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Lapeter v. Lapeter

Intermediate Court of Appeals of Hawaii

March 29, 2019

SHARON LAPETER, Plaintiff-Appellee,
v.
ALFRED LAPETER, Defendant-Appellee and JOY MADEMBA-SY YANAGIDA, Real Party in Interest-Appellant SHARON LAPETER, Plaintiff-Appellee,
v.
ALFRED LAPETER, Defendant-Appellant

          APPEAL FROM THE FAMILY COURT OF THE SECOND CIRCUIT

          Calvin E. Youngand Brandon H. Ito (Ayabe, Chong, Nishimoto, Sia& Nakamura, LLLP) for Real Party in Interest-Appellant

          Paul A. Tomar Lynne Jenkins McGivern Jill M. Hasegawa and Gemma-Rose Poland Soon (Ashford & Wriston) for Plaintiff-Appellee

          Rebecca A. Copeland for Defendant-Appellant

          REIFURTH, PRESIDING JUDGE, CHAN AND HIRAOKA, JJ.

          OPINION

          CHAN, J.

         These consolidated appeals arise out of divorce proceedings between Sharon LaPeter (Wife) and Alfred LaPeter (Husband) that involved the division of real property assets acquired during the marriage. Among the parties' significant assets was Centennial Square shopping center (Centennial) located in Idaho, which Wife and Husband jointly owned through a limited liability company, Centennial Square, LLC (the LLC or Centennial LLC). The Family Court of the Second Circuit (Family Court)[1]entered a Divorce Decree (Decree), and subsequently an Amended Divorce Decree (Amended Decree), that awarded Husband all of the parties' interest in Centennial LLC. Wife filed motions for post-decree relief and the Family Court issued Findings of Fact, Conclusions of Law, and an Order memorializing its rulings on Wife's post-decree motions (Post-Decree FOF/COL/Order).

         Husband and Husband's counsel each appealed from the Post-Decree FOF/COL/Order, and we ordered the consolidation of their respective appeals. On appeal, Husband contends that: (1) the Family Court erred in granting Wife's requests for post-decree relief because the Family Court was not permitted to reopen the valuation of Centennial from the date of the conclusion of the evidentiary part of trial (DOCOEPOT or end of trial) and modify the Decree based on evidence of post-trial changes in value; (2) the Family Court abused its discretion in imposing sanctions against Husband because the sanctions were based on an erroneous premise, there was insufficient evidence to support the sanctions, and it failed to notify Husband of the legal basis for the sanctions; and (3) the Family Court abused its discretion in awarding Wife her attorney's fees and costs. On appeal, Husband's counsel contends that the Family Court erred in reopening the DOCOEPOT valuation of Centennial and in concluding that she had engaged in acts of professional misconduct, ruling that she may be jointly and severally liable with Husband for a total of $424, 959 in sanctions and fees, and referring her conduct to the Hawai'i Office of Disciplinary Counsel (ODC) for investigation.

         As explained below, we: (1) affirm the Family Court's reopening and revising of its valuation of Centennial pursuant to Hawai'i Family Court Rules (HFCR) Rule 60(b) (2) based on the post-trial, pre-decree evidence of the agreements to sell Centennial and the LLC; (2) affirm the orders for immediate payment of the $278, 387 equalization payment awarded in the Amended Decree and one-half of the Centennial escrow impound account of $63, 659.50; (3) reverse the sanctions imposed on Husband's counsel and her referral to ODC; (4) vacate the sanctions imposed on Husband; (5) vacate the award of attorney's fees to Wife; and (6) remand the case for further proceedings consistent with this Opinion.

         I. BACKGROUND

         A. Pre-Decree Events

         Prior to Wife filing for divorce in August 2012, Wife and Husband had been married for 36 years. Both were real estate professionals. During their marriage, they acquired significant real estate assets, including their residence on Maui (Maui Residence) and four shopping centers on the mainland, including Centennial.[2] Centennial was owned by Centennial LLC, which in turn was jointly owned by Wife and Husband. Centennial LLC's primary asset was Centennial, and the LLC was formed for the sole purpose of managing Centennial.

         The divorce trial was held on March 21, 22, and 25, 2013. The DOCOEPOT was March 25, 2013. During the trial, the parties presented conflicting evidence regarding the value of Centennial, with Husband's appraiser valuing the property at $3, 050, 000 and Wife's appraiser valuing the property at $4, 400, 000.[3] The Family Court also received evidence that the tax assessed value of Centennial was $4, 039, 675.

         On August 22, 2013, after the end of trial but before the Family Court issued the Decree dividing the marital estate, Husband received an unsolicited offer of $4, 400, 000 from Teton Village, LLC (Teton) for the purchase of Centennial. Teton was owned by Travis J. Johnson (Johnson) and K. Darby Smith (Smith).

         Husband asserted and Wife did not dispute that Teton's offer, if accepted, may have triggered approximately $400, 000 in prepayment penalties under a Promissory Note (Note) and Deed of Trust encumbering Centennial.[4] The Deed of Trust and Note contained a due on sale clause and prepayment penalties that imposed restrictions on the sale of Centennial or payment of the Note before its July 1, 2015 maturity date.

         On August 26, 2013, Husband submitted a counteroffer to Teton, offering to sell Centennial for $4, 500, 000, with Teton to assume the existing Note and pay the lender a one percent loan assumption fee. The counteroffer was structured to avoid the prepayment penalties under the Note and Deed of Trust.[5] The counteroffer was contingent on Husband being awarded Centennial in his divorce proceedings, and it provided for a closing date of November 15, 2013. On August 29, 2013, Teton accepted Husband's counteroffer and an agreement (Centennial Agreement) was formed.

         B. Divorce Decree

         On September 4, 2013, the Family Court issued the Decree and corresponding Findings of Fact and Conclusions of Law (FOF/COL). The Family Court ordered the parties to sell the Maui Residence and split the net proceeds; awarded Roy West Center, LLC, which owned the Roy West shopping center, to Wife; and awarded the Ontario Town Square shopping center, the Parkway Plaza shopping center, and Centennial LLC to Husband. The shopping center assets were awarded to Wife and Husband subject to all indebtedness secured by the assets awarded.

         In determining the fair market value of Centennial, the Family Court made numerous findings detailing the conflicting evidence presented on Centennial's valuation by the parties at the divorce trial. The Family Court did not adopt the valuation offered by either Wife or Husband, [6] but instead found that "[b]ased on all of the credible evidence, it is reasonable and just to conclude the fair market value of Centennial Square is the Tax Assessed Value of $4, 039, 675."

         Based on its valuation and distribution of the marital assets and liabilities, the Family Court concluded that Husband would owe Wife a "property division (equalization) payment" of $556, 754.00. The Family Court ordered that the equalization payment be made from Husband's share of the proceeds from the sale of the Maui Residence or the net proceeds from the sale of any of the shopping centers awarded to Husband. The Family Court also ordered Husband to pay Wife $150, 000 from his share of the proceeds from the sale of the Maui Residence "as and for contribution to Wife's legal fees and costs and for committed waste and as and for equitable deviation."[7]

         C. Amended Divorce Decree

         On September 16, 2013, Husband and Wife both filed motions to correct or reconsider the Decree and the corresponding FOF/COL. Among other things, Husband's motion sought to correct a mathematical error in the computation of the equalization payment, namely, the Family Court had awarded the full difference ($556, 754)[8] between the allocations to Husband and Wife instead of one-half of the difference ($278, 378) necessary to equalize the allocations. Neither Wife nor Husband challenged the Family Court's valuation of Centennial.

         On October 23, 2013, the Family Court issued the Amended Decree and corresponding Amended Findings of Fact and Conclusions of Law (Amended FOF/COL). Among other things, the Family Court corrected the mathematical error in computing the equalization payment owed by Husband and reduced the payment from $556, 754 to $278, 378. The Family Court also modified the division of shopping center escrow impound accounts[9] to provide that "in the unlikely event a shopping center is sold and the sale closes in 2013," the escrow impound account associated with that shopping center shall be divided equally between Husband and Wife.[10] Neither party appealed from the Amended Decree.

         D. Cancellation of the Centennial Agreement and Entering of the LLC Agreement

         While the parties' motions to correct or reconsider the Decree and the corresponding FOF/COL were still pending, Teton cancelled the Centennial Agreement.[11] On October 9, 2013, Johnson and Husband signed a document terminating the Centennial Agreement and releasing Teton's earnest money deposit to Teton.[12]

         With an effective date of October 23, 2013, Husband as seller and Johnson and Smith as buyers entered into an agreement for the purchase of Husband's interest in Centennial LLC (LLC Agreement). The LLC Agreement was signed by the buyers on October 7, 2013 and by Husband on October 8, 2013. The LLC Agreement provided for the transfer of Husband's 100 percent interest in Centennial LLC in two phases -- (1) the transfer of a 9 percent interest to buyers on October 23, 2013 (Effective Date) and (2) the automatic transfer of the remaining 91 percent interest to buyers on the maturity date of the Note[13] or July 31, 2015, whichever came first (Final Transfer Date). The LLC Agreement stated that the purchase price for Centennial LLC was based on a total value of Centennial of $4, 500, 000 and would be paid as follows: (1) a payment of $948, 387.91 to Husband on or before the Effective Date; (2) assumption through the LLC of the obligation to pay the Note in the current amount of $3, 541, 612.09; (3) release to Husband of the $10, 000 earnest money submitted for the Centennial Agreement; and (4) payment to Husband on the Final Transfer Date of amounts held by the lender in the escrow impound account as of the Effective Date (anticipated to be $127, 319) . Although Husband retained a 91 percent interest in the LLC until the Final Transfer Date, all financial responsibility, both benefit and burden, regarding the LLC's interests were transferred to buyers as of the Effective Date, and Husband's 91 percent interest generally had no voting rights after the Effective Date.

         The LLC Agreement explained that the sale of Husband's interests in the LLC was structured to avoid triggering the due on sale provisions and prepayment penalties in the Note and Deed of Trust. The LLC Agreement stated:

The Note and Deed of Trust have extensive restrictions and provisions designed to assure that the Note is timely and fully paid, but not prepaid, including due on sale provisions and prepayment penalties. But for these restrictions, [Husband] would at this time sell his entire interest in [Centennial LLC] or directly in [Centennial] to the Buyers who have made arrangements to pay the Note in full. However, none of the parties want to trigger the prepayment penalties and therefore desire to transition ownership in a manner they believe to be in material compliance with the Note and Deed of Trust. Therefore, pursuant to this Agreement, the complete ownership and control of [Centennial LLC] and [Centennial] shall over time be transferred to the Buyers with the full purchase price paid at this time but under terms calculated to be in material compliance with the Note and Deed of Trust. This Agreement shall be interpreted and construed consistent with these objectives.

         E. Wife's Post-Decree Motions for Relief and the Family Court's Post-Decree FOF/COL/Order

         As of the Family Court's issuance of its Amended Decree and Amended FOF/COL on October 23, 2013, Husband had not disclosed the offer and counteroffer regarding Centennial, the Centennial Agreement, or the LLC Agreement to the Family Court or Wife. Beginning on November 15, 2013, Wife filed a series of motions seeking post-decree relief based on allegations that Husband (and Husband's counsel) had fraudulently concealed the sale of Centennial and the LLC.

         On November 15, 2013, Wife filed a motion for post-decree relief which, among other things, alleged that Husband had sold his interest in Centennial and sought enforcement of Husband's obligation under the Amended Decree to make the equalization payment out of the proceeds of the sale. On that same date, Wife filed, and the Family Court granted, an ex parte motion for temporary restraining order (TRO). The TRO restrained Husband from: (1) concealing or failing to disclose to the Family Court or Wife the sale, transfer, or assignment of Centennial or the LLC; (2) structuring or characterizing any transaction regarding Centennial or the LLC in any manner which avoids the equalization payment owed to Wife under the Amended Decree; and (3) transferring, encumbering, or otherwise disposing of any proceeds from the sale or transfer of Centennial or the assets owned by the LLC. On December 20, 2013, the Family Court issued an order striking the TRO, but freezing up to $470, 000 in Husband's personal account at U.S. Bank until further order. Based on information she had obtained in discovery regarding transactions involving Centennial and the LLC, Wife filed an amended motion for post-decree relief on December 12, 2013, seeking relief under HFCR Rule 60 (b), and a second amended motion for post-decree relief on December 13, 2013. Through these post-decree motions, Wife sought relief that included: (1) reopening the valuation of Centennial and increasing it from $4, 039, 675 to $4, 500, 000 pursuant to HFCR Rule 60(b) (2) (newly discovered evidence) and HFCR Rule 60(b)(3) (fraud or other misconduct); (2) reopening the amount of the equalization payment due to Wife and increasing it by $230, 162.50 to reflect the increased valuation of Centennial pursuant to HFCR Rules 60(b)(2) and (b)(3); (3) the Family Court's determination that Husband's LLC Agreement constituted a sale of Centennial within the meaning of the Amended Decree that triggered Husband's obligation to make the $278, 378 equalization payment and enforcement of Husband's obligation to make such payment; (4) the award to Wife of one-half of the escrow impound account held for Centennial; (5) the imposition of additional sanctions against Husband for his "continuing and flagrant violations of court orders and his fraud upon the [Family] Court and [Wife]"; (6) the imposition of sanctions against Husband's counsel, to the extent it is demonstrated that she participated in or countenanced Husband's misconduct; (7) the disqualification of Husband's counsel from representing Husband if a conflict in their interests is shown; and (8) the award to Wife of her attorney's fees and costs incurred in seeking post-decree relief.

         On February 6, 2014, the Family Court held an evidentiary hearing on Wife's motions for post-decree relief. In explaining why he did not disclose the post-trial arrangements to sell Centennial or the LLC before the issuance of the Decree or the Amended Decree, Husband testified that it was his understanding that the DOCOEPOT "was the time when all the evidence was presented, the trial was held, and everybody tried to show what they felt everything was worth. And after that date, no more evidence could be submitted." Husband testified that he did not believe he was under any obligation to disclose to the Family Court the increase or decrease in the value of marital assets after the DOCOEPOT.

         Husband further testified that during a phone call with Wife in November or early December 2013, he told Wife that he had not sold Centennial, but had "an agreement on it" and had "asked [his] attorney to turn those documents over to [Wife's] attorney."[14] Husband was not certain when he instructed Husband's counsel to release the documents to Wife's attorney, but noted that he "did see an E-mail that [he] sent [Husband's counsel] on November 20th, instructing her to release the documents on the 25th of November."[15] The record indicates that on December 3, 2013, Husband, through Husband's counsel, emailed to Wife's attorneys the LLC Agreement, which provided for a cash payment to Husband of $948, 387.91 on or before October 23, 2013, other documents related to the LLC Agreement, and the Centennial Agreement.[16]

         On June 23, 2014, the Family Court ruled on Wife's post-decree motions for relief and filed its Post-Decree FOF/COL/Order. In its Post-Decree FOF/COL/Order, the Family Court: (1) pursuant to HFCR Rule 60(b)(2) and (b)(3), reopened and revised its valuation of Centennial from $4, 039, 675 to $4, 500, 000 and awarded Wife an additional equalization payment of $230, 162.50 based on its revised valuation of Centennial; (2) ruled that the LLC Agreement constituted a sale of Centennial within the meaning of the Amended Decree, thereby triggering Husband's obligation to make the $278, 387 equalization payment required under the Amended Decree, which the Family Court ordered Husband to pay forthwith; (3) ruled that the sale of Centennial closed in 2013 within the meaning of the Amended Decree, thereby triggering Wife's right under the Amended Decree to one-half of Centennial's escrow impound account, or $63, 659.50; (4) awarded $300, 000 in sanctions against Husband to be paid to Wife, in addition to the $150, 000 in sanctions and attorney's fees previously awarded to Wife in the Amended Decree; and (5) awarded $124, 959.17 to Wife for attorney's fees she incurred in seeking post-decree relief. The Family Court further ruled that Husband and Husband's counsel would be jointly and severally liable for the $300, 000 in additional sanctions and the $124, 959.17 in attorney's fees awarded to Wife;[17] referred Husband's counsel to ODC for investigation with respect to whether she violated Hawai'i Rules of Professional Conduct (HRPC) Rule 3.3; and disqualified Husband's counsel from any further representation of Husband.[18]

         Husband and Husband's counsel separately appealed from the Post-Decree FOF/COL/Order, and we granted the parties' joint motion to consolidate the appeals.[19]

         II. STANDARDS OF REVIEW

         A. HFCR Rule 60(b) Motions for Relief

         The standard of review for the grant or denial of a HFCR Rule 60(b) motion is whether there has been an abuse of discretion. De Mello v. De Mello, 3 Haw.App. 165, 169, 646 P.2d 409, 412 (1982).

Under the abuse of discretion standard of review, the appellate court is not authorized to disturb the family court's decision unless (1) the family court disregarded rules or principles of law or practice to the substantial detriment of a party litigant; (2) the family court failed to exercise its equitable discretion; or (3) the family court's decision clearly exceeds the bounds of reason.

Wong v. Wong, 87 Hawai'i 475, 486, 960 P.2d 145, 156 (App. 1998) (brackets omitted) (quoting Bennett v. Bennett, 8 Haw.App. 415, 426, 807 P.2d 597, 603 (1991)).

         B. Sanctions

         "Regardless of whether sanctions are imposed pursuant to statute, circuit court rule, or the trial court's inherent powers, such awards are reviewed for an abuse of discretion." Kaina v. Gellman, 119 Hawai'i 324, 329, 197 P.3d 776, 781 (App. 2008) (citation omitted).

         C. Attorney's Fees

         "The trial court's grant or denial of attorney's fees and costs is reviewed under the abuse of discretion standard." Sierra Club v. Pep't of Transp., 120 Hawai'i 181, 197, 202 P.3d 1226, 1242 (2009) (citations, internal quotation marks, and brackets omitted).

         III. DISCUSSION

         A. Revised Valuation of Centennial

         The Family Court reopened and increased the valuation of Centennial and increased the equalization payment owed to Wife pursuant to HFCR Rules 60(b) (2) and (b) (3).[20] The Family Court determined that Husband's post-trial agreements to sell Centennial and the LLC constituted newly discovered evidence which Husband had a duty to disclose and which he fraudulently failed to disclose.

         Husband and Husband's counsel argue that the Family Court erred in granting such relief under HFCR 60(b) (2) and (b)(3) because: (1) the Family Court had no power to reopen the valuation of Centennial based on post-trial evidence; and (2) Husband did not have a duty to disclose the post-trial agreements to sell Centennial and the LLC and thus did not engage in fraud in failing to disclose the agreements.

         i. The Family Court's Power to Reopen Valuation of Marital Estate ...


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