); Goodman v. Kennedy, 18 Cal.3d 335, 134 Cal.Rptr. 375, 556 P.2d 737, 743 (Cal. 1976) (if attorneys were liable to both clients and other parties to arms-length transactions, attorneys would become self-protective and could not fulfill counseling role).See Barker; Page v. Frazier, 388 Mass. 55, 445 N.E.2d 148, 153 (1983) (absent separate attorney-client relationship, lawyer owes no duty of reasonable care to adverse party because of attorney's conflicting duty to client); Bush v. Rewald, 619 F. Supp. 585 (D.Haw. 1985) (lawyer owed no duty to investors buying from organization where organization, not investors, was attorney's client). Cognizant of these risks, the law, as a general rule, only rarely allows third parties to maintain a cause of action against lawyers for the insufficiency of their legal opinions.

Merely being listed on the OS does not, however, establish a relationship with the bondholder plaintiffs. As the court noted in Bush v. Rewald, 619 F. Supp. 585 (D. Hawaii 1985): A reasonable investor might consider the identity of those associated with a company to be highly material to a decision whether to invest in that company.

In addition to these circuits, other federal courts have come to the same conclusion. See, e.g., Bush v. Rewald, 619 F. Supp. 585 (D.Haw. 1985) (lawyer owed no duty to investors buying from organization when organization, not investors, was attorney's client); Quintel Corp. v. Citibank, 589 F. Supp. 1235 (S.D.N.Y. 1984) (counsel to partnership owed no duty of disclosure to limited partners). Plaintiffs rely on several federal securities cases which have held attorneys liable under section 10(b) for failing to disclose misrepresentations made by clients to third parties.

Surely, the order, the Rescission Offer, and The Wall Street Journal article of February 11, 1971, represent "great glowering clouds," Kennedy v. Josephthal, 814 F.2d at 802, sufficient to put plaintiffs on notice that something was amiss. See also Bush v. Rewald, 619 F. Supp. 585, 602 (D.Haw. 1985). In his treatise, Bromberg states, "By charging plaintiff with constructive knowledge, § 13 is stricter than his basic cause of action under either §§ 11 or 12(2), which charges him only with actual knowledge."

In this case, appellants argue that Hawaii's six-year statute of limitations was applicable prior to the Court's Agency Holding decision. Cases cited by both parties indicate that Judge Pence, who ruled on this issue twice, changed his mind from 1985 to 1986 regarding the application of a one-year or a six-year time-bar. Compare Bush v. Rewald, 619 F. Supp. 585, 603-05 (D.Haw. 1985) (most closely analogous statute is one year) with McCarthy v. Pacific Loan, Inc., 629 F. Supp. 1102, 1107 (D.Haw. 1986) (most closely analogous statute is six years). Appellants argue that the later case established that the six-year rule controls and that Agency Holding should not be applied retroactively.

See Marbury Management Inc. v. Kohn, 470 F. Supp. 509, 514 (S.D.N.Y. 1979), aff'd in part, rev'd in part, 629 F.2d 705 (2d Cir.), cert. denied sub. nom. Wood Walker Co. v. Marbury Management Inc., 449 U.S. 1011, 101 S.Ct. 566, 66 L.Ed.2d 469 (1980); see also Seiler v. E.F. Hutton Co., 584 F. Supp. 607, 612 (D.N.J. 1984) (broker-dealer must have reasonable basis for predictions); Bush v. Rewald, 619 F. Supp. 585, 593 (D.Haw. 1985) (10b-5 liability for failure to disclose material facts); Demarco v. Security Planning Service, Inc., 462 F. Supp. 1066, 1070 (D.Ariz. 1978) (controlling persons of investment company liable for misleading statements about securities, upon which purchasers reasonably relied); Upton v. Trinidad Petroleum, 652 F.2d 424 (5th Cir. 1981) (controlling persons jointly and severally liable for non-registration). Moreover, a dealer "is automatically liable [under section 485-8] . . . for its sales of unregistered [securities]," when an officer of the corporation negotiated that sale.

We have found no indication, either from the statute or the legislative record, that the Hawaii Legislature intended a retroactive application of the amendment. See Bush v. Rewald, 619 F. Supp. 585, 609 (D.Haw. 1985) (applying without discussion the earlier version of § 485-20 to a transaction which occurred prior to the 1985 amendment). The district court, proceeding on the assumption that the amendment was not applicable, decided from the facts and evidence that Bulgo knew or should have known by March 23, 1983 that he had a potential claim.

Princeville, on the other hand, points to several federal district court cases in which the courts may have implicitly accepted the idea that the statute covers securities law claims. In Bush v. Rewald, 619 F. Supp. 585, 609-10 (D.Haw. 1985), a federal district court refused to dismiss a claim under § 480-2 for securities fraud. The issue the court addressed, however, was whether the suit was in the public interest as required by § 480-13.

Because a negligent misrepresentation claim does not require intent, it is generally not subject to Rule 9(b). See id. at *8; see also Bush v. Rewald, 619 F. Supp. 585, 608 (D. Haw. 1985); Smallwood v. NCsoft Corp., 730 F. Supp. 2d 1213, 1232 (D. Haw. 2010) ("As the Ninth Circuit in Vess explains, 'where fraud is not an essential element of a claim, only allegations ("averments") of fraudulent conduct must satisfy the heightened pleading requirements of Rule 9(b).'"). Although Liberty Mutual argues that Rule 9(b)'s heightened pleading standard should apply in this case, the allegations supporting the Sumo Defendants' negligent misrepresentation claim are not exclusively grounded in fraud, and not categorically subject to Rule 9(b).

To the extent Count II alleges negligent misrepresentation, those allegations are subject to Rule 8 of the Federal Rules of Civil Procedure. See Peace Software, Inc. v. Hawaiian Elec. Co., Inc., Civ. No. 09-00408 SOM-LEK, 2009 WL 3923350, at *6 (D. Haw. Nov. 17, 2009); Bush v. Rewald, 619 F. Supp. 585, 608 (D. Haw. 1985). In Hawaii, a negligent misrepresentation claim requires: "(1) false information be supplied as a result of the failure to exercise reasonable care or competence in communicating the information; (2) the person for whose benefit the information is supplied suffered the loss; and (3) the recipient relies upon the misrepresentation."