Shanghai Inv. Co., Inc. v. Alteka Co., Ltd., No. 20709.

Decision Date21 January 2000
Docket NumberNo. 20709.
Citation92 Haw. 482,993 P.2d 516
PartiesSHANGHAI INVESTMENT COMPANY, INC., a Hawai`i corporation, Plaintiff-Appellee, Cross-Appellant, v. ALTEKA CO., LTD., a Japan corporation, Defendant-Appellant, Cross-Appellee. Alteka Co., Ltd., a Japan corporation, Plaintiff-Appellant, Cross-Appellee, v. Windward Park, Inc., a Hawai`i corporation, Thomas Enomoto, Defendants-Appellees, Cross-Appellants, and John Does 1-10, Doe Partnerships 1-10, Doe Corporations 1-10, Defendants.
CourtHawaii Supreme Court

Paul Alston (David A. Nakashima, Alicia M. Leonhard, Lea Hong with him on the brief) on the briefs, Honolulu, for plaintiff-appellant/cross-appellee.

Steven K.S. Chung (Michel A. Okazaki with him on the brief), on the briefs, Honolulu, for defendants-appellees/cross-appellant.

KLEIN, Acting C.J., LEVINSON, NAKAYAMA, and RAMIL, JJ. and Circuit Court Judge NAKATANI in place of MOON, C.J., Recused.

Opinion of the Court by KLEIN, J.

This appeal arises out of a contract to purchase two parcels of property by plaintiff-appellant Alteka Co., Ltd. (Alteka) from defendant/appellee/cross-appellant Windward Park, Inc. (Windward). Shanghai Investment Co. (Shanghai), the alleged assignee of a promissory note from Alteka, sued Alteka for specific performance of the agreement to assign, or, in the alternative, damages for breach of the agreement to assign in Civil No. 94-2683-07. Alteka subsequently filed suit against Windward and Thomas Enomoto (Enomoto), Windward's principal, for return of a deposit made on the purchase of the properties in Civil No. 95-3483-09. The cases were consolidated on January 19, 1996. Alteka appeals and Windward cross-appeals from, inter alia, the first circuit court's May 12, 1997 amended final judgment in favor of Alteka in Civil No. 94-2683-07 and against Shanghai, and in favor of Windward in Civil No. 95-3483-09 and against Alteka.

On appeal, Alteka contends that: (1) the trial court improperly awarded Windward a $5 million forfeiture against Alteka contrary to Jenkins v. Wise, infra, and its progeny; (2) Windward impermissibly asserted a new counterclaim without leave of court on the eve of trial; (3) the trial court erred in awarding Windward damages under the original agreement where (a) Windward was unable to perform under the agreement, (b) the parties' August 7, 1992 amendment superseded the original January 2, 1990 agreement, and (c) the jury verdict was "hopelessly inconsistent"; (4) Alteka was entitled to fraud damages; (5) Windward's "prejudicial innuendo" and argument was improper; (6) Windward's "xenophobic arguments" and accusations that Alteka's counsel was a liar were plain error; and (7) Alteka was entitled to an award of attorneys' fees and costs in successfully prevailing against Shanghai in Civil No. 94-2683-07.

Windward argues that: (1) the jury's finding that the amendment was supported by consideration was not supported by substantial evidence; (2) the trial court erred in granting Alteka's motion for stay pending appeal because it did not require Alteka to post a supersedeas bond; and (3) the trial court erred in failing to require that Alteka grant Windward a mortgage interest in its real property.

For the reasons set forth below, we hold that the trial court did not err in: (1) allowing Windward's third counterclaim; (2) denying Alteka's motion for JNOV on the issue of jury verdict inconsistency; (3) denying Windward's motion for JNOV on the issue of the enforceability of the amendment; (4) denying fraud damages to Alteka; (5) allowing Enomoto's testimony; and (6) granting Alteka's stay on appeal.

We hold, however, that the trial court erred in (1) awarding Windward $5 million in damages against Alteka inasmuch as Windward did not adduce evidence at trial that the $5 million bore a reasonable relationship to its actual loss; and (2) denying Alteka's request for attorneys' fees and costs incurred in successfully defending against the claims made by Shanghai. We therefore vacate the $5 million damage award to Windward and remand to the trial court with instructions to (1) enter judgment in favor Alteka for $1,171,949.76 plus interest and (2) determine and award reasonable attorneys' fees to Alteka against Windward and Shanghai in accordance with this opinion. In all other respects, we affirm.1

I. BACKGROUND

On January 2, 1990, Alteka and Windward executed a Purchase and Sale Agreement (the "agreement" or "original agreement"), under which Alteka was to pay Windward $35 million for two adjoining parcels of fee simple land and all land use permits for construction of an 18-hole golf course. The first parcel, the former site of the Kailua Drive-In outdoor theater (the "Drive-In parcel"), consisted of 24 acres. The second parcel (the "Texeira parcel"), located adjacent to the Drive-In parcel was owned by Nakamoto Properties, Inc., Antone S. Texeira, and Marjory Ann Texeira and consisted of approximately 319 acres. George Okamura (Okamura) and Keiji Fujita (Fujita) participated in the negotiations on behalf of Alteka.

In accordance with the agreement, Alteka made a $5 million earnest money deposit (the "deposit") to Windward to be used for project expenses. These expenses included acquiring the fee simple interest in the Texeira parcel, obtaining the leasehold and fee simple interests in the Drive-In parcel, and procuring the necessary permits for construction of a golf course.2 Under the agreement, the deposit was "nonrefundable" except as otherwise provided in the contract.

Also pursuant to the agreement, Alteka retained the right to terminate the agreement and recover the entire deposit if Windward did not acquire the land in fee simple and the necessary permits by December 31, 1992. Alteka was entitled to give notice of cancellation at any time between December 31, 1992 and December 31, 2005. In the event of cancellation by Alteka, Windward was required to repay any amounts withdrawn from the deposit within 90 days, along with interest computed at the same rate of interest that the balance of the deposit was earning in escrow. To secure repayment of the deposit, Windward gave Alteka a $5 million promissory note (the "note"), which was secured by a personal guaranty by Thomas Enomoto, Windward's principal.

In December 1990, Windward obtained a shoreline management area permit, which required as a condition of its issuance that the development be completed by December 1993. Upon obtaining the permit, Windward began negotiations to purchase the Texeira parcel. At that point, however, Windward indicated to Alteka that it was "not prudent" to pursue the purchase of the Texeira parcel. Apparently, an individual named Marco Rivera had obtained the right to purchase the Texeira parcel and had attempted to sell it to Windward for $29 million instead of the $5.7 million figure provided in Windward's prior option to purchase. See supra note 1. As a result, Windward reported to Alteka in its March 1991 quarterly report that "it is probably not feasible at this time to actively pursue the purchase of this parcel." In its July 31, 1991 status report, Windward further notified Alteka, inter alia, that the purchase of the Texeira parcel was not feasible because: (1) the owner had inflated the purchase price from $5.7 million to $55 million; (2) Windward was unable to locate a nonpotable water source; and (3) the City and County of Honolulu was requesting "$100 million impact fees as a condition to permitting a golf course." Windward concluded that, "for the immediate foreseeable future, we will take no further action unless we hear from you otherwise."

Meanwhile, Windward continued with preparation of the Drive-In parcel for purposes of a driving range.3 On May 6, 1991, Windward drew $1,171,949.76 from the deposit to acquire the lease for the Drive-In parcel and to pay various project expenses.

Upon notice of Windward's indication that it was not prudent to proceed with the purchase of the Texeira parcel, Alteka canceled the agreement and requested a refund of its deposit by letter dated January 22, 1992. Windward maintained that Alteka did not have the right to cancel before December 31, 1992. Upon Windward's unwillingness to cancel the agreement, Alteka sent a second notice of cancellation on April 8, 1992. This time, Windward agreed to the cancellation, but could not immediately return the deposit. It did suggest, however, that the parties restructure the agreement if Windward could obtain outside financing.

On August 7, 1992, Alteka and Windward entered into an amendment to the agreement (the "amendment"), drafted by Windward's attorneys. In it, the parties provided, inter alia, (1) that Alteka could elect to cancel at any time after June 19, 1992, the effective date of the amendment, notwithstanding paragraphs 3.4 and 4 of the original agreement, (2) a new interest rate for the portion of the deposit spent by Windward, and (3) a deadline for Windward to repay the $1,171,949.76 pursuant to the promissory note executed simultaneously with the amendment. The amendment also stated that "the terms of the Agreement and the Note shall remain in full force and effect." Windward maintained that, as consideration, Alteka orally agreed to obtain an investor for the property.

Windward ultimately did not repay the $1,171,949.76 balance. Fujita, who managed Alteka's affairs in Hawai`i, then apparently hired an allegedly convicted felon, Henry Kaiser (Kaiser), to collect the debt. Kaiser contacted Enomoto, and demanded and was paid $10,000 for an extension of the deadline to obtain an investor for the property. Because Windward was unable to obtain outside financing, the shoreline area management permit expired without any development being completed.

After unsuccessful attempts to resolve the issue, Fujita and Enomoto sought to negotiate a settlement in which Windward would pay Alteka $400,000. Because Windward did not have the funds,...

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