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Scholes v. Kawaguchi

Intermediate Court of Appeals of Hawaii

September 26, 2017

EVELYN K. SCHOLES AND EVELYN WONG AS CO-TRUSTEES OF THE SCHOLES FAMILY TRUST DATED SEPTEMBER 18, 2003, Plaintiffs-Appellees,
v.
KIYOSHI KAWAGUCHI AND SUNG SOOK KAWAGUCHI, Defendants-Appellants,

         APPEAL FROM THE DISTRICT COURT OF THE FIRST CIRCUIT HONOLULU DIVISION (CIVIL NO. 1RC15-1-2486)

          Gary G. Grimmer, for Defendants-Appellants.

          John D. Zalewski, and Rodney H. Uchida, for Plaintiffs-Appellees.

          FUJISE, PRESIDING JUDGE, LEONARD and GINOZA, JJ.

          OPINION

          GINOZA, J.

         Plaintiffs-Appellees Evelyn K. Scholes (Evelyn Scholes) and Evelyn Wong (Wong) as Co-Trustees of the Scholes Family Trust (collectively Scholes/Wong) brought this action in the District Court of the First Circuit, Honolulu Division (District Court), [1] seeking to eject Defendants-Appellants Kiyoshi Kawaguchi (Kiyoshi) and Sung Sook Kawaguchi (collectively the Kawaguchis) from property located on Wanaka Street in Honolulu.[2] On July 15, 2015, the District Court entered a Judgment for Possession and a Writ of Possession in favor of Scholes/Wong and against the Kawaguchis.

         The Kawaguchis appeal and contend that the District Court erred by: (1) concluding it had jurisdiction and thus denying the Kawaguchis' motion to dismiss or, alternatively, for a stay of the proceedings (hereafter motion to dismiss); (2) concluding that a certificate of title for the property conclusively established that title was held by the Scholes Family Trust, regardless of claims asserted by Kiyoshi in a separate action filed in the Circuit Court of the First Circuit (Circuit Court); and (3) denying the Kawaguchis' motion for reconsideration and two motions to continue the trial.

         For the reasons set forth below, we conclude the Kawaguchis sufficiently demonstrated there was an issue of title regarding the property such that the District Court lacked jurisdiction. We thus vacate the Judgment for Possession and Writ of Possession, and remand to the District Court for dismissal.

         I. Background

         On April 6, 2015, Scholes/Wong filed a Complaint for Ejectment in the District Court against the Kawaguchis alleging, inter alia, that: the Scholes Family Trust is the record title owner of the property; the property is registered property in Land Court with Transfer Certificate of Title No. 779, 343; a Warranty Deed recorded on November 10, 2005, evidences the conveyance of the property to the Scholes Family Trust; Kiyoshi, son of Evelyn Scholes, has occupied the property since 1980 and the Kawaguchis currently occupy the property but do not pay rent; the Kawaguchis were advised that their occupancy was terminated by letter dated December 3, 2014; and the Kawaguchis have neglected, failed, and refused to vacate the property. Exhibits attached to the Complaint for Ejectment include: a Short Form Trust, dated September 23, 2014, for the Scholes Family Trust (dated September 18, 2003) naming Evelyn Scholes as Settlor/Co-Trustee and Wong as Co-Trustee; a certificate of title issued on November 10, 2005, which identifies the registered owner of the property as Edward Scholes, Trustee and Evelyn Scholes, Trustee, Trustees of the Scholes Family Trust; and a Warranty Deed recorded on November 10, 2005, which conveyed Edward Scholes and Evelyn Scholes's interest in the property to the Scholes Family Trust.

         On April 21, 2015, the Kawaguchis filed the motion to dismiss, pursuant to Hawaii Revised Statutes (HRS) § 604-5(d) (2016).[3] The Kawaguchis asserted that the District Court did not have jurisdiction in this case because title to the property was in question. Attached to the motion was Kiyoshi's affidavit, in which he attested in relevant part:

I claim title to the [property] that is subject to this ejectment action. I was promised the property by my mother, Plaintiff Evelyn K. Scholes, and her husband Edward A. Scholes, and in reliance upon the agreement made improvements to the property, nearly tripling the size of the house on the property and generating a source of rental income. Exhibit "A" is a true and correct copy of a Verified Complaint, which is being filed in Circuit Court, setting forth the basis for my claim to title to the property.

         The verified Circuit Court complaint (Circuit Court complaint)[4]attached to Kiyoshi's affidavit asserted claims by him against Evelyn Scholes, Individually and as Co-Trustee of the restated Scholes Family Trust, and Wong, as Co-Trustee of the restated Scholes Family Trust.[5] Kiyoshi's Circuit Court complaint alleged, inter alia, that: sometime after 1980, Kiyoshi made improvements to the property at the request of Evelyn Scholes and Edward Scholes and in reliance on their promise that the property would be given to Kiyoshi in consideration for the improvements; the improvements made by Kiyoshi expanded the size of the home from approximately 900 square feet to nearly 3, 000 square feet; Evelyn and Edward Scholes moved to Las Vegas and obtained a loan secured by the property to purchase their Las Vegas home; although Kiyoshi did not pay rent while residing at the property, he screened tenants, rented portions of the home, and remitted rental proceeds to Evelyn Scholes; Kiyoshi also paid for repairs and upkeep of the property, and would not have paid for and made improvements but for the promises that he would be given the property; in 1992, Evelyn Scholes and Edward Scholes transferred the property to Kiyoshi, Evelyn Scholes, and Edward Scholes to hold as joint tenants; in 2003, Evelyn Scholes and Edward Scholes wanted to refinance the debt secured by the property and obtain a mortgage loan solely in their name, and thus the property was transferred back to Evelyn Scholes and Edward Scholes by way of a Warranty Deed recorded on August 29, 2003 (2003 Warranty Deed); Kiyoshi did not intend to divest himself of his interest in the property and only intended to accommodate his mother and her husband so that they could refinance the home at a better interest rate; when the property was transferred back to Evelyn Scholes and Edward Scholes in 2003, Kiyoshi did not receive any consideration for his interest in the property; and subsequently, in 2005, Evelyn Scholes and Edward Scholes transferred the property to the Scholes Family Trust by way of a deed recorded on November 10, 2005.

         Kiyoshi's Circuit Court complaint asserts claims for: breach of contract, equitable lien, unjust enrichment, and breach of fiduciary duty/constructive trust. The Circuit Court complaint seeks, inter alia., specific performance requiring conveyance of the property to Kiyoshi, as well as damages.

         On June 9, 2015, the District Court filed an "Order Denying Defendants' Motion to Dismiss Complaint For Ejectment" (Order Denying Motion to Dismiss) concluding:

a) that title to the subject property is registered in the Land Court in Plaintiffs' name, which is dispositive; b) that Defendants have failed to raise an issue of title sufficient to oust this court of jurisdiction over the ejectment claim; and c) that Defendants' filing of a Notice of Pendency of Action has no effect to either stay or dismiss the proceedings.

(Emphasis added.)

         On June 19, 2015, the Kawaguchis filed a motion for reconsideration of the Order Denying Motion to Dismiss. The motion for reconsideration was denied without a hearing.

         The Kawaguchis subsequently filed two motions to continue trial in the District Court. In the first motion, submitted on June 23, 2015, the Kawaguchis pointed to Aames Funding Corp. v. Mores, 107 Hawai'i 95, 110 P.3d 1042 (2005) and argued that the Hawai'i Supreme Court had recognized that a certificate of title could be challenged in cases of fraud to which the party holding title is a party. The Kawaguchis noted that in Aames, the Supreme Court discussed-three types of fraud: (1) fraud in the factum; (2) fraud in the inducement; and (3) constructive fraud. Id. at 103, 110 P.3d at 1050. The Kawaguchis further noted that Aames described "constructive fraud" as "characterized by the breach of a fiduciary or confidential relationship." Id. at 104, 110 P.3d at 1051. The Kawaguchis reasserted that Kiyoshi's Circuit Court complaint included a claim for breach of a confidential relationship between Kiyoshi, his mother, and her husband, and that Kiyoshi seeks specific performance requiring conveyance of title to him. This motion to continue trial was denied on June 24, 2015.

         In their second motion to continue trial, submitted on June 29, 2015, the Kawaguchis relied upon declarations by their counsel, Ann C. Kemp (Kemp). Kemp attested that through discovery in the Circuit Court action, Kiyoshi had learned that the notary book for the notary who purportedly notarized Kiyoshi's signature on the 2003 Warranty Deed, which transferred the property out of his name, did not actually contain an entry regarding the Warranty Deed. Kemp's declaration again cites to Aames for the proposition that fraud is a valid basis to challenge a certificate of title. Kemp further attested that, based on the recent discovery regarding the notary book, Kiyoshi would be seeking to amend the Circuit Court complaint to allege forgery and that this would be a further basis for the fraud-based claims he was pursuing in the Circuit Court. This second motion to continue trial was denied on June 30, 2015.

         The case proceeded to bench trial and on July 15, 2015, the District Court entered the Judgment for Possession and Writ of Possession. The Kawaguchis timely appealed.

         II. Mootness

         As an initial matter, this court granted Scholes/Wong's motion to file supplemental briefs as to whether this appeal is moot. In their supplemental brief filed on March 8, 2017, Scholes/Wong argue this appeal is moot based on orders entered by the Circuit Court after this appeal was initiated, which dismiss most of Kiyoshi's claims against them in the Circuit Court action.[6] Scholes/Wong contend that, given the Circuit Court orders, there are ...


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