Hanalei Garden Farms, Inc. v. Pace, No. 26945 (Hawaii 5/30/2008)
| Decision Date | 30 May 2008 |
| Docket Number | No. 26945,26945 |
| Parties | HANALEI GARDEN FARMS, INC., Plaintiff-Appellee/Cross-Appellant, v. TOM PACE aka THOMAS W. PACE, Defendant-Appellant/Cross-Appellee, and CARDINAL INVESTMENT COMPANY, a Florida corporation, Defendant. |
| Court | Hawaii Supreme Court |
APPEAL FROM THE FIFTH CIRCUIT COURT, (CIV. NO. 00-01-0034).
Philip J. Leas, W. Keoni Shultz, and Jerry C. Ling, of Cades Schutte LLP, for Plaintiff-Appellee, Cross-Appellant.
Hanalei Garden Farms, Inc., Daniel G. Hempey and Elif Z. Yarnall, for Defendant-Appellant, Cross-Appellee, Thomas W. Pac.
Defendant-Appellant/Cross-Appellee Thomas W. Pace ("Defendant") appeals and Plaintiff-Appellee/Cross-Appellant Hanalei Garden Farms, Inc. ("Plaintiff") cross-appeals from the fifth circuit court's1 October 13, 2004 judgment in favor of Plaintiff for the recovery of $119,923.24.
The underlying dispute in this case involves Defendant's breach of a contract in which Defendant agreed to purchase buffalo from Plaintiff. The parties also dispute the amount Defendant orally agreed to pay Plaintiff for three generators. Plaintiff filed a complaint against Defendant alleging damages of $160,000 (including $15,000 for the generators). Defendant did not file an answer, and the circuit court subsequently entered a default and then a default judgment against him. Defendant moved to set aside the default judgment, and the circuit court granted this motion subject to his paying Plaintiff's expenses incurred in opposing his motion.
Defendant argued defenses and in his counterclaim that the parties orally modified the contract and that he owed a balance of $105,000, asserting a breach of warranty claim against Plaintiff. Following a four-day jury trial, Defendant was found liable Plaintiff for $105,000 The circuit court also granted in part and denied in part Plaintiff's motion for prejudgment interest and granted Defendant's motion for costs under Hawaii Rules of Civil Procedure ("HRCP") Rule 68.2 The circuit court denied Plaintiff and Defendant's motions for attorneys' fees reasoning that both were prevailing parties, and it denied Defendant's motion to sanction Plaintiff.
On appeal, Defendant argues that: (1) the circuit court erred by conditioning the order to set aside the November 2000 default judgment on Defendant paying Plaintiff's attorneys' fees and costs incurred in opposing his motion to set aside the November 2000 default judgment; (2) the circuit court abused its discretion when it failed to award him attorneys' fees when the jury agreed with him that he owed Plaintiff $105,000, rendering him the prevailing party; (3) the circuit court abused its discretion by awarding Plaintiff prejudgment interest under Hawaii Revised Statutes ("HRS") § 636-163 where the jury did not find that Defendant breached the contract; and (4) the circuit court abused its discretion by denying his motion to sanction Plaintiff under HRS § 607-14.54 and HRCP Rule 115 inasmuch as Plaintiff engaged in frivolous litigation practices.
On cross-appeal, Plaintiff argues that: (1) the circuit court abused its discretion by setting aside the November 2000 default judgment inasmuch as (a) Defendant did not meet the three requirements set out in BDM, Inc. v. Sageco, Inc., 57 Haw. 73, 549 P.2d 1147 (1976), and (b) Defendant's motion to set aside the November 2000 default judgment was untimely; (2) Defendant waived the affirmative defense of contract modification when he did not raise this defense in his answer and the circuit court erred by (a) permitting him to present evidence in support of this defense and (b) instructing the jury on contract modification; (3) the circuit court abused its discretion by denying its motion for attorneys' fees where it (a) was awarded a final judgment of $119,923.24 and (b) prevailed on Defendant's counterclaim for breach of warranties; (4) the circuit court abused its discretion by refusing to award it costs under HRCP Rule 54(d);6 (5) the circuit court abused its discretion by awarding Defendant costs from the date of his HRCP Rule 68 offer of judgment because Plaintiff's final award was greater than Defendant's offer; and (6) the circuit court abused its discretion by limiting the prejudgment award against Defendant from the date the complaint was filed to the order setting aside the November 2000 default judgment where HRS § 636-16 does not permit stopping the prejudgment interest prior to the date of the final judgment.
Based upon the following analysis, we vacate the final judgment and (1) remand the circuit court's order setting aside the November 2000 default judgment with instructions to tailor the award of attorneys' fees to Defendant's sanctionable conduct, (2) remand for entry of a new judgment awarding Defendant reasonable attorneys' fees, and (3) reverse the circuit court's order granting Defendant costs under HRCP Rule 68.
I. BACKGROUND
On May 23, 1998, Plaintiff, through its president William Mowry ("Mowry"), and Defendant entered into a written contract for Plaintiff to sell Defendant buffalo. Defendant agreed to purchase at least $96,000 worth of buffalo that were priced according to sex and age. The contract also provided that any modification of the contract must be in writing and signed by each party. Defendant paid Plaintiff $96,000 prior to receiving any buffalo.
The parties also orally agreed that Defendant would purchase three used generators from Plaintiff. According to Defendant, he agreed to pay $1,500 for the three generators, but Plaintiff later sent him an invoice for $15,000.
Plaintiff shipped Defendant buffalo in August 1999 and February 2000. According to Defendant, because the August 1999 shipment did not include $96,000 worth of buffalo, the parties orally modified the contract. Defendant testified, Mowry also testified that Defendant had a credit for more buffalo after the first shipment.
On February 1, 2000, Plaintiff delivered sixty buffalo to Defendant. Defendant believed this was a result of Mowry's promise to "make it up to him" after the insufficient first delivery. However, that night, when Defendant visited Mowry's house expecting a celebratory dinner, Mowry alleged that Defendant received more buffalo (including more valuable pregnant buffalo) than he had paid for. The parties renegotiated the price of the buffalo that evening and orally agreed that Defendant would pay Plaintiff $140,000 (in four payments of $35,000, due every two weeks). Defendant made the first $35,000 payment that night, owing Plaintiff a balance of $105,000.
Over the next few weeks, Defendant sent Mowry several faxes about the oral agreement, offering to pay Plaintiff the balance of $105,000 if he received a receipt. However, Mowry claimed that Defendant owed about $163,000 for the buffalo and three generators — relying on the written contract prices per buffalo and raising the price for allegedly pregnant buffalo. Defendant did not make any further payments to Plaintiff for the buffalo and generators.
On February 22, 2000, Plaintiff filed a complaint against Defendant, alleging that Defendant breached the May 1998 contract and the oral agreement to purchase three generators. Plaintiff sought $147,500, plus prejudgment interest, costs, and attorneys' fees.
Sheriff Edwin O. Akana, Jr. ("Sheriff Akana" attempted to serve Defendant at Hokukano Ranch on July 27, 2000. Although Sheriff Akana believed that he actually served Defendant and represented that he served the complaint personally on Defendant in his return and acknoledgment of service form,7 he noted that the person he served claimed to be Defendant's brother.
Defendant did not answer the complaint, and on August 21, 2000, the clerk of the fifth circuit court filed an entry of default ("August 2000 default"). Plaintiff mailed a copy of the entry of default to Defendant addressed to his Hokukano Ranch post office address on August 22, 2000.
On August 29, 2000, Defendant, pro se, filed a motion to set aside the August 2000 default, arguing that he had not been properly served by Plaintiff. Defendant's brother, William Pace ("Defendant's brother"), denied Sheriff Akana's version of July 27, 2000. Defendant's brother declared in his affidavit that on July 27, 2000, he informed Sheriff Akana that Defendant was not in Hawai`i. However,
[t]he Sheriff told us that we could take the papers or they would leave them on the fence post and that it didn't mean the papers were served to [Defendant] either way. The Sheriff asked me how he could get in touch with [Defendant], I told him [Defendant] was in Arizona, on the Havasupai Indian Reservation. . . . I apologized for not being able to help him and that I could not receive the papers because they were not for me. He advised me to just leave them on the fence post, and I did.
On October 12, 2000, Plaintiff filed an amended return and acknowledgment of service form, supported with an affidavit by Sheriff Akana that declared he served Defendant via substitute service through Defendant's brother.8 On October 13, 2000, the circuit court denied Defendant's motion to set aside the August 2000 default on procedural grounds.
On September 18, 2000, Plaintiff moved for default judgment against Defendant under HRCP Rule 55(b) (2).9 Following a hearing (in which Defendant was represented by counsel), the circuit court granted the motion on November 8, 2000 ("November 2000 default judgment").10
On November 30, 2000, Defendant...
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