THOMAS FRANK SCHMIDT and LORINNA JHINCIL SCHMIDT, Plaintiffs-Appellants and Cross-Appellees,
HSC, INC., a Hawai'i corporation; RICHARD HENDERSON, SR.; ELEANOR R.J. HENDERSON; JOHN DOES 1 through 10; JANE DOES 1 through 10; and DOE UNINCORPORATED ASSOCIATIONS, INCLUDING PARTNERSHIPS 1 through 10, Defendants-Appellees and Cross-Appellants
NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER
APPEAL FROM THE CIRCUIT COURT OF THE THIRD CIRCUIT (CIVIL NO. 06-1-228)
R. Steven Geshell and Thomas P. Dunn for Plaintiffs-Appellantsand Cross-Appellees
Paul Alston Stephen M. Tannenbaum(Alston Hunt Floyd & Ing)for Defendants-Appelleesand Cross-Appellants
Fujise, Presiding Judge, Leonard and Ginoza, JJ.
Plaintiffs-Appellants Thomas Frank Schmidt and Lorinna Jhincil Schmidt (Schmidts) appeal from the October 7, 2008 final judgment (Final Judgment) entered by the Circuit Court of the Third Circuit (Circuit Court) in favor of Defendants-Appellees HSC, Inc., (HSC) Richard Henderson, Sr. (Richard) and Eleanor R.J. Henderson (Eleanor) (Richard and Eleanor are referred to as the Hendersons)(collectively, HSC, Richard, and Eleanor are referred to as Appellees) and against the Schmidts.
The Schmidts argue on appeal that the Circuit Court erred when it dismissed their fraudulent transfers claim against Appellees. Appellees argue on cross-appeal that the Circuit Court erred when it concluded that the Schmidts were not time- barred and when it failed to timely award Appellees their attorneys' fees and costs.
A. The Foreclosure Action
The definitive and detailed saga of Realty Finance, Inc. v. Schmidt, is chronicled in the Hawai'i Supreme Court's Memorandum Opinion (No. 23441) dated March 18, 2004. The relevant highlights are as follows.
In 1991 and 1995, the Schmidts executed and delivered various promissory notes and mortgages that were later assigned to Realty Finance, Inc. (Realty Finance). The Schmidts subsequently defaulted on the notes and mortgages and Realty Finance filed a foreclosure action against the Schmidts. On February 24, 1998, a motion for an interlocutory decree of foreclosure was granted, the amount of the Schmidts' debt to Realty Finance was determined, and a judgment was entered. Thereafter, Realty Finance sold the Schmidts' notes and mortgages to another entity, Waikiki Investments 418, Inc. (Waikiki Investments), pursuant to various agreements that, inter alia, allowed Waikiki Investments to collect the sums due on the notes and mortgages.
In June of 1999, Waikiki Investments collected a total of $309, 000 from Amerasian Land Co. (Amerasian) and $225, 000 from Lulani Properties, LLC (Lulani), which were intended to secure a release of the mortgages encumbering the mortgaged properties. Waikiki Investments then defaulted on its agreement with Realty Finance. In July of 1999, Realty Finance filed a notice stating that it was again the real-party-in-interest and "revived" the foreclosure proceedings. After various further proceedings in the Circuit Court and the ICA, which were unfavorable to the Schmidts, on March 18, 2004, the Hawai'i Supreme Court held: (1) that the Schmidts' notes and mortgages merged into the February 24, 1998 judgment; (2) thus, Realty Finance in effect assigned the right to proceeds under the judgment to Waikiki Investments; (3) when Amerasian and Lulani paid Waikiki Investments, they paid the debts identified in the February 24, 1998 judgment and, accordingly, paid down the judgment; and (4) therefore, the mortgage debts owed by the Schmidts were reduced by the payments made by Amerasian and Lulani to Waikiki Investments. In essence, the supreme court agreed with Amerasian and the Schmidts' argument that it was wrong to require them to pay over $1, 000, 000 for a $564, 000 judgment and to entitle Realty Finance and its assignees to collect over $1, 000, 000 on a $564, 000 judgment. The case was remanded, inter alia, for an appropriate accounting and further proceedings consistent with the supreme court's decision. The result was a judgment debt in favor of the Schmidts.
B. The Realty Finance Transfers
In the meantime, prior to the supreme court's ruling, and after Realty Finance reasserted its interest in the foreclosure proceedings, Realty Finance sought and was granted approval of a private sale of the mortgaged properties. Pursuant to an order entered in the foreclosure proceedings on January 31, 2000, the foreclosure commissioner distributed the sales proceeds to Realty Finance over the Schmidts' objections. Prior to a series of judgments "finalizing" the orders confirming the private sale, approving the distribution of the sale proceeds, and entering a deficiency judgment against the Schmidts, dated April 11, 2000, May 10, 2000, and June 9, 2000, respectively, Realty Finance used the sale proceeds to the benefit of its parent corporation, HSC. More specifically, Realty Finance directed payment to four of HSC's "creditors" as follows: (1) a February 11, 2000 check payable to Richard in the amount of $54, 339.55; (2) a February 11, 2000 check payable to ...