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Lahaina Fashions, Inc. v. Bank of Hawai'i

Supreme Court of Hawai'i

January 7, 2014

LAHAINA FASHIONS, INC., a Hawai'i corporation, Petitioner/Plaintiff-Appellant/Cross-Appellee,
v.
BANK OF HAWAI'I, a Hawai'i corporation; HAWAIIAN TRUST COMPANY, LTD., as Trustee for Hawai'i Real Estate Equity Fund; HAWAI'I REAL ESTATE EQUITY FUND; PACIFIC CENTURY TRUST, a division of Bank of Hawai'i as Trustee of the Hawai'i Real Estate Equity Fund, Respondents/Defendants-Appellees/Cross-Appellants

Page 357

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS. ICA NO. 30644; CIVIL NO. 07-1-0506.

Philip H. Lowenthal, Benjamin Lowenthal, Joseph M. Alioto, and James Dombroski, for petitioner.

Terrence J. O'Toole, Judith A. Pavey, and Andrew J. Lautenbach, for respondents.

NAKAYAMA, ACTING C.J., ACOBA, McKENNA, AND POLLACK, JJ., AND CIRCUIT JUDGE KIM, IN PLACE OF RECKTENWALD, C.J., RECUSED.

OPINION

Page 358

[131 Hawai'i 439] ACOBA, J.

We hold, first, that depending on the circumstances, a court may recall a jury following a formal discharge if the jury is in the presence of, under the direction of, or subject to the control of the court. Inasmuch as the Intermediate Court of Appeals (ICA) held that a jury cannot be recalled under any circumstances following an order discharging the jury, respectfully, the ICA erred.

Second, a special verdict form cannot be amended simply because the jury " realized that its answers to the special verdict form have caused a result opposite from what it intended," or misunderstood the legal effect of its answer to a special verdict question. Cabral v. McBryde Sugar Co., Ltd., 3 Haw. App. 223, 228, 647 P.2d 1232, 1235 (1982). Thus, we hold that the jurors' statements that they " misunderstood" or " misinterpreted" the legal effect of the statute of limitations question on the special verdict form in this case does not provide a basis for overturning the jury's verdict in favor of Respondents/Defendants-Appellees/Cross-Appellants Bank of Hawai'i (Bank); Hawaiian Trust Company, Ltd. (Hawaiian Trust); Hawai'i Real Estate Equity Fund; and Pacific Century Trust (collectively, Respondents) and against Petitioner/Plaintiff-Appellant/Cross-Appellee Lahaina Fashions, Inc. (Petitioner) on this ground.

Third, the question of whether the conversation of the Circuit Court of the Second Circuit (the court)[1] with the jurors after the court had initially discharged the jurors constituted an improper outside influence is moot, because the ICA correctly sustained the verdict under Cabral.

Finally, a contract to convey property does not create a trust relationship between the vendor and the purchaser of the property and therefore does not impose any fiduciary duties on the vendor. Restatement (Third) of Trusts (Third Restatement) § 5 cmt. i. Because the only alleged trust identified at trial by Petitioner was effectively a contract to convey property, no trust was created and therefore the ICA did not err in affirming the court's order granting Respondents' motion for Judgment as a Matter of Law (JMOL) on Petitioner's breach of fiduciary duty claim.

For the reasons set forth herein, the April 12, 2013 judgment of the ICA filed pursuant to its February 21, 2013 published opinion is affirmed in part and vacated in part, and the July 8, 2010 final judgment of the court is affirmed.

I.

A.

Until 1994, Petitioner held title to property located at 744 Front Street, Lahaina, Maui. In 1994, however, Petitioner defaulted on a § 2.5 million mortgage loan held by International Savings and Loan. As a result, Petitioner attempted to sell the Property to repay the loan.

Page 359

[131 Hawai'i 440] On July 7, 1994, Petitioner agreed to sell the Property to Respondents for $6 million. As part of the Purchase and Sale Agreement, Respondents as " Landlord" agreed to lease the Property to Petitioner as " Tenant" for a period of fifty years. Under the terms of the lease, Petitioner retained the option to repurchase the Property (the Option) and sell it for a profit:

X. Option to Purchase Landlord's Interest.

10.01 Tenant's Option to Purchase. If at any time during the first ten (10) years of the Lease, Tenant desires to sell Tenant's interest in this Lease, and Landlord's interest in this Lease and the fee simple title to the Land (collectively called " leased fee interest" ) for the sole purpose of selling to a third party Tenant's leasehold interest and Landlord's leased fee interest (so that such third party would own the Land in fee simple), then Tenant shall give Landlord prior written notice of the terms and conditions of the proposed sale and the name of the proposed buyer. Tenant shall have the right to purchase Landlord's leased fee interest under the terms and conditions outlined below by giving Landlord written notice of Tenant's election to purchase Landlord's leased fee interest, in writing, within thirty (30) days after receipt of an offer from a prospective buyer. If Tenant exercises its right to purchase Landlord's leased fee interest, then Tenant shall pay Landlord the amount specified below within the time proposed by the specified buyer, not to exceed six (6) months after Tenant's election to purchase Landlord's leased fee interest. If the prospective buyer is affiliated with or has had a business relationship with tenant, upon request of Landlord, Tenant shall furnish proof satisfactory to Landlord that the sale is not a sham sale for the purpose of subsequent resale, to avoid the payment of the percentage price to Landlord under Section 10.02. If Tenant fails to furnish satisfactory proof, Landlord may refuse to honor the exercise of such [O]ption. . . .

10.02 Purchase Price for Landlord's Leased Fee Interest. The purchase price for Landlord's leased fee interest shall be SIX MILLION AND NO/100 DOLLARS ($6,000,000.00) plus fifty percent (50%) of the " Net Proceeds of Sale" in excess of NINE MILLION AND NO/100 DOLLARS ($9,000,000.00). As used herein, " Net Proceeds of Sale" means the Purchase Price paid by the prospective buyer less real estate brokers commissions and customary closing costs, provided that such commissions and closing costs shall not exceed four percent (4%) of such Purchase Price . . . .

(Emphases added.) The lease agreement also stated the parties had negotiated the agreement at arm's length and did not intend to form a partnership or joint venture:

9.12 No Party Deemed Drafter. All provisions of this Lease have been negotiated at arms length and with full representation of legal counsel and neither party shall be deemed the drafter of this Lease . . . .9.13 No Partnership Intended. Landlord and Tenant hereby agree that Landlord in no event and for no purpose is a partner of Tenant in the conduct of any of its businesses or other affairs or a joint venturer or member of a joint enterprise with Tenant.

(Emphases added.)

In 1999, Petitioner could not make its rent payments under the lease agreement and consequently defaulted. Subsequently, Pacific Century Trust, a division of the Bank and one of the owners of the Property, filed suit seeking a writ of possession and damages. However, prior to the conclusion of that action, Petitioner filed for bankruptcy in the United States Bankruptcy Court. The bankruptcy court approved the sale of Petitioner's leasehold interest in the Property to Loko Maui, LLC on November 1, 2001,[2] in exchange for the payment of Petitioner's arrearage and $250,000. As a result, Pacific Century Trust's suit was dismissed.

Page 360

[131 Hawai'i 441] On June 25, 2007, Petitioner filed a Complaint, initiating the instant case. The Complaint alleged that Respondents " had no intention of allowing [Petitioner] to exercise the Option," and asserted claims against Respondents for fraud, conspiracy to defraud, breach of fiduciary duty, and tortious interference with prospective business advantage.

B.

At trial, George Weir (Weir), the Bank's senior executive officer at the time it entered the agreement with Petitioner, testified as to whether Respondents owed Petitioner any fiduciary duties:

Q. [by Petitioner] All right. So if the [O]ption is exercised, you'd have to give clear title, wouldn't you?

A. [by Weir] Of course.. . . .

Q. You have to hold it in effect for [Petitioner's] benefit, if they exercise the [O]ption?

A. At the time - if they were to exercise their [O]ption and we were to accept it, at close of escrow, we'd have to deliver clean title.

Q. So you have an obligation to [Petitioner] to make sure that . . . if the [O]ption is in fact exercised, you're going to give him clear title?

A. At close of escrow, yes, sir.

Q. So in effect then, [Petitioner] would be a beneficiary and you would have the obligation to make sure nothing happens to the land if the [O]ption is closed?

A. At the time of the close of escrow we'd have to deliver it clear, as I say.. . . .

Q. So you have an obligation to make sure that either nothing happens or if something does, you've got to fix it?

A. True.. . . .

Q. Okay. Now, would you say that that puts you in a fiduciary relationship with them?

A. It's a stretch. I'll take that.

Q. You'll accept that?

A. A definition of a fiduciary is one who has a confidential relationship with another, which could extend to husband and wife. So sure.

(Emphases added.) Weir later clarified his testimony on cross-examination:

Q. [by Respondents] What did you mean by your statement [that you owed a fiduciary duty to Petitioner]?

A. [by Weir] Well, the - I don't know. I guess you - there's fiduciary with a little " F" and fiduciary with a big " F."

In my business, it is - we have a - as I mentioned earlier, we have a statutory law, a legal responsibility as a fiduciary as well as a common law, you know, tradition, responsibility toward our trust beneficiaries.
When I said it was a stretch, you know, you have an obligation. I suppose you could call it a fiduciary duty. When you enter into a contract with someone, you have an obligation, legal obligation or moral obligation, honesty, fair play between two parties who enter into an agreement. That's just the way we work. That's the way we all work.
But as far as the true fiduciary duty, my true fiduciary duty - and that's, again, with a big " F" - to those participants in that fund, our client, our beneficiaries, and that obligation under the contract to deal fairly and honestly with Mr. Takeuchi,[3] certainly.

(Emphases added.)

Following the conclusion of Petitioner's case in chief, Respondents moved for JMOL, arguing inter alia that " no fiduciary duty was owed to [Petitioners]" by Respondents. The court granted Respondents' JMOL on this claim.

The jury was asked to render a special verdict on Petitioner's remaining claims. As to the fraud in the inducement and conspiracy to defraud claims, the jury found that Petitioner had failed to prove its case by clear and convincing evidence.

Page 361

But, on the tortious interference claim, the jury found that Petitioner had met its burden [131 Hawai'i 442] of proving each of the four elements of its claim. The jury therefore awarded Petitioner $680,000.00 in general damages and $770,821.00 in punitive damages. However, Question 7 on the special verdict form read:

[Petitioner] initiated this lawsuit on June 25, 2007. Did [Respondents] meet their burden of proof by a preponderance of the evidence that [Petitioner] was either aware of its interference claim or had enough information to warrant an investigation which, if reasonably diligent, would have led to discovery of the interference two or more years prior to June 25, 2007?

(Emphases added.) The jury answered " Yes" to Question 7.

The verdict was read in open court on June 10, 2009. The jury was polled, and eleven of the twelve jurors stated that they agreed with " all of the answers read into the record."

Following the entry of the verdict, the court informed the jurors that they were discharged:

After you have been discharged from your jury service in this case, you are free to discuss this case with anyone. . . . However, you should be careful not to discuss your thoughts or any other juror's thought processes, in other words, why or how the jurors reached or did not reach their verdict or verdicts.
To do so would violate the confidentiality of the jury deliberation process. If you wish to report any improper conduct by any juror or jurors during the deliberations that may have been prejudicial to either party or that may have compromised the fairness of your jury deliberations and/or verdicts, then please do so by notifying the Bailiff before you leave the courthouse.
If at some point after you've already left the courthouse you want to contact the [c]ourt about the above concerns, please send a letter to the [c]ourt. The [c]ourt upon review of these matters may summon some or all of the jurors back to court to hold a hearing to determine whether there was any misconduct that may have been prejudicial to the parties. . . . . [T]hank you to each and every one of you for your dedicated service as jurors in this case. And at this time, you are discharged from further jury service in this matter. And the Bailiff will escort you out of the courtroom. Thank you so much.

(Emphases added.) Later that day, the court went back on the record. With the jury not present, the court stated:

I make it a practice to go into the jury room after the trial is over to meet with jurors to thank them[.]
. . . . And while I was doing that, statements were made that could potentially raise an issue relative to the verdict of the jury. I disclosed this to the parties and asked the parties if they desired any additional disclosure from the [c]ourt. The Plaintiff has requested further disclosure. The defense has requested or stated that the trial was over and the verdict has been made a part of the record and that the proceedings were concluded, and therefore, objects to any additional disclosure . . . .
. . . . So I'm making this disclosure to the parties and encourage a briefing . . . as well as my own research on the issue and also attempt to preserve the status quo to the extent that that can be done to instruct the -- bring the jury back, they're still here, and to simply instruct them that they're not to discuss the case with anyone or allow anyone to discuss the case with them.. . . .THE COURT: So, but I wanted to do some research on this. So, this isn't the final hearing on this.

(Emphases added.) The court explained that, to " preserve the status quo" it would " bring the jury back" because " they're still here."

The court then recalled the jury and told the jury:

[E]arlier I gave you an instruction, and I'm going to need to rescind that, so that's the reason we had you return to the courtroom. . . . And that is I read you an instruction that began, " After you have ...

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