TSA Intern. Ltd. v. Shimizu Corp.

Decision Date08 November 1999
Docket Number No. 21726., No. 21431
Citation990 P.2d 713,92 Haw. 243
PartiesTSA INTERNATIONAL LIMITED, a Hawai`i corporation, TSA Wailea Beach Palace, Inc., a Hawai`i corporation, TSWB, Inc., a Hawai`i corporation, TSA America Investments, Inc., a Delaware corporation, TSA Holding Company, Ltd., a Hawai`i corporation, TSA Waikapu, Inc., a Hawai`i corporation, Plaintiffs-Appellants, v. SHIMIZU CORPORATION, a Japan corporation, S.C. Properties (Hawaii), Inc., a Hawai`i corporation, SC Wailea Alanui, Inc., a Hawai`i corporation, SCP (Maui 1), Inc., a Hawai`i corporation, SCP (Maui 2), Inc., a Hawai`i corporation, SCP (Maui 5), Inc., a Hawai`i corporation, The Fukuoka City Bank, Ltd., a Japan corporation, Fukuoka Jisho Co., Ltd., a Japan corporation, H.F.J. Mauka, Inc., a Hawai`i corporation, Quarters, Inc., Maui Development Co., Ltd., K.L. America, Inc., S.C.-U.S., Inc., Shimizu International Finance (U.S.A.), Inc., Defendants-Appellees, and WGR, Inc., a Hawai`i corporation, Does 6 Through 50, inclusive, Defendants. and TSA International Limited, a Hawai`i corporation, TSA Wailea Beach Palace, Inc., a Hawai`i corporation, TSWB, Inc., a Hawai`i corporation, TSA America Investments, Inc., a Delaware corporation, TSA Holding Company, Ltd., a Hawai`i corporation, TSA Waikapu, Inc., a Hawai`i corporation, Plaintiffs-Appellants, v. Shimizu Corporation, a Japan corporation, S.C. Properties (Hawaii), Inc., a Hawai`i corporation, SC Wailea Alanui, Inc., a Hawai`i corporation, SCP (Maui 1), Inc., a Hawai`i corporation, SCP (Maui 2), Inc., a Hawai`i corporation, SCP (Maui 5), Inc., a Hawai`i corporation, S.C.-U.S., Inc., Shimizu International Finance (U.S.A.), Inc., Defendants-Appellees, and The Fukuoka City Bank, Ltd., a Japan corporation, Fukuoka Jisho Co., Ltd., a Japan corporation, WGR, Inc., a Hawai`i corporation, H.F.J. Mauka, Inc., a Hawai`i corporation, Quarters, Inc., Maui Development Co., Ltd., K.L. America, Inc., Does 6 Through 50, inclusive, Defendants.
CourtHawaii Supreme Court

Thomas E. Bush, (William C. McCorriston, Franklin K. Mukai, and Daniel J. Kunkel with him on the brief), of McCorriston, Miho, Miller, Mukai, on the briefs, Honolulu, for plaintiffs-appellants.

Roy J. Tjioe (David J. Dezzani and Margaret Jenkins Leong with him on the brief), of Goodsill, Anderson, Quinn & Stiffel, on the briefs, Honolulu, for defendants-appellees.

MOON, C.J., KLEIN, LEVINSON, NAKAYAMA, and RAMIL, JJ.

Opinion of the Court by RAMIL, J.

These appeals arise from the dissolution of a partnership formed to develop the Four Seasons Resort in Wailea, Maui. After dissolution of the partnership, plaintiffs-appellants TSA International Limited, et al. (TSA)1 brought an action against defendants-appellees Shimizu Corporation, et al. (Shimizu)2 alleging, inter alia, fraud, breach of fiduciary duty, fraudulent transfer, and violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). The circuit court granted Shimizu's motions for summary judgment as to all claims brought by TSA and entered judgment in favor of Shimizu.

On appeal, TSA asserts a plethora of issues. In No. 21431, TSA contends, inter alia, that the circuit court erred in: (1) denying their motion to disqualify the trial judge; (2) granting Shimizu's motion for taxation of attorneys' fees and costs; and (3) granting Shimizu's motions for summary judgment with respect to the claims for: (a) fraud; (b) breach of fiduciary duty; (c) fraudulent transfers pursuant to HRS ch. 651C (1993); and (d) RICO violations under Section 1962 of Title 18 of the United States Code (U.S.C.) (1994). In No. 21726, TSA contends that the circuit court erred in granting Shimizu's motion to expunge the lis pendens after the notice of appeal was filed in No. 21431. For the reasons discussed below, we vacate the circuit court's judgment with respect to the issue of Shimizu's attorneys' fees, but affirm the circuit court's judgment in all other respects.

I. BACKGROUND
A. Facts

In 1986, Takeshi Sekiguchi, president of TSA, approached Shimizu Corporation, a large construction corporation, with plans for developing the Four Seasons Resort ("the Hotel"). Sekiguchi, a Japanese citizen, proposed that TSA could assist Shimizu in conducting the Four Seasons Project without taking substantial financial or business risks.

As a result of the negotiations, Shimizu and TSA formed a partnership—the Wailea Beach Palace Company (WBPC)—in 1987 to develop the Hotel. Through subsidiary corporations, TSA and Shimizu each invested $22 million in WBPC. The parties then secured a $180 million construction loan from The Fukuoka City Bank and K.L. America, Inc. (collectively, the "Fukuoka lenders"). According to Shimizu, TSA was made the managing general partner of WBPC and received a management fee of more than $200,000 annually from the partnership. As managing general partner, TSA had complete access to the partnership's records.

The parties later agreed to develop the Waikapu Golf Course ("the Golf Course") in Waikapu, Maui. The Waikapu Golf Course Properties ("the Golf Course Properties") consisted of two golf courses, residential lots, a quarry, and a tile factory. The Golf Course Properties were owned by Waikapu Mauka Partners (WMP). Before the agreement between TSA and Shimizu to develop the Golf Course Properties was entered into, WMP was seventy-percent (70%) owned by a Shimizu entity and thirty-percent (30%) owned by THP Associates ("THP"). To develop the Golf Course Properties, Shimizu invested $140 million by way of a loan to WMP. Although none of the TSA entities invested any capital in WMP, TSA was made a general partner in THP, holding a thirty-three and one-third percent interest.

As a result of poor economic conditions in the early 1990s, the Hotel and Golf Course loans became delinquent. In 1993, representatives of TSA, Shimizu, and the Fukuoka lenders met to negotiate the Hotel and Golf Course loans.3 On or about August 28, 1993, the representatives executed the "work out" documents regarding a "work out" of the Hotel and Golf Course loans ("the Basic Agreement"). According to TSA, these documents were drafted in Japanese at the request of Shimizu.

As a result of their negotiations, the parties agreed that the Fukuoka lenders would be responsible for $65 million to settle the loans and purchase the golf courses. Specifically, the Fukuoka lenders allocated $40 million of its $65 million commitment to settle the Hotel loan. The parties also agreed that the delinquent $180 million Hotel loan would be resolved as follows: (1) the Fukuoka lenders would forgive $40 million of the debt; (2) Shimizu would make a capital contribution to WBPC of about $40 million; and (3) Shimizu would purchase the Hotel from WBPC for an additional $100 million. WBPC would then pay the $140 million received from Shimizu to the Fukuoka lenders, thereby satisfying the remaining balance of the $180 million Hotel loan. Both TSA and Shimizu waived their initial $22 million investments in the Hotel partnership, WBPC.

To dispose of the $140 million Golf Course loan, the parties agreed that the golf courses would be sold by WMP to an entity related to the Fukuoka lenders. As a result of the Fukuoka lenders' commitment of $65 million to work out the problem loans, the Golf Course purchase price was set at $25 million, which represents the difference between the Fukuoka lenders' $65 million commitment and the $40 million allocated to work out the Hotel loan. In effect, the $25 million purchase price for the Golf Course was set to confer a benefit of $115 million on the Fukuoka lenders. In exchange, the Fukuoka lenders would forgive the $140 million Golf Course loan. Because Shimizu had initially loaned $140 million to WMP to develop the Golf Course Properties, WMP would in turn forward the $25 million received from the Fukuoka lenders' purchase of the Golf Course Properties to Shimizu. Shimizu would take a loss of the remaining $115 million, which represents the difference between the initial $140 million loan for the Golf Course and the purchase price of $25 million.

During the course of final negotiations for the Basic Agreement, TSA requested and received a one-year option to purchase the Hotel back from Shimizu for "US $140 Million + acquisition costs such as taxes and other public charges, etc. + operating loss + interest." The parties set the option price to allow TSA to buy the Hotel back from Shimizu at the same amount paid by Shimizu to resolve the Hotel loans (i.e., $140 million). The option price would thus allow Shimizu to be reimbursed and avoid any further losses on the Hotel project.

B. Procedural History
1. The Complaint

On October 21, 1994, shortly before their option to purchase the Hotel was to expire, TSA filed their initial complaint. This complaint asserted claims for reformation and rescission based on fraud (Counts 1 and 2), breach of fiduciary duty (Count 3), and monetary damages based on fraud (Count 4). After filing a first amended complaint to correct the caption, TSA filed a second amended complaint on April 27, 1995 to add claims for violations of the securities laws (Count 5) and reformation/rescission due to mistake (Count 6). On November 9, 1995, TSA filed a third amended complaint that included facts relating to the value of the Hotel. According to TSA, Shimizu's motivation to conclude the Basic Agreement was to terminate its obligation to fund the Golf Course and to obtain substantial tax advantages. According to TSA, as of 1993, Shimizu's obligation to fund the Golf Course had become burdensome, and Shimizu desired to terminate this obligation. In addition, TSA alleged that Shimizu desired to terminate its involvement in WBPC and WMP so that Shimizu could complete the restructuring of its holdings in the United States. TSA further alleged that Shimizu desperately wanted to complete the restructuring of its United States holdings before the...

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