Schmidt v. HSC, Inc., Nos. 29454

CourtCourt of Appeals of Hawai'i
Writing for the CourtOpinion of the Court by LEONARD, J.
Citation358 P.3d 727,136 Hawai'i 158
Decision Date31 August 2015
Docket Number29589.,Nos. 29454
Parties Thomas Frank SCHMIDT and Lorinna Jhincil Schmidt, Plaintiffs–Appellants and Cross–Appellees, v. HSC, INC., a Hawai‘i corporation; Richard Henderson, Sr.; Eleanor R.J. Henderson; John Does 1 Through 10; Jane Does 1 Through 10; and Doe Unincorporated Associations, Including Partnerships 1 through 10, Defendants–Appellees and Cross–Appellants.

136 Hawai'i 158
358 P.3d 727

Thomas Frank SCHMIDT and Lorinna Jhincil Schmidt, Plaintiffs–Appellants and Cross–Appellees,
HSC, INC., a Hawai‘i corporation; Richard Henderson, Sr.; Eleanor R.J. Henderson; John Does 1 Through 10; Jane Does 1 Through 10; and Doe Unincorporated Associations, Including Partnerships 1 through 10, Defendants–Appellees and Cross–Appellants.

Nos. 29454

Intermediate Court of Appeals of Hawai‘i.

Aug. 31, 2015.

358 P.3d 729

R. Steven Geshell and Thomas P. Dunn, Honolulu, on the briefs, for Plaintiffs–Appellants and Cross–Appellees.

Paul Alston, Stephen M. Tannenbaum (Alston Hunt Floyd & Ing), Honolulu, on the briefs, for Defendants–Appellees and Cross–Appellants.

FUJISE, Presiding Judge, LEONARD and GINOZA, JJ.

Opinion of the Court by LEONARD, J.

136 Hawai'i 160

This case is revisited by the Intermediate Court of Appeals (ICA ) on remand from the Hawai‘i Supreme Court.

Plaintiffs–Appellants Thomas Frank Schmidt and Lorinna Jhincil Schmidt (the Schmidts ) appeal from an October 7, 2008 Final Judgment entered by the Circuit Court of the Third Circuit (Circuit Court )1 in favor of Defendants–Appellees HSC, Inc. (HSC ), Richard Henderson, Sr. (Richard ), and Eleanor R.J. Henderson (Eleanor ) (Richard and Eleanor are referred to as the Hendersons ) (collectively, HSC, Richard, and Eleanor are referred to as Appellees ) and against the Schmidts. The Schmidts argue on appeal that the Circuit Court erred when it dismissed their fraudulent transfers claims against Appellees. Appellees argue on cross-appeal that the Circuit Court erred when it concluded that the Schmidts' claims were not time-barred and when it failed to timely award Appellees their attorneys' fees and costs.


A. The Foreclosure Action

This case stems from a foreclosure action called Realty Finance, Inc. v. Schmidt, which is chronicled in a Hawai‘i Supreme Court Memorandum Opinion (No. 23441) dated March 18, 2004. Realty Finance, Inc. v. Schmidt (Realty II ), No. 23441, 104 Hawai‘i 191, 2004 WL 541878 (Haw. Mar. 18, 2004) (mem.). Relevant highlights are as follows.2

In 1991 and 1995, the Schmidts executed and delivered various promissory notes and mortgages that were later assigned to Realty Finance, Inc. (Realty Finance ).3 The Schmidts subsequently defaulted on the notes and mortgages and Realty Finance filed a foreclosure action against the Schmidts. On February 24, 1998, a motion for an interlocutory decree of foreclosure was

136 Hawai'i 161
358 P.3d 730

granted, the amount of the Schmidts' debt to Realty Finance was determined, and a judgment was entered. Thereafter, Realty Finance sold the Schmidts' notes and mortgages to another entity, Waikiki Investments 418, Inc. (Waikiki Investments ), pursuant to various agreements that, inter alia, allowed Waikiki Investments to collect the sums due on the notes and mortgages.

In June of 1999, Waikiki Investments collected a total of $309,000 from Amerasian Land Co. (Amerasian )4 and $225,000 from Lulani Properties, LLC (Lulani ), which were intended to secure a release of the mortgages encumbering the mortgaged properties. Waikiki Investments then defaulted on its agreement with Realty Finance. In July of 1999, Realty Finance filed a notice stating that it was again the real-party-in-interest and it "revived" the foreclosure proceedings. After various further proceedings in the Circuit Court and the ICA, which were unfavorable to the Schmidts, on March 18, 2004, the Hawai‘i Supreme Court held: (1) that the Schmidts' notes and mortgages merged into the February 24, 1998 judgment; (2) thus, Realty Finance in effect assigned the right to proceeds under the judgment to Waikiki Investments; (3) when Amerasian and Lulani paid Waikiki Investments, they paid the debts identified in the February 24, 1998 judgment and, accordingly, paid down the judgment; and (4) therefore, the mortgage debts owed by the Schmidts were reduced by the payments made by Amerasian and Lulani to Waikiki Investments. See Realty II, mem. op. at 19–20. In essence, the supreme court agreed with Amerasian and the Schmidts' argument that it was wrong to require them to pay over $1,000,000 for a $564,000 judgment and to entitle Realty Finance and its assignees to collect over $1,000,000 on a $564,000 judgment. The case was remanded, inter alia , for an appropriate accounting and further proceedings consistent with the supreme court's decision. The result was a December 21, 2004 final judgment, in the total sum of $537,258.66, entered in favor of the Schmidts and against Realty Finance.

B. The Realty Finance Transfers

In the meantime, prior to the supreme court's ruling, and after Realty Finance reasserted its interest in the foreclosure proceedings, Realty Finance sought and was granted approval of a private sale of the mortgaged properties. Pursuant to an order entered in the foreclosure proceedings on January 31, 2000, the foreclosure commissioner distributed the sales proceeds to Realty Finance over the Schmidts' objections. Prior to a series of judgments "finalizing" the orders confirming the private sales, approving the distribution of the sales proceeds, and entering a deficiency judgment against the Schmidts, dated April 11, 2000, May 10, 2000, and June 9, 2000, respectively, Realty Finance used the sales proceeds for the benefit of its parent corporation, HSC.5 More specifically, Realty Finance directed payment to four of HSC's "creditors" as follows: (1) a February 11, 2000 check payable to Richard in the amount of $54,339.55; (2) a February 11, 2000 check payable to Eleanor in the sum of $78,000.00; (3) a February 15, 2000 check payable to Goodsill, Anderson, Quinn and Stifel (Goodsill ) in the amount of $119,393.42; and (4) a March 1, 2000 check payable to Kamehameha Schools–Bernice Pauahi Bishop Estate (Kamehameha Schools ) in the amount of $165,058.42.

C. The Schmidts' Discovery of the Transfers

The Schmidts became aware of the above-referenced transfers on March 18, 2005, at the latest. On April 12, 2005, the Schmidts' attorney wrote to Appellees' attorney:

On March 18, 2005 we met with you at your offices, wherein, in response to our document request, you produced documents on behalf of Realty Finance. One of the documents that you produced[ ] was the Realty Finance monthly bank statement
136 Hawai'i 162
358 P.3d 731
for February, 2000 at American Savings Bank. Said monthly statement shows a deposit of $487,036.74 to Realty's account, which we surmise to be the payment from the foreclosure commissioner (Mr. Lau) of the proceeds due Realty from the sale of the Schmidt property. Thereafter, there are 4 checks: 1. # 19264 for $54,339.55 on 2–14–00; 2. # 19263 for $78,000.00 on 2–14–00; 3. # 20203 for $119,393.42 on 2–18–00; and, 4. # 21769 for $165,058.42 on 3–1–00, written on said account.

The Schmidts claim, however, that they did not discover the fraudulent nature of the transfers until July 26, 2005, when Realty Finance's former treasurer, Michael Chagami, was deposed.

D. The Proceedings Below

On April 7, 2006, the Schmidts filed a complaint against Appellees, alleging that the transfers were made in an effort to defraud them of the moneys owed to them, as finally determined in the Hawai‘i Supreme Court's March 18, 2004 decision, the subsequent accounting, and the December 21, 2004 final judgment. In their complaint, the Schmidts alleged two causes of action, one for the fraudulent transfer of funds under Hawai‘i Revised Statutes (HRS ) § 651C–4(a)(1) (1993), Hawai‘i's Uniform Fraudulent Transfers Act (UFTA ), and another for unfair or deceptive acts or practices pursuant to HRS § 480–2 (2008). Appellees moved for judgment on the pleadings on January 7, 2007. The Circuit Court granted Appellees' motion with respect to the HRS § 480–2 claims, but denied it as to the fraudulent transfers claims. Appellees filed a motion for summary judgment on October 1, 2007, after discovery was taken, arguing that the fraudulent transfers claims were without merit, and in any event, were time-barred. This motion was denied on the grounds that there were genuine issues of material fact relating to both arguments.

A two-day bench trial was held on July 1 and 2, 2008. Appellees again moved for a judgment on partial findings based on the argument that the Schmidts' claims were time-barred. No order was entered on this motion. The Circuit Court issued Findings of Fact (FOFs ) and Conclusions of Law (COLs ) on October 7, 2008, and entered Final Judgment in favor of Appellees that same day, holding that the Schmidts failed to prove an actual intent to hinder, delay, or defraud Realty Finance's creditors, pursuant to HRS § 651C–4(a)(1). The Circuit Court's FOFs and COLs; and Order of Dismissal state, in relevant part, the following:

Findings of Fact


5. This action relates to four allegedly fraudulent transfers by [Realty Finance]: (a) a check payable to [Eleanor], dated February 11, 2000, in the amount of $78,000; (b) a check payable to [Goodsill], dated February 15,

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