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Calipjo v. Purdy

Supreme Court of Hawaii

April 23, 2019

ELESTHER CALIPJO, Petitioner/Plaintiff-Appellee,
v.
JACK PURDY, REGAL CAPITAL CORPORATION, REGAL CAPITAL COMPANY, LLC, Respondents/Defendants-Appellants.

          CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-14-0001305, CIVIL NO. 04-1-0003)

          RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

          OPINION

          WILSON, J.

         I. INTRODUCTION

         We consider only one issue from the application for writ of certiorari filed by Petitioner Elesther Calipjo ("Calipjo"): whether there was no evidence to support the jury's verdict that (1) Respondent Jack Purdy ("Purdy") was the alter ego of Respondents Regal Capital Corporation ("Regal Corp.") and Regal Capital Company, LLC ("Regal LLC") (collectively, "Respondents"), (2) Regal Corp. breached the contracts it entered into with Calipjo, and (3) Regal LLC committed unfair and deceptive acts or practices.

         In a jury trial before the Circuit Court of the Fifth Circuit[1] ("circuit court"), the jury found that Regal Corp. violated the agreements of sale for two parcels of land on the island of Kaua'i and breached the covenant of good faith and fair dealing implied in the agreements. The jury determined that Regal Corp. and Regal LLC committed unfair and deceptive acts or practices in their dealings with Calipjo. Furthermore, the jury concluded that Purdy was the alter ego of Regal Corp. and Regal LLC. Based on the alter ego finding, the jury determined that Purdy, too, violated the agreements of sale for the two properties, breached the covenant of good faith and fair dealing implied in the agreements, and committed unfair and deceptive acts or practices.

         We hold that there was evidence to support the jury's verdict that Regal Corp. violated the terms of the agreements, Regal LLC engaged in unfair and deceptive acts or practices, and Purdy was the alter ego of Regal Corp. and Regal LLC. Therefore, the Intermediate Court of Appeals ("ICA") erred when it found that no evidence was introduced at trial to support these findings. Calipjo v. Purdy, No. CAAP-14-0001305, 2017 WL 6547461, at *4-*7 (App. Dec. 22, 2017) (SDO). Additionally, the ICA erred when it reversed the circuit court's final judgment against Purdy on the breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair and deceptive acts or practices claims.[2] We affirm in part and vacate in part the ICA's January 24, 2018 Judgment on Appeal and reinstate the circuit court's July 18, 2014 final judgment.

         II. BACKGROUND

         On or around August 12, 2002, Calipjo entered into two Deposit Receipt Offer and Acceptance ("DROA") contracts with Regal Corp. for the purchase of two lots owned by Regal Corp. on the island of Kaua'i: Unit E of the Moana Ranch Estates ("Moana property") and Unit A of the Ali'i Ranch Estates ("Ali'i property"). At the time, Purdy was the sole owner and operator of Regal Corp. The DROAs governed the sale of the Moana property for $175, 000.00 and the Ali'i property for $280, 000.00.

         The Moana and Ali'i property DROAs contained different "special terms" located in condition C-67 of each contract. On the one hand, condition C-67 of the Moana property DROA provided that Calipjo's purchase of the Moana property was contingent on his purchase of the Ali'i property.[3] On the other hand, condition C-67[4] of the Ali'i property DROA gave Calipjo an option to purchase the Ali'i property once the Real Estate Commission of the Department of Commerce and Consumer Affairs of the State of Hawai'i ("Commission") issued a Final Condominium Public Report for the properties.[5] Condition C-67 of the Ali'i property DROA also gave Calipjo the option to terminate the Ali'i property DROA by giving written notice to Regal Corp. at any time prior to the issuance of the Final Condominium Public Report.[6] When Calipjo signed the DROAs, Regal Corp. did not possess an option to terminate the Ali'i property DROA.

         Shortly thereafter, Regal Corp.'s real estate agent, Tom Summers ("Summers"), provided copies of the Ali'i and Moana property DROAs to Purdy for review. At trial, Purdy testified that he thought it was unfair that condition C-67 in the Ali'i property DROA only gave Calipjo, the buyer, the option to terminate the agreement. He testified that "[i]f the buyer had a right to terminate, then I should have that same right." Purdy instructed Summers to add the phrase "or Seller" to condition C-67 of the Ali'i property DROA.[7] Thereafter, condition C-67 read: "This DROA shall constitute a reservation, and not an obligation to purchase or sell subject property. Buyer or Seller may terminate this reservation at any time prior to it becoming a binding contract by written notice to Seller." (Emphasis added.) Because the purchase of the Moana property was contingent on the purchase of the Ali'i property, this addendum effectively gave the buyer cur the seller the authority to terminate both DROAs at will-although the seller was not required to notify the buyer of its intent to cancel.

         Summers informed Calipjo that he needed to come to Summers' office to initial and backdate the addendum to the Ali'i property DROA that added the language in condition C-67 giving the seller the authority to terminate the DROAs for the Ali'i and Moana properties without notice to the buyer.[8] While at Summers' office, Calipjo asked Summers if the alteration would change his position because he was unsure whether "or Seller" referred to himself or Regal Corp.[9] According to Calipjo, Summers replied, "No. I just - this is just a mere technicality with the CPR laws that they're doing." Summers later testified that he told Calipjo that the addition of "or Seller" was Purdy's counteroffer "and if [Calipjo] didn't want to acknowledge this, then he wouldn't have a reservation agreement." Relying on Summers' representations about the alteration, and with no prior experience with CPRs, [10] Calipjo initialed the addendum to the Ali'i property DROA and backdated his signature to August 12, 2002 per Summers' request. Neither Summers nor Calipjo testified that Calipjo received consideration for agreeing to the addendum. Upon signing and backdating the alteration, Calipjo deposited $5, 000.00 per property into escrow, totaling $10, 000.00.

         Over the course of the next few months, while awaiting the Final Condominium Public Report, Calipjo met with several interested buyers for the Ali'i and Moana properties. On October 30, 2002, Calipjo agreed to sell the Ali'i property to a buyer for $375, 000.00. The closing date was set for sixty days after Calipjo received the Final Condominium Public Report. Then, on April 14, 2003, Calipjo entered into a contract with Francis Green for the sale of the Moana property for $550, 000.00.

         Meanwhile, Purdy realized that the properties could be used for a lucrative high-end development. At trial he testified that after signing the DROAs, he gained "a learning and understanding of the property. And as time went on, it was sort of solidifying in [his] mind to do something better with the property." Statements made during his deposition further explained this realization:

Our Realtor, Tom Summers[, ] rehearsed the law. And the law was changing in terms of their ability to use an agricultural condominium for other than livestock and farming purposes. So we got the idea of putting rocks, gates at the entrance at each one of the lots, divided in the best few quarters to protect the few quarters of all lots, putting some common amenities on a common area on one of the lots, putting wood fences, plank fences, painted all the way around, making it really quite an exclusive property, which is far different than what we earlier started.

         At the time, Purdy was not only the sole owner of Regal Corp., but also the sole member and manager of Regal LLC, a Hawai'i limited liability company. On April 30, 2003, approximately eight months after entering into the DROAs, Regal Corp. transferred its interest in the Ali'i property to Regal LLC. Likewise, on November 7, 2003, Regal Corp. assigned its interest in the Moana property to Regal LLC.

         Regal Corp. was not paid for these properties. Purdy testified that although the properties were worth over 1.7 million dollars at the time of transfer, Regal LLC received them for free-no cash transfer or consideration was conveyed from Regal LLC to Regal Corp. At trial, Purdy referred to this transfer as a "book entry" and said that it was "pretty commonplace." He did not explain how Regal Corp. received value from the transfer.

         On August 7, 2003, Calipjo received a letter from Purdy on behalf of Regal Corp. notifying Calipjo that Regal Corp. was exercising its right to cancel the Ali'i property DROA. Because the sale of the Moana property was contingent on the sale of the Ali'i property, [11] and Regal Corp. was no longer selling the Ali'i property, this letter effectively cancelled both DROAs. In the letter, Purdy explained that "[d]ue to the recent change in the law affecting the uses of agricultural property and the substantial increases in the real estate market over the past few months," Regal Corp. was exercising its right to cancel the Ali'i property DROA pursuant to condition C-67. Regal Corp. sent Calipjo notices of cancellation and refunded the $10, 000.00 that Calipjo tendered into escrow. Calipjo refused to execute the escrow cancellation forms and sent the checks back to escrow.

         A. Circuit Court Proceedings

         Calipjo brought suit against Respondents Regal Corp., Regal LLC, and Purdy seeking specific performance of the DROAs and money damages. In his first amended complaint, Calipjo asserted, inter alia, two claims of breach of contract, one claim of breach of the covenant of good faith and fair dealing, and one claim for unfair and deceptive acts or practices. He also claimed Purdy was the alter ego of Regal Corp. and Regal LLC.

         1. Calipjo's Arguments

         In support of his breach of contract claims, Calipjo argued at trial that Regal Corp. violated the express terms of the DROAs by transferring the Ali'i property to Regal LLC before cancelling the DROAs. He noted that, at the time the DROAs were originally entered into, Calipjo had an absolute right to purchase the properties. This right was altered, he claimed, when Respondents required Calipjo to sign the addendum to condition C-67 of the Ali'i property DROA which gave Regal Corp. the option to terminate the DROA without notice to Calipjo at any time before issuance of the Final Condominium Public Report. Calipjo noted that Respondents altered condition C-67 of the Ali'i property DROA with the intent to cancel the DROAs after using Calipjo's offer to attract financing. Because Regal Corp. transferred the Ali'i property before cancelling the DROAs, Calipjo claimed, Regal Corp. breached the DROAs.

         Next, Calipjo argued that Respondents committed unfair and deceptive acts or practices. He alleged that Regal Corp., Regal LLC, and Purdy carried out a fraudulent scheme to entice Calipjo into entering the DROAs, then cancel the DROAs once the development attracted greater financing.[12]

         In addition, Calipjo argued that Purdy should be liable for the actions of Regal Corp. and Regal LLC as the alter ego of both companies. He raised three main issues to support his alter ego theory of liability. First, Calipjo identified Purdy as the sole shareholder, director, and officer of Regal Corp. and the sole member and manager of Regal LLC. Calipjo argued that sole ownership and control is one of many factors that can establish alter ego and, therefore, evidence of Purdy's ownership and control was pertinent to this claim.

         Second, Calipjo claimed that Purdy used Regal Corp. and Regal LLC to perpetuate a fraud because he never intended to sell the properties, but rather, intended to develop the parcel himself and needed to attract financing for the project. According to Calipjo, Purdy's intent was to cancel the Ali'i property DROA after using it to obtain financing for Purdy's development of the property for his own benefit. To facilitate his eventual cancellation of the Ali'i property DROA, Purdy included in the contract the option permitting him, as the seller, to terminate the agreement.

         Calipjo alleged that the Ali'i and Moana property DROAs helped Purdy successfully obtain financing for his intended development because the completed DROAs showed that Purdy had interested buyers:

You know what he did with that contract? He showed it to people to get them more money. He's got contracts for preselling already. Banks love that stuff. He showed it to other people; oh, yeah, I got this property, it's got to be subdivided, I already got contracts already. It builds and it builds on itself because he's having trouble.

         Calipjo contended that Purdy's intent to renege on the Ali'i property DROA became evident once he secured alternative financing because, at that time, Purdy cancelled the DROAs. Once the financing was secured for Purdy's intended development, Purdy cancelled the Ali'i property DROA, which inherently cancelled the Moana property DROA, and thus perpetuated a fraud through Regal Corp. and Regal LLC. To support this claim, Calipjo testified that seven years after the parties entered into the DROAs, Purdy approached Calipjo outside the Kaua'i courthouse and said "[h]e [didn't] intend to sell [Calipjo] the property in the first place anyway." Although Purdy denied making this statement, another witness corroborated Calipjo's testimony.

         Third, Calipjo raised an issue regarding undercapitalization. Based on Purdy's testimony, Calipjo contended that Purdy transferred approximately 1.2 million dollars[13] worth of real estate from Regal Corp. to Regal LLC "for nothing, zero." Calipjo alleged that because no money was paid to Regal Corp., this transfer left Regal Corp. severely undercapitalized. Therefore, he argued, Regal Corp. and Regal LLC failed to function as legitimate businesses and, instead, functioned as mere pretenses for Purdy's personal dealings. At the close of Calipjo's case, Respondents orally moved for judgment as a matter of law on all claims. The motion was denied.

         2. Respondents' Counter Arguments

         Respondents argued to the jury that Calipjo failed to present sufficient evidence to support his claims. Respondents claimed that they did not breach the express terms of the DROAs or commit unfair and deceptive acts or practices because the DROAs were non-binding reservation agreements. Respondents claimed that Regal Corp. and Calipjo, acting as "sophisticated investor[s]," simply entered a rescindable agreement for the sale of two properties. They argued that condition C-67 of the Ali'i property DROA, as amended, granted the buyer and the seller the right to cancel the agreements at any time before the Final Condominium Public Report was issued. Because the purchase of the Moana property was contingent on the purchase of the Ali'i property, Respondents claimed, Regal Corp. lawfully exercised its right to cancel both DROAs.

         In addition, Respondents asserted that there was insufficient evidence to support a finding of alter ego and emphasized that "[t]he only evidence [of alter ego] in this case is that [Purdy] owned both companies." Respondents stressed that exclusive ownership, alone, is not determinative of alter ego. Respondents denied Calipjo's claim that Purdy intended to cancel the DROAs from the start and only used the DROAs to attract financing for his own personal gain. Purdy testified that the properties "weren't actively for sale" and he did not intend to sell the properties until Calipjo approached him and made an offer. Purdy also denied Calipjo's claim that Purdy approached him outside the courthouse and said that he never intended to sell Calipjo the properties.[14] Although Respondents did not specifically address the undercapitalization claim, Purdy testified that the transfer of the properties from Regal Corp. to Regal LLC for no cash or consideration was "pretty commonplace." At the close of their case, Respondents renewed their motion for judgment as a matter of law as to all claims. They argued that Purdy was not a party to the DROAs and there was "no evidence or testimony that would allow [the jury] to pierce the LLC veil or the corporate veil." Again, the circuit court denied the motion.

         3. Jury Instructions

         The circuit court provided the following jury instructions for the alter ego claim:

Under the alter ego claim for relief, three elements must be established in order to award a piercing of the corporate veil. One, that the corporation was the mere instrumentality of the shareholder; two, that the shareholder exercised control over the corporation in such a way as to harm the plaintiff; and, three, that a refusal to disregard the corporate entity would subject the plaintiff to unjust loss.
. . .
A corporation is, for most purposes, a legal entity distinct from its individual members or stockholders, who, as natural persons emerged into the corporate identity. However, the idea that a corporation is a legal entity existing separate and apart from the persons composing it is a mere fiction introduced for purposes of convenience and to serve the ends of justice. This fiction cannot be urged to an extent and purpose not within its reason and policy and, in an appropriate case, and in furtherance of the ends of justice, a corporation and the individual and individuals owning all its stock and assets may be treated as identical.
In this case, plaintiff dealt with the corporation known as Regal Capital Corporation and Antigua and Barbuda Corporation, one of the defendants in this case.
Plaintiff urges that this is an appropriate case in which the legal entity of Regal Capital Corporation should be disregarded and that plaintiff should be entitled to require payment of damages that Regal Capital Corporation owes plaintiff from defendant Jack Purdy.
You should consider the following facts in determining whether or not to disregard the legal entity of Regal Capital Corporation and return a verdict in favor of plaintiff against Defendant Jack Purdy, as an individual.
One, whether or not defendant Jack Purdy owned all or substantially all the stock in Regal Capital Corporation; two, whether or not Jack Purdy exercised discretion and control over the management of Defendant Regal Capital Corporation; three, whether or not Defendant Jack Purdy directly or indirectly furnished all or substantially all of the financial investment in Defendant Regal Capital Corporation; four, whether or not Regal Capital Corporation was adequately financed either originally or subsequently for the business in which it was to engage.
Five, whether or not there was actual participation in the affairs of Regal Capital Corporation by its stockholders and whether stock was issued to them. Six, whether or not Regal Capital Corporation observed the [formalities] of doing business as a corporation such as the holding of regular meetings, the issuance of stock, the filing of necessary reports and similar matters. Seven, whether or not Defendant Regal Capital Corporation [dealt] exclusively with Defendant Jack Purdy, directly or indirectly in the real estate sales development activities in this case. Eight, whether or not Defendant Regal Capital Corporation existed merely to do a part of business of Defendant Jack Purdy.
If your determination of these facts or most of them, as well as the other evidence in this case leads you to believe that you should disregard the legal entity known as Defendant Regal Capital Corporation, then you will be justified in returning a verdict against Defendant Jack Purdy individually in such amount as you find due plaintiff from Defendant Regal Capital Corporation. On the other hand, if your consideration of these questions of fact or most of them, as well as the other evidence in this case, leads you to believe that Defendant Regal Corporation should be considered a legal entity distinct from its individual stockholders, then you will not return a verdict against Defendant Jack Purdy on this claim. [15]

         The jury was instructed as follows on the breach of contract claim:

A contract is an agreement between two or more persons which creates an obligation to do or not to do something. A contract may be written or oral. A contract requires proof of all of the following elements.
One, persons with the capacity and authority to enter into the contract; and, two, an offer; and, three, an acceptance of that offer producing a mutual agreement or a meeting of the minds between the persons as to all of the essential terms of the agreement at the time the offer was accepted; and, four, consideration.
An offer is an expression of willingness to enter into a contract which is made with the understanding that the acceptance of the offer is sought from the person to whom the offer is made. An offer must be sufficiently definite or must call for such definite terms in the acceptance that the consideration promised is reasonably clear.
. . .
Consideration is an exchange which is bargained for by the parties where there is a benefit to one making the promise or a loss or detriment to the one receiving the promise.
Promises given in exchange for each other can be valid consideration.
To prevail on the claim for breach of contract, plaintiff must prove all of the following elements. One, the existence of the contract; and, two, plaintiff's performance; and, three, defendants' failure to perform an obligation under the contract; and, four, defendants' failure to perform the legal cause of damage to plaintiff's [sic]; and, five, the damage was of the nature and extent reasonably foreseeable by defendants at the time the contract was entered into.

         Finally, the circuit court provided the following jury instructions for the unfair and deceptive acts or practices claim:

To prevail against defendants on the claim of unfair and deceptive acts or practices, plaintiff must prove all of the following elements.
One, plaintiff is a consumer; and, two, defendant engaged in an act or practice that was unfair or deceptive; and, three, the unfair or deceptive act or practice occurred in the conduct of trade or commerce; and, four, that the unfair or deceptive act or practice was a legal cause of damages to plaintiff.
A consumer is an individual who, primarily for personal, family or household purposes, purchases goods or services, attempts to purchase goods or services, is solicited to purchase goods or services, or commits --money property or services in a personal investment.
An act or practice is unfair if it offends established public policy and is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers .
An act or practice is deceptive if it is a . . . material representation, . . . omission or practice that is likely to mislead consumers acting reasonably under the circumstances .
Plaintiff need not show that defendant intended to deceive plaintiff or that plaintiff was actually deceived. It is sufficient if the representation, omission or practice was likely to deceive. The representation, omission or practice is material if it involves information that is important to consumers and it is likely to affect their choice of or conducting -- conduct regarding a product, service or investment.
An object or practice occurs in the conduct of trade or commerce if it is in the context of business activity or ...

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