Case Title: First Hawaiian Bank v. Radomile

Citation: 

Docket Number: 

State: hawaii

Court: Hawaii Supreme Court

Date: 2005-10-12T00:00:00Z

Document:
LAW LIB FAs

‘+**NOT FOR PUBLICATION***

 

No, 25110

IN THE SUPREME COURT OF THE STATE OF HAWAI'I

7
FIRST HAWATIAN BANK, Plaineite = BL

‘ 33.2 =

ee oS OF

MARCO A. RAOOMILE, in nis individvar Zag ye
Capscivy, oefendent-appetians BSS
and =

JAMES PARK, as Trustee of Dissolved Corporation
JAMES & CECILE, INC., Defendant-Appellee

and

COLONY SURF DEVELOPMENT CORPORATION; COLONY WEST, INC.;
CHARLES J. BARKHORN, JR., also known as CHARLES JOHN
BARKHORN, JR., JOHN BARKHORN, and CHARLES JOHN BARKHORN;
MARCO A, RADOMILE, as Trustee of the Charles J. Barkhorn III
Trust Dated August 3, 1994; MARIA JUAREZ MEDETROS; KURT
KAWAFUCHI,? in his official capacity as DIRECTOR OF TAXATION OF
THE STATE OF HAWAI'I; LIBERTY HOUSE, INC.; CHILD SUPPORT
ENFORCEMENT AGENCY, STATE OF HAWAI'I; BANK OF HAWAII; TOUCHSTONE
MANAGEMENT, INC. ; JOHN DOES 2-20; JANE DOES 1-10;

DOE PARTNERSHIPS 1-207 DOE CORPORATIONS 3-20; DOE ENTITIES
1-20; and DOE GOVERNMENTAL UNITS 1-20, Defendants

 

 

JAMES PARK, as Trustee of Dissolved Corporation,
JAMES & CECILE, INC., Cross Claimant~Appellee

MARCO A, RADOMILE, in his individual capacity,
Cross-Claim Defendant-Appellant

and

 

Pursuant to Hanai‘s Rules of Appellate Procedure Rule €3(c} (1),
kurt Kawatuehi, the current Director of Taxation of the State of Mawai's, ha
been substituted for Ray K. Kanikeus, the director at the time this case was
Gecided by the first circuit court

 

 
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COLONY SURF DEVELOPMENT CORPORATION, MARCO A. RADOMILE,
as Trustee of the Charles J. Barkhorn III Trust Dated’
August 3, 1994, Cross-Claim Defendants

 

APPEAL FROM THE FIRST CIRCUIT COURT
(CIV. NO. 95-3848)

SUMMARY DISPOSITION ORDER
(By: Moon, C.J., Levinson, Nakayama,
Accba, and Duffy, JJ.)

 

Defendant /Cross-Claim Defendant-Appellant Marco A.
Radomile (Radomile) appeals from the Septenber 10, 2002 second
amended final judgment of the cizcuit court of the first circuit?
(the court), ruling in favor of Defendant /Cross-Claimant-Appellee
James & Cecile, Inc. (JCI) and against (1) Radomile, both as
Trustee of the Charles J. Barkhorn III Trust dated August 3, 1994
and in his individual capacity, and (2) Cross-Claim Defendant
Colony Surf Development Corporation (Colony Surf) on JCI’s
fraudulent concealment cross-claim, Counts I and II. For the
reasons stated herein, the September 10, 2002 second amended
final judgment is affirmed.

On August 2, 2000, the court entered the following
relevant findings of fact and concluaions of law:

euiucs oF pact

2." nd cross-claim nerein arises out of a dispute
concerning @ commercial lease agreement for a 12,556 square
foot space thereinafter “Commercial Space") in a’ bullding
known a5 the Colony Surf East, which is located at 2885
Kalakaua Avenue in the City and County of Honolulu, state of
Hewes.

 

 

‘The Honorable Gary W.B. Chang presided.

2
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@. on oF about January 1, 1994, Colony surt
Development (as the landlora} entered’ into 210 year lease
[hereinafter “Grill Lease") for the Commercial space with
Tocchstone Management, Inc. [(Touchstone) ] (as the tenant).
Seon oF about August 8, 1994, [First Hawaiian Bank
(the pank)) notifies Colony Surf Development of its position
that. [the Bank's] consent to the Grill Lease was required
lunder various mortgage agreements between [the Bank] and
Colony Surf Developsent. .

 

 

 

   

 

 

in! ‘oh or about Novenber 15, 1994, (the Bank] and
Colony Surf Development entered into a Restructuring
Agrecnent, which consolidated and restructured Colony Surf
Development's éebt

TR the Restructuring Agreement contained,

Anter alia, ‘the following provisions: (Sections 17.3,”
ty 23)

is
the sureau of Convevances of the State of Hauail

Te, Subsequent £9 the date of the Restructuring
Agreement, Jel entered into negotistions with Colony Surt
Development for JCI to lease the Conmercial Space

Thr colony. Surf Development. was represented by ite
agent, Radonile, in negotiations with JCI.

18. sci did retain attorney David Fong for the
Linited purpose of reviewing the proposed drafts of what
Ultinetely became the Space Lease, which he (attorney Fong)
dig accomplish in s coapetent manner.

{Sr Eventualay, on April 27, i995, Colony Surf
Deveiopment. (a landiced) and JcT (as tenant) entered into a
Io year lease (hereinaiter "space Lease") agreement for the
Commercial space

0. Radomile executed the Space Lease on behalf of
colony Surf Development.

‘at. ‘under the terms of the Space Lease, JCI was,
required te construct, at its sole cost and expense, all
Interior inprovements to the Comercial Space, the hard
costs for ahien wes not be less then $500,000.00.

 

 

 

 

22. 0
to the Space Lease transection.

3 7
ict was interested ina Lona term Tease for lo-veara (with

Sn option for snother consecutive 10 year term thereafter),
hot a snort term lease for no nore then 3 yearss
particularly in Light of the requirement that SCT expend not
Tens than $400, 000-00 for tenant isprovenent

2° beset te ex's execution

 

 

fe Gnace Lease transaction

25. Prior to the execution of the Space Lease,
Radomiie knew that Jci was about to enter into the Space
Lease casea upon mistekes of facts that were basic to the
transaction and that

 

 

a have axcected

 
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Janse nor incurred expenses for tenant improvenents in the
Sou of sien sis gu, if Te (ict) were informed of
‘ndlsclosad facts thes were basic to the Spare Lease
‘Meansagtion’
27. Colony Surf Developeent entered into the Space
Lease with JCI without [the Benk’s) prior written consent.
26. ‘Therefore,

gag to ich
23. Kadonile's breach wes a leas] cause of danace to
ach.
30. JCI"s total special damages s2 $163,509.20.

32! there is eutticient evidence to show that Radomile
acted wantonly oF oppressively or with such malice as
Inplies « spirit of mischief cr criminal indifference to
Givil obligations by failing to disclose material
Snformation to UCT during the negotiations

 

 

 

‘othe who fails to aisciose to another # fact that he
knows may justifiably induce the cther to act in a business
Efansaction 15 subject to the sane Liability to the other 3s
though he had represented the nonexistence of the natter
that he has failea to disclose

5."Ser ‘ie encited co an avard of special damages
against Colony Surf Developaent, Trustee end Radonile,
{kuivigusily, joint and severally in the anount of
$163,509.20.

 

Frond

Clote-claim Plaintife JCT is entitled to judgeent

on the crossvclaiz in its favor and against cross-claim

Gefendants Colony Surf Developnent, Trustee and Radomile,
ndividually, joint and severally in the amount of

163,509.20

  

   

 

(Emphases added.)

on appeal, Radomile argues that findings nos. 15, 18,
24-26, 28-30, and 32 “are clearly erroneous and not support (ed)
by the substantial evidence elicited during the bench trial” and
that conclusions nos. 3-5 “are wrong.” Findings may be

overturned if clearly erroneous. See Bremer v, Weeks, 104

Hawai'i 43, 51, 85 P.3d 150, 258 (2004) (“[T]his court reviews
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the trial court’s findings of fact under the clearly erroneous

standard.”). Conclusions of law are reviewed de novo under the
right/wrong standard. Leslie v. Estate of Tavares, 91 Hawai't

394, 399, 984 P.2d 1220, 1225 (1999).
Restatement § 551(1) applies and provides as follows:

(1) One who fails to disclose to encther 2 fact that: he
knows nay justifiably induce the other to act or refrain

  

from acting in a business transaction a
pene the hast ,
i he.
Regtatement (Second) of Torts § 551(1) (1977) [hereinafter
Restatement) (emphasis added). Because conclusion no. 4 is an

accurate reiteration of Restatement § 551(1), which this court
adopted in Molokoa Village Dev, Co, v. Kauai Elec, Co., 60 Haw.
562, 593 P.2d 375 (1979), Radomile’s challenge to conclusion no.
4 ds unfounded.

‘The first element for the tort of nondisclosure is the
failure to disclose. The court made this determination in
finding no. 24, Radomile challenges finding no. 24" as clearly
erroneous to the extent that “the [) Agreement, specifically, the
consent provision, was not a fact basic to the transaction.” To

the contrary, @ “basic fact” at issue was that the Lease was

+ Ragomile algo challenges the related finding no. 28 that “Radonile
breached his uty to disclose oned to Scr.” He contests this finding by
Grgeing thar “it}here ia no evidence thst demonstrated [JCr] relied on
Recomiie for information, sr that Radomile held hinself out as (JCI"a)
fiduciary.” These arguments are scdressea intra.

5

     

 
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subject to Bank consent. ‘Thus, Radomile’s contention that
finding no. 24 is clearly erroneous, then, is wrong.*
The second element of the tort inquires as to whether

Radomile knew that failure to disclose the consent requirément

vmay [have] justifiably induce[d]” JCI from refraining to act “in
2 business transaction,” or, stated in the alternative, whether
Radomile knew that failure to disclose “may [have] justifiably
induce[d]” JCI to act “in a business transaction.” Restatement
$ 551(1). Radomile maintains that finding no. 26 is clearly
erroneous “because there were no undisclosed facts that were
basic to the transaction.” But Radomile does not challenge
finding no. 23, in which the court found “Radomile knew during
the lease negotiations that JCI was interested in a long term
lease for 10 years (with an option for another consecutive 10
year term thereafter), . . . particularly in light of the
requirement that JCI expend not less than $500,000.00 for tenant
improvenents.” There was substantial evidence to support this
finding inasmuch as James Park (Park), founder of JCI, testified
that, had he known about the consent requirement, he would not

the

 

have entered into the Lease. Radomile’s failure to disclo
existence of the consent requirement in the Agreement may have
“helped induce” JCI to agree to lease the premises and to

$500,000 in tenant improvements resulting, subsequently, in

 

Based upon the sane analysis regarding finding no. 24, Radomile’
objection to. finding no. 32, that “it incorporates the prior finding that. he
Gig faill) to disclose material information to [JCI,]" must also be rejected.

6

 
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a s

actual damages suffered. Thus, finding no. 26 is not clearly

erroneous. See Pancak wait, 0 .

 

85 Hawai's 300, 944 P.2d 97 (App. 1997) (holding that a lessor
had a duty to disclose pursuant to subsections (b) and (c) of
Restatement § 551(2))

As to finding no. 29, which states that “Radomile’s
breach was @ legal cause of damage to JCI[,]" Radomile contends
that the Lease “was extinguished not because the Bank withheld
consent, but because it was subordinated to the four recorded
mortgages encumbering the Hotel and [JCI] did not seek or obtain
2 non-disturbance agreement from the Bank.” But JCI maintains
that “[t]he lease provision that mandated JCI to make interior
improvement was the legal cause of the damages in the amount of
$163,509.20.” Park testified that he would not have entered into
the Lease, nor actually expended money on the improvements, if he
had known about the consent requirement. The court apparently
found Park’s testimony to be credible; thus finding no. 29 is

owed “due regard” and is not clearly erroneous. Lanai Co, vw.

* scr contends that “[the foreclosure action was definitely not the

cause of damages regarding the monies and costs of the interior improvenent:
Te argues that

 

[nlypethetically, even seeuning arguendo that JCI would have
entered into the’ 1 diese of the length of the
Tease, bas Sci known sbout the lencth of the Jesse, it could

z Sothse Te muse nak

iid: The Iease provision that mandated
Gntefior inprovenent was the legal cause of di th the
ancunt of 163,503.20. Being that 3 reasonable finder of
fect can #0 find, chere is no evidence of any error, let
alone eny clear error by the finder of fact.

 

 

 

o make

      

   

   

(Emphasis added.)
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and Use Comm'n, 105 Hawai'i 296, 307 0.23, 97 P.3d 372, 383 0.23
(2004) ("*Findings of fact shall not be set aside unless clearly
erroneous, and due regard shall be given to the opportunity of
the trial court to judge of the credibility of the witnesses./”)
(Quoting Hawas's Rules of Civil Procedure Rule 52(a).).

The final element of an action under § 551(1) is that
the defendant had a duty to exercise reasonable care to disclose.
Restatenent § 5512) refers to five modes of such a duty. This
appeal concerns the fifth mode stated in § $51(2) (e).

Restatenent § 551(2) (e) provides as follows:

(2) One party to a business transaction is under a
. To the other
Before the transaction 1s consummati

 

je) Zacte basic co the transaction, if he knows that
{Rtartand that the other, Seceuse of the Telationahip
between them, the customs of the trade or other objective
circumstances, would reasonably expect a dlaclogure of those
fects

 

(Emphases added.)
The first step, then, in determining whether Radonile
owed a duty involves identification of facts basic to the
transaction. It is undisputed that the transaction involved the
letting of 2 lease to JCI for the purpose of establishing 2
restaurant business. As a condition of the lease JCI was
required to “construct, at its sole cost and expense, all
interior improvenents to the premises], the hard costs for which
was not to be less than $500,000.00." Finding no. 21. Radomile
does not challenge finding no. 23 that JCI was interested in a

“long term lease” “in light” of the obligation to make
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oy

$500,000.00 worth of improvements. He does not contest JCI’s
assertion that the “length of the lease is directly relevant to
how mich a lessee would agree to invest so as to improve (the
lessor’'s} premise(s].” He also does not challenge finding no.
22, to the effect that the term of the lease was a fact basic to
the transaction. The interrelationship of finding no. 22 and no. |
23 is that the term was related to the obligation to make
improvements of a specified amount. The ten-year term itself,
moreover, was dependent on @ basic fact that was not disclosed.
Radomile does not challenge finding no. 8, which
establishes that the commercial space was the same space
previously leased to Touchstone on or about January 1, 1994. The
necessity of the Bank's consent, then, was a fact basic to the
transaction, inasmuch as the length of the lease was tied to the
obligation to make improvements. The consent requirement was a
fact that went to the “basis, or essence, of the transaction.”
Restatement § 551 cmt. J.’ In finding no. 27, which is not

disputed, the court stated that “Colony Surf Development entered

 

According to the official comments to § 551(2) (e),

lal basic fact is a fact that 12 assumed by the parties as a
basis for the transaction steelf. [tig a fact thet aes 29.
Secor fhe sabes shat is bat

Egle with Ocher facts say serve a inportant ana
persuasive inducerents to enter into the transaction, but,
fot go to ste ereence. These facts may be material, but
They"are not basic. if the parties expressly of impliedly
Elace the risk as to the existence of a fact on one party or
Te the law places it there by custom or othervise the other
porty nas no duty of cisclosure

 

Restatement § 551 ont. 3 (emphasis added)

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into the Space Lease with JCI without (the Bank's] prior written
consent" and as declared by the court in finding no. 28, that
“(t}nerefore, Radomile breached his duty to disclose{.)* Third
party consent has been detezmined a fact basic to a lease
transaction. See Apte v. Japra, 96 F.3d 1319, 1321 (9th Cir.
1996).

With regard to the second element under Restatement
§ 551(2)(e), the court found, in finding no. 25, that “Radomile
knew that JCI was about to enter into the Space Lease based upon
mistakes of facts that were basic to the transaction[.]”
(amphasis added.) Radomile posits that Bank consent was not
necessary because the Lease fell within the “ordinary course of
business” exception to consent in the mortgages. However,
Radomile knew that the Bank refused to consent to the prior
Touchstone lease of the sane commercial space for a similar ten-
year term, This was evidenced by section 17.3 of the Agreement,
to which Radomile was a signatory. Radomile also knew that under
the Agreement, the Bank would consent to a lease with a three:
year tern of the commercial space to Touchstone, but that it
would not consent to a longer term or a term that lasted beyond
October 31, 1997.

Radomile, then, had knowledge that JCI was entering the

 

Lease, agreeing to make improvenents, upon the mistaken belief
that it had received a ten-year term with an option to renew for

another ten years. Hence, the court's finding that Radomile knew
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eee
Park was proceeding under a mistake was supported by substantial

evidence. Thus, finding no. 25 is not clearly erroneous.
The final step in resolving the question of duty under
§ §51(2) (e) rests on whether JCI would “reasonably expect” that
Radomile would disclose an external agreement that might impact
the ten-year lease. Radomile does not address the reasonable
expectation elenent directly.* However, under the Restatement
§ 951, “ehen (the defendant] knows that the [plaintiff] is
unaware of the fact, could not easily discover it, would not
dream of entering into the bargain if he knew and is relying upon
the [defendant's] good faith and common honesty to disclose any
such fact if it is true[,]" “the plaintiff is entitled to be
compensated for the loss he has sustained.” Restatement § 551

is added) .

 

emt. 1 (enph

In that regard, JCI could “reasonably expect” Radomile
to disclose the existence of an agreement that might impede the
ten-year term under the Lease. First, Restatement § 551(2) (e)

does not employ the term “fiduciary.” The duty based upon a

+ Ragomite challenges finding no. 18, which states, t
that "ocr did retain sttorney Davia Fong for the limited purpos
the proposed drafts of what ultimately Secane the Space Lease, which he
(attorney Fong) did accomplish in a competent manner.” Radomile argues that
ENSese STRAY ceteneoue” because "Fong was retained for more than just
to review the Space Lease,” He cites to various testimony, including
Etatenent that Fong was hired to "conduct seme sort of due diligence.” He
alee asserts that Fong “did not discharge his duties and responsibilities in
Competent fashion.”

Rocever, Radomile does not clarity how finding no. 18 has any
bearing upon his liability for nondisclosure, Moreover, it appears that the
Court's determination ae to the scope of Fong's services and his competency
Were besed upon teetineny by Feng and fark at trial. Finding no. 18 is owed
“Sue resaré.”" Langi-co. v. Lang Use Comm'n, 105 Hawai'i 296, 307 n.23, 97
pois Sof; 983 coda (200d). in Iight of the evidence adduced, it cannot be
Seid that the finding wee “clearly exroneous-"

      

 

 

   

 

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fiduciary relationship is described in § $51(2) (a). Radomile
was, in effect, JCI’s “sole source of information regarding” the
consent requirement. While the mortgages encumbering the Hotel
referenced the Agreement and were filed with the Bureau of
Conveyances, the Agreement itself was never so filed.’ Hence,
UCI did not have “an equal opportunity,” Restatement § 551 cmt.
k, to learn about the consent requirement.

Therefore, the court correctly determined in conclusion
no. 3 that “Radomile owed JCI a duty to exercise reasonable care
to disclose to JCI, before the Space Lease was executed, all
facts that were basic to the transaction.” In not disclosing the
consent requirement, Radonile was “subject to the same liability”
to JCI as “though he had represented the nonexistence.of the
matter[.]” Restatement § 551.

Finding no. 30 states that “JCI’s total special
Gamages is $163,509.20.” Radomile requests @ remand for the
court “to explain or otherwise justify how the damages were
calculated.” In its answering brief, JCI argues that Radomile’s

“assignment of error is again defective,” and Radomile “does not

 

 

* ., Radomile asserts that finding no. 15 is clearly erroneous because
vit inplies that’ [the existence of the Agreement] was not s matter of public
record” when, instead, “the {] Agreenent was prominently referenced in each of
the four recorded sorégages.” He argues that there "should be no difference
between” “whether tne docusent was ‘filed’ at the Buresy of Conveyance and
Whether it was simply referenced in a related filed document,”

But finding no. 15 is not clearly erronesus. Radonile does not
Geny that the Agreement was not “filed.” That the document was not filed is @
factor in the determination of whether JCI "could not essily discover” the
document for ieself-

 

 

 

 

 

Radonile’s challenge here siso encompasses hie challenge to
conclusion no. s

12
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ee
even address any objections he made on the record with respect to

evidence[.]” Hawai'i Rules of Appellate Procedure (HRAP) Rule
28(b) (4) requires appellants to “show where in the record the

alleged error occurred and where it was objected to," along with

 

other requirements “where applicable.” Radomile argues that the
court's calculation of special damages was “unsupported by the
evidence at trial(,]”" but he does not identity the evidence that
was presented to calculate damages, nor does he explain why the
evidence was insufficient. Thus, his challenge to the amount of
special damages as determined in finding no. 30 need not be
addressed. See HRAP Rule 26(b) (4) (“Points not presented in
accordance with this section will be disregarded, except that the
court, at its option, may notice a plain error not presented”).
Moreover, the record indicates that there were approximately
sixty-five exhibits related to damages. This court need not
review each of these exhibits to decipher the ones Radomile
believes were questionable. See Lanai Co., 105 Hawai'i at 309
n.31, 97 P.3d at 385 n.31 (“This court is not obligated to sift
through the voluminous record to verify an appellant's
inadequately documented contentions.”).

Finally, Radomile argues that the court committed
reversible error when it refused to take judicial notice of
purported judicial admissions by JCI regarding the following
statements made by JCI in previously filed menorenda:

1. The subject Lease executed between (JCI] and Colony
Surti] for the ipremises) was within the ordinery
Gourse of (Colony Surf's) business

3
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ry prerequisite

 

 

2. (The Bank's) consent was not a neces
to the Lease, thus, it was irrelevant.
3. [The Bank] Bad no right £9 preapprove the. Le

(Citations omitted.)

Crs statements as to the Lease were not facts that
fell within the designated categories of “generally known,”
“capable of accurate and ready determination,” Hawai'i’ Rules of
Evidence (HRE) Rule 201(b) (2003), nor of “common knowledge,”
State v. Arena, 46 Haw. 315, 341, 379 P.2d 594, 609 (1963).
lence, the statements were not proper for judicial notice under
HRE Rule 202 (e).

Radomile argued that JCI’s “judicial admissions made
previously in this action bind [JCI].” (Emphasis added.) In his
opening brief, he argues that JCI “should not be allowed to
reverse course to meet its present litigation goals.” The
doctrine of judicial estoppel “estops a party from assuming
inconsistent positions in the course of the same judicial
proceeding.” Hosa v, CW Contractors, Ltd., 4 Haw. App. 210,
219, 664 P.2d 745, 752 (1983). However, the doctrine “does not
preclude a party from pleading inconsistent clains or defenses
within @ single action." Id. See Hawai'i Rules of Civil
Procedure Rule 8(e) (2) (1998) ("A party may set forth two or more
statements of 2 claim or defense alteratively or hypothetically,
either in one count or defense or in separate counts or
defenses." (Emphasis added.)). Thus, JCI could assume
alternative positions. Therefore,

In accordance with HRAP Rule 35, and after carefully

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reviewing the record and the briefs submitted by the parties, and
duly considering and analyzing the law relevant to the arguments
and issues raised by the parties,

IT IS HEREBY ORDERED that the court's September 10,
2002 second amended final judgment is affirmed.

DATED: Honolulu, Hawai'i, October 12, 2005.

on the briefs:
Richard £. Wilson! for Porter
Defendant /crose Claim .
Defendant-Appeliant Sec Girloc sae
Marco A. Radomile.

Gary ¥. Shigemura and Pecsetes Cente AEE
Junsuke Otsuka for

Defendant /Cross-Claimant~

Appellee James & Cecile, , aN
Ine.