Case Title: Association of Apartment Owners of Maalaea Kai, Inc. v. Stillson. Dissenting Opinion by J. Nakayama with whom C.J. Moon joins. [pdf].

Citation: 108 Haw. 2

Docket Number: 

State: hawaii

Court: Hawaii Supreme Court

Date: 2005-07-22T00:00:00Z

Document:
LAW LISRARY

 

FOR PUBLICATION***

IN THE SUPREME COURT OF THE STATE OF HAWAI'I

 

00:

 

ASSOCIATION OF APARTMENT OWNERS OF MAALABA KAI, INC.,
Plainté¢f/Counterclain Defendant~Appellant

‘THOMAS HAYDEN STILLSON; PHYLLIS ANN PAYNE-STILLSON,
fka PHYLLIS ANN PAYNE, Defendants/Counterclaimants-Appellees

and

PIONEER FEDERAL SAVINGS BANK; JOHN DOES 1-50;
JANE DOES 1-507 DOE PARTNERSHIPS 1-50; DOE

  

CORPORATIONS 1-50; DOE ENTITIES 1-50 and DO 2
GOVERNMENTAL UNITS 1-50, Defendants |

(Nos. 23932 6 24257) ge of oa

ER OE

no. 23932 23 §
APPEAL FROM THE SECOND CIRCUIT COURT iF
(CIV. NO. 96-0782) 3

guLY 22, 2005
LEVINSON, ACOBA, AND DUFFY, JJ.; AND
NAKAYAMA, J., DISSENTING, WITH WHOM MOON, C.J., JOINS
OPINION OF THE COURT BY ACOBA, J.

We hold (1) Hawai'i Revised Statutes (HRS) § 514C-6(a)
requires lessees of condominium units to which 75% of the common
Anterests are appurtenant to approve of a leased fee purchase,
(2) because HRS § $14C-6(a) is silent on the method of
calculating the votes of multi-owner units, the bylaws of an
association of apartment owners may govern on how the votes are
to be calculated so long as not violative of any law, (3) if any

defects affected the approval process, the 75¢ requirement was
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satisfied by the lessees’ subsequent ratification of the previous
vote when they executed deeds necessary for conversion, and

(4) pursuant to HRS § 514C-6(a) (3), an association of apartment
owners may assess a “conversion” surcharge in “a fair and
equitable manner” against lessees who oppose the fee purchase

Becau:

 

the Novenber 23, 2000 order of the Circuit
Court of the Second Circuit! (the court) granting partial summary
judgment to Defendants/Counterclaimants-Appellees Thomas Hayden
Stillson and Phyllis Ann Payne-Stillson (collectively, the
Stillsons), who opposed the leased fee purchase of the Maalaea
Kai condominium, did not comport with the representative-vote-
per-unit method set forth in the bylaws of Plaintiff /Counterclaim
Defendant-Appellant Association of Apartment Owners of Maalaea
Kai, Inc. (the Association), the order and the court's

December 27, 2000 judguent and its May 2, 2001 amended final
judgment are vacated, and this case is remanded for the court to
enter an order (1) denying the Stillsons’ motion for partial
sunmary judgment and (2) granting the Association's cross-motion
for summary judgment as to the 758 requirement. Also, consistent
with such vacation of the Novenber 28, 2000 order and because the
court found the conversion surcharge levied on the Stillsons was
inequitable without setting forth the grounds for its findings,

the case is remanded to the court to decide whether the

 

1 the Honorable Shackley F. Raffetto presided.

2
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ee

Association assessed the surcharge against the Stillsons in “a

 

fair and equitable manner.
I

 

‘This 4s the second appeal in a case that began as a
foreclosure action brought by the Association against the
Stillsons. on September 25, 1996, the Association filed a
complaint to foreclose on the Stillsons’ Maalaea Kai condominium

apartment for failure to pay a monthly conversion surcharge

jed fee interest

 

relating to the Association’s purchase of the 1
of the Maalaea Kai condominium project. On February 28, 2000,
this court issued a memorandum opinion vacating the circuit

court's judgment in favor of the Stillsons. AOAO Maalaea Kal,

Inc. v. Stillson, No. 22310 (Feb. 28, 2000) (mem.) [hereinafter,
“Memo op.”J]. ‘The memorandum opinion set forth the following

 

pertinent facts:

fon October 7, 1974, the Stilleons acquired fee simple
titie to apartment’ 209 at the Maalaea Kai condoniniun
project (the “Project”) and an appurtenant undivided 1.43068
Eiterest in the Project's common elements. The Stillsons
wore granted a leasehold estate in the Land appurtenant to
Their vapartaent.. The leasenold estate, created by the

 

     

 

Jesse, hae one of seventy=nine
representing each of the Projet

apartments.

fee interest “subject to the approval of the Apartment
Owners. ss constituting 70¥(1] of the common interest in
tthe Project.”

(On duly 17, 1995, the Board [of Directors of the
Association] sent @ second letter to the apartnent owners,
foting that “the lessor has now taken the position that it
[S'unwilling te consider an offer contingent upon 700 of the
onners agreeing to purchase their share of the leased fee

 

+ the basis for the 708 figure is unclear,

3
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interest from the Association.” The Association issued a

Suritten consent balls” in

 

g San Salman a eh
Rssociation to make an offer to curchase the Lessors
or the

Gbteraat,” The Stillsons voted “against” the amendnent- On
August Ii, 1995, the Assoclaticn’s Bylaws were amended to
Eenove the seventy percent participation requirement. On
February 23, 1996, the Association acquired the leased fet

5" January 31, 1996, the Stillsons were notified that
theix sonthly payment of maintenance fees would increase due
fo "the Association's purchase of the fee,” The incre
Included 2 $276.00 monthly “conversion surcharge,” which was
equal to the Stillson's proportionate 1.43068 interest in
the Project’ connon elements. The Stillsons did not pay
the conversion surcharge.

 

 

 

 

 

Gn’ séptenner 25, 1996, the Association filed 2
complaint against the Stillsone . . + (seeking) foreclosure
on the stilisons! spartment.

 

Gn’ November 13, 1996, the Stillscns filed their answer
and counterclaim. In their counterclaim, the stilisons
Slieged, in Count 1, that the Association had violated HRS §
Slecse |. . by requiring them to pay fee conversion
Burcharges and to service the Association's fee conversion
dene

 

Gn’ sa1y 32, 1997, the Stitisons f1led a motion for
sunmary Judgment on Count I of their counterclaim... . On
October 8, 1997, the circuit court entered an order denying
the Stilléon{s"} motiont.)

Gn’ ecember 1, 1997, the Stillsons filed a motion for
summary Judgment on Count’ IIT of their counterclaim. The
Stiliacna’ central argument was thet, Lnasmich as “purchase
Of the fee interest altered the common elements], tne
Aasociation was required to obtain the consent of all.
Condoniniun owners” prior to purchasing the interest,

 

Pursuant to MRS § S14A-13{.] « - . On vanuary 15, 1998, the
Eireuit court entered an order granting the Stilisons!
motion. «=

Meno op. at 3-7 (brackets in original, brackets added) (emphasis
added).

In the first appeal, this court vacated “the circuit
court’s final anended judgment of January 14, 1999" and remanded

the case “for a determination of whether the Association met the
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requirements of HRS § 514C-6(a){,]" memo op. at 21, “and . . «

 

whether the fee conversion surcharge . . - was assessed in a
Stair and equiteble manner’ pursuant to HRS § 514C~6(a) (3),”
meno op. at 17 n.10.
1
on remand, the Stillsons filed a motion on July 20,
2000, for partial sunmary judgment on the first of the two

remanded issu:

 

|. On September 18, 2000, the Association filed a
cross-motion for summary judgment, praying for judgment “in its

favor as to all remaining issues(,]" which apparently included a

 

determination that the 75% approval requirement was met, or,
alternatively, that the savings clauses in HRS §§ 514C-4 and
514C-6(b) upheld the purchase, and that the conversion surcharge
was assessed in a “fair and equitable manner.” On October 4,
2000, the court granted the Stillsons’ motion for partial summary
judgment, concluding that the Association did not satisfy the 75%
approval requirenent of HRS § 514C-6(a). On Novenber 28, 2000,
the court denied the Association's cross-notion for summary
judgnent. The court's November 29, 2000 findings of fact,
conclusions of law, and order granting the Stillsons’ motion for
partial summary judgment stated, inter alia,

ENDINGS oF fact

 

Fewor than 758 of the unit lessees actually signed the
1998 written Consent.

 
 

requiring the
Se) oe

[DLE without creating a result that 1s absurd or
Bekislscent with the purposes of the statute.
4. The Association failed to meet the 758 lessee approval
Fequirenent of Section 514-C(6) (a) in purchasing the
Jeaeed fee interest.

Eeunsstive omers after acauicing the fee interest did
Hepettidire the orieina: purchase by “ratidcation.”

6. The savings classes found in H-R-S: $5 514C-# and S1tC~
Gib), to the extent either provision could be reed as
Gelidating s purchase without 75% lessee approval, may not
be read a2 allowing the Assoctation to assess the costs of
Sequiring the leased fee interest. To read the “savings”
EYause more broadly would vitiate the requirement of 75%
Iessee approval.

7, hile the Legisioture may have intended Act 241 to be
Tetroactive, appiicstion of the “savings” clause to
permit assessment of the Stillsons for a share of fee
EGnvereion coste, under the circumstances of this
case, would violate the Contracts Clause of the United
Staten ‘Constitution.

   

 

 

 

 

 

(Emphases added.) At the hearing on the motion, the court

apparently accepted the stillsons’ method for calculating the

 

votes of multiple-owner units. According to the Stillsons’
ethod, in an apartment with two owners and an appurtenant share
of common interest (expressed in percentage as “PCI”) of 1.4306,
both owners had to vote in favor of the purchase for the entire
1.4306 interest to be attributed to the 75% requirement. If only
one owner voted in favor of the purchase, only one-half of the
1.4306, or .7153 interest, was counted toward the 75%
requirement. Employing this method of counting “votes,” the

court determined, as indicated above, that the 75% requirement
‘***FOR PUBLICATION***

had not been satisfied. The court granted the Stillsons’ motion
for partial summary judgment on Count I of the counterclaim, and
entered judgment in favor of the Stillsons and against the
Association. The court entered final judgment resolving all
claims on December 27, 2000.

on January 8, 2001, the Stillsons filed a motion to
amend the judgment and on January 9, 2001, they filed a motion

for attorney’s fees, costs, and expenses. On February 27, 2001,

 

the court granted the Stillsons’ motion to amend the findings,

‘The order wi

 

amended to sta

 

conclusions, and order.

 

3, ‘That the Association be and the sane is hereby
Permanently enjoined from collecting or attempting to
Collect from the Stilisons, or either of them, any
fee, charge or assesenent. in connection with the
Association's purchase of the fee interest, including
Mithout Limitation the billing of fee conversion

‘npenses ae an element of the conon area saintenance
expenses.

 

 

 

By order dated April 10, 2001, the court also awarded
the Stillsons attorney's fees and court costs, and reimburseable
expenses. The court entered an amended final judgment on May 2,
2001.

ur.

‘The Association appeals from the December 27, 2000

 

judgment and May 2, 2001 amended final judgment of the court.
‘The Association raises fourteen points on appeal. Pertinent
here, the Association argues that the court erred in (1) finding
and concluding that “[t]he Association failed to meet the 75

lessee approval requirement of [HRS § 514C(6) (a)] in purchasing
 

*FOR PUBLICATION***
the leased fee interest[]"%s (2) concluding that “(t]he
Association’ s conveyance of the fee interest appurtenant to
certain condominium units to their respective owners after
acquiring the fee interest did not validate the original purchase
by ‘ratification’; (3) concluding that “[t]he savings clauses
found in HRS $§ 514C-4 and 514C~6(b), to the extent either
provision could be read as validating a purchase without 75%
lease approval, may not be read as allowing the Association to
assess the costs of acquiring the leased fee interest”*; and (4)
ruling that “the [Association's] fee expense assessment was not
assessed in a ‘fair and equitable manner’ pursuant to HRS § 514C~
(a) (3).

In response, the Stillsons argue that (1) the
Association “failed to meet the seventy-five percent requirement
of HRS § 514C-6(a) before purchasing the leased fee interest”;
(2) “HRS § 514C-6(a) did not allow the [Association] to count the
approval of one lessee of a given unit as the approval of the co-
lessees of that unit”; and (3) “nothing in HRS §§ 514C-4 or 514c~

6(b) (1993) ‘saves’ the power to assess if the fee purchase was

 

> his argument represents the Association's first, second, and

sixth points on appeal
‘this 4s the Association's third point on appeal.

+ omnis
fon appeal.

 

iegunent represents the Association's fourth and fifth points

 

 

This 4s the Association's seventh point on appeal.
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—_—_—SSSSSsSSsSSsSssees

not approved by 75% of the lessees as required by HRS § 514C~
61a)”
Vv.

Summary judgment decisions are reviewed de novo.
Amfac, Inc. v. Waikiki Beachcomber Inv. Co., 74 Haw. 85, 104, 839
P.2d 10, 22, recon, denied, 74 Haw. 650, 843 P.2d 144 (1992).
“unlike other appellate matters, in reviewing summary judgment
decisions an appellate court steps into the shoes of the trial
court and applies the same legal standard as the trial court
applied.” Beamer v. Nishiki, 66 Haw. 572, 577, 670 P.2d 1264,
1270 (1983) (citation omitted). Summary judgment will be upheld
“if the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue of material fact and the moving
party is entitled to a judgment as a matter of law." Heatherly
vy. Hilton Hawaiian Vill, Joint Venture, 78 Hawai'i 351, 353, 893
P.2d 779, 781 (1995) (citations omitted).

v,

 

In its first argument, the Association contends that
HRS § 514C-6(a) is “silent both as to [the] method of calculating
the [758] vote, and the timing of the required ‘approval./” It
argues that the court erred by applying a “fractionalized method
for calculating the vote” and that the court should have instead
employed the “one unit, one vote” method required in the

Association's bylaws.
‘***FOR PUBLICATION’

 

At the hearing on the Stillsons’ motion for partial
summary judgment, the court vas “convinced” that “under the plain
reading of the statute, the (Stillsons’) view. . . that it must

be 75 percent of the lessees, 75 [sic] who hold 75 percent of the

 

common interest [a]ppurtenant is the common view.” In conclusion
of law no. 3 of the November 29, 2000 findings of fact,

conclusions of law, and order granting the Stillsons’ motion, the

 

court decided that HRS § 514C-6(a) “may be read as requiring the
affimative vote of seventy-five percent (75¢) of the condominium
unit lessees, as weighted to reflect the percentage common
interest appurtenant to each such unit(.]"

vt.

a.

lie note, initially, that the court’s interpretation of

HRS § 514C~6(a), which we construe as requiring approval by
lessees owning units to which at least 75¢ of the conmon
interests are appurtenant, was correct. HRS § 514C-6(a) (1993)
states, in relevant part, as follows:

(a) the association of epartment owners or cooperative
housing corporation may purchase the 1 interest in

    

Se ce a ne can

‘Anierests are sopurtenent(.1
(Emphases added.)
When construing a statute, “the fundamental starting

point is the language of the statute itself . . . [and] where the

10
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statutory language is plain and unambiguous, [the appellate
courts’] sole duty is to give effect to its plain and obvious
meaning.” State v, Kalama, 94 Hawai'i 60, 64, 8 P.3d 1224, 1228
(2000). A plain reading of HRS § $14C-6(a) does not indicate
that 75% of the lessees or 75% of the units must approve of the

purchase.” Rather, the touchstone is “seventy-five per cent of

 

the conmon interests . . . appurtenant” to the units. Hence,
approval under HRS § 514C~6(a) is effective so long as the
lessees of units to which that percentage of common interests is
appurtenant approve of the purchase.

‘The legislature provided an express definition for the
entire phrase, “seventy-five per cent of the condominium unit
lessees.” In construing HRS $ 514C~6(a), then, the phrase should
be evaluated and applied as a whole so as not to render the
definition superfluous or insignificant. See Inxe City & County
of Honolulu Corp, Counsel, 54 Haw. 356, 373, $07 P.2d 169, 178
(1973) (applying the “cardinal rule of statutory construction
that a statute ought upon the whole be so construed that, if it
can be prevented, no clause, sentence or word shall be
superfluous, void, or insignificant”) (emphasis added) .
According to the language of the statute, the subject phrase
means “the lessees of units to which seventy-five per cent of the

common interests are appurtenant.” Thus, by reading the

 

+ Nesther party apps
to reflect the conson interes

rs to object to the court's weighing adjustment
‘appurtenant to each such unit.

 

u
 

FOR PUBLICATION!

 

definition into the phrase, the statute reads that “(t]he
association of apartment owners . . . may purchase the leased fee
Anterest in the land; provided that (the lessees of units to
which seventy-five per cent of the common interests are
appurtenant) approve of the purch:
We were faced with a similar situation in Coon v, City

4 County of Honolulu, 98 Hawa:
this court refused to apply an external definition of

 

 

‘4 233, 47 P.3d 348 (2002). There,

“condominium owners” in construing Honolulu’s lease-to-fee
conversion law, Revised Ordinances of Honolulu (ROH) chapter 38.
Id, at 248, 47 P.3d at 363. ROH § 38-2.2 required, inter alla,
that “[a]t least 25 of all the condominium owners within the
development or at least ovners of 50 percent of the condominium
units, whichever number is less, apply to the (City’s) Department
[of Housing and Community Development (Department)] to purchase
the leased fee interest.” Id. at 238 n.3, 47 P.3d at 353 0.3
(emphasis added). The Department’s rules § 2-3, however,

conflicted with ROH § 38-2.2 in that it required only “25

condominium owners by number, or 50% of the condominium owners of
+ the dissent interprets the statute by isolating the subject phrase

 

into individual parts, employing separate definitions of "common interests”
‘and “condominium unit lessees” from outside of § Siéc-6. gaa Dissenting
Opinion at 25-26. It uses the definitions of “common interests” from HRS
S'si4A-3 and “condoninsem unit lessees" fron § SI4C-1. Sy this process, it
arrives st the conclusion that “the units in which ali of its lessees voted in
the affirmative, as weighted to reflect each unit's percentage of common
Interest, must collectively anount to seventy-five percent.” Dissenting
opinion st 27 (emphasis added). ‘This approach, however, is a piecemeal
Peconatruction of HAS § S14C-6 and, with ail due respect, seemingly disregards
the legislature's express definition. Thus, the dissent’s importing of
definitions from outaide the covering atatite, HRS § 514C-6, would not
produce a correct result

 

 

2
 

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a development, whichever shall be the lesser number,” id. at 246,
47 P.3d at 361 (emphasis in original), “impermissibly reduc(ing]
the number of applicants required to trigger ROH ch. 38
proceedings below that prescribed by ROH 38-2.2(a) (1)[,]” id. at
247, 47 P.3d at 362. This court adhered to the plain reading of
the ordinance and construed "S0 percent of the condominium units”
to mean “£ifty percent of all the units in the condominium
development” as opposed to “SO percent of the condominium owners”
or “SO percent of the owner-occupied condominium units.” Id. at
248, 47 P.3d at 363.
B.
It would appear evident that if the legislature desired

that every Le

 

holding an interest in a single apartment vote
in the affirmative before the PCI in the apartment would be
attributed to the 758 threshold, it could have easily required
the “unanimous” consent of all ovners of a condominium. The
legislature, however, designated only the ultimate condition in
HRS § 514C-6(a), the requirement of an affirmative vote from 75%
of the conmon interests appurtenant to the units, and not 75% of
‘the common interests appurtenant to the units in which every
individual lessee votes in the affirmative.

The statute is clear, then, that an affirmative vote of
75% of the common interest is required, but does not limit the
method for calculating the threshold percentage. In that regard,

HRS § 514A-61 (1993) provides that “(t]he operation of the

B
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property shall be governed by bylaws, a true copy of which shall
be recorded in the same manner as the declaration.” The
stillsons argue that “voting rights of owner/lessees with respect
to the acquisition of the fee interest[ is] not ‘operation of the
property.’” (Emphasis in original.)

However, HRS § S14A-3 (1993) provides that
“*folperation of the property’ means and includes the
administration, fiscal management, and operation of the property
and the maintenance, repair, and replacement of, and the making
of any additions and improvements to, the common elements.”
(emphasis added.) Based upon this definition, the term
“operation of the property” is broad in scope inasmuch as it
“includ[es]” and thus is not limited te the objects enumerated in
HRS § 514A-3. The term “operation” itself is defined as
“[elxertion of power; the process of operating or mode of action;
an effect brought about in accordance with definite plan;
action; activity.” Black’s Law Dictionary 1092 (6th ed. 1990).
Hence, the bylaws may pertain to any “action” or “activity” with
respect to the property.

It would also appear that voting on the leased fee
purchase is implicated in the “administration” of the property.
“Administration” is defined as “the principles, practices, and
xationalized techniques emploved in achieving the objectives or
aimsof an oraanization(,] . - . administrative management [,] the

4
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phase of business management that plans, organizes, and controls
the activities of an organization for the accomplishment of its
objectives in the long run often as distinguished from operative
management.” Webster's Third New Int'l Dictionary 28 (1961)
(emphases added). Applying this definition, voting procedures

that

 

would constitute “practices” and “rationalized techniqu
associations “employ{] in achieving the objectives or aims of an
organization,” in this case, the purchase of the leased fee.”
‘Thus, contrary to the dissent’s assertions, the bylaws govern
more than mere “daily operations of the condominium property.”
Dissenting Opinion at 21.

Indeed, bylaws generally establish the rules governing
the condominium. See Raines v, Palm Beach Leisureville Cnty,
Ass'n, 413 So. 2d 30, 32 (Fla. 1982) (*{A] condominium
association derives its powers, duties, and responsibilities from
[Florida Statutes} chapter 718 and from the association’ s
declaration of restrictions and bylaws.”); Bradford Square Condo,
Ass'n v. Miller, 573 S.8.2d 405, 409 (Ga. Ct. App. 2002) ("the
condominium instruments, including the bylaws and the sales
agreenent, are a contract that governs the legal rights between
the [alssociation and unit owners.”); Chapman Place Ass'n, Inc.
vs Prokasky, 507 N.W.2d 858, 863 (Minn. Ct. App. 1993) (“(T]he

 

* ‘The dissent agserts that voting on the fee purchase “does not fall
within... tsdninistration(,]’" dissenting opinion at 22, without discussion
Of the definitions of “operation” or “administration.”

 

1s
 

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—

condominium act, in conjunction with the [declaration and the
{alssociation’s by-laws, governs the rights of the [a] ssociation
and condominium unit ovners.”); Lion Square Phase It 6 III condo.
Ass'n vs Hask, 700 P.2d 932, 934 (Colo. Ct. App. 1985) ("A
condominium association may exercise its powers only within the
constraints of its condominium declaration and bylaws.”

‘That associations may implenent various voting methods
through their bylaws does not alter the application of HRS
$ 514c-6(a). The voting method may vary across associations, but
the application of HRS § 514C-6(a) does not change. Associations
must still obtain the requisite 75% approval for a purchase to be
valid and as to that mandate, each association's bylaws is
subject to examination for compliance with the statute in the
event of a dispute. Hence, any fear to the contrary would be
unnerited.

vir.
a

Therefore, in this case, the Association's bylaws;
which govern the condominium property pursuant to HRS § 514A-81,
and are not otherwise violative of the law, control on the
question of how the votes are to be calculated. The bylaws
indicate that a designated person chosen by the owners “shall”
vote on behalf of all owners of a unit. The bylaws state in part
as follows:

2. Yoting Ouers. There shall be one “Voting Owner” of
ach spataent. ihe Voting owner who need not be an owner

16
 

‘***FOR PUBLICATION
Oe
EPititten notice selivered to the Board of Directors.
Pithetsbsence of any such designation, the owner or owners:
Of an opartment shall be deemed to be the voting owners of
Gach apartments anc, Jf any apartment be owed by more than

fone owner (and
Bre tes) oh

‘Diners oresent in-berion at apy necting of she Association

Sab t there be more than one of such omers present et any
eetings and if there be any dispute anong then as to which
OF thes’ shall be deemed to be the voting owner of such
apartment,

select a votins owner.

(Emphasis in original and emphases added.) The bylaws, then,
do not provide for fractional votes to be cast by the separate
owners of a multi-onner unit as the court determined. Each unit,
even if having more than one owner, is entitled to, and can cast,
but one vote. The court's method of calculating the “approval”
contravened the bylaws, which do not contemplate
fractionalization of a “vote,” but, rather, mandate one vote per
apartment.

‘The “voting owner” provision in the bylaws is
consistent with the Condominium Property Act, chapter 514A."

HRS § 514A-11(6) (1993) mandates that condominium association

 

© the dissent maintains that the bylaws are “tangential” becat
Aesocistion’s “bylaws dictate the ‘one vote per unit” voting method

Tn terms of voting at Board meetings ~~ riot for fee purchases{.1”
opinion at 22°23,” However, the Moting Owners” provision plainly ppl
GEcing in general and does not expressly linit its applicability to “bosrd
Meetings." Indeed, as noted, there was no challenge to the use of ballots for
Youing purposes. Seo ines note 18.

 
  
 

 

 

 

the Condominium Property Act, HRS chapter SI4A, was formerly known
fas the Horizontal Property Act, HRS chepter 514, 1988 Haw, Sess. L. Act 65,
$§ in2 at 38, The Association's declaration and bylaws were recorded
Sleultansousiy on April 3, 1974 pursuant to the Horizontal Property Act, HRS
chapter S18.

 

”
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SSS
declarations “shall express . . . [t]he percentage of undivided
interest in the conmon elements("*] appertaining to each
apartment and ite owner for all purposes, including voting[.]”
Thus, the Association’s bylaws,” requiring multi-owner
apartments to designate a representative “voting owner” for
purposes of casting a vote, comports with HRS § 514A-11(6), which
mandates an “owner” for the purpose of “voting” be identified in
the declaration."

Moreover, the Asseciation’s voting procedure
effectuates legislative intent. In the first appeal, this court
looked to the subsequent 1999 amendments to HRS chapter 514¢ and
accompanying legislative history “to confirm its interpretation”
of § 514C-6(a)."* See Memo op. at 14-15. It was noted that, “in
1999, the legislature expressly stated that it was ‘clarifvina’

its original intent regarding the powers of association of

 

12 the definition of “common elements” encompasses “(t]he Land
included in the condominium property regime, whether leased or in fee
‘aimple(-]* HRS § S14A-3(1) (1999).

2 the bylaws are recorded in the sane manner as the declaration.
See Ass'n of ounefs of Kukui Plage v. City 4 County of Honolulu, 7 Haw. App.

Gey Ge nib Tez Pid S74, 370 n-6 (1987) (citing HRS § 514A-81)-

M_the requirement under #85 § 514R-11(6) that declarations designate
the “owner” of each apartnent for the “porposes” of “voting” applies to the
Resociation's declaration even though the declaration pre-dates the statute.
‘The bylaws atate that the horizontal property regine was “established under
Gnd pursuant to Hom, Rev. Stat, Chapter S14” and that if “the gad statute be

ne ret nanent to oF of the”
Geclaration and bylaws. —(amphasis added.)

 

 

the subsequent legislative history supported the court's view
“that the legislature did not intend HRS § 514-6 to apply golely to ca
regarding the right of first refusal.” Memo op. at 15 (emphasis in original)

 

18
‘***FOR PUBLICATION*#*
OO

apartment owners involved in lease-to-fee conversions in the case

 

of voluntary conversions by associations of apartment owners.”
Ida (emphasis in original). The preamble section of the 1999
amendment to chapter 514C, Act 241, provided that

[tthe legislature further finds that it is necessary to

ELM ay"tne powers of the boards of directors of
Ssclations ef apartment omers to enter into purchase

agreements with Lessors tof i

Soluntary lease to fee conversions of condominium projects

in an afficient and economical nanner.”

 

1999 Haw. Sess. L. Act 241, $1 at 743 (emphases added). The
Association’s apparent justification for the designation of a
representative voting owner is in consonance with the
legislature’s intent to “facilitate and encourage” lease-to-tee
conversions in an “efficient and economical manner” as explained
below.
B.

For under chapter 514A, “[a]ny apartment may be jointly
or commonly owned by more than one person.” HRS § S14A-5 (1993).
A “person” is defined as “an individual, firm, corporation,
partnership, association, trust, or other legal entity, or any
combination thereof.” HRS § 514-3. Thus, the legislature
plainly contenplated that (1) an apartment could be owned in
various estates, including joint tenancy, tenancy in common, and
tenancy by the entirety, and (2) legal entities -- firms,
corporations, partnerships, associations, trusts, or otherwise --

and combinations of legal entities could own a single apartment.

9
 

**FOR PUBLICATION’
—

Under this framework, condominium property regimes
produce complex forms of ownership involving a multitude of

“persons.” Indeed, the Association apparently adopted the

 

designated “voting owner requirement to address the perceived
difficulty with respect to voting by multiple-owner apartments,
Anasnuch as the voting provision in the Association‘ bylaws
references apartments held “jointly, commonly or by the
entireties(.]” Hence, the representative “voting owner”
procedure dictated by the Association’s bylaws efficiently and
economically addresses the complexities that arise in multiple-
owner apartments. In other words, the Association’s voting
procedure effectuates the legislature's aim of efficient and
‘economical lease-to-fee conversions and could hardly be more
rational and consistent with the statute. In Light of the
legislature’s recognition of various ownership statuses, the
“rational, sensible and practicable interpretation” of the
statutes, Southern Foods Group L.B, v. Dep't of Educ., 89 Hawai'i
443, 453-54, 974 P.2d 1033, 1043-44 (1999), authorizes the
Association's designated owner voting procedure.
c

Assuming, arauendo, sone ambiguity in HRS § 514C-6(a),

construing the statute to require the affirmative vote of every
‘ \

antity would defeat the legislature’s objective of facilitating

and encouraging lease-to-fee conversions in an efficient and

 

20
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ee
economical manner. This court has rejected an analogous argument

in interpreting Honolulu’ s lease-to-fee conversion law.
In Coon, this court was faced with an “internally
inconsistent” ordinance that “restrict [ed] the definition of a
Messee to an ‘owner-occupant’ who must be ‘an individual,’
while at the same time extending ‘lessee’ status to trusts and
other legal entities.” 98 Hawai'i at 259, 47 P.3d at 374
(emphasis added). The appellants in that case argued that,
vwnere a condominiun leasehold is held in trust, the only lessees

qualified to purchase the fee interest pursuant to [the

ordinance)” are, inter alia, “trustees (because only trustees
hold legal title to property)” and “natural persons(.]” Id. at

258, 47 P.3¢ at 373 (emphasis in original and emphases added) .

This court rejected the appellants’ interpretation and
held that “the benefits of ROH ch. 38 extend{ed) to owner~
occupants of condominiums who have elected to structure the title
to their assets in a trust, subject to the proviso that it is the
trustee who is eligible to purchase the leased fee interest.”
Id. at 260, 47 P.3d at 375. Tt was reasoned that

allowing the occupants of condominiums, who quality to
purchase their leased fae interests pursuant to [the
Erdinancel in all respects except that legal title to the
Scndominius unit is technically held in trust for their
Benefit, to convert their leased fee interests in their
Eondomiaiue unit into fee einple interests furthers the

 

 

Id. Consequently, in Coon, this court adopted the interpretation

that furthered the goal of ROH chapter 38, rejecting a literal

2
‘***FOR PUBLICATION®#®
—_— SSSSSSSSSSSSSSSsSSssssess
Anterpretation of the ordinance that would contravene legislative

intent.

Insofar as HRS § 514C~6(a) could be viewed as
ambiguous, implementing the Association's bylaws, as opposed to
requiring unanimous approval by each owner in multi-owned
apartments, would be preferable because, as in Coon, this
“furthers” the legislature's “goal” of “facilitating” conversions
in an “efficient” manner. To do otherwise would be inconsistent
with established statutory construction principles and the
approach taken in Coon."

vin.

Tt must be further noted that the Association's bylaws
do not prohibit a unanimous vote as to “persons” owning a
condominium as the dissent implies, dissenting opinion at 21-24,
but only require the owners to designate a person to cast a vote
on behalf of the apartment. Prescribing that “if a unit is owned
by three lessees and one lessee votes against the fee purchase,
that unit's percentage of common interest, in its entirety, will
not count towards the requisite seventy-five percent,
notwithstanding the affirmative votes of the other two

lessees [,]” dissenting opinion at 27, would exceed the statutory

<The dissent's position effectively places the sssociation menbers
in this case in @ position like thet rejected by this court in Coon

 

2
***FOR PUBLICATION*#*
—
boundaries of HRS § $14C-6(a).. For on its face the statute
focuses not upon how the vote of the several lessees (in the
event there is more than one) are to be counted. Rather, HRS

§ 514c-6(a) expressly defines and states that “seventy five per

cent of the condominium lessees means the lessees of unita to

 

which seventy five per cent of the common interests are
appurtenant” (emphases added), thus making the condominium
apartment itself and not the several “lessees” the voting unit to
be counted.

Additionally, 4 unanimity mandate would xun counter to
the direction of legislative intent as described above and as
subsequently indicated by HRS § $14C-22. The legislature now
permits associations an alternative route to purchasing the fee
interest by allowing the board of directors to do so without
obtaining the 75% approval vote. See HRS § 514C-22 (Supp. 2004)
(authorizing associations to “purchase the lessor’s interest in
the condominium project provided{] that the declaration of
condominium property regime shall either contain or be anended to
include @ provision authorizing the board of directors to
effectuate such a purchase”).

Nevertheless, if we were to adopt the dissent’s
position, associations which prefer that a vote of the owners be
had would otherwise be constrained in their method of voting and

only an amendment to the statute by the legislature would obviate
‘***F0R PUBLICATION*#*
the requirement of having every individual and entity comprising

fan owner cast an affirmative vote. In the absence of any
apparent conflict with HRS § 514C-6(a), the dissent’s approach
would also unduly interfere with any arrangements multiple owners
may choose to make or have made anong themselves as to voting
with respect to a fee purchase. Additional cost and expense for
owners would be incurred if, for example, devices such as powers
of attorney were needed to be employed, assuming that the use of
such devices would be permissible under the dissent’s approach.
For the foregoing considerations, the representative voting owner
by-law should be confirmed as consistent with the requirements of
HRS § 514C-6(a)-

1x.

Although the Association is correct that the court
erred in applying @ fractional vote count, the Association's oun
calculation may net have complied with the procedural
requirements of its bylaws. To determine if the 758 requirement
was satisfied, the court tabulated the 1995 written consents to
amend the bylaws.” By employing the Stillsons’ fractional vote

© the anendnent proposal would “allow the Association to make sn
offer to purchase the lesscr’s interest in the Project without requiring 708
of the owners co execute contracts for the purchase of their leased fee
Gnterest.” (It is unclear uhy the 70% figure was used.) In addition to the
1998 consents, the Association points to "four separate occasions” in which it
Obtained the fequisite 754 approval: (1) 1994 ballots seeking approval for

of the leased fee interest; (2) 1995 written consents; (3) 1995
nterest sales contracts to the sparenent owners; and (4) linited
warranty deeds to the purchasing omers. The court, however, found “that the
1985 ballot ie the act in issue thar requires the 75 percent’ vote, which is
required by [HRS §] 514C-6(a), which ie refers to in the renand from the
Soprene Court in this case” end did not consider the other forms of approval.

 

    

      

m
‘***FOR PUBLICATION*#*
Oe

method, the court found, as stated supra, that the 1995 consents
were “signed by unit lessees representing 66.9518% of the common
interest (,]” falling short of the requisite 75%. The
Association, on the other hand, by employing the “one unit, one
vote” method, arrived at # 75.78368 approval rate.

According to section 2 of the bylaws, quoted above, in
multiple-owner apartments, a vote is valid if the co-owners
designate a representative “voting owner” by providing the Board
of Directors with written notice." In tabulating the 1995
consents, the Association “accept{ed) the signature of a single
co-owner as exercising the vote of all co-owners unless one or
more of the co-owners dispute[d the] right to vote.”

At his deposition, Richard Ekimoto (Ekimoto),° the
attorney who represented the Association in acquiring the leased
fee interest, testified that “if there was one co-owner who

signed the written consent form, we counted that as the vote of

 

the owner -- for that apartment unless we got a conflicting

statement or an objection. And it was based on industry practice

and the by-law provision.” Based on Ekimoto’s testimony, the

the Stillgons “do not challenge the {Association's} use of ballots
An atteapting £0 attain the 7158 lessee approval threshold” rather than a vote
at a'mecting.

 

© Richard Ekimoto, the attorney for the Association, ade this
statement ina duly 25, 1995 faxed semorandun to Ray Sinon, co-owner of unit
aie

2 Ekinoto withdrew ae counsel on January 16, 1997, so that he could
serve as a witness

2s
‘***FOR PUBLICATION*#*
——

Association did not confizm that the owner who signed the consent
was the designated “voting owner” before applying the apartnent’s
PCE to the 75% threshold.” The validity of the procedure
followed, however, is not dispositive inasmuch as the subsequent
deeds ratified the consents.

x.

a.

‘This jurisdiction has long recognized the doctrine of
ratification, See Gold v, Harrison, 88 Hawai": 94, 105-06, 962
P.2d 353, 364 (1998) (concluding that an attorney who did not
sign a complaint was nevertheless subject to Hawai'i Rules of
Civil Procedure Rule 11 sanctions because he “ratified and
adopted the complaint . . . as his own” by asserting “that
everything in the case was done with his full knowledge and
approval"); Sharples v. State, 71 Haw. 404, 407, 793 P.2d 175,
177 (1990) (acknowledging the rule that an “enployer’s liability
under a ratification theory requires that the act complained of
be done on behalf of or under the authority of the employer, and

there must be clear evidence of the employer's approval of the

 

wrongful conduct” (citation omitted)); Maui Fin, Co, v. Han, 34
3% Ekimoto admitted to this method in the following exchange during

his deposition:

©. And so in your mind, all that’ was necessary was to
Count the number of consents that you had received,
dd up the PCT represented by those consents to
Getermine whether or sot the 75 percent threshold was
net?

a Yes.

 
 

FOR PUBLICATION
ee

Haw. 226, 230-31 (1937) (recognizing the “principle of the law of
agency that an affirmance of an unauthorized transaction may be
inferred from a failure to repudiate it” and therefore holding
that the defendant ratified his wife's signature on his behalf by
not objecting to it) (internal quotation marks and citation
omitted); Cook v, Surety Life Ins. Co, 79 Hawai'i 403, 411, 903
P.2d 708, 716 (App. 1995) ("Any failure on the part of the client
to object to an unauthorized act (by counsel in settlement
negotiations] within a reasonable time after becoming aware of it
will be construed as a ratification of it.”).

In Maui Finance, this court adopted the Restatement of
the Law of Agency's definitions for “ratification” and
wafgirmance.” Accordingly, in Hawai'i, “ratification” is defined
as “the affirmance by a person of a prior act which did not bind
him but which was done or professedly done on his account,
whereby the act, as to some or all persons, is given effect as if
originally authorized by him.” 34 Haw. at 230 (quoting
Restatement of the Law of Agency § 82). “Affirmance” is defined
as “a manifestation of an election by the one on whose account an
unauthorized act has been performed to treat the act as
authorized, or conduct by him justifiable only if there is such
an election.” Id, (quoting Restatement of the Law of Agency

§ 83).
 

FOR PUBLICATION***

Eventually, 84.9698 of the owners, based on their
weighted percentage ownership of the common elements, approved of
the purchase by executing Limited warranty deeds. In the
warranty deeds, the Association, as “Grantor,” conveyed legal
ownership of the property upon which the condominium is located

to the apartment owners or “Grantees.” Section 8 of the deeds

 

provide:

Upon release of any and all such mortgages, Liens or
eheunbrances, and provided that the owners of Grantee's
Leasehold interest and the Property are identical, it is the
tent of the parties to this Deed that there be & nerger of
Grantes's Leasshold Interest into tha Bopest.

 

 

(Emphases added.) Seventy out of seventy-nine apartments have
purchased the fee interest in the property. All title holders in
each venty their ra eds. By
signing the deeds, any purportedly non-consenting owners
“manifest (ed)” an “election” to “treat the act [of the signing
owner] as authorized,” thereby constituting affirmance of the
1995 consents. This affirmance, in turn, gave “effect [to any
questionable consents] as if originally authorized” by the
purportedly non-consenting owner and resulted in ratification.
Hence, even if the consents may have been marred by procedural
error - i,e,, authorized by non-“voting owners” - more than 75%
of the owners, as weighted by the common interests, eventually

affirmed the 1995 consents.

28
 

‘*#*POR PUBLICATION

 

xr.
‘Thus, contrary to the dissent’s contention that the

“felxecution of these deeds alone does not contemplate that the

condominium unit lessees who previously voted against the fee

fter ratify the 1995 written consents

 

purchase intended to ther
and ultimately approve the purchase(,]” dissenting opinion at 30
(emphasis in original), the deeds themselves expressly state that
was the * oa
rat: ee. The evidence in the record thus
clearly and plainly manifests the lessees’ assent to treat any
negative votes as affirmative, inasmuch as the deeds are a plain
manifestation of the fact that the lessees authorized and, thus,
ratified the fee purchase.

The dissent “dofes} not believe execution of the .
deeds constituted ‘ratification’ so as to affirm the 1995 written
consents and approve the fee purchase,” dissenting opinion at 32
n.15, because “[t]o do otherwise would circumvent the fee
purchase process statutorily required” in “contraven(tion of] HRS
§ $14C-6(a) and the principles of ratification[,]” dissenting
opinion at 30. But no one contends that the Association in this
case sought to “circumvent” the process. All title holders in
seventy out of seventy-nine apartments have signed their deeds,
even when they had the option of not doing so. Their acceptance
of the fee interest cannot demonstrate anything other than

approval of the original fee purchase.

2»
 

‘***POR PUBLICATION:

Signing the deeds manifests consent to the purchase.
Rather than a “contraven(tion]" of “the principles of
ratification,” dissenting opinion at 30, the execution of the
deeds is the “eine qua non” of the act of ratification, These
acts of ratification -- an overwhelming acceptance of the deeds
at 84.9669% weighted approval -- plainly meet the statutory
threshold. To reiterate, seventy out of seventy-nine units have
purchased thelr respective fee interests. Accordingly, the
Association satisfied the statutory requirement. To ignore the
ratification and nullify the ratified transactions will have an
unwarranted chaotic effect on the Association and its members.
See infra Part XIII.

XII.

‘The doctrine of ratification also resolves the dispute
regarding whether the Association was required to obtain 758
approval before the purchase. To reiterate, HRS § 514C-6(a)
permits the Association to purchase the fee interest “provided
that at least seventy-five per cent of the condominium unit
lessees . . . approve of the purchase.” The Stillsons’ contend
that “the plain import of [HRS § 514C-6(a)] is that the approval
must precede the purchase.” (Emphasis in original.) However,
“when ratified, the prior unauthorized act has the same legal
affect and results in the same contractual relations between the

2 hs noted previously, the Association contended that HRS $ S14C-
6(a) was “silent. s | as to. . the timing of the required ‘approvel.’*

30
‘***FOR PUBLICATION*#*

 

principal and the person with whom the agent has dealt as though
the act of the agent originally had the prior authorization of
the principal.” Maui Fins, 34 Haw. at 230 (emphases added).
Ratification has the effect of validating any original allegedly
unauthorized act. Inasmuch as any purportedly unauthorized
consents was later ratified, the “prior unauthorized” consents
had “the same legal effect” as if the signing owner “originally
had the prior authorization” of his or her co-owners and/or the
official “voting owner.” ‘Thus, the required 75% approval secured
by the deeds dated back to the 1995 consents. No timing conflict
results because the 1995 consents occurred before the purchase.

Therefore, the court erred in granting the Stillsons’
motion for partial summary judgment and in denying the
Association's cross-motion for summary judgment insofar as the
Association met the 75¢ requirement as a matter of law.
Accordingly, the court should have granted the Association's
cross-motion for summary judgment as to the first remanded
issue.”

xrIr.

‘The court’s findings, conclusions, and order granting

the Stillsons’ motion, as well as its anended findings,

conclusions, and order, did not address the second remand issue

 

® in Light of the foregoing analysis, it is not necessary to reach
‘the question raised by the Association of unether HRS § 51éC-4 or HRS § S14C~
Gib) weaves" the fee purchase in a situstion where the association has
Purchased the fee “without capacity OF power todo” so. HRS § S14C-6(b).

 

31
***FOR PUBLICATION*#*

of whether the conversion surcharge was assessed in a “fair and
equitable manner” pursuant to HRS $14C-6(a) (3). In their reply
brief, the Association maintains that “[t]he Stillsons a1 but

concede that public policy weighs . . . in favor of allowing the

fee conversion to take place(]” because “[tlhe consequences would

ering: artnet w hs

nteres! he AO) ve the

a rover ace: tbo hs
2. t, thei be a the

of all owners.” (Emphasis added.) Because “(t]he Stillsons’

argument would effectively void the purchase by 70 of the 79

apartments at the . . . condominium[,]” the Association maintains
that “the Stillsons attempt to. . - [focus on] @ much more
Limited question: . . . ‘simply whether . . . the AOAO possesses

‘the power to assess the Stillsons{.]’”
At the October 4, 2000 hearing on the Stillsons’

notion, the court stated that “the conver(sion] surcharge was not
fairly and equitably imposed{,]” but the basis for its decision
rettains unclear. The court seems to have rested its decision on
its determination that the Stillsons should not be subjected to
the surcharge in any case. This question, however, as stated
above, was decided in the first appeal. As indicated in HRS

§ 514C-6(a) (3), the Association may subject the Stillsons to the
surcharge. Inasmuch as the court did not provide a discernible

basis for its holding other than that the surcharge is

32
 

‘*##FOR PUBLICATION
inapplicable to the Stillsons, this case is remanded on the

discrete question of whether the surcharge was “assessed in a
fair and equitable manner.”
xrv.

The Association argues that the court erred by denying
its motion for repayment of the judgment avarded to the Stillsons
following the meorandum opinion, which vacated ‘the judgment. In
its motion for repayment of judgment, the Association relied on
HRS § 636-16," relating to prejudgment interest, but did not
provide any relevant authority on the issue of whether the
Stillsons were required to repay the judgment. The Stillsons, on
the other hand, argued that the court, “sitting in equity[,]" had
the “sound discretion” to maintain the status quo pending
decision on the merits and reminded the court that the
Association originally failed to “avail itself of the opportunity
to post @ supersedeas bond within the period of time allowed” to
stay enforcement of the judgment.

Inasmuch as we have held that the Association's cross-

motion for summary judgment must be granted insofar as it

 

% RS § 636-16 (1993) provides:

In awarding Anterest in civil cages, the Judge 19 authorized
£0 designate the conmencenent date to conform with the
Circumstances of each case, provided that the earliest
Ecenencenent date in cases’ arising in tort, may be the date
then the injury first occurred and in cases arising by
Breach of contract, it may be the dave when the breach first
oceurred,

 

 

 

33
 

FOR PUBLICATION?
pertained to the required 75% vote, the Stillsons are not

entitled to any judgment amounts avarded them as a result of the
court's contrary ruling. The Association requested “repayment of
the garnished amounts . . . plus prejudgment interest.” on
appeal the Association does not challenge the court's denial of

prejudgenent interest. ‘Thus, we need not address the issue.

xv.

Next, the Asseciation contends that “[blecause the
Stillsons undisputedly sought only partial summary judgment, and
did not with ‘particularity’ seek specific relief, the [court]
did not have the authority to award a complete summary judgnent,
or grant relief not specifically sought in the motion.”

(Emphases in original.) This argument need not be addressed
inasmuch as we have already determined that summary judgment in
favor of the Stillsons was inappropriate.

XVI.

Finally, the Association argues that the court erred by
awarding the Stillsons attorney's fees, costs, and expenses.
Having determined that the Stillsons did not prevail, the court's
award of attorney's fees, costs, and expenses is vacated.

XVII.

Based on the foregoing, (1) the December 27, 2000

judgment and May 2, 2001 amended final judgment are vacated and

(2) this case is remanded (a) with instructions to the court to
‘***FOR PUBLICATION

 

 

enter an order denying the Stillsons’ motion for partial summary
judgment and to enter an order partially granting the
Association's cross-motion for summary judgment as to the 758
requirement and as to the Association's authority to render a
surcharge and (b) for the court to determine whether the
conversion surcharge was assessed against the Stillsons “in a
fair and equitable manner.”

on the briefs:

Kevin P.H. Sumida and

Lance S. Au (Matsui .
Chung Sumida & Tsuchiyama) Bex Heine

for plaintiff/counterclain
defendant-appellant. e 7 Ss
Dennis Niles, William M.

McKeon and Tom Pierce Yona. Ded he

(Paul, Johnson, Park &

Niles} for defendants/

‘counterelainants-

appellees.

35