GORAN PLEHO, LLC, a Hawai'i Limited Liability Company (dba Resorts Limousine Services), GORAN PLEHO and ANA MARIA PLEHO, Petitioners/Plaintiffs-Appellants/Cross-Appellees,
DAVID W. LACY, LACY AND JACKSON, LLLC, a Hawai'i Limited Liability Law Company, Respondents/Defendants-Appellees/Cross-Appellants, and DRAGAN RNIC, Respondent/Defendant-Appellee.
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-12-0000025; CIVIL NO. 06-1-101K)
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON,
case requires us to consider a series of rulings by the trial
court in a complex commercial dispute involving the sale of a
limousine service. Goran and Ana Maria Pleho purchased
Resorts Limousine Services (RLS), a Kona-based business, from
their acquaintance, Dragan Rnic, in 2005. David W. Lacy,
Esq., of the firm Lacy & Jackson LLLC (collectively,
"Lacy Parties"), represented Goran and Maria in the
transaction. At Lacy's recommendation, Goran and Maria
formed a corporation, Goran Pleho, LLC (GPLLC), and the
transaction was completed in GPLLC's name. Goran and
Maria discovered problems with the business several months
after the purchase. Goran and Maria, and GPLLC (collectively,
"Pleho Parties"), brought the present action in the
Circuit Court for the Third Circuit (circuit
court), alleging that Rnic and Lacy Parties
intentionally misrepresented the value of RLS.
Parties asserted numerous claims against the defendants,
including fraud and legal malpractice, and they asked the
court to rescind or reform the sale of RLS and award
compensatory and punitive damages. Rnic counterclaimed for
breach of contract and other counts related to Pleho
Parties' failure to make payments on the purchase price,
and cross-claimed against Lacy Parties.
extensive pretrial motions and discovery, Rnic settled all
claims with Lacy Parties and Pleho Parties. Additionally, the
circuit court dismissed or granted summary judgment on most
of Pleho Parties' claims against Lacy Parties prior to
Goran and Maria filed for bankruptcy in Nevada, which led to
a stay of the action in the circuit court for eleven months.
Lacy Parties filed a motion in limine requesting that Pleho
Parties be barred from presenting any evidence regarding
their assets that conflicted with Goran and Maria's
submissions in the bankruptcy proceeding, which the circuit
trial, the circuit court granted judgment as a matter of law
(JMOL) against Pleho Parties on most remaining claims, and
only their legal malpractice claim based on Lacy's
representation of GPLLC went to the jury. The jury found Lacy
Parties not liable by special verdict. The circuit court
entered judgment against Pleho Parties on all counts,
awarding attorney's fees and costs to Lacy Parties.
appeal, the Intermediate Court of Appeals (ICA) partially
vacated the circuit court's judgment, finding that the
circuit court had erroneously dismissed or granted summary
judgment on Goran and Maria's claims as individuals for
fraud, legal malpractice, and punitive damages. The ICA also
vacated the circuit court's denial of the motion in
limine, finding that Lacy Parties had demonstrated all of the
elements of judicial estoppel. The ICA affirmed the circuit
court's judgment in all other respects.
their application for writ of certiorari, Pleho Parties argue
that the ICA erred in failing to revive their remaining
claims against Lacy Parties. These include claims by Goran
and Maria, as individuals, for conspiracy to commit fraud,
intentional infliction of emotional distress (IIED),
negligent infliction of emotional distress (NIED), and unfair
and deceptive trade practices (UDAP); and claims by GPLLC for
fraud and punitive damages. Pleho Parties also argue that the
ICA erred when it vacated the trial court's order denying
Lacy Parties' motion in limine.
conclude that the dismissal of Goran and Maria's claims
for IIED and NIED was in error, as they stated colorable
claims on both counts. We also conclude that the grant of
JMOL on GPLLCs claims for fraud and punitive damages was in
error. Viewing the evidence in the light most favorable to
the non-moving party, a reasonable jury could have returned a
verdict in favor of Pleho Parties on these counts. We also
conclude that the ICA erred in vacating the trial court's
order denying Lacy Parties' motion in limine.
a majority of this court concludes that the grant of summary
judgment as to Goran and Maria Pleho's UDAP claim was in
affirm the ICA on all remaining issues.
Sale of RLS
the sale of RLS to GPLLC, Rnic signed an agreement in June
2005 with a third individual, Don Rullo, to sell RLS for
$800, 000 in cash. The sale did not close. Rullo, a real
estate agent, was a client of Lacy's who consulted with
him about business matters frequently, and Lacy testified
that he represented Rullo in this potential transaction. Rnic
testified that Rullo introduced him to Lacy.
Pleho and Rnic met in Las Vegas in 2004, and Goran
subsequently served as Rnic's realtor in a number of real
estate purchases. Rnic told Goran about his intention to sell
RLS. Goran testified that Rnic gave him financial documents
detailing RLS's profits and losses; when Goran told Rnic
that he did not understand the documents, Rnic said that they
should consult "David Lacy, the best attorney on the
island." Goran and Maria met Lacy on July 11, 2005,
where, according to Goran:
Mr. Rnic introduced Mr. Lacy as his attorney, but he also
introduced him as the best attorney on the island, and only
he was the one capable of doing all the business
transactions, very capable. And at that point I said,
"Well, okay. But that is your attorney, and if we are
going to even consider this, I have to have my attorney to
represent me." Rnic said, "Well, then I don't
need an attorney, and Mr. Lacy can be your attorney."
And Mr. Lacy said, "Well, I'm not sure I can do it.
I got to think about it."
Lacy described his introduction to Goran as follows:
Dragan Rnic was trying to sell his limousine company to Don
Rullo. Don Rullo introduced Dragan Rnic to me. That fell
through. And some, a week, five days, I forget what it was
after that, Dragan brought Goran to my office. And I met him.
And then they had all the terms and conditions of the deal
that they had agreed to. And so I agreed to do the paperwork
on behalf of Mr. Pleho as an LLC.
[T]hey both came in and had agreed upon the terms and
conditions of the sale, and I think I told 'em they
needed lawyers. Mr. Rnic said he didn't, and I should
just be Mr. Pleho's lawyer. And then after thinking about
it and I guess I talked to [Lacy's partner] Kim
[Jackson], I agreed to be his lawyer, if he wanted me to.
agreed to represent Goran in the transaction, and referred
Goran to a certified public accountant (CPA) to obtain an
appraisal of RLS. However, the CPA told Goran that he was not
available to do the appraisal. Goran testified that he
expressed concern about proceeding with the sale without an
appraisal at his next meeting with Rnic and Lacy on July 19,
So I said, "I can't go forward with this. I need an
appraisal. I need to see what is this company's
And Mr. Rnic said, "Well, what do you mean? This is a
unique company, only one of this kind. There's nobody to
appraise this company. It's worth $2 million, and $1.5 is
just a great price." And Mr. Lacy repeated the same
thing to me.
testified that he and Lacy went over hundreds of documents
provided by Rnic pertaining to RLS's finances, and that
Lacy assured him that the "financials" were
"satisfactory." Lacy testified that he "would
never tell any client that his business was unique and could
not be appraised."
recommended that Goran form a limited liability company to
purchase RLS, and on July 25, 2005, Goran executed
GPLLC's incorporation documents, which Lacy drafted.
Goran was GPLLC's sole member at the time of
July 25, 2005, Rnic and GPLLC executed a Sale of Assets
Agreement (Sale Agreement), by which Rnic sold RLS to GPLLC
for a price of $1, 500, 000. As a down payment, Goran and
Maria agreed to transfer three Las Vegas properties worth
approximately $378, 000 to Rnic, with the rest of the sale
price to be paid back by GPLLC in monthly installments based
on the gross income of RLS. The agreement provided that
closing would take place upon the transfer of Rnic's
Public Utilities Commission (PUC) license to GPLLC.
same day, GPLLC executed a $1, 122, 000 promissory note in
favor of Rnic and a Management Services Agreement, whereby
GPLLC agreed to manage and operate RLS until the transfer of
Rnic's PUC license. Lacy prepared the Sale Agreement, the
promissory note, and the Management Services Agreement. He
also prepared a limited power of attorney allowing GPLLC to
manage RLS on Rnic's behalf before the PUC license was
transferred to GPLLC, and a warranty bill of sale, both
executed on July 25, 2005. Although the Sale Agreement
provided that closing would occur once the PUC license was
transferred, the bill of sale was transferred to GPLLC that
July 25, 2005, Goran and Maria received some training from
RLS employees and began running the business. Goran testified
that in November 2005, he received a phone call about RLS
from a friend, who informed him that "the numbers were
altered before it was sold." Goran testified that he
subsequently met with Lacy several times and told him that
"this surely looks like fraud," but Lacy downplayed
Goran's concern and advised him to wait for the
completion of the PUC license transfer before taking any
action "as far as fraud." According to Lacy's
notes from a February 14, 2006 meeting with Goran, "Mr.
Pleho wanted to wait until he had the [PUC] license and then
approach Mr. Rnic and try and resolve the problems. ..."
Rnic's PUC license was transferred to GPLLC on March 10,
Circuit Court Proceedings
Parties filed a complaint on July 6, 2006, naming Rnic and
Lacy Parties as defendants. Pleho Parties asserted that they
had purchased RLS for a price "far in excess of the
actual fair market value" based on fraudulent
information from Rnic. The complaint alleged that Lacy
failed, refused, and/or neglected to properly advise and
assist [Pleho Parties] on the transaction and to safeguard
them against the unconscionable terms of the agreement
ultimately entered and, in fact, drafted the terms adverse to
the interests of [Pleho Parties].... Further, [Lacy Parties]
continued to represent [Pleho Parties] subsequent to the
initial transaction and failed, refused, and/or neglected to
take timely and appropriate action to foreclose or mitigate
harm to [Pleho Parties] once the fraudulent conduct of [Rnic]
Parties twice amended their complaint, which ultimately
included the following counts against Rnic and Lacy Parties:
(I) conspiracy to commit fraud; (II) fraud; (III) fraud in
the inducement; (IV) gross inadequacy of consideration; (V)
IIED; (VI) NIED; (VII) UDAP; (VIII) legal malpractice
(against Lacy Parties alone); (IX) intentional spoliation of
evidence; (X) negligent spoliation of evidence; and (XI)
punitive damages. The second amended complaint alleged that
Lacy intentionally misrepresented the value of RLS to Pleho
Parties, and that Pleho Parties would not have purchased RLS
if they had known that Rnic had agreed to sell the business
to Rullo for only $800, 000.
their answer, Lacy Parties argued that Pleho Parties had
caused or contributed to any injuries they suffered. That
same day, Lacy Parties also filed a cross-claim against Rnic.
filed an answer and counterclaim against GPLLC on September
26, 2006, alleging that:
since the Management Service Agreement, GPLLC and [Goran]
Pleho have failed to maintain [RLS] in a reasonable,
profitable fashion, running the business into the ground,
causing lost profits and decrease in the value of the
business and goodwill, all to Rnic's detriment.
counterclaim included six counts against GPLLC and Goran
related to the sale and management of RLS, including breach
of the Sale Agreement and promissory note for failure to make
payments on the purchase price. Pleho Parties filed a
cross-claim against Lacy Parties based on Rnic's
filed a motion for summary judgment on Pleho Parties'
claims against him, which the circuit court granted on May
Parties filed a Hawai'i Rules of Civil Procedure (HRCP)
Rule 12(b)(6) motion to dismiss all counts of Pleho
Parties' second amended complaint except for Count VII
(UDAP) and Count XI (punitive damages), which the circuit
court granted on May 13, 2009.
Parties filed a motion for reconsideration and clarification
of the May 13, 2009 order granting Lacy Parties' motion
to dismiss. On July 29, 2009, the circuit court entered an
order denying and clarifying Pleho Parties' motion. The
court stated that it was dismissing all counts but the
following: for GPLLC, Counts II (fraud), III (fraud in the
inducement), and VIII (legal malpractice); for Goran and
Maria Pleho as individuals, Count VII (UDAP); and for GPLLC
and Goran and Maria Pleho as individuals, Count XI (punitive
damages). The court explained its reasoning as follows:
Count I for conspiracy to commit fraud falls away because
there is but one person accused and the prior co-conspirator
has been judged not liable. . . . Because the conspiracy was
alleged to have been between Defendant Rnic and Defendants
David W. Lacy and Lacy & Jackson, LLLC, and Defendant
Rnic was granted summary judgment on the count of conspiracy
to commit fraud, there is no party for the remaining
Defendants to conspire with.
Count V and VI are properly dismissed by implication. There
is no mental distress which can be suffered by a corporation.
. . .
Count VII for unfair and deceptive trade practices can not
stand on behalf of [GPLLC], because a claim for unfair and
deceptive trade practices is reserved by statute for
consumers. ... A corporation is not a natural person and does
not have standing to bring a claim for unfair and deceptive
trade practices under the statute. . . .
Count VIII for legal malpractice was asked to be dismissed as
to [Goran and Maria Pleho] as individual plaintiffs, because
they had not suffered damages; they did not purchase, as
individuals, the business that is the underlying subject of
this case, and therefore did not suffer any individual
damages relating to the purchase. The Court ruled in favor of
the Defendants; therefore Count VIII for legal malpractice
stands on behalf of the LLC alone.
Count XI for punitive damages stands, based only on the
claims still standing for [Goran and Maria Pleho] and the
LLC. But because the only claim [Goran and Maria] can claim
punitive damages for is unfair and deceptive trade practices,
which awards double or treble damages, they should be held to
only one form of recovery.
Parties subsequently moved for partial summary judgment on
Goran and Maria's UDAP and punitive damages claims, which
the circuit court granted.
March 10, 2011, counsel for all parties appeared before the
circuit court to enter two settlement agreements into the
record. The first settlement agreement provided that
Lacy's indemnity insurance company would pay Rnic $650,
000 in exchange for releasing GPLLC from all claims arising
out of the RLS Sale Agreement and promissory note, so as to
"allow [GPLLC] to retain and operate RLS free and clear
of any claims by or obligations to Rnic." Rnic also
agreed to the dismissal of his counterclaim against GPLLC.
second settlement agreement provided that Rnic would release
all claims against Pleho Parties in exchange for a
stipulation of entry of judgment against Goran in the amount
of $100, 000, to be paid in twenty-five $4, 000
trial began on June 7, 2011 on GPLLCs remaining claims: Count
II (fraud), Count III (fraud in the inducement), Count VIII
(legal malpractice), and Count XI (punitive damages).
Goran and Lacy testified at trial, giving their conflicting
accounts of the events leading up to the sale of RLS. Among
the other witnesses called were two expert accountants, who
offered competing appraisals of the value of RLS: Lacy
Parties' expert appraised RLS at $1, 156, 000, while
Pleho Parties' expert Mark Hunsaker appraised RLS at
$128, 000. On cross-examination, Hunsaker testified as
[Lacy Parties' counsel]: Now, what you valued in this
case ... is the 100 percent equity interest in Goran Pleho,
LLC dba Resorts Limousines as of July 25, 2005, ...