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Goran Pleho, LLC v. Lacy

Supreme Court of Hawaii

April 10, 2019

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.


          Peter Van Name Esser for petitioners.

          Jodie D. Roeca (Norma K. Odaniwith her on the briefs)for respondents.



          RECKTENWALD, C.J.


         This 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[2] 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)[3], alleging that Rnic and Lacy Parties intentionally misrepresented the value of RLS.

         Pleho 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.

         After 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 trial.

         Meanwhile, 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 court denied.

         At 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.

         On 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.

         In 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.

         We 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.

         Finally, a majority of this court concludes that the grant of summary judgment as to Goran and Maria Pleho's UDAP claim was in error.

         We affirm the ICA on all remaining issues.


         A. Sale of RLS [4]

         Before 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.

         Goran 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.

Lacy 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, 2005:

So I said, "I can't go forward with this. I need an appraisal. I need to see what is this company's worth."
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.

         Goran 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."

         Lacy 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 incorporation.

         Also on 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.

         That 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 same day.

         After 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, 2006.

         B. Circuit Court Proceedings

         1. Pretrial

         Pleho 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 Parties had:

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] was discovered.

         Pleho 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.

         In 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.

         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.

         Rnic's 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 counterclaim.

         Rnic filed a motion for summary judgment on Pleho Parties' claims against him, which the circuit court granted on May 13, 2009.

         Lacy 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.

         Pleho 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.

         Lacy Parties subsequently moved for partial summary judgment on Goran and Maria's UDAP and punitive damages claims, which the circuit court granted.

         On 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.

         The 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 installments.[5]

         2. Trial

         Jury 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).

         Both 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 ...

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