Kemp v. State of Hawai`I Csea

• Citation: 141 P.3d 1014
• Decision Date: 21 August 2006
• Docket Number: No. 26084.,26084.
• Parties: Ann C. KEMP, Individually and as Next Friend for Lindsay Agnes Kemp, on Behalf of Herself and Others Similarly Situated, Plaintiff-Appellee/Cross-Appellant v. STATE OF HAWAI`I CHILD SUPPORT ENFORCEMENT AGENCY; State of Hawai`i, Defendants-Appellants/Cross-Appellees.
• Court: Supreme Court of Hawai'i

Page 1014

141 P.3d 1014

Ann C. KEMP, Individually and as Next Friend for Lindsay Agnes Kemp, on Behalf of Herself and Others Similarly Situated, Plaintiff-Appellee/Cross-Appellant v. STATE OF HAWAI`I CHILD SUPPORT ENFORCEMENT AGENCY; State of Hawai`i, Defendants-Appellants/Cross-Appellees.

No. 26084.

Supreme Court of Hawai`i.

August 21, 2006.

COPYRIGHT MATERIAL OMITTED

Dorothy Sellers, Adina L. Cunningham, and Kimberly Tsumoto, Deputy Attorneys General, On the briefs, for Defendants-Appellants/Cross-Appellees.

Francis T. O'Brien, and Christopher D. Ferrara, Honolulu, on the briefs, for Plaintiffs-Appellees/Cross-Appellants.

MOON, C.J., LEVINSON, NAKAYAMA, ACOBA, and DUFFY, JJ.

Opinion of the Court by ACOBA, J.

Defendants-Appellants/Cross-Appellees State of Hawai`i Child Support Enforcement Agency and State of Hawai`i (CSEA or collectively, CSEA as the case may be) appeal from the Final Judgment of the circuit court of the first circuit¹ (the court), filed July 16, 2003, determining that (1) the CSEA has a fiduciary duty to disburse child support payments subject to Hawai`i Revised Statutes (HRS) § 571-52.2(e) (Supp.2005)² within two days of receiving notification that a negotiable instrument has cleared or within two days of receiving a cash payment; (2) the CSEA breached its fiduciary duty to obligees whose child support payments were held in the "uncashed check" or "bad address" accounts; (3) the named Plaintiff, Ann C. Kemp (Kemp), was an adequate representative of the class; (4) a common fund was created for the purposes of paying the attorneys' fees and costs of Kemp, Individually and as Next Friend for Lindsay Agnes Kemp, on Behalf of Herself and Others Similarly Situated [collectively, Plaintiffs]; and (5) attorneys' fees and costs be awarded to Plaintiffs. We hold that, (a) as to items (1) to (4), the obligees included in the "uncashed check" and "bad address" categories were not adequately represented by Kemp, therefore, any judgment regarding their claims against the CSEA was incorrect; and (b) as to item (5), because Plaintiffs are not the prevailing party, the award of attorneys' fees and costs was also incorrect. Accordingly, we vacate the court's Final Judgment in part to the extent that it determined that (1) the CSEA breached its fiduciary duty to obligees in the "uncashed check" and "bad address" categories; (2) Kemp was an adequate representative of the Class; and (3) Plaintiffs were entitled to attorneys' fees and costs, and remand with instructions to dismiss as to those matters.³

Plaintiffs cross-appeal from the Final Judgment challenging the findings contained in the Summary Judgment Order, filed July 14, 2000, that (1) Plaintiffs had no cognizable property interest in any interest earned on delinquent child support disbursements and (2) as such, Plaintiffs were not entitled to an accounting of any interest earned on delinquent disbursements. Plaintiffs also challenge the court's conclusion in the Final Judgment that the CSEA does not have implied contractual duties to obligees. We hold that (1) the court did not err in granting CSEA summary judgment on the grounds that Plaintiffs do not have a property right on accrued interest for child support disbursements made outside the statutory two-day period, (2) Plaintiffs are not entitled to an accounting of the accrued interest, and (3) the CSEA does not have implied contractual duties to obligees. Accordingly, we affirm those parts of the Summary Judgment Order and Final Judgment from which the Plaintiffs cross-appeal.

I.

A.

A brief history of the development and purpose of the CSEA is useful. In 1975, Congress created a federal-state cooperative program of child support enforcement under Title IV-D of the Social Security Act. The Auditor, State of Hawai`i, Follow Up Management Audit of the Child Support Enforcement Agency, A Report to the Governor and the Legislature of the State of Hawai`i, Rep. No. 00-06 at 1 (February 2000) [hereinafter, 2000 Audit]. The CSEA was established pursuant to HRS chapter 576D and was originally placed under the administration of the Department of Social Services and Housing (now Department of Human Services). Id. In July 1987, the CSEA was made a division of the Attorney General's Office. Id. The CSEA is charged with enforcing child support orders.⁴ The CSEA collects payments from non-custodial parents and disburses the collected amounts to state and federal government agencies and to custodial parents. The program has two primary purposes: (1) to recover public assistance benefits paid by the government for dependent children from non-custodial parents; and (2) to help custodial parents who are not receiving public assistance remain self-sufficient by assisting them in the collection of child support. Id. at 2.

The CSEA must receive and disburse child support payments when required to do so by a child support order. Id. The agency locates and contacts non-custodial parents who fail to comply with child support orders. Id. If necessary, the agency uses statutory powers to enforce compliance, including submission to genetic testing to establish paternity, seizure of income tax returns, forfeiture of property, denial of passports, suspension of licenses, and freezing of financial assets. Id.

B.

Pursuant to 42 U.S.C. § 652 (2000)⁵ the federal government monitors the CSEA for "substantial compliance" with the statutes and regulations governing the disbursement of child support payments, meaning that 75%⁶ of payments be made within the various time frames established under 45 C.F.R. § 302.32 (2004).⁷

On March 30, 1999, Michael Meaney (Meaney), then administrator of the CSEA, filed a report with the federal government stating that the CSEA was in "substantial compliance" for the period of July 1, 1998 through December 31, 1998. A preliminary report for the first quarter of 1999 indicated that the CSEA distributed 91.4%⁸ of payments within the time limits prescribed by law, well above the federal government's substantial compliance standard.

In recent years, there have been many complaints about CSEA, primarily concerning alleged shortcomings in processing child support payments and poor agency response to clients' problems. Margery Bronster, then-Attorney General, and Meaney testified before the State Senate Ways and Means Committee that the CSEA's voice response unit averaged 2,500 calls per day since July 1998, when the agency's new automated system was implemented. One thousand callers per day were served by the automated system, but the remaining 1,500 requested to speak to a live operator. The CSEA estimated that the average call required 15 minutes to complete. The volume of calls overwhelmed the CSEA staff. The apparent lack of customer service was compounded by the fact that the ratio of cases to caseworker in Hawai`i was 1,000 cases per caseworker, although industry standards dictate that a ratio of 500 cases per caseworker is unacceptably high.

Alton Kagawa (Kagawa), the chief accountant of the CSEA from September 1986 to September 1998, explained that the KEIKI system was designed to meet requirements for the timely and accurate processing of payments and disbursements. It was a significant change from the previous system, KFRI, which was designed primarily for bookkeeping in 1984, but was used for additional purposes as well. With KEIKI, the CSEA had a fully automated system that integrated financial, enforcement, paternity and order establishment, and modification services.

Agency officials asserted that the rush to complete the KEIKI system may have had unanticipated outcomes, resulting in an overwhelming need for assistance among agency clients. The 2000 Audit noted that, in Report No. 98-12, Audit of the Implementation of the Child Support Enforcement Agency's Information System, the Auditor "found fault with the overly ambitious initial scope of the information system project, inadequate technical resources assigned to the project, and . . . [recommended] completing a support and maintenance plan." 2000 Audit at 8.

In 1999, the Office of the Auditor of the State of Hawai`i (the Auditor) conducted a follow up management audit of the agency.⁹ In the 2000 Audit, the Auditor noted that

the agency has failed to address longstanding weaknesses in its financial management and has not implemented recommendations of previous audits pertaining to financial management. Bank accounts are not reconciled and accurately reported and accounting for interest earnings is improper. . . . The deficiencies include (a) inadequate data cleanup, training, and maintenance for the agency's automated systems; (b) weak personnel management, including failure to implement an agency reorganization; and (c) the inability to respond effectively to the needs of its clients (custodial and noncustodial parents).

Id. at 11. The Auditor further found that "`Bad data' — erroneous information stored in agency computer records—lead to such problems as KEIKI . . . generating duplicate records or erroneously initiating or suspending activities, contributing to client frustration and complaints." Id. In addition to these problems, the Auditor discovered that "[t]he agency may have improperly used interest earnings for purposes not authorized by law and has commingled state and federal funds in violation of legislative intent and accounting principles." Id. at 15.

The financial management of CSEA has improved significantly since the publication of the 2000 Audit. Many of the recommendations of the Auditor, such as monthly bank reconciliations, have been adopted. Also, CSEA hired a Certified Public Accountant, Sherry Wang (Wang), as its Chief Financial Officer, which the Auditor had been recommending since 1992. Id. at 8.

II.

A.

On May 19, 1998, in FC-D No. 98-1524, Kemp was divorced from her husband. Under the divorce decree, Kemp was awarded custody of their minor child. As reflected on the May 19, 1998 Order of...