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In re Ishida-Waiakamilo Legacy Trust

Intermediate Court of Appeals of Hawaii

March 31, 2016

IN THE MATTER OF THE ISHIDA-WAIAKAMILO LEGACY TRUST DATED JUNE 27, 2006 AND IN THE MATTER OF THE ISHIDA-WINANT LEGACY TRUST DATED JUNE 27, 2006

         APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (T. NOS. 12-1-0080 AND 12-1-0081)

          Margery S. Bronster, Mia D. Obciana, (Bronster Hoshibata) for Appellants.

          Michael A. Lilly, (Ning, Lilly & Jones) for Appellees.

          FUJISE, PRESIDING JUDGE, LEONARD AND REIFURTH, JJ.

          OPINION

          LEONARD, J.

         In this consolidated appeal, Settlors-Appellants Richard H. Ishida, Jr., (Richard) and Rachel N. Ishida (Rachel) (collectively, the Ishidas) appeal from the Probate Court of the First Circuit's (Probate Court's): (1) May 3, 2013 Judgment on (1) Order Granting in Part and Denying in Part Petition for Rescission of Warranty Deed Dated March 28, 2007, Imposition of Constructive Trust, and an Order for Disgorgement Filed May 4, 2012, Filed on July 30, 2012, and (2) Order Denying Petition for Reconsideration of Order Granting in Part and Denying in Part Petition for Rescission of Warranty Deed Dated March 28, 2007, Imposition of Constructive Trust, and an Order for Disgorgement Filed August 10, 2012, Filed on March 27, 2013 (Waiakamilo Judgment), in T. No. 12-1-0080 (the Waiakamilo Case); and (2) May 3, 2013 Judgment on (1) Order Denying Petition for Reformation of Trust and/or Order Setting Aside the Ishida-Winant Legacy Trust Filed May 4, 2012, Filed on July 30, 2012, and (2) Order Denying Petition for Reconsideration of Order Denying Petition for Reformation of Trust and/or Order Setting Aside the Ishida-Winant Legacy Trust Filed on August 10, 2012, Filed on March 27, 2013 (Winant Judgment), in T. No. 12-1-0081 (the Winant Case).[1]

         I. BACKGROUND FACTS

         A. Creation of the Trusts

         On June 27, 2006, the Ishidas, with the help of Michelle Hobus, Esq. (Hobus) of the Sterling & Tucker law firm, created the Ishida-Winant Legacy Trust (Winant Trust). The trust was irrevocable. The trustee was their daughter, Juney M. Ishida (Juney). The trust's principal asset was an interest in the real property located at 945 Winant Street, Honolulu, Hawai'i (the Winant Property). Under the terms of the Winant Trust, upon the death of whichever of the Ishidas died last, the Winant Property was to be distributed to Juney or, if she was deceased, to the Ishidas' granddaughter Kauialohaokalani R. Wilson (Kaui). Also on June 27, 2006, the Ishidas executed a limited warranty deed transferring the Winant Property to Juney, as Trustee of the Winant Trust, reserving a life estate for themselves.

         On the same day, the Ishidas also formed the Ishida-Waiakamilo Legacy trust (Waiakamilo Trust), [2] naming another daughter, Jeri S. Wilson (Jeri), as trustee. This trust was also irrevocable. The trust's principal asset was an interest in the real property located at 948 Waiakamilo Road, Honolulu, Hawai'i (the Waiakamilo Property). The trust property was to be distributed to Jeri or, if she was deceased, to Kaui, who is Jeri's daughter, as well as the Ishidas' granddaughter. Also on June 27, 2006, the Ishidas executed a limited warranty deed tranferring the Waiakamilo Property to Jeri, as Trustee of the Waiakamilo Trust.

         The Ishidas have a third daughter, Richardeen R. Kimura (Richardeen), who they specifically excluded from the Trusts. It appears undisputed that, in 2010, the Ishidas and Richardeen reconciled.

         B. Subsequent Transfers

         In early 2007, as she was preparing to complete the Ishidas' 2006 tax returns, the Ishidas' accountant, Siu Lan Lundy (Lundy), asked to review the Trusts. After reviewing the Trusts, Lundy raised concerns with Rachel about the terms of the Waiakamilo Trust, specifically, that it did not specify that the Ishidas would continue to receive the income from the Waiakamilo Property, but the Ishidas remained responsible for the property-related expenses, thus purportedly leaving the Ishidas with insufficient income to meet their needs. Rachel asked Lundy to call Hobus.

         On March 28, 2007, in what appears to have been an attempt to address the concerns raised by Lundy, [3] the Waiakamilo Property underwent a series of transfers: first, from Jeri, as Trustee, to Jeri, individually; second, from Jeri, individually, to the Ishidas; and third, reserving a life estate for themselves, from the Ishidas to Jeri, individually.[4]

         On November 3, 2010, subject to the Ishidas' life estate, Jeri transferred her interest in the Waiakamilo Property to a living trust created for Jeri and her husband.

         C. The Petitions

         On May 4, 2012, the Ishidas filed: (1) a Petition for Rescission of Warranty Deed Dated March 28, 2007, Imposition of Constructive Trust, and an Order for Disgorgement, in the Waiakamilo Case (the Waiakamilo Petition); and (2) a Petition for Reformation of Trust and/or Order Setting Aside the Ishida-Winant Legacy Trust, in the Winant Case (the Winant Petition) (collectively, the Petitions).

         The Waiakamilo Petition raised various allegations related to the Waiakamilo Trust, and the subsequent transfers of the Waiakamilo Property, and alleged that the March 28, 2007 transfer of the Waiakamilo Property from Jeri, as Trustee, to Jeri, individually, was void because the transfer violated the terms of the Waiakamilo Trust and Hawaii Revised Statutes (HRS) § 554A-5(b) (2006). In essence, the Ishidas alleged that they had not intended to create an irrevocable trust and that doing so left them unable to provide for themselves in their elder years. The Ishidas asked the Probate Court to rescind the March 28, 2007 deed transferring the Waiakamilo Property from Jeri, as Trustee, to Jeri, individually, to impose a constructive trust on the Waiakamilo Property, and to order that the Waiakamilo Property be returned to the Ishidas. The Waiakamilo Petition was supported by copies of both Trusts, the various aforementioned deeds transferring the Winant and Waiakamilo Properties in 2006, 2007, and 2010, a copy of a letter from the Custodian of Records for the Notary Public Program to the Ishidas' law firm, [5] and the Ishidas' signatures on the petition following a statement that:

THE UNDERSIGNED UNDERSTANDS THAT THIS DOCUMENT IS DEEMED TO INCLUDE AN OATH, AFFIRMATION, OR STATEMENT TO THE THE EFFECT THAT REPRESENTATIONS ARE TRUE AS FAR AS THE UNDERSIGNED KNOWS OR IS INFORMED, AND PENALTIES FOR PERJURY MAY FOLLOW DELIBERATE FALSIFICATION.

         No other affidavit or declaration was submitted in support of the Waiakamilo Petition.

         Similarly, the Winant Petition raises various allegations related to the Winant Trust, most notably that they did not intend to create an irrevocable trust. The Ishidas argued that, as the Winant Trust does not reflect their intent to create a revocable trust, they are entitled to an equitable remedy of reformation or that the trust should be set aside on the grounds that they were mistaken as to the terms and effect of the Trust. The Winant Petition was supported by the same documents as the Waiakamilo Petition and the same statement, as quoted above, over the Ishidas' signatures. No other affidavit or declaration was submitted in support of the Winant Petition.

         Jeri filed an objection to the Waiakamilo Petition. Juney filed an objection to the Winant Petition. Each argued that numerous important allegations in the Petitions were incorrect and/or required further investigation and discovery, including but not limited to the deposition of Hobus, and that the Petitions should either be assigned to the civil trials calendar pursuant to Rule 20(a) of the Hawai'i Probate Rules (HPR) or denied in their entirety. Reply memoranda were filed by the Ishidas, objecting to any transfer to the civil calendar due to the Ishidas' advanced age, and requesting that the Petitions be granted.

         A joint hearing was held on the Petitions, on June 14, 2012, and, after argument of counsel, the matters were taken under advisement. Minute orders were issued on July 2, 2012. Regarding the Winant Petition, the Probate Court stated that "the court finds no basis to reform or set aside the Ishida-Winant Legacy Trust." The Probate Court granted in part and denied in part the Waikamilo Petition, stating that "the court finds that Jeri Wilson violated the terms of the trust by transferring the Waiakamilo Property out of the Trust. The Court orders Jeri Wilson to transfer the Waiakamilo Property back to the Ishida-Waiakamilo Legacy Trust. Petitioners' request to impose a constructive trust and order the property to be returned to Petitioners is denied." Jeri's request to assign the matter to the civil trials calendar was also denied. Written orders were entered on July 30, 2012.

         On August 10, 2012, petitions for reconsideration were filed in both matters. Without explanation as to why it could not have been presented earlier, both petitions included affidavits by Lundy, which described her actions in early 2007, as described hereinabove, and included Lundy's after-the-fact view that Rachel never would have signed the trust documents if Rachel had understood them, as well as Lundy's opinion as to what the outcome of the cases should be. Objections and replies were filed. A hearing was held on the petitions for reconsideration. Orders denying reconsideration were entered in both cases on March 27, 2013. In both cases, the Probate Court found "that it is unable to conclude that there has been a mistake, newly discovered evidence which by due diligence could not have been discovered in time before the [orders denying the initial petitions were] issued, or any other reason justifying relief."

         The Waiakamilo and Winant Judgments were entered, pursuant to HPR Rule 34(c), on May 3, 2013. Notices of appeal were timely filed by the Ishidas. The appeals were consolidated by an order entered by the Intermediate Court of Appeals (ICA) on September 11, 2013.

         On September 30, 2015, Rachel filed a suggestion of death upon the record, noting the death of Richard during the pendency of this action. On January 28, 2016, a motion was filed seeking to substitute Raydeen L. Graffam (Raydeen) for Richard after the Probate Court issues letters testamentary duly appointing Raydeen, a granddaughter of Richard and Rachel, as Richard's personal representative. As the Probate Court had not yet acted on Raydeen's petition, the requested relief was premature, and on February 3, 2016, the ICA denied the motion for substitution without prejudice.

         II. POINTS OF ERROR

         The Ishidas raise two, related, points of error, contending that the Probate Court erred when: (1) it refused to exercise its power to impose an equitable remedy by denying the Ishidas' request to have the Waiakamilo Property returned to them and by refusing to reform or set aside the Winant Trust; and (2) it denied the Ishidas' request to impose a constructive trust or an order of disgorgement for the Waiakamilo Property and for the Winant Trust to be reformed or set aside based on the Ishidas' position that the Trusts were a mistake and not what they intended.

         The Ishidas specifically aver that they do not appeal from the Probate Court's denial of the petitions for reconsideration.

         III. APPLICABLE STANDARD OF REVIEW

         Although contending that the Circuit Court erred in refusing to exercise its equitable powers, the Ishidas submit that the applicable standard of review is de novo, because the construction of a trust is a question of law which the appellate court reviews de novo. Applicable cases do, indeed, hold that the construction of a trust is reviewed de novo. See, e.g., In re Lock Revocable Living Trust, 109 Hawai'i 146, 151, 123 P.3d 1241, 1246 (2005). However, the disputed issues on appeal in this case do not involve the interpretation of the subject Trusts. As plainly stated on the first page of each Trust, the Trusts are irrevocable. The Ishidas have never argued otherwise. Rather, they have argued, seeking various equitable remedies, that they should be relieved from the clear terms of the Trusts.

         The rescission or reformation of an instrument constitutes an equitable remedy. AIG Haw. Ins. Co., Inc. v. Bateman, 82 Hawai'i 453, 456, 923 P.2d 395, 398 (1996) ("[r]escission and cancellation are equitable remedies") (citation omitted); Civic Realty, Inc. v. Dev., Inc., 3 Haw.App. 101, 102, 641 P.2d 1361, 1362 (1982) (acknowledging reformation as an equitable remedy). The imposition of a constructive trust is also an equitable remedy. Beneficial Haw., Inc. v. Kida, 96 Hawai'i 289, 315, 30 P.3d 895, 921 (2001).

The relief granted by a court in equity is discretionary and will not be overturned on review unless the circuit court abused its discretion. An abuse of discretion occurs when 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.

Ueoka v. Szymanski, 107 Hawai'i 386, 393, 114 P.3d 892, 899 (2005) (citations, internal quotation marks, brackets, ...


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