PHILLIP G. KUCHLER, INC., Claimant-Appellee/Cross-Appellant,
ABE LEE REALTY, LLC, and ABRAHAM W.H. LEE, Respondents-Appellants/Cross-Appellees.
NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (S.P. NO. 11-1-0325)
Richard E. Wilson for Respondents-Appellants/ Cross-Appellees.
Dennis W. King William J. Deeley John Winnicki (Deeley King Pang & Van Etten A Limited Liability Law Partnership) for Claimant-Appellee/ Cross-Appellant.
Nakamura, C.J., and Foley and Reifurth, JJ.
This appeal arises out of a motion by Phillip G. Kuchler, Inc. (Kuchler) to confirm an arbitration award against Abe Lee Realty, LLC (Lee Realty) and Abraham W.H. Lee (Lee). The motion was filed in the Circuit Court of the First Circuit (Circuit Court). Respondents-Appellants/Cross-Appellees Lee Realty and Lee (collectively, "Respondents") appeal from the "Order Granting in Part and Denying in Part Claimant [Kuchler's] Motion to Confirm Final Award of Arbitrator as Judgment Against Abe Lee Realty, LLC and Abraham W.H. Lee" (Confirmation Order) that was filed by the Circuit Court on August 29, 2011. Claimant-Appellee/Cross-Appellant Kuchler cross-appeals from the "Final Judgment" of the Circuit Court filed on September 9, 2011, which is stated to be "[biased upon" the Confirmation Order. Kuchler also cross-appeals from three post-judgment orders.
Abe Realty as the "Buyer" and Lee as "Guarantor, " entered into an agreement with Kuchler to purchase real-estate management accounts held by Kuchler. The purchase price was based on the gross monthly receipts generated by the management accounts. Kuchler and Respondents submitted disputes arising out of the purchase agreement to arbitration. The arbitrator ordered that Lee "sequester" certain gross monthly receipts by depositing them in a separate bank account while the parties' dispute was being arbitrated. The arbitrator eventually ruled that Abe Realty was liable to Kuchler for the purchase price under their purchase agreement and that Lee, while not the Buyer under the purchase agreement, was liable to Kuchler for a portion of the purchase price based on his personal guaranty.
The parties' appeals to this court revolve around what the arbitrator actually decided with respect to the disposition of the funds that were placed in the separate account, which the arbitrator referred to as being "held in escrow"; whether the Circuit Court properly interpreted the arbitrator's decision regarding the disposition of these funds; and whether the Circuit Court's rulings that were related to Kuchler's attempts to collect the arbitration award were proper.
In their appeal, Respondents contend that the Circuit Court erred by including in the Confirmation Order the following language which they assert was contrary to the arbitrator's decision: "The funds deposited into the escrowed bank account are to be used to partially satisfy the judgment owed by [Lee Realty] only."
In its cross-appeal, Kuchler contends: (1) the Circuit Court erred in entering a Final Judgment which did not conform to the arbitrator's award and its own Confirmation Order; (2) the Circuit Court erred in ruling that it lacked jurisdiction to enforce its Confirmation Order due to the filing of this appeal; (3) the Circuit Court erred in entering a satisfaction of judgment for Lee and precluding additional collection efforts against him; and (4) the Circuit Court erred in denying Kuchler's motion for reconsideration of prior rulings adverse to Kuchler.
As explained below, we vacate portions of the Circuit Court's orders challenged on appeal, and we remand the case for further proceedings.
In April 2009, Kuchler and Lee Realty entered into an "Asset Sale and Purchase Agreement" (Purchase Agreement) under which Lee Realty agreed to purchase from Kuchler a portfolio of real estate management accounts held by Kuchler. The Purchase Agreement provided in relevant part that Lee Realty would pay Kuchler: (1) one-half of the gross income received from the management accounts less $4, 000 for the cost of a bookkeeper and less "direct expenses" from May 1, 2009, through December 31, 2009; plus (2) twenty-months times the "Average Monthly Gross Receipts, " which would be derived by adding the total gross receipts less direct expense less $4, 000 for May 1, 2009, through December 31, 2009, divided by eight months. Lee, who was identified in the Purchase Agreement as Lee Realty's "principal, " personally guaranteed payment of the purchase price "for the first year." Lee signed the Purchase Agreement on behalf of Lee Realty and as "Guarantor."
Disputes soon arose regarding the Purchase Agreement. Kuchler and Respondents submitted their disputes to arbitration before Arbitrator Keith W. Hunter (Arbitrator), pursuant to the terms of the Purchase Agreement. Kuchler, among other things, asserted claims against Respondents for money owed to Kuchler under the Purchase Agreement as well as for unjust enrichment and interference with contract and prospective economic advantage. Respondents, in turn, claimed that Kuchler, through misrepresentations, fraudulently induced Respondents to enter into the Purchase Agreement and that Kuchler had also breached its obligations under the Purchase Agreement.
Prior to the arbitration hearing, Kuchler filed a motion with the Arbitrator seeking to require Respondents to make immediate payment of all monies due under the Purchase Agreement. Respondents opposed the motion, arguing that they were alleging breach of the Purchase Agreement and seeking damages against Kuchler. Respondents, however, offered to deposit the disputed fees and commissions collected on the management accounts into a neutral account pending the outcome of the arbitration.
Although the Arbitrator denied Kuchler's request for immediate payment of monies due under the Purchase Agreement, it noted that Kuchler had "raised valid points in that: (1) [Respondents] currently [are] receiving the whole benefit of all fees earned off of the subject [management accounts]; (2) the [Purchase Agreement] language anticipates a portion of these funds to go to Kuchler, and (3) Kuchler is prejudiced economically by the imbalance of resources." The Arbitrator ruled that:
the appropriate remedy is to sequester all "Gross Monthly Receipts" as defined in the [Purchase Agreement] in a neutral account beyond the use of either party pending the final outcome of their dispute. "Gross Monthly Receipts" means total gross receipts from the subject assets less direct expenses and bookkeeping expenses according to the formula established in the [Purchase Agreement]. The purpose of this fashion of order is to prevent either party from gaining from the disputed contract unfairly, while relieving [Respondents] from having to carry the direct expenses from other resources.
The Arbitrator therefore granted Kuchler's motion in part and entered the following interim order on July 16, 2010:
1. [Respondents are] ordered to open forthwith a separate account in an FDIC-insured, interest-bearing account at a bank located in Honolulu, Hawaii.
2. [Respondents are] to deposit into said account all Gross Monthly Receipts (i.e., gross receipts less direct and bookkeeping expenses as set forth in the contract) from the subject Kuchler accounts that [Respondents have] received to date, and on a monthly basis into the future until this order expires according to the terms below.
3. [Respondents are] to provide initial account opening statements and thereafter monthly account statements reflecting all account activity and balances to Kuchler's counsel and the Arbitrator.
4. [Respondents are] to provide itemized profit and loss statements for all [they have] received to date on the Kuchler accounts, and on a monthly basis moving forward, [Respondents are] to provide concurrently with the monthly bank account statements to Kuchler's counsel and this Arbitrator, monthly profit and loss statements for the subject Kuchler accounts, and
5. This order will remain in full force and effect until entry of the final Award in this Arbitration or until further order of the Arbitrator.
On April 25, 2011, after seven days of hearings, the Arbitrator issued a his "Arbitrator's Decision and Partial Final Award" (Partial Final Award). The Arbitrator found that Kuchler did not fraudulently or improperly induce Respondents to enter into the Purchase Agreement and that Kuchler and Respondents had validly entered into the Purchase Agreement. The Arbitrator therefore determined that Kuchler was entitled to the award of damages (i.e., the agreed upon purchase price) pursuant to the terms of the Purchase Agreement. The Arbitrator found that only Lee Realty, and not Lee as an individual, was the "Buyer" under the Purchase Agreement and therefore only Lee Realty was liable for the obligations of the "Buyer" under the Purchase Agreement. However, because Lee had personally guaranteed the purchase price for the first year, Lee was liable as a guarantor for the first years's payment under the Purchase Agreement. The Arbitrator determined that Lee Realty owed Kuchler $172, 845.55 under the Purchase Agreement and that Lee was personally liable for $66, 941.87 pursuant to his guaranty. The Arbitrator also determined that Kuchler was the prevailing party in the arbitration and entitled to attorneys' fees and costs.
In its "Conclusion and Award, " the Final Partial Award states as follows:
1. Judgment is entered in favor of Claimant, Phillip Kuchler, Inc., against Respondents Abe Lee Realty, LLC and Abraham W. H. Lee in the amount of $172, 845.55.
2. The sums currently held in escrow may be used to partially satisfy this award.
3. Claimant Kuchler is awarded reasonable attorneys' fees and expenses, which will be determined according to the briefing schedule set forth above.
4. Any and all other claims not specifically addressed herein are denied and dismissed.
5. This Arbitrator retains Jurisdiction for the sole and exclusive purpose of issuing an award of reasonable attorneys' fees and expenses. In all other respects, this Arbitrator is functus officio.
(Emphasis added.) The Arbitrator's reference in the Final Partial Award to sums "held in escrow" was apparently to the Gross Monthly Receipts the Arbitrator had ordered Respondents to deposit into the separate bank account that the Arbitrator had ordered Respondents to open. Because the parties, the Arbitrator, and the Circuit Court refer to the separate bank account as the "escrow" account, we ...