State v. Wong, No. 22671

• Decision Date: 22 February 2002
• Docket Number: No. 22671, No. 23151.
• Citation: 40 P.3d 914,97 Haw. 512
• Parties: STATE of Hawai`i, Plaintiff-Appellant, v. Richard Sung Hong WONG, Mari Stone Wong, and Jeffrey R. Stone, Defendants-Appellees. State of Hawai`i, Plaintiff-Appellant, v. Henry Haalilio Peters and Jeffrey R. Stone, Defendants-Appellees.
• Court: Hawaii Supreme Court

40 P.3d 914

97 Haw. 512

STATE of Hawai`i, Plaintiff-Appellant, v. Richard Sung Hong WONG, Mari Stone Wong, and Jeffrey R. Stone, Defendants-Appellees.

State of Hawai`i, Plaintiff-Appellant, v. Henry Haalilio Peters and Jeffrey R. Stone, Defendants-Appellees.

Nos. 22671, 23151.

Supreme Court of Hawai`i.

February 22, 2002.

Lawrence A. Goya, (Joanne L. Ha`o, with him on the briefs), Deputy Attorneys General, for plaintiff-appellant/cross-appellee.

Eric A. Seitz, (Lawrence I. Kawasaki with him on the brief), Honolulu, (Ronald H. Malone of San Francisco, CA, pro hac vice, with him on the brief), for defendant-appellee Richard Sung Hong Wong.

John Edmunds, (Ronald J. Verga, with him on the brief) of Edmunds, Maki, Verga and Thorn, Honolulu, for defendant-appellee Jeffrey R. Stone.

Renee M.L. Yuen, Honolulu, for defendant-appellee Henry Haalilio Peters.

Jerel Fonseca of Fonseca & Ching, on the brief, Honolulu, for defendant-appellee Mari Stone Wong.

Circuit Judge MASUOKA, Acting C.J., in Place of MOON, C.J., Recused; Circuit Judge IBARRA, in Place of LEVINSON, J., Recused; Circuit Judge KOCHI, in Place of NAKAYAMA, J., Recused; Circuit Judge RAFFETTO, in Place of RAMIL, J., Recused; and Circuit Judge CHANG, in Place of ACOBA, J., Recused; Acting JJ.

PER CURIAM.

Plaintiff-Appellant State of Hawai`i appeals from orders dismissing indictments against Defendants-Appellees Richard Sung Hong Wong, Mari Stone Wong, Henry Haalilio Peters, and Jeffrey R. Stone. The circuit court orders, entered by the Honorable Michael R. Town, were entered without prejudice. We affirm the dismissals, but remand with instructions to enter the dismissal orders with prejudice.

I. Background

A. Appeal No. 22671, First Circuit Criminal No. 99-0678

The Office of the Attorney General secured an indictment against Richard Sung Hong Wong (Wong), Jeffrey R. Stone (Stone), and Mari Stone Wong (M.Wong). The indictment's charges of theft in the first degree (Wong), commercial bribery (Stone), perjury (Wong), hindering prosecution in the first degree (M.Wong), and criminal conspiracy (Wong, Stone, and M. Wong), arose out of a series of business and personal transactions. In sum, the indictment alleged that Wong, a trustee of the Bishop Estate/Kamehameha Schools (Estate), manipulated the Estate into giving his brother-in-law, Stone, a "sweetheart deal" on what was called the Kalele Kai project and, in return, Stone secured for Richard and Mari Wong a sale price for their apartment that was $115,800 more than the apartment was worth. According to the State, the $115,800 was money that should have gone to the Estate and Wong's keeping of the money was a theft from the Estate. All of the other charges relate to the alleged theft or the investigation of it.

According to the testimony before the grand jury, the Kalele Kai project was a leasehold condominium construction project on Estate land. The developer, Bedford Properties, borrowed seventy-six million dollars from Mitsui Bank and Trust Company and formed a partnership, Kapalele Associates, with Mitsui to develop the project.

Kapalele Associates had cash flow problems when the leasehold units did not sell. To generate sales, Kapalele Associates purchased the fee interest from Estate for $21.9 million. The fee interest was purchased by agreement of sale. However, Kapalele Associates eventually defaulted on the Mitsui Bank loan and could not perform the agreement of sale for the fee interest. In the summer of 1995, Stone offered to buy the Kalele Kai project and to assume the fee purchase agreement with Estate. To finance the purchase, a Stone company, Pacific Northwest Ltd., and an Ohio corporation, the National Housing Corporation, formed One Keahole Partners (OKP), a partnership. Stone sent OKP's proposal to Trustee Wong. Wong forwarded the proposal to the Principal Executive of the Estate's Asset Management Group. Wong recused from trustee deliberations concerning OKP's Kalele Kai proposal. OKP acquired the Kalele Kai project after a majority of the remaining trustees approved OKP's assumption of the fee purchase agreement.¹

In 1996 Stone's company, Pacific Northwest, Ltd., purchased a Kahala home that was in foreclosure, renovated the home, and sold the home to Richard and Mari Wong. The Wongs financed the home, in part, with a $613,200 credit for their Wilder Avenue apartment. The State alleged the Wilder Avenue apartment was worth no more than $498,000 and that the $115,800 difference between the $498,000 value of the Wilder Avenue apartment and the $613,800 credit was a payoff by Stone for the Kalele Kai deal and a theft by Wong of monies due the Estate.

To secure the indictments, the State called, among others, Stone's former tax lawyer, disbarred attorney Richard Frunzi² to testify before the grand jury. The State called Frunzi before the grand jury without seeking a court ruling about the extent to which Frunzi could testify.³

Frunzi did not notify Stone that Frunzi was going to testify before the grand jury and Frunzi did not get Stone's permission to testify about their professional relationship. Frunzi testified without raising any privilege issue on behalf of his former client, Stone. At the State's urging, Frunzi explained his testimony to the grand jury:

[State]: Now, prior to asking you questions about Mr. Stone, do you recognize that there ordinarily would be a prohibition from you testifying about those kinds of matters?

[Frunzi]: Yes. The rules of the Bar Association and the Code of Professional Conduct prohibit an attorney from divulging any confidential communications or proprietary information to a client—about a client to anybody else, but there are certain exceptions. And one of the exceptions is that if a crime is committed or to be committed, there's what's called a crime fraud exception.

[State]: Okay. And that's what you are basing your ability to testify on today.

[Frunzi]: Yes

Richard Wong, joined by Mari Wong and Jeffrey Stone, moved to dismiss the indictment for lack of probable cause and prosecutorial misconduct. The circuit court granted the motion and dismissed the indictment without prejudice. The circuit court explained:

[T]his Court will respectfully grant the motions to—Defendants' Motion to Dismiss the indictment for the following reasons:

One, the government used the privileged testimony of an attorney, Richard Frunzi, albeit at that time he was suspended in lieu of discipline, he was also incarcerated in federal custody pending sentencing, although that's not terribly relevant. And this privileged testimony did not meet the crime-fraud exception to the Hawai`i Rules of Evidence. I think that's very clear.

Neither Mr. Frunzi, nor the government, notified Mr. Stone or the Court that his attorney, Mr. Stone's attorney, Mr. Frunzi, would be testifying.

Further, the government on its own did not seek Court review ahead of time as this Court believes is required by law.

Secondly, the Court finds that the government, by attesting to the quality of the testimony, by referring to or allowing Mr. Frunzi to refer to it as under the crime-fraud exception before the grand jury who are lay persons from the general community, illegally bolstered Mr. Frunzi's testimony, thereby prejudicing the Defendants.

Assuming arguendo ... that there is no requirement to approach this Court as a supervising judge ahead of time, the Court finds, nevertheless, that Mr. Frunzi's testimony was, in fact, privileged and the crime-fraud exception did not apply.

The State appealed. Additional facts are set out below where necessary.

B. Appeal Number 23151, First Circuit Criminal Number 99-1502

The Office of the Attorney General secured an indictment against former Bishop Estate Trustee Henry Haalilio Peters (Peters) and Jeffrey R. Stone (Stone). The indictment's charges of theft in the first degree (Peters), commercial bribery (Stone), criminal conspiracy (Peters and Stone), accomplice to theft in the first degree (Stone), and perjury (Stone), arose out of the Kalele Kai transactions, set out above, and an allegation that Stone secured the sale of Peters' residential apartment for $192,500 more than its alleged value.

The indictment alleges, in sum, that Stone induced Peters to approve OKP's acquisition of the Kalele Kai project by convincing another person to pay more for Peters' apartment than it was worth, that Stone financed the purchase of the apartment through OKP, OKP accepted the deed to the apartment in lieu of repayment of the money borrowed to finance its purchase, and that Peters used the value of his apartment, including the alleged $192,500 excess, to purchase an apartment on a higher floor in the same building. The State alleges the $192,500 should belong to the Estate and that Peters' retention of that value is a theft from the Estate. These allegations formed the basis of the theft, commercial bribery, conspiracy, and accomplice to theft charges against Peters and Stone. In addition, the State alleged, in sum, that Stone lied to a prior grand jury when Stone testified that he was contacted by Glenn Okada about the availability of an upper floor unit in Peters' building and Okada told him to contact Peters about the possibility of buying the higher floor apartment.

In the course of presenting the case to the grand jury, the State called several witnesses, including Nathan Aipa, acting chief operating officer and formerly General Counsel for the Estate, and Glenn Okada, President and Chairman of the Board of GKO Corporations and GO Realty. The State did not seek the circuit court's approval before it called Aipa to testify, did not notify Peters that Aipa would testify, and did not secure a waiver of attorney-client privilege from Peters. Aipa was called, according to the State, "[t]o provide the grand jury with more specific information from which to determine whether Peters knew that any benefit he received from a transaction in which the trust was also...