Ass'n of Apartment Owners of Royal Aloha v. Certified Mgmt., Inc.

• Decision Date: 08 December 2016
• Docket Number: SCWC-15-0000445
• Citation: 386 P.3d 866,139 Hawai'i 229
• Court: Hawaii Supreme Court
• Parties: Association of Apartment Owners of Royal Aloha, a Hawai‘i nonprofit corporation, Respondent/Plaintiff-Appellant, v. Certified Management, Inc., a Hawai‘i corporation; Chaney Brooks & Company, LLC, a Hawai‘i corporation; Michael David Bruser, an individual; Tokyo Joe's, Inc., a Hawai‘i corporation; Michael T. McCormack, individually and as Trustee under that certain unrecorded Michael T. McCormack Revocable Living Trust Agreement dated November 12, 1991; and Michael T. McCormack and Signa S. McCormack, as Co-Trustees of The McCormack Ranch Trust dated January 6, 2005, Petitioners/Defendants-Appellees.

139 Hawai'i 229

386 P.3d 866

Association of Apartment Owners of Royal Aloha, a Hawai‘i nonprofit corporation, Respondent/Plaintiff-Appellant,

v.Certified Management, Inc., a Hawai‘i corporation; Chaney Brooks & Company, LLC, a Hawai‘i corporation; Michael David Bruser, an individual; Tokyo Joe's, Inc., a Hawai‘i corporation; Michael T. McCormack, individually and as Trustee under that certain unrecorded Michael T. McCormack Revocable Living Trust Agreement dated November 12, 1991; and Michael T. McCormack and Signa S. McCormack, as Co-Trustees of The McCormack Ranch Trust dated January 6, 2005, Petitioners/Defendants-Appellees.

SCWC-15-0000445

Supreme Court of Hawai'i.

DECEMBER 8, 2016

As Amended December 21, 2016

John D. Zalewski and Mark G. Valencia, Honolulu, for Petitioner/Defendant-Appellee Certified Management, Inc.

Thomas J. Wong and James H.Q. Lee, Honolulu, for Petitioner/ Defendant-Appellee Chaney Brooks & Company, LLC.

Yuriko Jane Sugimura for Petitioners/Defendants-Appellees Michael David Bruser, Tokyo Joe's, Inc., Michael T. McCormack, and Signa S. McCormack.

Matt A. Tsukazaki, Honolulu, for Respondent/Plaintiff-Appellant

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

OPINION OF THE COURT BY McKENNA, J.

I. Introduction

This case arises out of a dispute between the Association of Apartment Owners of Royal Aloha ("AOAO"); its former property managers, Certified Management, Inc. ("CMI") and Chaney Brooks & Co. ("Chaney Brooks"); and its former commercial tenants, Michael D. Bruser, Tokyo Joe's, Inc. ("TJI"), and Michael and Signa McCormack. As the facts in this case are not disputed, they are taken from the Circuit Court of the First Circuit's ("circuit court") background section in its "Amended Conclusions of Law, and Order Granting Defendant Certified Management's Motion for Summary Judgment, Filed 8/5/14 and Order Granting Joinder by: Defendant Chaney Brooks & Company, LLC to Defendant Certified Management, Inc.'s Motion for Summary Judgment, Filed 8/12/14."

The Royal Aloha condominium is a mixed-use residential and commercial project located in Waikiki. It employed Chaney Brooks as its managing agent from 1995 to 2002, and CMI as its managing agent from 2003-2010. Bruser and TJI were the owners of commercial unit C-1. The McCormacks were the owners of commercial unit C-2. The AOAO installed an electricity submetering system in 1998 and hired electrical engineers to read each unit's electricity submeter, then submit the readings to the managing agent, who would bill each owner for electricity.

Between 1998 and 2010, the commercial tenants of C-1 were never billed for electricity, and the commercial tenants of C-2 were erroneously billed for a portion of C-1's electricity costs.

The AOAO sued CMI and Chaney Brooks for, inter alia, breach of contract, breach of fiduciary duty, and negligence, for the billing errors. The AOAO also sued the commercial tenants to recover hundreds of thousands of dollars in unbilled or erroneously billed electricity costs.

The circuit court granted the property management companies' motion for summary judgment based on the doctrine of laches. The circuit court also granted Bruser and TJI's (commercial tenants of C-1) motion for partial summary judgment, concluding that the commercial tenants had no obligation to indemnify the AOAO for electricity costs. The circuit court later amended its order granting the property management companies' MSJ so that all claims against all defendants were barred under the doctrine of laches.

The AOAO appealed. The ICA issued a published opinion holding that "the defense of laches, as a matter of law, applies only to equitable claims," reversing the grant of summary judgment in the defendants' favor. Ass'n of Apartment Owners of Royal Aloha v. Certified Mgmt., Inc., 138 Hawai'i 276, 283–84, 378 P.3d 992, 999–1000 (App. 2016) (footnote omitted).

Petitioners/Defendants-Appellees CMI, Chaney Brooks, Bruser, TJI, and the McCormacks (collectively, the Joint Defendants) present the following questions in their Joint Application for Writ of Certiorari¹ :

A. Whether the ICA gravely erred by holding, "We agree with the AOAO's contention that the defense of laches, as a matter of law, applies only to equitable claims"—a contention never raised by the AOAO in Circuit Court which Petitioners pointed out in their Answering Brief.

B. Whether the ICA gravely erred by condoning or failing to recognize that the AOAO had materially misstated the Record on Appeal by falsely stating that the AOAO in Circuit Court objected to "using laches to dismiss legal claims"—despite the fact that Petitioners pointed out this misrepresentation in their Answering Brief.

C. Whether Hawai‘i law, HRAP Rule 28, and the doctrine of waiver precluded the ICA from basing its Opinion on the AOAO's laches contention—which the AOAO failed to preserve, and did not involve a jurisdictional issue or plain error.

D. Whether Hawai‘i law, federal decisions, authority cited in the Opinion, and public policy are contrary to the ICA's holding that "the defense of laches, as a matter of law, applies only to equitable claims."

We accepted certiorari and now hold that laches is a defense at law and at equity, contrary to the ICA's holding that laches is a defense in equity only.

II. Background

A. Circuit Court Proceedings

1. Complaint and Answers

On April 13, 2012, the AOAO filed a Complaint against property managers CMI and Chaney Brooks, and commercial tenants Bruser, TJI, and the McCormacks due to the unbilled or erroneously billed electricity costs. The AOAO alleged the following against either or both of CMI and Chaney Brooks: breach of contract (Count I), breach of fiduciary duty (Count II), and negligence (Count III). The AOAO alleged the following claims only against CMI: negligent misrepresentation (Count IV) and breach of the covenant of good faith and fair dealing (Count V). The AOAO also included the following claims against the commercial tenants Bruser, TJI, and the McCormacks' trusts: indemnification (Count VI) and unjust enrichment (Count VII). Lastly, the AOAO raised claims for surety and guaranty obligations (Count VIII) and declaratory relief (Count IX) against Bruser, the McCormacks, and the McCormack trusts. The AOAO filed its First Amended Complaint three days later, raising the same claims.

Defendant Chaney Brooks filed its Answer, denying the allegations raised in Counts I and II in the Complaint, and raising the defense of laches. Defendant CMI also filed its Answer, denying the allegations raised in all of the counts of the Complaint, raising the defense of unclean hands, and giving notice that it would assert other defenses constituting affirmative defenses as set forth in Hawai‘i Rules of Civil Procedure Rule 8(c) as the matter progressed. The commercial tenants filed their Answer, denying the allegations raised in all of the counts of the Complaint, and raising the defense of laches.

2. Bruser and TJI's Motion for Partial Summary Judgment

Bruser and TJI filed a motion for partial summary judgment, arguing that the AOAO was obligated to bill them the electricity costs but never had; therefore, Bruser and TJI were not responsible for paying the unbilled electricity costs, and the AOAO could not seek indemnification from them under Section 6.02 of the Bylaws for the same. Chaney Brooks and CMI joined in the motion for partial summary judgment. The circuit court granted Bruser and TJI's motion for partial summary judgment. It also dismissed the rest of the claims against Bruser and TJI (i.e., restitution/unjust enrichment and quasi-surety and guaranty) on the grounds of estoppel and laches.

3. CMI's Motion for Summary Judgment

Around the same time that Bruser and TJI filed their second motion for partial summary judgment, CMI filed its motion for summary judgment, asking the circuit court to dismiss all claims against it based on the doctrine of laches. It argued that the AOAO knew of the incomplete and incorrect electricity billings around 2000-2002 and waited 10-12 years to bring its lawsuit. CMI argued that the AOAO's delay was unreasonable and resulted in severe prejudice to CMI, as "[c]ritical witnesses have died, critical facts cannot be recalled by those witnesses who have not passed away, and voluminous documents and records have been destroyed or purged."

CMI acknowledged that this court, in dictum, "cited case law concerning whether laches bar legal claims, independent of the statute of limitations." CMI was referring to Ass'n of Apartment Owners of Newtown Meadows v. Venture 15, Inc., 115 Hawai'i 232, 284, 167 P.3d 225, 227 (2007). CMI also cited to 27A Am. Jur. 2d Equity § 117 (2014) for the following: "While some states without separate law and equity courts nevertheless hold laches inapplicable to legal actions, laches increasingly is applied to actions at law, such as actions seeking only damages." CMI noted that law and equity have merged in Hawai‘i, as recognized in the Hawai‘i Rules of Civil Procedure (Rule 2 sets forth only "one form of action to be known as a ‘civil action.’ "). According to CMI, in other jurisdictions where law and equity have merged, the defense of laches is applicable to legal claims as well as equitable claims. Specifically, CMI cited Bill v. Bd. of Educ. of Cicero School Dist. 99, 351 Ill.App.3d 47, 285 Ill.Dec. 784, 812 N.E.2d 604, 613 (2004) ; Teamsters & Employers Welfare Trust of Ill. v. Gorman Bros. Ready Mix, 283 F.3d 877, 881 (7th Cir. 2002) ; Danjaq LLC v. Sony Corp., 263 F.3d 942, 955 (9th Cir. 2001) ; Telink, Inc. v. U.S., 24 F.3d 42, 45 (9th Cir. 1994) ; A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1029 (Fed. Cir. 1992).

Chaney Brooks joined in CMI's MSJ. The AOAO's memorandum in opposition counter-argued that the AOAO's delay in bringing suit was not unreasonable, and that CMI's unclean hands rendered its laches defense unavailable. The AOAO did not address CMI's contention that laches is a defense at law and...