THOMAS FRANK SCHMIDT AND LORINNA JHINCIL SCHMIDT, Petitioners/Plaintiffs-Appellants/Cross-Appellees,
HSC, INC., A HAWAIʻI CORPORATION; RICHARD HENDERSON, SR.; ELEANOR R.J. HENDERSON, Respondents/Defendants-Appellees/Cross-Appellees/ Cross-Appellants.
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-16-0000858; CIVIL NO. 06-1-228)
STEVEN GESHELL FOR PETITIONER
ALSTON FOR RESPONDENTS
NAKAYAMA, ACTING C.J., McKENNA, POLLACK, AND WILSON, JJ., AND
CIRCUIT COURT JUDGE KUBO IN PLACE OF RECKTENWALD, C.J.,
case, which concerns $537, 000 in excess foreclosure sale
proceeds, returns to this court for the third
time. The current iteration of the case arises
from a separate action, Civil No. 06-1-228, filed on April 7,
2006 in the Circuit Court of the Third Circuit ("circuit
court") by Petitioners/
Plaintiffs-Appellants/Cross-Appellees Thomas Frank Schmidt
and Lorinna Jhincil Schmidt (collectively,
"Schmidts" or "Petitioners") after they
obtained a December 21, 2004 final judgment against Realty
Finance, Inc. ("RFI") for the excess proceeds, but
later learned that those same proceeds were already
transferred, leaving RFI insolvent and essentially judgment
proof. In their Amended Complaint filed on April 24, 2006,
the Schmidts raised claims pursuant to Hawai'i Revised
Statutes ("HRS") § 651C-7 alleging RFI
fraudulently transferred the proceeds to the creditors of its
parent company, Respondent/Defendant-Appellee/Cross-Appellant
HSC, Inc. (``HSC") . Following a bench trial on July 1
and 2, 2008, the circuit court concluded the Schmidts did not
prove by clear and convincing evidence RFI actually intended
to hinder, delay, or defraud any creditors of RFI,
therefore entered judgment in favor of
Richard Henderson, Sr. ("Richard"), and Eleanor
R.J. Henderson ("Eleanor") (collectively,
appealed unsuccessfully to the Intermediate Court of Appeals
("ICA"). In deciding the Schmidts' appeal, the
ICA did not discuss the merits of the Schmidts' challenge
to the circuit court's findings and conclusions, but
rather concluded that the Schmidts' HUFTA claim should
have been dismissed as untimely. See Schmidt, mem.
op. at 10.
accepting certiorari, this court determined that the
ICA's decision on the statute of limitations provision in
HRS § 651C-9(1) was wrong as a matter of law because the
ICA "incorrectly held that the statute of limitations
r[an] from the date of the transfer, rather than from the
date that Petitioners discovered the fraudulent nature of the
transfer." Schmidt II, 136 Hawai'i at 510,
319 P.3d at 429. This court vacated the ICA's Judgment on
Appeal and remanded the case to the ICA. See 131
Hawai'i at 512, 319 P.3d at 431.
the ICA published an opinion that "address[ed] the
merits of the Schmidts' challenge to [the] [c]ircuit
[c]ourt's rejection of their fraudulent transfers claims,
irrespective of whether their claims are or may be barred by
the statute of limitations." Schmidt v. HSC,
Inc., 136 Hawai'i 158, 164, 358 P.3d 727, 733 (App.
2015). In sum, the ICA concluded the circuit court erred in
dismissing the Schmidts' claims on the merits, as
"the facts established by the record in this case . . .
prove[d] by clear and convincing evidence that [RFI] actually
intended to hinder, delay, or defraud any creditors of [RFI],
as required by HRS § 651C-4(a) (1)." 131
Hawai'i at 179, 358 P.3d at 748. However, because the
circuit court did not issue any findings or legal conclusions
regarding when the Schmidts discovered, or could
reasonably have discovered, the fraudulent nature of the
transfers, the ICA remanded the case to the circuit court.
See 136 Hawai'i at 180, 358 P.3d at 749.
remand, on October 19, 2016, the circuit court issued its
Findings of Fact and Conclusions of Law, which concluded the
Schmidts' claims were time-barred, as the Schmidts could
reasonably have discovered the fraudulent nature of the
transfers on or before February 21, 2005, but did not file a
complaint until April 7, 2006, past the one-year statute of
limitations period for HUFTA claims pursuant to HRS §
651C-9(1). The circuit court entered Final Judgment on
December 6, 2016.
Schmidts appealed,  in sum asserting the circuit court clearly
erred in determining when they could reasonably have
discovered the fraudulent nature of the subject
transfers. The ICA rejected the Schmidts'
challenge, concluding the circuit court did not err in making
findings that "aided in its determination of how and
when the fraudulent nature of the subject transfers could
reasonably have been discovered by the Schmidts, and we are
not left with a definite and firm conviction that, based on
all of the evidence, mistakes were made in these
findings." Schmidt v. HSC, Inc., No.
CAAP-16-0000858, at 3 (App. Nov. 30, 2018) (SDO) .
Accordingly, the ICA entered a Judgment on Appeal on January
31, 2019 pursuant to its SDO affirming the circuit
court's December 6, 2016 Final Judgment and October 19,
2016 Findings of Fact and Conclusions of Law. See
Schmidt, SDO at 8.
Schmidts timely filed an Application for Writ of Certiorari
on February 19, 2019 ("Application"), presenting
the same three issues they previously argued before the ICA,
all related to the date the circuit court determined the
Schmidts could reasonably have discovered the fraudulent
nature of the subject transfers:
Whether the [ICA] gravely erred and the magnitude of such
error or inconsistency dictates the need for further appeal
where the ICA affirmed:
(1) the circuit court's findings of fact (``FOF")
nos. 5, 13, 19, 21, 22 and 23[;]
(2) the circuit court's conclusions of law
("COL") nos. 6, 8, 9 and 10[; and]
(3) the circuit court's entry of final judgment denying
[Petitioners'] complaint against the [Respondents].
the Schmidts assert they could not reasonably have discovered
the fraudulent nature of the transfers until the July 26,
2005 deposition of Michael Chagami, the chief financial
officer of HSC, during which they learned RFI was
insolvent, and that therefore their HUFTA claim was timely
filed within the one-year statute of limitations
court accepted the Schmidts' Application. The ICA erred
in affirming the circuit court's October 19, 2016
Findings of Fact and Conclusions of Law and December 6, 2016
Final Judgment, as the circuit court's determination that
the Schmidts "could have reasonably known of the
Transfers and their fraudulent nature on or before February
21, 2005" contravenes this court's ruling in
following section proceeds with a background based on the
uncontested findings of fact (``FOF") of the circuit
court and cited trial exhibits, followed by a recitation of
the specific FOFs and conclusions of law ("COL")
specifically challenged by the Schmidts, namely FOFs 5, 13,
19, 21, 22, and 23, and COLs 6, 8, 9, and 10.
Factual and Procedural Background
Realty Finance, Inc. v. Schmidt, Civil No.
97-1235-03, RFI filed a foreclosure action (the
"Foreclosure Case") in the Circuit Court of the
First Circuit ("trial court"). An interlocutory
decree of foreclosure was entered in favor of RFI and against
the Schmidts. After the Hawai'i Supreme Court remanded
the case in Schmidt I for an accounting of the value
of the Schmidts' mortgage debt in light of third-party
payments that should have been applied, the trial court filed
an Order dated October 12, 2004 stating RFI owed the Schmidts
over $537, 000. Later, by Order dated November 24, 2004, the
trial court denied the Schmidts' motion for prejudgment
interest. On December 21, 2004, the trial court entered a
separate "final judgment" in the Foreclosure Case.
Later that same day, both the Schmidts and Respondents filed
Notices of Appeal from the trial court's December 21,
2004 "final judgment," but the appeals were later
deemed untimely as the appealable final order in the
post-judgment proceeding was the November 24, 2004 Order
denying the Schmidts' motion for prejudgment interest.
December 6, 2004 and March 18, 2005, the Schmidts made no
effort to enforce the final judgment (whether it be the final
order entered on November 24, 2004 or the
"superfluous" December 21, 2004 "final
judgment"). Additionally, the Schmidts did not engage in
any formal discovery prior to March 18, 2005.
March 18, 2005, counsel for the Schmidts met with counsel for
RFI regarding the Foreclosure Case. At this meeting, the
Schmidts' counsel requested of RFI's counsel copies
of the following checks (collectively,
(1) a check dated February 11, 2000, in the amount of $78,
000, payable to Defendant Eleanor Henderson;
(2) a check dated February 15, 2000, in the amount of $119,
393.42, payable to Goodsill, Anderson, Quinn, and Stifel;
(3) a check dated February 11, 2000, in the amount of $54,
399.55, payable to Defendant Richard Henderson;
(4) a check dated March 1, 2000, in the amount of $165,
058.42, payable to Kamehameha Schools -- Bernice Pauahi
The Schmidts' March 21, 2005 request for production
encompassed a formal request for copies of the Transfers.
Thirty days later on April 20, 2005, the Schmidts'
counsel received the copies of the Transfers, and RFI's
April 22, 2005 response to the Schmidts' request for
production stated that the requested copies of the Transfers
had already been produced.
29, 2005, the Schmidts noticed the deposition of RFI's
chief financial officer, Michael Chagami, as RFI's
Hawai'i Rules of Civil Procedure ("HRCP") Rule
30(b) (6) designee relating to RFI's finances.
The deposition was taken on July 26, 2005.
on these facts and the following contested FOFs and COLs, the
circuit court concluded the Schmidts' HUFTA claim was
FOF 5: The Schmidts first noticed the 30(b) (6) deposition of
RFI on August 25, 2004, approximately 5 months after remand.
The Schmidts cancelled on September 3, 2004. No other
discovery was attempted between the March 18, 2004 remand
order and October 12, 2004.
FOF 13: No stay of the judgment was obtained under HRCP Rule
62, and the Schmidts therefore could have executed on the
Judgment after ten days of the entry of the Judgment.
See HRCP Rule 62(a) (``[N]o execution shall issue
upon a judgment nor shall proceedings be taken for its
enforcement until the expiration of 10 days after its
FOF 19: Between March 21, 2005 and April 20, 2005, thirty
days elapsed prior to the Schmidts receiving the transfer
checks. This indicates that if the Schmidts had commenced
proceedings to enforce the judgment in the Foreclosure Case
on December 6, 2004, then they could have received copies of
three or four of the checks associated with the Transfers on
January 6, 2005.
FOF 21: However, that deposition could be taken any time
after January 6, 2005, unless doing so was prohibited by a
protective order. The Schmidts did not produce any evidence
of a protective order or of any valid reason why the ...