Case Title: Kahala Royal Corporation v. Goodsill Anderson Quinn & Stifel. Consolidated with No. 26670.

Citation: 113 Haw. 251

Docket Number: 

State: hawaii

Court: Hawaii Supreme Court

Date: 2007-01-11T00:00:00Z

Document:
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IN THE SUPREME COURT OF THE STATE OF HAWAT'L

   

 

00

 

No._26669
KAHALA ROYAL CORPORATION, Plaintiff-Appellant

 

GOODSILL ANDERSON QUINN & STIFEL, a Limited Liability Law
Partnership, LLP;

JONES, DAY, REAVIS & POGUE,

‘a Foreign Law
Partnership, and ALAN 8. FRIEDMAN, Defendants-Appellees;

and

JOHN AND JANE DOES 1-20; DOE BUSINESS ENTITIES 1-10;
and DOE GOVERNMENTAL ENTITIES 1-10,

Defendante.
(CIV. NO. 03-1-0199)

9:6 HY

 

No._26670
KAHALA HOTELS ASSOCIATES LIMITED PARTNERSHIP,
Plaintiff-appellant,
GOODSILL ANDERSON QUINN & STIFEL, a Limited Liability Law
Partnership, LLP; JONES DAY, a Foreign Law Partnership;
ALAN E. FRIEDMAN; WOLFGANG HULTNER; and JOHN WITT,
Defendants-Appellees,

and

SOHN DOES 1-20, DOE BUSINESS ENTITIES 1-10; and
DOE GOVERNMENTAL ENTITIES 1-10,

Defendants,
and

KAHALA ROYAL CORPORATION, Party in Interest-Appellant.

(CIV. NO. 03-1-0313)

NOS. 26669 & 26670

 

oats

 
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APPEAL FROM THE FIRST CIRCUIT COURT
(CIV. NOS. 03-1-0199 and 03-1-0311)

ANUARY 11, 2007

MOON, C.J., LEVINSON, NAKAYAMA, AND DUFFY, JJ, AND
CIRCUIT JUDGE NISHIMURA, IN PLACE OF ACOBA,'3., RECUSED
OPINION OF THE COURT BY MOON, C.J.

Inasmich ae appeal Nos. 26669 and 26670 present
identical relevant facts and similar legal issues, we
consolidated these appeals for purposes of disposition, pursuant
to Hawai'i Rules of Appellate Procedure (HRAP) Rule 3(b) (2006).*
Central to both appeals ie the applicability of the defenses of
Litigation immunity, collateral estoppel, and waiver, as well as
whether the defendants in both actions were entitled to an award
of attorneys’ fees, pursuant to Hawai'i Revised statutes (HRS)

§ 607-14 (Supp. 2005), quoted intra.
‘The parties to appeal No. 26669 are plaintiff-appellant

Kahala Royal Corporation (KRC) and defendants-appellees Goodsill

 

 

2 MAP Rule 3(b), entitled "Joint or consolidated appeals,” provides

hats

3f two or sore parties are entitled to appeal from a
judgnent cr order and their interesta are such as to make
jeinder practicable, they ray file a joint notice of appeal
and ther 1 as a single appellant.

 

   

hotion of © party, of upon stipulation of the parti
Several appeaie

pen
‘fo the

 

(Gnphasis added.)

 
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Anderson Quinn & Stifel (Goodsill), Jones Day, and Alan &.

Friedman? hereinafter, the KRC Appeal]. The parties to appeal
No. 26670 are plaintiff-appellant Kahala Hotel Associates Limited
Partnership (KHALP) and defendants-appellees Gocdsill, Jones Day,
Wolfgang Hultner, and John Witt [hereinafter, the KHALP Appeal).
KRC is purportedly a ‘party in interest* to the KHALP Appeal
Briefly stated, KHALP is a partnership that owns the

Kahala Nandarin Oriental Hotel (the Hotel). The two general
partners of KHALP -- KRC and non-party Mandarin Oriental Holdings
(USA), Inc. (WOHUSA) -- have a contentious relationship, in large
part resulting from KRc’s dissatisfaction with the performance of
MOHUSA’s affiliates that manage and operate the Hotel on a day-

to-day basi:

 

KRC eventually initiated an arbitration proceeding
against MOHUSA, claiming that MOHUSA failed to properly oversee
and control its affiliates. KRC also initiated two separate
arbitration proceedings on behalf of KHALP against MOHUSA’s
affiliates, alleging that the affiliates mismanaged the Hotel.
Subsequently, KRC sought MOHUSA’s permission to inspect and
review KHALP’s books and recorde, which were in MOHUSA’s
possession as the administrative partner of KIALP, in order to
Prepare for the arbitration proceedings. MOHUSA, allegedly
through Fultner and Witt, who are officers and/or directors of

MOHUSA and/or its affiliates, then retained the law firme of

 

* Friedman Se @ partner in the law firm of Jones Day. All future
references to Jones Day include Friedman unlese othervive indicated

 
 

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Goodsill and Jones Day [hereinafter, collectively, the Lawyers]
to purportedly represent its interests and those of its
affiliates, The Lawyers thereafter undertook the management of

the inspection and review process of KHALP‘s books and records

 

KRC, however, clained that the inspection process frustrated its
review, prompting KRC to modify ite earlier arbitration demand
against MOHUSA to allege that MOHUSA had breached its
contractual, common law, and statutory duties to KRC and KIALP

by, inter alia, improperly interfering with KRC’s access to the

 

books and records. KRC and KHALP thereafter separately initiated
the instant actions againet the Lawyere for their role in
allegedly aiding MOHUSA in interfering with KRC’s access to
KHALP‘s books and records. XHALP also named Hultner and Witt as
defendants for their alleged role in retaining the Lawyers

In the KRC Appeal, KRC appeals from a final judgment of
the Circuit Court of the Pirst Circuit, the Honorable Dexter D.
Del Rosario presiding, entered on June 3, 2004 in favor of the
Lawyers. Final judgment wae entered pursuant to an order
granting the Lawyers motion to dismiss or for summary judgment
and a separate order granting attorneys’ fees in favor of the
Lawyers. On appeal, KRC challenges both orders, claiming that
the circuit court erred in ruling that: (1) KRC was collaterally
estopped fron bringing its claims; (2) the Lawyers’ conduct was

privileged pursuant to litigation immunity; (3) KRC waived its

 
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Fight to assert its claims against the Lawyers; and (4) the

Lawyers were entitled to fees pursuant to HRS § 607-24.
In the KEALP Appeal, KEALP appeals from a separate June
3, 2004 final judgment, algo entered by Judge Del Rosario,
challenging separate orders of the circuit court granting (1) the
Lawyers’ motion to dismiss or for sumary judgment, (2) Hultner
and Witt’s motion to dismiss, and (3) attorneys’ fees in favor of
the Lawyers, Hultner, ané Witt (hereinafter, the KHAL?
Gefendants] and costs in favor of Hultner and Witt only, inasmuch
as the Lawyers did not request an award of costs. specifically,
}SALP contends that the circuit court erred in ruling, inter
alia, that: (1) KALP was not the real party in interest; (2)
KWALP was collaterally estopped from bringing its claims; (3) the
Lawyers’ conduct was privileged pursuant to litigation immunity:

(4) KHALP waived its right to

 

rt ite claims against the KHALP
defendants; and (5) the KHALP defendants were entitled to fees
Pursuant to HRS § 607-24, KRC also appeale from the June 3, 2004

final judgment entered in the KHALP Appé

 

1, challenging the award

of fees in favor of the KHALP defendants inasmuch ag the circuit

 

court ruled that KRC, not KHALP, was liable for the fees and

costs incurred by the KHALP defendants in the KHALP Appeal.’

 

+ As indicated above, WOALP also challenges the orders granting fees in
favor of the KWALP defendants and costs in favor of Multner and witt agesnet
HRC. in its opening brief, KUALP explains that if

 

i not inmediately prejudiced by the [olrders granting the
HOALP djetendanta’ motions for tees [and co ie
(continued...)

 

 
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For the reasons discussed below, we affirm in part and
reverse in part the June 3, 2004 final judgnents entered in
appeal Nos. 26665 and 26670
1. BACKGROUND
A. Factual Backoround
1, The Partnership, the Partners, and MOHUSA’s Affiliates

As previously stated, KHALP is a registered Hawai'i
limited partnership that owns the Hotel. Pursuant to an "Amended
and Restated Limited Partnership Agreenent,” dated February 1,
1995 (hereinafter, the Partnership Agreement], KRC and NOHUSA
became the sole general partners of KHALP. The Partnership
Agreement provides that KRC and MOHUSA each hold interests of
both general and limited partners in KHALP. specifically, KRC
holds a sixty percent interest in KHALP, and MOHUSA holds the
remaining forty percent interest.‘ The Partnership Agreement
also provides that MOHUSA is the “Administrative Partner" of
KHALP, As the Administrative Partner, MOHUSA ie responsible for
vall normal day-to-day administrations of the affairs of

IXHALP,]" including the maintenance of KHALP’s books and records.

 

*(. continued)
nevertheless sppeais from those (o}rders solely to the
extent thet it has a contingent liability thereunder a2 the
Seal party in interest" in thie action

 

+ Although all the parties state that KRC holds a sixty percent
interest in YHALP, the Partnership Agreenent states that nos-party Haha
Hotel Operating 'Managenent Corp. (KHOMC) holds a ~zero and 6" limited
interest in KIALP and that KRC holds a 59.4 percent interest in KIALD.
Nevertheless, inassuch ae KIONC's interest in KEALP ig immaterial to the
instant appeais, we will Likewise refer to XRC'# interest in KUALP ee wixty
percent.

 

 

 

     

 
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KHALP’s books and records were to be “open to inspection and
examination by the [plartners . . . at all reasonable times
during normal business hours.”

‘The Hotel is operated and managed on a day-to-day basis
by MOHUSA’S three affiliates, Mandarin Oriental Management (USA),
Inc., Mandarin Oriental Overseas Management Limited, and Mandarin
Oriental International Limited {hereinafter, collectively, the

Mandarin Manager:

 

+ Pursuant to three hotel management agreements
with KHALP, which were contemplated in the Partnership Agreement
Ihereinafter, the Management Agreements]. Although KRC is not
actively involved in the operation and management of the Hotel,
KRC has the power to “exercise” the “rights and privileges" of
KHALP vunder, pursuant to[,] or otherwise with respect to" the
Management Agreements and KHALP’s dealings with MOHUSA and its
affiliates, i.e., the Mandarin Managers, under section 10.6.2 of
the Partnership Agreement .*

2. The Financial Structure of KHALP and Initiation of the
‘Three Arbitration Proceedings

As previously indicated, KRC holds a sixty percent

interest in KHALP, and MOHUSA holds the remaining forty percent

 

© specifically, section 10.6.2 of the Partnership Agreement provides in

relevant parts

Notwithstanding anyehing herein to the contrary, (KR) shal]
be entitled, without (ajpproval of any other [piartner, to
exercise ali Of the rights and privileges of the owner of
the Hotel under, pursuant to or otherwise with respect ES
the Manegenent Agreenent [s] and (KHAL?]'s dealings with
IMoMUGal and [ita afeiiiates)

 

  

 

 

 
 

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interest. Since the mid to late 19808, the Hotel has produced
annual net operating incone ranging between $4 million and $7
million. However, at the same time, KHALP sustained operating
losses, renovation cost overruns, and a first mortgage
indebtedness with a principal balance of over $37 million. As
such, the Hotel’s “level of net operating incone is insufficient
to support the capital structure of [KHALP].” In addition,
MOHUSA has a “put option" under the Partnership Agreement.
Article XVI of the Partnership Agreenent provides MOHUSA the one-
time right to require HRC to purchase ite equity interest in
KHALP. The put option was to be exercised between January 1,
2005 and March 1, 2005. If the put option was exercised, MOHUSA
was entitled to receive a minimun of $66 million for ite equity
interest.

KHALP’

 

financial struggles and the possibility of
NOHUSA exercising ite put option appears to have caused the
relationship between KRC and MOHUSA to become contentious.
Moreover, KRC had becone dissatisfied with the Mandarin Managers’
operation and management of the Hotel. According to KRC, the
Nanagement Agreenents provide for, inter alia, “substantial
compensation for the Mandarin Managers regardless of the

profitability of the Hotel[.]* Consequently, KRC decided to
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initiate arbitration proceedings (1) against MOHUSA on behalf of

itself and (2) against the Mandarin Managers on behalf of KHALP.*
Four years prior to the put option deadline, on January
31, 2002, KRC served a ‘Notice and Demand’ for arbitration on
MOHUSA pursuant to the Partnership agreement [hereinafter, the
Partner Arbitration]. ‘The Notice and Demand for arbitration
essentially alleged that MOHUSA breached certain duties by, inter
alia, failing to investigate and prosecute claims of
mismanagement against the Mandarin Managers. Also on the sane

day, KRC -- on behalf of KHALP --

 

ved two separate Notices and
Demands for arbitration against the Mandarin Managers, pursuant
to the Management Agreements [hereinafter, the Managers
Arbitrations]. Essentially, the two Notices and Demands for
arbitration alleged that the Mandarin Managers had breached their

fiduciary duties and mismanaged the Hotel

 

Events Following the Initiation of the Arbitration
Proceedings

on February 2, 2001, the parties agreed, in writing, to
stay the Partner Arbitration and the Managers Arbitration until
thirty days after any of the parties “give(] notice to the other
Of termination of the stay, provided that no such notice to
terminate shall be given before March 31, 2001." on February 12,

2001, KRC -- on behalf of itself and KHALP -- sought MOHUSA’s

 

“Both the Partnership Agreement and the Managenent Agreenents require

all disputes arising under the agreenente to be submitted to arbitration

 
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permission to inspect and review KEALP’s books and records
Recording to KRC, such inspection was necessary in order to
prepare for and substantiate the claine asserted in the Managers
Arbitrations, KRC retained Peterson Consulting ae its authorized
representative with respect to the inspection of the books and
records.

Meanwhile, MOHUSA and the Mandarin Managers, allegedly
through Hultner’ and Witt," retained the Lawyers. According to a
February 16, 2002 letter sent by Jones Day to KRC’s counsel,
Jones Day informed KRC’s counsel that it was retained by MOHUSA
and the Mandarin Managers to represent them “in connection with
the disputes alleged by [KRC] . . . to have risen under the

(Partnership Agreement] and/or the [Managers Agreement

 

pertaining to the [Hotel]." Subsequently, the Lawyere,
Particularly Goodsill, undertook the management of the inepection

Process of KHALP’s books and records, The inspection proc

 

* According to KIALP, Hultner ie (1) the president of MOHUSA, (2) the

chief executive officer (C50) of Mandarin Oriental Management’ (USA). Tne. end
(3) able to act on behalf of Mandarin Criental Overseas hanagenent iimieed and
Mandarin Orieneel International Linstes.

 

+ according to KIALP, Witt is (1) @ director of MOHUSA, (2) the
president of Mandarin Oriental Managenent (USA), Inc., (3) a “finance
Girector" of Mandarin Oriental international Limited, and (4) able to
Purportediy act on behalf of Mandarin Oriental Overseas Wanagenest Limited.

In addition, section 10.7.1 of the Partnership Agreement provides that
an “Executive Comittee” consisting of five “Authorizes Representatives of
WRC and WOHUSA 8 to oversee the operations of HHALP and the activities of

icity as the Administrative Partner. The five Authorized
follows: (2) tw representatives of KRC
(2) two representatives of MOHUSA chosen by MOHUSA; and (3) one
kepresentative of AC chosen by KRC and approved by MOHUSA. According to
WIALP, Multner and Witt have been held out to be MOUSA's Authorized
Representatives:

    

 

  
 

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established by Goodsill -- which was allegedly acting under the
Girection of and/or in coordination with Jones Day -- required
Peterson Consulting “to request information and/or documents
and/or to pose specific questions about the particular records in
writing." Litigation paralegals employed by Goodeill then
reviewed the written requeste with a litigation partner employed
by Goodsill. During or after such review, the requests were
transmitted to the Hotel's accounting staff, “who would, to the
extent that they were able to do 0, retrieve the records, create
reports on requested information(,] or answer the posed
questions." Although ERC claimed that the inspection process
imposed by Goodsill limited its review of the books and records,
MOHUSA maintained that the inspection process ‘acted to
facilitate’ KRC’s request to review such books and records.

Peterson Consulting ended ite efforts to review the
books and records sometime in the late spring of 2003, “after it
had received considerable quantities of information through
Goodsi1i, but without having been able to generate any

conclusions as a result of its inguirie

 

* Goodsill's invoice
for the services it rendered with respect to the management of
the inspection process, in the amount of $47,920.74, was paid by
the Hotel. Inasmuch as the Hotel’s funds were held by the
Mandarin Managers “as the agent (s] for and in the name of* KHALP,

OALP ultimately paid Goodsill’s invoice.

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on May 30, 2001, KRC requested MOHUSA’s permission to
further inspect KHALP‘s books and records, “seeking an extensive
List of particularized information from the books and records
about specific areas of management practice." By letter dated
August 2, 2001, MOHUSA denied KRC’s request for further
inspection, “citing its duty to conserve the resources of the
Hotel in the absence of a good faith business purpose being shown
by [KRC] as to why the information should be generated.”

For approximately a year and four months, the parties
did not appear to discuss any of the pending matters. on
November 13, 2002, KRC’s counsel sent three letters to the
Mandarin Managers, providing formal notice of KRC’s and KHALP’s
decision to lift the stay of the arbitration proceedings.

4. Goodeill’s Petition for Admission Pro Hac Vice
On Decenber 31, 2002, Goodsill filed a petition for

admis

 

ion pro hac vice of Friednan and Gregory D. Schetina (of
counsel to Jones Day) “to appear and represent [MOHUSA and the
Mandarin Managers) in connection with arbitration proceedings and
any related judicial proceedings in Hawai'i pertaining to the
[Hotel] initiated by [KRC] and ite President, Katsumi Iida” with
the circuit court [hereinafter, the petition]. ‘The petition was

served on KRC.

+ the Honorable Gary W.B. Chang presided over this separate proceeding.

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SSS

On January 15, 2003, KRC and Iida jointly filed a
memorandum in opposition to the petition, essentially contending
that Goodsill, Friedman, and Schetina should be "disqualified"
“from acting as counsel for parties adverse to [KHALP]” because
“there is evidence that [Friedman and Schetina] have actually
Participated with (Goodsill] in the representation of [MOHUSA] in
its conduct of partnership business{.]" At some point, however,
KRC and Iida withdrew their opposition to the petition. on
February 12, 2003, the circuit court entered a judgment granting
the petition
5. The Partner Arbitration

In late January and early February 2003, KRC served

Several pleadings in the Partner Arbitration that (1) withdrew

the claine

 

yerted in KRC’s

 

lier Notice and Denand for
arbitration, (2) set forth new claime against MOHUSA, and (3)
articulated the relief sought by KRC based on the new claims.

KRC essentially alleged that MOHUSA had breached its contractual,

 

™ On appeal, KRC explains why it decided to withéraw ite original
Gleime (ses, ‘Ehat WOHUSA breached certain duties by, inter alla, failing to
Anvestigate and prosecute cleint of misnanasenent against the Mandarin
Managers) and assert new claine in the Partnership Arbitrat iene

   

 

‘The pursuit of KUALP's clains against the Mandarin Managers
Un the Managers Arbitrations) ‘could not effectively cake
Place until FRC had a fair opportunity to review HIALP's
Books and records, HRCI,] thereforel,] recosnized that’ [the
Fartner Arbitration] had to focus on gaining reasonable
access to the books and records and stopping MOMUSA, watch,
with the active participation of (the Liawyers, wae’ abusing
ite position ae Aduinietrative Partner and breaching see
Fiduciary duties to (HHALP] and FRC in order to provect ite
affiliates, the Mandarin Managers.

  

(Citation to the record omitted.)

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common law, and statutory duties to KHALP and KRC by:
(2) improperly interfering with KRC’s access to KHALP’s books and
records; (2) abusing its position as Administrative Partner by
allowing the Lawyers to usurp ite powers in order to protect the
interests of the Lawyers’ other cliente -- and KHALP‘s
adversaries -- ice., the Mandarin Managers; and (3) using KEALP
funds to pay the Lawyers. KRC set forth fifteen “resolutions,”

many with several “sub-resolutions,* based on its new claims.

 

‘These resolutions requested, in relevant part

1. an order granting [1c] equal and identical acc
the books and records of MAALP that MOHUSA enjoys.

2. Anorder requiring MOMUSA to imediately repay ¢o
NIALP those attorneys’ fees and coste charged by

[Geossill] ‘fer ite work assisting MOMUSA in responding

to (KRC)"s requests for WIALP (believed to be at least

$47,920.78)

X determination that MOMUSA breached ite duty to. (RC)

by not providing information concerning [KIALP) "s

business and affairs after denané for informacion had

been received.

4. X'Secefmination that MOHUSA has engaged in conduct
Felating to KHALP business which makes it not
Featonably practicable to carry on the business in
partnership with MOHUSA.

 

te

 

 

 

 

 

 

8." A determination that MOHUSA breached ite fiductary
Guty of loyalty to [HRC] by dealing with IKHALP] in
the conduct of partnership business as or on behalf of
2 party having an interest adverse to (KHALP]

6.2: An order directing MOHUSA to direct ite agents,
Including but not limited to (the Lawyers], to
cease taking positions adverse 20 [mani], in
particular(,] to cease representing the Mandarin
Managers against [KGALF] in relates
arbitrations.

8.3: An order directing MOHUSA to turn over to (XKRC]
ali documents in ite possession or its agent's
Possession (including the files of [the
Lawyers]) related co. (KRC]'s oF (KIALP]’s
Gieputes against che Mandarin Managers.

 

 

2! ” An order of expulsion of MOHUSA as a partner in KHALP.
15. An order issolving the KHALP partnership between
(HRC) and MOHUSA.

 

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(wunbering altered.)

on March 20 and 21, 2003, an arbitration panel (the
panel) held a hearing in the Partner Arbitration. On April 2,
2003, the panel issued its ‘Memorandum Opinion and order,”
granting in part and denying in part KRC’s claims for relief
(hereinafter, the arbitration order]. The panel ruled in

relevant part as follows

Turning first co the claim (that KR] was denied
appropriate access to the books and records of [KP], che
panel is in agreement with (KRC) In the panel’é

Mew, while «=. IKRC)’s right Co inspect the books and
Yecords ie not ag unfettered se that appropriate for an
auditor, it is certainly greater in contextual environment
than that which was afforded by (MOMUSA]"s procedures for
Snepection. . . Mithout ascribing any particular
otivation to the attorney review process’ incorporsted into
IMOHUSA"e procedure, it ie clear that such a review was not
invended to improve (KR¢] 's accese to books and records that
by law and under the (Partuership] Agreement (HRC) was
entitled to expect.

B. . (HRC) ext argues that [MOMUSA] should be
required to repay £0 [KIALF] the attorneys’ fees and costs
charges by Goodell] in connection with its work on che
Gocument inspection and production effort. " [MOMUSA) argue
Chat Goodeilivs efforts benefited (sic) [KHALP) rather chan
[woHUSR) and that the fees and expenses are thus properly
payable by. (ALP)

‘The panel agrees with [IC] cn this issue. [MOHUSA)
was and ie entitled to defend itself against claine made by
Tac] “either under the parenerehip] Agreement or under the
Nanagesent Agreenente for the fote!. The panel concure with
(WOHUGA) that it ie algo entitied to engage the counsel of
its choice for tht defense. Hovever, the panel concludes
That (NOMUSA)"s engagenent of counsel for the inspection of
tthe books and records undertaken by Petereon (Consulting)

Was not to facilitate that procese on behalf of (KHALP). but
Yather to regulate that process in a manner conducive to
(WGC) 's defense against the then pending arbitration claime
(MoHUSA) “cannot have it both ways. If (the Lawyers] were
IMOHUSAI ‘s defense team representing [MOHUSA] and not
DGALP], then the expenses associated with that defen
Properly £0 be borne by (HOSA)

 

 

 

 

 

  

 

 

 

   

G." "he main thrust of the balance of (xRC]'s

requests for relief are centered on Evo concepts. First,
[ic] argues that, ab Administrative Partner of (KWALP],
(moHUsA} owed duties under common law, the (Partnership)
Agreenent and the Havas statutes not to interfere wth
TiRC] '¢ efforts, as NGHUSA]s partner, to investigate and

   

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possibly pursue claims against the Mandarin Managers.
Second, (Hc) argues that specific provisions of the
[Partnership] Agreement... required that [MOHUSA] "etep
back" and allow [IHC] to exercise the rights of Hotel omer
fn any dispute with the Mandarin Managers. In both of these
areas, [XEC] argues that’ [the Lavyere) were improperly
Fetained to represent parties with conflicting intereste ()
and that the activities of the (Lawyers) in undertaking the
Gefense of INCHUSA] and ite aefiliates(, ive., the Mandarin
Managers, violates ethical and fiduciary cbligations. As
result of (MOMUSA)'e sctivitier in conducting what ancunte
to a common defense with the Mandarin Managers, [KRC] argues
that ie de no longer reasonably practicable £0 carry om the
business of [KALP] with (MOMUEA) aa the Administrative
Partner. Thus, [KRC) seeks to have (GLP) dissolved, or in
the alternative, have (MOMUSA] expelled ae partner in
(HaHa)

 

  

 

 

  

 

‘The patel nae concluded that (KRC) had the right co
inspect the books and records in order to pursue inquiries
fneo the conduct of the Mandarin Managers, and that thoes
rights were effectively abrogated by [WOHUSA)’s regulation
fof the Inspection process. The panel has algo concluded
That [MOMUSA] vas entitied to defend teel? with counsel of
its choice against possible attacks by [XRC]. (KRC) is not
entitled to require that (NOHUSA) ‘effectively lobotonize
iteelt in ite dealings with ite affilistes By taking the
side of (acl

 

 

 

‘he Sppropriate relief in this instance is not,
however, what IKKC) has suggested. As noted, if 1s not
appropriate to require (MOMUSA] tO attempt to create a
"Chinese Wall” or to perform some other set unnaturel for
corporate enterprise. it is leo not appropriate to
Giseolve (ALP) or to expel INCHUSA] as auch relief i far
foo draconian in ite impact on [MOMUSA] in the circunstanct
Presented ‘The appropriate relief in these
Elzeunstances is to temporarily renove the source of the
Gifticalty, the power of the Adzinistrative partner to
Fegulate (iRC}'s activities in ite legitimate review of the
activities of (MOHUSA] and the Mandarin Managers.

 

 

 

  

 

5." " jmuch of (me's) argument relating to alleged
breaches of fiduciary duties revolves around [WOHUSA]’®
counsel. INRC] argues that(,] since (1c) and [MOMUSA] are
partners in (GALP, ana since any clains against the
Mandarin Managers are claine belonging to [RALP), then
(WoHUSA] violated its Guties to [Kc] by retaining [ehe
Lawyers] to act as counsel representing both [MoWUSA) and
the Mandarin Managers in their disputes with (RRC). LIC]

 

‘Secepted by the [Lewe: re
aged in w Fespectiv
of
sbursbie
‘The panel paid particular attention to the expert with
Who Pestitied on the ethical issues raised by [iecl

 

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deat xpectat ‘8 1 would

‘The panel has previously concluded that [MOHUSA] has

the right fo be represented by counsel of it
defend itself, we have found chat

 

 

 

choice and to
juch defense could not

extend to the use of [MOHUSA]‘s powers as Administrative
hat counsel, whose only representation of IMOMUSA

 

or the Mandarin Manage

Signed in 1995 is with respect to these cl

  

‘since the original agreenente were

predecessors,
es oh Nous?

Manasexa lie. the lawvera,] have acted ethically in all

Keapecte aid have violated so duties to IRC] shether ender

he common lax. statutes or otherwisa:

(Smphases added.) The arbitration order also contained the

 

following Yorder"

[WoHUSA] ehall be entitled to retain counsel of it
for ite defense of any cla:

 

 

for hy

Seunsel_for {MOHUSAL has nor engaged in unethical conduct oF
Sonduck that constitutes a breach of any ethical. tiduciary.

08

choosing
past or future, made by [kx]

(Bmphasis added.) On October 27, 2004, the Circuit Court of the

First Circuit, the Honorable Eden Elizabeth Hifo presiding,

entered a judgment confirming the arbitration order.

According

to the parties, there has been no subsequent action taken with

respect to the Managers arbitrations.
B. Procedural History
1. The ERC Appeal

a. KRC’s complaint

On January 28, 2003, prior to the arbitration hearing

and order, KRC filed a complaint againet the Lawyers with the

circuit court. On February 20, 2003, KRC filed an amended

complaint. In its amended complaint, KRC alleged:

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15, In [managing the inspection process of KIALP's
books and records, the Lawyers] were acting and/or
Purporting to act on behalf of KHALP in maintaining,
Controlling, and protecting ite books and records.

37.” By virtue of its conduct [in managing the
inspection process, the Lawyers) were the attorneys for
WOULP and/or oved fiduciary duties to KGALP and’ [RC]

is. “sy virtue of their representation of the
Adniniatrative Partner, [the Lawyers) astumed fiduelary and
good faith obligations to MIALP and ite partners, including
‘heey

 

25. Goodsill has comenced the representation of
four clients: INOHUSA) and the Mandarin Ranagers in three
separate arbitration proceedings. These include the
nsnagers arbitrations and the Partnership Arbseration]-

0, By virtue of the foregoing, doodeill hae
undertaken co represent parties with interests directly
Adverse to those of their fiduciary and good faith cbiigee,
eel

21, Gocdsi2i plane to continue that representation
land to appear for the’ Mandarin Managers in the’ IManagere
Arbitrations], while continuing co serve ae the agents of
{(WoHUISA] and to represent (WOMUGA] in ancther proceeding ,

e., the Partnership Arbitration,] that will give it access
to Confidential internal RIALP information

22.” By virtue of the foregoing facte, ae well
Letters written and other conduct indicating representation,
(Sones Day ha] comenced representing parties with
Antereste directly adverse to those of their former
fiduetary and good faith obligee, [x].

 

 

 

 

26: ” The cooperation by [MOHUSA] with parties adver
to MHALP ‘and [HRC], to wit, the Mandarin Managers,
constitutes a breach of NOMUSA's fiduciary, good faith, and
other legal duties co. [XKC) and (KHALP]. "by purporting fo
fact on behalf of and undertaking the representation of
ROWUSA [tic] at the sane tine they are Fepresenting the
Mandarin Managers, (the Lawyers] have and’ are continuing to
perform, assist, participate in, conspire ar to, induce and
Bid and’ abet

 

1A. The manipulation of MOHUSA to the benefit of the
Mandarin Nanagere;
B. The Use of MOHUSA as the mere instrunentality or

alter ego of the Mandarin Manager
co “the communication of confidential partnership.
information by WOWUSA to the Mandarin Manageres
D. The cooperation of MOMUSA with the Mandarin
to frustrate and/or defeat HHALP's claime against

 

 

Manage:
then and)
E. The breach by MOHUSA of fiduciary, good faith
land other duties owed by NOMUSA to (KRC] and KHALP; and
FL The wrongful interference in [KRC]'e contractual
relationship with MOMUSA, ae well as KHALP'® contractual
relationship with the Mandarin Managers

 

 

KRC's amended complaint set forth the following claims for

relief:

(1) unfair methods of competition; (2) intentional

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interference with contractual relations (IICR); and (3)
intentional interference with prospective economic advantage
(JIPEA). Specifically, KRC alleged:

27. (NOHUSA) is engaged in trade or comerce, as are
[the Lawyers]. The . conduct by (NOHUSA] in colludsng
and cooperating with adversaries of KHALP constitutes an
Unfair method of conpetition in the hotel omership business
within the meaning of [IRE clhapter 460. (ihe Lawyers] art
Assisting and/or participating in that conduct and are

 

    

 

therefore liable to. [xc] under (MRS c)hapter 480
28. (The Lawyers] are representing cliente and
‘earning fees in violation of the rules of professional

    

Fesponsibility and the ethical duties attendant to these:
profession. As euch(,) they are engaged in unfair sethode
Sf competition within’ the meaning of [iieS cJhapter 480.

35. (The Layers’) conduct is knowingly interfering
with [H@C)'s right to full performance of the [Partnership
[Algreenent. ‘Said agreenent entities [xec] the ability to
freely inepact [KHALP] books and records and to receive the
complete fiduciary loyalty of its partner MOMUSA. [The
Lawyers] are knowingly participating in a scheme under which
MOMUSA ia limiting UC] 's inspection rights, and sharing
attorneys" fees, conficences, strateay and information with
nd for the benefit of the Mandarin Managere in their
Giepute with HEALD. “By virrue of the foregoing facts, [the
Lawyers] are Liable to (XC) for (1icR] and (TIPEA)

 

 

 

Finally, KRC requested (1) a declaration that the Lawyers were
disqualifies from representing MOHUSA and the Mandarin Managere
in connection with their disputes with KHALP or KRC, (2) an
injunction (a) preventing the Lawyers from representing MOHUSA
and the Mandarin Managers in connection with their disputes with
KHALP or KRC and (b) ordering the Lawyers to turn over all their
files to KRC relating to the work done for MOHUSA and the
Mandarin Managers with respect to any matter involving KIALP or
KRC, and (3) money damages, including general and special
compensatory damages, punitive damages, treble damages pursuant
to HRS chapter 480, attorneys’ fees, costs, and other relief
deemed “just and proper.

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b. the Lawers’ motion to diemiss or for summary
sudament

On June 27, 2003, subsequent to the arbitration hearing
and order, Jones Day filed a motion to dismiss or for summary
judgment in which Goodsill joined on July 3, 2003. Jones Day's
motion was based on three independent grounds: (1) collateral
estoppel; (2) litigation immunity; and (3) waiver."
Specifically, Jones Day asserted that, under collateral estoppel,
the arbitration panel’s rejection of KRC’s contention that the
Lawyers owed -- and breached -- contractual, common law, and
statutory duties to KRC bars it from re-litigating the same
contention in the instant action. According to Jones Day,
inasmuch as KRC’s business tort claims are based entirely upon
KRC's contention that the Lawyers owed KRC such duties and KRC is
collaterally estopped from asserting that such duties exist,
kRC’s claims fail as a matter of law.

Moreover, Jones Day contended that a litigation
attorney cannot be held liable to his or her client’s litigation
adversary under any theory other than malicious prosecution,
abuse of process, fraud, or malice. Accordingly, because the
Lawyers allegedly served solely as litigation counsel to MOHUSA

and the Mandarin Managers and KRC’s amended complaint does not

 

© at the hearing on Jones Day's motion, counsel for Jones Day stated
that the instant motion vas a summary juagnent sotion as wel! as a eismissal,
notion. Specifically, counsel stated that the instant notion wae a dismissal
‘motion on the collateral estoppel issue and vas a summary judgment motion "on
G1 other Sseues."

 

 

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SS
allege the aforementioned theories, Jones Day asserted that

Litigation immunity bars KRC’s clains as a matter of law.
Finally, Jones Day maintained that RC has waived any
right to object to the Lawyers’ representation of MOHUSA and the
Nandarin Managers. According to Jones Day, the undisputed
evidence indicates that KRC was aware of -- but failed to object
to -- the Lawyers’ representation of MOHUSA and the Mandarin
Nanagers for nearly two years prior to the initiation of the
instant action. Specifically, Jones Day pointed to the February
26, 2001 letter sent by Jones Day to KRC’s counsel, informing

KRC’s counsel that it was retained by MOHUSA and the Mandarin

 

Managers to represent them *in connection with the disput.
alleged by [KRC] . . . to have risen under the (Partnership
Agreenent] and/or the (Managers Agreements] pertaining to the
(ote) .*

A hearing was held on Jones Day's motion to diemiss or
for summary judgment on October 15, 2003. At the conclusion of
the hearing, the circuit court stated that it was persuaded by
the arguments and authorities cited in Jones Day's motion and,

thus, orally granted the motion. on De

 

ember 1, 2003, the
circuit court entered its written order granting Jones Day's
motion and Goodsill’s joinder therein.

e awers for attore

Having prevailed on their motion to dismiss or for
summary judgment, the Lawyers moved for an award of attorneys’

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fees pursuant to Hawai'i Rules of Civil Procedure (HRCP) Rule
54 (4) (2) (2005)** and HRS § 607-14" on December 17, 2004. The
Lawyers contended that the instant action was in the nature of
ascumpsit “because KRC allece|d] that [the Lawyers] breached
duties to KRC arising from (s) their contractual retention as
attorneys for [MOHUSA] and two of [the entities comprising the
Mandarin Managers) and (b) the written Partnership Agreenent
between MOHUSA and KRC." Jones Day sought fees in the anount of
$257,066.55, and Goodsill sought fees in the anount of
$88,354.41. The Lawyers did not move for an award of costs.

on March 9, 2004, KRC filed ite memorandum in

 

opposition to the Lawyers’ motion for fees, primarily arguing
that the instant action was not in the nature of assumpsit. KRC
also urged that the fees requested by the Lawyers were
unreasonable inasmich as the Lawyers’ billing records were

replete with duplications and une

 

sary work and the hourly

rates were excessive.

2 RCP Rule $4 (4) (2) provides in relevant part that “(cllains for
attorneys" fees! ‘shall be made by notion unless the substantive law
Governing the action provides for the recovery of such fees ae an element of
Ganages to proved at trial.”

 

8 HRS § 607-14 provides in pertinent party

 

4a] actions in the nature of
aisumeit..-, there shall be taxed as attorneys’ fees, to
‘Be paid by the losing party and to be included in the fon
for which execution may iseue, a fee that the court
determines to be reasorable(s)

(anphasis added.)

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A hearing was held on the Lawyers’ motion for fees on
March 17, 2004. At the conclusion of the hearing, the circuit
court stated that it was taking the motion under advisement. On
une 3, 2004, the circuit court entered an order granting the
Lawyers’ motion for fees in ite entirety, i,e., in the amount of
$257,066.55 to Jones Day and $88,354.41 to Goodeill.

Final judgment in favor of the Lawyers was entered on
June 3, 2004, KRC filed its timely notice of appeal on July 2,
2004.

2. ‘The KHALP Appeal

a. KHALP’e complaint

Subsequent to KRC’s initiation of its action against
the Lawyers, KHALP filed its complaint against the KHALP
defendants (i.e., the Lawyers, Hultner, and Witt) on February 10,
2003. KHALP’s complaint set forth the following claims for
relief: (1) “participation in, assisting, inducing, procuring,
conspiring in, and/or aiding and abetting breaches of fiduciary,
contractual and other duties"; and (2) unfair methods of
competition." Specifically, KHALP alleged:

18, MoHUSA, as Administrative Partner, through
Multner and Witt, purportedly retained [the Lavyers] to

et it in carrying out ita duties as Administrative
srener with respect to [KHALP’s] books and records, and in
Fesponding to. [KRC's] request.

 

 

 

   

 

 

On appeal, hovever, KHALP states that the following three clains for
relief were asserted in ite complaint: (1) “tortious inducenent of breach of
fidueiary duty"; (2) tortious interference with contractual relations; and (3)
unfair methods Of competition. MIALP also “clarifies on appeal that
conspiracy was not alleged ass separate claim for relief in ite complaint.

 

 

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39." At the sane tine, Hultner and witt were acting
fon behalf of the Mandarin Mahagers in connection with the
Sieputes and requested arbitrations between KHALP and the
Mandarin Managers

28, in [managing the inspection process of KHALP’s
books and records, the Lawyers) were purporting to act on
behalf of HHALP through MOMUSA, Hulener ana Witt’

26, by virtue of their Mctions, [the Lawyers)
were supposed to be acting as the attorneys for KHALP and/or
owed fiduciary duties to. RIALP.

27.” “Hulener and Witt, as members of KHALP’s
Executive committee and Authorizes Representatives of MOSUSA
to KHALP(,] owed fiduciary and other duties to KHALP.

26." By virtue of their representation of its
Administrative Parener, [the 1GALP defendants] in that
cspacity assumed fiduciary and good faith obligations te

 

34] ” The cooperation of MOHUSA with the Mandarin
Managera in matters adverse to MUALP constitutes a breach of
NOHUSA's Fiduciary good faith, and other legal cuties to
(ac) and (OLR). “By purporting to act on behalf of and
undertaking the representation of MOMUSA in these matters at
the sane time they are representing the Mandarin Managers,
(the KELP defendants] have and are continuing to assist,
participate in, conspire as to, induce and aid and abet:

 

‘Ar the mazipulacion of MOMISA to the benefit of the
Mandarin Manacers,

5, the use of MOMUGA’as « mere instrumentality oF
alter ego of the Mandarin mangers,

c. the comminieation of confidential partnership
Informacion by MOMUSA to the Mandarin Managers,

D. the cooperation of MOMUSA with the Mandarin.
Managers to defeat SUALP's claime against them
and

5. the breach of fiduciary, good faith and other
Guties by MOHUSA, a5 welll se

F. wrongfully interfering with the contractual,

Felationship between KUALP' partners, ite
Partnership Agreement, and inducing ite Breech
{eiel.

37. MOHUSA and che Mandarin Managers are engaged in
trade oF commerce, at are (the KIALP defendante). The

conduct by the Mandarin Managers in suborning the
Gollusion and cooperation of MOMUGA, ite agente and
attorneys with adversaries of WHALP’ constitutes an unfair
rrethod of competition in the hotel business within the
wreaning of (URE clhapter 460.” (The HMALP dlefendante are
Seeieting and/or participating in that conduct and are
therefore liable to. (KHALP) under (HRS cJhapeer 480.

3, (The Lawere) are representing clients and
earning fees in violation of the rules of professional
Feeponsibility and the ethical duties attencant to their
profecsion. Ae such(,] they are engaged in unfair methods
BE coapetition within’ the meaning of (HRS cl

 

 

 

 

 

 
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eee

Finally, similar to KRC, KHALP requested (1) a declaration that
the Lawyers were disqualified from representing MOHUSA and the
Mandarin Managers in connection with their disputes with KIALP,
(2) an injunction (a) preventing the Lawyers from representing
NOHUSA and the Mandarin Managers in connection with their
Gisputes with KHALP and (b) ordering the KIALP defendants to turn
over to KHALP all their files relating to the work done for
MOHUSA, the Mandarin Managers, and KIALP with respect to any

matter involving KALP, and (3) money damagi

 

including general,
special, and consequential compensatory damages, punitive
damages, treble damages pursuant to HRS chapter 480, attorneys‘
fees, costs, and other relief deemed “just and proper." In
addition, KHALP requested an injunction preventing Hultner and
Witt ‘and anyone acting in conjunction with them or at their
behest from participating in any way in the disputes between
KHALP and the Mandarin Managers on behalf of the Mandarin
Managers.”

b.  Hultner and Witt’s motion to dismiss

On March 31, 2003, subsequent to the arbitration
hearing and order, Hultner and Witt moved to dismiss KHALP’s
complaint in which Goodsill joined on May 2, 2003. Hultner and

Wice

 

entially claimed that, because the subject matter of the
instant dispute had already been arbitrated in the Partner

Arbitration, KHALP’s complaint must be diamissed as to them. In

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addition, Hultner and Witt argued that KHALP‘s “aiding and
abetting claim* must be dismissed for failure to state a claim.

ce. the + motion or for

dudament
on May 6, 2003, Jones Day filed a motion to dismiss,
for sumary judgment, or, in the alternative, to stay the
proceedings in which Goodsi1l joined on May 21, 2003. Jones
Day's motion was based on five independent grounds: (1) KRC’s

prosecution of the instant action in the name of KHALP is ultra

 

vires; (2) collateral estoppel; (3) litigation immunity; (4)

 

waiver; and (5) failure to join indispensable partie:
specifically, Jones Day asserted that the present action "is one
by KRC to assert its rights, not the rights of KHALP.]* Jones
Day argued that KRC could not prosecute the instant action in
KHALP's name because (1) the Partnership Agreement does not
permit KRC to eue third parties (as the Lawyers) in KHALP’s name
and (2) KRC did not comply with applicable procedural
requirenents for bringing this action as a derivative action.
Jones Day’s argunents with respect to collateral estoppel,

litigation immunity, and waiver mirrored those that were asserted

 

\ sinsiar to the KRC Appeal, counsel for Jones Day stated that the
instant motion was 2 sumary judgnént notion at well as a dismissal motion
Specifically, aa previously mentioned, counsel stated that the snatant notion
es @ dienigeal motion on the collateral estoppel issue and was 2 summary
Jedgnent notion "on all other sseues."

 

 

Moreover, the Lawyers state on appeal thet they do not advance the
contention that JOALP's failure to join indispensable parties ie a basis to
affirm the circuit court's decision in their favor.

 

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in Jones Day's motion to dismiss or for sunmary judgnent in the
KRC Appeal. See supra discussion at Part I.B.1.b.

A hearing was held on Hultner and Witt’s motion to
dismiss and Jones Day's motion to diemies or for sunmary judgment
on October 35, 2003 (in conjunction with Jones Day’s motion to
dismiss or for summary judgment in the KRC Appeal). At the
conclusion of the hearing, the circuit court stated that it was
persuaded by the arguments and authorities cited in the KHALP

ai

 

ndante’ respective motions and, thus, orally granted the
motions. On December 1, 2003, the circuit court entered a

separate written order granting the motions and Goodsill

 

 

As prevailing parties on their respective motions to
dismiss or for summary judgnent, the KHALP defendants separately
moved for an award of attorneys’ fees and costs against KRC,
because, according to the KHALP defendants, KRC initiated and
controlled the prosecution of the KHALP Appeal. Hultner and wit
moved for an award of fees and coste pursuant to HRCP Rule 54(d)
and HRS §§ 607-9 (1993) (relating to actual disbursements that
may be allowed in taxation of costs) and 607-14 on December 17,
2003. Hultner and Witt sought fea in the amount of $296,673.98
and costs in the amount of $16,731.76, for a total request of

$313,405.74. On the

 

me day, the Lawyers moved for an award of

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fees pursuant to ERCP Rule $4(d) and HRS § 607-14. Jones Day
sought fees in the amount of $203,056.71, and Goodsill sought
fees in the amount of $48,666.73.

on Narch 9, 2004, KHALP filed separate menoranda in
opposition to the Lawyers’ and Hultner and Witt’s motions for
fees. KHALP argued in both memoranda that, if the circuit court
“is inclined to consider the [motions for fees], KHALP urges [the
circuit c]ourt to allow KRC an adequate opportunity to respond to
the allegations contained [in the motions for fees],” and
attached, as an exhibit to both memoranda, KRC’s memorandum in
opposition to the Lawyers’ motion for fees filed in the KRC
Appeal

A hearing was held on the KHALP defendants’ motion for

fees on March 17, 2004 (in conjunction with the Lawyers’ motion

 

for fees filed in the KRC Appeal). As previously mentioned, the
circuit court stated at the conclusion of the hearing that it was

taking the motions under advisement. On June 3, 2004, the

 

circuit court entered two separate orders granting the Lawyers’
and Hultner and Witt’ motions for fees and costs in their
entirety. Both orders contained the following findings:

(2) (GALP) ie a Limited partnership comprised of
only two general partners, (NRC) and. (NOHUSA).

(2) "Purauant to the (Partnership (Al greement
between HRC snd MOHUSK, HRC is specifically authorized to
exercise the rights and privileges of (MHALP] under,
pursuant to or otherwise with respect to the Managesent
Kgreenent (2) and [HHALP) ‘# dealing with (the) Mandarin
(Managers)

3) | Hc asserted the claims of [HUALP] in this case.

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(4) _ the complaint entitled (SiALP v. Jones Day,
2., the KIALP Appeal,} was brought by KRC in the name of
{Wiel to recover for purported injury te KIALPI.)

(5) The allegations in the complaint [in the KEALP
Appeal] =~ and OALP's concessions that it ie not the real
party in interest -- but takes ite direction from Fae is
Chis lawsuit -- make clear that KRC ie a party Bringing the
lawsuit in the name of (KHALP]

(6). Ag a result, ERC was and ie a party to the
instant lawsuit because it Brought the action in the name of
aL

 

 

 

 

 

 

“()_ Wwe instigated, controlled, and directed the
lawsuit in the nane of (WHALE) and Aad notice of the
leveuie.

33)” ne
the nature of

[HRS] § 607-24, the instant action ie in
smpeit.

 

‘The circuit court's order granting Multner and Witt’s motion for
fees and costs stated in relevant part:

(21) ¥RC had @ ful and fair opportunity to respond
ko (iultner and Witt"s sjotion for (fees and cost] in ithe
WOALP Appeai] by virtue of ite (siemorandun (i)
(olppositien being attached as [an elxhibit . . . to KUALP's
(mjemorandus (In. [elpposition(.]

(02) "AB the party that iaitiated che instant laweuit.
in the name of IKIALP], KRC is liable for [Bultner's and
Wite’e) attorney" fees and coste.

 

 

‘The circuit court awarded the requested fees and coste in the
amount of $323,405.74 to Hultner and Witt against KRC. Likewise,
the circuit court’s order granting the Lawyere’ motion for fees

stated in relevant part

 

(22) ne had a full and falr opportunity to respond
to [the Lawyers’ motion [for fees] by virtue of ite
Imenorandum (1)n" [olpposition being attached as (an
elxnibit to KIALP’s [nlenorandum’ (1]2_[olppesition(-)
G2)" Ae the party thet initiated the instant lawsuit
in the name Of [GALP], FRC ie liable for the Lawyerel")
w eee and costs. {4

‘The circuit court awarded the requested fees in the amount of

$203,056.71 to Jones Day and $48,666.73 to Goodsill.

 

 

% although the order stated that KRC ia Liable for the Lawyers’ fees
ang costs, the Lawyers id not move for an avard of costs.

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A separate final judgment in favor of the KHALP
defendants was entered on June 3, 2004. KHALP and KRC timely
filed their separate notices of appeal on July 2, 2004.
II. STANDARDS OF REVIEW

A. Motion to Dismiss

°A complaint should not be dismissed for failure to
state a claim unless it appears beyond doubt that the plaintiff
can prove no set of facts in support of his or her claim that
would entitle him or her to relief." Dunlea v. Dappen, 63
Hawai'i 28, 32, $24 P.2d 196, 200 (1996) (citations omitted) ,
overruled on other crounds by Hac v. Univ. of Hawai'i, 102 Hawai'i
92, 73 P.3d 46 (2003). This court mst, therefore, “view a
plaintiff's complaint in a light most favorable to him or her in
order to determine whether the allegations contained therein
could warrant relief under any alternate theory." Id. (citation
omitted). Consequently, “in reviewing the circuit court's order
dismissing the plaintiffs’ complaint in this case, our
consideration is strictly limited to the allegations of the
complaint, and we must deem those allegations to be true." Idi
(citation omitted) .
B. Motion for Summary Judament

‘This court reviews the circuit court’s grant of summary
Judgment de novo. Qlahu Transit Serve., Inc. v. Northfield Ine

Gon, 107 Hawai" 232, 234, 112 P.3d 727, 720 (2005). The

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SSS
standard for granting motion for summary judgment is well

settled:

(Slumary judgeent is appropriate if the pleadings
depositions, answers to interrogatories, ond adniesions on
File, together vith the affidavits, if any, show that there
4s no genuine seeue ae co any naterial fact and chat the
moving party is entitled to judgnent as a matter of law: A
fact is nateriai if proof of that fact would have the effect
of establishing or refuting one of the ceseatial elements of
4 cause of action or defense asserted by the parties, The
evidence mist be viewed in the light most favorable to the
on-moving party.” in other words, we mist view all of the
evidence and the inferences dravn theretron in the Light
most favorable to the perty opposing the motion

Price v. AIG Hawai'i Ins. Co., 107 Hawai'i 106, 110, 111 P.3d1, 5
(citation omitted) (brackets in original) (2005).

       

 

 

 

  

Cc. Motion orneve’ Fees an:

‘The circuit court’s grant or denial of attorneys’ fees
and costs is reviewed under the abuse of discretion standard.
Id

TIT. DISCUSSION

As previously stated, the circuit court granted the
Lawyers’ motion to dismiss or for summary judgment against KRC in
the KRC Appeal. The circuit court granted the Lawyers’ motion to
dismiss or for summary judgment and Hultner and Witt’s motion to
dismiss against KHALP in the KHALP Appeal. The issues common to
both appeals pertaining to the claime asserted against the
Lawyers include the applicability of the defenses of litigation
immunity, collateral estoppel, and waiver. We, therefore, first
examine whether the defense of litigation inminity is applicable

to the instant action.

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A. Litigation Immunity

KRC and KHALP contend that the circuit court erred in
determining that litigation immunity precluded the instant action
with respect to the Lawyers. KRC argues that litigation immunity
“applies only to claims for negligence, not to intentional torts

such as IIRC and IIPEA, which are the claims KRC

 

erted in its

[first amended complaint] .* (Bmphé

 

1 omitted.) Specifically,
KRC claims that,

(iin érawing the line between negligence and intentional
torts, courts have recognized that, in contrast to mere
negligence, intentions! torts are Guteide the scope of an
attorney's legitinate representation and involve conduct
not mere advice.

Th this case, ‘KRC indisputably alleged the intentions
torte of IIRC and iIPEA against the (Lawyers) in its (first
fanended complaint). The underlying factual allegation
Supporting these claims centered on the [tawyers’) active
Conduct (as opposed to mere advice) in taking control of and
Fegulating KRC's inspection of KHALP’s books and records.
‘The [firet anended complaist] also alleged that [the
Lawyers} acted outside the scope of their representation of
MOHUSA and with an improper purpose insofar se their purpose
was to benefit the Mandarin Managers at the expense of sna
with ehe purpose of harming KRC and ALP. (Ee of RRC
Hirer amended complain]

 

 

 

 

 

 

  

(Some citations omitted.) KEALP agrees with KRC that “attorneys
are not privileged from suit for intentional corte.” (Capital
letters altered.) KHALP presents the additional argument that,
because the Laxyers’ alleged misconduct “did not occur in
Litigation[,]" (emphasis in original), the litigation privilege
is “unavailable here.’

‘The Lawyers, however, contend that *[i]t ie well

 

settled that an attorney who represents a client in litigation

Proceedings cannot be held liable to his client

 

Litigation

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SS

adversary based on the attorney's conduct of the litigation,
absent proof of malicious prosecution, abuse of process, fraudf,]
or malice." (Citations omitted.) The Lawyers assert that *[eJhe
only torts that have been recognized in Hawai'i for a lawyer's
conduct in representing a client in civil litigation are the

torts of malicious prosecution and abuse of process and fraud.*

 

(Citations omitted.) The Lawyers argue that,

under the foregoing principles, [the Lawyers’) conduct was
protected by the litigation inmunity rule at a sacter of
law.“ WOHUSA and ite affiliates(, ive, the Mandarin
Managera,] retained (the Lawyers] to openly represent them
im adversarial arbitration proceadinge instituted against
then by [KRC/MOALP]. “As. [HRC/KAALP] concedes, the docurent
production upon which this entire lawsure is based was s
form of discovery in aid of (KRC's/KHALP'e) arbitration
elaine. “the litigation inmunity rule clearly
permitted (the Lawyers) to represent [MOMUSA and the
Mandarin Managers) ~~ i.e., the parties that retained then

in connection with that document discovery Genané, and’ to
aesist  [MOMSA and the Mandarin Managers) to resist che
Genang, where they deened it appropriate todo so. That is
ali that [che Lawyers] did. (HRC/HHALP), moreover, Gof! Act
“sand cannot -~ contend that [ehe Lavyere’l resistance to
(eneir) document Genand constituted either malicious
prosecution, abuse of pri fraud oF malice, Because
(uses ane ' complaints are] based entirely os [ene
Lawyers'] assistance to their clients. in connection with the
Litigation proceedings against then, the circuit court
correctly recognized that the litigation imunity rails bars
all of [kne"s/MGHALD's} claims.

 

 

   

 

    

  

(Citations omitted.)
The parties appear to agree that there are no Hawai'i

appellate cases that specifically discuss whether litigation

attorneys can be held liable to their client's adversary for

intentional interference with contractual relations” or

 

Ja {pMetidian Mortaece, inc, v. Firet Haws‘ian Bank, 109 Hawat"t 38,
4322 P36 1133 Opp.) cert. denied, 109 Haval'l 254, 128° P.3¢ 1089 (2005) the
Intermediate Court of Appeals (ICA) reiterated the Tequlsive elements of
intentional or tortious interference with contractual ‘relat iongs
(continued...)

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prospective economic advantage" for conduct eccurring during the
course of the attorney's representation of his or her client.
Generally, *[t]he scope of any privilege is based upon policy
considerations.” Matsuura v. £.1. du Pont de Nenours 6 Co., 102
Hawai'i 149, 155, 73 P.3d 687, 693 (2003) (citations omitted) .
In Matsuura, this court stated that the “interrelated policies
associated with the litigation privilege” or litigation immunity
include:

(2) promoting the candid, objective, and undistorted
Gisclonure of evidence; (2) placing the burden of testing
the evidesce upon the litigants during trial; (3) svoiaing
[Ehe chilling effect resulting from the threat of subsequent
Litigation; (§) reinforcing the finalsey of jusgmente, (s]
Limiting collateral attacks upon judgeente; (6) promoting
zealous advocacy? (7) discoureging abusive Litigation
practices; and (6) encouraging settlement

  

1(.. seonttnved)
GQ) 2 Contract between the plaintif£ and a third parcy;
(2) the Gefendant’s knowledge of the contract; (2) the
Getendant’s intentional inducesent of ehe third party to
breach the contract; (4) the absence of justification on the
Gefendant’s part; (5) the subsequent breach of the contract
by the third party? and (6) danages to the plaintife

Ad, at 44, 122 P.3d at 1142 (quoting Neinbera v. Mauch, 78 Hawai'i 40, 50, £90
Beda 277,207 (1985) (emphasis onitted) (format altered) «

 

 

In Robert's Hawaii School Bus, Inc. v.launahoshoe Tranaportation
Sou, $1 Mawali 224, 902 F-24853 (1999), superseded by statuee on other
Hawai'i Wed. Ass'n, Hawai Med, Serv Ags'n, ~~ Hawai'i
+ ss Fead-*= (2006), this court set forth the following elements
constituting the tort’ of intentional or tortious interference with prospective
Batinese advancag

 

 

 

(2) the existence of a valid business relationship or =
prospective advantage or expectancy sufficiently definite,
specific, and capable of acceptance in the sense that there
if'a reasonable probability of it saturing into @ future
economic benefit’ to the plsintiff; (2) knowledge of the
Felationship, sdvancage, or expectancy by the defendant;
(S)a purposetsl intent co interfere with the relationship,
advantage, oF expectancy; (4) legal causation between the
dcx of interference and the inpsitment of the relationship,
Sdvantage, or expectancy; and (5) actual damages:

 

 

 

 

 

Id at 256, 962 F.2d at 687 (citations and footnote omitted).

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Ia

Im Clark v. Druckman, 624 $.5.2d 864 (W. Va. 2005), the
West Virginia Supreme Court of Appeals applied the foregoing
policies discussed by this court in Mateuura and concluded that
it saw “no reason to distinguish between communications made
Guring the litigation process ané conduct occurring during the
Litigation process.” id, at 870 (enphases in original). In
lark, the court was asked to decide the following certified
question from the Circuit Court of Cabell county:

Ie a party to a civil action barred, by virtue of the

Aeigation privilege, from bringing’ claims for civil damages

against the opposing party's attorney if the alleged act of

the attorney ie of the attorney's representation

‘of the opposing party is conduct ang not a written or oral

Statement which arose in the civil action and which hap sone
Felationship £0 the civil actica?

    

 

Id. at 871. In the underlying case, the plaintiff had asserted
the following clains against the defendant-lawyers:

(2) negligence; (2) intentional infliction of emotional distress;
(3) tortious interference with the plaintif® doctor's business
relationship with her insurance carrier; and (4) malicious

Prosecution. Jd. at 866. In its analysis, the Clark court

stated:

As recognized by the Florids supreme court.

(Albsolute immunity mst be afforded to any act
occurring during the course of a judicial

proceeding, regardless of whether the act

involves a defanatory statenent or other

tortious behavior... , so long as the act has
sone relation to the proceeding. The rationale
behind the munity afforded to defamatory
Statenents if equally applicable to other
Risconduct occurring during the course of
judicial proceeding. Just an participance in
Litigation must be free to engage in unhindered

 

 

 

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communication, eo too mist those participants be
free to use their best judgnent in prosecuting
or defending a lawsuit without fear of having to
Sefend their actions ins subsequent civil
action for misconiuer’

 

ance Combany, 659 50.24 606, 608
(Fla. 1994). See algo Jackson v. BellSouth

y572 Pad 1350, 2274 (Lith Cir. 200)
(quoting Lavin) -

1 $66 8.8.24 595 UK
va. 2002)), we recognized that absolute privileges, such as
fhe Litigation privilege, should only be permitted in
Limited circumstances. Collins, . 566 $6.24 at 598
Thus, we 60 not believe that « idtigation privitege should
apply to bar liability of an attorney in all circunstanc
in Mehatfy. Rider, Mindhols & Hilson v. Centcal Bank Denver,
Migs, #92 F.26 230, 255 (Colo, 1998), the Colorado Supreme
(Glourt noted that'van attorney is not Hable to a non
client absent a finding of fraud or malicious conduct by the
attorney." See algo Buclini vi Lauletta, 768 4,20
1825, 633-34 (lg. super] 2001) ("The one tort excepted
fron the reach of the litigation privilege is malicious
prosecution, or malicious use of process.")- We Believe
Buch exceptions to an absolute litigation privilege arising
from Conduct cecurzing during the litigetioa process are
Fessonable accommodations which preserve an attorney's duty
Of sealous advocacy while providing a deterrent to

Sntentional conduct which ie unrelated to Legitimate
Litigation tactics and which harme an opposing party. Ae
recently noted by 2 California court:

 

 

 

 

(A) fraud claim a
from a fraud clas

   

‘ith a thira party, the face
Capacity of attorsey for a cli
Felieve him of liability. While an attorney’
professional duty of care extends only to his,
Gun cliest and intended beneficiaries of bis

Yegai work, the limitations on lability for

negligence’ do not apply to liability for fraud,

 

Yeoa v. Jones, Day, Reavie & Poaue, 27 cal. ptr. 34
26, 31-35 (cal Ce- App. 2004) (interna) citations and
quotations oniiced)

Id, at £70 (bold emphases added) (sone formatting altered); see
algo Myers v. Cohen, § Haw. App. 232, 236 & 243, 687 P.2d6, 11 &
14-15 (1964) (stating that “an attorney may be liable for
malicious prosecution if he acts for an improper purpose” and

that an ‘attorney may also be sued and held personally liable if

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he maliciously participates in [an] abuse of process") (citations
omitted), overruled on other srounds by Myers v. Cohen, 67 Haw.
389, 688 P.2d 1145 (1984); cf, Matsuura, 102 Hawai"i at 162, 73
P.3d at 700 (concluding that “a party is not inmune from
Liability for civil damages based upon that party’s fraud engage
in during prior litigation proceedings"). Based on the foregoing
discussion, the Clark court stated:

[ile cen find no reasonable justification for distinguishing
conduct from conminications for the purposes of the
UGetgation privilege. Hovever, ve also recognize the need
for Limited exceptions from application of the sbsolute
iitigation privilege for certain intentional actions.
Recordingly, we now hold that the Litigation privilege se
Generally applicable to bar a civil iitigant's claim for
Civil danages against an opposing party's attorney if the

 

 

 

 

 

 

Steomey's representation of ‘ino as
‘Konduct related co the civil action.

624 S.B.2d at 871 (footnote omitted) (emphasis added)
In Schott v, Glover, 440 N.B.2d 376 (I11. App. ct.
1982), the Illinois Appellate Court (the court) specifically
addressed whether clains of IICR and ITPEA could be stated
against an adversary’s attorney, The court stated that:
A plaincife can ot
Snterference with « contract a
‘conditionally privileges
be-saidte exist. Such allesations

‘she unrelated to the attorney's deaire to procect

‘elient.

  

 

+ However, would

Id. at 380 (citations omitted) (emphases added); see Fraidin v.
Weitzman, 611 A.2d 1046, 1080 (Md. Ct. Spec. App. 1992) (stating
that, “[tlo remove the qualified privilege, the attorney must

pos

 

a desire to harm which is independent of the desire to

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protect his client. This would constitute actual malice and
therefore substantiate a tortious interference with contract
claim") (citation omitted). The court discussed the seeningly
conflicting purposes behind recognizing the tort of tortious
interference with a contract and the conditional privilege
accorded to an attorney when advising his client, stating that:

‘The purpose of imposing Liability on persons who interfere
with the contractual relationships of others ie to protect
One's interest in such relationships against forme of
interference which, on balance, the law finde repugeant
‘The question of justification therefore reeta on whether
protection of the contractual interest merits prohibit‘
he particular conduct which interferes with that. intere
Under certain circumstances(,) a third party my be
privileged purposely to bring about a breach of contract
Between other parties. This privilege occure where the
third party acts to protect a conflicting interest which ie
considered to be of equal or greater value than that
accorded the contractual rights involved.

‘The fiduciary duty owed by an attorney to hie client
is such an interest (.]. Although incorrect advice a2 toa
client's contractual obligations might cause that client to
Becone liable toa third party in contract, it does not
fellow that the attorney wosld aleo be liable to thar party.
0 lmpose auch Liability on an attorney would have the’
undesirable effect of creating 2 duty to third parties which
would take precedence over an attorney's fiduciary duty to
hue euient.

   

   

 

440 W.B.2d at 379 (citations omitted). With respect to the tort
of tortious interference with a valid business relationship and
expectancy, the court stated that:

Although an individual has 4 general duty not to interfere
in the business affaire of another, the question whether
such interference anounte to tortious conduct requires «
Balancing of societal values. the right to engege in @
Business relationship is accorded lees protection than the
Fight to receive the benefits of a contract. Consequentiy,
interference in the business affaire of another by an
outsider is even more likely to be privileged where no
contract ie involved.

 

 

 

Ad. at 380 (citation omitted) (emphasis added). Inasmuch ae the

Plaintiffs’ complaint failed to allege facts that would

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constitute actual malice with respect to the plaintiffs’ tortious
interference claims, the Schott court held that the trial court
correctly dismissed the plaintiffs’ complaint for failure to
state a claim in light of the defendant-attorney’s conditional
privilege. Id. at 380.

Other jurisdictions have similarly held that an
attorney is afforded conditional or qualified privilege when
claims of IICR and IIPEA are asserted against him by hie client's
adversary. The United States Court of Appeals for the Fighth
Circuit, applying Minnesota law, held that “an attorney who acts
within the scope of the attorney-client relationship will not be
Liable to third persons for actions arising out of his
professional relationship unless the attorney exceeds the scope
of his employment or acts for personal gain.” Maness v, Star-
Kist Foods, Inc., 7 F.3d 704, 709 (8th Cir. 1993) (citations
omitted). ‘The Maness court further stated that the conditicnal
Privilege "is lost only when the agent [, i.e., the attorney)
acts with bad faith, personal i11-will, malice, or a deliberate
intent to harm the [third party]. Id, (concluding that the
district court did not err in entering summary judgment against
the plaintiff on the plaintiffs tortious interference with
contract claim because the record reflected “no evidence” that

the defendant attorney ‘acted for personal gain or with ill-will

 

toward" the plaintiff) (citation omitted);

e Braidin, 611 A.2d

at 1080 (stating that, ‘while an attorney is acting within the

 

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scope of his employment, he may not commit fraud or collusion, or
a malicious or tortious act, even if doing so is for the benefit
of the client. Such actions are beyond the qualified
privilege[.]*) (Citation omitted.) ; Macke Laundry Serv. Ltd
Piship v. Jetz Serv. Co., 931 $.W.24 166, 182 (Mo. Ct. App. 1996)
(recognizing “a privilege for attorneys, when acting within the
scope of the attorney-client relationship, to advise and to act
for a client even though that advice, if wrong, may cause @
client to tortiously interfere with another's business
relationship or expectancy, so long as the attorney does not
employ wrongful means and acts with good faith to protect the
interests of the client and not for the attorney's self
interest"); Burser v. Brookhaven Med, Arts Bldg., 131 A.D.24 622,
624 (N.Y. App. Div. 1987) (stating that “an attorney is not
liable for inducing his principal, ise., his client,] to breach
a contract with a third person, at least where he is acting on
behalf of his principal within the scope of hie authority.
Absent a showing of fraud or collusion, or of a malicious or
tortious act, an attorney is not liable to third parties for
purported injuries caused by services performed on behalf of a
client or advice offered to that client") (citations omitted).
Moreover, the Oregon Supreme Court has recently held
that an attorney is afforded a conditional or qualified privilege
when a third party seeke to hold him liable for substantially
assisting and/or aiding and abetting in a client’s breach of

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fiduciary duty. In Reynolds v. Schrock, 142 P.34 1062 (or. 2006)

(en banc), the Oregon Supreme Court (the court) held that, “for a
third party to hold a lawyer liable for substantially assisting
in a client’s breach of fiduciary duty, the third party mst
Prove that the lawyer acted outside the scope of the lawyer-
client relationship." Id, at 1069. Specifically, the court
stated

[This court's earlier decisions hold that a person may be
jointly lable with another for substancially assisting in
the other's breach of fiduciary duty owed to’a third perty,
if the person knows that the other's conduct constitutes a
breach Of that fiduciary duty. Our tore case law aico makes
clear, however, that, if a person's conduct as an agent or
fon behalf of another cones within the ecope of « privilege,
then the person is not liable to the third party.” In thie
cave, we extend those well-recognized principles to
context that we have not previously considered and hold thet
fa lawyer acting on behalf of @ client and withis the scope
Of the laxyer-elient relationship ie protected by euch =
Privilege and is not liable for assisting the client in
Conduct that breaches the client's fiduciary duty to a third
parey.

 

 

 

Id, The court also expressly noted that its approach was similar
to that adopted by the Illinois Appellate Court in Schott. Ida
at 1071 n.14. See discussion supra.

As previously mentioned, KRC’s amended complaint set
forth the following claims for relief: (1) IICR; (2) TIPE; and
(3) unfair methods of competition. on appeal, KHALP alleges that
it set forth the following claims for relief in its complaint

against the Lawyers: (1) ‘tortious inducement of breach of

 

fiduciary duty”; (2) tortious interference with contractual

% on appeal, KHALP does not identify or explain the clenente
constituting its s¢lf-cescribed claim of *Yortious inducesent of breach of
(continued...)

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relations; and (3) unfair methods of competition.** Contrary to
KRC’s assertion, however, both KRC and KHALP failed to allege
that the Lawyers were acting outside the scope of their lawyer-
client relationship with MOHUSA and the Mandarin Managers.
Moreover, KRC and KHALP also failed to “set forth factual
allegations fron which actual malice may reasonably be said to
exist.” Schott, 440 N.B.2d at 380 (citation omitted); see also
Exaiden, 611 A.2d at 1080. As such, there are no allegations
that indicate that the Lawyers “possess[ed] a desire to harm
which is independent of the desire to protect [their] client[s].”
Exaiden, 611 A.2 at 1080. Furthermore, the complaints are
devoid of any allegations that the Lawyers “acted for personal
gain or with ill-will toward{s]" KRC and KHALP. Maness, 7 F.3d
at 709. The Lawyers’ conduct at issue in the instant case, that
is, the management of the inspection and review process of
KHALP‘s books and records, therefore, falls within the purview of

the litigation privilege as set forth above.

%(... -continved)
yy duty* againet the Lawyers. Indeed, WALP does not present any
argunent on appeal that this court should recognize such a tort.

Consequently, we decline to consider whether to recognize guch a new claim for
Felief in light of the absence of any argunent to do so.” See MRAP Rule

28(b) (2). (2005) (Points net argued may be deened waived.") As discussed wore
fully infra, we sinilarly decline to consider whether to recognize euch
claim against Hultser and Witt. Jd.

   

% insemich as KRC and KSALP fail to address their unfair methods of
competition claims against the Lawyers on appeal, it appears that such claine
have been abandoned. Thus, KRC's and KHALP's claim of unfair methods of
competition against the Lavyere ie dened waived. Sea HRAP Bule 20(b) (7). AS
Siecussed sore fully iatra, OULP'e untalr methods Of competition claim
Sgsinet Holener ang Witt ie likewise waived. 1a.

     

 

 

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Nonetheless, as previously mentioned, KHALP contends
that, because the Lawyers’ alleged misconduct “did not occur in
Litigation(,]* (emphasis in original), the litigation privilege
is “unavailable here." Although not entirely clear from KHALP’s
opening brief, it appears that KHALP’s contention that the
Litigation privilege is “unavailable” is based upon the fact that
the Lawyers’ conduct at issue occurred during the period that the
Partner Arbitration and the Managers Arbitrations were stayed.

‘This court has previously recognized that arbitration
is “a quasi-judicial proceeding[.]" Coral Kingdom of Kaneohe,
Ltd. v, Harter, 65 Haw. 247, 249, 649 P.2d 1159, 1161 (1982).
Other jurisdictions have held in a related context that, because
arbitration proceedings are quasi-judicial in nature,
Participants are absolutely immune from suit for statements made
during arbitration proceedings. See Rolon v, Henneman, 369 F.
Supp. 2d 517, 520 (S.D.N.¥. 2005) (stating that “the law

expressly recogniz

 

that statements made during quasi-judicial
Proceedings, like those made during formal judicial proceedings,
are entitled to absolute inmunity*) (internal quotation marke,
brackets, and citation omitted); Preston v. O'Rourke, #11 A.2d
783, 760 (Conn. App. Ct. 2002) (stating that “parties to or
witnesses before judicial or quasi-judicial proceedings [such as
arbitration proceedings] are entitled to absolute immunity for
the content of statements sade therein”) (citation and internal
quotation marks omitted); Bushell v. Caterpillar, Inc., 683

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N.E.2d 1286, 1289 (111. App. Ct. 1997) (stating that “Lal

majority of jurisdictions hold that absolute immunity
applies to grievance and arbitration hearings") (citation
omitted); W. Mose. Bla = oD. & Ca

Go., 763 A.2d 398, 403 (R.T. 2001) (stating that quasi-judicial
Proceedings such as arbitration proceedings are “judicial
proceedings,” and, thus, statements in arbitration proceedings
are privileged against suite for defamation)

Here, as previously mentioned, the parties agreed in
writing to stay the Partner Arbitration and the Managers
Arbitrations on February 2, 2001. Ten days later, KRC -- on
behalf of itself and KHALP -- sought MOHUSA’s permission to
inspect and review KHALP’s books and records. According to KRC,
such inspection was necessary in order to prepare for and
substantiate the clains asserted in the Managers Arbitrations.
Although the inspection and review process of KHALP’s books and
records occurred during the stay, it is undisputed that such
inspection would not have occurred but for the initiation of
arbitration proceedings by KRC and KHALP against MOHUSA and the

Mandarin Managers. Moreover, any of the parties could give

 

thirty days’ notice to the other of termination of the stay,
thereby resuming the arbitration proceedings. Consequently, we

believe that the Lawyers’ conduct at i

 

jue in this case occurred
during a quasi-judicial proceeding, notwithstanding the fact that
the proceeding was temporarily stayed. We, therefore, hold that

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the litigation privilege is applicable to the instant appeals.”
Such an interpretation “comports with this court’s proclaimed
public policy . . . to encourage arbitration as a means of
settling differences and thereby avoiding litigation [in the
courts]." Fizenan! Hawai'i , 108
Hawai'i 343, 353, 126 P.34 386, 396 (2006) (internal quotation
marks and citations omitted) (ellipeie in original).

Accordingly, we also hold that the circuit court did not err in
granting disnissal or summary judgment in favor of the Lawyers in
both the KRC Appeal and the KHALP Appeal on the basis of the

applicability of the litigation privilege.”

 

% KHALP also appears to ra

 

 

judicially estopped from taking the position that their conduct at isaue cook
Place in litigation. Tue Lawyers, however, point out -- and KIALP concedes in
ite reply brie! -- that "ALP did not raise ite judicial estoppel argument in

     

the circuit court.-" Generally, "failure to raise or properly reserve 1esues
at the trial level would be deened waived.” e
109 Mawai't $37, 546, 128 F.34 850, 889 (2006) internal quotation marke aid
citation omitted). Inasmich as KKALP did not raise ite judicial estoppel
fargunent at the circuit court level, ve decline to address sich argusent made
for the first time on appesi. wevertheless, we note that ‘ehie court is
vested with the discretion to, gla aponis, invoke the construct of judicial
estoppel." Lge v, Pusnana Cntve Aen, 109 Hawai S62, 874 noid, 128 Pad
8%, 687 n.12 (2008) (citations omitted). Tn Leg, this court relied on, inter
alia, Xolodae v. Boyd, 108 Cal. Rptr. 24749 (Cal. Ct. App. 2001), for the
foregoing proposition expressed in Lee. In Kolodae, the Celifornia Court of
Appeale stated that "judicial estoppel is warranted only upon a clear shoving
thet inconsistency and unfairness would otherwise result." Ig. st 770. Such
“elear showing” hae not been made by XHALP, Thus, we decline fo pun sponte
invoke the construct of judicial estoppel. See ite, 109 Hawai't at S74 5-12,
128 Pisa at 667 n.22 (geclining co invoke judicial estoppel sua gnonte “based
upon the Fecord provided") (eleations omitted) -

 

 

 

    

® RC also raises on appeal that the 1itigation privilege ie not
applicable because (1) the Lawers oved fiduciary duties to FAC and (2) XRC
and KHALP were not truly adversarial to WOMUSA, Specifically, with reepect to
its latter contention, KRC argues that, “but for [the Layers’) intentional
fand unjustified interference with NOHUSA’s fiduciary obligations to ERC and
NALD, MOMUSA and IRC woula not have been adversarial.” ERC, however, does
not provide any authority to support ite former contention that, [bly virtue
of (the Lawyers) actively carrying out MOMUSA’s Administrative Partner

(cont inved,

 

 

 

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Inagmuch ae we have held that the litigation privilege
is applicable to preclude the claims asserted by KRC and KUALP
against the Lawyers, we need not address the remainder of the
Lawyers’ defenses raised in their motions to dismiss or for
summary judgment in the KRC Appeal and KHALP Appeal
Accordingly, we next address whether KIALP‘s clains against
Hultner and Witt were incorrectly dismissed by the circuit court.
8, Bis en

KHALP contends that the circuit court erred in
dismissing its complaint as against Hultner and Witt. As
Previously noted, see supra note 14, KHALP maintaine on appeal
that the clains asserted in ite complaint include: (1) tortious
interference with contractual relations; (2) “tortious inducement
of breach of fiduciary duty,” gee gupra note 19; and (3) unfair
methods of competition, see supra note 20. KHALP argues that
“[i}t is no defense that the tort [s] may have been committed on
behalf of the corporate entity by the agent acting in a

representative capacity.”

 

#(.. continued)
responsibilities in connection with XRC's inapection of KHALP's books and
yecords, the [Iawers) were acting ae attorneys in fact for both [MEALP) and
WOHUGA, “and therefore oved fiduciary duties to (KIALP) and ies partners,
including HRC." HRC's argunent that it and KHALP were not truly adversarial
Yo MOMUSA if likewise without nerit insemich ar ARC commenced the Partner
Arbitration against MOMUSA in order to initially pursue it claies that MOHUSA
breached certsin duties by. inter alia. failing to investigate and prosecute
claims of misnanagenent against the Mandarin Managers, prigr to the Lawyers"
involvenent that gave rise to the instant appes

 

 

 

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Preliminarily, Hultner and Witt point out that KHALP’s
complaint ‘does not allege any specific involvement of Hultner
and Witt in the document inspection process as the basis for
(aaLe’s] claim(s]." Nevertheless, Hultner and Witt contend that
KHALP’s claims fail as a matter of law because they cannot be
held liable for inducing or causing the entities that they
represent to breach fiduciary or contractual duties.
Specifically, Hultner and Witt argue that:

ome) hi
claims.

WONUSA, officers of (one of the entities consisting of che
Mandarin Managers), and to have acted on behalf of (one of
the entities consisting of the Mandarin Managers), and all

 
    

 

Sllecedly taken within their representative capacitiee =-
there is fo allegation that either acted for hie ova
Personal gain. Multner and Wite thus are legally incapable
(Of inducing oF causing the entities in which they represent
fo breach fiduciary of contractual. duti

Similarly, * (tortious) interference with contractual
relations” also requires there to be a ehird-party,
land apart from the principal-agent relationship.” (XHALP's]
‘attempr to re-charact
avoid the well:

 

 

 

  

(Citations omitted.) (Emphasis in original.) Moreover, Hultner
and Witt allege that KEALP’s assertion that they conmitted the
tort of tortious inducenent of breach of fiduciary duty “must
fail because Hawai'i does not recognize this novel cause of
action." Lastly, Hultner and Witt maintain that [i]t appears
(GIALP] has abandoned any claim for unfair competition as the

lolpening (blrief fails to address the claim.”

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SSS
Other jurisdictions have recognized that “employees or

directors of a corporation cannot be held personally liable for
tortious interference with a contractual or business relationship
of their own company unless such interference is caused by
actions taken outside the scope of their employment." In re
Verestar, Inc., 343 B.. 444, 484 (S.D.N.Y. 2006) (applying
Delaware law) (citations omitted); see Insituform Teche., Inc. vs
Reynolds, Inc, 398 F. Supp. 2d 1058, 1064 (B.D. Mo. 2005) (*A
corporate officer, acting within his or her authority, is
privileged to induce a breach of a corporate contract provided
that he or she uses no improper means, acts in good faith to
protect the corporate interest and does not act out of self

interest

 

(Internal quotation marks and citation onitted.);
Roselink Investors, LUC v. Shenkman, 386 F. Supp. 2d 209, 228
($.D.N.¥, 2004) (stating that “[a] corporate officer or director
generally cannot be liable for tortiously interfering with a
contract between the corporation and a third party") (internal
quotation marks and citations omitted); Keith v. Mendus, 661
N.E.2d 26, 36 (Ind. Ct. App, 1996) (stating that ‘an officer or
director of a corporation will not be held independently
Personally liable for inducing the corporation's breach of its
contract, if the officer or director's action is within the scope
of his official duties on behalf of the corporation") (citation
omitted); Reed v, Michigan Metro Girl Scout Council, 506 N.W.2d
231, 233 (Mich. Ct. App. 1993) (stating that “[iJt is now settled

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law that corporate agents are not liable for tortious

interference with the corporation’s contracts unless they acted
solely for their own benefit with no benefit to the corporation")

(citations omitted) .

 

That an officer or director of a corporation possesses
Limited immunity from most charges of torticus interference
with the corporation's contracts stems from both their role
fe agente of the corporation snd the nature of the fort. A
Party cannot “interfere” with its om contracts, so the tort
itself can be committed only by a third party. In the case
of a corporation, the legal entity acts through its
Gixectors and officers. Thus, when officers or directors
fact in thelr official capacity as agents of the corporation,
Ehey act not as individuals but as the corporation itself.
in doing to, they are not acting ae a third party, bot
yather as a party to the contract and cannot be personally
Liable for tortious interference with the contract.

conversely, shen directors or officers act outside the
scope of their official capacity, they no longer act
agents of the corporation end therefore act as a chizd
Party. Directors and officers who act outside the scope of
Eheir official duties therefore can be Held personally
Liable for tortious. interference with a contract.

the officers and directors of corporations

immunity from clains of tortious interference,
‘claim against the officers and sirectors cfs
corporation, [the plaintife] must not only allege the basic

 

 

 

 

  

elenents of tortious interference + Re must also
allege gone interfering act by ofticers or directors that
Fests cureide thelr authority as agents of the corperation.

ail v. Boys 2 Club o} st Indiana, 845 N.E.2d 130,

138-38 (Ind. 2006) (citations omitted) (emphasis added); see also
ituform Techs,, 398 F. Supp. 2d at 1065 n.2 (noting that,
“because an officer or agent of a corporation acting within his
or her official capacity is the corporation for purposes of the
tort, a corporate officer cannot be held liable for tortiously
interfering with the corporation's own contracte") (citation

omitted); Jones v, Lake Park Care Ctr., Inc., 569 N.W.2d 369, 377

(Jowa 1997) (same) .

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Se
In the instant case, KIALP does not allege that Hultner

and Witt acted outside the scope of their employment with MCHUSA
and the Mandarin Managers. As previously mentioned, KHALP’s
complaint alleges that:

38. MOMUSA, a6 Administrative Partner, through
Noltner and Witt, purportedly retained [the Lawyers] to
assist it in cartying cut ite duties ae Administrative
Partner with respect to [WALP’s) books and records, and in
Fesponding to [KRC's] request.

19." (At the sane tine, Miltner and Kite were acting
fon behalf of the Mandarin Manager in connection with the
Gisputes and requested arbitrations between KHALP and the
Mandarin Managers.

 

   

Ae pointed out by Hultner and Witt, it appears that “[t]he only
allegation of misconduct by Hultner and Witt contained in
OGALP’s clomplaint pertains to an alleged conspiracy against KRC
and KHALP in the retention of (the Lawyers] to participate in
Fesponding to KRC’s document request." KHALP, however, does not
allege that the action of retaining the Lawers with regard to
KRC's document request was outside the scope of Hultner’s and
Wite’s authority as corporate officers and directors of MOHUSA
and the Mandarin Managers. Moreover, KHALP fails to allege that,
by hiring the Lawyers, Hultner and Witt “acted solely for their
own benefit with no benefit to [MOHUSA].” Reed, 506 N.W.2d at
233. Consequently, KHALP has failed to state a claim of tortious
interference with contractual relations against Hultner and Witt
in their individual capacities. See In re Verestar, Inc., 343
B.R, at 484 (holding that, because the plaintiff did not allege

that the defendants acted outside the scope of their employment

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with respect to the plaintiff-s tortious interference claims, the
plaintiff failed to adequately plead a claim for relief).
Furthermore, as previously noted, KHALP does not
identify or explain the elements constituting its claim of
“tortious inducement of breach of fiduciary duty." See supra
note 19, In fact, KHALP does not present any argument on appeal
that this court should recognize such a novel tort. Id. As
such, we decline to consider whether to recognize such a new
claim for relief in light of the absence of any argunent to do
Lastly, as Hultner and Witt aptly point out, *{4)t
appears [KHALP] has abandoned any claim for unfair {methods of)
competition as the (o]pening [blrief fails to address the claim.
Tnasmich as KHALP has abandoned ite claim of unfair methods of

competition against Hultner and Witt on appeal, KHALP’s claim ie

 

deemed waived. See HRAP Rule 26(b) (7). Accordingly, we hold
that the circuit court did not err in granting Hultner and Witt’s

motion to diemies

 

© WGALP also asserts that, *[x]here corporate officers or directors
Participate in tortious conduct, ‘such as tortious interference with
Contractual relations, they are not shielded by the corporation and will be
Personally liable." ‘citing Bursess v. Arita, 5 Haw. App. 581, 704 P.24 930
(a985).) "We note, however, that MULP's reliance on Burcess io misplaced. In
Burgess, the issue before the ICA was not whether a corporate officer oF
Girector could be held liable for tortiously interfering with the

es sown contracts. Rather, the issue was whether s corporate
officer -- acting on behalf of » corporation ~~ could be held liable for
torticusly interfering with s contract entered into by third pai
App. at 583, 70¢ P.2d at 935. Inaemuch as the factual circunst
Burdese are’ clearly distinguishable from the facts of the incea
Burcess ie not germane to thie case.

 

 

 

 

   

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Having held that KEALP (1) failed to state a claim of
tortious interference with contractual relations against Hultner

and Witt in their individ

 

capacities, (2) did not present any
argument on appeal that this court should recognize the tort of
tortious inducement of breach of fiduciary duty, and (3)
abandoned its claim of unfair methods of competition, we need not
address the renainder of Hultner’s and Witt’s defenses raised in
their motion to dismiss in the KHALP Appeal. Accordingly, we
next examine whether the defendante in both appeals were entitled
to an award of attorneys’ fees against KRC.

Aktorneva’ Fees

KRC contends that the circuit court erred in granting

 

fees to (1) the Lawyers in the KRC Appeal and KHALP Appeal and
(2) Multner and Witt in the KHALP Appeal. As previously

discussed, the circuit court's orders granting fees and costs to
the KIALP defendants were entered against KRC -- a non-party to

the KHALP Appeal -~ beca\

 

according to the circuit court's
@isputed finding, KRC “instigated, controlled, and directed the
[KHALP Appeal] in the name of KHALP and had notice of the
lawouit.* ERC initially contends that it has standing to appeal
from the June 3, 2004 final judgment entered in the KIALP Appeal,
which judgment refers to the circuit court's orders granting fees
and costs to the KHALP defendants againet KRC. The KHALP
defendants do not contend otherwise with respect to KRC's
standing to appeal in the KHALP Appeal.

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‘This court has previously stated that:

Generally, the requirenents of standing to appesl are:
(Q) the person must first have been a party to the action;
(2) the person seeking modification of the order oF sudgeent
must have hed standing to oppore it in the trial courty ang
(3) such person mst be aggrieved by the ruling, 1

person must be one who ie affected or prejudiced by the
Sppealable order.

Kepo'o v, Watson, 87 Hawai'i 92, 95, 952 P.2d 379, 383 (1998)

(quoting Waikiki Malia Hotel, Inc. v. Kinkai Props., Ltd. P’ship,

78 Haw. 370, 393, 862 P.24 1048, 1061 (1993)) (emphasis added)

 

 

 

 

 

(internal quotation marks and brackets omitted). It is “[a]

well-settled rule . . . that only parties to a lawsuit... may
appeal an adverse judgment." Stewart Props, Inc. v. Brennan, &

Haw. App. 421, 433, 807 P.2d 606, 607 (1991) (citation and
internal quotation marks omitted) (second set of ellipses in
original). However,” *a non-party against whom judgment is
entered has standing without having intervened in the [circuit]
court action to appeal the [circuit] court’s exercise of
jurisdiction over him." Hal Roach Studios, Inc, v, Richard
Feiner & Co., 896 F.2d 1542, 1546 (9th Cir. 1990) (citations
omitted); see also Thompson v, Freeman, 64@ F.2d 1144, 1147 n.5
(8th Cir, 1961) (noting that, although the appellant was not a

party to the underlying action, it may bring its present appeal

 

“to contest the district court’s jurisdiction to bind it to the
terms of the court’s injunction") (citations omitted); 15A Cc.
Wright, A. Miller & EB. Cooper, Federal Practice & Procedure:
Jurisdiction and Related Matters § 3902.2, at 44324 (2006) ("The

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easiest cases for permitting nonparty appeal are those in which a
court order directly binds the nonparty by name.") (Footnote
omitted.) (Emphasis added.) .

In this case, the circuit court's orders granting fees

and costs to the KHALP defendante directly bound KRC by name.

 

Such orders were referred to in the final judgment in the KIALP

 

Appeal. Consequently, under the circumstances of this case, we

hold that KRC -- a non-party to the KHALP Appeal -- has standing

 

to appeal the award of attorneys’ fees against it without having

 

intervened in the circuit court action. We, therefore, next

 

 

address whether the circuit court's exercise of jurisdiction over

 

KRC was proper in the KHALP Appeal.

2, The Circuit Court’s Exercise of Jurisdiction Over ERC

in the KHALP Appeal

 

KRC contends that the circuit court erred in awarding
fees and costs to the KHALP defendants against KRC in the KHALP
Appeal because the circuit court did not have jurisdiction over
KRC to enter such an award against it. specifically, KRC argues
that:

KRC . ._. was never a party to the action below. It was
ever served with the complaint or gumons, No notions were
filed to bring it into ene action. It never made an
appearance. It did not participate in the proceedings below
in any way. It never hada real opportunity to contest the
(circuit) court's assertion of jurisdiction over it. The
cirevit court{,] therefore(,) haa no jurisdiction to enter
any ordere or judgments againet HRC (in the KIALP Appeal)

 

(Footnote omitted.) XRC maintains that, *{i]f the [KHALP

defendants] or the circuit court believed that KRC should be

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SSS
responsible for paying the fees and costs . . . , there are well-

established means for them to attempt to satisfy the judgment
against KRC. Entering a money judgment against KRC in a
proceeding to which it was not a party is not one of those
means."

The Lawyers, on the other hand, contend that “RC
voluntarily subnitted to the circuit court’s jurisdiction."
(Capital letters altered.) specifically, the Lawyers argue that:

XC eubnicted to, the surlediction of the circuit court
in pany ways. First, it filed the (closplaine in thie
action: "Second, KRC' appeared and argued in pposition to
all of {the Lawyere’] notions in (the KEALP Appeal) and in
Phe RC Appeal! KRC's counsel, Mr- (James) Bickereon,
appeared and argued at the [consoliaated) hearings; and, at
KRE'a Girection, JOALP's nominal lawyer (Mr. [John] Perkin)
aleo appeared and argued.” Indeed, Mr. Perkin'e office filed

art of its opposition to (the Lawyers") attorneys’ fees
motion in (the KHALP Appeal] a copy of IRC'e opposition to
(the Lanyers"] attorneys’ fees notion in the companion
cave(, Lie. the HRC Appeal!

 

 

 

 

(Citations to the record omitted.) The Lawyers also argue that,
at the consolidated hearing on the fee motions, *KRC’s counsel

+ declined the cizeult court's offer to permit KRC to submit
further briefing in opposition to [the Lawyers’] request for an
order requiring KRC to pay the fees awarded in the [KEALP
Appeal].* Noreover, the Lawyers agsert that “the circuit court
was not bound by the formal designation of parties in the
pleadings" and that *KRC wes undeniably the real party in
interest [.]* Lastly, the Lawyers maintain that, “[elven if RRC
wlas] not the real party in interest, its control over the

conduct of [the KHALP Appeal] subjected it to an award of

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attorneys’ fees." (Capital letters altered.) specifically, the
Lawyers allege that “a non-party is bound by a judgment where the
non-party controlled the proceedings." Hultner and Witt set
forth the same arguments made by the Lawyers on appeal.

In response, KRC contends that “there is no question
that KRC never made an appearance(] because it never invoked the
powers of the court for its own purpose.” Specifically, KRC
claims that:

[Clontrary to [the KMLP defendante’ assertions! xc aid
not *file" the [clomplaine in this case. KIALP, ‘through ite
own attorney, filed the [clouplaint, which asserted KIALD’s
‘own substantive legal elaine.” while KC did cause IAL? Co
initiace tne lewsuie, ie did soon behalf of the
Iplartnership and pursuant to the provision in the
Partnership Agreement that gave it authority to do sol.

Les, section 10.6.2"). Moreover, ana fictional extity, @
Darthership such ae MULP mist act through one of Les
Partners." The mere fact that KRC wae the partner that
Caused [iaiati) to file ite own la

Substantive legal clains does not ancunt to an sppearance or
voluntary submission to the court't jurisdiceion

 

   
 

KRC also argues that it was never served with the KHALP

 

defendants’ motions for fees. KRC further reiterates that it
“could not be added to the judgment even if it controlled the

case." KRC maintains that the KHALP defendants’ contention that
‘@ non-party is bound by a judgment where the non-party controlled

the proceedings is “baseless” inasmuch

 

such an exception to

 

wks previovsly noted, section 20.6.2 of the Partnership Agreenent,
which RC relies on for the proposition that it had the authority to initiate
the KHALP Appeal on betalf of KEALP, provides in relevant pert:

Notwithstanding anything herein to the contrary, (KRC] shall
be entitled, without (alpproval of any ther (piartner, to
exercise aii of the rignts and privileges of the owner of
the Hotel under, pursuant to or otherwise with respect to
the Managenent Agreement (a) and [GULP] "s deslinge with
Iwonusn} and (ite affiliates].

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the general rule that “a judament cannot be entered against a

Person over whom the court does not have jurisdiction “simply
does not exist” in the context of this case. KRC asserts that
“the main cases [the KEALP defendants] cite in support of their
purported exception concern the familiar doctrines of res
Judicata and collateral estoppel [.]*

Generally, *{i]t is elementary that one is not bound by
‘@ judgment in personam resulting from litigation in which he ie
not designated as a party or to which he has not been made a
party by service of process." Zenith Radio Corp, v, Hazeltine
Research, Inc., 395 U.S. 100, 110 (1969) (citing Hansberry v..
Lee, 311 U.S. 32, 40-42 (1940)); gee Romero v, Star Markets,
Ltd, 62 Hawai‘i 405, 412, 922 P.2d 1018, 1025 (App. 1996)
(same); see alec Haiku Plantations Ass'n v. Lone, 56 Haw. 96,
102, 529 P.2d 2, § (1974) (stating that, *[iJn order for the
decree of the lower court to be binding upon such [absent]
Persons, they must be made parties to the suit, either as
Plaintiffs or defendants") (internal quotation marks and
citations omitted). Other jurisdictions, however, have
recognized exceptions to the aforementioned general rule. One
such exception, relied on by the KHALP defendants in the instant
case, is that *[i]t has long been the rule that a nonparty who
controls the litigation is bound by the judgment. The reason
would be that the non-party would have the power to determine
what evidence and arguments should be offered in the litigation

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and, if appropriate, the appeal." Explosives Corp. of Amv.
Garlam Enters. Corp., 817 F.2d 694, 906 (1st Cir. 1987) (internal
quotation marks and citations omitted) (hereinafter, Explosives
Corp.J; see Montana v. United States, 440 U.S. 147, 154 (1979)
("One who prosecutes or defends 2 suit in the name of another to
establish and protect his own right, or who assists in the
Prosecution or defense of an action in aid of some interest of
his own is as much bound as he would be if he had been a party to
the record.*) (Internal quotation marks, brackets, citations,
and ellipses omitted.). Such an exception, however, is generally
applied in the context of collateral estoppel: “{A) non-party

may be bound by a determination in a prior action if the non-

party . . . substantially participated in the control of a
party’s presentation in the adjudication or had an opportunity to
do sol.]* Powers v. United Serve, Auto Ass'n, 6 P.3d 294, 298
(Alaska 2000) (citation omitted) (emphasis added); gee Mother's
Rest. Inc, v, Mama's Pizza, Inc., 723 F.2d 1566, 1572 (Fed. Cir.
1983) (stating that "[f]ederal courts have repeatedly held a non-
party may be bound by a judgment if one of the parties to the
earlier suit is so closely aligned with the non-party’s interests
as to be its virtual representative") (emphasie added) (citations
omitted); Restatement (Second) of Judgmente § 39 (2982) ("A
Person who is not a party to an action but who controls or

substantially participates in the control of the presentation on

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behalf of a party is bound by the determination of issues decided
as though he were a party." (Emphasis added.)).

Here, as previously mentioned, the circuit court
determined that non-party KRC was liable for the fees and costs
incurred by the KHALP defendant in the KHALP Appeal because KRC
“instigated, controlled, and directed the lawsuit in the name of

[KHALP] and had notice of the lawsuit." However, such @

% ‘the Lawyers on appeal rely on the following testimony by Perkin,
WALP's counsel, during the two-day hearing in the Partner Arbitration £6
substantiate the circuit court's finding that KRC controlled the Litigation in
the KIALP Appeal:

 

0: _[(zt de unclear from the record who was doing
the questioning.)]" And to the extent that you [(Perkin)]
Yepresent [WALA] in the [elircuit (clourt action that you
filed," (i.e, the TIALP appeal,] you take direction from
hich’ epokesperson or spokespersons from the client?

xr lay Perkin) "Heli. 1 take general direction with
xesard to the scope of my retention fron IKsG)

G:" " Ang have you discussed strategies with Hr:
Bickerton and Mr. (Jerrold) Chun [(KRC's other counsel),
have you? “Litigation strategies?

 

 

Ke “T'gon'e think 0

Q: Dig you tell them, sir, that you were planning
to file a motion for preliminary injunction?

Ke "Yes. Aad’ indeed, 1 showed them a copy of St
before I filed it.

(Q: And they gave you comments on it, did they?

Ri T'don't believe Mrs Chun =- maybe. T Gone
recall Mr. chun giving me sny coments.

‘or “How about kr. Bickerton?

Ko Yean

(Bephasis added.) MHALP had filed a motion for preliminary injunction,
seeking to vrestrain{) and enjoin{) (the KWALP defendante] from interfering
With KIALP’s access co ite own books and records[.]" ‘The motion was denied by
the circuit court, the Honorable Richaré Pollack presiding, on cune $, 2003.
The denial of the motion is not challenged on appeal.

 

 

‘The Lawyers also point to the following statenent sade by Perkin during
the consolidated hearing on the actions for fees and costs: “1 concede from

 

Hight end cover to direct ALP with regard to these laine” (enphasie
adsed.) Thus, contrary to KRC's aesertion, we believe that the circuit
Courts finding that HAC controlled the laweit in the KHALP Appeal is not
clearly erronecus

 

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finding merely supports the argunent that KRC should be precluded
from re-litigating certain issues that were decided in the KHALP
Appeal. The authorities relied on by the KIALP defendants do not
support the contention that a non-party controlling the
Litigation on behalf of the losing party may be held solely
liable in the place of that party for the fees and costs incurred
by the prevailing party in that same litigation. See Montana,
440 U.S. at 195 (stating that, “although not a party, the United
States plainly had a sufficient ‘laboring oar’ in the conduct of
the [prior] state-court litigation to actuate principles of
estoppel*) (citations omitted); Clase Plaintiffs v. city of
Seattle, 955 F.2d 1268, 1279 (9th Cir. 1992) (stating that “[iJt
has been held that bondholders are not necessary parties to and
axe bound by the decree -- even if adverse to their interests --
in Litigation wherein an indenture trustee under a bond issue is
a party and exercises in good faith and without neglect hie
contractual authority to represent and assert the lien securing
the issue") (citation omitted); Alman v. Danin, 601 F.2d i, 4-5
(ast cir. 1986) (holding that incorporators of an inadequately
funded corporation were jointly and severally liable for full
‘amount of judgment entered against corporation in an earlier
Proceeding). ‘The XHALP defendants algo rely on Explosives Corp,
in support of their argument that KRC should be held liable for
the fees and costs incurred by the KHALP defendante in the KIALP
Appeal. In that case, a subcontractor on a highway project

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brought @ diversity action against the general contractor,
alleging breach of contract. 617 F.2d at 695. The general
contractor counterclained for breach of contract. Id, After
trial, the subcontractor was found liable to the general
contractor in the amount of $2,423,177. Id, The general
contractor, however, argued that the parent corporation of the
subcontractor -- a non-party to the case -- should be held liable
for the damages awarded to the general contractor against the

subcontractor. Id, at 904. The United States Court of App

 

for the First Circuit (Piret Circuit) agreed, holding that the
parent corporation was liable for the full amount of the judgment
against the subcontractor and "must be substituted for [the
subcontractor] as the defendant to (the general contractor’ s]
counterclaim{.J* Jd, at $07. The Firet Circuit summarized ite
reasons for such a holding as follows

(the parent corporation] fron the beginning was the
controlling stockholder of [ehe subcontractor]; it succeeded
fo [the subcontractor’) interest in the lawsuit; (the
Parent corporation) becane tne real party in interest,
indeed(,] the only party in interest: (the parent
corporation) financed and controlled the litigation; and
{the parent corporation] ie found under the contract between
(the subcontractor] and [the general contractor] aa [the
Subcontractor’s) successor and 2 holding company of (the
Subcontractor] «

 

Id. The factual circunstances in Explosives Corp,, however, are
clearly distinguishable from this case. Specifically, KRC is not
the “controlling stockholder" of KIALP; it did not “succeed” to

YOULP's interest in the KHALP appeal. There is no indication in

the record that KRC financed the KHALP Appeal, and, as discussed

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more fully infra, KRC did not become the real party in interest
in the KHALP Appeal. Consequently, we believe that the KHALP

defendants’ reliance on Explosives Corp, is misplaced.

Moreover, the KHALP defendants’ contention that KRC was
sundeniably* the real party in interest in the KHALP Appeal and
that, therefore, it should be held liable for the fees and costs
incurred by the KHALP defendants is without merit. As previously

stated, the circuit court's findings in the orders granting fees

 

and costs to the KHALP defendants provide in relevant part

 

(2) Kn asserted she claims of OAL) in thie cai
(3) The complaint entstied (GULP v- Jones Day,

Aut, the HHALP Appeal,] was brought by FRC in the name of

{ouiie) to recover for purported iniury to MIALPI.}

 

(Bmphases added.) The foregoing unchallenged findings establish
that the claims asserted in the KHALP Appeal were KHALP’s clains,
not KRC’s claims, and were brought in order to recover for
KHALP’s purported injury, not for KRC’s purported injury.
Inasmuch as “HRCP Rule 17(a) ((2005)*] requires the prosecution
of an action ‘in the name of the party who, by the substantive
law, has the right sought to be enforced(,]‘* Lagondino v.
Maldonado, 7 Haw. App. $91, 596, 789 P.2d 1129, 1132 (1950)

(quoting 3A J. Moore, J. lucas & G. Grotheer, Jr., Moore's

™ acp Rule 17(2) provides in relevant part:

Bvery action shall be prosecuted in the name of the real

party in interest. An executor, administrator, guardian,
‘erustee of an express trust, a party with whom of in

je a contract has been nade for the benefit of

‘ora party authorized by statute my aue in its own

Bane without joining witn it the party for whose benefit the

action se Brought

    
    

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Federal Practice { 17.07 at 17-42 (24 ed. 1989), and KHALP has
“the right sought to be enforced” in the KHALP Appeal, it cannot
be said that KRC was the real party in interest in the KIALP
‘Appeal.

Furthermore, we do not believe that #RC “voluntarily
submitted to the circuit court’s jurisdiction with respect to
the KHALP Appeal. In Homero, the ICA held that the respondents
id not voluntarily submit themselves to the circuit court's
jurisdiction or waive their jurisdictional defense when they:

(2) actively participated at a hearing held by the circuit court
on the merits of their purported defenses; and (2) submitted a
request for an award of attorneys’ fees. 62 Hawai'i at 426-17,
922 P.24 at 1029-30. Here, contrary to the KHALP defendant:
assertions, KHALP’s counsel, Perkin, filed KHALP’® complaint. In
addition, KRC’s counsel, Bickerton, was present at the

and costs because of

 

consolidated hearing on the motions for fe
his representation of KRC in the KRC Appeal. At the hearing,

Bickerton stated that he had “never seen* the motions requesting
fees and costs in the KHALP Appeal and that he was never served

with such motions. Moreover, it appears that Perkin had simply

 

attached copy of ¥RC’s menorandum in opposition to the Lawyers‘
Request for fees in the KRC Appeal that Perkin’s office had
received from KRC. Thus, it cannot reasonably be said that KRC
voluntarily subnitted to the circuit court's jurisdiction with

respect to the KHALP Appeal case

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Accordingly, based on the foregoing, we hold that the
circuit court, in granting fees and costs in favor of the KHALP
defendants, abused its discretion by holding KRC responsible for
the payment of such fees and costs because the circuit court did
not have jurisdiction over KRC to enter such an award against
it." We next address whether the Lawyers in the KRC Appeal were
entitled to an award of fees against KRC.

‘The Basis for the Fee Award in the KRC Appeal

 

KC contends that the circuit court abused its
discretion by determining that the Lawyers should be awarded
attorneys’ fees pursuant to HRS § 607-14 because the instant

action was not in “the nature of assumpsit.” KRC argues that

 

"HRS § 607-14 provides for attorneys’ fees only when the primary
objective of the underlying action is to obtain monetary relief
for breach of a contract." KRC asserts that:

KRC filed the circuit court [1]awauit exclusively against
hon-parties to the Partnership Agreenent -- MOMUSA’s and the
Mandarin Managers’ attorneys.” The [firet ancnded complaint)
clearly asserted non-contractual claims and sought equitable
fang tort-based remedies against the [nawyers).

 

 

Based on the wrongful conduct alleged() in ite iplrayer for
([rlelief, ‘ac tought declaratory and injunctive relief to
Gisqualify the (Lawyers) from continuing to represent MOHUSA
fang the Mandarin Managers. KRC algo sought general and
Special compensatory damages, punitive damages, and treble
Ganages under HRS [elhapter 460. Clearly, treble an
Punitive damages are not renedice available for bre

 

ARC briefly states on appeal without more that the avard of fees and
costs against IRC in the KOALP Appeal "violate(a] KRC's fundanental due

process rights of notice and an opportunity to be heard." However, because we
hold that the circuit court errea in awarding fees and coste vo the YAALP
defendants against FIC in the KUALP Appeal, we need not adress the contention
‘that KRC's due process rights were violated.

 

 

 

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SSS

He is true that ARC alleged that (the Lawyers) owed
wnc various fiduciary duties and duties of good faith
arising from their representation of (KIALP]. owever, an
ection is not in the nature of assumpeit simply because «
Plaintiff's claine concern or relate to a contract,

Instead, the plaintiti's primary objective mist be to obtain
monetary relief for breach of the contract.

KRC primarily relies on this court’s decision in TSA
International, Ltd. v. shimizu Corp., 92 Hawai'i 243, 990 P.2d
713 (2999) [hereinafter, TSAI, in support of ite contention that
the instant action was not in the nature of assumpsit.

‘The Lawyers contend that the inetant action was in the

nature of assunpsit inasmich as *KRC concededly base(d] all of

 

its damage claims in this action on alleged duties arising solely
from (the Lawyers’) contractual relationship with MOHUSA[.]*

(Emphasis omitted.) Moreover, the Lawyere assert that KRC’s

 

amended complaint “seeks only economic damages based on the

frustration of KRC’s purported expectations under the agreements

 

for legal services between MOHUSA and [the Lawyers]." ‘The
Lawyers maintain that this court’s decision in Blair v. Ing, 96
Hawai'i 527, 31 P.3d 184 (2001), “is directly on point."

As previously noted, HRS § 607-14 provides in relevant
part:

In ail che courts, in all actions in the nature of

AEUMDEIE . . .. there shall be taxed as attorneys’ fees, to
be paid By the losing party and to be included in the sux

for which execution may ietve, a fee that the court
determines to be reasonable (|

 

 

(Bmphasis added.) See supra note 13. *‘Aesumpeit’ is a common
Jaw form of action which allows for the recovery of damages for

non-performance of a contract, either express or implied, written

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or [oral], as well as quasi contractual obligations. Blair, 96
Hawai'i at 332, 31 P.3d at 189 (some internal quotation marks,

brackets, and citation omitted) (format altered).

(t]n ascertaining the nature of the proceedings on
appeal, thie court hae locked co the essential character of
the underlying action in the (etreuit] coure’

‘he character of the action should be determined tron
the facts and issues raised in the complaint, the nature of
tthe entire grievance, and the relief sought. Where there ie
Goubt as to whether an action is in aseumpeit or in tore,
there is a presumption ehat the aust ie in assumpest
Purther, a plaintife's prayer for attorney fees ies
significant! indication that the action is in aesumpeit

Leslie v. Estate of Tavares, 93 Hawai'i 1, 5-6, 994 P.2d 1047,

1051-52 (2000) (citations omitted) (emphasis added). In

 

 

 

addition, "[t]he manner in which (the) plaintiff has
characterized the action may also be accorded some weight.
Larsen v. Pacesstter Sve. Inc., 74 Haw. 1, 51, €37 P.2d 1273,
3298 (1982) (citation onitted).

In TSR, the plaintiff general partner (TSA) brought
claims against the defendant general partner (Shimizu) primarily
stemming from allegations of fraud, breach of fiduciary duty, and
nunerous statutory violations relating to a loan workout
agreement to settle the partnership's debt, 92 Hawai‘i at 264,
990 P.2d at 734. Shimizu, as the prevailing party at the circuit
court level, had moved for an award of attorneys’ fees pursuant

to HRS § 607-14. The circuit court granted the request for fee:

 

Ad. at 251, 990 P.24 at 721. On appeal, this court reversed the

award of fees, concluding that the action was not in the nature

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of assumpsit. Id, at 264, 990 P.2d at 734. Specifically, this
court stated:

Although Shimizu argues that TSA’s clains are all predicated
‘upon the [loan workout agreement) and the partnership
agreenest, TSA's claine do sot involve monetary damages
Dated upon the non-performance of a contractual of gus
contractual obligation (i.e., breach of contract). ‘The mere
fact that TSA's Clains relate to a contract between che
parties does not render a dispute between the parties an
Sseumpeit action. Inetesd, T6h's claime for fYaud and
breach of fiduciary duty wound in tort.

 

izinie’case does not involve an attempt to collect
‘money danages based upon breach of contract. In facts it is
lndigputed in this case that there vas no breach of either
the [loan workout agreement) or partnership agreenent.
Instead, the dispute in ehis case stems fron TSA°2
allegations that: (2). (75A was) fraudulently induced by
Shimizu to enter into the [loen workout agreement] (2)
Shinizu's nondisclosure of the appraisals, which constituted
a breach of its fiduciary duty, caused TSA to mistakenly
enter into the (loan workout agreement); and (3)  (eicl
Runerous statutory causes of action(, including a claim of
unfair competition under HRS chapter 480). These
considerations compel us £0 reverse the circuit court’s
auard of fees

 

 

 

 

 

 

 

Id. (footnotes omitted); see Leslie, 93 Hawai'i at 7, 994 P.2d at
1053 (stating that, *{w)hen the recovery of money damages is not
the basis of a claim factually implicating a contract, the action
is not ‘in the nature of assumpsit’) (citation omitted); Lee v.
Aiu, @5 Hawai'i 19, 21-32, 936 P.24 655, 667-68 (1997)

(concluding that a claim for specific enforcement of an agreement
was not an action in the nature of assumpsit, even though the
claimant prayed for damages as alternative relief); cf. Kona
mntere., Inc. v, Estate of Bishop, 229 F.3d 877, 686 (sth Cir.
2000) (stating that, ‘where a party's breach of fiduciary duty
claim is based on the non-performance or breach of contractual

obligations and the complaint

 

ks damages flowing from that

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non-performance or breach, the claim would sound in assumpsit*)
(citations omitted).

In Blair, this court held that a professional
salpractice action, alleging claims of breach of implied contract
and negligence, was in the nature of assunpsit for purposes of
awarding fees pursuant to HRS § 607-14. 96 Hawai'i at 333, 31
P.3d at 190. Both clains were premised on the allegation that
the defendant accountant, in providing tax return preparation

 

failed to take advantage of certain estate planning
techniques that resulted in the loss of savings in excess of
$200,000. Id, at 332, 31 P.3d at 189, This court stated that,
“(bJecause the negligence claim in thie case was derived from the
alleged implied contract and was inextricably linked to the
implied contract claim by virtue of the malpractice suit,

. it is impracticable, if not impossible, to apportion the
fees between the assunpeit and non-assumpeit claine.” 1d, at
333, 31 P.3d at 190. Moreover, thie court also considered the
fact that "the danages alleged were more closely akin to contract

damages than to tort damages because they were economic damages

 

arising out of the alleged frustrated expectation that [the
defendant accountant] would take advantage of certain tax-saving
devices.” Id, at 332-33, 31 P.3d at 189-90 (citation omitted) .
‘Thus, this court concluded that, based on the complaint, the

“escential character” of the action against the defendant

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accountant was ‘in the nature of assumpsit,” as provided under
HRS § 607-14. Id. at 333, 31 P.3d at 190.

In the instant case, the following claims for relief
were alleged against the Lawyers in ERC’s anended complaint:
(2) unfair methods of competition; (2) I1CR; and (3) TIPEA.
Although the Lawyers essentially argue on appeal that KRC’s
claims are predicated upon the contractual agreements for legal
services between the Lawyers and MOHUSA, KRC’e claime do not
involve monetary damages based upon the non-performance of such a
contractual or quasi-contractual obligation. In fact, KRC does
not allege that there was a breach of the contractual agreenents
for legal services between the Lawyers and MOHUSA. Instead, a
previously stated, KRC primarily requested (1) a declaration that
the Lawyers were disqualified from representing MOHUSA and the
Mandarin Managers in connection with their dieputes with KHALP or
KRC and (2) an injunction (a) preventing the Lawyers from
representing MOHUSA and the Mandarin Managers in connection with
their disputes with KHALP or KRC and (b) ordering the Lawyers to
turn over all their files relating to the work done for MOHUSA
and the Mandarin Managers with respect to any matter involving
KHALP or KRC to KRC. Although KRC also requested money damages,
such a request does not appear to be based upon the non-
performance of a contractual or quasi-contractual obligation.
The “mere fact" that KRC’s claims relate to contracts between
MOHUSA and the Lawyers does not render a dispute between the

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parties in the nature of assumpsit. See TSA, 92 Hawai'i at 264,
990 P.2d at 734. Pinally, inasmuch as KRC does not assert claims
of breach of implied contract and negligence, the Lawyers’
assertion that Blair ‘is directly on point’ is without merit.
‘Thus, based on KRC’s amended complaint, the “essential character”
of the instant action is not in the nature of assumpsit, as
Provided under HRS § 607-14. Accordingly, we hold that the
circuit court abused its discretion in granting fees to the
Lawyers in the KRC Appeal.
IV. CONCLUSION

Based on the foregoing, we affirm the June 3, 2004
final judgments entered in appeal Nos. 26669 and 26670 in all
respects except: (1) based on our holding that the circuit court
abused its discretion in granting attorneys’ fees to the Lawyers
in appeal No. 26669 because the underlying action was not in the
nature of assumpsit, we reverse the award of fees as determined
in the June 3, 2004 order and referred to in the June 3, 2004
final judgment entered in appeal No. 26669; and (2) based on our

and

 

holding that the circuit court, in granting attorneys’ f
costs in favor of the KHALP defendants in appeal No. 26670,
abused its discretion by holding KRC responsible for the payment
of such fees and costs because the circuit court did not have
jurisdiction over KRC to enter such an award against it, we
reverse the award of fees and costs as determined in the June 3,
2004 orders and referred to in the June 3, 2004 final judgment

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entered in appeal No, 26670 without prejudice to the KHALP

defendant:

 

refsling a request for fees and costs if they so
chooee for redetermination by the circuit court in light of our

decision today.
on the briefs Yy lors
Matthew J. Vicla for
plaintiff-appellant Kahala Laz DpZén'
Royal Corporation in

appeal No. 26669 and as
perey in incerene seeoh ane Rats OM ereusparre

28 appeal wo, 26670
Kone bs ye

Susan M. Ichinose for ser

plaintift-appellant Kahala j

Hotels Associates Limited Bebine

Partnership in appeal Nov

26670

William A, Bordner and
John Reyes-Burke (of Burke
McPheeters Bordner & Eates) ,
for defendants-appellees Jones
Day and Alan E. Priedman in
eppeal Nos. 26669 and 26670

John S. Nishimoto and Calvin g.
Young (of Ayabe Chong Nishimoto
Sia & Nakamura) for defendant-
appellee Goodsill Anderson
Quinn & stifel in appeal Nos.
26669 and 26670

A. Bernard Bays and Sharon E.
Har (of Bays, Deaver, Lung, Ros

& Baba), for defendants-appellants
Wolfgang Hultner and John wite

in appeal No. 26670

one