendants.

 

 

mn a
APPEAL FROM THE FIRST CIRCUIT COURT 5
2
AUGUST 24, 2007 »
5
cnn aca, ves bey a

CIRCUIT JUDGE MARKS, IN PLACE OF LEVINSON, J.,
WITH MOON, C.J., CONCURRING SEPARATELY

OPINION OF THE COURT BY DUFFY, J.

Plaintiffs-Appellante Gail Awakuni, Janis Bush, Diane

Kellet, Mona Stevenson, Sue Stock, Nancy Teruya, and Raymond

uyeno, for themselves and all other similarly situated employees
Plaintiffs}, appeal from the February 24, 2005

 

[hereinate:
final Judgment of the Circuit Court of the First Circuit, the

oats
   

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Honorable Gary W.B. Chang presiding, which granted sunmary

8, the trustees of the

 

judgment in favor of Defendants-Appell
Hawai" Employer-Union Benefits Trust Fund (EUTF), Bob Avana,
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 judgnent of the circuit court.

1. BACKGROUND

 

A. Background on the BUTE
‘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).! 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 &7A,

 

+ RS § G7A-15 states that “(e)he Board shall administer and carry out
‘the purpose of the fund. Healeh and other benefit plans shell be provised st
fa cont affordable to both the public employers and the public employees.”

 

 

SRS § 67A-31 states in relevant part that “(t]he fund shall be used to
provide enployee-beneficiaries and dependent beneficiaries with health and
Other benefit plans, end to pay administrative and other expenses of the
fond.” HRS § 87A-1 defines "Exployee-beneficiary” to include [a] retired
nenber of the employees’ retirenent system; the county pension systen; or the
Police, flrefighters, or bandsnen pension systen of the State or county” as
Nell sg “(ala employee who retired prior to 1962 -

 

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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).?

Five trustees represent the enployee-beneficiaries and five
trustees represent public employers. HRS § 87A-5.? The BUTF
Trustees were responsible for, inter alia, establishing the
health benefits plan or plans. HRS § 87A-16 (Supp. 2001).*

As mandated by HRS § 87A-25(4) (Supp. 2001),* the EUTF

procured and maintained fiduciary liability insurance and public
officiale and employment practices liability insurance. The EUTF

is the named insured under the following policies underwritten by

 

+ HRS § 87A-§ provides, in relevant part, that “(t}he board of trustees
of the enployer-union health benefits trust fund shall consist of ten trustees
Spointed by the governor . «+ .” HRS § €7A-5 was amended ip 2005, but such
Shendnente are aot pertinent to this case.

 

HRS § 87A+8 states that “[e]ach trustee shall serve without
compensation, but the trustees may be reinburse from the fund for any
Fensonable expenses incsrred in carrying out the purposes of the fund.”

 

) the relevant portions of HRS § 87A-S. sta
‘rustees, one of whon shall rep

 

that the Board shall
nt retirees, to

   

 

 

(a) The board shell establish the health benefits plan
or plans, which shall be exenpt from the minimum group
Fequirenents of chapter 431.

(] The board may contract for health benefits plans
or provide health benefits through # noninsured schedule of
benefits.

+ uns § €1A-25 provides that “[t)he board shall: . . . . (4) Procure
Higociary Liability insvrance and error and omissions coversge for sll
trustees se =

3
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National Union Fire Insurance Company of Pittsbursh,
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.
8. 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 -~ ive.
individual rate, individual plus one dependent rate, and family

rate for employees with two or more dependents. Two-tier rate

 

structures ~~ j.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
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Hawai'i Professional Assembly, the State of Hawai'i Organization
of Police Officers, and the Hawai'i Fize Fighters Association
(HFFA). Garner prepared charts for the Board, comparing the
effects of inplenenting a two-tier structure as opposed to three-
or four-tier structures. The charts showed that the smallest
percentage of exployees 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 “Sunmary of Health Benefits Plan”
for their review and comment. ‘The sunmary stated that the EUTF
benefits committee had reconnended that the EUTF adopt a two-tier
rote structure. In response, it appears that only the County of
Maui expressed concern over the use of a two-tier structure.

Just prior to iesuing the request for propo:

 

is, 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,

 

, families with two or more

dependents; (2) it would be “nore prudent to stick with the
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current 2-tier structure” because collective bargaining was
“geared to a 2-tier structure” and “a move to a é-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 EU?F Trustees established health
benefits plans, effective July 1, 2003, with two tiers of
insurance prenium rates.

In or about April 2003, collective bargaining
agreenents 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 Septenber 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
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implement three or four-tier plans for their menbers.
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.”

procedural History
on February 26, 2004, Plaintiffs, State and County

 

employees with only one dependent whose health insurance is
obtained through the BUTF,* brought the instant suit,’ on behalf

of thenselves and others similarly situated, against Defendants

 

alleging, inter alia, thai

only two tiers of insurance premium rates rather than three or

(1) the BUTF Trustees, by offering

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 famili

 

7 (2) the State was

« plaintéffs Awakuni and Kellet apparently did not have a dependent
whose health insurance was cbteined through the EUTF, but "Joined
Disineiefs beceose they wished to nave the option to purchase insurance
through the EUIF at a Feascnable and proper cost for themselves and another
eligible insured.”

 

> the complaint was initially filed en December 18, 2003 against the
‘trostees. the First Anendes Complaint was filed on January 27, 2004 and adéed
The State asa defendant. The Second Amended Complaint was filed on February
26, 2008.

 

 
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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 @ “Motion to Dismiss
Complaint or in the Alternative for Sumary Judgment.” The
matter was heard on October 22, 2004. Both parties subsequently
filed supplemental menoranda regarding the discretionary function
exception to the State Tort Liability Act (STLA), HRS chapter
662. By order dated February 18, 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 sunmary 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.

TT, STANDARDS OF REVIEW
A. Summary Judoment

He review the circuit court’s grant or denial of
summary judgment de novo. awe att
Eadaxal Credit union v, Keka, 94 Wawai't 213, 221, 11
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P.3d 1, 9 (2000). The standard for granting a motion
for sunmary judgnent is settled:

[shunmazy judgnent is eppropriate if the
Pleadings, depositions, answers to
[nterrogatories, and adeissions on file,
together with the affidavits, if any, show that
there ia no genuine itsue as’ to. any material
fact and that the moving party is entitled to
jusament ae a eater of Law. A fact is material
Le proof of thet fact would have the effect of
setablishing or refuting one of the essential
Glenents of a cause of action or defense
acserted by the parties. The evidence nust be
Siewed in the 1ight most favorable to the
Ronvmoving party. In other words, we must view
11 of the evidence and the inferences. drawn
fhereizom in the Light most favorable to the
Party opposing the notion.

 

Jd, (citetions and internel quotetion marks cnittea) .

pv. City and 98 Hawai'i 233, 244-45,
G7 #36 S68, 359-60 {2002} Iaecond alteration in original.
Kay v. City & County of Honolulu, 104 Hawai'i 468, 473-74, 92

P.3d 477, 482-83 (2004). This court has further explained the
burdens of the moving and non-moving parties on summary judgment

as follows:

The burden ts on the party moving for summary judgment
moving party] £2 show the sbeence of any genvine isaue ee
fo all neteria facts, which, under applicable principles of
substantive lov, entities the moving party to judgment as &
Batter of law. This Burden has two components.

First, the moving party has the burden of producing
support fer ite claim that: (1) no genuine iseue of
aterisl fact existe with respect to the essentisl elements
Of the claim oF defense which the motion seeks to establish
Of which the motion questions; and (2) based on the
Sndisputed facts, it is entitied to summary judgment as a
matter of law. Only when the moving party satisfies ite
Initial burden of production dees the burden shift to the
Ronenoving party te respond to the motion for sunnary
Josgment and denonstrate specific facts, as opposed to
Geperei allegations, that present a genuine insue worthy of
trisl.
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Second, the moving party bears the ultimate burden of
persuasion. ‘This burden slwaye remains with the moving
party and requires the moving party to convince the court
that no genuine issue cf material fact exists and that the
Roving pert 1s entitles to summary judgeent as a matter of
Tow.

Exench v. Hawaii Pizza Hut, Inc., 105 Hawai‘ 462, 470, 99 P.3d
1046, 1084 (2004) (quoting GECC Fin. Corp. v. Jaffarian, 79
Hawai'i $16, $21, 904 P.2d $30, $35 (App. 1995)).
B. Statutory Interpretation

Statutory interpretation is “a question of law
reviewable de novo.” State vs Levi, 102 Hawai'i 262, 265, 75
P.3d 1173, 1176 (2003) (quoting State v. Arceo, 64 Hawai'i 1, 10,
928 P.2d 643, 852 (1986)). This court's statutory construction
is guided by established rules:

First, the fundamental starting point for statutory
interpretation is the language of the statute itself.
Second, where the statutory language is plain an
rambiguous, our sole duty is to give effect to ite
plain and obvious meaning, Third, implicit in the
fsck of statutory conetruction ie’ our foremost
obligation to sacertain and give effect to the
intention of the legislature, which is to be obtained
prinarily from the language contained in the statute
Eieelf. Fourth, when chefs is doubt, doubleness of
feaning, of indistinctiveness of uncertainty of an
Supression used in a statute, an anbiguity exists,
And fifth, in construing an ambiguous statute, the
eaning of the ambiguous words may be sought by
Guanining the context, with which the eabigsous words,

 

 

 

 

 

 

Phrases, and sentences nay be compared, in order to
Sscertain their true meaning

Peterson v, Hawaii Elec. Light Co., Inc., 85 Hawai'i 322, 327-28,

944 P.2d 1265, 1270-71 (1997), superseded on other grounds by HRS

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§ 269-15.5 (Supp. 1999) (block quotation format, brackets,
citations, and quotation marks omitted).

TIT.  pEScUSSION

A. The EUTF Trustees Did Not Abuse Their Discretion in Adopting
a Tuo-Tier Rate Structure,

Plaintiffs claim that: (1) the EUTF Trustees have the
fiduciary duties of conmon law trustees; and (2) the EUTF
Trustees’ violated their fiduciary duty of impartiality in
adopting a two-tier rate structure. Defendants reply that: (1)
“the use of general truat language does not impose the full
panoply of common law fiduciary duties: (2) the Trustees were
granted broad discretion to design and establish the BUTF plans,
and such discretion is not subject to court control except to
prevent abuse thereof; and (3) the BUTF Trustees did not abuse
their discretion in selecting and maintaining @ two-tier rate
structure. We agree with Defendants.

1. Whether the EUTF Trustees owe common law fiduciary
duties to Plaintiffs

Although HRS chapter 87A utilizes general trust
terminology, it is clear that the EUTF is not a typical common
law trust such that the Trustees are subject to all of the common
law fiduciary duties. For example, under the common law, a

trustee owes a duty of loyalty to the beneficiaries

 

administer the trust solely in the interest of the beneficiaries.

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See Restatenent (Third) of Trusts: Prudent Investor Rule §
170(1) (“The trustee is under a duty to administer the trust
solely in the interest of the beneficiaries.”). In the case of
the EUTF, however, the design and establishment of health
benefits plans is not to be done solely in the interests of the
employee-beneficiaries. Rather, according to HRS § 87A-5 and ~
15, supra notes 2 4 4, half of the BUTF trustees represent the
public employers, and the health benefits plans are to be
provided at a cost affordable to both the public employers and
the public employees. Further, the legislative history of
chapter 87A states that one of the main purposes of creating the
EUTF was to establish 2 single health benefits delivery system to
make the cost of insurance affordable for the State. Conf. Comm.
Rep. No. 124, in 2001 House Journal, at 1097-98. Thus, HRS
chapter 87A’s use of general trust language does not impose upon
the EUIF Trustees all of the conmon law fiduciary duties.

This conclusion is supported by the Court of Appeals of
the Ninth Circuit's decision in Price v, Hawai'i, 921 F.2d 950,
955-56 (9th Cir, 1990). Therein, the Ninth Circuit held that the
use of the term “public trust” in section 5(f) of the Hawai'i
Admission Act did not subject the State to all aspects of common

Jaw trust duties. ‘The court reasoned:

 

[itjothing in that state
the compact agreed that

nt indicates that the parts
provisions of the common

     

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trusts would manacle the State as it attempted to deal with
the vast quantity of land conveyed to it for the rasher
broad, although fot all-enconpasaing, list of public
purposes set forth in section 5(f)-

 

 

921 F.2d at 955. Here, as in Price, the use of trust terminology
does not subject the EUTF Trustees to all provisions of the

common law of trusts.

Furthermore, as the Restatement (Third) of Trusts § 1,

 

emt. a(1) state:

Several bodies of state and federal legislation

‘of charitable, public, or pension
iy oF impliedly
incorporate rules of the general trust law that is the
subject of this Restatement. See Reporter's Notes. See
1s0 § 90, Connent = (Restatenent Third, Trusts (Prodent
Investor Rule) § 227, Comment al; and Reporter's General

$30 (id. $227). See also Uniform Managenent of

Institutional funds Act, briefly discussed in the Reporter's
Notes cn § 67.

   

 

 

      

 

‘The principles of this Restatement are generally
appropriate to those statutory Bodies of rules, both by
anslogy and insofar as those fules expressly of impliedly
Incorporate general principles of trust law.

 

Seehis Restatement except as Similar circusstances are

Faken into account in the elaboration of general trust-lax
prinespl

 

(Emphasis added.) It is therefore apparent that, rather than
relying entirely on the common law of trusts, we must take into
consideration the “[s]pecific provisions and special
circunstances” of the EUTF, as expressed in the statutory

Language of HRS chapter 87A and its legislative history, in

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determining how to review the Trustees’ decision to adopt a two-
tier rate structure,

2. The Trustees’ decision to adopt a two-tier rate
structure is subject to a review for an abuse of
discretion.

 

HRS chapter 87A does not expressly provide whether the
EUTF Trustees owe to the employee-beneficiaries the connon law
fiduciary duty of impartiality in determining the rate structure
of the health benefits plan. According to Plaintiffs, this
silence indicates that the fiduciary duty of impartiality applies
to the Trustees because “[nJothing in Chapter 87A modifies the
common law duties of trustees, or suggests that the EUTF trustees
wore vested with discretion to ignore or override their fiduciary
duty of impartiality. In fact, the word ‘discretion’ appears

nowhere in the text of Chapter 87A."* Defendants reply that “(al

+ Plaintiffs also allege thet the statute's silence with respect to the
Trustess? fiduciary duties indicates that the legislature intended to. inpos
on the Trvstees all of the conmon law fiduciary duties, arguing thar “(ejhere
a statute creates a statutory trust relationship, ‘{eourts) must infer that
[che legislature] intended to inpose on trustees traditional fiduciary duties
uniess [the legislature] hes unequivocally expressed an intent to the
contrary."* (Emphases in original.) (Quoting cobell v. Norton, 263 F. Supp.
aalets is (o.2-€-"2002)" sgchted in sare on ssher arastde by 562 F.20' een,
(0.C, clr. 2004).) Plaintiffs misconstrue the court's decision in Cabell.
‘The issue therein was whetner the 1994 Indian Trust Fund Nanagenent Reform Act
altered the nature or scope of the fiduciary duties =~ described as "the ‘most
exacting fiduciary standards’ of the common law" -- already cued by the
governaent to individuel indian Money (IM) trust beneficieries. Cabell, 263
Fr'Supp. 24 at 144-45, The court seated:

 

 

 

 

 

Enactnent of the Indian Trust Fund Management Reform Act in
1554 did not alter the nature or scope of the fiduciary
duties owed by the government to TIN trust beneficsari
Rather, by its very terms the 1994 Act identified @ portion
(continued...)

 

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grant of discretionary authority does not hinge on incantations
of the word ‘discretion’ or any other magical word.” (Citing
Block v, Pitney Bowes, Inc., 952 F.2d 1450, 1453 (D.C. Cir.

1992).). We agree with Defendants, Although the text of chapter

 

878 does not use the word “discretion” in requiring the Board to
decide upon the structure of the health benefits plan, the
legislature clearly intended that the Board have broad discretion
in its design. ‘Therefore, the Trustees’ decision to adopt 2 two-
tier structure is reviewed for an abuse of discretion.

This court has recognized that “[w]here discretion is
conferred upon a trustee with respect to the exercise of a power,
its exercise is not subject to interference by the court except

to prevent an abuse by the trustee of his discretion.” Miller v

 

continued)
Of the government's specific obligations and created
Sdditicnsl mesns te ensure that the obligations would be
Gorriea outs indeed, the 1994 Act explicitly reaffirmed the
Gnterior Secretary's’ obligation to fulfill the "trust
Hesponsibilities of the United States.” From this express

lansuace, we must infer chat Congress intended to innose on
rustese traditions) ‘iduciary duties unless Conaress Tas
nequisocsily expresied an intent to the conixary.

 

 

Ld, at 145 (emphasis added). then read in the context of the case, it is
Hearent that the language quoted by Plaintiffs was intended to convey that
the Ace dig not alter the imposition of traditional fiduciary doties on the
trustees ‘Thos, Gobel is clearly inapplicable here. Rathe!, Plaintifea’
Citation to Branch v White, which states that “(t]he extent of the duties of
G trustee depends prinerily upon the terms of the trust,” 239 A.2d 665, 671
(weg. Super. Ce. ABp- Div. 1968] (citing 2 Scott, Trusts § 164 at 1254" (3d ed.
1963}, presents a more tenable contention. Sea’alag Restatenent (Thirc) of
trusts’ g'¢ omt. g (eteting thet the tems of a statutory trust "are either set
forth in the scatute or are supplied by the default rules of genere trust
Itw'|. “therefore, we aust Lock to the terms of the statute to determine the
paroncters of the EUTF Trustees’ powers and duties.

 

 

 

 

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REPORTER

rt an Bank, 61 Haw. 346, 351, 604 P.2d 39, 43 (1980)
(citing Dowsett v. Hawaiian Trust Co., 47 Haw. 577, 581, 393 P.2d
89, 93 (1964); Restatement (Second) of Trusts § 187 (1959).
Here, contrary to Plaintiffs’ contention, it is apparent that the
Trustees were granted discretion with respect to the design of
the health benefits plan rate structure. HRS § @7A-16 provides
that “[t]he Board shall establish the health benefits plan or
plans... ." Chapter 87A does not provide any guidance for the
development of such plans, but only states in HRS § 87A-15 that
the plans “shall be provided at a cost affordable to both the
public employers and the public employees.” By empowering the
Trustees to establish the health benefits plan, the legislature
granted the Trustees discretion in developing the plan. Cf.
Citizens Against Reckless Dev. v, Zoning Bd. of Appeals, 114
Hawai'i 184, 194-95, 159 P.3d 143, 153-54 (2007) ("By empowering
agencies generally with the authority to adopt rules regarding
‘the manner in which declaratory ruling petitions shall be
considered and disposed of, the legislature has granted agencies
discretion with regard to the consideration of declaratory
rvlings.”), The legislative history of chapter @7A strongly
supports this interpretation. The conference committee report
states that “(t)his bill will give the governing boards of the

Trust Fund and the Health Fund, during the transition period,

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complete discretion, authority, and flexibility to devise and
maximize the levele and types of benefits available for public
employees and retirees." Conf. Comm. Rep. No. 124, in 2001 House
Journal, at 1098. Thus, broad discretion was conferred upon the
EUIF Trustees with respect to the structure of the health
benefits plans. As such, the Trustees’ decision to adopt a two-
tier rate structure is subject only to review for an abuse of
discretion. See Miller, 61 Haw. at 351, 604 P.2d at 43.

3. The Trustees did not abuse the broad discretion they
were granted to devise the structure of the health
benefits plan.

Plaintiffs contend thet even if the Trustees’ decision
is reviewed for an abuse of discretion, the Trustees abused this
discretion because “the violation of a legal duty or principle,
in this case the duty of impartiality, would go outside the

bounds of reasonable judgment and discretion.” (Citing 3 Scott

 

on Trusts § 187 (4th ed. 2001).) We disagree that the Trust

 

abused thelr discretion in adopting the two-tier rate structure.
‘This court has established that “[a]n abuse of
discretion occurs when the decisionmaker ‘exceeds the bounds of
reason or disregards rules or principles of law or practice to
the substantial detriment of a party.’” In re Water Use Permit
Applications, 94 Hawai" 97, 183, 9 P.3d 409, 495 (2000) (quoting
Bank of Hawaii v. Kunimote, 91 Hawai'i 372, 387, 984 P.2d 1198,

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1213 (1999)). Even assuming, arguende, thet the Trustees’
decision was subject to a duty of impartiality, the Trustees did
not abuse their discretion in adopting a two-tier rate structure.

The Restatenent (Third) of Trusts § 79, discussing the

duty of impartiality, states:

(2) & trustee has a cuty to scminieter the trust in 0
manner thet is impartial with respect to the varloue
Beneficiaries of the trust, requiring that:

ip investing, protecting, and éistributing
the trust estate, and in other adniniserative
Functions, ‘the trustee mist ect inpartially and with
ue regard for the diverse beneficial ini
created by the terns of the trust

 

 

 

Here, by virtue of the terms and purpose of the EUTF, the
Trustees could not treat every beneficiary equally. Any plan
that the Trustees chose could not have pleased all of the
beneficiaries. For example, had the Board chosen to adopt @
three-tier structure, those employees who had two dependents
could have argued that the three-tier structure was inequitable
and that a four-tier structure would be more equitable. In turn,
had the Board adopted a four-tier structure, those employees who
had three dependents could have argued that a five-tier structure
would be more equitable. Indeed, as the conment to the
Restatement notes, “[i]t would be overly simplistic, and
therefore misleading, to equate impartiality with some concept of
‘equality’ of treatment or concern -- that is, to assume that the

interests of all beneficiaries have the sane priority and are

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entitled to the same weight in the trustee’s balancing of those
interests.” Restatement (Third) Trusts § 79 cmt. b. The conment

goes on to explain:

It 4s not only appropriate but required by the duty of
impartiality that 2 trustee's treatsent of beneficiarie:

lana the belancing of their competing interests, reascnat
reflect any preferences and priorities that are discern:
from the verme (§ 4), purposes, and circunstances of the
Erust and from the nature and terns of the beneficial

 

 

   

Here, in deciding on a rate structure, the Trustees were required
to not only balance the competing interests of the public
employers and the different groups of enployee-beneficiaries, but
also had to consider the effects that the chosen structure would
have on the employee-beneficiaries as a whole, including the
impact their decision would have on collective bargaining, As
recognized in Hearst vs Ganzi, “a trustee must act impartially
with respect to all beneficiaries, doing his or her best for the
entire trust ag a whole.” 145 Cal. App. 4th 1195, 52 Cal. Rptr.
3d 473, 481 (2006) (quoting 76 Am. Jur. 2d Trusts § 359 (2005)).
Even assuming, arquende, that a four-tier structure would have
been the most equitable choice if collective bargaining and the
effects of changing from previous rate structures were not at
issue, the Trustees were not operating in such a vacuum. As
mentioned above, in discussing which rate structure to adopt, the

‘Trustees considered the rate structures from which the employees

 

would be transferring -- as set forth in Section 1.B, supra, five

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unions had two-tier structures, one union had a three-tier
structure, and only one union had a four-tier structure -- and
expressed concern regarding the impact the change to a three- or
four-tier structure would have on the collective bargaining
process, which was geared toward a two-tier structure. The
Trustees also determined that a two-tier structure would have a
negative impact on the smallest percentage of EUIF participants.
Defendants clearly satisfied their burden of producing evidence
that the Trustees acted properly and with the terns and purpose
of the BUIF in ming. Plaintiffs, however, failed to produce
specific facts showing that the Trustees abused their discretion.
Rather, Plaintiffs merely rely on their repeated argument that 2
two-tier system is inherently inequitable. Accordingly, there is
no genuine issue of material fact for trial regarding whether the
‘Trustees abused their discretion in adopting a two-tier rate
structure, and the circuit court did not err in avarding summary
judgnent in favor of Defendants. We discuss Plaintiffs’
remaining arguments in turn.

The BUTE Trustees Are Immune from Suit Under HRS § 26-

 

35.5(b) (1993) Because Thev Are Members of a State Board and
‘There Here No Genuine Issues of Material Fact as to Whether
rustes of with an Impri i

Deciding to Adopt a Two-Tier Rate Structure,
Plaintiffs argue that the statutory immunity from civil

damages under HRS § 26-35.5(b) does not justify the dismissal of

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Plaintiffs! clains against the individual Trustees because: (2)
RS § 67A-25(4) mandated a waiver of immunity: (2) the Trustees
were not “nenbers” of a “state board” as those terms are used in
HRS § 26-35.5; and (3) there are genuine issues of material fact
regarding whether the Trustees acted with a malicious or improper
purpose. Defendants maintain that the Trustees are immune from
civil damages under HRS § 26-35.5(b) because they are clearly
cnembers” of a “state board” and their actions were not for a
malicious or improper purpose. We agree with Defendents.

HRS § 26-35.5, entitled “Members of boards and
conmissicns; immunity from or indemnification for civil
Liability: defense of members,” provides, in relevant part:

12) For purposes of this section, “nenber” means eny
person whe is appointed, in accordance with the lav, to
Eerve on a temporary er permanent state boerd, .
established by Law -

 

(b) Notwithstanding ery law to the contrary, po member
be est

wots fi Tai se
‘Giuses by or cesultina fron the nenber's pertorsina of
et 3a which te oe 3

SRUSRSE ES ibictated, unless tne menber acted with
malicious or improper Purpose, except when the plaintiff in
2 civii action is the State.

1. HRS § 87A-25(4) does not mandate a waiver of HRS $ 26-
35.5(b) immunity.

Plaintiffs contend that “[e]ven if the EUTF trustees
may qualify for sovereign or other immunity (i.e., pursuant to

HRS § 26-35.5(b)), the evident intention of HRS § 87A-25(4) was

 
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to mandate a waiver of inmunity as to fiduciary liability, errors
and omissions.” Plaintiffs, however, do not provide any support
for their assertion, Defendants, for their part, assert that the
legislature's insurance requizenent was not intended to waive
immunity, but vas intended to cover claims against the State and
the BUTE’ s Trustees by EUTF employee-beneficiaries (many of whom
reside in other states and foreign countries) in federal court,
other state courts, or foreign courts, where the Trustees are not
immune. HRS § 87A-25(4), supra note §, requires the Trustees to
procure insurance; it says nothing of waiving immunity.
Accordingly, Plaintiffs’ contention that HRS § 26-35.5(b)
immunity is waived is without merit.

2. The Trustees are "nombers” of a “state board” pursuant
to HRS § 26-35.5.

Plaintiffs support their assertion that the EUTF Board
is not a “state board” as that term is used in HRS § 26-35.5 with
the following reasons: (1) the EUTF Trustees do not take an oath

of office (citing Haw. Const. art. XVI, § 4°); (2) they do not

* aw. Const. art. xv1, § 4 provides:
ALL eligible public officers, before entering upon the
duties of their respective offices, shall take and subscribe
to the following oath or atfirmaticn: “I do sclenniy swear
(er affirm) thet Twill support and defend the Constitarien
of the United States, and the Constitution of the state of
Hevali, and that 1 will faithfully discharge my duties es

= to best of my ability." As used in this section,

“eligible public officers” means the governor, the

 

 

(continved. .

 

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sit ex officio by virtue of their position with any state agency

 

(3) they are not elected (citing HRS § B7A~5); (4) their
appointment is not subject to the advice and consent of the

Senate (citing HAS § 87A~5, which exempts Trustees from

 

application of HAS § 26-34(a) (1993)'#); (5) although they are
appointed by the governor, they do not serve at her pleasure, and
she may not remove them from office (citing HRS § 87A~5, which
exempts Trustees from application of HRS § 26-34(¢)"); (6) they

are not bound by the State Procurement Code, HRS chapter 103D

 

(citing HRS S§ 87A-18(c), -20, -24 (Supp. 2003)"*); (7) they are

*(..seontinued)

 

(emphasis added.) (Ellipsis in original.)

8 uRS § 26-24 (a) states that “[t]he members of each board and
conmission eseablished by law shall be nominated ang, by and with the advice
Sho censent of the senate, appointed by the governor.”

1 Rg § 26-24(¢) provides that “(t]he governor may remove or suspend
for cause any rember of any board or coamission after due notice and public
hearing.”

 

© ng § 87A10(c} states that “[w]ithout regard to chapter 103D, the
boerd may contract with a carrier to provide fully insured benefits or with a
Ciitd-pafty scuinistrator to aqminister self-insured benefits.”

{5 § 87-20, which wos repealed in 2004, stated that “[p]rocurenent of
a carrie® or third-party adninistrator for any benefits plan shall be exenpt
from chapter 1030.”

BRS § 874-24 states:

In addition to the poner to administer the fund, the board may:
(continced.-.)

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not bound by, nor are their actions reviewable under, the state
Administrative Procedures Act, HRS chapter 91 (citing HRS §§ 67A-

19, -26 (Supp. 2003)"; (8) they are not subject to any

8 (. .seontinved)

(2) "Collect, receive, deposit, and withdraw money on
behalf of the fond:

(2) Tnvest moneys in the sane manner specified in section

88-1192) (A), (1) (BD, 11 (Chy (2s Cds aly Udo (ey

 

sell, assign, transfer, or dispose of

for other investments of the fund, a

well as the proceeds of those investments anc ay’
snoney belonging £0 the fond?

(4) -Rppolnt, and at pleacure dismiss, an adninistretor and
other fund staff. The aduinistrator and staff shell
be exenpt from chapter Je and shall serve under and at
the plessure of the boards

(5) Make: paysents of periodic chergi
Feaschable expenses incurred in

of the funds

for the performance of financial audits of

the fund and clains audits of ite inevrance carrier

(7) Retain auditors, actuaries, davestment fens and
managers, benefit plan consultants, or other
Professional advisors to carry out the purposes of
this chapter:

‘ablish health benefits plan and cng-term care
benefits plan rates that include administrative snd
‘other expenses necessary to effectuate the purpos
the fund? and

(8) Require any department, agency, or enployee of the
State or counties to furnish information to the board
to carry out the purposes of this chapter.

 

 

and pay for
sarrying out the

 

  

 

   

 

 

© BRS § 878-29 provides in relevant part thet “[t)he board ney
determine eligibility for part-time, tesporary, and seasonal. or casual
fenployees by rules exempt from chapter 31 az provided in section €18-26."

 

ARS § 87A-26 states:

(a) The board may adopt rules for the purposes of
this chapter. "Rules shell be adopted without regere to
chapter 91. "Role-naking procedures shell be adopted by the
bosrd and shail minimally’ provide for?
(2) "Consultation with employers and affected
employee organizations with regerd to proposed
rules?
(2) Adoption of roles at open meetings that permit
(continued...)

 

 

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executive department; (9) they do not deal with public assets or
public funds (citing HRS § 87A-30 (Supp. 2003)%); (10) they are
accountable only to their beneficiaries and not to the public at

large or any public official (citing HRS §§ 87A-5, ~26, -30, -31

 

(Supp. 2003)"); and (11) they are insured at the expense of

their beneficiaries (citing HRS § 87A-31(a)). Plaintiffs argue
that the Board is, therefore, more similar to a private or non-
profit trust than to a “state board.” Plaintiffs, however, do

8 (..-continuea)
the attendance of any interested person:
(3) Approval of rules by the governor! and
{i} Filing of roles with the Iieutenant. governor.
(D) The Board ay also issue policies, standards,
and procedures consistent with its rules.
fe). The board ay adopt rules, without regard to
chapte! 91, governing aispite resolution procedures in the
Event of inpasee in decision-making; provided that the
Fules shall be adopted with the concurrence of six trus

 

 

 

Rs § 67A-30 stated:

‘There is established outside the state treasury, a trust
Fund te be known os the “Hawaii Enployer-Unien Health
Benefits Trost Fund". The fund shall consist of
Contributions, interest, income, dividends, refunds, rate
Credits, and other retulns.” The fund shall be under the
control of the board and placed under the departnent of
Budget and finance for sdministrative purposes.

 

 

 

& Rs § @7A-21 provided, in relevant part:

a) the fund shall be used to provide
enployee-beneficiaries snd dependent“beneficiaries with
feclth and other benefit plane, and to pay administrative
and other expenses of the’ fund

(B) The fund, including any earnings on investments,
and rate credits of reimbursements from any carrier or
Geifcinsured plan end any earning of interest derived
therefrom, may be used Co stabilize health and other benefit
plan rete: provided that the approval of the governor end
Che Legisieture shall be necessary to fond administrative
and obser expenses necessary to effectuate these purposes.

 

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not cite to any statutes or caselaw stating that those
characteristics, if true, indicate that the EUTF Board is not @
“state board” for purposes of HAS § 26-35.5.

Defendants respond that the following characteristics
support their contention that the BUF Board is a “state board”:
(1) it was created by, and its methods of operation are
controlled by, state statute, HAS chapter 87A; (2) it is attached
to the department of budget and finance, which means its
communications with the legislature, its budget, and its hiring
and purchases must go through that department, (citing ERS $5
87A-26 to -35)7 (3) it is subject to the public meeting and
government record requirements of HRS chapters 92, Public Agency
Meetings and Records, and 92F, Uniform Information Practices Acti
(4) aside from rulemaking, it is subject to HRS chapter 91; (5)
HRS § 87A-26, supra note 15, sets the EUTF’s rulemaking procedure
which requires the EUTF’s rules to be approved by the governor:
(6) although the EUTF initially had a limited exemption from
public procurenent laws regarding contracts with insurance
carriers, third-party administrators, and professional
consultants, such exemption was eliminated in 2004 by Act 216,
2004 Haw. Sess. L. Act 216 § 15 at 993-947 (7) the EUTF serves a

th and other benefit

 

public purpose, i,e,, the provision of h

plans for public employees, retirees, and their dependents; (8)

 

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its administrative expenses, which include the cost of its

.ce, are paid for by the public employers; and (9) its

 

 

funding largely cones from public employer contributions, which
‘are general funds appropriated as cost items by the legislature,
(citing HRS § 87A-32 (Supp. 2003) and HRS § 88-10(b) (Supp.
2003)). Defendants, however, also do not cite to any statutes
or caselaw supporting their contention that these
characteristics, if true, evidence a “state board” within the

meaning of HRS § 26-35.5. Nevertheless, we find Defendants’

 

MRS § 67A-32 provides, in relevant part:

(a) The State, through the department of budget and
finance, and the counties, ‘chrough thelr respective
Gepartnents of finence, shall pay to the fund a monthly
Contribution equal to the amount establishes under chapter
Soc or specified in the applicsble public sector collective
bargaining agreements, whichever is appropriate, for each of
thelr respective enployee-beneficiaries and
Snployee-beneficiaries with dependent-beneficiaries, which
Shell be used toward the payment of costs of @ health
benefits plan.

   

 

 

Rs § €9-10(b) st

ALL cost Stens shall be subject to appropriations by
tthe appropriate legislative bodies. The employer shall
Suoait within ten gaye of the date on which the agreement is
fatified by the employees concerned all cost itens contained
therein to the appropriate legislative bodies, except that
ifany cost itens require appropriation by the state
legislature and it is not in session at the tine, the cost
ifdns shall be subaitved for inclusion in the governor's
next operating budget within ten days after the date on
hich the agreenent is ratified. The state legislature or
tthe legislative bosies of the counties acting in concert, as
tthe case tay be, may approve oF reject the cost itens
Susmitted to thom, asa whole. If the state legislature or
the legislative body of any county rejects any of the cost
{tens submitted to them, ail cost items subsitted shall be
returned 0 the parties for further bargaining.

 

 

  

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position more persuasive. Indeed, the legislative history of HRS
§ 26-35.5(b) supports Defendants’ position inasmuch as it states
that the statute was intended to encourage people such as the
Trustees to contribute their knowledge and experience without
pay, in the community interest, by protecting them from civil

Liabilit:

 

The purpose of this Bill is. . . to exempt fron civil
Lsebility members of state Boards and Commiseions who serve
without Pay, unless the menber acte with 2 malicioss
Purpose, in bad faith, or a wilful or wanton manner

Your Connittee supports protecting “volunteer” boards
and commission menbers fron frivolous suits, suits extended
fas harassnent, and nore inportantly, suits which may be

intended to intimidate these persons to influence policies

 

 

and decisions. Such protection she ural
ot aed promote Bo Seliberate

Sen. Stand. Comm. Rep. No. 538-84, in 1984 Senate Journal at 1267
(emphasis added). The EUTF Trustees serve on the EUTF Board
without pay for the purpose of contributing to the community
interest, namely, designing and administering health benefits
plans at a cost affordable to both public employers and
employees. It is clear that HRS § 26-35.5(b) is intended to
protect them. Accordingly, the EUTF Trustees are “members” of a
“state board” for purposes of HRS § 26-35.5, and thus, are
entitled to immunity from civil suit, unless they acted with
malicious intent or an improper purpose, as will next be

discussed.

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3. ‘There are no genuine issues of material fact as to
whether the Trustees acted with a malicious or improper
purpose

Plaintiffs next argue that there is a question of fact
nether the Trustees acted for a “malicious or improper purpose,”
which would take them outside the immunity provided by HRS $ 26-
35.5(b). Plaintiffs contend that, pursuant to Touse v, State, 64
Hawai'i 624, 647 P.2d 696 (1982), the issue of whether the
trustees acted for a malicious purpose is determined by 2
“reasonable person” test." Defendants respond that the
sreasonable person” test is inapplicable here, and that there is
no evidence that any of the Trustees acted with a malicious or
improper purpose.

in order to understand Touse, it is helpful to examine
Medeiros v. Konds, 55 Haw. 499, 522 P.2d 1269 (1974), which we,
in part, relied upon in Zouse. In Nedeizos, civil service
enployee of the State Department of Taxation brought suit for
damages against the director of the department alleging that the
director had maliciously and wilfully attempted to force the
employee to relinguish his Jeb. Id. at 500, 522 P.2d at 1269-70.
We rejected the view advanced by federal courts that non-judicial

governnental officers are absolutely inmune from tort actions,

 

Although the Touse Court referred to the test as the “reasonable
nan” test, we refer to the test herein as the “reasonable person” test.

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stating that “if an official in exercising his authority is
motivated by malice, and not by an otherwise proper purpose, then
he should not escape liability for the injuries he causes.” Id,
at $01-03, 522 P.2d at 1270-71. We intended, however, “to limit
Liability to only the most guilty of officials by holding
plaintiff to a higher standard of proof than in @ normal tort
case." Id, at 504-05, $22 P.2d at 1272. To this end, we
“allocate(d) to plaintiff the burden of adducing clear and
convincing proof that defendant was motivated by malice and not
by an otherwise proper purpose.” Id, at 505, 522 P.2d at 1272.
Eight years later, we decided Towse. Therein, prison
guards and their wives brought suit against state officials for,
inter alia, defamation in connection with a series of incidents
during a purported “overhaul” of the Hawai'i State Prison.
Towse, 64 Hawai'i at 625, 647 P.2d at 698. In discussing whether
the state officials had been motivated by malice, which would
strip them of their inmunity, we discussed Medeiros’s malice and
improper purpose requirement, noting that “the word malice *has
acquired a plethora of definitions[.]’” Id, at 632, 647 P.2d at
702 (quoting Aku v. Lewis, 52 Haw. 366, 376, 477 P.2d 162, 168

(2970)). In deciding between adopting the constitutionally-based

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wactual malice” test!” and the “reasonable person” test, we chose

to apply the latter, which we had previously utilized in Aku and

Russel] v. Am, Guild of Variety artists, $3 Haw. 456, 497 P.2d 40
(1972). According to the “reasonable person” test, “in the

instance where malice is alleged to extinguish a qualified
privilege, defendant is required to act as reasonable [person]
under the circumstances, with due regard to the strength of his
[or her] belief, the grounds that he [or she] has to support it,
and the importance of conveying the information." Touse, 64
Hawai'i at 632-33, 647 P.2d at 703 (quoting Russell, 53 Haw. at
463 n.4, 497 P.2d at 45 n.4 (quoting Prosser, The Law of Torts,
795-96 (4th ed. 1971))) (quotation signals omitted).

Plaintiffs aver that Towse requires this court to apply
a “reasonable person” test to the malice requirement of HRS § 26-
35.5(b). Because Towse is distinguishable, we disagree. Touse
involved state officials’ qualified privilege in a defamation
case. Although we discussed Medeiros in Touse, the rule
enunciated in Towse arose from Russel] and Aku, both of which

 

were also defamation cases. Indeed, in Aku, we stated that “[iJn

adopting the standard of reasonable care, we conclude that it is

 

1 We adopted the “actual malice” test in Tagawa vs Maui Pubs Co,
tdi, 43 Hows 695) 427-P.24 79 (1987). Therein, malice vas defined as ‘with
Fnowledge that it'war false or with reckless disregard of whether it was false
eenots dade et 663, (2) P.2d at 84 [quoting New York Times Co. v, Sullivan,
Ste U.S. 25¢y 280 (3968)).

 

 

 

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IC REPORTER *

in society’s interest in these circumstances to make defaming

publishers less willing to speak due to the risk of being found

 

gligent.” §2 Hew. at 378, 477 P.2d at 169. This reasoning

 

does not apply here. Moreover, in Russell, when this court first
adopted the “reasonable person” test, quoting it from Professor
Prosser, we explicitly recognized in a footnote that Professor
Prosser was addressing hinself directly to the use of the word

malice in the context of the qualified privilege in defamation

  

cases. 53 Haw. at 463 n.4, 497 P.2d at 45 n.4; gee Prosser, The
Law of Torts, 795-796 (4th ed. 1971) (discussing the definition
of “malice” in chapter 19, entitled “Defamation”). Furthermore,
the language of the test espoused in Touse, quoted from Russe:
(zequiring 2 person to act “with due regard to the strength of
his [or her] belief, the crounds that he [or she] has to support
it, and the importance of conveying the information”), clearly
was intended for purposes of analyzing the qualified privilege in
a claim for defamation, not for immunity pursuant to HRS § 26-
38.5. It is therefore apparent that the “reasonable person” test
was adopted for use in the defamation context.

The legislative history of HRS § 26-35.5, which makes
clear that the legislature did not intend for malice in this
context to be defined by the lower standard of the “reasonable

person” test, bears repeating:

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‘the purpose of this Bill is . . . to exempt trom civil
isebility nenbers of state boards and Comnission who serve
without pay, unless the senber ects with a malicious
forpose, in bad faith, or 2 wilfol of wanton menner.

Your Committee supports protecting “volunteer” boards
and consission nenbers from frivolous suits, suits extended
Sovharacanent, and nore importantly, suits which may be
Sntended to intimidate these persone to influence policies
and decisions. Such protection should encourage more people
iO'contribure thelr valuable knowledge and experience in the
ECununity interest, and promote nore open, deliberate policy
Sha decision meting in xesponse to the general public.

 

[Yiour Committee amended the bi2] to give “volunteer” board
Ane consiscion nenbere sore immunity; it raised the stangard

from en act with @ malicious purpose, in Ded
PEith or s wilfel or wanton manner to an act. for a
naliclous purpose oF improper porpose

sen, Stand. Comm. Rep. No. $38-84 in 1984 Senate Journal at 1267
(emphasis added).

Accordingly, Zowse and the “reasonable person” test are
inapplicable to this case, and the phrase “malicious or improper
purpose” should be defined in its ordinary and usual sense. See
HRS § 1-14 ("The words of @ law are generally to be understood in
their most known and usual signification, without attending so
much to the literal and strictly grammatical construction of the

words as to their general or popular use or meaning.”). Black’

 

Law Dictionary defines “malicious” as “(s]ubstantially certain to
cause injury” and “[w]ithout just cause or excuse.” Black's Lay
Dictionary 977 (8th ed. 2004). “Malice” is defined as “[t]he

intent, without justification or excuse, to commit a wrongful

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act[,]" “reckless disregard of the law or of a person's legal
righte[,]" and “[4J11 wills wickedness of heart.” Id. at 976.
With these definitions in mind, we turn to the
evidence. Defendants produced evidence that the Trustees adopted
the two-tier rate structure for the following non-nalicious and

proper reasons:

((20) a two-tier structure would have @ negative inpact on
the smallest percentage of EUTF participants; ({2]) ie would
avoid the potential of increasing costs fer ia:yer faniiies
who were the least likely to be able to afford such
Sneresses: and ({3}) Guring @ period of uncertainty, it was
the most prudent choise to facilitate che collective
Bargaining that would be necessary to fund the EUT health
Benefit plans.

 

 

 

Plaintiffs, however, contend the following demonstrates a

“malicious or improper purpose":

(The trustees] (1) were unaware of the duty of impartiality,
(2) were unaware of the megnitude of the iapact of thert

WHEE Class, (2) chose not to
obtain that data although it was readily availebie, and (4)
sgnored warnings regarding the inequity of the approach te
tlering that they were adeptingis)

 

Plaintiffs’ assertions, even if true, do not evince malice or an
improper purpose, while Defendants’ contentions provide “Just
cause” for the Trustees’ decision. Plaintiffs do not provide any
evidence that any of the Trustees’ actions were motivated by il
will or an intention to commit, or @ reckless disregard of
conmitting, @ wrongful act against any of the enployee-
beneficiaries. As such, Plaintiffs did not cerry their burden of

demonstrating “specific facts . . . that present a genuine issue

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worthy of trial.” french, 105 Hawai" at 470, 99 P.3d at 1054,
Accordingly, the circuit court did not err in awarding summary
judgment in favor of Defendants.

c. Whether Plaintiffs’ Claims Against tate eres
vereian

Plaintiffs next aver that the circuit court erred in
awarding sunmary judgment in favor of Defendants on the basis of

the State's sovereign immunity because the State expre:

 

ly waived

Ate immunity pursuant to HRS § 661-11 (1993) and the STLA, HRS

 

chapter 662." Defendants, for their part, contend that the
state retains its immunity because the discretionary function
exception te the STLA applies and HRS § 661-11 does not apply.

Plaintiffs’ arguments are unavailing.

 

The EUIF Board is an arm of the State for purposes of
sovereign immunity.

Preliminarily, Plaintiffs argue that the Board is not
an arm of the State and thus, is not entitled to sovereign
Anmunity in the first instance, arguing essentially the same
reasons they expressed in support of their argument that the

Board is not a “state board” for purposes of HRS § 26-35.5, set

1% pefendants mention in passing that breach of fiduciary duty 1s not a
tort claim shut implying chat neither #RS chapter 662 nor ARS § 61-11 would
ReEtyo dhe’ that the State retains its sovereign immunity. This court,
eco thas in the past classifies breach of fiduciary duty as a tort claim.
fees s.dq, TSB Int"D Lid, vs Shimisa Compa, 92 Hawai'i 243, 264, 990 P-2d 713,
Sete tele: TRAMs Ciaine for fraud and breach of fiduciary duty sound in
torts")

 

 

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forth in Section 11.8.2, supra. Defendants counter that the
State’s sovereign inmunity covers boards that, like the BUTE, are
attached to executive departments,

Plaintiffs do not cite any statutory authority or
caselaw stating that the characteristics they identified, if
true, aze more persuasive than those identified by Defendants,
see supra Section III.B.2, in the determination of whether the
Board is @ private, rather than a governmental entity.
Defendants, on the other hand, cite to HRS § 26-35(b) (Supp.
2004), which provides that “[e]very board or conmission
established or placed within a principal department for

administrative purposes or subject to the administrative control

 

or supervision of the head of the department shall be considered
an arm of the State and shall enjoy the same sovereign inmunity
available to the State.” Here, the EUTF Board is “placed under
‘the department of budget and finance for administrative
purposes.” HRS § 7A-30. For their part, Plaintiffs argue that
HRS § 26-35(b) was not enacted until 2004, and thus, during the
relevant time period (2002-2003), the state’s sovereign immunity
did not extend to boards that are attached to executive
departments. See 2004 Haw. Sess. L. Act 16, § 8 at 35 (stating
that the effective date is April 23, 2004). Plaintiffs’ argument

is unavailing.

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It appears from HRS § 26-35(b)’s legislative history
that the addition of subsection (b) was not intended to extend
the State's sovereign inmunity to administratively-attached
boards, but rather, merely to clarify that such boards were
already entitled to sovereign inmunity. See Hse. Stand. Conn.
Rep. No. 642-04, in 2004 House Journal, at 1655 (“The purpose of
this bill is to clarify that all administratively-attached boards
land commissions are arms of the State and entitled to the sane
sovereign immunity as the State itself.” (Emphasis added.));
sen. stand. Comm. Rep. No. 3079, in 2004 Senate Journal, at 1525
("Your Conmittee believes that this measure provides
clarification that all administratively attached agencies are
entities of the State and are covered by the state sovereign
immunity, despite variances in their powers or duties.”

(Emphasis added.)). As such, the fact that the subsection was
not enacted until 2004 does not mean that administratively-
attached boards pricr to that were not arms of the State entitled
to sovereign immunity. See Brown v. Thompson, 374 F.3d 253, 259
(4th Cir. 2004) (relying on legislative history to determine
whether amendment changes or merely clarifies existing lew); City
of Colorado Springs v. Powel), 156 P.3d 461, 465 (Colo. 2007)
(stating that presumption that “by amending the law the

Jegislature has intended to change it” can be rebutted “by 2

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showing that the legislature meant only to clarify an ambiguity
in the statute by amending it”); Carter v. California Dept. of
Veterans Affairs, 38 Cal. 4th 914, 922, 135 P.3d 637, 642 (2006)
("In deciding the anendnent’s application, we must explore
whether the amendment changed or merely clarified existing law.
A statute that merely clarifies, rather than changes, existing
law is properly applied to transactions predating its enactment.”
(Citation omitted.)). Accordingly, we hold that the EUTF Board
is an arm of the State entitled to assert the defense of
sovereign immunity.

2, Plaintiffs’ claim against the State for vicarious
liability for the Trustees’ choice of a two-tier rate
structure is barred by the State's sovereign inmunity
because the design and structure of the health plan is

a broad policy matter which is a “discretionary
function” within the meaning of HRS § 662-15(1).

 

Plaintiffs next argue that their claim against the
State for vicarious liability for the Trustees’ choice of a two-
tier health plan rate structure is not barred by the
discretionary function exception to the State's waiver of its
sovereign inmunity. We disagree.

“[1]t is well established that the State’s liability is
Limited by its sovereign immunity, except where there has been a
‘clear relinquishment’ of immunity and the State has consented to

be sued.” Tavlor-Rice v, State, 105 Hawai‘ 104, 109-10, 94 P.3d
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659, 664-65 (2004) (cktation omitted). HRS § 662-2 (1993)
provides that “[t)he State hereby waives its immunity for
Liability for the torts of its employees and shall be liable in
the sane manner and to the sane extent as @ private individual
under Like circunstances(.)" Notwithstanding this general waiver
of immunity, HRS § 662-15 (1993) provides, in relevant part,
that:

‘This chapter shall not apply to:
[1 Any claim based upon . . . the exercise or performance
GF the failure to exercise or perform a discretionary
function cr duty on the part of a state officer or employee,
hether of not the discretion involved has been abvsed[.)

 

 

 

this portion of section 662-15(1) is generally referred to as the
“discretionary function exception,” and, if a government actor's
decision or conduct falls within that exception, chapter 662 does
not apply and the State retains its immunity. The purpose of the
discretionary function exception is to “recognize(] the separate

powers and functions of the legislative and executive branche

 

of
state government and protect |] them from any attempted
disturbance through the courts.” Breed v. Shaner, 57 Haw. 656,
666, 562 P.2d 436, 442 (1977).

our precedent makes clear that, in deciding whether
actions of State officials fall within the discretionary function
exception, we must “determine whether the challenged action

involves the effectuation of a ‘broad public policy[,]’ on the

39
 

one hand, or routine, ‘operational level activity(,]’ on the
other.” Tseuex rel, Hobbs v, Jevte, 88 Hawai'i 85, 88, 962 P.2d
344, 347 (1996). Operational level acts are “those which concern
routine, everyday matters, not requiring evaluation of broad
policy factors.” Breed, 57 Haw. at 666, 562 P.2d at 442.
In Julius Rothschild & Co, v. State, 66 Haw. 76, 80,

655 P.2d 877, 881 (1982), this court held that the state's
decision not to reconstruct the Moanalua Stream Bridge to conform

to a fifty-year flood criterion constituted a discretionary

 

function. The project involved a “costly reconstruction of a
two-span permanent concrete structure which is presently an
integrated part of a heavily-travelled highway.” Id. We stated
that whether such @ project should be authorized would require “a
weighing of priorities at the higher levels of government, and
would surely entail evaluations based on financial, political and
economic considerations.” Id. at 80-61, 655 F.2d at 881. other
activities we have deemed to involve the evaluation of broad
policy factors, and are therefore discretionary, include “a
decision to purchase certain aircraft, a decision to activate an
airbase, (and) 2 decision not to build a prison.” Breed, $1 Hew.
at 667, 562 P.2d at 443 (footnotes onitted) .

On the other hand, activities we have deemed

operational include the decision to improve guardrails, Taylor=

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Rice, 91 Hawai'i at 78, 979 P.2d at 1104 (rejecting the State's
argument that “the decision to inprove guardrails, 1ike the
decision not to reconstruct a bridge in Julius Rothschild,
involves the evaluation of broad policy considerations”); and
decisions regarding the placement of road signs and the painting
of road stripings, Rovers v. State, $1 Haw. 293, 298, 459 P.2d
378, 381 (1969) ("[SJuch matters as the kinds of road signs to
place and where to place them, and which center line stripings to
repaint and when to repaint them, did not require eveluation of

policies but involved implementation of decisions made in

 

everyday operation of governmental affairs.”).
Here, the decision about the structure of the EUTF
health benefits plans clearly was not a routine, everyday matter,
but involved the evaluation of broad policy factors including:
(1) the percentage of employee-beneficiaries that would be
adversely affected by s change to the various rate structures:
(2) the fact that a four-tier structure would increase the costs
for those least able to afford it, ise, families with two or
nore dependents; (3) the potential impacts of adopting tier
structures that were new and could complicate the collective
bargaining process, which was geared to a two-tier structure,
thus possibly leading to enployee-beneficiaries having to pay the

full cost of their premiums; and (4) the possibility of a strik

 

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In sum, the Trustees’ decision to adopt a two-tier rate structure
falls within the discretionary function exception.

3. HRS § 661-11 does not save Plaintiffs’ claim against
the State for vicarious liability for the Trustees
breach of fiduciary liability.

Plaintiffs next contend that, pursuant to HRS § 661-11,
even if the discretionary function exception applies with respect
to their claim against the State for vicarious liability for the
Trustees’ breach of fiduciary liability, the State's sovereign
inmunity was nevertheless waived by the purchase of fiduciary
Liability insurance, see supra Section 1.8, as was required to be
procured by HRS § 87A-25(4), supra note 5.

HRS § 661-11, entitled “Tort claims against State where

covered by insurance,” provides:

 

‘This section applies to an action where (1) the state
party defendants (2) the subject matter of the claim is

policy entered into by the
‘and (3) chapter 662 does not
ign imnunity shall be raised in
n.” However, the State's
Tability uncer this Section shail not exceed the onount of,
land shall be defrayed exclusively by, the primary insurance
peltey.

   

 

[An action under this section shall not be subject to
sections 661-1 to 661-10.

(Emphasis added.) whether or not the State's sovereign immunity
is waived pursuant to HRS § 661-11 with respect to Plaintiffs’
claim against the State for vicarious liability, as discussed in

Section III.A, supra, the Trustees’ choice of a two-tier rate

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structure was not an abuse of discretion. As such, the Trustees
did not breach a fiduciary duty, and thus, the State cannot be
vicariously liable therefor. In sum, the applicability of HRS §

661-11 is immaterial to this case.

 

Plaintiffs’ claim against the State for negligent
training must fail because it is dependent upon a
breach of duty by the Trustees.

 

Plaintiffs also assert that their claim against the
State for negligent training or advice is not barred by the
State's sovereign inmunity. HRS § 87A-9 (Supp. 2001) states that
“[tdhe attorney general shall serve as legal adviser to the board
. so" Plaintiffs allege that the Attorney General
“negligently performed its duties as [the BUTP’s] adviser with
respect to the fiduciary duties of the . . . trustees,” which
resulted in a breach of fiduciary duty owed by the Trustees to
Plaintiffs and others similarly situated. Plaintiffs further
allege that “{wJhen a person in a fiduciary relationship to
another violates his duty as @ fiduciary, a third person who has
notice that the trustee is committing a breach of trust and
participates in the violation of duty is liable to the
beneficiary.” (Citing Restatement (Second) of Trusts § 326
(1959)). Thus, Plaintiffs contend, “Af the Attorney General knew
or should have known that the (T]rustees were ignoring or were

ignorant of their fiduciary duties to Plaintiffs and sat silent,

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and if that advice or lack of advice/training was a substantial
factor contributing to the [T]rustees’ breach of their fiduciary
duties, . . . the State is liable for the Attorney General's
misconduct or lack of training... .”
Plaintiffs’ assertions are premised on the conclusion
that the Trustees breached @ fiduciary duty. Because, as
Giscussed in Section 111.8, supra, the Trustees did not breach a
fiduciary duty, Plaintiffs’ claim against the state for negligent
training or advice must fail. Thus, the circuit court did not

err in awarding summary judgment on this claim in favor of

 

Defendants.
Although £1 ifs" Claim jeclaral Pros
r < is
Ne nied Bi ie ‘Trustees’ Did Not 73
ni Tier Ral

Plaintiffs’ Second Anended Complaint sought, inter
alia, declaratory and injunctive relief prohibiting the two-tier
rate structure and requiring the Trustees to solicit proposals
for multi-tier health plans, to adopt the most advantageous
proposal, and to obtain training on the nature of their fiduciary
duties. Defendants concede that Plaintiffs’ clains for
declaratory and injunctive relief are not barred by either
sovereign immunity, see Office of Hawaiian Affairs v. State, 110
Hawai'i 338, 357, 133 P.3d 767, 786 (2006) ("[Slovereign immunity
may not be invoked by the State if the suit seeks ‘prospective,’

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dues, injunctive, relief and the State fails to carry its burden
of proving with specific facts that the effect on the state
treasury will be directly, substantially, and quantifiably
Ampacted."), or the Trustees’ HRS § 26-35.5(b) immunity.
Because, as discussed in Section ITI.A, supra, the Trustees did
not abuse their discretion in adopting the two-tier structure,
Plaintiffs’ arguments that the Trustees should be (1) prohibited
from adopting a two-tier system, (2) required to solicit
proposals for multi-tier health plans, and (3) required to obtain
training on the nature of their fiduciary duties, are unavailing.
Vv. conchusron
Based on the foregoing, we affirm the circuit court’s

February 24, 2005 judgment.

on the brief:

 

George . Brandt,
Bonnie Moore (Lyons, Pane CNet ye
Brandt, Cook & Hiranatau)

and Janes X. Duca

(Kessner Duce Unebayashi

Sain & Hatsunaga) for

atiffs-appellants
plaintiffs-appel lant: Yuet. Debby be

Brian P. Aburano,

Deputy Attorney General, Wiles Séhe
Janes Kavashina,

Kristine Tsukiyana,

(Watanabe Ing Kawashina

& Koneiji LLP),

Brien T. Ortelere, and

Beth M. Henke (Morgan,

Lewis & Bockius, LLP)

for defendants-appeilees

 

a