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Kekona v. Bornemann

Intermediate Court of Appeals of Hawai‘i

May 31, 2013

Benjamin Paul KEKONA and Tamae M. Kekona, Plaintiffs-Appellees/Cross-Appellants,
v.
Michael BORNEMANN, M.D., Defendant-Appellant, and Paz Feng Abastillas, also known as PAZ A. Richter; Robert A. Smith, personally; Robert A. Smith, Attorney at Law, a Law Corporation; Standard Management, Inc.; U.S. Bancorp Mortgage Company, an Oregon company; John Does 1-10; Jane Does 1-10; Doe Corporations 1-10; Doe Entities 1-10, Defendants.

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[Copyrighted Material Omitted]

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Peter Van Name Esser, on the briefs, for Defendant-Appellant.

Fred Paul Benco, on the briefs, for Plaintiffs-Appellees/Cross-Appellants.

FOLEY, Presiding Judge, LEONARD and REIFURTH, JJ.

OPINION

LEONARD, J.

[130 Hawai'i 61] Defendant-Appellant Michael Bornemann, M.D. (Bornemann) appeals from the Final Judgment, filed on February 5, 2008, in the Circuit Court of the First Circuit (Circuit Court).

As discussed below, this suit arises out of a claim that two properties were fraudulently transferred to Bornemann and that Bornemann conspired to commit a fraudulent transfer of those properties. A jury found, by clear and convincing evidence, that one fraudulent transfer had occurred and that Bornemann had conspired to commit the fraudulent transfer. Judgment was entered unwinding the transfer and awarding compensatory and punitive damages against Bornemann. Bornemann raises several issues on appeal. For the reasons set forth in this Opinion, we conclude that further proceedings are necessary to determine an appropriate remedy and that the punitive damages awarded were excessive, but that Bornemann's other contentions are without merit or constitute harmless error.

I. BACKGROUND

The history of this case is more fully stated in Kekona v. Abastillas, 111 Hawai‘i 203, 140 P.3d 436 (App.2006) ( Kekona I ) and Kekona v. Abastillas, 113 Hawai‘i 174, 150 P.3d 823 (2006) ( Kekona II ).

In 1993, Benjamin P. Kekona and Tamae M. Kekona (Kekonas) obtained a judgment (1993 Judgment) of $191,628.27 against Paz Feng Abastillas (Abastillas) and Robert A. Smith (Smith). After the 1993 Judgment was entered, two properties, a residence in Kaneohe (Kaneohe Property) and an apartment at Honolulu Park Place (HPP Property) were transferred to Bornemann. Standard Management, Inc. (SMI), which was wholly owned by Abastillas, and Robert A. Smith, Attorney at Law, A Law Corporation (RASCORP), which was wholly owned by Smith, had jointly owned the Kaneohe property, which was transferred to Abastillas and then transferred to Bornemann. The HPP Property, which was owned by Abastillas, was transferred directly from her to Bornemann.

On October 13, 1993, the Kekonas sued SMI, RASCORP, Abastillas, Smith, and Bornemann, alleging that the transfer of the two properties constituted an unlawful attempt by judgment debtors to avoid claims by judgment creditors. The Kekonas alleged fraudulent transfer, violation of Hawai‘i's Racketeer Influenced and Corrupt Organizations law, conspiracy to fraudulently transfer, and notary misconduct.

A jury returned verdicts against SMI, RASCORP, Abastillas, Smith, and Bornemann for fraudulent transfers and conspiracy to commit fraudulent transfers and awarded special damages, general damages, and punitive damages in varying amounts against all of the defendants. The jury awarded the Kekonas $250,000 in punitive damages against Bornemann. The Circuit Court, however, found that the punitive damages award against Bornemann was excessive and ordered it reduced to $75,000.[1]

The Kekonas elected to proceed to a new trial on punitive damages against Bornemann.[2] On November 2, 2000, a jury imposed $594,000 in punitive damages against Bornemann. Bornemann appealed.

On June 8, 2006, this court (the ICA) held, inter alia, that there was no evidence to support the jury's award of $100,000 in general damages caused by the conspiracy to fraudulently transfer the Kaneohe property or $100,000 in general damages caused by [130 Hawai'i 62]

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the conspiracy to fraudulently transfer the HPP property and vacated the general damages award against Abastillas, Smith, and Bornemann.[3] The court otherwise affirmed, including the award of punitive damages.

Upon review of Bornemann's application for writ of certiorari, the Hawai‘i Supreme Court held that the ICA gravely erred by holding that the Kekonas only needed to prove a fraudulent transfer by a preponderance of the evidence. The supreme court vacated " the ICA's opinion to the extent that it (1) affirms Bornemann's liability for conspiracy to fraudulently transfer the Kaneohe and HPP properties, (2) affirms the $594,000.00 punitive damages award, and (3) affirms the circuit court's cancellation of the various deeds transferring the Kaneohe and HPP properties." Kekona II, 113 Hawai‘i at 183, 150 P.3d at 832. The supreme court ordered the case to be remanded for a new trial as to " (a) whether the Kekonas can demonstrate that the transfers were fraudulent by clear and convincing evidence, (b) whether the Kekonas can demonstrate, by clear and convincing evidence, that Bornemann conspired to fraudulently transfer the Kaneohe and HPP properties, and (c) the appropriate remedies to be assessed against Bornemann, if any." Id.

On January 3, 2008, after another jury trial, the jury returned a special verdict form as follows:

47-186 KAMEHAMEHA HIGHWAY, KANEOHE, HAWAI‘ I
Question No. 1.
Did the Plaintiffs prove by clear and convincing evidence that the transfer of the Kaneohe property by Abastillas/Smith to Defendant Bornemann was done with the actual intent to hinder, delay or defraud the Plaintiffs Kekonas?
Yes X No _____
If you answered " Yes" to Question No. 1, then go to Question No. 2. If you answered " No" to Question No. 1, then go to Question No. 3
Question No. 2.
Did Defendant Bornemann prove by a preponderance of the evidence that he took the Kaneohe property in good faith and for reasonably equivalent value?
Yes _____ No X
Go to Question No. 3.
Question No. 3.
Did Plaintiffs prove by clear and convincing evidence that Abastillas/Smith made the transfer of the Kaneohe property to Defendant Bornemann without receiving a reasonably equivalent value in exchange?
Yes X No _____
If you answered " Yes" to Question No. 3, then go to Question No. 3A and 3B. If you answered " No" to Question 3, then go to Question No. 4.
Question No. 3A.
Did Plaintiffs prove by clear and convincing evidence that Abastillas intended to incur, or believed or reasonably should have believed that she would incur, debts beyond her ability to pay as they became due.
Yes X No _____
Go to Question 3B.
Question No. 3B.
Did Plaintiffs prove by clear and convincing evidence that Smith intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.
Yes _____ No X
Go to Question 4.
1809 HONOLULU PARK PLACE
Question No. 4.
Did the Plaintiffs prove by clear and convincing evidence that the transfer of 1809 Honolulu Park Place by Abastillas to Defendant Bornemann was done with the actual intent to hinder, delay or defraud the Plaintiffs Kekonas?
Yes X No _____
If you answered " Yes" to Question No. 4, then go to Question No. 5. If you answered " No" to Question No. 4, then go to No. 6.
Question No. 5.

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[130 Hawai'i 63] Did Defendant Bornemann prove by a preponderance of the evidence that he took 1809 Honolulu Park Place in good faith and for reasonably equivalent value?
Yes X No _____
Go to Question No. 6.
Question No. 6.
Did Plaintiffs prove by clear and convincing evidence that Abastillas made the transfer of 1809 Honolulu Park Place to Defendant Bornemann without receiving a reasonably equivalent value in exchange?
Yes _____ No X
If you answered " Yes" to Question No. 6, then go to Question No. 6A. If you answered " No" to Question No. 6, then go to Question No. 7.
....
CONSPIRACY
Question No. 7.
Did the Plaintiffs prove by clear and convincing evidence that Defendant Bornemann conspired with one or more other person(s) to harm the Plaintiffs by taking part in the fraudulent transfer of the Kaneohe property?
Yes X No _____
Go to Question 8.
Question ...

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