Demarco v. Maui Beach Resort Ltd. P'ship

• Decision Date: 10 November 2016
• Docket Number: NOS. CAAP–15–0000907,CAAP–15–0000588,S. CAAP–15–0000907
• Citation: 139 Hawai'i 264,388 P.3d 52 (Table)
• Court: Hawaii Court of Appeals
• Parties: Jaimes Demarco and Cheryl Demarco, Plaintiffs–Appellants, v. Maui Beach Resort Limited Partnership, a Delaware limited partnership; Northwest Maui Corporation, a Delaware corporation; Fidelity National Title & Escrow of Hawaii, a Hawai‘i corporation; Title Guaranty Escrow Services, Inc., a Hawai‘i corporation, Defendants–Appellees, and DOES 1–10, inclusive, Defendants

139 Hawai'i 264

388 P.3d 52 (Table)

Jaimes Demarco and Cheryl Demarco, Plaintiffs–Appellants,

v. Maui Beach Resort Limited Partnership, a Delaware limited partnership; Northwest Maui Corporation, a Delaware corporation; Fidelity National Title & Escrow of Hawaii, a Hawai‘i corporation; Title Guaranty Escrow Services, Inc., a Hawai‘i corporation, Defendants–Appellees,andDOES 1–10, inclusive, Defendants

NOS. CAAP–15–0000907

CAAP–15–0000588

Intermediate Court of Appeals of Hawai'i.

DATED: Honolulu, Hawai‘i, November 10, 2016.

On the briefs:

Philip R. Brown, Honolulu, Effie Steiger, (Law Offices of Philip R. Brown), for Plaintiffs–Appellants.

William C. McCorriston, Lisa W. Cataldo, Jessica M. Wan, (McCorriston Miller Mukai MacKinnon), Honolulu, for Defendants–Appellees.

(By: Foley, Presiding J., and Fujise, J. with Reifurth, J. concurring separately)

MEMORANDUM OPINION

Plaintiffs–Appellants James DeMarco (Mr. DeMarco ) and Cheryl DeMarco (together, the DeMarcos ) appeal from the (1) "Order Granting Defendants Maui Beach Resort Limited Partnership and Northwest Maui Corporation's Motion to Amend to Clarify and Correct the Findings of Fact, Conclusions of Law, and Order, Filed April 21, 2015" entered on July 27, 2015; (2) "Order Granting in Part and Denying in Part Defendants Maui Beach Resort Limited Partnership and Northwest Maui Corporation's Motion for Attorneys' Fees and Costs, Filed August 20, 2015" entered on November 3, 2015; and (3) "Amended Final Judgment" entered on November 3, 2015 in the Circuit Court of the First Circuit¹ (circuit court ).

On appeal, the DeMarcos contend the circuit court erred in (1) granting the motion to amend filed by Defendants–Appellees Maui Beach Resort Limited Partnership (Maui Beach Resort ) and Northwest Maui Corporation (NW Maui Corp. ) (together, Appellees ) and modifying its Findings of Fact (FOF ) and Conclusions of Law (COL ) relating to Appellees' actual damages; (2) modifying its FOF/COL by deleting references to testimony from Appellees' witness Shannon Smith (Smith ); (3) concluding that the DeMarcos were not consumers within the meaning of Hawaii Revised Statutes (HRS ) 480–2 (2008 Repl.); (4) finding that "the existence of a sewage treatment plant was disclosed through numerous reports"; and (5) determining that the increased construction loan and the mechanic's lien application were not "material changes."²

I. BACKGROUND³

In 2005, after the sale of Mr. DeMarco's interest in a company he founded, the DeMarcos' liquid assets totaled approximately $ 3.7 million. Between 2005 and 2009, the DeMarcos entered into sales contracts, and, in some instances, closed on sales agreements to purchase at least sixteen properties located in Utah, California, and Hawai‘i. Together, the properties were worth an estimated $ 10.5 million, and the DeMarcos deposited an estimated $ 2.5 million for the properties.

Maui Beach Resort was one of the developers of a condominium resort project at Ka‘anapali Beach on the island of Maui. NW Maui Corp. was the general partner of Maui Beach Resort.

On December 14, 2005, the DeMarcos signed a sales contract with Appellees and their sales team, Playground Destination Properties, Inc. (Playground ) for the purchase of a two-bedroom, two-bath condominium to be built as part the Hokulani Enclave portion of the Honua Kai development (Hokulani Sales Contract ). The DeMarcos agreed to a purchase price of $ 985,000 with an initial deposit of $ 98,500 and a second deposit of $ 98,500 due June 30, 2006. The Hokulani Sales Contract read, in pertinent part:

ACKNOWLEDGMENT OF RECEIPT, OPPORTUNITY TO REVIEW, AND ACCEPTANCE OF PROJECT DOCUMENTS

THE FOLLOWING DOCUMENTS THAT ARE REFERRED TO IN THIS SALES CONTRACT FORM AN ESSENTIAL PART OF THIS SALES CONTRACT. PURCHASER ACKNOWLEDGES THAT PURCHASER HAS RECEIVED COPIES OF EACH OF THE FOLLOWING DOCUMENTS AND THAT PURCHASER HAS HAD A FULL AND COMPLETE OPPORTUNITY TO READ, REVIEW AND EXAMINE EACH OF THE FOLLOWING DOCUMENTS:

1. the form of Sales Contract

2. the State of Hawaii Condominium Public Report(s)

3. the HUD Property Report

4. the Declaration of Condominium Property Regime of Honua Kai

5. the Bylaws of the Honua Kai Condominium Association

6. the form of Honua Kai Condominium Unit Deed with Reservations and Covenants

7. the Escrow Agreement

8. the Master Association Documents

9. the Articles of Incorporation of the Honua Kai Condominium Association

10. the Condominium Map

....

D.35 Material Changes in the Project. If, prior to Closing, Purchaser, within thirty (30) days from the delivery by Seller of a copy of the Disclosure Documents containing a provision for Purchaser's written approval or acceptance, either personally or by registered or certified mail with return receipt requested, shall fail to execute and return to Seller the Disclosure Document with Purchaser's written approval or acceptance of any Material Change in the Project which Purchaser may do so without penalty, Seller may at its option either: (i) terminate this Sales Contract, and upon such termination, Seller shall cause Escrow to refund to Purchaser all Deposits previously made to Purchaser, without interest, or (ii) if Purchaser does not execute and return the Disclosure Document within thirty (30) days from the date of delivery of such document, Seller may deem Purchaser to have received such Disclosure Document and deem Purchaser to have waived Purchaser's right to cancel and to have approved and accepted such Material Change, all as provided in Section 514A–63, Hawaii Revised Statutes, provided that such receipt shall be effective only if at the time of the delivery of such Disclosure Document Purchaser is notified in writing of the fact that the Purchaser will be deemed to have approved and accepted the Material Change upon his or her failure to act within the thirty (30) day period.

....

D.52. Independent Investigation. Purchaser acknowledges and agrees that it must independently investigate the use and character of all property adjacent to the Project and may not rely on any statements of any sales agent or any broker or any brochures or displays in the sales office about the use or character of any property other than the Condominium Unit.

(Emphasis and ellipses omitted.) Under the terms of the sales contract, "material change" was defined as:

a change in the Project which (1) directly, substantially and adversely affects the use or value of the Condominium Unit or the Limited Common Elements appurtenant thereto or the amenities of the Project available for Purchaser's use, and (2) is not made pursuant to a right reserved to Seller under the Declaration.

The Condominium Public Report, referred to in the Hokulani Sales Contract, reserved to the developer the right to build the Honua Kai project in phases. Exhibit C, attached to the Condominium Public Report, read in relevant part:

(G) As set forth in Section 8.07 (Reserved Right to Construct the Condominium in Phases) of the Declaration, Developer reserves the right to construct the Project in two or more phases. For further information, please refer to Exhibit D of this Contingent Final Public Report.

The Condominium Public Report also informed purchasers of blanket liens, and read:

[The] land underlying the Project is presently subject to one mortgage and a financing statement made by the Developer and ... the Developer intends to record a construction loan during the construction of the apartments being offered for sale under this Public Report. Such construction loan shall be in an amount not to exceed $ 185 million. Moreover, if the Developer Defaults or Lien is Foreclosed Prior to Conveyance the purchaser will be entitled to a refund of the deposits held in escrow.

(Brackets and ellipsis in original omitted.)

Maui Beach Resort provided prospective purchasers with a Property Report, dated November 29, 2005, which included a section entitled "Nuisances," and informed prospective purchasers:

Hokulani and the Project as a whole, have been, and/or may continue to be, affected periodically by noise, dust, smoke, soot, ash, odor, noxious vapors, transmission of surface water runoff, or other adverse environmental conditions and nuisances, including but not limited to those attributable to wind drift and other weather factors attributable to (g) irrigation of any and all surrounding lands with reclaimed water, treated effluent, or other non-potable water sources.

(Ellipsis omitted.) The Property Report also noted:

[The] property on which Hokulani will be located is subject to a blanket lien in favor of Wachovia Bank and Wells Fargo Bank. N.A. (the ‘Existing Mortgage’) encumbers, in part, all Units in Hokulani and contains specific release provisions which will be exercised by the Developer in connection with its construction financing for Hokulani and if Developer default[s] on the Existing Mortgage prior to obtaining a release, you may not be able to complete your purchase of the Unit and you may lose any money you have paid for it.

(Ellipses and brackets omitted.)

The DeMarcos visited the Honua Kai development project in August 2006. During their visit, the DeMarcos conducted an independent investigation of the properties adjacent to the Honua Kai development on the west, north, and south, but not to the east, where a sewage treatment plant was located.

Around August 31, 2006, the DeMarcos received a "Honua Kai Condominium Final Public Report Disclosure Statement" dated July 28, 2006, which, like other documents received by the DeMarcos, reiterated the developer's right to develop the Honua Kai project in phases.

On December 13, 2006, the DeMarcos entered into two additional sales contracts for Honua Kai condominium units in the Konea Enclave of the development (Konea Sales Contracts ). The DeMarcos contracted to pay $ 665,000 for one unit, depositing $ 133,000, and contracted to pay $ 835,000 for the second unit, depositing $ 167,000. The Hokulani Sales Contract and Konea Sales Contracts were virtually identical, but the...