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Brutsch v. Brutsch

Supreme Court of Hawaii

March 2, 2017

KARL ROBERT BRUTSCH, Respondent/Plaintiff-Appellee/Cross-Appellant,
v.
CELIA KAY BRUTSCH, Petitioner/Defendant-Appellant/Cross-Appellee.

         CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-12-0000703; FC-D NO. 09-1-2906)

          Peter Van Name Esser and P. Gregory Frey for petitioner

          Samuel P. King, Jr. for respondent

          McKENNA, POLLACK, WILSON, JJ., WITH RECKTENWALD, C.J., DISSENTING, WITH WHOM NAKAYAMA, J., JOINS.

          OPINION

          McKENNA, J.

         I. Introduction

         This case arises from a contentious divorce proceeding between Celia Kay Brutsch ("Wife") and Karl Robert Brutsch ("Husband"). Wife timely applied for writ of certiorari ("Application") from the Judgment entered by the Intermediate Court of Appeals ("ICA") pursuant to its May 12, 2015 Summary Disposition Order ("SDO"). In relevant part, the ICA vacated in part the Family Court of the First Circuit's ("family court['s]"): (1) "Decree Granting Absolute Divorce and Awarding Child Custody" ("divorce decree") because it denied Husband any Category 3 credit for gifts and inheritance, and (2) "Order Re: Plaintiff's Motion for Reconsideration and for Rule 68 Attorney's Fees Filed February 16, 2012" and "Order Denying Plaintiff's Motion for Reconsideration of Decision Announced March 14, 2012, Filed March 21, 2012."

         In her Application, Wife presents two questions:

A. Given [Husband's] failure to document a consistent amount for his inheritance, show it was used for marital expenses, or rebut a presumption of gift to the marital partnership, did the ICA commit grave error when it substituted its own judgment for that of the trial judge, and vacated his ruling rejecting [Husband's] demand for $134, 235, $140, 000, $190, 000, $236, 235, or $324, 235, [1] in Category 3 credits?
B. Given [Husband's] failure to tender a comprehensive settlement offer as to all contested issues, offer to settle any one of the contested matters, or justify his request for fees with billings or time sheets, did the ICA commit grave error when it substituted its own judgment for that of the trial judge, and vacated his ruling denying [Husband's] demand for [Hawai'i Family Court Rules] Rule 68 fees and costs?

          With respect to the first issue in the Application, we hold that the ICA was correct in ruling that the family court erred in stating that the record was "bereft of any competent or credib[le] evidence that . . . monies were actually contributed to the marriage, " and therefore remanding this issue for further proceedings, along with other rulings of the family court that are not at issue in the Application. Brutsch v. Brutsch, No. CAAP-12-0000703, at 7 (App. May 12, 2015) (SDO). When the family court addresses the issue of Category 3 credits on remand, however, it must do so in light of this court's rulings regarding Category 3 credits in Hamilton v. Hamilton, 138 Hawai'i 185, 378 P.3d 901 (2016). In addition, at various points in this litigation, Husband argued differing amounts for Category 3 credits. At oral argument, Husband conceded that the only amounts he claims for Category 3 credits total $134, 235, consisting of gifts reflected in checks totalling $74, 235, the $40, 000 total he received as gifts in $10, 000 increments, and the $20, 000 annuity he inherited used to purchase a Jacuzzi for the Maunawili house. Therefore, the family court's review of possible Category 3 credits will be limited to those amounts, totalling $134, 235. In addition, in determining Category 3 credits, the family court must also address whether Husband already received credit for any of the subject amounts through Wife's pre-trial purchase of Husband's interest in the Maunawili home, as Husband has conceded that Wife bought out his interest in the home.

         With respect to the second issue in the Application, this court recently held that Hawai'i Family Court Rules ("HFCR") Rule 68 does not apply to proceedings governed by Hawai'i Revised Statutes ("HRS") § 580-47 (Supp. 2011). See Cox v. Cox, 138 Hawai'i 476, 382 P.3d 288 (2016). This divorce proceeding is governed by HRS § 580-47. We therefore vacate the ICA's ruling vacating the family court's denial of Husband's HFCR Rule 68 motion. In doing so, we further explain why in Cox we held HFCR Rule 68 inapplicable in divorce cases.

         II. Background

         A. Factual Background

         1. Overview

         Husband and Wife (collectively, "the couple") were married in 1991. The couple has a son born in 1996 and a daughter born in 2001. Husband filed for divorce on September 8, 2009.

         Although the only issues in the Application concern Husband's alleged Category 3 credits and his HFCR Rule 68 motion, there were many issues addressed by the family court during this contentious divorce and related proceedings. Five days before Husband filed for divorce, Wife filed for and obtained a temporary restraining order. There were pre-decree motions concerning temporary custody, temporary child support, occupancy of the marital residence, wasting of assets, prohibition against abuse, payment of monthly financial obligations, attorney's fees and costs, sharing of marital expenses, and payment of expenses for private school, for psychological evaluations or treatment, and for appointment of custody evaluators. There were also multiple pre-trial motions concerning the same topics.

         With respect to child custody, before trial, the family court appointed a Custody Evaluator. After various studies, the Custody Evaluator recommended that Wife be awarded sole legal and physical custody of the minor children.

         As Wife had already bought out Husband's interest in the family home before trial, the main issues requiring resolution at the October 3-4, 2011 trial were child custody and some property division matters. According to Husband, child custody was the most hotly contested dispute.

         After the trial, the family court rendered its oral ruling on November 2, 2011. In summary, the family court (1) denied mother's request for sole custody of the children and instead maintained joint legal and joint physical custody and the couple's time-sharing schedule; (2) addressed child support and payment of the children's private school and extracurricular expenses; (3) deferred decisions to the couple regarding the children's higher education expenses and how to use their existing education funds; (4) addressed medical and dental insurance and past due amounts; (5) addressed life insurance policy requirements; (6) decided how the couple would claim tax dependencies of their children; (7) determined how the couple's retirement funds would be equalized; (8) ordered that artwork be sold and proceeds evenly split; (9) ordered that all joint accounts be evenly split, and provided that each party was to take his or her own items out of the safety deposit box; (10) decided how joint securities and separately titled stock accounts were to be divided; (11) determined how to divide automobiles and the boat; and (12) awarded Husband all of his family business interest and his Kaneohe Yacht Club membership. Additionally, as noted, the property divided between the parties did not include the couple's family home in Maunawili, as Wife had purchased Husband's interest prior to trial. Finally, the family court also indicated it would award Wife attorney's fees and costs, and eventually awarded Wife $21, 984.46 in fees and costs.

         The court did not address any possible Category 3 credit for Husband or whether Husband should receive attorney's fees pursuant to HFCR Rule 68.[2] On February 16, 2012, Husband filed a "Motion for Reconsideration and for Rule 68 Attorney's Fees" ("Motion") based on a September 30, 2010, Rule 68 letter offer.[3]The offer was apparently rejected by Wife.

         Husband argued that the primary issue in the divorce proceedings was the children's custody, not property division. Accordingly, because Wife did not prevail in her quest for sole custody, Husband's attorney argued that Wife was responsible for Husband's attorney's fees that were incurred after the Rule 68 offer was made for services rendered on the issue of the children's custody, and claimed entitlement to $15, 500 in attorneys' fees in fees under HFCR Rule 68. The Rule 68 offer letter stated:

Please consider this an HFCR Rule 68 offer to settle all matters relating to this divorce. As you know, you have 10 days from the receipt of this offer to accept it, otherwise it is deemed rejected, and if you do not obtain a result that is patently better as to property division or child custody/visitation/support at trial, your client will owe [Husband] costs and attorney's fees from the date of this offer.
We propose that the property division between the parties be as set out in the enclosed Property Division Chart. Basically, we have divided the marital home and the associated mortgage, so this issue is resolved. Otherwise, the Chart shows that each party keep the assets and debts presently in their own names. Note that I have discounted the values of the 401k's by 30% (for state and federal taxes) because these are pretax amounts. [Wife] takes all the household effects presently in the house (except for the two rattan chairs and [Husband's] personal items). Each party shall keep the children's trust monies (which derive from [Husband's] father's inheritance) for the children's educational expenses only and be required to account for the trust monies upon demand by the other party. Each party pays their own debts ([Wife] will, of course, be responsible for payment of the new mortgage on the marital residence which she is acquiring per the agreement of the parties). [Husband] waives any claim to an equalization payment.
Neither party is seeking alimony.
As for the children, we propose that the parties share joint legal and physical custody of the children. Child support shall be paid per Guidelines. [Husband] shall continue to cover the children for medical insurance, and the parties will split equally all uncovered medical expenses, including orthodontic care. The parties will split the children's tuitions in proportion to their incomes (presently the ratio is 59% for [Husband] and 41% for [Wife]), and the parties will split equally all other children's educational expenses (e.g., after-school care, extracurricular activities, school lunch expense, etc.). The parties will work out a sharing arrangement (e.g., 4-3-3-4 or 5-2-2-5) and agree on sharing for school breaks, birthdays, holidays, etc. If the parties cannot agree on the sharing arrangement, they shall mediate the issue before filing any court action.
We believe that this settles all the issues in this case. We await your reply.

         Husband also argued that he was entitled to $134, 235 in Category 3 credits based on the evidence at trial. In the Motion, Husband cited to "Plaintiff's Ex. 10" as evidence. That exhibit included canceled checks from the estate of Husband's late father in the amounts of $50, 000, $9, 235, and $15, 000, and an investment statement for a beneficiary annuity apparently valued at $20, 000. Without providing any record citations, Husband also asserted that "[he] . . . testified about receiving $40, 000 in four $10, 000 payments as gifts from his father from 1996 to 2001 just before his father died. . . . [Husband] testified that he spent . . . [gifted] funds on the house (which [Wife] now owns), on a boat (which [Husband] now owns), and other expenses during the marriage." In summarizing his motion, Husband argued:

Based on the summary of the above issues, [Wife] owes [Husband] at least $13, 000 in Rule 68 attorney's fees, and probably $15, 500. In addition, the credits to which [Wife] is entitled under this Court's decision are more than cancelled by the credit to which [Husband] is entitled in Category 3 credit. Even though the net of these amounts is that [Wife] owes [Husband] about $50, 000 (this is assuming that this Court awards [Wife] almost $22, 000 in attorney's fees which, as argued above, is not justified), [Husband] is not looking for an award against [Wife] of this amount. [Husband] is simply requesting that this Court's final decree state that neither party owes the other any amount. As [Husband] offered in his Rule 68 letter over a year ago and in his most recent Rule 68 letter (which even threw in a $20, 000 incentive which is no longer offered as [Wife] chose to go to trial at great expense to the parties and the marital estate), this should simply be a "walk-away" marriage with joint custody of the children. Based on such a decree, the only matter left for the parties to end this long unnecessarily drawn out affair will be to sell their art collectibles and divide the proceeds as ordered by this Court.
If [Husband] is not awarded his Category 3 credit and is required to make payments to [Wife] for attorney's fees and an amount from his 401(k), then even the offer to settle here as a "walk away" marriage is withdrawn, and [Husband] will seek his full remedies on appeal.

         At a hearing on March 14, 2012, the court orally ruled on Husband's Motion, stating:

With regard to the motion for reconsideration, the court could have and should have perhaps been more precise. But by its omission the court implicitly ruled on the claim for Category 3 reimbursements. The court will explicitly do so at this time. The court finds that while it may be accurate to state that [Husband] did receive monies, the record is bereft of any competent or credibility [sic] evidence that monies were actually contributed to the marriage. Therefore the Rule -- the Category 3 claim ultimately fails for lack of evidence as far as what's been presented to the court at this particular juncture. So therefore that portion of the motion for reconsideration is denied.
With regard to the other issue as to the attorney's fees, the attorney's fees [issue] is bound up as part of the motion for recon but also as part of the Rule 68. The court finds based on the credible evidence that given the fact that the motion for recon is denied as to the Category 3 claim, with regard to the attorney's fees and costs claimed by defendant respondent [sic] is indeed appropriate. The Rule 68 is predicated on the entire decree being patently more favorable or unfavorable depending upon the offer. [Wife's ...

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