Case Title: Kekona v. Abastillas. ICA mem.op., filed 06/08/2006 [pdf], 111 Haw. 203. ICA Order Denying Defendant-Appellant and Cross-Appellee Michael Bornemanns Motion for Reconsideration, filed 06/22/2006 [pdf]. ICA Order Denying Defendant-Appellant and Cross-Appellee Robert A. Smiths Motion for Reconsideration, filed 06/22/2006 [pdf]. S.Ct. Order Accepting Petitioner Michael Bornemann, M.D.s Application for Writ of Certiorari, filed 08/07/2006 [pdf]. S.Ct. Order Rejecting Petitioner Robert A. Smiths Application for Writ of Certiorari, filed 08/07/2006 [pdf]. S.Ct. Order Rejecting Petitioner Paz F. Abastillas Application for Writ of Certiorari, filed 08/07/2006 [pdf]. S.Ct. Order Denying Motion for Reconsideration, filed 10/31/2006 [pdf], 112 Haw. 436.

Citation: 113 Haw. 174

Docket Number: 

State: hawaii

Court: Hawaii Supreme Court

Date: 2006-09-26T00:00:00Z

Document:
LAWL

‘+++ FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER *

IN THE SUPREME COURT OF THE STATE OF HAWAI'I

 

000:
ee

BENJAMIN PAUL KEKONA and TAMAE M. KEKONA,
Plaintiffs-Appellees, Cross-Appellants, Respondents,

PAZ FENG ABASTILLAS, also known as Paz A. Richter,
defendant-Appellant, Cross-Appellee, Respondent-Petitioner,

and

ROBERT A SMITH, Attorney at Law, a Law Corporation, Defendant-
‘Appellant, Czoss-Appellee, Respondent-Petitioner,

and

STANDARD MANAGEMENT, INC., and WESTERN SURETY COMPANY,
Defendants-Appellants, Cross~Appellees, Respondents,

and

MICHAEL BORNEMANN, M.D.»
Defendant-Appellant, Cross-Appellee, Petitioner-Respondent,

and

U.S. BANCORP MORTGAGE COMPANY, an Oregon Company; JOHN DOES 1-10;
DOE CORPORATIONS 1-10; AND DOE ENTITIES 2-10, Defendants.

 

NO. 24052 z 8
Rs
CeRrronART 70 THE INTERMEDIATE couRT oF aPeEaBE RE
(CIV. NO, 93-3974) is 2 a
ks 2 8
SEPTEMBER 26, 2006 a »

MOON, C.J., LEVINSON, NAKAYAMA, AND DUFFY, JJ.,
AND CIRCUIT JUDGE LEE IN PLACE OF ACOBA, J., RECUSED
 

FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER **¢
77 BOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER ***_

OPINION OF THE COURT BY NAKAYAMA, J.

The present matter involves three applications for
k.a. Paz A.

 

writs of certiorari filed by Paz Feng Abastillas,
Richter [hereinafter “Abastillas”], Robert A. Smith [hereinafter
“smith”], and Michael Bornemann, M.D. [hereinafter “Bornemann"].
Abastillas, Smith and Bornemann appeal from the Intermediate
Court of Appeals’ [hereinafter “ICA"] June 8, 2006 memorandum
opinion [hereinafter “the ICA’s opinion”) partially affirming and
partially vacating the first circuit court’s February 26, 2001
"Amended Revised Final Judgment.”

Wie accepted certiorari to address the following
arguments presented by Bornemann’s application:! (1) the ICA
gravely erred by permitting 2 $594,000 award of punitive damages
after vacating the only actual damages awarded against him; (2)
the ICA gravely erred by rejecting the overwhelming majority view
requiring proof of a fraudulent transfer by clear and convincing
evidence; (3) the ICA gravely erred by ruling that the Kekonas
could obtain both reconveyance and damages for the alleged
fraudulent transfers; and (4) the ICA gravely erred by ruling
that the legislature's enactment of the Uniform Fraudulent
‘Transfer Act [hereinafter “UFTA") abrogated this jurisdiction's
preferential transfer doctrine.

Based upon the following analysis, we conclude that the

5, The epplications filed by Abastillas and Smith fail to present
this court with any cognizable legal argument, demonstrating either (g)rave
errors of law or of fact” or “[oJbviove inconsistencies in the Secision of the
(ICA] with that of the suprene court, federal decisions, er ite own decision.”
We decline to grant then.” See 2006 Haw. Sess. 2. Act 143, § 1 (amending
Hawai'i Revised Statutes [hereinafter “HRS"] § 602-89 (Supp. 2005) “(effective
sely 1, 2006))

     

 

 

   

 
 

1+ FOR PUBLICATION IN WEST'S HAWAl! REPORTS AND PACIFIC REPORTER.
ICA erred by holding that a fraudulent transfer may be proved by
a “preponderance of the evidence.” Accordingly, we remand the
case for new trial consistent with this opinion.

1. BACKGROUND
on May 25, 1993, Benjamin P. Kekona and Tamae M. Kekona

[hereinafter “the Kekonas”] obtained a substantial jury verdict
against Abastillas, Smith, and Standard Management, Inc.
{hereinafter “SMI”], a corporation wholly owned by Abastillas.
on May 26, 1993, a quitclaim deed -- transferring Abastillas’
interest in real estate described as Unit #1809, Honolulu Park
Place, 1212 Nuuanu Avenue, Honolulu, Hawai'i [hereinafter “the
HPP property”) to Bornemann -- was recorded at the Bureau of
conveyances [hereinafter “BOC”. Subsequentiy, on June 1, 1993,
the following two quitclaim deeds were recorded at the BOC: (1)
a quitclaim deed transferring the interest of SMI and Robert A.
smith, Attorney at Law, a Law Corporation [hereinafter “RASCORP”]
in real estate described as 47-186 Kamehameha Highway, Kaneohe,
Hawai‘ (hereinafter “the Kaneohe property") to Abastillas; and
(2) @ quitclaim deed transferring Abastillas’ interest in the

Kaneohe property to Bornemann.

 

on October 13, 1993, the Kekonas filed a complaint
alleging, inter alia, tha’

were fraudulent, in violation of HRS chapter €51C; (2)

(1) the aforementioned conveyances

 

Abastillas, Smith, Bornemann, SWI, and RASCORP engaged in a civil
conspiracy to commit fraudulent conveyances; and (3) Abastillas
and Smith illegally notarized each other’s signatures on the

instruments executing the aforementioned conveyances.
 

)R PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER.

 

Following trial,? the jury returned a special verdict
form on May 21, 1999.

With respect to the Kekonas’ fraudulent conveyance
claim, the jury made the following findings by a preponderance of
the evidence: (1) Abastillas, RASCORP, and SMI transferred the
Kaneohe property with the actual intent of hindering, delaying or
defrauding the Kekonas; (2) Bornemann did not receive the Kaneohe
property in good faith and for reasonably equivalent value; (3)
Abastillas transferred the HPP property with the actual intent of

 

hindering, delaying or defrauding the Kekonas; and (4) Borneman
did not receive the HPP property in good faith and for reasonably
equivalent value. In connection with the fraudulent transfers of
the Kaneohe property, the jury assessed the following damages:
(2) $29,064.00 in special damages and $17,436.00 in general
damages against Abastillas; (2) $6,000.00 in special damages and
$3,600.00 in general damages against RASCORP; and (3) $156,564.00
in special damages and $93,936.00 in general damages against Mz.
In connection with the fraudulent transfer of the HPP property,
the jury assessed $15,128.00 in special danages and $9,076.00 in
general damages against Abastillas.

With respect to the Kekonas’ conspiracy claim, the jury
found, by clear and convincing evidence, that (1) Abastillas,
Smith, RASCORP, SMI and Bornemann conspired to fraudulently
transfer the Keneche property, and (2) Abastillas, Snith, and
Bornemann conspired to fraudulently transfer the HPP property.

‘The jury assessed $100,000 against Abastillas, Smith, RASCORP,

+ the Honorable Rhonda A. Nishimure presided.

4
+++ FOR PUBLICATION IN WEST'S HAWAI REPORTS AND PACIFIC REPORTER,
SMI and Borneman, jointly and severally, in connection with
their conspiracy to fraudulently transfer the Kaneohe property.
‘The jury asseased another $100,000 against Abastillas, Smith, and
Borneman, jointly and severally, in connection with their
conspiracy to fraudulently transfer the HPP property.

With respect to the Kekonas’ illegal notarization

‘Glaim, the jury found, by a preponderance of the evidence, that
Abastillas and Smith engaged in official misconduct relating to
the acknowledgnent of deeds to the Kaneohe and HPP properties.
The jury assessed the following damages: (1) $95,500.00 in
special damages and $57,300.00 in general damages against
Nastillas; and (2) $95,500.00 in special damages and $57,300.00

 

in general damages against Smith.

Finally, the jury found that Abastillas, Smith,
RASCORP, SMI, and Bornemann were each Liable for $250,000.00 in
punitive damages.

on duly 12, 1999, the circuit court filed a judgment
reflecting the damages awarded in the May 21, 1999 special
verdict form. The judgment also “vacated, cancelled and set
aside as fraudulent and of no force or effect” the following
deeds: (1) that certain quitclaim deed dated May 14, 1992 and
recorded in the BOC as Document No. 93-084805 on May 26, 1993,
pertaining to the HPP property: (2) that certein quitcleim deed
dated June 9, 1992 and filed with the Assistant Registrar of the
Land Court of the State of Hawai'i as Document No. 2029945 on
June 1, 1993, noted on Transfer Certificate of Title No. 342,305,
pertaining to the Kaneohe property; (3) that certain quitclaim
deed dated May 27, 1993 and filed with the Assistant Registrar of
 

*** FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER
the Land Court of the State of Hawai'i as Document No. 2029946 on
June 1, 1993, noted on Transfer Certificates of Title No. 342,305
and/or 414,762, pertaining to the Kaneohe property? (4) that
certain confirmatory quitclaim deed dated October 25, 1993 and
filed with the Assistant Registrar of the Land Court of the State
of Hawai'i as Document No. 2080638 on October 27, 1993, noted on
Transfer Certificates of Title No. 342,305, 424,555, and/or
417,762, pertaining to the Kaneohe property; and (5) that certain
quitclain deed dated October 25, 1993 and filed with the
Assistant Registrar of the Land Court of the State of Hawai't as
Document No. 2080639 on October 27, 1993, noted on Transfer
Certificates of Title No. 424,555 and/or 424,556, pertaining to
the Kaneohe property.

on July 22, 1999, Abastillas, Smith, RASCORP, and SMI
filed motions for a new trial, to vacate the judgment, and for
judgnent notwithstanding the verdict. Bornenann also filed a
motion for new a trial on July 22, 1999.

‘The circuit court denied the motions filed by
Abastillas, Smith, RASCORP, and SMI on September 2, 1999.

On October €, 1999, the circuit court filed an order
denying Bornemann’s motion for a new trial. However, despite
denying Bornemann''s motion, the court concluded that the jury's
award of punitive damages was excessive and ordered a new trial
to determine 2 more appropriate amount:

1. The motion for a new teial be and is hereby dented
averded'as conpireey dosages be and in bereby eanieds
fgeinst[Rocnesann] in Genieds owevers the Court finde thet, the
punitive canages sesesved egeinst. [Borneman] in the amount of

5250, 000.00 was excessive and hereby reduces the amount of
punitive dineges to $75, 000-00.

 

 

 

 

 

 
 

FOR PUBLICATION IN WEST'S HAWAM REPORTS AND PACIFIC REPORTER **

4, There shall be @ new trial solely on the question of
punitive danages awarded to. [the Kekonas] against (Borneman)
Unless, within seven (7) calendar days after service of « copy of
this order on [the Kekonas'] attorney, [the Kekonas] file with the
Clerk of the court a written consent to reduce the verdict to
$78,000.00 for punitive damages awarded to [the Kekonas] against
iBornenann)«

 

 

Following the new trial,” the jury found Bornemann
liable for $594,000.00 in punitive damages. The circuit court
thereafter filed a “Revised Final Judgment” on November 30, 2000,
and an “Amended Revised Final Judgment” on February 26, 2001.

‘The ensuing appeals and cross-appeal, which were
assigned to the ICA, presented the following points of error:

1, Rbastiilaey SHI, Saith, RASCORP, and Ors
Bornenann contend that the cixcuit court reversibly erred by
Eneeructing the jury thet fraudolent transfere could be proven by
a preponderance of the evidence. They contend that clear and
Convincing evidence should have been required

Zi Rbastillasy SMI, Smith, RASCORP, and Or.
Bornenann contend that the circeit court reversibly erred (a) in
holding thet the conmon law “preferential transfer™ rule was
abrogated by HRS 6sic-8 (1993), and. (b) in not instructing the
Jorgite consider the comon in “preferential tranafes™ rule as «
Gefense.

 

3. Notwithstanding their agreement to this
Anstruction, Abastillas, SMI, Seith, and RASCORP contend that the
circuit court reversibly erred when it instructed the Jury that
Sproof of slight connection to conspirecy ie sufficient to support
such accountability(.]"

‘.. Abastillas, SMI, Smith, and RASCORP contend that
the circuit court reversibly erred when it failed to grant their
notions for summary judgnent, directed verdict, or new tris) on
Count Iv, the Fekoraa’ illegal notary claim. (Western Surety
Conpany! contends that the circuit court reversibly erred in
Genying partion sumary sudgnent, directed vergict, oF SNOV en

fount Iv

 

5, _ Notwithstanding thely agreement st trial to
these instructions, Abastillas, SMI, Snith, RASCORF, and Or.
Borneman contend that the circsit Court erred by giving the
Conspiracy instructions because “the vast majority of cases [from
Sther jeriedictions) . . , have refused to allow conspiracy
Sction® for fraudulent transfer(; when) there is no tort, there
can be no conspsracy(=]”

. Abastillas, SHI, Smith, RASCORP, and Dr.
Borneman contend that the circuit court’ reversibly erred in

   

 

 

>the Honorable Victoria S. Marks presided.

7
 

FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER.

refusing, post~judgnent pursuant to 2 Hawas' Rules of Civil

 

 

 

Procedure Rule 60(b) notion, (a) to reduce the Kekonas’ judgment
to the statutory limits specified in HRS § 651C-7, and (b) to
vacate the general, conspiracy, and punitive danages awarded.

3." The Kekonas contend that "(t)he trial court

 

erred and abused ite discretion in awarding the Retones only
52,000 in damages against. (W irety Company), where the
special, ‘general and punitive a ‘caused by the wrongful
notarizatione of Smith and Absstilias excesded $1,000,000."

8. Or, Borneman contends that the circuit court
reversibly erfed by forcing Dr. Bornenann, during the second jury
Erlal, "to present his entire defense during his crose-exanination
in the plaintief's case.”

The ICA’s opinion at 16-17. (Some brackets added and some in

   

   

 

 

 

 

original.) (Ellipses in original.)
On June 8, 2006, the ICA filed @ memorandum opinion
rejecting the foregoing points of error. The ICA affirmed the
circuit court's February 26, 2001 “Amended Revised Final
Judgnent,” except that it vacated (1) the $100,000.00 avard of
general danages assessed jointly and severally against
Abastillas, Smith, SMI, RASCORP, and Bornemann in connection with
their conspiracy to fraudulently transfer the Kaneohe property,
and (2) the $100,000.00 award of general damages ass
and severally against Abastillas, Smith, and Bornemann in

connection with their conspiracy to fraudulently transfer the HPP

 

sed jointly

property, inasmuch as those damage awards were not supported by
evidence in the record.

on July 12, 2006, ornenann filed an application for
writ of certiorari. Smith filed an application for writ of
certiorari on July 17, 2006. The ICA filed a judgment on appeal
fon July 18, 2006. ‘Thereafter, on July 24, 2006, Abastillas filed

her application for writ of certiorari.‘

 

< uawai'i Rules of Appellate Procedure [hereinafter “ERAP*) Rule
40.1(a) (2006) permite « party to apply for a weit of certiorari "[n]o later
(cont inves.

 

 
FOR PUBLICATION IN WEST'S HAWAM REPORTS AND PACIFIC REPORTER,
IX, STANDARD OF REVIEW
‘The appropriate standard of review is set forth in 2006

Haw. Sess. L. Act 149, $ 1, as follows:

 

(a) After iseuance of the interrelate appellate court’ s
judgment or disnissel order, 8 party review of the
[necrmesiate appellate court's decision and judgnent or dismissal
rect only by application to the supreme court for a writ of
Certiorari, the acceptance or rejection of which shail be
Siueretionory upon the ruprene courts

(ol the appiicetion for writ of certiorari shall tersely
state its grounds, which shall include

(i) “Grave errors of Law or of facts oF

{2} Sbeious inconsistencies in the decision of th

Gntermediate appellate court with that of the supreme
court, federal decisions, oF its own decision,
land the magnitude of those errors or inconsistencies dictating the
heed for farther appeal

 

 

   

 

 

III, DISCUSSION

A, Punitive Damages

 

Rornemann first contends that punitive damages are not
allowable where there is insufficient evidence of actual
compensatory damages.

‘his court has stated generally that punitive damages
are “assessed in addition to compensatory damages for the purpose
of punishing the defendant for aggravated or outrageous
misconduct and to deter the defendant and others from similar
conduct in the future.” Masaki v. Genera] Motors Corp., 71 Haw.
1, 6, 780 P.2d 566, 570 (1989). Borneman relies on that portion
of the foregoing statenent that reads “in addition to

compensatory damages” for the proposition that compensatory

 

*(,, continues)
then $0 dave iter the filing of the intermediate court of appesis’ judgment
ce oppeal (21"" tiephasis added.) Although Sornenann and Smith filed prenature
sefestidas, we nevertheless entertained them inasmuch a8 (1) the Ich filed
{EE juconent on appeal before we filed an order dismissing the application
Witnuerpresudices and (2) we are presently in receipt of Abastsiles’
Gpplication, which was tinely filed.

 

 

 
 

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damages are a necessary prerequisite to an award of punitive

 

damages. That intezpretation misconstrues the aforequoted
language. :
The purpose behind requiring actual damages, prior to
the inposition of punitive damages, is to ensure that the
____plaint
california Court of Appeals,

 

tiff has established a claim for relief. As noted by the

    

that the defendant ust
tortious act Before exemplary damages can be. ae:

Topanga Corp, v. Gentile, 249 Cal.App.2d 681, 691-92, 58
Cal.Rptr. 713, 719 (Cal. Ct. App. 1967) (citations omitted).
Other jurisdictions have also identified the

 

establishment of a claim for relief as the trigger authorizing an
assessment of punitive danages, insofar as (1) the establishment
of a claim entities a plaintiff to nominal damages, and (2) an
award of nominal damages satisfies the “actual damages”
requirenent that serves as a prerequisite to an award of punitive
damages. See Hawkins v. Hawkins, 400 $.£.2d 472, 474 (N.C. Ct.
App. 1991) (“Once @ cause of action is established, plaintiff is
entitled to recover, as a matter of law, nominal damages, which

in turn support an award of punitive damages. . . . Therefore,

 

the failure of the plaintiff to actually receive an avard of
either nominal or compensatory damages is inmaterial.”)

(Emphasis in original.); Ault v. Lohr, $3€ So.2d 454, 455 (Fla.
1989) (concluding that “a jury finding of liability is the
equivalent of finding nominal damages and, consequently, the jury

10
 

+++ FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER

may assess punitive damages.”);* Maring-Crawford Motor Co. Vv.
mith, 233 $o.2d 484, 492 (Ala. 1970) (*[AJn award of nominal

 

damages authorizes, in the discretion of the trier of fact, the

and a

 

award of punitive damages where legal malice, willfulne

reckless disregard accompanies the invasion of the rights of

 

another.").
Hawai'i law is in accord. We have previously described

nominal damages as “a token” and “a symbolic award,” see Zanakis-

Pico v. Cutter Dede, Inc., 98 Hawai'i 309, 329, 47 P.3d 1222,
1242 (2002), and that “nominal damages . . . may be a basis for

punitive danages in fraud actions, because the aim of punitive
damages is to punish the defendant, rather than to compensate the
plaintiff.” Ida at 330, 47 P.3d at 1243 (citations onitted); sce
also Meinbera v. Mauch, 78 Hawai'i 40, 51, 890 P.2d 277, 268

(1995) ("The circuit court correctly recognized that, in general,

 

 

punitive damages can be based on nominal damages only.”)-
Accordingly, i£ nominal damages may serve as a basis for punitive
damages, then the establishment of liability must logically
constitute a sufficient basis for assessing punitive danages.

‘Therefore, the ICA did not err by vacating the actual
damages avarded against Bornenann, while simultaneously affirming
the avard of punitive damages, insofar as the ICA did not vacate
== and thus it implicitly affirmed -- Bornemann’s underlying
Liability for conspiring to fraudulently transfer the Kaneohe and
HPP properties.

In Zanakig-bico v. Cutter Podge, Ines, 98 Hawai'i 209, 390 n.4, 47
p.3d 1222, 284 ned (2002), we cited Bulk with approval for the proposition
that a finding of Liability elone will sopport a punitive danage award, even
absent a compensatory danage award.

n
1+ FOR PUBLICATION IN WEST'S HAWAH REPORTS AND PACIFIC REPORTER *#*

‘The “Clear and Convincing Evidence” Standard of Proof

 

Bornemann next contends that the ICA erred by holding
that a fraudulent transfer need only be proved by a

“preponderance of the evidence,” inasmuch as a “clear and

 

convincing evidence” standard of proof was requir

Wie have previously discussed the various burdens of

proof as follows:

‘The law has evolved three standards of levels of proof
for different types of c ‘in most civil proceedings,
such as a case involving a monetary dispute between privat
Parties, the plaintiff mst show by s “preponderence of the
Svidence” that his or her claim is velia. Under the
Breponderance standard, the parties share the risks of an
Srroneous verdict in roughly equal fashion, (Addingten vw.
Texas, €42'0.S. 416,] 423, 98 8.ce. [1804,] 1808, 6) L.ba-24
[323;] 329 [(1973)] The’ preponderance standard’ directs the
factHinder to decide whether "the existence of the contested
fact ig more probable than its nonexistence.” £. Cleary,
NoCormick on Evigence § 339, at 987 (3d ed.i984). As one
commentator points ost, to prevail, “(a plaintift need only
offer evidence sufficient to tip the scale slightly in his
or her favor, and a defendant can succeed by merely keeping
‘the scale evenly belanced.”” Comment, The Innosition of

five Ds
Esnnsvivania, 57 Temp. L.0, 203, 224 (1564)

At the other end of the spectrum, in criminal
proceedings, the government. is required to prove ite cat
Seeyond 2 reasonable doubt.” Soesety has judged that it ss
significantly worse for an innocent [person] to be found
gulity of a Crime than for a guilty [person] to go free.
Therefore, a stated by the Suprene Court, "[w]here one
party has at stake an interest of transcending valuer-ss &
Griminal defendant his [or her] liberty--this margin of
error is reduced as to him by the process of placing on the
ther party the borden... of persuading the foctfinder st
the conclusion of the trial of his guilt beyond s reasonable
Goubt." Soeiser v. kendall, 357 U.S. 513, $15-26{,) 78
S.ct. 1332, 13411,1 2 L.bs-26 1460, i672 (2958)) 28 alec
Addington, ‘442 U.8. at 423-24, 99 §.ce. at 1808, 60 L-8d.26
ae 323.

 

 

 
    

   

 

 

 

 

 

The level of proof between these tho extremes is that
of “clear and convincing” evicence:

 

Thos, “clear and convincing” evidence may be define
an intermediate standard of proof greater than a
Prependerance of the evidence, bur less than proof beyond &

 

12
+#** FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER *

 

reasonable doubt required in criminal cases, Tt is that
Elgree of proof which will produce in the mind of the trier
of fact a firm belief or conviction as to the allegatior
Sught to be established, and requires the existence of &
fact be highly probable.” See Nelson v, Gallaaher, 2
Aowcapp. 242, 205-46, €30 Brad 1077, 1081 (1881), Bud Molt
Shesrelet, Ihe, vw. Robertson, $19 N.E.24 135, 138
(ina-i986}7 MeCormick, gupta, $ 240 at 959-60.

 

fe de15, 780 F.2d at 574-75.

 

Second, we are also
‘allegations of fravd, quasivcriminal wrengaeing,
Inposition of punitive damages, a suit based on a covenployes's
SURifal ene wanton misconduct” may have a stignatizing effect on @
Co-enployes defendant's reputation. The clear and convincing
Standard would ameliorate this risk. As we have previously noted,
the elesr and convineing standard

  

   

 

      

Ls typically used in civil cares involving allegations of
Etaud or some other goaei-criminal wrongdoing by the
Gitencant. "The interests at stake in those cases are deened
Eoibe more substantial than mere loss of money and sone
Jurisdictions accordingly reduce the risk to the defendant
2fhave Isic) nse [or net) reputation tarnished erronecusly
by increasing the plaintift’s burden of proof.

 

 

Ad. at 15, 780 P.2¢ at S74 (citation and internal quotation marks
Saieted)." Sinslariy,

   

1F and convincing proof ie a standard frequently
‘ivil cases where the wisdon of experience has
Genonst (G for greater certainty, and where this
high standard is required to sustain cleime which have
Serious social consequences or harsh or fer reaching effects
én individuals to prove willfel, wrongful and unlawful acts
£ jusedzy an exceptional judicial remedy.

 

 

 

 

 

 

So, in a number of cases where an adverse presumption
is to be overcone, oF on the grounds of public pelicy and in
view of peculiar facilities for perpetrating injustice by
Fraud or perjury, the degree of proof required is expressed
in such terms ae’ "clear and convincing” and the phrase
Srependerance of the evidence” has been expressly
Glsapproved as an insufficient measure of the proof
required

 

Iddines v. Mee-Lee, 82 Hawai'i 1, 13-14, 919 P.2d 263, 275-76

(citations omitted) (some brackets added and some in

of a “monetary dispute between private parties,” thus sugg

(ellipses in original).

At first glance, the present matter appears to consist

 

cing

33
 

*** FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER.
that a “preponderance of the evidence” standard is sufficient.
However, we believe that the higher protections afforded by the
“clear and convincing” standard of proof were necessary inasmuch
as a finding of Liability for a fraudulent transfer produces the
reputational harm that should not be inflicted absent the “degree
of proof which will produce in the mind of the trier of fact a
firm belief or conviction as to the allegations sought to be
established{.)" Indeed the elenent of fraud connotes dishonesty
and effectively brands the liable defendant with an imprimatur of
quasi-criminality.

‘The ICA, when it approved a “preponderance of the
evidence” standard, relied upon United States v. Ayala, 107 B.R.
271 (Bankr. B.D. Cal. 1989). There, the United states Bankruptcy
Court for the Eastern District of California concluded that a
“preponderance of the evidence” standard was appropriate despite
the presence of a “fraud element.” Id. at 274. The court
reasoned that “the [Bankruptcy] Code [did] not state a level of
Proof necessary, {and} that in the face of this silence, (clourte
may not imply a higher standard than the preponderance standard
normally applied in civil proceedings.” Id, However, the avala
Court's reasoning is at odds with that of many other
jurisdictions that have expressly required that a plaintiff prove

a fraudulent transfer by “clear and convincing evidence.” See,

S.a., Blood v, Nofzincer, 834 N.£.2d 358, 367-68 (Ohio Ct. App.
2005); Parker v. Parker, 681 N.W.2d 735, 742 (Neb. 2004); McCain
Is Us ocessors, Inc., 61 P.3d 68, 77 (Kan.

2002); Bradford v, Bradford, 993 P.2d 887, 891 (Utah Ct. App.
1999); Gerow v, Covill, 960 P.24 55, 62 n.8 (Ariz. Ct. App.

au
‘OR PUBLICATION IN WEST'S HAWAM REPORTS AND PACIFIC REPORTER ***
1998); Farrell v. Farrell, 650 A.2d 608, 611 (Conn. Ct. APP.
1994); Jensen v. Eames, $19 P.2d 236, 239 (Utah 1974); Mohar vs
McLelland Lumber Co., $01 P.2¢ 722, 726 (Idaho, 1972)? Orsen v.
Siecle, 165 P.2d 990, 994 (Or. 1946).

Moreover, this court has repeatedly required proof by

 

 

“clear and convincing evidence” with respect to other fraud~

related clains. See, e.g., Schefke v. Relial lect i
Agency, Ltd, 96 Hawai'i 408, 431, 32 P.3d $2, 75 (2001)

(**{Flraud on the court under Rule 60(b) must be established by
clear and convincing evidence[.)”) (Citing Madonna v. United
States, 878 F.2d 62, 65 (2d Cir. 1989).) (Brackets in
original.); Shoppe v, Gucci America, Inc,, 94 Hawai'i 368, 386,
14 P.3d 1049, 1067 (2000) (stating that a party alleging
fraudulent misrepresentation must establish its elements by
“clear and convincing evidence”); Kana v. Harrington, 59 Haw.
652, 656-57, 587 P.2d 285, 289 (1978) (“In dealing with written

contracts, the standard of proof with respect to a showing of

 

fraud is extremely high. A written contract will be cancell
because of fraud only in a ‘clear case and upon strong and
‘convincing evidence.’”) (Citing Soares v. Freitas, 38 Haw. 64,
65-66 (1948).).

‘Therefore, we conclude that the ICA gravely erred when
it determined that a “preponderance of the evidence” standard was
sufficient. Insofar as the fraudulent transfers have not been
sufficiently proved, the circuit court’s cancellation of certain
quitclaim and confirmatory deeds must be vacated. Furthermore,
Anasmuch as neither party takes issue with the circuit court’s

instruction that the jury must find that the transfers were

as
 

‘++ FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER +4
fraudulent in order to find a civil conspiracy, we also vacate
Bornemann’s liability for conspiring to commit fraudulent
transfers. Absent liability for the conspiracy claim, there is
no basis for the $594,000 punitive damage award. See discussion
supra at Part IITA.

Cc. Standing

Bornemann’s third point of error asserts that damages
for fraudulent transfer are not warranted where reconveyance is
ordered and the value of the property is sufficient to satisty
the underlying judgment.

As previously mentioned, the jury assessed the
following damages against Bornemann: (1) $100,000 general
damages in connection with a conspiracy to fraudulently transfer
the HPP property; (2) $100,000 general damages in connection with
‘@ conspiracy to fraudulently transfer the Kaneohe property; and
(3) $594,000 punitive damages in connection with his conspiracy
to transfer the HPP and Kaneohe properties. However, the ICA
vacated both $100,000 general damage assessments. Accordingly,
Bornemann may not argue before this court that the general
damages awarded were not authorized. See State v. Baxley, 102
Hawai'i 130, 134, 73 P.3d 668, 672 (2003) ("An aggrieved party
has been defined by this court in a civil context as ‘one who is
affected or prejudiced by the appealable order."") (Citing
Waikiki Malia Hotel, Inc, v. Kinkai Properties, Ltd., 75 Haw.

370, 393, 862 P.2d 1048, 1061 (1993).) (Emphases added.) .

 

any opinion as te the accuracy of this

 

Se do not, however, expr:
jury instruction:

 

16
   

HAWAII REPORTS AND PACIFIC REPORTER *

 

FOR PUBLICATION IN WES’

 

¢ Preferential Transfer Rule

 

Bornemann, in hie fourth and final point of error,
contends that HRS chapter 651C does not expressly dispense with
the preferential transfer rule,’ and thus the preferential
transfer rule survived the legislative enactment of the UFTA.

Preliminarily, we note that part of the confusion is
engendered by Bornemann’s characterization of the ICA's
conclusion. The ICA did not conclude that the UFTA “abrogated”
the preferential transfer rule, as Borneman avers, insofar as
the use of that term connotes that the underlying concept of a
preferential transfer no longer exists." Rather, the ICA held
that the Hawai'i UFTA “replaced,” or superseded, the preferential
transfer rule.’

A fair reading of HAS § 6510-4 indicates that not all
transfers by a debtor are fraudulent. Thus, a transfer of

property to 2 preferred creditor is not, in and of itself,

 

>the preferential transfer rule, as pronounced by this court in Ia

re Application of Sec. Inve Cou, 33 Haw. S6¢ (1935), 18 25 follows

[at is not fraudulent for a debtor in failing circumstances to
hrefer one or more of his bona fide crecitors to the exclusion of
Ether creditors, he having a Legal right, although insolvent or én
failing circumstances, to prefer one of ore of his creditors by
Giving security for and limited to the enount of his valid debt
Soteitnetanding thet the claims of other creditors will thereby be
Gelayed oF defeated; that such preference slthough it may exhaust
Of seduce the sssets of the debtor so as to leave other creditors
Gepaid and without the meane of collecting their claims does not

 

 

 

 

oiiesel? hinder, delay er defraud creditors within the meaning of
@ feaudslent conveyance to ceprive them of any legal rights
Ia. at 368
‘see Black's Law Dictionary 7 (@th ed. 200¢) (stating that the term

“abrogate” sears “[t]o abolish (a law or custom) by formal or authoritative
action; to annul or repeal.)

 

sto “eupersede” means “[t]o annul, make void, or repeal by taking the
plece of.” Bisck'e Law Dictionary 1479 (8th ed. 2008)

vv
 

{+++ FOR PUBLICATION IN WEST'S HAAN REPORTS AND PACIFIC REPORTER.
fraudulent. Such a “preferential transfer” does not earn the
title “fraudulent” unless it falls within the scope of either HRS
§ 6510-4 or HRS § 651C-5. Accordingly, we generally agree that
the concept of a preferential transfer has not been “abrogated”
by HRS chapter 651C.

Wie do not, however, accept Bornemann’s subsequent
assertion that preferential transfers are not fraudulent;
regardless of the presence of actual fraudulent intent. HRS §
651C-4(a) (1) perspicuously states that “{a] transfer made. .
by a debtor is fraudulent as to a creditor . . . if the debtor
made the transfer . . . {wJith actual intent to hinder, delay, or
defraud any creditor of the debtor[.)” (Emphasis added.) Thus,
Bornemann’'s contention that the presence or absence of “actual
intent” is irrelevant directly contradicts the plain language of
the statute.

In sum, although Hawaii’s UPTA does not preclude
preferential transfers per se, if the preferential transfer was
made with “actual intent to hinder, delay, or defraud any
creditor” the transfer will be deemed fraudulent. Accordingly,
Bornemann’s present point of error is inapposite.

IV. coNcLUSION

Based upon the foregoing, we conclude that the ICA
gravely erred by holding that a plaintiff need only prove a
fraudulent transfer by a “preponderance of the evidence.”
Accordingly, we vacate the ICA's opinion to the extent that it
(2) affirms Bornemann’s liability for conspiracy to fraudulently
transfer the Kaneohe and HPP properties, (2) affirms the
$594,000.00 punitive damages award, and (3) affirms the circuit

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+ FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER ***
court's cancellation of the various deeds transferring the
Kaneohe and HPP properties.

We also vacate the circuit court's February 26, 2001
~amended Revised Final Judgment” as to Bornemann, including (1)
those portions of the judgment finding Bornemann liable for civil
conspiracy to commit fraudulent transfers, and (2) those portions
of the judgment assessing the $594,000.00 punitive damages award.
We also vacate the circuit court’s February 26, 2001 “Amended
Revised Final Judgment” to the extent that it cancels the
following deeds: (a) that certain quitclaim deed dated May 14,
1992 and recorded in the BOC as Document No. 93-084805 on May 26,
1993, pertaining to the HPP property; (b) that certain quitclaim
deed dated June 9, 1992 and filed with the Assistant Registrar of
the Land Court of the State of Hawai'i as Document No. 2029945 on
June 1, 1993, noted on Transfer Certificate of Title No. 342,305,
pertaining to the Kaneohe property; (c) that certain quitcleim
deed dated May 27, 1993 and filed with the Assistant Registrar of
the Land Court of the State of Hawai'i as Document No. 2029946 on
June 1, 1993, noted on Transfer Certificates of Title No. 342,305
and/or 414,762, pertaining to the Kaneohe property; (d) that
certain confirmatory quitclaim deed dated October 25, 1993 and
filed with the Assistant Registrar of the Land Court of the State
of Hawai'i as Document No. 2080638 on October 27, 1993, noted on
Transfer Certificates of Title No. 342,305, 424,555, and/or
417,762, pertaining to the Kaneohe property; and (e) that certain
quitclaim deed dated October 25, 1993 and filed with the
Assistant Registrar of the Land Court of the State of Hawai'i as
Document No. 2080639 on October 27, 1993, noted on Transfer

as
 

‘+++ FOR PUBLICATION IN WEST'S HAWAII REPORTS AND PACIFIC REPORTER *
Certificates of Title No. 424,555 and/or 424,556, pertaining to
the Kaneohe property.

We therefore remand the case to the circuit court for a
new trial as to (a) whether the Kekonas can demonstrate that the
transfers were fraudulent by “clear and convincing evidence,” (b)

whether the Kekonas can demonstrate, by “clear and convincing

 

evidence,” that Bornemann conspired to fraudulently transfer the
Kaneohe and HPP properties, and (c) the appropriate remedies to
be assessed against Borneman, if any."

Peter Van Name Esser and
Edward J. Bybee for petitioner

Michael Borneman, M.D.,

Fred Paul Benco for :
respondent Benjamin Paul ROAM Romo
Kekona and Tanae M. Kekona

on the response Bras co Ce uel iT

Goren €. Duds br»

Te E k.10. Re

 

ie reiterate the point thet Absstillas and Smith failed to present
any meritorious argunent in their applications for write of certiorari.
Notably, neither Abastilles nor Smith raised the insufficient standard of
proof issue in their applications to this court. It 4s fundamental that
E[gluestions not presented... will be disregarded.” ARAP Rule 40-2 (2) (1)
le do not perceive the requisite prejudice warranting a plain error analysis.
Seq HRAP Role #0-1(4) (1) ("the supreme court, at its option, may notice @
Plain error not presented.”).. Accordingly, the ICA's opinion and the circust
Court's February 26, 2001 “Amended Revised Final Judgment” ere affirmed as to
Shem

 

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