Schefke v. Reliable Collection Agency, Ltd.

Decision Date21 September 2001
Docket NumberNo. 21827.,21827.
PartiesCharles F. SCHEFKE, Plaintiff-Appellee/Cross-Appellant, v. RELIABLE COLLECTION AGENCY, LTD., Pacific Medical Collections, Inc., Defendants-Appellants/Cross-Appellees, and Jonathan Kirschner, Fred Kirschner, Defendants-Cross-Appellees, and John Does 1-10, Defendants.
CourtHawaii Supreme Court

Norman K.K. Lau and Allison M. Fujita, on the briefs, for plaintiff-appellee/ cross-appellant.

Robert E. Chapman and Mary Martin (Stanton Clay Chapman Crumpton & Iwamura), on the briefs, for defendants-appellants/cross-appellees and defendants-cross-appellees.

John Ishihara, Chief Counsel, for Amicus Curiae Hawai`i Civil Rights Commission.


Opinion of the Court by ACOBA, J.

On the complaint of Plaintiff-Appellee/Cross-Appellant Charles F. Schefke (Plaintiff) against Defendants-Appellants/Cross-Appellees Reliable Collection Agency, Ltd. (Reliable) and Pacific Medical Collections, Inc. (Pacific) (collectively "Defendants") and Defendants-Cross-Appellees Jonathan Kirschner (Jonathan) and Fred Kirschner (Fred) for recovery of unpaid wages, compensation discrimination based on age, and retaliation for filing of a discrimination claim with the Hawai`i Civil Rights Commission (the HCRC), we affirm (1) the jury's award for unpaid wages, (2) the jury's award for a statutory penalty on the unpaid wages, (3) the jury's punitive damage award on Plaintiff's retaliation claim, (4) the denial by the first circuit court (the court)1 of Defendants' request for jury instructions on waiver and laches pertaining to the unpaid wage claim, and (5) the court's directed verdict in favor of Defendants on the compensation discrimination claim. However, we vacate and remand (1) the court's directed verdict in favor of Jonathan and Fred on Plaintiff's claim that they were individually liable on the retaliation claim and (2) the court's order on attorney's fees and costs. On Defendants' cross-claim for unpaid loans, we affirm the principal amount awarded, but reverse the jury's award of interest on the loans.


The following evidence was adduced at trial. Reliable and Pacific were separate Hawai`i corporations operating as collection agencies at the same principal place of business. Joe Leder, who had been a co-owner of Reliable since 1956, was the president of Reliable between 1979 and 1991, and was the president of Pacific between 1988 and 1994. Jonathan was a 20% owner of Reliable and its vice president until 1991 when he became the president. Fred, Jonathan's father, owned 80% of the stock of RECOA, a California corporation that owned 80% of Reliable.

Reliable hired Plaintiff, who was then fifty-six years old, on October 16, 1986. After Pacific was incorporated in March 1988, Plaintiff also started to work at Pacific. At Reliable and Pacific, collectors were assigned to certain "desks." Defendants assigned each desk a letter and a number to designate whether it belonged to Reliable or Pacific and to indicate the type of accounts handled by a desk. The letter "K" referred to Reliable and "J" referred to Pacific. For example, the J-2 desk was a Pacific desk assigned accounts over $3,500. The record does not indicate the significance of the assigned number.

Plaintiff explained that a "collection desk" is worked by a regular collector. A regular collector contacts debtors and attempts to collect money from them. If the attempts fail, the regular collector turns the accounts over to the "legal desk." The legal collector monitors the processing of these accounts through the court system, consults with attorneys, and attempts to resolve the matters before judgment. After judgment, the legal collector collects the debts through wage garnishment. Plaintiff worked on both collection and legal desks.

Plaintiff received loans from Pacific in the amounts of $1,500 and $2,700 in January and July 1992, respectively. Pacific did not charge any interest on the loans. Plaintiff did not repay the $4,200 in loans.

On October 23, 1992, Plaintiff, dissatisfied with his salary and commissions, filed complaints pursuant to Hawai`i Revised Statutes (HRS) § 368-11 (1993)2 with the HCRC3 against Defendants. Plaintiff was sixty-two years old at the time. In the HCRC complaints, Plaintiff alleged discrimination on the basis of unequal pay because of his age.

The HCRC sent letters4 to Plaintiff on December 2, 1992, stating that his discrimination cases would be closed because Plaintiff had elected court action, and that he had the right to file a private lawsuit.5 The HCRC sent copies of the letters to Reliable, Pacific, Jonathan, and Defendants' counsel.

On December 4, 1992, Defendants received from the HCRC a copy of Plaintiff's right-to-sue letter. A letter from Defendants' counsel, hand-delivered to Plaintiff, acknowledged receipt of the letter and requested notification of any desire on the part of Plaintiff to meet informally with Defendants' counsel. On December 4, 1992, Defendants also changed Reliable and Pacific's locks. Jonathan and Leder testified that the locks were changed because of a break-in of their offices and other offices in the same building in November 1992. Plaintiff did not receive new keys although he had had keys for five-and-a-half years. Only Jonathan and Leder received keys to the new locks.

On December 15, 1992, Plaintiff did not receive a Christmas bonus for the first time since his employment with Reliable and Pacific began.6 Fred testified that a few other employees had not received a bonus. Plaintiff related that at a December 16, 1992 meeting among Plaintiff, Jonathan, Fred, and Defendants' counsel to discuss Plaintiff's compensation discrimination complaint, Fred declared that he had told Jonathan not to give a Christmas bonus to Plaintiff because Plaintiff had "stabbed him in the back" by filing the discrimination complaint.

On February 12, 1993, Plaintiff filed a second round of complaints with the HCRC, alleging that the loss of key privileges, denial of a Christmas bonus, and Fred's "bonus" statement constituted retaliation for having filed the complaints. Plaintiff received letters dated February 18, 1993 from the HCRC confirming that inasmuch as Plaintiff had withdrawn these complaints and elected court action, his retaliation cases would be closed and that he had the right to file a private lawsuit.7 The HCRC sent copies of the letters to Leder and Jonathan.


On February 26, 1993, Plaintiff filed a complaint in the court against Defendants, Jonathan, and Fred. He retained counsel on a one-third contingency fee basis. Plaintiff alleged the following claims: (1) breach of contract, (2) compensation discrimination based on age under HRS § 378-2(1)(A) (1993), (3) unpaid wages under HRS § 388-2(a) and (b) (1993),8 (4) retaliation under HRS § 378-2(2) and (3) (1998),9 and (5) fraud, misrepresentation and/or deceit. Plaintiff later voluntarily dismissed the fifth group of claims.

Pacific, Reliable, and Jonathan filed counterclaims on March 22, 1993, alleging fraud, interference with business, punitive damages, and failure to repay the $4,200 loan. The first three counterclaims were later voluntarily dismissed, leaving only the loan counterclaim.

On February 13, 1993, Plaintiff left work on workers' compensation leave because his physician told him that he had carpal tunnel syndrome and required surgery. On February 15, 1993, Defendants' worker's compensation insurance adjuster notified Plaintiff that Pacific had denied his workers' compensation claim. After Plaintiff appealed the denial to the Department of Labor and Industrial Relations, the claim was retroactively accepted on May 24, 1993. On May 28, 1993, Pacific sent a form entitled "Notice of [Consolidated Omnibus Budget Reconciliation Act (COBRA)10] Qualifying Event From Employer" ("COBRA Qualifying Notice") to its health insurance carrier. The notice stated, in pertinent part, as follows:

Date: 5/28/93 To: Plan Administrator The Queen's Health Care Plan, Inc. From: Pacific Medical Collections Group # 501 Employer Name Re: Charles Schefke Name of employee Covered by the Plan . . . . This is to inform you of an event which qualifies the above employee for continuation of benefits coverage. Date of event: 5/12/93 Last month for which employer is making contribution 5/93 Nature of event (check one) a) _____ Termination of employment due to retirement b) X Termination of employment, due to quit, layoff, or any other reason. . . . .

On June 10, 1993, Defendants' insurance carrier sent Plaintiff a form entitled "Notice of Eligibility for Continued Health Plan Coverage `COBRA Rights'" ("COBRA Eligibility Notice"). The document stated in pertinent part that "[y]our group health coverage terminates as of 5/31/93 due to termination of employment on 5/12/93." (Emphasis added.) However, Plaintiff apparently did return to work on April 4, 1994.

The events which took place between Plaintiff's receipt of the COBRA Eligibility Notice and April 4, 1994 were not introduced at the trial. As part of their motion for new trial, Defendants produced letters with respect to such events. The facts following are taken from those letters.

On January 26, 1994, Defendants' workers' compensation adjuster contacted Pacific, seeking to assist Plaintiff in returning to work. Plaintiff's counsel asked that all contact be with him, not Plaintiff. Defendants' counsel notified the adjuster that Pacific had found light duty work for Plaintiff. The adjuster, in turn, informed Plaintiff's counsel of this fact. Plaintiff's counsel represented that Plaintiff would report to work on March 25, 1994, but stated that Plaintiff would not be able to operate a keyboard.

Two days later, Plaintiff's counsel sent another letter to the adjuster, declaring that Plaintiff would not report to work on March 25, 1994 because his physician had said Plaintif...

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