Smith v. Lenhart

NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
26-MAY-2023
10:19 AM
Dkt. 182 MO
NO. CAAP-XX-XXXXXXX
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI#I
ARTHUR GORDON SMITH, CHARLOTTE SMITH JENKINS,
AND ALEXANDER GRAVES SMITH,
Plaintiffs-Appellees/Cross-Appellants
v.
PETER J. LENHART AND GAIL TAKEUCHI,
Defendants-Appellants/Cross-Appellees
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
(CIVIL NO. 15-1-0179)
MEMORANDUM OPINION
(By: Ginoza, Chief Judge, Leonard and McCullen, JJ.)
This case arises from an action to collect a debt owed
under a promissory note. Defendants-Appellants/Cross-Appellees
Peter J. Lenhart (Lenhart) and Gail Takeuchi (collectively,
Defendants) appeal from the "Amended Final Judgment" entered on
November 6, 2017, by the Circuit Court of the First Circuit
(Circuit Court).1 Defendants also challenge the following orders
by the Circuit Court: (1) "Order Granting Plaintiffs' Motion for
Partial Summary Judgment on Defendants' Affirmative Defense Under
HRS Chapter 478" entered on March 28, 2017; (2) "Order Denying
Defendant's Oral Motion for Judgment as a Matter of Law" entered
on June 6, 2017; (3) "Order Denying Defendants' Second Oral
Motion for Judgment as a Matter of Law" entered on June 6, 2017;
and (4) "Order Granting in Part Defendants' Renewed Motion for
Judgment as a Matter of Law, to Vacate the Judgment and for New
Trial" entered on July 25, 2017.
1
The Honorable Gary W.B. Chang presided.
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
To facilitate the purchase of a residence on Round Top
Drive, Defendants agreed to a promissory note in the amount of
$1,075,000 in favor of the seller, with a simple interest rate of
7.5% per annum, and also executed a related second mortgage.
Defendants were unable to repay the note by the maturity date and
the parties executed a loan modification agreement extending the
maturity date and also changing the interest calculation from a
simple rate to compound interest, i.e., interest on interest.
Defendants subsequently asserted the compound interest under the
loan modification agreement was usurious, refused to recalculate
interest back to the simple rate of 7.5%, and refused to pay any
further interest on the note. Defendants proposed satisfying the
remaining balance due under the note in the amount of $398,472.
After Defendants paid $398,472 to Plaintiffs-Appellees/Cross-
Appellants Arthur Gordon Smith (Arthur Smith), Charlotte Smith
Jenkins, and Alexander Graves Smith (collectively, Plaintiffs),
the parties disputed whether Defendants owed additional monies.
Plaintiffs brought this action for breach of contract.
On appeal, Defendants contend the Circuit Court erred
in: (1) concluding that Plaintiffs held a promissory note secured
by a "purchase-money junior mortgage lien" and that the note fell
within the exemptions from usury set forth in Hawaii Revised
Statutes (HRS) § 478-8; (2) evidentiary rulings during cross-
examination of Arthur Smith; and (3) denying Defendants' oral
motions for judgment as a matter of law during the jury trial and
denying Defendants' post-trial motion for judgment as a matter of
law and for new trial.
Plaintiffs also cross-appeal from the Amended Final
Judgment, and challenge the "Minute Order" dated June 29, 2017,
and the "Order Granting in Part and Denying in Part Plaintiffs'
Motion for Attorneys' Fees and Taxation of Costs" entered by the
Circuit Court on July 25, 2017. On cross-appeal, Plaintiffs
contend the Circuit Court erred by: (1) denying Plaintiffs'
request to add prejudgment interest; (2) declining to make a
determination that Defendants' affirmative defenses were
frivolous pursuant to HRS § 607-14.5 and limiting Plaintiffs'
2
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
attorneys' fees to 25% of the judgment, and alternatively,
striking the jury's award of attorneys' fees from the Special
Verdict Form; and (3) excluding expert fees from Plaintiffs'
taxation of costs.
We resolve Defendants' appeal and Plaintiffs' cross-
appeal as follows and affirm.
I. Background
A. Relevant Factual Background
On September 14, 2007, the sale of property located at
4001 Round Top Drive (Round Top) closed between Defendants, as
buyers, and Plaintiffs as Co-Trustees of the Revocable Trust
Agreement of Mary Alexander Smith (the Trust), as sellers. The
purchase price for Round Top was $1,875,000. In connection with
the purchase, Defendants executed a note and first mortgage on
Round Top in favor of Pacific Rim Bank for $785,000. Defendants
used a portion of their cash deposit in escrow and the loan
proceeds of $785,000 from Pacific Rim Bank to pay the Trust
$800,000 at closing. Defendants also executed a promissory note
(the Subject Note) in favor of the Trust for the remaining
portion of the purchase price ($1,075,000) and executed a
purchase money mortgage on Round Top, also dated September 14,
2007, in favor of the Trust. The purchase money mortgage to the
Trust was second in lien priority to the first mortgage to
Pacific Rim Bank.
The Subject Note provided for "interest on the unpaid
principal balance from the date of this Note, until paid, at the
rate of seven and one-half percent (7.5%) per annum." The
Subject Note was secured by two mortgages. The first mortgage
covered two properties, the purchase money mortgage on Round Top
in favor of the Trust and a mortgage lien on Defendants' Kailua
property located at 1005-J Kailua Road (Kailua Property). The
second mortgage was an accommodation mortgage on 1100 Alakea
Street, Suite #200 (Alakea Mortgage), commercial property
Defendants owned through their limited liability company, Alakea
Properties, LLC.
3
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
The Subject Note matured on September 13, 2008, and
provided for a six month extension to March 13, 2009, if
Defendants made a timely extension. By the terms of the Subject
Note, Defendants would apply the proceeds from any sale of the
Kailua Property and/or the Alakea property against the balance
due on the Subject Note. Defendants were unable to sell their
properties and timely exercised the six month extension for
payment of the Subject Note.
On February 20, 2009, the Trust assigned the Subject
Note and Alakea Mortgage to the individual Plaintiffs. The
parties also entered into negotiations and on June 30, 2009,
agreed to a "Release, Loan Modification and Extension Agreement"
(Loan Modification Agreement), which contained, inter alia, a
further extension of the maturity date from March 13, 2009, to
September 13, 2010. The Loan Modification Agreement also
appeared to modify the interest calculation from the simple
interest rate of 7.5% under the Subject Note to provide for
compound interest. The Loan Modification Agreement provided, in
relevant part:
(2) Interest shall accrue monthly at the existing rate.
(3) Borrowers shall pay Lender $1,500 monthly, beginning
July 1, 2009, toward accrued interest. The balance of
interest shall accrue and be added to the principal amount
owing under the Note.
(Emphasis added.) After the parties executed the Loan
Modification Agreement, Arthur Smith sent Defendants a spread-
sheet every month showing the calculation of the monthly compound
interest. Defendants were unable to make full payment by the
September 13, 2010 extension date.
On July 15, 2011, Defendants sold their Kailua Property
and all surplus proceeds in the amount of $676,529.04 were paid
out of escrow to Plaintiffs towards the principal balance of the
Subject Note. The Kailua Property was released from one of the
mortgages securing the Subject Note through a "Partial Release of
Mortgage" dated July 7, 2011.
Once Lenhart discovered the Loan Modification Agreement
called for compounding interest he believed was unlawful, Lenhart
4
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
asserted that Defendants would not agree to pay any of the
accruing or accrued compound interest and denied Plaintiffs'
attempts to recalculate interest based on the Subject Note's
simple interest rate of 7.5%. Subsequent to July 15, 2011,
Lenhart proposed that Defendants would agree to pay $398,471 as
full satisfaction of the Subject Note.2
In approximately October 2011, Defendants applied for a
loan refinance with Bank of Hawai#i with respect to Round Top,
which was encumbered by the mortgage in favor of Pacific Rim Bank
and the mortgage in favor of the Trust. As part of the loan
refinancing for Round Top, the parties agreed to release the
mortgage in favor of the Trust via a "Release of Mortgage" (Round
Top Release) executed on May 18, 2012, in exchange for
Defendants' payment to Plaintiffs of $398,471.
After the Round Top Release and Defendants' payment to
Plaintiffs of $398,471, Defendants made no further payments to
Plaintiffs and the parties disputed whether Defendants owed
additional monies to Plaintiffs under the terms of the Subject
Note and Loan Modification Agreement, including what interest was
due and owing.
B. Relevant Procedural Background
On February 3, 2015, Plaintiffs filed the Complaint in
this case against Defendants alleging, inter alia, that
Defendants owed $223,156.74 for the remaining principal due under
the Subject Note and $42,273.70, in accrued interest from May 23,
2012, through December 1, 2014, under the Subject Note's simple
interest rate.
On January 20, 2017, Plaintiffs filed a "Motion for
Partial Summary Judgment on Defendants' Affirmative Defense Under
HRS Chapter 478" (Plaintiffs' Motion for Partial Summary
Judgment). On February 2, 2017, Defendants filed their
2
After the parties executed the Loan Modification Agreement,
Defendants made monthly payments of $1,500 to Plaintiffs from about July 2009
through April 2012 towards the accruing interest. Because Defendants refused
to pay any accruing or accrued compound interest under the terms of the Loan
Modification Agreement and denied recalculation of the interest based on the
Subject Note's simple interest rate, Defendants asserted $398,471 was the
remaining principal balance due under the Subject Note.
5
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
opposition. After two hearings on Plaintiffs' Motion for Partial
Summary Judgment, the Circuit Court entered its "Order Granting
[Plaintiffs' Motion for Partial Summary Judgment]" on March 28,
2017, concluding,
Defendants' defenses and claims, if any, for usury interest
and/or compound interest based upon [HRS] Chapter 478 . . .
are not applicable to this case because the interest in this
case accrued on indebtedness that was secured by a purchase-
money junior mortgage on real property that was agreed to
and incurred after June 18, 1982.
The case proceeded to jury trial. During trial, the
Circuit Court denied Defendants' oral motion for judgment as a
matter of law made at the close of Plaintiffs' case in chief, and
Defendants' renewed oral motion for judgment as a matter of law
made at the end of Defendants' case. On March 31, 2017, the jury
returned a Special Verdict in favor of Plaintiffs. The jury
found, inter alia, that by signing the Round Top Release,
Plaintiffs did not give up their rights to claim additional
monies and Defendants owed Plaintiffs "$234,317.73 + Atty fees
fr. 5/23/12 to 3/31/17."
On May 11, 2017, Defendants filed their "Renewed Motion
for Judgment as a Matter of Law, To Vacate the Judgment and for
New Trial" (5/11/17 JMOL). On July 25, 2017, the Circuit Court
entered an "Order Granting in Part Defendants' [5/11/17 JMOL]"
which granted Defendants' request to strike the jury's award of
attorneys' fees.
II. Standards of Review
A. Summary Judgment
The appellate courts review a circuit court's grant or
denial of summary judgment de novo. Anastasi v. Fid. Nat'l Title
Ins. Co., 137 Hawai#i 104, 112, 366 P.3d 160, 168 (2016). It is
well settled that:
Summary judgment is appropriate if the pleadings,
depositions, answers to interrogatories, and admissions on
file, together, with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law. A
fact is material if proof of that fact would have the effect
of establishing or refuting one of the essential elements of
a cause of action or defense asserted by the parties. The
evidence must be viewed in the light most favorable to the
non-moving party. In other words, we must view all of the
6
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
evidence and the inferences drawn therefrom, in the light
most favorable to the party opposing the motion.
Id. (brackets and citations omitted).
B. Statutory Interpretation
Questions of statutory interpretation are questions of
law to be reviewed de novo under the right/wrong standard.
Nakamoto v. Kawauchi, 142 Hawai#i 259, 268, 418 P.3d 600, 609
(2018).
Our statutory construction is guided by the following well
established principles:
our foremost obligation is to ascertain and give
effect to the intention of the legislature, which is
to be obtained primarily from the language contained
in the statute itself. And we must read statutory
language in the context of the entire statute and
construe it in a manner consistent with its purpose.
When there is doubt, doubleness of meaning, or
indistinctiveness or uncertainty of an expression used
in a statute, an ambiguity exists.
In construing an ambiguous statute, the meaning of the
ambiguous words may be sought by examining the
context, with which the ambiguous words, phrases, and
sentences may be compared, in order to ascertain their
true meaning. Moreover, the courts may resort to
extrinsic aids in determining legislative intent. One
avenue is the use of legislative history as an
interpretive tool.
The appellate court may also consider the reason and
spirit of the law, and the cause which induced the
legislature to enact it to discover its true meaning.
Id. (quoting Lingle v. Hawai#i Gov't Employees Ass'n, AFSCME,
Local 152, 107 Hawai#i 178, 183, 111 P.3d 587, 592 (2005)).
C. Evidentiary Rulings
[D]ifferent standards of review must be applied to trial
court decisions regarding the admissibility of evidence,
depending on the requirements of the particular rule of
evidence at issue. When application of a particular
evidentiary rule can yield only one correct result, the
proper standard for appellate review is the right/wrong
standard. However, the traditional abuse of discretion
standard should be applied in the case of those rules of
evidence that require a "judgment call" on the part of the
trial court.
Kealoha v. Cty. of Hawai#i, 74 Haw. 308, 319-20, 844 P.2d 670,
676 (1993).
7
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
D. Judgment as a Matter of Law
A trial court's ruling on a motion for judgment as a matter
of law is reviewed de novo. A motion for judgment as a
matter of law may be granted only when after disregarding
conflicting evidence, giving to the non-moving party's
evidence all the value to which it is legally entitled, and
indulging every legitimate inference which may be drawn from
the evidence in the non-moving party's favor, it can be said
that there is no evidence to support a jury verdict in his
or her favor.
Calipjo v. Purdy, 144 Hawai#i 266, 276, 439 P.3d 218, 228 (2019)
(internal quotation marks, brackets and citation omitted).
III. Discussion
A. Defendants' Appeal
1. The Circuit Court Did Not Err in Concluding the
Subject Note Fell Within an Exemption from Usury
On appeal, Defendants contend that the Circuit Court
erred in concluding that the Subject Note fell within an
exemption from usury pursuant to HRS § 478-8(b)(3), and therefore
the Circuit Court erred in granting Plaintiffs' Motion for
Partial Summary Judgment.
The Circuit Court did not determine whether the Loan
Modification Agreement in fact contained a usurious and/or
compound interest provision.3 Instead, although the parties
disputed the merits of Defendants' potential defenses and claims
based on HRS Chapter 478, the Circuit Court determined that
regardless of the merits of the potential defenses and claims,
the exemption under HRS § 478(b)(3) applied.
HRS § 478-8 (2008) provides, in relevant part,
§478-8 Exemptions from usury.
. . . .
(b) The provisions of this chapter (except for this section
and section 478-3) shall not apply to any:
3
The Hawai#i Supreme Court has explained that a transaction is tainted
by usury when five elements are present:
(1) money or its equivalent as the subject matter; (2) a
loan or forbearance, either express or implied; (3) an
understanding that the principal is absolutely repayable;
(4) the exaction of interest in excess of that allowed by
law; and (5) an intent to engage in a transaction that
carries a rate of interest disallowed by law.
Silver v. George, 64 Haw. 503, 513-14, 644 P.2d 955, 958 (1982).
8
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
. . .
(3) Indebtedness that is secured by a purchase-money junior
mortgage lien on real property that is agreed to and
incurred after June 18, 1982; provided that purchase-money
junior mortgage lien means a mortgage that is subordinate in
lien priority to an existing mortgage on the same real
property that is given to the seller as part of the buyer's
consideration for the purchase of real property and
delivered at the same time that the real property is
transferred as a simultaneous part of the transaction[.]
Defendants contend the Circuit Court erred because: (1)
the Subject Note was not secured by a purchase-money junior
mortgage (PMJM) as defined by HRS § 478-8(b)(3); (2) even if the
Subject Note falls under the exemption, the Loan Modification
Agreement does not fall under the exemption; and (3) the Trust,
not Plaintiffs were the original holders of the Subject Note and
as "strangers to the transaction, [Plaintiffs] cannot claim the
[HRS §] 478-8(b)(3) exemption." We disagree.
First, Defendants argue that under HRS § 478-8(b)(3),
the first mortgage must also be given to the seller as part of
the buyer's consideration for the purchase of the property in
order for the second mortgage to be considered a PMJM. Thus,
because the first mortgage on the property was given to a third-
party, in this case Pacific Rim Bank, Defendants contend the
situation here does not meet the definition of a PMJM under HRS §
478-8(b)(3). However, Defendants misinterpret the statute and do
not provide any authority to support their argument.
HRS § 478-8(b)(3) provides that the provisions of HRS
Chapter 478 "shall not apply to any . . . [i]ndebtedness that is
secured by a purchase-money junior mortgage lien on real property
that is agreed to and incurred after June 18, 1982[.]" The rest
of the subsection provides the definition of a PMJM which means,
"a mortgage that is subordinate in lien priority to an existing
mortgage on the same real property that is given to the seller as
part of the buyer's consideration for the purchase of real
property and delivered at the same time that the real property is
transferred as a simultaneous part of the transaction[.]"
(emphases added). The language of HRS § 478-8(b)(3) plainly and
unambiguously defines a PMJM as a single secondary mortgage given
9
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
to the seller. In other words, nothing in the plain language of
the statute supports Defendants argument that both the first and
second mortgage must be given to the seller as part of the
buyer's consideration to purchase the seller's property.
Additionally, we agree with Plaintiffs that the plain
meaning of the statutory language is silent as to the holder of
the first mortgage.4 Essentially, Defendants' reading of the
statute would create an ambiguity where none exists. In this
case, there is no dispute that there was an existing mortgage in
favor of Pacific Rim Bank and the subject second mortgage was
subordinate in lien priority on the same real property. There is
also no dispute that the second mortgage was given to the Trust
as part of Defendants' consideration for the purchase of real
property, and was delivered at the same time the real property
was transferred. Therefore, the subject second mortgage on Round
Top falls within the definition of a PMJM under HRS § 478-
8(b)(3), and the Subject Note falls under the exemption.
4
Plaintiffs cite the report of the Consumer Protection and Commerce
Committee on the provision, which states in pertinent part:
Your Committee has also amended the bill to exempt two other
classes of real estate transactions from the general usury
restriction: (1) interest rates in situations where sellers
take purchase money junior mortgages. . . . Your Committee
feels that these exemptions will provide both sellers and
purchasers of real property more flexibility in financing
arrangements.
H. Stand. Comm. Rep. No. 779-82, in 1982 House Journal, at 1256.
In support of their argument, Plaintiffs also note the Circuit Court's
explanation of the policy consideration behind the exemption as follows:
Sometimes, buyers reach a point in a real estate transaction
where they qualify for financing some, but not all, of the
outstanding balance of the purchase price. Then, it becomes
incumbent upon the buyers to secure alternate sources of
financing, without which the sale would be lost. Chapter 478
creates an optional opportunity for the buyers to obtain
supplemental financing directly from the seller in the form
of a P-MJM.
Section 478-(B)(3) [sic] provides incentive to the noncommercial
seller, such as Plaintiffs herein, to provide supplemental
financing options in the form of a P-MJM. The incentive to the
sellers is the option to assess higher interest rates or compound
interest to the buyers, that would otherwise be illegal under
Chapter 478.
10
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Defendants do not provide any other argument that the
second mortgage is not a PMJM or that the Subject Note does not
fall under the exemption pursuant to HRS § 478-8(b)(3). Rather,
Defendants contend that even if the Subject Note falls under the
exemption from usury, the Loan Modification Agreement should be
considered the crucial document. In this regard, Defendants
assert that "[u]nder no circumstances could the original
indebtedness, as modified by the Loan Modification agreement, be
considered secured by a [PMJM] 'delivered at the same time that
the real property is transferred as a simultaneous part of the
transaction.'" Defendants also argue that HRS § 478-8(b)(3)
requires the indebtedness be secured at the same time the
transaction closes and that an after-the-fact modification or
transfer of the indebtedness means that the debt no longer falls
under the exemption.5
This argument is without merit. Under the plain and
unambiguous language of the statute, while the second mortgage
must be given to the seller as part of the buyer's consideration
for the purchase of property and delivered at the same time that
the real property is transferred to be a PMJM, there is nothing
in the statute limiting the modification or transfer of the debt
that the PMJM secures.
Moreover, contrary to Defendants' interpretation of the
statute, HRS § 478-8(b)(3) applies the exemption from usury to
any indebtedness secured by a PMJM as long as the PMJM falls
under the definition provided in the statute. See HRS § 478-
8(b)(3) (HRS Chapter 478 "shall not apply to any . . .
[i]ndebtedness that is secured by a purchase-money junior
mortgage lien on real property" (emphasis added)). Therefore,
even if the Loan Modification Agreement is the pertinent
document, the parties do not dispute that the second mortgage on
5
Defendants acknowledge that "the act of transferring and assigning
indebtedness from the original seller to a third-party would not in-and-of-
itself void a [HRS] §478-8(b)(3) exemption[.]" However, Defendants
nevertheless assert that there is nothing in HRS § 478-8 which would allow a
subsequent holder of a note secured by a PMJM to amend the note for usurious
or compound interest and argue that HRS § 478-8 should not apply to Plaintiffs
because they were not the original sellers of the property.
11
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Round Top in favor of the Trust secured both the Subject Note and
the Loan Modification Agreement. This is because the parties
executed the Loan Modification Agreement before the Round Top
Release and thus the Loan Modification Agreement remained an
indebtedness secured by a PMJM.
Defendants also argue that HRS § 478-8(b)(3) does not
apply to Plaintiffs because when the Trust assigned the Subject
Note, the Trust failed to assign the mortgage securing the
Subject Note, i.e., the PMJM, and the third mortgage lien on
Defendants' Kailua Property.6 In other words, Defendants argue
the Trust assigned the Subject Note and specifically assigned the
Alakea Mortgage to Plaintiffs but failed to assign the PMJM and
thus Plaintiffs were never holders of the PMJM for HRS § 478-8 to
apply.
Plaintiffs cite, inter alia, S.N. Castle Estate v.
Haneberg, 20 Haw. 123 (Haw. Terr. 1910), to support their
argument that the assignment of the Subject Note operated as the
assignment of both mortgages. See id. at 130 (explaining that
"[t]he assignment of the notes . . . operated as a matter of law
as an assignment of the mortgage and of the mortgagee's powers
under it.") We agree with Plaintiffs that assignment of the
Subject Note automatically assigned both mortgages securing the
debt.
"Under Hawaii law, the security automatically follows
the obligation. The party entitled to enforce a promissory note
secured by a mortgage may enforce the mortgage regardless of
whether the mortgage was separately assigned to that party." In
re Tyrell, 528 B.R. 790, 794-95 (Bankr. D. Haw. 2015) (citation
omitted); see Bank of Am., N.A. v. Reyes-Toledo, 139 Hawai#i 361,
371 n.17, 390 P.3d 1248, 1258 n.17 (2017) (stating "the security
follows the debt" (citing HRS § 490:9-203(g) & cmt. 9 (2008)
6
On February 20, 2009, the Trust assigned the Subject Note and
specifically assigned the Alakea Mortgage from the Trust to the individual
Plaintiffs via the "Assignment of Note and Mortgage" recorded in the Land
Court on March 12, 2009. The Assignment of Note and Mortgage did not mention
the first mortgage securing the Subject Note which covered the Kailua Property
and the PMJM on Round Top.
12
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
(codifying the common law rule that a transfer of an obligation
secured by a security interest or other lien on personal or real
property also transfers the security interest or lien))); see
also Carpenter v. Longan, 83 U.S. 271, 275 (1872) ("The transfer
of the note carries with it the security, without any formal
assignment or delivery, or even mention of the latter.");
Restatement (Third) of Property (Mortgages) § 5.4 cmt. (1997) ("A
transfer in full of the obligation automatically transfers the
mortgage as well unless the parties agree that the transferor is
to retain the mortgage.").
The parties do not dispute that the Trust assigned its
interest in the Subject Note to the Plaintiffs. Therefore, the
transfer of the Subject Note automatically transferred the PMJM
unless the parties to the assignment, i.e., the Trust and the
individual Plaintiffs, agreed to transfer the Subject Note and
the Alakea Mortgage but not the other mortgages securing the
Subject Note.
Thus, the Circuit Court did not err in granting
Plaintiffs' Motion for Partial Summary Judgment and in concluding
that an exemption to usury under HRS § 478-8(b)(3) applied in
this case.
2. Defendants' challenges to the Circuit Court's
evidentiary rulings were not asserted below and
are thus waived
Defendants contend the Circuit Court erred in its
evidentiary rulings during Arthur Smith's cross-examination.
Specifically, Defendants argue that Arthur Smith's understanding
of whether the Round Top Release preserved Plaintiffs' claims was
not subject to attorney-client privilege.7 In their opening
7
The Round Top Release states in pertinent part:
THAT ARTHUR GORDON SMITH, CHARLOTTE SMITH JENKINS and
ALEXANDER GRAVES SMITH, Co-Trustees under that certain
unrecorded Revocable Trust Agreement of Mary Alexander Smith
dated April 28, 1980, as amended, a Memorandum of which was
recorded in the Bureau of Conveyances of the state of Hawaii
as Document No. 98-092554 (the "Lender"), the owners and
holders of the Mortgage hereinafter described, do hereby
acknowledge payment of indebtedness secured by said Mortgage
(continued...)
13
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
brief, Defendants specifically refer to two exchanges during
Arthur Smith's cross-examination by Defendants' counsel on March
23, 2017, where the Circuit Court sustained Plaintiffs'
objections based on attorney-client privilege.8
On appeal, Defendants assert that Arthur Smith's
knowledge is not privileged communication because Defendants'
counsel sought information about what Arthur Smith "understood"
the effect of the Round Top Release to be and did not seek
disclosure of what his attorney had told him about the effect of
the release. Defendants also contend that Plaintiffs implicitly
waived attorney-client privilege regarding the effect of the
Round Top Release by suing Defendants thus placing the
information at issue.
Plaintiffs argue, inter alia, that Defendants relied on
other grounds for admissibility at trial and thus failed to
7
(...continued)
and, in consideration thereof, do hereby release and
discharge from the lien of said Mortgage all of the property
secured thereunder.
8
Defendants cite to the following portions of Defendants' cross-
examination of Arthur Smith,
Q What was your understanding of the purpose of the side
agreement?
A My understanding is that it would preserve all further
rights of both parties.
. . . .
Q Is your understanding of the release alone at the time it
didn't preserve all your rights, correct
MS. HOLLAND: Objection, attorney-client privilege and legal
conclusion.
THE COURT: Sustained. You can rephrase it if you can.
. . . .
Q (BY MR. WILSON) Back in 2012 when you received the side
agreement, did you have an understanding that there would be
other ways to preserve your claims after signing the –-
after executing the release of mortgage on Round Top?
MS. HOLLAND: Objection, attorney-client privilege.
THE COURT: Sustained.
14
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
properly preserve their claim of error. We agree with
Plaintiffs.
"As a general rule, if a party does not raise an
argument at trial, that argument will be deemed to have been
waived on appeal; this rule applies in both criminal and civil
cases." State v. Moses, 102 Hawai#i 449, 456, 77 P.3d 940, 947
(2003). "The general rule prohibiting new arguments on appeal
prevents appellants from presenting new legal theories as to why
they should have prevailed at trial." Id.The record reflects that Defendants presented different
grounds of admissibility to the Circuit Court than Defendants now
raise on appeal. Specifically, Defendants argued that
Plaintiffs' counsel was "essentially an agent, conveying
information and getting information back" and thus the
communication is not subject to attorney-client privilege.
Defendants also argued that Plaintiffs could not assert attorney-
client privilege while also relying on "advice of counsel" as a
defense to the Circuit Court.
Given that Defendants raise new arguments on appeal,
this point is deemed waived, and we decline to address it.
3. The Circuit Court Did Not Err in Denying
Defendants' Motions for Judgment as a Matter of
Law
Finally, Defendants argue the Circuit Court erred in
denying: (1) Defendants' oral motion for judgment as a matter of
law on March 24, 2017, after Plaintiffs rested their case; (2)
Defendants' renewed oral motion for judgment as a matter of law
on March 30, 2017, after Defendants rested their case; and (3)
Defendants' 5/11/17 JMOL.9 Defendants contend the Circuit Court
9
With regard to the Circuit Court's denial of Defendants' 5/11/17
JMOL, our review of the record shows that the Circuit Court held a hearing on
June 16, 2017, regarding Defendants' motion. Defendants fail to provide a
transcript from the June 16, 2017 hearing. We note that "[t]he burden is upon
appellant in an appeal to show error by reference to matters in the record,
and he [or she] has the responsibility of providing an adequate transcript."
Bettencourt v. Bettencourt, 80 Hawai#i 225, 230, 909 P.2d 553, 558 (1995)
(citation omitted). We are thus hampered in our review related to the 5/11/17
JMOL. However, to the extent that Defendants argue the Circuit Court erred for
the same reasons it erred in denying Defendants' previous motions for judgment
(continued...)
15
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
erred in denying their motions for judgment as a matter of law
because there is no conflicting evidence to refute that the Round
Top Release acknowledged payment of the indebtedness. Defendants
contend that, because the Round Top Release acknowledged payment
of the indebtedness as consideration for the release of mortgage,
Plaintiffs waived the right to seek any additional payments. We
disagree.
On March 24, 2017, after Plaintiffs rested their case,
Defendants orally moved the Circuit Court for judgment as a
matter of law under Hawai#i Rules of Civil Procedure (HRCP) Rule
50.10 Here, entry of judgment as a matter of law would have been
proper if there was no evidence to support the jury's verdict
that Defendants owed Plaintiffs a remaining balance on the
Subject Note after Plaintiffs executed the Round Top Release
acknowledging payment of indebtedness. Based on our review of
the record, there was sufficient evidence to support a verdict
that the Round Top Release did not release the full amount owed
under the Subject Note.
Jeffrey Grad (Grad), a licensed real estate broker and
conveyancing attorney testified that he had been a conveyancing
9
(...continued)
as a matter of law, we address Defendants' argument below.
10
HRCP Rule 50 provides, in part,
(a) Judgment as a Matter of Law.
(1) If during a trial by jury a party has been fully
heard on an issue and there is no legally sufficient
evidentiary basis for a reasonable jury to find for
that party on that issue, the court may determine the
issue against that party and may grant a motion for
judgment as a matter of law against that party with
respect to a claim or defense that cannot under the
controlling law be maintained or defeated without a
favorable finding on that issue.
(2) Motions for judgment as a matter of law may be
made at any time before submission of the case to the
jury. Such a motion shall specify the judgment sought
and the law and the facts on which the moving party is
entitled to the judgment.
16
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
attorney for over forty years.11 Grad testified that he would
consider himself knowledgeable and competent with respect to the
custom and practice of drafting releases of mortgages in the
State of Hawai#i and that as a conveyancing attorney, he
occasionally drafts releases of mortgages.
Grad testified generally regarding a release of
mortgage and its effect on an underlying promissory note as
follows:
Q What is a release of mortgage?
A Well, it's when the lender is willing to give his rights
up under a mortgage so he releases it. It's a written
document. It's a very short document, maybe two or three
paragraphs, that explains what the -- what the mortgage is
that -- that the lender is going to give a release upon. And
that release and mortgage after it gets signed by the lender
is then recorded at the Bureau of Conveyances.
Q And that release basically erases the mortgage at that
point. Upon the recordation of the release, the mortgage has
been erased?
A Yes, it's no longer on the title to the property. That's
right.
Q Now, generally, and I'm not asking about any of the
documents in this case, but generally, does a release of
mortgage also mean that the underlying promissory note has
been paid in full?
A Not -- not necessarily.
Q And why is that?
A Well, a release of mortgage is just as its title
suggests. It's to release the mortgage, it's not to -- it's
not to release the underlying promissory note or that
indebtedness.
(Emphasis added.)
Grad testified that if the release of mortgage is also
intended to release the underlying promissory note, the language
in the release of mortgage "would say either that the payment
that had been received was in satisfaction of the note, it was a
complete repayment of the note, the whole note was repaid, some
11
Grad testified that, "[a] conveyancing attorney is an attorney that
drafts documents that are involved in the sale or transfer of real estate."
Grad also testified that he did not prepare the Round Top Release but Grad
prepared the mortgage that covered the Kailua and Round Top properties, the
Alakea Mortgage, and the Subject Note in this case.
17
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
variation of this idea that -- that the underlying indebtedness
had been satisfied in full." Moreover, Grad testified that in
the custom and practice in Hawai#i, there would be standard
language in a release of mortgage to indicate that an underlying
note has been satisfied, he provided examples of the standard
language, and testified that the standard language for the
satisfaction of the underlying note is not in the Round Top
Release as follows:
Q (BY MR. BYRNS) Mr. Grad, you testified that in the custom
and practice in Hawai#i that there would be standard
language re -- noted in a release of mortgage to note that
an underlying note has been satisfied. Correct?
A Yes.
Q What would examples of that standard language be?
A Well, it would be that -- that the payments that were
received by the lender either were the entire indebtedness
or they were sufficient to pay off the entire indebtedness
or they were the whole indebtedness. Some idea that -- of
the debt that was outstanding that is being paid off in
connection with this release of mortgage.
. . . .
Q (BY MR. BYRNS) The examples that you've given, Mr. Grad,
of language that would be included to note that an
underlying note had been satisfied by release of mortgage,
are any of those examples in [the Round Top Release]?
A No.
On re-direct examination, Grad testified that a release
of mortgage is not a complicated document and that,
You're just trying to accomplish two things. One is
release the mortgage, so you want to make sure that the
books and pages, the document number, the mortgage is
correct. But you could say that any way that you can dream
of.
And, second, if -- you know, release of mortgage, you
also want it to be a satisfaction of the un -- underlying
indebtedness. It's pretty simple to say that, well, it's
intended to be, you know, a satisfaction of the entire, the
whole, or all of the indebtedness. It's not -- it's not
rocket science.
Q So it would be pretty simple to draft a document that was
-- that clearly stated payment of all indebtedness.
A I think even I could do it, yes.
Finally, Grad testified that generally, the payee or
the lender holds the promissory note during the term of a loan
18
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
and once the note is paid off, the note is usually marked "paid
in full" and sent back to the borrower. This is so the borrower
has assurance that the lender has confirmed that it is paid in
full. During trial, Arthur Smith testified that he kept the
original copy of the Subject Note, has had it in his possession
since 2007, and never stamped the Subject Note paid in full.
Arthur Smith also testified that the Subject Note has not been
paid in full and he did not return the original copy of the
Subject Note to Defendants.
Furthermore, Arthur Smith testified that the Subject
Note was secured by two mortgages, one mortgage with two
properties, Defendants' Kailua Property and Round Top, and
another mortgage, the Alakea Mortgage. Arthur Smith testified
that one mortgage securing the Subject Note was partially
released in 2011, with respect to the Kailua Property, and then
the mortgage was released with respect to Round Top in 2012.
Arthur Smith testified that there was never a release of the
Alakea Mortgage securing the Subject Note.
Finally, Arthur Smith testified that when he signed the
Round Top Release, he did not agree to release further payments
due on the Subject Note and expected to be paid the remaining
balance of approximately $227,000. Although Lenhart proposed
that Defendants would pay $398,471 as full satisfaction of the
Subject Note and refused to pay any accruing or accrued compound
interest, Arthur Smith testified that he did not authorize his
then attorney, Tina Colman (Colman) to accept $398,471 as full
satisfaction of the remaining balance, nor did he agree or sign
any document that acceptance of $398,471 was full satisfaction of
the Subject Note.
From the testimony by Grad and Arthur Smith, there is
sufficient evidence from which the jury could have concluded that
the Round Top Release did not also indicate the underlying
Subject Note had been satisfied. Accordingly, the Circuit Court
did not err in denying Defendants' oral motion for judgment as a
matter of law.
19
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Similarly, there is sufficient evidence from which the
jury could have concluded that the Round Top Release did not
indicate satisfaction of the Subject Note when Defendants renewed
their oral motion for judgment as a matter of law at the close of
the Defendants' case on March 30, 2017, and when Defendants filed
the 5/11/17 JMOL, after the jury reached a verdict. For example,
Lenhart testified during Defendants' case that as a transactional
lawyer, he is very familiar with preparing releases including
releases of mortgages. Lenhart also testified that when he
prepared the Round Top Release, he deleted the specific language
regarding "full release" or "fully paid" from the standard
release of mortgage form used in his office.
Moreover, evidence was introduced during trial that on
May 16, 2012, Lenhart emailed Colman stating in part that "[t]he
release of the mortgage on Round Top does not state that it is in
full satisfaction of the debt obligation. In fact, it is silent
on this issue." Lenhart further testified at trial that "in fact
the release of mortgage I drafted does not state that it's -- in
legal words or on its face that it states full satisfaction or
full payment." (emphasis added).
Additionally, contrary to Defendants' assertion that
"it is undisputed that the proposed side agreement was the
vehicle by which Plaintiffs-Appellees could, had they chosen to
do so, preserve their claims for additional monies[,]" our review
of the record shows that the parties offered conflicting
testimony regarding the necessity of the side agreement to
preserve Plaintiffs' rights.12 Disregarding Defendants'
conflicting evidence and giving Plaintiffs' evidence all the
value to which it is legally entitled, there is substantial
evidence to support the jury's verdict. See Calipjo, 144 Hawai#i
at 276, 439 P.3d at 228. Accordingly, the Circuit Court did not
12
Arthur Smith testified that the language for a side agreement was
"important to us in a sense, but it was balanced by the fact that we were not
releasing the accommodation mortgage on Alakea. So it to our mind was not a
complete release of all monies due." On the other hand, Lenhart testified
that without the side agreement, all of Plaintiffs' claims were released by
the language in the Round Top Release.
20
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
err in denying Defendants' renewed motions for judgment as a
matter of law.
B. Plaintiffs' Cross-Appeal
The remaining issues are those raised by Plaintiffs'
cross-appeal. On cross-appeal, Plaintiffs contend the Circuit
Court erred by: (1) concluding that a party who presents a claim
for prejudgment interest to a jury cannot subsequently apply to
the court for prejudgment interest and denying Plaintiffs' Motion
to Amend the Judgment to Add Prejudgment Interest; (2)
determining that Defendants' affirmative defenses were not
frivolous pursuant to HRS § 607-14.5; (3) granting in part
Defendants' 5/11/17 JMOL striking the language in the Special
Verdict form that awarded Plaintiffs attorneys' fees from May
2012 to March 2017; (4) not awarding Plaintiffs the full measure
of their requested attorneys' fees; and (5) not awarding
Plaintiffs the costs for their expert witness.
1. The Circuit Court Did Not Err in Denying
Plaintiffs' Request for Prejudgment Interest
Plaintiffs contend the Circuit Court erred in denying
their Motion to Amend the Judgment to Add Prejudgment Interest
filed on May 11, 2017. In denying Plaintiffs' motion, the
Circuit Court determined that awarding prejudgment interest was
improper in this case because the issue of prejudgment interest
had been submitted to the jury as part of Plaintiffs' request for
damages under the Subject Note and the jury apparently rejected
Plaintiffs' claim.13 Plaintiffs argue that although prejudgment
13
The jury's special verdict states, in relevant part:
Question No. 4: What sum of money do defendants owe
plaintiffs after the payment of $398,471?
Answer: $234,317.73 + Atty fees fr. 5/23/12 to 3/31/17.
During closing arguments, Plaintiffs directed the jury to Plaintiffs'
Exhibit 205 to answer Question No. 4. Plaintiffs' Exhibit 205 provided the
amounts requested as damages owed by Defendants under the terms of the Subject
Note. Specifically, Plaintiffs requested $223,159.74 for the remaining
principal, $80,604.30 for accrued, unpaid interest under the simple interest
rate of 7.5% under the Subject Note from May 23, 2012 through until March 21,
2017, and $11,157.99 in late fees for a total of $314,922.03.
(continued...)
21
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
interest had been presented to the jury as part of their request
for special damages, the Circuit Court could nevertheless award
prejudgment interest. We disagree.
Prejudgment interest, where appropriate, is awardable under
HRS § 636-16 in the discretion of the court. Generally, to
constitute an abuse of discretion it must appear that the
court clearly exceeded the bounds of reason or disregarded
rules or principles of law or practice to the substantial
detriment of a party litigant.
Schmidt v. Bd. of Dirs. of the Ass'n of Apt. Owners of the Marco
Polo Apts., 73 Haw. 526, 533, 836 P.2d 479, 483 (1992) (citations
omitted).
First, the cases Plaintiffs cite in support of their
argument are inapposite. See Lucas v. Liggett & Myers Tobacco
Co., 51 Haw. 346, 351 & n.5, 461 P.2d 140, 144 & n.5 (1969)
(noting that although the jury's award may include an unknown
amount of prejudgment interest, plaintiffs were entitled to
interest for the period between the trial court's initial
judgment and the trial court's subsequent judgment after
plaintiffs' successful appeal);14 Cuerva & Assocs. v. Wong, 1
Haw. App. 194, 196, 616 P.2d 1017, 1020 (1980) (holding that the
lower court erred in awarding interest at the statutory rate
rather than at the promissory note's rate because the lower court
erroneously concluded that the jury verdict was rendered on the
basis of quantum meruit and not the promissory note).
Here, although Plaintiffs argue that they are entitled
to prejudgment interest recoverable as a "contractual right"
under the terms of the Subject Note, the parties disputed whether
Plaintiffs were entitled to recover any interest. Defendants
argued that the Loan Modification Agreement changed the
13
(...continued)
Plaintiffs do not challenge the Circuit Court's determination that "the
jury rejected Plaintiffs' claim for prejudgment interest and did not award
Plaintiffs any sums of money in their special verdict for prejudgment
interest." As Defendants note in their answering brief, "[s]ince the verdict
was $80,604.30 less than what Plaintiffs demanded and they sought $80,604.30
in interest, it appears that the jury rejected their interest claim."
14
In other words, the plaintiffs' request for interest to the court in
Lucas is for a different period than what interest might have been included by
the jury in its award. Here, the jury appears to have rejected Plaintiffs'
request for interest and Plaintiffs make the same request for interest for the
same period of time to the Circuit Court.
22
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
calculation of interest from a simple interest rate of 7.5% under
the Subject Note to an unlawful compound interest. Specifically,
the Loan Modification Agreement provided:
(2) Interest shall accrue monthly at the existing rate.
(3) Borrowers shall pay Lender $1,500 monthly, beginning
July 1, 2009, toward accrued interest. The balance of
interest shall accrue and be added to the principal amount
owing under the Note.
(Emphasis added.)
After the parties executed the Loan Modification
Agreement, Arthur Smith sent Defendants a spread-sheet every
month showing the calculation of the monthly compounding
interest. Upon discovering the compound interest provision under
the Loan Modification Agreement, Lenhart refused to pay any
accruing or accrued interest based on the Loan Modification
Agreement and denied Plaintiffs' attempts to recalculate interest
based on the Subject Note's simple interest rate.
Therefore, whether Plaintiffs were entitled to interest
under the Subject Note was a question of fact for the jury and
determining the amount of interest due to Plaintiffs was within
the exclusive province of the jury. See Kato v. Funari, 118
Hawai#i 375, 381, 191 P.3d 1052, 1058 (2008) (it is "the
well-settled principle in this jurisdiction that 'the proper
amount of damages to be awarded is within the exclusive province
of the jury, since jurors are the sole judges of all disputed
questions of fact.'" (brackets and ellipsis omitted) (quoting
Knodle v. Waikiki Gateway Hotel, Inc., 69 Haw. 376, 385, 742 P.2d
377, 383 (1987))).
Plaintiffs also argue that even if they are not
entitled to interest under the Subject Note, they should be
awarded prejudgment interest under, inter alia, HRS § 636-16
(2016)15 because Defendants caused purposeful delay.16 Plaintiffs
15
HRS § 636-16 (2016) provides:
In awarding interest in civil cases, the judge is authorized
to designate the commencement date to conform with the
circumstances of each case, provided that the earliest
(continued...)
23
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
do not provide any authority to support allowing a request for
prejudgment interest under HRS § 636-16 after submitting the
question to the jury on other grounds.
Accordingly, given the jury's verdict, the Circuit
Court did not err in denying Plaintiffs' request for interest
based on the Subject Note and HRS § 636-16.
2. The Circuit Court Did Not Err in its Award of
Attorneys' Fees
First, Plaintiffs argue the Circuit Court erred in
limiting the award of attorneys' fees to 25% of the judgment
because Defendants' defenses were frivolous under HRS § 607-14.5
(2016)17 and thus Plaintiffs are entitled to recover all of their
attorneys' fees.
Under HRS § 607-14.5, the circuit court may assess
reasonable attorneys' fees and costs against a party in a
civil action "upon a specific finding that all or a portion
of the party's claim or defense was frivolous[.]" HRS §
607-14.5(a). A trial court's conclusion that a party's claim
or defense was made in good faith and was, therefore, not
"frivolous" within the meaning of HRS § 607-14.5 presents
mixed questions of fact and law, and is subject to review
for clear error. See Coll v. McCarthy, 72 Haw. 20, 28, 804
P.2d 881, 886 (1991). "A finding is clearly erroneous where
15
(...continued)
commencement date in cases arising in tort, may be the date
when the injury first occurred and in cases arising by
breach of contract, it may be the date when the breach first
occurred.
16
Plaintiffs also argue they should be awarded prejudgment interest
pursuant to HRS § 478-3 (2008), which provides, "Interest at the rate of ten
per cent a year, and no more, shall be allowed on any judgment recovered
before any court in the State, in any civil suit." Plaintiffs' reliance on HRS
§ 478-3 for prejudgment interest is misplaced because HRS § 478-3 permits
post-judgment interest. See DW Aina Le#a Dev., LLC v. State Land use Comm'n,
148 Hawai#i 396, 401, 447 P.3d 836, 841 (2020) (noting "HRS § 478-3 (1986),
which permits post-judgment interest, [does] not apply to judgments against
the State." (citing Chun v. Board of Trs. of Emps.' Ret. Sys., 106 Hawai#i
416, 433, 106 P.3d 339, 356 (2005))).
17
HRS § 607-14.5 provides, in pertinent part:
(a) In any civil action in this State where a party seeks
money damages or injunctive relief, or both, against another
party, and the case is subsequently decided, the court may,
as it deems just, assess against either party, whether or
not the party was a prevailing party, and enter as part of
its order, for which execution may issue, a reasonable sum
for attorneys' fees and costs, in an amount to be determined
by the court upon a specific finding that all or a portion
of the party's claim or defense was frivolous as provided in
subsection (b).
24
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
the court is left with a firm and definite conviction that a
mistake has been committed." Id. at 28, 804 P.2d at 887.
Public Access Trails Hawai#i v. Haleakala Ranch Co., 153 Hawai#i
1, 21-22, 526 P.3d 526, 546-47 (2023). Here, the Circuit Court
did not make any findings of fact whether Defendants' defenses
were frivolous. In the "Order Granting in Part and Denying in
Part Plaintiffs' Motion for Attorneys' Fees and Taxation of
Costs" entered on July 25, 2017, the Circuit Court limited
Plaintiff' attorneys fees to 25% of the judgment and, inter alia,
denied all other relief, which includes Plaintiffs' request to
find all of Defendants' defenses frivolous under HRS § 607-14.5.
The Hawai#i Supreme Court has explained that a
frivolous claim is a "claim so manifestly and palpably without
merit, so as to indicate bad faith on the pleader's part such
that argument to the court was not required." Tagupa v. VIPDesk,
135 Hawai#i 468, 479, 353 P.3d 1010, 1021 (2015) (brackets and
citation omitted). Moreover,
[a] finding of frivolousness is a high bar; it is not enough
that a claim be without merit, there must be a showing of
bad faith. See Canalez v. Bob's Appliance Serv. Ctr., Inc.,
89 Hawai#i 292, 300, 972 P.2d 295, 303 (1999) (in a personal
injury action, even assuming that the plaintiff's counsel
made untrue or inaccurate statements regarding the
plaintiff's injuries, the claim was not deemed frivolous
because there was no showing of bad faith); Lee v. Hawaii
Pac. Health, 121 Hawai#i 235, 246–47, 216 P.3d 1258, 1269–70
(App. 2009) (although the plaintiff's arguments were without
merit, the commencement of the action was not frivolous
because the plaintiff did not act in bad faith).
Id. at 479-80, 353 P.3d at 1021-22 (emphasis added).
Plaintiffs argue that Defendants' voluntary withdrawal
of thirteen of sixteen affirmative defenses after the close of
evidence at trial, and the Circuit Court's entry of summary
judgment as to the remaining three affirmative defenses show that
the defenses were frivolous. Although this may indicate
Defendants' affirmative defenses were weak or without merit, it
is insufficient to show that the defenses were frivolous such
that Defendants acted in bad faith. In Public Access Trails
Hawai#i, petitioners' evidence of bad faith was providing HRS
§ 607-14.5(c) notice to respondents that there was no law or
evidence supporting respondent's claim that it owned Haleakalā
25
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Trail, and the circuit court later entered a judgment
"consistent" with this notice. 153 Hawai#i at 29, 526 P.3d at
554. The Hawai#i Supreme Court held that "[e]ven taking
everything Petitioners claim as true, all this shows is that
[respondent]'s ownership claim was 'weak' or 'without merit.' A
meritless claim, without more, is not sufficient to show that the
claim is frivolous or that the party acted in bad faith." Id.
(brackets and citation omitted).
With regard to Defendants' affirmative defenses based
on usury and compound interest, the Circuit Court held two
hearings on Plaintiffs' Motion for Partial Summary Judgment
related to Defendants' defenses based on usury. At the end of
the first hearing, the Circuit Court indicated it had more
questions regarding the language of HRS § 478-8(b)(3) and that a
further hearing on the motion would be held. There is no
evidence in the record that Defendants' claims based on usury and
compound interest were frivolous or "so manifestly and palpably
without merit, so as to indicate bad faith on the pleader's part
such that argument to the court was not required." Tagupa, 135
Hawai#i at 479, 353 P.3d at 1021 (brackets and citation omitted).
Accordingly, the Circuit Court did not clearly err by not finding
Defendants' affirmative defenses were frivolous or made in bad
faith. As such, the Circuit Court did not err in denying
Plaintiffs' attorneys' fees under HRS § 607-14.5 and limiting
their attorneys' fees award to 25% of the judgment.
Plaintiffs also contend the Circuit Court erred in
granting in part Defendants' 5/11/17 JMOL to strike out "+ Attys
fees fr. 5/23/12 to 3/31/17" in Question No. 4 of the Special
Verdict. Defendants argued they were entitled to a new trial
because the judgment contains surplusage inconsistent with the
Special Verdict form which cannot be reconciled with the jury's
verdict. Specifically, Defendants argued, inter alia, that the
Special Verdict was defective because Plaintiffs did not request
attorneys' fees, there were no instructions on the matter of
awarding any attorneys fees, and the phrase "+ Attys fees fr.
5/23/12 to 3/31/17" is not a "sum" of money. Plaintiffs filed
26
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
their opposition to Defendants' 5/11/17 JMOL on June 8, 2017, and
the Circuit Court held a hearing on June 16, 2017. On July 25,
2017, the Circuit Court entered the "Order Granting in Part
Defendants' [5/11/17 JMOL]" which states in pertinent part: "The
Court strikes the phrase "+ Atty fees fr. 5/23/12 to 3/31/17"
from the answer given in response to Question No. 4 of the
Special Verdict filed March 31, 2017."
Both the grant and the denial of a motion for new trial
[are] within the trial court's discretion, and we will not
reverse that decision absent a clear abuse of discretion. An
abuse of discretion occurs "where the trial court has
clearly exceeded the bounds of reason or disregarded rules
or principles of law or practice to the substantial
detriment of a party litigant."
Costales v. Rosete, 133 Hawai#i 453, 465, 331 P.3d 431, 443
(2014) (citation omitted).
A conflict in the jury's answers to questions in a special
verdict will warrant a new trial only if those answers are
irreconcilably inconsistent, and the verdict will not be
disturbed if the answers can be reconciled under any theory.
The theory, however, must be supported by the trial court's
instructions to the jury.
Carr v. Strode, 79 Hawai#i 475, 489, 904 P.2d 489, 503 (1995)
(citations omitted).
Here, the transcript of the June 16, 2017 hearing has
not been provided to this Court and the Circuit Court did not
provide its reasons for granting in part Defendants' 5/11/17 JMOL
and striking out the language in Special Verdict Question No.4.
It is well established that "[t]he burden is upon appellant in an
appeal to show error by reference to matters in the record, and
he [or she] has the responsibility of providing an adequate
transcript." Bettencourt, 80 Hawai#i at 230, 909 P.2d at 558(citation omitted). Further, given the record on appeal, we
cannot say the Circuit Court erred where Plaintiffs' request for
damages in exhibit 205 did not include a request for attorneys'
fees.
3. The Circuit Court Did Not Err in Denying Expert
Witness Fees
On May 15, 2017, Plaintiffs filed a "Motion for
Attorneys' Fees and Taxation of Costs" (Plaintiffs' Motion for
27
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Fees and Costs) pursuant to, inter alia, HRCP Rule 54(d) and HRS
§ 607-9.18 Plaintiffs requested a total of $22,713.40 in costs,
including "expert fees" in the amount of $12,387.43.19 On June
29, 2017, the Circuit Court entered its Minute Order granting in
part Plaintiffs' costs except for the expert fees of $12,387.43
and entered the corresponding written order on July 25, 2017.
Plaintiffs contend that the Circuit Court abused its discretion
in denying Plaintiffs' request for expert fees without explaining
its reasons for not awarding the expert fees as part of the
costs.
The award of a taxable cost is within the discretion of the
circuit court and will not be disturbed absent a clear abuse
of discretion. An abuse of discretion occurs when the
circuit court has clearly exceeded the bounds of reason or
disregarded rules or principles of law or practice to the
substantial detriment of a party litigant.
Pulawa v. GTE Hawaiian Tel, 112 Hawai#i 3, 10-11, 143 P.3d 1205,
1212-13 (2006) (internal quotation marks, citations, and brackets
omitted). The Hawai#i Supreme Court has explained that HRCP
"Rule 54(d) creates a strong presumption that the prevailing
18
HRCP Rule 54(d) provides, in pertinent part, "Except when express
provision therefor is made either in a statute or in these rules, costs shall
be allowed as of course to the prevailing party unless the court otherwise
directs[.]"
HRS § 607-9 (2016) provides:
§607-9 Cost charges exclusive; disbursements. [(a)] No
other costs of court shall be charged in any court in
addition to those prescribed in this chapter in any suit,
action, or other proceeding, except as otherwise provided by
law.
[(b)] All actual disbursements, including but not limited
to, intrastate travel expenses for witnesses and counsel,
expenses for deposition transcript originals and copies, and
other incidental expenses, including copying costs,
intrastate long distance telephone charges, and postage,
sworn to by an attorney or a party, and deemed reasonable by
the court, may be allowed in taxation of costs. In
determining whether and what costs should be taxed, the
court may consider the equities of the situation.
19
The itemization of costs and the related invoices attached to
Plaintiffs' Motion for Fees and Costs stated that expert fees were incurred
for services provided by the Grad Law Firm in the amount of $11,036.65 and
Park & Park in the amount of $1,350.78. Defendants filed an opposition to
Plaintiffs' Motion for Fees and Costs on May 25, 2017, challenging portions of
the motion, including the request for expert fees.
28
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
party will recover costs. The court may not deny costs to the
prevailing party without explanation, unless the circumstances
justifying denial of costs are plain from the record." Ranger
Ins. Co. v. Hinshaw, 103 Hawai#i 26, 32, 79 P.3d 119, 125 (2003)
(ellipsis, brackets and citation omitted).
Here, although the Circuit Court did not provide an
explanation for denying expert fees, we hold that the reasons for
denying expert fees is plain from the record because expert
witness fees are generally not taxable as costs. See Buscher v.
Boning, 114 Hawai#i 202, 223 & n.15, 159 P.3d 814, 835 & n.15
(2007) (noting that expert witness fees are generally not taxable
as costs and explaining that under HRCP Rule 54(d), expert
witness fees are not allowed). Other than HRCP Rule 54(d) and
HRS § 607-9, Plaintiffs do not cite to any other statute or rule
which would allow them to recover expert witness fees. See Mist
v. Westin Hotels, Inc., 69 Haw. 192, 202, 738 P.2d 85, 92 (1987)
("expert witness fees are not taxable as costs, absent a statute
specifically allowing such an expense.").
Therefore, the Circuit Court did not abuse its
discretion in denying Plaintiffs' request for expert fees.
IV. Conclusion
Based on the foregoing, the Circuit Court's "Amended
Final Judgment" entered on November 6, 2017 is affirmed.
DATED: Honolulu, Hawai#i, May 26, 2023.
On the briefs: /s/ Lisa M. Ginoza
Chief Judge
Kristin L. Holland,
William C. Byrns, /s/ Katherine G. Leonard
Wendy F. Hanakahi, Associate Judge
for Plaintiffs-Appellees/
Cross-Appellants /s/ Sonja M.P. McCullen
Associate Judge
Richard E. Wilson,
for Defendants-Appellants/
Cross-Appellees
29