Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Schmidt v. HSC, Inc.

Supreme Court of Hawaii

November 8, 2019

THOMAS FRANK SCHMIDT AND LORINNA JHINCIL SCHMIDT, Petitioners/Plaintiffs-Appellants/Cross-Appellees,
v.
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)

          R. STEVEN GESHELL FOR PETITIONER

          PAUL ALSTON FOR RESPONDENTS

          NAKAYAMA, ACTING C.J., McKENNA, POLLACK, AND WILSON, JJ., AND CIRCUIT COURT JUDGE KUBO IN PLACE OF RECKTENWALD, C.J., RECUSED

          OPINION

          McKENNA, J.

         I. Introduction

         This case, which concerns $537, 000 in excess foreclosure sale proceeds, returns to this court for the third time.[1] 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[2] ("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[3] 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, [4] and therefore entered judgment in favor of Respondents/Defendants-Appellees/Cross-Appellants HSC, Richard Henderson, Sr. ("Richard"), and Eleanor R.J. Henderson ("Eleanor") (collectively, "Respondents").[5]

         Petitioners 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.

         After accepting certiorari, this court determined that the ICA's decision on the statute of limitations provision in HRS § 651C-9(1)[6] 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.

         Consequently, 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.

         After 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.

         The Schmidts appealed, [7] in sum asserting the circuit court clearly erred in determining when they could reasonably have discovered the fraudulent nature of the subject transfers.[8] 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.

         The 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].

         In sum, 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[9] 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 period.[10]

         This 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 Schmidt II.

         II. Background

         The 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.

         A. Factual and Procedural Background

         In 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.

         Between 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.

         On 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, "Transfers"):

(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 Bishop Estate.

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.

         On June 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)[11] designee relating to RFI's finances. The deposition was taken on July 26, 2005.

         Based on these facts and the following contested FOFs and COLs, the circuit court concluded the Schmidts' HUFTA claim was time-barred.

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 entry[.]").
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 ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.