85 Hawai'i 286, Pancakes of Hawaii, Inc. v. Pomare Properties Corp.

• Decision Date: 31 July 1997
• Docket Number: No. 19370,19370
• Citation: 944 P.2d 83,85 Hawaii 286
• Parties: 85 Hawai'i 286 PANCAKES OF HAWAII, INC., a Hawai'i corporation, dba Maui Original Pancakes & Steak House, Plaintiff/Counterclaim Defendant, v. POMARE PROPERTIES CORPORATION, a Hawai'i corporation, Defendant/Counterclaimant Cross-Claim Defendant-Appellant, Sofos Realty Corporation, a Hawai'i corporation, and Lee Carter, Defendants/Cross-Claim Plaintiffs-Appellees.
• Court: Hawaii Court of Appeals

Page 83

944 P.2d 83

85 Hawai'i 286

PANCAKES OF HAWAII, INC., a Hawai'i corporation, dba Maui

Original Pancakes & Steak House, Plaintiff/Counterclaim Defendant, v. POMARE PROPERTIES CORPORATION, a Hawai'i corporation, Defendant/Counterclaimant Cross-Claim Defendant-Appellant,

Sofos Realty Corporation, a Hawai'i corporation, and Lee

Carter, Defendants/Cross-Claim Plaintiffs-Appellees.

No. 19370.

Intermediate Court of Appeals of Hawai'i.

July 31, 1997.

Jerry M. Hiatt, Carl H. Osaki, and Mahilani E. Kellett (Bays, Deaver, Hiatt, Lung & Rose, of counsel), on the brief, Honolulu, for defendant/counter-claimant/cross-claim defendant-appellant.

William S. Miller, Margaret J. Leong and Richard H.S. Sing (Goodsill Anderson Quinn & Stifel, of counsel), on the brief, Honolulu, for defendant/cross-claim plaintiffs-appellees Sofos Realty Corporation and Lee Carter.

BURNS, C.J., and KIRIMITSU, J., and Circuit Judge MARKS in Place of WATANABE, J., Recused.

KIRIMITSU, Judge.

In this contractual indemnity and attorney's fees and costs case, Defendant/Counterclaimant/Cross-Claim Defendant-Appellant Pomare Properties Corporation, a Hawai'i corporation (Pomare Properties), appeals from the Second Circuit Court's October 31, 1995 judgment. The relevant portion of the judgment granted summary judgment on Pomare Properties' duty to defend in favor of Defendants/Cross-Claim Plaintiffs-Appellees Sofos Realty Corporation, a Hawai'i corporation, and Lee Carter (Carter) (collectively, Sofos), denied Pomare Properties' motion for reconsideration, and ordered Pomare Properties to pay one-half of Sofos' attorney's fees and costs. We hold that: (1) summary judgment was proper because (a) Pomare Properties had a duty to defend Sofos under a contractual defense and indemnity provision, and (b) Sofos has standing to pursue its cross-claim against Pomare Properties; (2) the trial court did not abuse its discretion when it denied Pomare Properties' motion for reconsideration when Pomare Properties failed to produce a fully executed settlement agreement to demonstrate that its duty to defend should be extinguished; and (3) the trial court did not abuse its discretion when it held Pomare Properties liable for $29,390.96 in attorney's fees and costs. Thus, we affirm that part of the October 31, 1995 judgment pertaining to Pomare Properties. ¹

I. BACKGROUND

This controversy revolves around the Lahaina Shopping Center in Lahaina, Maui. The center was designed and developed by the 3900 Corporation, which leased the center to James Romig (Romig). Romig subsequently hired Pomare Properties as the managing agent of the center. Pomare Properties in turn signed a management and leasing agreement (the management agreement) with Sofos to handle managing and leasing duties. (Carter was a real estate salesman working for Sofos.) Sofos, however, did not make any final decisions regarding the leases or their terms and did not sign the agreements as either landlord or agent. Pomare Properties made all final decisions and signed the shopping center leases.

In the spring of 1990, Sofos began actively recruiting potential tenants for the shopping center as a part of the leasing program. One of their targets was Pancakes of Hawaii, Inc. (Pancakes), which, at the time, owned and operated two profitable restaurants in Honolulu. Carter contacted Young Acopan, the president of Pancakes, and began discussions about Pancakes opening a third restaurant in the shopping center. According to Pancakes, Carter made glowing representations about the success of the leasing program and the potential for Pancakes to thrive in the new center. He allegedly told Pancakes that he was either in the process of signing up enough tenants that would soon make the center reach an eighty to eighty-five percent occupancy level, or that he expected the center to have an eighty to eighty-five percent occupancy level at some point in the future.

After three months of negotiations and after having its attorney review the proposed lease agreement, Pancakes entered into a lease agreement with Pomare Properties on June 27, 1990. Pancakes subsequently built a restaurant in the shopping center and opened its doors in September 1991. Unfortunately, the inability of the center to lease more than thirty-five percent of its space and the lack of foot traffic through the mall resulted in huge financial losses for Pancakes. Unable to sustain the losses, Pancakes closed its doors on December 7, 1991.

On December 31, 1991, Pancakes sued Romig, Pomare Properties, and Sofos. The suit alleged fraud, negligent misrepresentation, and breach of the covenant of good faith and fair dealing against all defendants, and professional negligence against Sofos. The complaint was amended on February 28, 1994. The first amended complaint added claims of intentional and/or negligent misrepresentation against all defendants and breach of contract against Romig and Pomare Properties.

On February 26, 1992, after Pancakes' initial complaint was filed, Sofos tendered the defense of the action to Pomare Properties based on a Responsibility Clause in the management agreement. ² When Pomare Properties rejected the contractual indemnity demand, Sofos filed a March 23, 1992 cross-claim against Pomare Properties seeking to compel Pomare Properties to honor the Responsibility Clause.

Three years later, Sofos filed a motion for summary judgment on its cross-claim. During the February 23, 1995 hearing on the motion, Sofos argued that it was seeking a declaration that Pomare Properties had a duty to defend Sofos, and that the duty to indemnify, if any, should be determined at the conclusion of litigation. As the following excerpt from the trial court's March 31, 1995 order explains, the trial court agreed and granted the motion in part, ordering Pomare Properties to defend Sofos in the Pancakes litigation, but deferring a decision on the payment of past attorney's fees and costs:

1. Pomare Properties has a duty, under its Commercial Property Management and Leasing Agreement with Sofos Realty Corporation dated February 28, 1990, to defend the Sofos Realty Defendants against all claims against the Sofos Realty Defendants in this lawsuit.

....

2. Pomare Properties shall assume the defense of the Sofos Realty Defendants in this lawsuit, effective February 23, 1995;

3. Pomare Properties shall be liable for one-half of all attorneys' fees and costs incurred by the Sofos Realty Defendants in this lawsuit on or after February 23, 1995.

IT IS FURTHER ORDERED THAT:

1. Pomare Properties and the Sofos Realty Defendants shall submit supplemental memoranda to the Court on the limited issue of whether Pomare Properties shall also be liable for one-half of the attorneys' fees and costs incurred by the Sofos Realty Defendants in this lawsuit before February 23, 1995;

2. Said supplemental memoranda shall be filed with the Court and served on other counsel on or before March 9, 1995;

3. The Court will render a separate decision regarding this issue at a later date.

On July 19, 1995, the court rendered its decision on the attorney's fees and costs issue. It determined that Pomare Properties was liable for one-half of reasonable attorney's fees and costs incurred by Sofos beginning on February 27, 1992, which was the day after Sofos tendered its defense to Pomare Properties. The court later concluded that Sofos incurred reasonable attorney's fees and costs of $58,781.92 and ordered Pomare Properties to pay one-half of that amount ($29,390.96).

In the meantime, Pancakes and Pomare Properties reached a settlement agreement that dismissed all claims except the fraud and misrepresentation claims against Sofos. On July 31, 1995, Pomare Properties filed a motion for reconsideration of the summary judgment order based on the settlement agreement. It argued that because the only remaining issues after the settlement agreement involved willful misconduct (fraud and failure to disclose), which were not covered by the Responsibility Clause, it no longer had a duty to defend Sofos. But Pomare Properties submitted an affidavit and two pages of the settlement agreement, rather than a complete copy of the fully executed agreement. After a September 25, 1995 hearing, the trial court denied the motion, reasoning that there were "too many [unanswered] questions" to extinguish Pomare Properties' duty to defend. The order denying the motion was entered on October 12, 1995.

On February 6, 1995, Sofos filed a motion for summary judgment on Pancakes' first amended complaint. In the motion and subsequent hearing, Sofos argued that all of the representations allegedly made by Carter about occupancy rates and the leasing program were all predictions or opinions about future events. Sofos additionally argued that any statements made by Carter were barred by an integration clause in the lease agreement between Pancakes and Pomare Properties. The trial court agreed and granted the motion on May 22, 1995. On October 31, 1995, the trial court filed its judgment disposing of the cross-claim summary judgment motion, the motion for reconsideration, the attorney's fees and costs issue, and Sofos' motion for summary judgment against Pancakes. ³ Pomare Properties filed a timely notice of appeal on November 2, 1995 and amended the notice of appeal on November 6, 1995.

II. DISCUSSION

Pomare Properties argues three points of error on appeal: (1) the trial court erred in granting summary judgment in favor of Sofos; (2) the trial court erred in denying the motion for reconsideration because it did not take into consideration the impact of the settlement agreement on Pomare Properties' indemnification obligation; and (3) the trial court erred when it determined that Sofos had reasonably incurred $58,781.92 in attorney's fees and costs. Each argument is addressed in order.

A. Summary Judgment

Pomare Properties makes five arguments to support its summary judgment point of...