Dela Cruz v. Quemado.

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Electronically Filed
Supreme Court
SCWC-14-0000916
23-JAN-2018
08:03 AM
IN THE SUPREME COURT OF THE STATE OF HAWAI#I
---o0o---
FLORENCIO E. DELA CRUZ, ANASTACIA A. DELA CRUZ, and
JENNIFER M. RESPECIO, Petitioners/Plaintiffs-Appellants,
vs.
IRENE B. QUEMADO, MARVIN QUEMADO, JR., and BRYAN T. HIGA,
Respondents/Defendants-Appellees.
SCWC-14-0000916
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-14-0000916; CIV. NO. 08-1-1089)
JANUARY 23, 2018
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.
OPINION OF THE COURT BY RECKTENWALD, C.J.
I. Introduction
While this case concerns civil claims arising from an
armed robbery, our decision focuses on the circuit court’s entry
of default and subsequent decisions regarding the default.
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On the afternoon of June 1, 2006, jewelry business
owners Florencio Dela Cruz and Anastacia Dela Cruz (“the Dela
Cruzes”) were robbed at gunpoint by Marvin Quemado, Jr.
(“Marvin”), and Bryan Higa (“Higa”). Marvin and Higa were
indicted in federal court and pled guilty to conspiracy to commit
robbery, robbery, and using and carrying a firearm during and in
relation to the robbery.
In May 2008, the Dela Cruzes and their daughter,
Jennifer Respecio (together, “Petitioners”), filed a civil suit
against Irene Quemado (“Irene”), Marvin’s mother, alleging that
Irene was negligent because she invited the Dela Cruzes to her
home and exposed her son Marvin to the Dela Cruzes’ valuable
jewelry.1 Petitioners contended that Irene’s actions
unreasonably increased the risk that Marvin would rob the Dela
Cruzes. Petitioners argued that, based on Marvin’s history of
drug abuse and felony convictions for possession and promotion of
drugs, Marvin’s actions were foreseeable, and thus, Irene had a
duty to control Marvin’s conduct to prevent “foreseeable harm.”
Irene answered, and the case proceeded in litigation
for a number of years. However, after Irene and her attorney
failed to appear at a scheduled settlement conference in February
1
Although Petitioners also brought claims against Marvin and Higa,
only issues related to the negligence claim against Irene are before this
court.
2
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2013, the Circuit Court of the First Circuit entered default
against Irene.2 Irene moved for reconsideration of the entry of
default and to set aside the entry of default, and the circuit
court denied both motions.
Petitioners moved for entry of default judgment against
Irene. Although the circuit court had entered the default
against Irene, and denied her motion to set aside the entry of
default, it denied Petitioners’ motion for entry of default
judgment. In the order denying Petitioners’ motion to enter
default judgment against Irene, the circuit court also sua sponte
dismissed Petitioners’ claims against Irene with prejudice.
Subsequently, the circuit court entered final judgment against
Petitioners as to their claims against Irene.
The Intermediate Court of Appeals (ICA) affirmed the
circuit court’s decision denying entry of default judgment, based
on the merits of Petitioners’ negligence case. Dela Cruz v.
Quemado, 137 Hawai#i 36, 42, 364 P.3d 934, 940 (App. 2015).
In their application for writ of certiorari,
Petitioners presented questions related to foreseeability and the
standard of evidence used by the ICA. We accepted certiorari and
requested supplemental briefing on whether the circuit court:
(1) abused its discretion in entering default against Irene, (2)
2
The Honorable Karen T. Nakasone presided.
3
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abused its discretion in not setting aside the entry of default
against Irene, and (3) erred in sua sponte dismissing
Petitioners’ claims and then entering judgment against
Petitioners.
We hold that the circuit court abused its discretion in
entering default against Irene and in failing to set aside the
entry of default. We further hold that the circuit court erred
in sua sponte dismissing Petitioners’ claims with prejudice and
entering final judgment against them. As set forth below, we
therefore vacate and remand the case for further proceedings
consistent with this opinion.
II. Background
A. Negligence Claim
On May 30, 2008, Petitioners filed a complaint in
circuit court against Irene Quemado, Marvin Quemado, and Bryan
Higa.3 The following allegations are set forth in the complaint:
Petitioners Florencio and Anastacia Dela Cruz were the
owners of Flor and Annie Jewelry. On June 1, 2006, the Dela
Cruzes went to Irene Quemado’s house at Irene’s invitation, to
3
In December 2009, the court entered defaults for both Marvin and
Higa, as they both failed to answer the complaint or file any pleadings after
being served. On January 22, 2014, Petitioners moved for entry of default
judgment against Marvin and Higa. On February 12, 2014, the court granted
Petitioners’ motion and entered judgment against Marvin and Higa and required
that they pay damages to Petitioners. The circuit court included its entry of
judgment against Marvin and Higa in its June 6, 2014 final judgment.
4
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exchange jewelry. Irene invited her son Marvin to examine and
try on some of the jewelry. The complaint alleged that Marvin
“had a criminal history of using and promoting illegal drugs,
including felony convictions for possessing and promoting drugs,
and was on parole/probation for his felony drug conviction[.]”
Marvin examined the jewelry and asked if he could try
on a gold necklace. Marvin took the necklace upstairs and was
gone for about twenty minutes before Irene went upstairs to check
on him. According to the complaint, while he was upstairs,
Marvin “conspired and devised a plan” with Higa to rob the Dela
Cruzes of their jewelry.
The Dela Cruzes left Irene’s house and arrived at their
next appointment at a nearby restaurant, where Higa robbed
Florencio at gunpoint. Marvin and Higa were later arrested and
indicted in federal court, where they pled guilty to multiple
charges related to the robbery.
Petitioners contended that Irene was negligent in
exposing Marvin to the jewelry because it unreasonably increased
their risk of harm. They asserted that Irene knew “or should
have known” about Marvin’s drug use, and that Marvin “had a gun
and associated with violent criminals, such as [Bryan] Higa.”
Thus, they contended that Irene should be held liable because
Marvin’s actions were “foreseeable” given his prior history of
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drug use and felony convictions for possession and promotion of
drugs.
Irene filed a motion to dismiss the complaint for
failure to state a claim. She argued that the complaint failed
to allege that she engaged in any of the criminal actions of the
other defendants. She asserted that she did not know of or
engage in any misconduct, and that her son, Marvin, was over
eighteen years of age at the time of the robbery.
The circuit court denied Irene’s motion to dismiss in
December 2009. Throughout 2010 and 2011, the parties
corresponded regarding the applicability of Irene’s insurance
policy to the case. Petitioners moved for and were granted six
continuances to file their pretrial statement. Petitioners filed
a pretrial statement in December of 2011, and Irene filed her
pretrial statement on January 18, 2012. Irene argued, inter
alia, that she had no duty to Petitioners, that she did not
breach any duty, that she did not cause Petitioners’ injury, and
that she was “not liable for the unforeseeable acts of third
parties.”
B. Default
1. Entry of Default
On February 17, 2012, Petitioners filed a request and
notice for a trial setting status conference. The trial setting
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status conference was scheduled for March 15, 2012. A March 14,
2012, minute order provides that “off-by agreement, trial setting
status conference continued to: 4/10/11,4 8:30 am. Mr. Jones
informed to file an amended notice.”5 The record reflects that
Johnaaron M. Jones, Irene’s attorney, did not file the amended
notice. Jones did not attend the trial setting status conference
on April 10, 2012. The court set the dates for a settlement
conference, a trial readiness conference, trial, and motion in
limine deadlines. The scheduled dates were included in the court
minutes, and the court issued a trial setting status conference
order setting forth the following dates: the settlement
conference on February 13, 2013, the trial readiness conference
on March 13, 2013, and trial the week of April 8, 2013.
Irene and Jones failed to appear at the scheduled
settlement conference on February 13, 2013.6 As a sanction for
her failure to appear, the circuit court entered an order of
entry of default against Irene, citing Rules of the Circuit
4
The minutes incorrectly state the year as 2011; it should be 2012.
5
There is no indication in the record that notice of the date to
which the trial status conference was continued, April 10, 2012, was mailed to
the parties.
6
The February 13, 2013, court minutes stated that the court mailed
a copy of the trial setting status conference order to Mr. Jones. The trial
setting status conference order included as an attachment the “Settlement
Conference Guidelines for Jury Trials.” The guidelines provided that failure
to appear at the settlement conference could result in sanctions as provided
in RCCH Rule 12.1(a)(6). The guidelines specified, “If you are a defendant,
failure to comply may result in entry of default against you.”
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Courts of the State of Hawai#i (RCCH) Rule 12.1(a)(6).7 The
February 13, 2013 court minutes state:
The court took judicial notice of the records and
files and history of this case and noted the non-
appearance of Mr. Jones on the Trial Setting Status
Conference of 4/12/12 where a copy of the TSSC order
was mailed to him.8
. . .
The court also noted the last appearance by Mr. Jones
was the 1/18/12 filing of Defendant’s pretrial
statement.
Court held colloquy with [Petitioners’ counsel] re:
contacts with Mr. Jones.
The court further noted no withdrawal was filed by Mr.
Jones.
Court finds sanctions under 12.1(6) is appropriate and
will hold defendant in default . . .
The circuit court also based its order on its finding
7
RCCH Rule 12.1(a)(6) provides in pertinent part:
The failure of a party or his attorney to appear at a
scheduled settlement conference, the neglect of a
party or his attorney to discuss or attempt to
negotiate a settlement prior to the conference, or the
failure of a party to have a person authorized to
settle the case present at the conference shall,
unless a good cause for such failure or neglect is
shown, be deemed an undue interference with orderly
procedures. As sanctions, the court may, in its
discretion:
(i) Dismiss the action on its own motion, or on the
motion of any party or hold a party in default, as the
case may be;
(ii) Order a party to pay the opposing party’s
reasonable expenses and attorneys’ fees;
(iii) Order a change in the calendar status of the action;
(iv) Impose any other sanction as may be appropriate.
8
The court provided an incorrect date: the trial setting status
conference was held on April 10, 2012, and not April 12, 2012. The April 10,
2012 court minutes do not state that a copy of the trial setting status
conference order was mailed to Mr. Jones.
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that Irene and her attorney had “failed to discuss or attempt to
negotiate a settlement prior to the conference, failed to have a
person authorized to settle the case present at the conference,
and failed to deliver a confidential settlement letter to the
Judge” prior to the conference. In its order of entry of
default, filed March 6, 2013, the circuit court stated that it
found no good cause for Jones’s “series of failures and neglect.”
In addition to holding Irene in default, the circuit court
ordered her to pay Petitioners’ attorney’s fees in the amount of
$2,074.25.
2. Motion for Reconsideration of Entry of Default and
Motion to Set Aside Default Judgment
On March 15, 2013, Jones, on Irene’s behalf, filed a
motion to reconsider default judgment9 and awarding of attorney’s
fees. He argued that he made “[t]he errors in this case,” and
that Irene “should be given an opportunity to litigate her claims
and defenses on the merits.” Jones attached a declaration in
which he asserted that he did not receive notice of the
settlement conference and did not intentionally attempt to delay
trial. He declared that in January 2013, he closed his main
office and went into semi-retirement. He declared that he
9
The motion should have sought reconsideration of the entry of
default (not default judgment) because, although the court had entered default
against Irene, as of March 15, 2013, it had not entered a default judgment.
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notified the post office of his change of address and sent out
notice of his new telephone number. He also declared that he was
just recovering from a long illness.
The circuit court denied Irene’s motion for
reconsideration, stating, without further explanation, that it
found “good cause” to deny the motion without a hearing.
Also on March 15, 2013, Irene filed a motion to set
aside “default judgment”10 and the award of attorney’s fees,
arguing that she could meet the requirements for setting aside a
default entry specified in BDM, Inc. v. Sageco, Inc., 57 Haw. 73,
76, 549 P.2d 1147, 1150 (1976). First, because Petitioners had
filed multiple motions to continue, it would be disingenuous for
them to claim they would be prejudiced by reopening the case when
so little time had passed since the entry of default. Second,
Irene argued that she had a meritorious defense because she did
not breach a duty of care to Petitioners and was not the cause of
Petitioners’ injuries. Third, Irene asserted that her attorney
had not received notice of the settlement conference, and
therefore the default was not caused by inexcusable neglect or a
willful act on her part.
In their opposition to Irene’s motion to set aside,
10
Again, the motion should have sought to set aside the entry of
default, not default judgment.
10
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Petitioners refuted Irene’s arguments. First, Petitioners argued
that they would be prejudiced by the reopening of the case
because Petitioners had “suffered financially and emotionally
while this case has been prolonged due to Mr. Jones’ inexcusable
neglect.” Second, Petitioners contended that Irene failed to
prove that she had a meritorious defense. Third, Petitioners
argued that Irene failed to show that her default was not the
result of inexcusable neglect, asserting that her failure to
attend the settlement conference was part of “a series of
inexcusable neglect, non-response, and neglect of attorney
responsibilities[.]”11
The circuit court denied Irene’s motion to set aside.
The order also specified that the attorney’s fees portion of the
sanction was to be imposed on Jones.
C. Motion for Entry of Default Judgment, Dismissal of Remaining
Claims, and Final Judgment
In May 2013, Petitioners filed a motion for entry of
default judgment against Irene pursuant to Hawai#i Rules of Civil
Procedure (HRCP) Rule 55(b).12 The court minutes from a
11
As to the neglect, Petitioners listed in detail, and provided
exhibits to support, a history of their communication with Jones.
12
HRCP Rule 55(b)(2) provides, in relevant part:
[T]he party entitled to a judgment by default shall
apply to the court therefor. . . . If the party
against whom judgment by default is sought has
appeared in the action, the party (or, if appearing by
(continued...)
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September 2013 hearing on the motion state that the court “voiced
it’s [sic] concern re: liability” and was “inclined to deny
Plaintiffs’ motion but under [HRCP] Rule 55, the court set a
proof hearing” for October 2013. The proof hearing was held on
October 18, 2013. Although Irene and her attorney were present
at the proof hearing, the circuit court prohibited them from
participating in the hearing because Irene was in default.13
Petitioners testified about the events on the day of the robbery
and their claim that Irene should be liable for the conduct of
her son.
On December 2, 2013, the circuit court entered its
“Findings of Fact [FoF], Conclusions of Law [CoL], and Order
12
(...continued)
representative, the party’s representative) shall be
served with written notice of the application for
judgment at least 3 days prior to the hearing on such
application. If, in order to enable the court to
enter judgment or to carry it into effect, it is
necessary to take an account or to determine the
amount of damages or to establish the truth of any
averment by evidence or to make an investigation of
any other matter, the court may conduct such hearings
or order such references as it deems necessary and
proper and shall accord a right of trial by jury to
the parties when and as required by any statute.
13
Specifically, the court stated:
I'm not going to permit you to make any argument or
any statement but I’ll permit you to state your
position in like two sentences or less for the record
just to -- because you are here for Irene Quemado,
even though she’s been in default, all right, and the
court has declined your request to set aside the
default but you may make just a brief position
statement and that’s it for this hearing.
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Denying [Petitioners’] Motion for Entry of Default Judgment.”
The circuit court found that only Marvin and Higa, and not Irene,
were involved in the robbery. The court also found a lack of
evidence to establish that Irene participated in the planning or
commission of the robbery and a lack of evidence to impose
liability on Irene for the criminal conduct of Marvin and Higa.
Concluding that there were insufficient factual and legal bases
for imposing liability on Irene, the circuit denied Petitioners’
motion for entry of default judgment.
In the order, the circuit court also dismissed
Petitioners’ claims against Irene with prejudice. Subsequently,
the circuit court entered final judgment against Petitioners.
D. ICA Proceedings
Petitioners argued in the ICA that the circuit court
erred in denying their motion for default judgment against Irene
“because there were sufficient factual and legal bases” to impose
liability on her for the criminal conduct of Marvin and Higa,
that the trial court erred in concluding that it was not
reasonably foreseeable that Marvin would commit a violent crime
given his history of drug possession and promotion, and that the
circuit court erred in concluding that Irene’s “affirmative
conduct did not create the circumstances that afforded the
opportunity for [] Marvin and [] Bryan to commit the robbery.”
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The ICA subsequently published its opinion affirming
the circuit court’s orders and judgments. Dela Cruz, 137 Hawai#i
at 42, 364 P.3d at 940. The ICA held, “[b]ased on the circuit
court’s undisputed FOFs and viewing the evidence in the light
most favorable to [Petitioners], Marvin’s conduct was not
foreseeable and Irene owed [them] no duty of care to refrain from
exposing Marvin to Florencio and Anastacia’s jewelry.” Id. at
41-42, 364 P.3d at 939-40.
E. Application for Writ of Certiorari
This court accepted Petitioners’ application for writ
of certiorari. Petitioners argue that the ICA erred in holding
that Marvin’s conduct was not foreseeable, and that it erred by
applying the wrong standard of evidence in reviewing the circuit
court’s denial of Petitioners’ motion for entry of default
judgment.
Subsequently, this court ordered the parties to submit
supplemental briefing on three questions:
1. Whether the circuit court abused its discretion
in entering default against Respondent Irene
Quemado pursuant to Hawai#i Rules of the Circuit
Courts Rule 12.1.
2. Whether the circuit court abused its discretion
in not setting aside the entry of default
against Respondent Irene Quemado. See, e.g.,
BDM, Inc. v. Sageco, Inc., 57 Haw. 73, 549 P.2d
1147 (1976); Rearden Family Trust v. Wisenbaker,
101 Hawai#i 237, 65 P.3d 1029 (2003).
3. Whether the circuit court erred in sua sponte
entering judgment against the movant in a
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liability hearing held pursuant to Hawai#i
Rules of Civil Procedure Rule 55(b)(2).
Both parties then submitted supplemental briefs.
III. Standards of Review
A. RCCH Rule 12.1 Sanctions
“[T]his court . . . reviews an award of [RCCH] Rule
12.1 sanctions under the abuse of discretion standard.” Canalez
v. Bob’s Appliance Serv. Center, Inc., 89 Hawai#i 292, 300, 972
P.2d 295, 303 (1999). “A . . . court abuses its discretion
whenever it exceeds the bounds of reason or disregards rules or
principles of law or practice to the substantial detriment of a
party.” Shanghai Inv. Co., Inc. v. Alteka Co., Ltd., 92 Hawai#i
482, 491-92, 993 P.2d 516, 525-26 (2000) (internal quotation
marks and citations omitted).
B. Motion to Set Aside
“Because the denial of [a] motion to set aside []
default [] stems from the exercise of [the trial court’s]
discretion in imposing sanctions under RCCH Rule 12.1, we regard
such a denial as subject to the same review standard of abuse of
discretion.” Rearden Family Tr. v. Wisenbaker, 101 Hawai#i 237,
254, 65 P.3d 1029, 1046 (2003).
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IV. Discussion
A. The Circuit Court Abused its Discretion in not Setting Aside
the Entry of Default Against Irene.
1. Jurisdiction
As an initial matter, we must address jurisdiction.
Petitioners urge that because Irene did not timely file a cross-
appeal, this court does not have jurisdiction to consider whether
the circuit court abused its discretion in entering, and in not
setting aside, the default. However, the requirement that an
appellee cross-appeal applies only when the appellee seeks to
“attack a judgment . . . with a view either to enlarging his own
right or of lessening the rights of his adversary.” Shoemaker v.
Takai, 57 Haw. 599, 607, 561 P.2d 1286, 1291 (1977); Zane v.
Liberty Mut. Fire Ins. Co., 115 Hawai#i 60, 73 n.14, 165 P.3d
961, 974 n.14 (2007) (rejecting the argument that the respondent
who prevailed in trial court was required to cross-appeal an
issue raised on appeal by the petitioner).
Irene was not required to cross-appeal because she was
seeking only to defend the circuit court’s judgment, and not
seeking to modify it. See Shoemaker, 57 Haw. at 607, 561 P.2d at
1291. The proceedings in this case were unique in that the
circuit court entered default against Irene and denied her motion
to set aside, but then ultimately held in her favor. Irene
prevailed on the merits, and thus had no reason to challenge the
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circuit court’s judgment. See Zane, 115 Hawai#i at 73 n.14, 165
P.3d at 974 n.14.
2. Entry of Default Pursuant to RCCH Rule 12.1(a)(6)
In the circumstances of this case, we conclude that
entry of default imposed as a RCCH Rule 12.1(a)(6) sanction for
failure to attend the settlement conference was an abuse of
discretion. In reaching this conclusion, we note that the record
does not contain any evidence that Irene herself was aware of the
settlement conference but nevertheless failed to attend. Thus,
the imposition of the severe sanction of dismissal, without some
opportunity for Irene to provide an explanation, was premature.
Cf. Wisenbaker, 101 Hawai#i at 242, 65 P.3d at 1034 (when
defendant failed to attend a settlement conference, trial court
issued an order to show cause and provided the defendant an
opportunity to explain why default should not be entered); see
also RCCH Rule 12.1(a)(6). This is particularly so where, as
here, Irene had actually litigated the case for years.
3. Failure to Set Aside Default Entered Pursuant to RCCH
Rule 12.1(a)(6)
We hold that the circuit court also abused its
discretion in not setting aside the entry of default. This
holding is based on our precedent in Rearden Family Trust v.
Wisenbaker. In Wisenbaker, the trial court entered default
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judgment against the defendant as a sanction pursuant to RCCH
Rule 12.1(a)(6) after he failed to appear personally at a
settlement conference. 101 Hawai#i at 243, 65 P.3d at 1035. The
defendant had requested that the court continue the conference
because he had to care for a family member, and had sent his
attorney to appear on his behalf. Id. at 241-42, 65 P.3d at
1033-34. The court denied the defendant’s request and issued an
order to show cause (OSC), requiring the defendant to explain why
default judgment should not be entered against him. Id. at 242,
65 P.3d at 1034. When defendant did not appear at the hearing,
the court entered default against him. Id. at 243, 65 P.3d at
1035.
The defendant subsequently filed a motion to set aside,
with an accompanying affidavit from his counsel stating that the
defendant had not been properly served and that his counsel had
misunderstood the hearing schedule and, accordingly, did not
inform the defendant of the correct date of the hearing. Id. at
244, 65 P.3d at 1036. The court deferred ruling on the motion to
set aside and ordered further settlement negotiations, which
Wisenbaker participated in. Id. at 245-46, 65 P.3d at 1037-38,
After the parties notified the court that they failed to reach a
settlement, the court summarily denied the defendant’s motion to
set aside the default judgment. Id. at 246, 65 P.3d at 1038.
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On appeal, we held that the court abused its discretion
in denying the motion to set aside. Id. at 254, 65 P.3d at 1046.
We noted that the defendant’s failure to appear at the OSC
hearing may have been an “inadvertent omission” on his part, as
there was confusion as to the date of the OSC hearing. Id. at
253, 65 P.3d at 1045.
Moreover, we affirmed that “defaults and default
judgments are not favored and that any doubt should be resolved
in favor of the party seeking relief, so that, in the interests
of justice, there can be a full trial on the merits.” Id. We
explained that the court had the ability to “levy lesser
sanctions” for the defendant’s failure to attend the settlement
conference, which “[i]n our view, . . . would [have] better
serve[d] the interest of justice,” and cited with approval to
cases imposing attorney’s fees and monetary sanctions. Id. at
255, 65 P.3d at 1047.
We hold that the denial of the motion to set aside the
entry of default against Irene was an abuse of discretion.
Nothing in the record indicates that Irene’s failure to appear at
the settlement conference was intentional. In Wisenbaker, the
defendant was unaware of the correct date of the OSC hearing, and
this court vacated the judgment in favor of the plaintiff and
instructed that the circuit court grant the motion to set aside
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default, because the defendant’s failure to attend was
inadvertent. Wisenbaker, 101 Hawai#i at 253, 255, 65 P.3d at
1045, 1047. Here, similarly, Irene stated that her failures were
due to her attorney not receiving notice of the settlement
conference and therefore being unaware of it. Irene’s counsel,
Jones, declared that they did not receive notice that the
conference had been scheduled because he had closed his law
office and gone into “semi-retirement.”
Moreover, the circuit court had the discretion to
impose lesser sanctions for Irene’s failure to appear at the
settlement conference. Wisenbaker, 101 Hawai#i at 255, 65 P.3d
at 1047. Here, as part of its order entering default, the
circuit court ordered Jones to pay Plaintiffs’ attorney’s fees
for the settlement conference and for prior attempts to comply
with settlement conference negotiations provisions. We view the
monetary sanctions imposed against Jones to be a “lesser
sanction” which “better serve[s] the interest of justice.” See
Wisenbaker, 101 Hawai#i at 255, 65 P.3d at 1047. As in
Wisenbaker, default in this case was too harsh a sanction,
because it prevented Irene from litigating the merits of the
claim, when the record indicated that her failure to attend the
conference was not intentional. Accordingly, we find that the
trial court abused its discretion in failing to set aside the
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default.
B. The Circuit Court Erred When it Dismissed Petitioners’
Claims and Entered Judgment Against Them.
In Hupp v. Accessory Distributors, Inc., the ICA
interpreted HRCP Rule 55(b)(2) to provide discretion for courts
to order proof of liability hearings before entering default
judgment. 1 Haw. App. 174, 179-180, 616 P.2d, 233, 236-37 (1980)
(“trial courts must be given leeway in their discretion to
require proof of liability in the support of a default
judgment”). Hupp held that in such a hearing, the nondefaulting
party must adduce evidence which would be sufficient at trial to
overcome a motion for directed verdict. Id. at 180, 616 P.2d at
237.
Here, the court followed the procedure set forth in
Hupp and conducted a proof hearing on liability. The court
explained in its order denying Petitioners’ motion for entry of
default judgment that it was assessing whether Petitioners met
their prima facie standard of proof under HRCP Rule 55(b)(2).
The court found that there was a lack of evidence to establish
that Irene participated in the crimes against Petitioners, and
that there was a lack of evidence to impose liability on Irene
for the criminal conduct of her son, Marvin, and his friend,
Higa. Accordingly, the court denied the motion for entry of
default judgment.
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The court erred, however, when it dismissed the claims
against Irene with prejudice and subsequently entered final
judgment against Petitioners. When the court found that
Petitioners failed to meet the prima facie standard of proof
under HRCP Rule 55(b)(2), it should have denied Petitioners’
motion for entry of default judgment, and allowed the case to
proceed.
In re Villegas, 132 B.R. 742, 747 (B.A.P. 9th Cir.
1991), is squarely on point. In Villegas, following a Federal
Rule of Civil Procedure (FRCP) Rule 55(b)(2) liability hearing,
the bankruptcy court refused to enter default judgment in favor
of the nondefaulting party and entered judgment in favor of the
defaulting party. Id. at 746. The Bankruptcy Appellate Panel
of the Ninth Circuit held that the bankruptcy court did not abuse
its discretion in conducting an evidentiary hearing pursuant to
Rule 55(b)(2), and affirmed the refusal to enter default judgment
in favor of the nondefaulting party. Id. However, as to entry
of judgment in favor of the defaulting party, it held:
While a trial court has great discretion in
considering issues and evidence in a hearing pursuant
to Rule 55(b)(2), we find no authority that would
allow a trial court to enter judgment in favor of the
defaulting party following such a hearing. To enter
such a judgment against the non-defaulting party
because of the failure of that party to sustain its
burden of proof would make the hearing under Rule
55(b)(2) the same as a trial on the merits. In this
regard, the appellants were, in essence, forced to
trial without having the benefit of the procedural
protection offered by the Federal Rules of Civil
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Procedure, including the opportunity to conduct
discovery in accordance with these rules.
Id. at 746-47.
Thus, the Villegas court vacated the judgment entered
in favor of the defaulting party and remanded the case to allow
the nondefaulting party the opportunity to conduct discovery and
present their case at trial. Id. at 747.
“[T]he stated purpose for the Villegas rule is to avoid
forcing the non-defaulting party to trial without having the
benefit of the procedural protections offered by the Federal
Rules of Civil Procedure, including the opportunity to conduct
discovery.” In re Dugger, No. ADV. 08-90002, 2012 WL 2086562, at
*12 (B.A.P. 9th Cir. June 8, 2012). The Dugger court noted that
it was particularly unjust to enter judgment against the
nondefaulting party when it had not had the opportunity to
conduct discovery, because the defaulting party there had been
sanctioned by the bankruptcy court for its repeated failures to
cooperate with the nondefaulting party’s discovery efforts. Id.
Here, the circuit court erred in dismissing
Petitioners’ claims and entering judgment against them. The
circuit court’s actions “made the hearing under Rule 55(b)(2) the
same as a trial on the merits,” but Petitioners were deprived of
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procedural protections, including the opportunity to conduct full
discovery.14 See Villegas, 132 B.R. at 746-47.
Instead of dismissing the claims against Irene, the
circuit court should have denied entry of default and allowed the
litigation to proceed, so that additional discovery and motions
could be filed and, if appropriate, a trial conducted. The
circuit court erred when it dismissed Petitioners’ claims and
entered judgment in favor of Irene. In future cases, when trial
courts deny a motion for entry of default judgment, the
appropriate subsequent course of action is to set aside the
default, and allow the case to proceed on the merits.
Finally, we note that the circuit court should not have
prohibited Irene from speaking at the proof hearing. “‘[E]ntry
of default under RCCH Rule 12.1(a)(6)(i) for failure to follow
settlement conference requirements . . . precludes a defaulted
defendant from contesting liability in any proof hearing held as
a result of the default, although the defaulted defendant may
still contest the amount of its liability.’” Wisenbaker, 101
Hawai#i at 243 n.13, 65 P.3d at 1035 n.13 (quoting Kam Fui Trust
14
In their opposition to the motion to set aside default judgment,
Petitioners argued that they sought to depose Irene, but Jones did not
respond, and they cited Jones’s non-response as a factor contributing to their
motion for enlargement of time to file pretrial statements. Petitioners
argued that they served Irene with a request of production of documents, to
which Jones did not respond. By entering judgment in Irene’s favor, the court
essentially forced Petitioners to trial without the benefit of conducting full
discovery. See Dugger, 2012 WL 2086562, at *12.
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v. Brandhorst, 77 Hawai#i 320, 325, 884 P.2d 383, 388 (App.
1994))(emphasis added); Occidental Underwriters of Hawai#i, Ltd.
v. American Sec. Bank, 5 Haw. App. 431, 433, 696 P.2d 852, 854
(App. 1985) (“[u]pon the entry of default, [defendant] had lost
its standing to contest the fact of its liability . . . but still
had standing to contest the amount of its liability.”).15 Trial
courts must permit parties in default to contest damages at proof
hearings. See Kamaunu v. Kaaea, 99 Hawai#i 432, 439, 56 P.3d
734, 741 (App. 2002) (ordering trial on sole issue of damages).
V. Conclusion
For the foregoing reasons, we conclude that the circuit
court erred in entering the default, and erred in refusing to set
aside the entry of default. The court further erred in
dismissing Petitioners’ claims with prejudice and in entering
judgment against them. We therefore vacate the ICA’s February 1,
2016 judgment, vacate the circuit court’s June 6, 2014 final
judgment as to Irene,16 vacate the circuit court’s March 5, 2013
order entering default, and vacate the circuit court’s May 17,
15
Courts in other jurisdictions similarly hold that a defaulted
party may contest the amount of damages at a liability hearing. See, e.g.,
Bys Inc. v. Smoudi, 228 Ariz. 573, 578, 269 P.3d 1197, 1202 (Ariz. App. 2012)
(holding that a defaulted party may still appear in the action to contest
damages); Burge v. Mid-Continent Cas. Co., 123 N.M. 1, 8, 933 P.2d 210, 217
(N.M. 1996)(holding that a defaulting party only admits to liability, and is
entitled to a hearing on the determination of damages).
16
We do not disturb the portions of the June 6, 2014 judgment
entering judgment against Marvin and Higa.
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2013 order denying Irene’s motion to set aside default judgment,
and remand the case for further proceedings consistent with this
opinion.
Joseph P.H. Ahuna, Jr., and /s/ Mark E. Recktenwald
David K. Ahuna
for petitioners /s/ Paula A. Nakayama
Johnaaron Murphy Jones for /s/ Sabrina S. McKenna
respondent Irene B. Quemado
/s/ Richard W. Pollack
/s/ Michael D. Wilson
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