Preview:

NO.

22991

IN THE SUPREME COURT OF THE STATE OF HAWAI#I MELVIN HAMAGUCHI, Plaintiff-Appellant, vs. ASSOCIATED FINANCIAL PROFILES, INC., a Hawaii corporation; HARRY HASUIKE, in his capacity as president of Associated Financial Profiles, Inc.; HARRY HASUIKE, in his personal capacity, Defendants-Appellees, and JOHN DOES 1-20; JANE DOES 1-20; DOE CORPORATIONS 1-20; DOE PARTNERSHIPS 1-20; DOE LIMITED PARTNERSHIPS 1-20, Defendants. APPEAL FROM THE FIRST CIRCUIT COURT (CIV. NO. 96-1448) MEMORANDUM OPINION (Levinson, Acting C.J., Nakayama, Ramil, JJ., and Circuit Judge McKenna, in place of Moon, C.J., recused, and Circuit Judge Raffetto, in place of Acoba, J., recused) The plaintiff-appellant, Melvin Hamaguchi, appeals from the judgment of the first circuit court, the Honorable Marie N. Milks presiding, filed on November 17, 1999. The circuit court

entered judgment in favor of the defendants-appellees Associated Financial Profiles, Inc. (AFP) and Harry Hasuike with respect to Hamaguchi's claims of breach of contract, breach of implied covenant of good faith and fair dealing, conversion, negligent and intentional interference with contractual relationship, and punitive damages, as well as the defendants' counterclaims of breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. Hamaguchi argues

on appeal that the circuit court erred in entering judgment in the defendants' favor on his breach of contract and unjust enrichment claims, which arose out of a series of tax-sheltered annuities (TSAs) that he solicited shortly before his contract with AFP was terminated. Specifically, Hamaguchi argues, inter

alia, that the circuit court erred in concluding that Hamaguchi was paid all commissions to which he was entitled1 and that there was no loss to Hamaguchi that enriched AFP.2 In addition,

Hamaguchi argues that the circuit court erred in entering judgment against him and in the defendants' favor as to (1) the latters' counterclaims for damages, which were based on the cancellation of certain other TSAs solicited by Hamaguchi during his tenure with AFP, and (2) the amount of damages that the circuit court awarded to the defendants on their counterclaims. Specifically, Hamaguchi contends, inter alia, that the circuit court erred in concluding that he breached his contract with AFP,3 the implied covenant of good faith,4 and his fiduciary duty to AFP and Hasuike,5 and in finding that AFP lost commissions in the amount of $19,483.37 due to the cancellation of Leon
1 Hamaguchi challenges the circuit court's conclusion of law (COL) No. 17, in which it concluded, "AFP and Hasuike paid to Hamaguchi all commissions to which he had proprietary rights and to which he was entitled to immediate custody and possession. AFP did not convert any of Hamaguchi's commissions." 2 Hamaguchi challenges the circuit court's COL No. 19, in which it concluded, "There was no loss to Hamaguchi which enriched AFP and Hasuike. AFP and Hasuike were not unjustly enriched to the detriment of Hamaguchi." 3 Hamaguchi challenges the circuit court's COL No. 11, in which it concluded that "Hamaguchi breached the Representative Agreement." 4

Hamaguchi challenges the circuit court's COL No. 16, in which it concluded that "Hamaguchi breached the implied covenant of good faith and fair dealing in any contract with AFP and Hasuike."
5 Hamaguchi challenges the circuit court's COL No. 24, in which it concluded, "A fiduciary duty existed between Hamaguchi, AFP and Hasuike. By Hamaguchi's actions, he breached his fiduciary duty to AFP and Hasuike. Hamaguchi's breach of his fiduciary duty caused damages to AFP and Hasuike."

2

Richards' TSA,6 and $4,156.84 in commissions due to the cancellation of Pauline Richards' TSA.7 We affirm the circuit court's judgment with respect to Hamaguchi's breach of contract and unjust enrichment claims and the defendants' counterclaim for breach of contract. We hold

that the circuit court clearly erred, however, in its award of damages in several respects, as discussed infra in section III, and that the amount of the judgment must be reduced accordingly. We therefore affirm the circuit court's judgment in part, vacate it in part, and remand this case for further proceedings consistent with this opinion. I. BACKGROUND

This case arises out of Hamaguchi's contract with AFP to sell TSAs. AFP is a closely held Hawai#i corporation that

sells TSAs on behalf of insurance companies in exchange for commissions. Harry Hasuike, the founder and president of AFP,

was responsible for managing the day-to-day operations of the company during the period relevant to this matter. From time to

time, AFP employed independent contractors to solicit TSA applications in exchange for a percentage of AFP's commissions. In 1991, Hamaguchi approached Hasuike, whom he had known since high school, seeking work as a solicitor for AFP. At

the time, Hamaguchi was working for Prudential Insurance Company,

6 Hamaguchi challenges the circuit court's FOF No. 65, found, in relevant part, "When Leon Richards canceled [his TSA], all of the commissions already earned to College Life and lost a $19,483.37 in commissions on the first-year premium and lump sum 7

in which it AFP returned total of transfer."

Hamaguchi challenges the circuit court's FOF No. 66, in which it found, in relevant part, "When Pauline Richards canceled [her TSA], AFP returned all of the commissions already earned to College Life and lost a total of $4,156.84 in commissions on the first-year premium and lump sum transfer."

3

by which he had been employed since 1980, training new agents in homeowners and personal liability insurance. Hasuike refused

Hamaguchi a contract with AFP, but helped him to obtain his own regional agent contract with Massachusetts General Life Insurance Company. Hamaguchi was unable to sell any TSAs under the

Massachusetts General contract, however, and, three months later, again approached Hasuike about working for AFP, at which point Hasuike agreed to take him on as a part-time solicitor. Hamaguchi began working for AFP pursuant to an oral agreement with Hasuike. Under the terms of the agreement,

Hamaguchi was to be an independent contractor working under the direction and supervision of AFP and was required to comply with AFP's rules and regulations. John Ohare, an AFP solicitor from

April 1995 to May 1998, testified that the basic rule at AFP, which had been communicated to him orally, was always to tell the client the truth about the company's products. Hasuike and Norma

Nakamura, AFP's senior solicitor, provided Hamaguchi with ongoing training as to the sale of TSAs, written materials describing TSAs and their benefits, and periodic review of his work. also gave Hamaguchi eighty to ninety percent of his client "leads." Hamaguchi was responsible for arranging appointments AFP

with clients to discuss the benefits of AFP's products and to solicit their applications. Hamaguchi would then return a

successfully solicited application to AFP's office, type in any additionally required information, set up a client file, and give the file to Hasuike or Nakamura. Hasuike signed each application

as AFP's agent of record and transmitted it to the relevant insurance company. In consideration, AFP paid Hamaguchi sixty

percent of the commissions that it received from the insurance

4

companies.8 The quality of Hamaguchi's work for AFP was unsatisfactory from the outset of the business relationship. Hamaguchi was frequently absent from the office without explanation and, when present, conducted himself inappropriately. After approximately six months of working part-time, Hamaguchi disappeared altogether, returning only in late 1993, when he asked Hasuike whether he could work full-time as an AFP solicitor. Hasuike was initially reticent. But after receiving

assurances from Hamaguchi that he would commit himself fully to the job, Hasuike relented and agreed to hire him based upon their prior oral agreement; now, however, Hamaguchi would be working full-time for AFP. Hamaguchi worked full-time for AFP until he

was terminated on November 30, 1995. In 1994, Hasuike reduced AFP's oral agreements with each of its solicitors, including Hamaguchi, to writing in the form of a "registered representative agreement" (RRA). Hasuike

testified that the RRA did not change any of the terms of Hamaguchi's prior oral agreement with AFP. Nakamura tendered an

RRA to Hamaguchi and instructed him to review it carefully and advise her or Hasuike if he had any questions. If the terms of

the RRA were satisfactory, Hamaguchi was to sign and return it to Nakamura. Notwithstanding the foregoing, however, Hasuike

testified that Hamaguchi was required to sign the RRA as a condition of continuing his working relationship with AFP. As it

happened, Hamaguchi neither read nor asked any questions about the substantive provisions of the RRA; rather, he signed and

The time that passed between Hamaguchi's submission of an application and his receipt of payment, in the form of a check tendered by Hasuike, for his share of the commission varied according to a number of different circumstances.

8

5

returned it to Nakamura fifteen or twenty minutes after having received it. In substance, the RRA was an agreement between Hamaguchi and AFP, "in consideration of [Hamaguchi] agreeing to solicit for the purchase and sale of life insurance, annuities[,] and related investments on behalf of [AFP], and [AFP] agreeing to provide [Hamaguchi] with necessary office support and other services." The RRA enumerated Hamaguchi's duties as an AFP

solicitor, stating, in relevant part:
[Hamaguchi] shall be free to exercise his judgement as to the persons from whom applications are solicited and as to the time, place and manner of solicitation; however, the applicable statutes and governmental regulations pertaining to the conduct of business covered hereby as well as the regulations from time to time adopted by [AFP] or by the Life insurance company respecting methods of doing business shall be observed and conformed to by the Representative. . . . . In soliciting the purchase or sale of any investment, life insurance, annuities, hereunder, [Hamaguchi] shall fully disclose all material facts relating thereto (which shall include delivery of the disclosure document relating to such investment or policy to be purchased if one is then in effect), shall not make any untrue statement of a material fact and shall fully explain the terms of any contractual arrangements relating thereto to the prospective client or purchaser.

In addition, the RRA defined how Hamaguchi's commissions would be earned:
[C]ommissions shall not be come [sic] earned by, or payable to [Hamaguchi] until said application is accepted by said Insurance carrier, payments for same are received from said Insurance carrier and all events which establish the right of [AFP] to receive payment of commissions respecting the subject transaction and actual receipt by [AFP] of such commissions have occurred. . . . [AFP] reserves the right, in its sole discretion, to refund to any purchaser all or any part of payments made by him, and [Hamaguchi] agrees to reimburse [AFP] promptly for expenses in connection therewith.

Finally, paragraph 6(b) of the RRA defined the basis for and effect of termination with cause:
In the event [Hamaguchi] . . . fails to comply with any of the terms, conditions and obligations of this Agreement, conducts himself in any manner which [AFP], in

6

its unrestricted discretion, determines to be detrimental to its business or reputation, or in any way acquires, obtains or engages in any interest, affiliation than [sic] [AFP] or relating to any other activity that would cause a conflict of interest on the part of [Hamaguchi] with respect to [AFP], [AFP] may immediately terminate this agreement . . . and [AFP's] obligation to pay commissions to [Hamaguchi] shall immediately cease upon such termination, without notice; and such termination shall in no way affect [AFP's] right to collect any amounts which may be due it from [Hamaguchi].

In November 1994, Hasuike asked Hamaguchi to execute a producer's contract with College Life. The producer's contract

allowed Hamaguchi to sell College Life products as a representative of AFP and process the entire application and policy without Hasuike's signature. In addition, Hasuike

requested that Hamaguchi sign an assignment of commissions form, which was a safeguard for AFP

Download Hamaguchi v. Associated Financial Profiles, Inc..pdf

Hawaii Law