Hancock v. Kulana Partners, LLC

• Decision Date: 13 November 2019
• Docket Number: SCCQ-17-0000474
• Court: Hawaii Supreme Court
• Parties: William R. HANCOCK, individually and as Trustee of the Hancock and Company, Inc. Profit Sharing Trust, under trust instrument April 3, 1983, Plaintiff-Appellee, v. KULANA PARTNERS, LLC, a Hawai‘i limited liability company; Fidelity National Title & Escrow of Hawaii, Inc., a Hawai‘i Corporation, Defendants-Appellants.

452 P.3d 371

William R. HANCOCK, individually and as Trustee of the Hancock and Company, Inc. Profit Sharing Trust, under trust instrument April 3, 1983, Plaintiff-Appellee,
v.
KULANA PARTNERS, LLC, a Hawai‘i limited liability company; Fidelity National Title & Escrow of Hawaii, Inc., a Hawai‘i Corporation, Defendants-Appellants.

SCCQ-17-0000474

Supreme Court of Hawai‘i.

NOVEMBER 13, 2019

Jade Lynne Ching for appellant Kulana Partners LLC

Ryan H. Engle, Honolulu, Georgia Anton, and Eric B. Levasseur, pro hac vice, for appellant Fidelity National Title & Escrow of Hawaii, Inc.

Timothy Hogan, Honolulu, for appellee

RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

OPINION OF THE COURT BY McKENNA, J.

I. Introduction

In a federal court lawsuit, a grantor asserts that an escrow company’s alleged deletion of an easement from the property description attached to a deed he executed renders the deed a "forged deed" that is void ab initio. The escrow company and the grantee, on the other hand, assert that the grantor’s claim sounds in fraud and is subject to, and barred by, a statute of limitations. They assert that the statute of limitations has run because the grantor is deemed to have had constructive notice of the allegedly modified deed upon its recordation.

The United States District Court for the District of Hawai‘i ("district court") certified the following questions to this court:

1. Whether a claim relating to a forged deed is subject to the statute of limitations for fraud?

2. Whether the recording of a deed provides constructive notice in an action for fraud?

As it is unclear whether, under Hawai‘i law, the underlying case involves a claim relating to a deed that is void ab initio or a claim that is subject to a statute of limitations, we reframe¹ the questions as follows:

1. Under Hawai‘i law, when is a deed void ab initio for fraud, such that a claim challenging the validity of the deed is not subject to a statute of limitations?

2. Under Hawai‘i law, what statute of limitations applies to a claim that a deed was procured by fraud of the type that does not render it void ab initio?

3. Under Hawai‘i law, when does the statute of limitations begin to run on a grantor’s claim that a deed was procured by fraud of the type that does not render it void ab initio: upon recordation of the deed or at some other point in time?²

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To answer the first modified certified question, we hold that, under Hawai‘i law, a deed is void ab initio for fraud, such that a claim challenging the validity of the deed is not subject to a statute of limitations, when (1) a deed is forged, meaning it has been falsely made, completed, endorsed, or altered with intent to defraud; or (2) a deed has been procured by "fraud in the factum," such as when a person is fraudulently deceived about the nature of a document that has been signed, as when a document is surreptitiously substituted for signature.³ Gonsalves v. Ikei, 47 Haw. 145, 384 P.2d 300 (1963) ; Adair v. Hustace, 64 Haw. 314, 640 P.2d 294 (1982) (abrogated on other grounds by Ass’n of Apartment Owners of Royal Aloha v. Certified Mgmt., 139 Hawai‘i 229, 386 P.3d 866 (2016) ).⁴

To answer the second modified certified question, we hold that, under Hawai‘i law, the six-year "catch-all" statute of limitations under Hawai‘i Revised Statutes ("HRS") § 657-1(4) (2016) applies to a claim that a deed was procured by fraud of the type that does not render it void ab initio, e.g., fraud in the inducement and constructive fraud.

To answer the third modified certified question, we hold that the statute of limitations begins to run on a grantor’s claim that a deed was procured by fraud of the type that does not render it void ab initio when the grantor discovers, or reasonably should have discovered, the existence of the claim or the identity of the person who is liable for the claim.

II. Factual Background

A. District Court Proceedings

This case involves a 2002 sale of real property from William R. Hancock ("Hancock") to Kulana Partners, LLC ("KPL"). Hancock had allegedly agreed to include in the conveyance documents an easement in favor of his neighbors, Robert and Esther Grinpas (the "Grinpases"). The recorded conveyance documents, however, did not include the easement.

In 2007, the Grinpases sued Hancock and KPL in the Circuit Court of the Fifth Circuit ("circuit court"). The circuit court rendered judgment in favor of the Grinpases and against Hancock, and the appeal has been before the ICA twice. Grinpas v. Kapaa 382, CAAP-14-0000870.

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In 2013, in the United States District Court for the District of Hawai‘i ("district court"), Hancock, individually and as trustee of the Hancock and Company, Inc. Profit Sharing Trust, sued KPL and the escrow company for the sale, Fidelity National Title & Escrow of Hawai‘i, Inc. ("Fidelity"). He alleged that, after he executed the deed, Fidelity fraudulently modified it to delete the Grinpases’ easement, then recorded the deed.

Hancock elaborated that, in August 2002, he reviewed two deeds at Fidelity’s Kapa‘a office: a warranty deed conveying the property from Hancock, individually, to Hancock as trustee, and a trustee’s deed conveying the property from Hancock as trustee to KPL ("Trustee Deed"). Hancock alleged that he "identified a limitation in the ‘Subject To’ section of the Trustee Deed in Paragraph 12 that made the conveyance subject to ‘Any rights of the parties in possession of a portion of, or all of, said land, which rights are not disclosed by the public record.’ " He alleged, "But for the existence of this in the ‘Subject To’ section," he "would not have executed the deed." Hancock went on to allege that Paragraph 16 of the Trustee Deed described an easement in the north corner of the property "at or near the location of the Grinpas Easement." Hancock further alleged that days later, the two deeds were transmitted from Fidelity to its attorney.

About a week later, on August 26, 2002, an internal memorandum between Fidelity’s "Loretta" and "Jeannette" advised, "WE NEED TO REPLACE THE SUBJECT TO PAGE ON BOTH OF THE DEEDS ... THE TOGETHER WITH PARAGRAPH (ON THE TOP) IS MISSING. I BELIEVE THAT YOU ALREADY HAVE THE DEED AND I HAVE IT SET UP FOR RECORDING ON WEDNESDAY." To Hancock, this internal memorandum reflected Fidelity’s "fraudulent[ ]" "intent to alter [Hancock’s] executed and notarized Deeds" to "remove the easement at paragraph 16 and paragraph 12 regarding unrecorded interests" "without the knowledge or consent of Mr. Hancock." According to Hancock, the altered trustee’s deed was recorded in the Bureau of Conveyances⁵ on August 28, 2002. Hancock alleged that "Fidelity is a fiduciary with a duty to disclose its own malfeasance." He also asserted that, as a result of "fraudulent concealment by Fidelity and KPL," he "did not learn of the forged deed until 2013." Relevant to the certified questions before this court, Count I of Hancock’s Complaint sought a declaration that the Trustee Deed was void as "an altered instrument and ... a forgery," and to have the order declaring the deed void recorded in the Bureau of Conveyances.

KPL then filed a motion to dismiss pursuant to Federal Rules of Civil Procedure ("FRCP") 12(b)(1) and (6), and Fidelity filed its own motion for judgment on the pleadings pursuant to FRCP Rule 12(c). Both KPL and Fidelity characterized Hancock’s Complaint as an end-run around the state court judgment against Hancock in the Grinpas case. Both argued that the allegedly modified deed was publicly recorded in the Bureau of Conveyances in 2002; therefore, Hancock had constructive notice of any fraudulent conduct at that time.⁶ Both KPL and Fidelity further argued that the applicable statute of limitations was the six-year statute of limitations found in HRS § 657-1, which began to run in 2002 upon recordation of the deed; therefore, Hancock’s federal complaint, filed over eleven years after the statute of limitations had begun to run, was time-barred.

In his opposition to KPL’s and Fidelity’s motions, Hancock appended as exhibits the 2002 Trustee’s Deed that Hancock said he signed, which included paragraphs 12 and 16, as well as the 2002 Trustee’s Deed that was actually recorded in the Bureau of Conveyances, which is missing paragraphs 12 and 16. He also appended as an exhibit the internal memorandum between two Fidelity employees

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referencing a missing provision in the deed.

In both of Hancock’s memoranda in opposition, he made the same points. First, as to the statute of limitations, Hancock argued that there is no statute of limitations on a claim that a forged deed is void. Hancock quoted the following passage from Palau v. Helemano Land Co., 22 Haw. 357, 361 (Haw. Terr. 1914), to support his position: "The complainant being out of possession is in position to, at any time, bring an action of ejectment and therein litigate the title to the land, including the question of the alleged forgery. A forged deed is void and passes no title."

Second, as to the argument that the recordation of the Trustee’s Deed provided Hancock with constructive notice of any...