Brutsch v. Brutsch. ( 2017 )


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  •   ***   FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER   ***
    Electronically Filed
    Supreme Court
    SCWC-12-0000703
    02-MAR-2017
    08:54 AM
    IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
    ---oOo---
    ________________________________________________________________
    KARL ROBERT BRUTSCH,
    Respondent/Plaintiff-Appellee/Cross-Appellant,
    vs.
    CELIA KAY BRUTSCH,
    Petitioner/Defendant-Appellant/Cross-Appellee.
    ________________________________________________________________
    SCWC-12-0000703
    CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
    (CAAP-12-0000703; FC-D NO. 09-1-2906)
    MARCH 2, 2017
    McKENNA, POLLACK, WILSON, JJ.,
    WITH RECKTENWALD, C.J., DISSENTING, WITH WHOM NAKAYAMA, J.,
    JOINS
    OPINION OF THE COURT BY McKENNA, J.
    I.   Introduction
    This case arises from a contentious divorce proceeding
    between Celia Kay Brutsch (“Wife”) and Karl Robert Brutsch
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    (“Husband”).      Wife timely applied for writ of certiorari
    (“Application”) from the Judgment entered by the Intermediate
    Court of Appeals (“ICA”) pursuant to its May 12, 2015 Summary
    Disposition Order (“SDO”).         In relevant part, the ICA vacated in
    part the Family Court of the First Circuit’s (“family
    court[’s]”): (1) “Decree Granting Absolute Divorce and Awarding
    Child Custody” (“divorce decree”) because it denied Husband any
    Category 3 credit for gifts and inheritance, and (2) “Order Re:
    Plaintiff’s Motion for Reconsideration and for Rule 68
    Attorney’s Fees Filed February 16, 2012” and “Order Denying
    Plaintiff’s Motion for Reconsideration of Decision Announced
    March 14, 2012, Filed March 21, 2012.”
    In her Application, Wife presents two questions:
    A. Given [Husband’s] failure to document a consistent
    amount for his inheritance, show it was used for marital
    expenses, or rebut a presumption of gift to the marital
    partnership, did the ICA commit grave error when it
    substituted its own judgment for that of the trial
    judge, and vacated his ruling rejecting [Husband’s]
    demand for $134,235, $140,000, $190,000, $236,235, or
    $324,235,[1] in Category 3 credits?
    B. Given [Husband’s] failure to tender a comprehensive
    settlement offer as to all contested issues, offer to
    settle any one of the contested matters, or justify his
    request for fees with billings or time sheets, did the
    ICA commit grave error when it substituted its own
    judgment for that of the trial judge, and vacated his
    ruling denying [Husband’s] demand for [Hawaiʻi Family
    Court Rules] Rule 68 fees and costs?
    1
    Husband requested $134,235 in Category 3 credits in his motion for
    reconsideration. According to Wife, he had requested these other amounts
    before.
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    With respect to the first issue in the Application, we hold
    that the ICA was correct in ruling that the family court erred
    in stating that the record was “bereft of any competent or
    credib[le] evidence that . . . monies were actually contributed
    to the marriage,” and therefore remanding this issue for further
    proceedings, along with other rulings of the family court that
    are not at issue in the Application.         Brutsch v. Brutsch, No.
    CAAP-12-0000703, at 7 (App. May 12, 2015) (SDO).            When the
    family court addresses the issue of Category 3 credits on
    remand, however, it must do so in light of this court’s rulings
    regarding Category 3 credits in Hamilton v. Hamilton, 138 Hawaiʻi
    185, 
    378 P.3d 901
     (2016).       In addition, at various points in
    this litigation, Husband argued differing amounts for Category 3
    credits.   At oral argument, Husband conceded that the only
    amounts he claims for Category 3 credits total $134,235,
    consisting of gifts reflected in checks totalling $74,235, the
    $40,000 total he received as gifts in $10,000 increments, and
    the $20,000 annuity he inherited used to purchase a Jacuzzi for
    the Maunawili house.      Therefore, the family court’s review of
    possible Category 3 credits will be limited to those amounts,
    totalling $134,235.      In addition, in determining Category 3
    credits, the family court must also address whether Husband
    already received credit for any of the subject amounts through
    Wife’s pre-trial purchase of Husband’s interest in the Maunawili
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    home, as Husband has conceded that Wife bought out his interest
    in the home.
    With respect to the second issue in the Application, this
    court recently held that Hawaii Family Court Rules (“HFCR”) Rule
    68 does not apply to proceedings governed by Hawaii Revised
    Statutes (“HRS”) § 580-47 (Supp. 2011).             See Cox v. Cox, 138
    Hawaii 476, 
    382 P.3d 288
     (2016).            This divorce proceeding is
    governed by HRS § 580-47.          We therefore vacate the ICA’s ruling
    vacating the family court’s denial of Husband’s HFCR Rule 68
    motion.      In doing so, we further explain why in Cox we held HFCR
    Rule 68 inapplicable in divorce cases.
    II.   Background
    A.     Factual Background
    1.     Overview
    Husband and Wife (collectively, “the couple”) were married
    in 1991.      The couple has a son born in 1996 and a daughter born
    in 2001.      Husband filed for divorce on September 8, 2009.
    Although the only issues in the Application concern
    Husband’s alleged Category 3 credits and his HFCR Rule 68
    motion, there were many issues addressed by the family court
    during this contentious divorce and related proceedings.                Five
    days before Husband filed for divorce, Wife filed for and
    obtained a temporary restraining order.             There were pre-decree
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    motions concerning temporary custody, temporary child support,
    occupancy of the marital residence, wasting of assets,
    prohibition against abuse, payment of monthly financial
    obligations, attorney’s fees and costs, sharing of marital
    expenses, and payment of expenses for private school, for
    psychological evaluations or treatment, and for appointment of
    custody evaluators.      There were also multiple pre-trial motions
    concerning the same topics.
    With respect to child custody, before trial, the family
    court appointed a Custody Evaluator.         After various studies, the
    Custody Evaluator recommended that Wife be awarded sole legal
    and physical custody of the minor children.
    As Wife had already bought out Husband’s interest in the
    family home before trial, the main issues requiring resolution
    at the October 3–4, 2011 trial were child custody and some
    property division matters.       According to Husband, child custody
    was the most hotly contested dispute.
    After the trial, the family court rendered its oral ruling
    on November 2, 2011.      In summary, the family court (1) denied
    mother’s request for sole custody of the children and instead
    maintained joint legal and joint physical custody and the
    couple’s time-sharing schedule; (2) addressed child support and
    payment of the children’s private school and extracurricular
    expenses; (3) deferred decisions to the couple regarding the
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    children’s higher education expenses and how to use their
    existing education funds; (4) addressed medical and dental
    insurance and past due amounts; (5) addressed life insurance
    policy requirements; (6) decided how the couple would claim tax
    dependencies of their children; (7) determined how the couple’s
    retirement funds would be equalized; (8) ordered that artwork be
    sold and proceeds evenly split; (9) ordered that all joint
    accounts be evenly split, and provided that each party was to
    take his or her own items out of the safety deposit box; (10)
    decided how joint securities and separately titled stock
    accounts were to be divided; (11) determined how to divide
    automobiles and the boat; and (12) awarded Husband all of his
    family business interest and his Kaneohe Yacht Club membership.
    Additionally, as noted, the property divided between the parties
    did not include the couple’s family home in Maunawili, as Wife
    had purchased Husband’s interest prior to trial.              Finally, the
    family court also indicated it would award Wife attorney’s fees
    and costs, and eventually awarded Wife $21,984.46 in fees and
    costs.
    The court did not address any possible Category 3 credit
    for Husband or whether Husband should receive attorney’s fees
    pursuant to HFCR Rule 68.2         On February 16, 2012, Husband filed a
    2
    HFCR Rule 68 states:
    (continued . . .)
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    “Motion for Reconsideration and for Rule 68 Attorney’s Fees”
    (“Motion”) based on a September 30, 2010, Rule 68 letter offer.3
    The offer was apparently rejected by Wife.
    Husband argued that the primary issue in the divorce
    proceedings was the children’s custody, not property division.
    Accordingly, because Wife did not prevail in her quest for sole
    custody, Husband’s attorney argued that Wife was responsible for
    Husband’s attorney’s fees that were incurred after the Rule 68
    offer was made for services rendered on the issue of the
    children’s custody, and claimed entitlement to $15,500 in
    (. . . continued)
    At any time more than 20 days before any contested hearing
    held pursuant to HRS sections 571-11 to 14 (excluding law
    violations, criminal matters, and child protection matters)
    is scheduled to begin, any party may serve upon the adverse
    party an offer to allow a judgment to be entered to the
    effect specified in the offer. Such offer may be made as
    to all or some of the issues, such as custody and
    visitation. Such offer shall not be filed with the court,
    unless it is accepted. If within 10 days after service of
    the offer the adverse party serves written notice that the
    offer is accepted, any party may then file the offer and
    notice of acceptance together with proof of service thereof
    and thereupon the court shall treat those issues as
    uncontested. An offer not accepted shall be deemed
    withdrawn and evidence thereof is not admissible, except in
    a proceeding to determine costs and attorney’s fees. If
    the judgment in its entirety finally obtained by the
    offeree is patently not more favorable than the offer, the
    offeree must pay the costs, including reasonable attorney’s
    fees incurred after the making of the offer, unless the
    court shall specifically determine that such would be
    inequitable.
    HFCR Rule 68.
    3
    The Motion also refers to an August 29, 2011 letter, which Husband asserted
    was a second HFCR Rule 68 offer letter. However, Husband does not argue that
    he is entitled to fees based on the August 29, 2011 offer letter, likely
    because Husband explicitly specified that the offer was a “package deal.”
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    attorneys’ fees in fees under HFCR Rule 68.           The Rule 68 offer
    letter stated:
    Please consider this an HFCR Rule 68 offer to settle
    all matters relating to this divorce. As you know, you
    have 10 days from the receipt of this offer to accept it,
    otherwise it is deemed rejected, and if you do not obtain a
    result that is patently better as to property division or
    child custody/visitation/support at trial, your client will
    owe [Husband] costs and attorney’s fees from the date of
    this offer.
    We propose that the property division between the
    parties be as set out in the enclosed Property Division
    Chart. Basically, we have divided the marital home and the
    associated mortgage, so this issue is resolved. Otherwise,
    the Chart shows that each party keep the assets and debts
    presently in their own names. Note that I have discounted
    the values of the 401k’s by 30% (for state and federal
    taxes) because these are pretax amounts. [Wife] takes all
    the household effects presently in the house (except for
    the two rattan chairs and [Husband’s] personal items).
    Each party shall keep the children’s trust monies (which
    derive from [Husband’s] father’s inheritance) for the
    children’s educational expenses only and be required to
    account for the trust monies upon demand by the other
    party. Each party pays their own debts ([Wife] will, of
    course, be responsible for payment of the new mortgage on
    the marital residence which she is acquiring per the
    agreement of the parties). [Husband] waives any claim to
    an equalization payment.
    Neither party is seeking alimony.
    As for the children, we propose that the parties
    share joint legal and physical custody of the children.
    Child support shall be paid per Guidelines. [Husband]
    shall continue to cover the children for medical insurance,
    and the parties will split equally all uncovered medical
    expenses, including orthodontic care. The parties will
    split the children’s tuitions in proportion to their
    incomes (presently the ratio is 59% for [Husband] and 41%
    for [Wife]), and the parties will split equally all other
    children’s educational expenses (e.g., after-school care,
    extracurricular activities, school lunch expense, etc.).
    The parties will work out a sharing arrangement (e.g., 4-3-
    3-4 or 5-2-2-5) and agree on sharing for school breaks,
    birthdays, holidays, etc. If the parties cannot agree on
    the sharing arrangement, they shall mediate the issue
    before filing any court action.
    We believe that this settles all the issues in this
    case. We await your reply.
    Husband also argued that he was entitled to $134,235 in
    Category 3 credits based on the evidence at trial.            In the
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    Motion, Husband cited to “Plaintiff’s Ex. 10” as evidence.                That
    exhibit included canceled checks from the estate of Husband’s
    late father in the amounts of $50,000, $9,235, and $15,000, and
    an investment statement for a beneficiary annuity apparently
    valued at $20,000.     Without providing any record citations,
    Husband also asserted that “[he] . . . testified about receiving
    $40,000 in four $10,000 payments as gifts from his father from
    1996 to 2001 just before his father died. . . .           [Husband]
    testified that he spent . . . [gifted] funds on the house (which
    [Wife] now owns), on a boat (which [Husband] now owns), and
    other expenses during the marriage.”         In summarizing his motion,
    Husband argued:
    Based on the summary of the above issues, [Wife] owes
    [Husband] at least $13,000 in Rule 68 attorney’s fees, and
    probably $15,500. In addition, the credits to which [Wife]
    is entitled under this Court’s decision are more than
    cancelled by the credit to which [Husband] is entitled in
    Category 3 credit. Even though the net of these amounts is
    that [Wife] owes [Husband] about $50,000 (this is assuming
    that this Court awards [Wife] almost $22,000 in attorney’s
    fees which, as argued above, is not justified), [Husband]
    is not looking for an award against [Wife] of this amount.
    [Husband] is simply requesting that this Court’s final
    decree state that neither party owes the other any amount.
    As [Husband] offered in his Rule 68 letter over a year ago
    and in his most recent Rule 68 letter (which even threw in
    a $20,000 incentive which is no longer offered as [Wife]
    chose to go to trial at great expense to the parties and
    the marital estate), this should simply be a “walk-away”
    marriage with joint custody of the children. Based on such
    a decree, the only matter left for the parties to end this
    long unnecessarily drawn out affair will be to sell their
    art collectibles and divide the proceeds as ordered by this
    Court.
    If [Husband] is not awarded his Category 3 credit and
    is required to make payments to [Wife] for attorney’s fees
    and an amount from his 401(k), then even the offer to
    settle here as a “walk away” marriage is withdrawn, and
    [Husband] will seek his full remedies on appeal.
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    At a hearing on March 14, 2012, the court orally ruled on
    Husband’s Motion, stating:
    With regard to the motion for reconsideration, the court
    could have and should have perhaps been more precise. But
    by its omission the court implicitly ruled on the claim for
    Category 3 reimbursements. The court will explicitly do so
    at this time. The court finds that while it may be
    accurate to state that [Husband] did receive monies, the
    record is bereft of any competent or credibility [sic]
    evidence that monies were actually contributed to the
    marriage. Therefore the Rule -- the Category 3 claim
    ultimately fails for lack of evidence as far as what’s been
    presented to the court at this particular juncture. So
    therefore that portion of the motion for reconsideration is
    denied.
    With regard to the other issue as to the attorney’s
    fees, the attorney’s fees [issue] is bound up as part of
    the motion for recon but also as part of the Rule 68. The
    court finds based on the credible evidence that given the
    fact that the motion for recon is denied as to the Category
    3 claim, with regard to the attorney’s fees and costs
    claimed by defendant respondent [sic] is indeed
    appropriate. The Rule 68 is predicated on the entire
    decree being patently more favorable or unfavorable
    depending upon the offer. [Wife’s attorney’s] argument
    with regard to the fact that the Rule 68 offer that was
    presented was not a complete offer, that resounds with the
    court.
    On the question of custody, again it was clear that
    [Wife]’s claim was that she wanted full custody.
    [Husband]’s advocating joint, to establish joint. However,
    a significant portion of the decree also dealt with the
    financial issues which would be the portion of the motion
    for reconsideration. In balance the decree is not patently
    more favorable to one or the other, therefore Rule 68
    fails. The court’s prior orders with regard to the $21,900
    [for Wife’s attorney’s fees] stand[]. Court will affirm
    that amount. That order will be signed by the court.[4]
    Husband filed a subsequent motion for reconsideration of the
    March 14, 2012 oral ruling, which was denied.
    The family court entered its “Decree Granting Absolute
    Divorce and Awarding Child Custody” on April 2, 2012.
    4
    The family court entered its written order on April 2, 2012.
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    2.     Husband’s Inheritance
    In his Motion, Husband did not provide the family court
    with citations to the record regarding each of the gifts or the
    inheritance received by Husband from his father, nor did Husband
    provide citations in his Response to the Application.               Husband,
    however, provided some citations in the opening brief for his
    cross-appeal to the ICA.         [100:20–21]     The following is a
    summary of Husband’s trial testimony and the citations provided
    in the ICA brief on the inheritance issue.
    Husband testified that in 1996, Husband’s father gifted
    $10,000 for the purchase of a family home in Waikele.               He
    asserted that in 1999 and 2001, Husband’s father gifted $10,000
    three separate times.        That money was also used to purchase the
    Waikele house and home furnishings.5
    In 2001, during the marriage, Husband’s father died.
    Husband incrementally received a “substantial inheritance” of at
    least $70,000.       Because Husband was “very much into boating,”
    about $20,000 of the inheritance funds was used to purchase a
    boat, $10,000 on an SUV to pull the boat, both of which he
    received in the divorce decree.          The remainder was “invested
    back into the [Maunawili] house,” for painting the house, a new
    5
    Wife testified the   couple sold the Waikele house and received $150,000 in
    proceeds. That money    went to state and federal taxes, to pay off a portion
    of Husband’s personal   loan, summer school and other educational activities
    for the children, and   for repairs on the Maunawili home.
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    bathroom, electrical work, new flooring, a patio, a Jacuzzi, and
    putting in a rock wall.
    Part of Husband’s inheritance included a share of his
    father’s bakery and the building in which it was located.
    Husband’s brother received the remaining share in the bakery and
    building.    Since 2001, Husband and his brother, in partnership,
    have rented out the building.        Husband received his share of the
    monthly rental proceeds, amounting to approximately $10,000 to
    $20,000 a year, depending on the money spent to upkeep the
    building in any given year.       For a period, “all the money” was
    used to pay Son’s private school tuition of $16,000.
    Neither the Pennsylvania building nor its rental income was
    the subject of Husband’s Motion with respect to Category 3
    credits.    Despite only claiming an alleged Category 3 credit of
    $134,235 in his Motion, Husband also included the Pennsylvania
    rental income, in the amount of $190,000, as a claimed Category
    3 credit in his cross-appeal to the ICA.          Notably, Husband had
    argued in his pre-trial Trial Memorandum that he should be
    awarded Category 3 credit for the rental income generated by the
    Pennsylvania building, in addition to the checks and annuity he
    received as an inheritance from his late father.
    At oral argument, however, Husband clarified his Category 3
    claim, and conceded that he is claiming Category 3 credit only
    for the checks totalling $74,235, the $40,000 total he testified
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    he received from his father consisting of four $10,000 gifts
    received in 1996, and 1999 to 2001, and a $20,000 annuity he
    testified he inherited and used to purchase a Jacuzzi for the
    Maunawili home.        Thus, the maximum amount of the Husband’s
    possible Category 3 credit, as argued by Husband’s counsel, is
    $134,235.
    Pursuant to HFCR Rule 52(a), after the filing of the
    appeals to the ICA, on October 8, 2012, the court issued its
    “Findings of Fact and Conclusions of Law.”             In its Findings of
    Fact, the family court explained the extensive pre-trial, trial,
    and post-trial proceedings of this contentious divorce case.                  In
    its Conclusions of Law, the family court concluded that its
    “November 2, 2011 oral trial decision was proper, appropriate,
    just and equitable under the circumstances . . . .”               It also
    ruled that its “decision to deny . . . [Husband]’s . . . Motion
    . . . was proper, appropriate, just and equitable under the
    circumstances . . . .”
    E.     Appeal to the ICA
    On August 9 and 13, 2012, respectively, Wife and Husband
    both timely appealed to the ICA.             The issues we address on
    certiorari arise out of Husband’s cross-appeal.              Before
    addressing that cross-appeal, we note that Wife contended in her
    appeal that the family court erred in: (1) awarding Wife and
    Husband joint physical legal custody of the parties’ two
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    children and continuing the alternating-week custody schedule;
    and (2) its ruling regarding child support, education and
    medical expenses, and reimbursement for pre-decree expenses.
    See Brutsch, SDO at 2.      The ICA affirmed the family court with
    respect to issue (1) and concluded that the family court had
    made some errors concerning matters in issue (2), and ordered a
    remand.   See id. at 4–6.
    Husband’s cross-appeal raised the two issues that are the
    subject of the Application.       He argued the family court erred
    in: (1) failing to award Husband any Category 3 credit; (2)
    denying Husband’s request for Rule 68 attorney’s fees; and (3)
    awarding Wife $21,984.46 in attorney’s fees and costs.
    With respect to the cross-appeal, the ICA held that
    “Husband was not required to trace the money he received in
    gifts and inheritances into specific purchases that contributed
    to the marriage in order to be entitled to a Category 3 credit,”
    and that therefore “the [f]amily [c]ourt erred in denying
    Husband any Category 3 credit on this basis.”           Id. at 7.
    As to the award of Rule 68 attorney’s fees, the ICA
    concluded that, pursuant to Owens v. Owens, 104 Hawaii 292, 310,
    
    88 P.3d 664
    , 682 (App. 2004), the matter must be remanded to the
    family court for a determination as to “whether its final
    judgment on child custody is patently not more favorable to Wife
    than Husband’s HFCR Rule 68 offer on the custody issue.”
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    Brutsch, SDO at 8–9.         On remand, the family court was also
    directed to consider whether HFCR Rule 68 attorney’s fees with
    respect to financial issues would be appropriate, in light of
    the family court’s consideration on remand of Husband’s Category
    3 credits.       See id. at 9.     The ICA noted that “if the [f]amily
    [c]ourt determines that the judgment entered . . . was patently
    not more favorable to Wife than Husband’s offer, it should
    consider whether the award of fees would be inequitable.”                   Id.
    The ICA did not find the family court abused its discretion
    in awarding Wife attorney’s fees, and therefore affirmed the
    award.      See id.
    Based in part on the foregoing, the ICA “(1) affirm[ed] in
    part and vacate[d] in part the [d]ivorce [d]ecree; (2) vacate[d]
    the [f]amily [c]ourt’s denial of Husband’s request for HFCR Rule
    68 attorney’s fees; (3) affirm[ed] the Order Awarding Attorney’s
    Fees to Wife; and (4) remand[ed] the case for further
    proceedings consistent with this Summary Disposition Order.”
    Id. at 9–10.
    F.     Application for Writ of Certiorari
    As noted earlier, Wife presents two questions to this
    court:
    A. Given [Husband’s] failure to document a consistent
    amount for his inheritance, show it was used for marital
    expenses, or rebut a presumption of gift to the marital
    partnership, did the ICA commit grave error when it
    substitute its own judgment for that of the trial judge,
    and vacated his ruling rejecting [Husband’s] demand for
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    $134,235, $140,000, $190,000, $236,235, or $324,235, in
    Category 3 credits?
    B. Given [Husband’s] failure to tender a comprehensive
    settlement offer as to all contested issues, offer to
    settle any one of the contested matters, or justify his
    request for fees with billings or time sheets, did the
    ICA commit grave error when it substituted its own
    judgment for that of the trial judge, and vacated his
    ruling denying [Husband’s] demand for HFCR Rule 68 fees
    and costs?
    We accepted certiorari and held oral argument on the
    Application.
    III.    Standards of Review
    A.     Family Court Decisions
    Generally, the family court possesses wide discretion
    in making its decisions and those decisions will not be set
    aside unless there is a manifest abuse of discretion.
    Thus, we will not disturb the family court’s decision on
    appeal unless the family court disregarded rules or
    principles of law or practice to the substantial detriment
    of a party litigant and its decision clearly exceeded the
    bounds of reason.
    Kakinami v. Kakinami, 127 Hawai‘i 126, 136, 
    276 P.3d 695
    , 705
    (2012) (quoting Fisher v. Fisher, 111 Hawai‘i 41, 46, 
    137 P.3d 355
    , 360 (2006)).
    It is well established that a family court abuses its
    discretion where “(1) the family court disregarded rules or
    principles of law or practice to the substantial detriment
    of a party litigant; (2) the family court failed to
    exercise its equitable discretion; or (3) the family
    court’s decision clearly exceeds the bounds of reason.”
    Id. at 155-56, 
    276 P.3d at 724-25
     (emphasis omitted) (quoting
    Tougas v. Tougas, 76 Hawai‘i 19, 26, 
    868 P.2d 437
    , 444 (1994)).
    B.     Property Division
    Hawaii’s appellate courts “review the family court’s final
    division and distribution of the estate of the parties under the
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    abuse of discretion standard, in view of the factors set forth
    in HRS § 580-47 and partnership principles.”              Tougas, 76 Hawai‘i
    at 26, 
    868 P.2d at 444
     (quoting Gussin v. Gussin, 
    73 Haw. 470
    ,
    486, 
    836 P.2d 484
    , 492 (1992)) (footnote omitted).               “The family
    court’s determination of whether facts present valid and
    relevant considerations authorizing a deviation from the
    partnership model division is a question of law that this court
    reviews under the right/wrong standard of appellate review.”
    Gordon v. Gordon, 135 Hawai‘i 340, 348, 
    350 P.3d 1008
    , 1016
    (2015) (citing Jackson v. Jackson, 84 Hawai‘i 319, 332–33, 
    933 P.2d 1353
    , 1366–67 (App. 1997)).
    C.     Findings of Fact and Conclusions of Law
    The family court’s FOFs are reviewed on appeal under
    the “clearly erroneous” standard. A[n] FOF is clearly
    erroneous when (1) the record lacks substantial evidence to
    support the finding, or (2) despite substantial evidence in
    support of the finding, the appellate court is nonetheless
    left with a definite and firm conviction that a mistake has
    been made. “Substantial evidence” is credible evidence
    which is of sufficient quality and probative value to
    enable a person of reasonable caution to support a
    conclusion.
    On the other hand, the family court’s COLs are
    reviewed on appeal de novo, under the right/wrong
    standard. COLs, consequently, are [ ]not binding
    upon an appellate court and are freely reviewable for
    their correctness.
    Kakinami, 127 Hawai‘i at 136, 
    276 P.3d at 705
     (quoting Fisher,
    111 Hawai‘i at 46, 
    137 P.3d at 360
    ).
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    IV.   Discussion
    A.     Husband’s Claimed Category 3 Credit
    We recently published a comprehensive opinion addressing
    alleged Category 3 credits similar to those at issue in this
    case.      See Hamilton, 138 Hawaiʻi 185, 
    378 P.3d 901
    .           In his
    Motion before the family court, Husband claimed that he should
    have been awarded $134,235 as Category 3 credit, consisting of
    the following:
     $40,000 in gifts from Husband’s father prior to his death in 2001
    (spent on couple’s former Waikele home, proceeds from which were
    spent on taxes, paying down Husband’s personal loan, the children’s
    educational expenses, and repairs to the Maunawili home)
     $74,235 – sum of checks received from Husband’s father’s estate
    (spent on a boat, an SUV, and improvements to the Maunawili home)
     $20,000 – value of an inherited annuity (spent on installing a
    jacuzzi at the Maunawili home)
    Wife testified that she was unaware that Husband received
    funds from his father’s estate other than $10,000 that was
    gifted to each family member, including Husband, totaling
    $40,000.      Wife was aware that Husband “received money to make
    payments for . . . [S]on’s tuition occasionally.”
    Although the family court was initially silent at the
    November 2, 2011 hearing as to why no Category 3 credit was
    given to Husband, at the March 14, 2012 hearing on Husband’s
    Motion, the court explained its reasoning as follows: “the
    record is bereft of any competent or credib[le] evidence that
    [Husband’s inherited or gifted] monies were actually contributed
    to the marriage.”        The ICA, however, found the family court
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    erred by denying Category 3 credit on this basis.               See Brutsch,
    SDO at 7.
    On remand, the family court must address Husband’s alleged
    Category 3 credits in light of this court’s rulings in Hamilton.
    In addressing the alleged Category 3 credits, we also note that
    the parties had reached an outside agreement with respect to the
    Maunawili home, with Wife purchasing Husband’s share prior to
    trial.      Accordingly, to the extent Husband may have invested any
    Category 3 credits into this particular marital partnership
    property, Husband may have already received credit for Category
    3 amounts he invested in this home.            The family court must also
    address this issue.         In addition, the family court must
    therefore address whether, pursuant to Hamilton, any of the
    alleged Category 3 amounts constituted gifts.
    B.     Attorney’s Fees Pursuant to HFCR Rule 68
    The second issue on certiorari concerns the family court’s
    denial of Husband’s HFCR Rule 68 motion for attorney’s fees,
    which the ICA vacated based on its decision in Owens v. Owens,
    104 Hawaii 292, 
    88 P.3d 664
     (App. 2004).             In Owens, the ICA held
    that the family court was required to address an HFCR Rule 68
    offer issue by issue.         See id. at 310, 88 P.3d at 682.         If the
    offer on an issue was not sufficiently specific or if the
    parties had settled an issue, Rule 68 fees would not be
    permitted for fees incurred on that issue.             See id. at 308–09,
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    88 P.3d at 680–81.     Otherwise, to ascertain whether fees should
    be awarded under Rule 68, the family court would need to examine
    the result on each remaining issue to see if the end result
    obtained by the offeree as a whole was patently not more
    favorable than the offer.       See id. at 310, 88 P.3d at 682.
    Owens was decided under a previous version of HFCR Rule 68,
    which required that if all requirements for the award of HFCR
    Rule 68 fees had been met, the court “shall make an award of
    reasonable attorney’s fees and costs to the offeror unless it
    specifically determines that such an award would be inequitable,
    considering the provisions of HRS § 580-47.”           Id.   Effective
    January 1, 2015, HFCR Rule 68 had been amended to omit the
    reference to HRS § 580-47.
    We recently held in Cox v. Cox, 138 Hawaii 476, 
    382 P.3d 288
     (2016), that HFCR Rule 68 does not apply to proceedings
    governed by HRS § 580-47.       HFCR Rule 68, which allows for an
    award of attorney’s fees in addition to costs, is quite
    different from Rule 68 of the Hawaii Rules of Civil Procedure,
    which only allows for costs.       In Cox, in summary, we first ruled
    that HFCR Rule 68 contravenes HRS § 580-47 because while HRS §
    580-47(a) requires that an attorney fee award “shall appear just
    and equitable,” HFCR Rule 68 mandates the award of attorney’s
    fees to a party unless the court specifically determines that an
    award would be inequitable.       See id. at 481, 382 P.3d at 293.
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    Second, we concluded that HFCR Rule 68 abridges substantive
    rights of parties in violation of HRS § 602-11 (1985), which
    prohibits rules of practice and procedure from modifying the
    substantive rights of litigants, as the rule contravened the
    dictates of the governing statute, HRS § 580-47.            Finally, we
    pointed out that the operation of HFCR Rule 68 generated
    substantial complications due to inherent difficulties in
    applying its provisions.       See id.
    This divorce proceeding is governed by HRS § 580-47.
    Therefore, pursuant to Cox, Husband is not entitled to fees
    under HFCR Rule 68.      This case further highlights why we
    invalidated HFCR Rule 68 in divorce cases.
    First, the facts of this case illustrate the difficulty in
    applying HFCR Rule 68, as more fully explained in Cox.             See id.
    at 483-89, 382 P.3d at 295-301.        The HFCR Rule 68 offer in this
    case covers property division, child custody, child visitation,
    and child support.     Husband’s property division offer includes
    specific offers as to retirement accounts, household effects,
    rattan chairs, personal items, children’s trust monies, the use
    and accounting thereof, payment of debts, child custody, child
    support, medical insurance for the children, uncovered medical
    expenses, orthodontic care expenses, tuition expenses,
    educational expenses, including after school care expenses,
    extracurricular activity expenses, school lunch expenses, time
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    sharing arrangements, and time sharing for special days.
    According to Owens, the family court would be required to
    evaluate Husband’s offer issue by issue, and only allow fees for
    those issues on which Husband met HFCR Rule 68 requirements.
    This would appear contrary to Husband’s Rule 68 offer letter,
    which appears to have been a package deal as it started by
    stating, “Please consider this a[] HFCR Rule 68 offer to settle
    all matters relating to this divorce.”
    Moreover, the Owens standard is extremely difficult to
    apply.     Attorney fee billings are not itemized in minutes or
    hours spent on discrete issues such as those included in the
    HFCR Rule 68 offer in this case.6           In fact, in this case,
    Husband’s counsel did not keep hourly records, and estimated the
    time he had spent on child custody issues.            As it did in this
    case, HFCR Rule 68 actually leads to substantial appellate
    litigation in divorce cases just on Rule 68 issues, as the
    parties argue its applicability and application.              Such
    protracted, contentious divorce proceedings are especially
    harmful when the divorcing couple has children.
    6
    Because HFCR Rule 68 has been invalidated in divorce cases and is therefore
    inapplicable in this case, we do not address whether HFCR Rule 68 actually
    requires an evaluation of fees “issue by issue” or whether the offer must be
    compared to the judgment obtained as a whole. We note that HFCR Rule does
    state that “[i]f the judgment in its entirety finally obtained by the offeree
    is patently not more favorable than the offer, the offeree must pay the
    costs, including reasonable attorney’s fees incurred after making of the
    offer, unless the court shall specially determine that such would be
    inequitable.”
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    With respect to children, this case illustrates an
    additional concern regarding an award of attorney’s fees under
    HFCR Rule 68 as stated in Cox.        Cox noted that a threat to
    impose payment of attorney fees may deter a parent from seeking
    a custody determination that would be in the best interests of
    the child:
    This tendency to potentially coerce a settlement is
    all the more problematic in actions involving child custody
    and visitation, which are both subject to HFCR Rule 68 . .
    . . Because the determination of the terms of custody and
    visitation is dictated by the “best interests of the
    child,” HRS § 571-46 (Supp. 2013), . . . “the possible
    impact on a party’s pocketbook should have no influence on
    the child custody issue.” . . . However, HFCR Rule 68’s
    threat of penalizing a party-offeree, by requiring payment
    of the party-offeror’s attorney’s fees, could “deter a
    party whose genuine concern for the best interests of the
    child is motivating him or her to contest the award of
    child custody and/or visitation from continuing to contest
    the award of child custody and/or visitation.”
    Id. at 487-88, 
    382 P.3d 299
    -300 (footnote and some internal
    citations, brackets, and quotation marks omitted).
    Establishing a financial disincentive for a parent to
    contest custody, when that parent has a legitimate concern for
    the best interests of the child, not only undermines the
    foundational principle of custody award determinations, but
    “[i]t is [also] contrary to societal interests” that such
    decisions are made without financial influence.           
    Id.
       In this
    case, Husband argued for HFCR Rule 68 fees on the grounds that
    the main issue at trial was child custody.          Thus, the concerns
    expressed in Cox apply.
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    Importantly, in this case, the Child Custody Evaluator had
    recommended sole legal and physical custody to Wife.             Wife was
    therefore advocating for a decision on child custody which, in
    the court-appointed Child Custody Evaluator’s view, was in the
    best interests of the minor children.          As factfinder, the family
    court was well within its discretion to rule otherwise, and we
    in no way question the joint custody ruling made by the family
    court.    Yet, HFCR Rule 68 would on its face mandate an attorney
    fee award to Husband when he obtained a ruling contrary to the
    Child Custody Evaluator’s recommendation.           This case therefore
    illustrates how HFCR Rule 68 could not only be coercive, but
    could also run counter to the best interests of the child in
    child custody disputes.
    Along these lines, it must also be noted that HFCR Rule 68
    has a much more coercive impact on divorcing spouses with less
    financial resources as there exists the threat of having to pay
    a spouse’s attorney’s fees if one does not prevail on an issue
    in a divorce case, including an issue of child custody.              In
    divorce cases, it is not unusual for one spouse to have much
    greater financial power.        There are many divorce cases in which
    one spouse remains unrepresented by an attorney.             In those
    cases, only the spouse with an attorney can take advantage of
    HFCR Rule 68.     Thus, the spouse that cannot afford an attorney
    could be court ordered to pay the attorney fees of a spouse with
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    significantly greater financial resources.            This was the exact
    situation in Cox.
    Even if both spouses had attorneys, as in this case, the
    spouse with greater economic power was in a much better position
    to make or reject a HFCR Rule 68 offer, knowing that he or she
    had the financial resources to withstand any later decision on
    fees.     For the spouse without economic power, an adverse HFCR
    Rule 68 award could be financially devastating.             Therefore, HFCR
    Rule 68 was a potentially coercive tool for a spouse with
    economic resources to exercise power and control over the spouse
    without economic might.        This concern was exacerbated in
    divorces involving domestic violence where the divorce was
    initiated by a battered spouse to end that power and control.
    Finally, HRS § 580-47(a) and (f) allow a family court to
    make orders that are “just and equitable,” including orders
    awarding attorney’s fees and costs.7           Unfortunately, HFCR Rule 68
    7
    HRS § 580-47 provides in pertinent part:
    §580-47 Support orders; division of property. (a) Upon
    granting a divorce . . .the court may make any further orders as
    shall appear just and equitable . . . (4) allocating, as between
    the parties, the responsibility for the . . . attorney’s fees .
    . . incurred by each party by reason of the divorce. In making
    these further orders, the court shall take into consideration:
    the respective merits of the parties, the relative abilities of
    the parties, the condition in which each party will be left by
    the divorce, the burdens imposed upon either party for the
    benefit of the children of the parties, the concealment of or
    failure to disclose income or an asset, or violation of a
    restraining order issued under section 580-10(a) or (b), if any,
    by either party, and all other circumstances of the case.
    (continued . . .)
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    allowed for the issuance of attorney fee orders in divorce cases
    that were not “just and equitable.”          For example, in this case,
    the family court had made an attorney fee and costs award in
    favor of Wife pursuant to HRS § 580-47, awarding her $21,984.46
    in fees and costs, and had denied Husband’s request for $15,500
    in fees under HFCR Rule 68; additional sums could have been
    requested for subsequent litigation.          Yet, pursuant to its
    interpretations of HFCR Rule 68, the ICA ordered a remand for
    the family court to consider whether Husband should be entitled
    to HFCR Rule 68 fees.       Therefore, the court rule contradicted
    and could have negated the family court’s award of “just and
    equitable” fees and costs pursuant to the statute.             It is noted
    that even without HFCR Rule 68 being applicable to divorce
    cases, pursuant to HRS § 580-47, a family court has full
    (. . . continued)
    . . .
    (f) Attorney's fees and costs. The court hearing any motion for
    orders either revising an order for the custody, support,
    maintenance, and education of the children of the parties, or an
    order for the support and maintenance of one party by the other,
    or a motion for an order to enforce any such order or any order
    made under subsection (a) of this section, may make such orders
    requiring either party to pay or contribute to the payment of the
    attorney's fees, costs, and expenses of the other party relating
    to such motion and hearing as shall appear just and equitable
    after consideration of the respective merits of the parties, the
    relative abilities of the parties, the economic condition of each
    party at the time of the hearing, the burdens imposed upon either
    party for the benefit of the children of the parties, the
    concealment of or failure to disclose income or an asset, or
    violation of a restraining order issued under section 580-10(a)
    or (b), if any, by either party, and all other circumstances of
    the case.
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    authority to be able to make attorney fee orders in divorce
    cases that are in fact just and equitable.
    The Dissent incorporates its opinion in Cox and reiterates
    its position that HFCR Rule 68 can be interpreted in a manner
    consistent with HRS § 580-47.          Based on reasons stated here and
    in Cox, we respectfully disagree.           We reiterate that there is
    significant case precedent holding court rules inapplicable
    where they conflict with legislative mandates, see Cox, 138
    Hawaii at 482-83, 382 P.3d at 294-95, and we note that pending
    cases are governed by existing rules, even if rule amendments
    applicable to future cases can be made.8
    This case involves an appeal of a family court order
    denying Husband’s motion for HFCR Rule 68 fees.             Husband brought
    the motion after the family court had already ordered Husband to
    pay Wife “just and equitable” attorney’s fees pursuant to HRS §
    580-47.     Applying the existing language of HFCR Rule 68, the ICA
    vacated the family court’s order denying Husband’s motion, and
    ordered the family court to reconsider its ruling in light of
    that language.       The conflict between the statute and the rule
    could not be more clear.         We therefore vacate the ICA’s ruling
    8
    The Family Court Rules Committee is able to propose a revised version of
    HFCR Rule 68 that conforms with HRS § 580-47 and addresses the concerns
    expressed in Cox and in this case, including the presumptive entitlement to
    fees acknowledged by the Dissent, which conflicts with HRS § 580-47.
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    vacating the family court’s denial of Husband’s HFCR Rule 68
    motion.
    V.   Conclusion
    For these reasons, the ICA’s SDO and Judgment on Appeal
    with respect to Husband’s cross-appeal is affirmed in part and
    vacated in part.     The ICA’s ruling vacating in part the family
    court’s “Decree Granting Absolute Divorce and Awarding Child
    Custody” on the grounds it denied Husband any Category 3 credit
    for gifts and inheritance, is affirmed pursuant to the
    supplemental instructions in this opinion.          The ICA’s order
    vacating the family court’s “Order Re: Plaintiff’s Motion for
    Reconsideration and for Rule 68 Attorney’s Fees Filed February
    16, 2012” and “Order Denying Plaintiff’s Motion for
    Reconsideration of Decision Announced March 14, 2012, Filed
    March 21, 2012” are affirmed based only on the issue of the
    Category 3 credits, but to the extent the ICA vacated these
    orders for the family court to address Husband’s HFCR Rule 68
    motion, the ICA’s SDO and Judgment on Appeal are vacated.                This
    matter is remanded to the family court for further proceedings
    consistent with this opinion.
    Peter Van Name Esser and                  /s/ Sabrina S. McKenna
    P. Gregory Frey
    for petitioner                            /s/ Richard W. Pollack
    Samuel P. King, Jr.                       /s/ Michael D. Wilson
    for respondent
    28
    

Document Info

Docket Number: SCWC-12-0000703

Judges: Mekenna, Pollack, Wilson, Recktenwald, Nakayama

Filed Date: 3/2/2017

Precedential Status: Precedential

Modified Date: 11/8/2024