Kahala Royal v. Goodsill Anderson Quinn

• Decision Date: 11 January 2007
• Docket Number: No. 26669.,No. 26670.,26669.,26670.
• Citation: 151 P.3d 732
• Parties: KAHALA ROYAL CORPORATION, Plaintiff-Appellant, v. GOODSILL ANDERSON QUINN & STIFEL, a Limited Liability Law Partnership, LLP; Jones, Day, Reavis & Pogue, a Foreign Law Partnership, and Alan E. Friedman, Defendants-Appellees; and John and Jane Does 1-20; Doe Business Entities 1-10; and Doe Governmental Entities 1-10, Defendants. Kahala Hotels Associates Limited Partnership, Plaintiff-Appellant, v. Goodsill Anderson Quinn & Stifel, a Limited Liability Law Partnership, LLP; Jones Day, a Foreign Law Partnership; Alan E. Friedman; Wolfgang Hultner; and John Witt, Defendants-Appellees, and John Does 1-20, Doe Business Entities 1-10; and Doe Governmental Entities 1-10, Defendants, and Kahala Royal Corporation, Party in Interest-Appellant.
• Court: Hawaii Supreme Court

151 P.3d 732

KAHALA ROYAL CORPORATION, Plaintiff-Appellant, v. GOODSILL ANDERSON QUINN & STIFEL, a Limited Liability Law Partnership, LLP; Jones, Day, Reavis & Pogue, a Foreign Law Partnership, and Alan E. Friedman, Defendants-Appellees; and John and Jane Does 1-20; Doe Business Entities 1-10; and Doe Governmental Entities 1-10, Defendants.

Kahala Hotels Associates Limited Partnership, Plaintiff-Appellant, v. Goodsill Anderson Quinn & Stifel, a Limited Liability Law Partnership, LLP; Jones Day, a Foreign Law Partnership; Alan E. Friedman; Wolfgang Hultner; and John Witt, Defendants-Appellees, and John Does 1-20, Doe Business Entities 1-10; and Doe Governmental Entities 1-10, Defendants, and Kahala Royal Corporation, Party in Interest-Appellant.

No. 26669.

No. 26670.

Supreme Court of Hawai`i.

January 11, 2007.

Matthew J. Viola, Honolulu, On the briefs, for plaintiff-appellant, Kahala Royal Corporation.

Susan M. Ichinose, Honolulu, On the briefs, for plaintiff-appellant, Kahala Hotels Associates Limited Partnership.

William A. Bordner and John Reyes-Burke, Honolulu, (of Burke McPheeters Bordner & Estes), On the briefs, for defendants-appellees, Jones Day and Alan E. Friedman.

John S. Nishimoto and Calvin E. Young, Honolulu, (of Ayabe Chong Nishimoto Sia & Nakamura), On the briefs, for defendant-appellee, Goodsill Anderson Quinn & Stifel.

A. Bernard Bays and Sharon E. Har, Honolulu, (of Bays, Deaver, Lung, Rose & Baba), On the briefs, for defendants-appellants, Wolfgang Hultner and John Witt.

MOON, C.J., LEVINSON, NAKAYAMA, and DUFFY, JJ., and Circuit Judge NISHIMURA, in place of ACOBA, J., Recused.

Opinion of the Court by MOON, C.J.

Inasmuch as appeal Nos. 26669 and 26670 present identical relevant facts and similar legal issues, we consolidated these appeals for purposes of disposition, pursuant to Hawai`i Rules of Appellate Procedure (HRAP) Rule 3(b) (2006).<sup>1</sup> Central to both appeals is the applicability of the defenses of litigation immunity, collateral estoppel, and waiver, as well as whether the defendants in both actions were entitled to an award of attorneys' fees, pursuant to Hawai`i Revised Statutes (HRS) § 607-14 (Supp.2005), quoted infra.

The parties to appeal No. 26669 are plaintiff-appellant Kahala Royal Corporation (KRC) and defendants-appellees Goodsill Anderson Quinn & Stifel (Goodsill), Jones Day, and Alan E. Friedman² [hereinafter, the KRC Appeal]. The parties to appeal No. 26670 are plaintiff-appellant Kahala Hotel Associates Limited Partnership (KHALP) and defendants-appellees Goodsill, Jones Day, Wolfgang Hultner, and John Witt [hereinafter, the KHALP Appeal]. KRC is purportedly a "party in interest" to the KHALP Appeal.

Briefly stated, KHALP is a partnership that owns the Kahala Mandarin Oriental Hotel (the Hotel). The two general partners of KHALP — KRC and non-party Mandarin Oriental Holdings (USA), Inc. (MOHUSA) — have a contentious relationship, in large part resulting from KRC's dissatisfaction with the performance of MOHUSA's affiliates that manage and operate the Hotel on a day-to-day basis. KRC eventually initiated an arbitration proceeding against MOHUSA, claiming that MOHUSA failed to properly oversee and control its affiliates. KRC also initiated two separate arbitration proceedings on behalf of KHALP against MOHUSA's affiliates, alleging that the affiliates mismanaged the Hotel. Subsequently, KRC sought MOHUSA's permission to inspect and review KHALP's books and records, which were in MOHUSA's possession as the administrative partner of KHALP, in order to prepare for the arbitration proceedings. MOHUSA, allegedly through Hultner and Witt, who are officers and/or directors of MOHUSA and/or its affiliates, then retained the law firms of Goodsill and Jones Day [hereinafter, collectively, the Lawyers] to purportedly represent its interests and those of its affiliates. The Lawyers thereafter undertook the management of the inspection and review process of KHALP's books and records. KRC, however, claimed that the inspection process frustrated its review, prompting KRC to modify its earlier arbitration demand against MOHUSA to allege that MOHUSA had breached its contractual, common law, and statutory duties to KRC and KHALP by, inter alia, improperly interfering with KRC's access to the books and records. KRC and KHALP thereafter separately initiated the instant actions against the Lawyers for their role in allegedly aiding MOHUSA in interfering with KRC's access to KHALP's books and records. KHALP also named Hultner and Witt as defendants for their alleged role in retaining the Lawyers.

In the KRC Appeal, KRC appeals from a final judgment of the Circuit Court of the First Circuit, the Honorable Dexter D. Del Rosario presiding, entered on June 3, 2004 in favor of the Lawyers. Final judgment was entered pursuant to an order granting the Lawyers' motion to dismiss or for summary judgment and a separate order granting attorneys' fees in favor of the Lawyers. On appeal, KRC challenges both orders, claiming that the circuit court erred in ruling that: (1) KRC was collaterally estopped from bringing its claims; (2) the Lawyers' conduct was privileged pursuant to litigation immunity; (3) KRC waived its right to assert its claims against the Lawyers; and (4) the Lawyers were entitled to fees pursuant to HRS § 607-14.

In the KHALP Appeal, KHALP appeals from a separate June 3, 2004 final judgment, also entered by Judge Del Rosario, challenging separate orders of the circuit court granting (1) the Lawyers' motion to dismiss or for summary judgment, (2) Hultner and Witt's motion to dismiss, and (3) attorneys' fees in favor of the Lawyers, Hultner, and Witt [hereinafter, the KHALP defendants] and costs in favor of Hultner and Witt only, inasmuch as the Lawyers did not request an award of costs. Specifically, KHALP contends that the circuit court erred in ruling, inter alia, that: (1) KHALP was not the real party in interest; (2) KHALP was collaterally estopped from bringing its claims; (3) the Lawyers' conduct was privileged pursuant to litigation immunity; (4) KHALP waived its right to assert its claims against the KHALP defendants; and (5) the KHALP defendants were entitled to fees pursuant to HRS § 607-14. KRC also appeals from the June 3, 2004 final judgment entered in the KHALP Appeal, challenging the award of fees in favor of the KHALP defendants inasmuch as the circuit court ruled that KRC, not KHALP, was liable for the fees and costs incurred by the KHALP defendants in the KHALP Appeal.³

For the reasons discussed below, we affirm in part and reverse in part the June 3, 2004 final judgments entered in appeal Nos. 26669 and 26670.

I. BACKGROUND

A. Factual Background

1. The Partnership, the Partners, and MOHUSA's Affiliates

As previously stated, KHALP is a registered Hawai`i limited partnership that owns the Hotel. Pursuant to an "Amended and Restated Limited Partnership Agreement," dated February 1, 1995 [hereinafter, the Partnership Agreement], KRC and MOHUSA became the sole general partners of KHALP. The Partnership Agreement provides that KRC and MOHUSA each hold interests of both general and limited partners in KHALP. Specifically, KRC holds a sixty percent interest in KHALP, and MOHUSA holds the remaining forty percent interest.⁴ The Partnership Agreement also provides that MOHUSA is the "Administrative Partner" of KHALP. As the Administrative Partner, MOHUSA is responsible for "all normal day-to-day administrations of the affairs of [KHALP,]" including the maintenance of KHALP's books and records. KHALP's books and records were to be "open to inspection and examination by the [p]artners . . . at all reasonable times during normal business hours."

The Hotel is operated and managed on a day-to-day basis by MOHUSA's three affiliates, Mandarin Oriental Management (USA), Inc., Mandarin Oriental Overseas Management Limited, and Mandarin Oriental International Limited [hereinafter, collectively, the Mandarin Managers], pursuant to three hotel management agreements with KHALP, which were contemplated in the Partnership Agreement [hereinafter, the Management Agreements]. Although KRC is not actively involved in the operation and management of the Hotel, KRC has the power to "exercise" the "rights and privileges" of KHALP "under, pursuant to[,] or otherwise with respect to" the Management Agreements and KHALP's dealings with MOHUSA and its affiliates, i.e., the Mandarin Managers, under section 10.6.2 of the Partnership Agreement.⁵

2. The Financial Structure of KHALP and Initiation of the Three Arbitration Proceedings

As previously indicated, KRC holds a sixty percent interest in KHALP, and MOHUSA holds the remaining forty percent interest. Since the mid to late 1990s, the Hotel has produced annual net operating income ranging between $4 million and $7 million. However, at the same time, KHALP sustained operating losses, renovation cost overruns, and a first mortgage indebtedness with a principal balance of over $37 million. As such, the Hotel's "level of net operating income is insufficient to support the capital structure of [KHALP]." In addition, MOHUSA has a "put option" under the Partnership Agreement. Article XVI of the Partnership Agreement provides MOHUSA the one-time right to require KRC to purchase its equity interest in KHALP. The put option was to be exercised between January 1, 2005 and March 1, 2005. If the put option was exercised, MOHUSA was entitled to receive a minimum of $86 million for its equity interest.

KHALP's financial struggles and the possibility of MOHUSA exercising its put option appears to have caused the relationship between KRC and MOHUSA to become contentious. Moreover, KRC had become dissatisfied with the Mandarin Managers' operation and management of the Hotel. According to KRC, the Management Agreements provide for, inter alia, "substantial compensation for the Mandarin Managers regardless of the profitability of the Hotel[.]"...