Case Title: Kemp v. State of Hawaii Child Support Enforcement Agency.

Citation: 111 Haw. 367

Docket Number: 

State: hawaii

Court: Hawaii Supreme Court

Date: 2006-08-21T00:00:00Z

Document:
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IN THE SUPREME COURT OF THE STATE OF HAWAI'I

 

000.

ANN C. KEMP, Individually and as Next Friend for
LINDSAY AGNES KEMP, on Behalf of Herself and Others
Similarly Situated, Plaintiff-Appellee/Cross-Appellant

STATE OF HAWAI'I CHILD SUPPORT ENFORCEMENT AGENCY:
STATE OF HAWAI'I, Defendants-Appellants/Cross~Appellees

No. 26084

APPEAL FROM THE FIRST CIRCUIT COURT
(CIV. NO. 98-3615)

AUGUST 21, 2006

 

MOON, C.J., LEVINSON, NAKAYAMA, ACOBA, AND DUFFY, JJ.

OPINION OF THE COURT BY ACOBAL J.
Defendants-Appellants/Cross-Appellees State of Hawai'i
Child Support Enforcement Agency and State of Hawai'i (CSEA or
collectively, CSEA as the case may be) appeal from the Final
Judgment of the circuit court of the first circuit! (the court),
filed July 16, 2003, determining that (1) the CSEA has a
fiduciary duty to disburse child support payments subject to

Hawai'i Revised Statutes (HRS) § 571-52.2(e) (Supp. 2005)? within

 

| the Honorable Sabrina S. McKenna presided.

2 Hawas's Reviges Statutes (HRS) § 571-52.2 (Supp. 2005), entitled
cputomatic asssgnnent by court or administrative order of future income for
payment of chila support,” provides in relevant part

 

(continue)
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two days of receiving notification that a negotiable instrument

 

has cleared or within two days of receiving a cash payment,
(2) the CSEA breached its fiduciary duty to obliges whose child

ncashed check” or “bad

 

support payments were held in the

address” accounts; (3) the named Plaintiff, Ann C. Kemp (Kemp),

 

contin)

(e)__An employer receiving an sssignnent order shall
end the anounts withheld to the designated obliges or, if
Fequested, to this State's child support enforcement agency
within five working days after the obligor is paid. The
‘ceployer shall begin withholding no later than the first pay
period occurring within seven business days following the
Bote. a copy of the order is mailed to the employer. As used
Sn this subsection, the term "business day” means @ day on
which the employer's office is open fer regular business.
The employer shall withhold funds os directed in the order,
Cncept that when an enployer receives an incone withholding
‘Srder Aneued by another state, the employer shell apply the
Sneone withholding lau of the state of the obligor’s
Principai place of smployeent in’ deternining:

‘The employer's fee for processing an income
assignment order;

(2) The maximum amount permitted to be withheld trom
the obligor'e income under section 303(5) of the
Conguner ‘credit Protection Act (15 J.8.c. §
aers (BI)

(3) The tine periods within which the employer aust
Implenent’ the incone withholding order and
forward the child support payment

(4) The priorieses for withholding and allocating
incone withheld fer multiple child support
obliges; and

(5) Any withholding terns or conditions not
specified in the order.

An employer who Complies with an incone assignnent
order thet is regular on its face shall not be subject to
elvil Llabilley to any person or agency for conduct in
cenpliance with the order.

‘An employer who is required to withhold amounts from
che incone of sore than one obligor may renit 2 sum total of
the amounte in one check, with a listing of the amounts
‘applicable to each obligor”

Within two working days after receipt of the anounte
withheld by the enployer, the child support enforcenent,
Soency shall disburse those snounts to the obligee for the
Benefit of the child, except that the child support
enforcenent agency aay delay the distribution of collections
toward arrearages until the resclution of any timely request
for @ hearing with respect to such arrearages.

 

 

  

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was an adequate representative of the class; (4) a common fund
was created for the purposes of paying the attorneys’ fees and
costs of Kemp, Individually and as Next Friend for Lindsay Agnes
Kemp, on Behalf of Herself and Others Similarly Situated
(collectively, Plaintiffs]; and (5) attorneys’ fees and costs be
awarded to Plaintiffs. We hold that, (a) as to items (1) to (4),
the obligees included in the “uncashed check” and “bad address”
categories were not adequately represented by Kemp, therefore,
any judgment regarding their claims against the CSEA was
incorrect; and (b) as to item (5), because Plaintiffs are not the
prevailing party, the award of attorneys’ fees and costs was also
incorrect. Accordingly, we vacate the court’s Final Judgment in
part to the extent that it determined that (1) the CSEA breached
its fiduciary duty to obliges in the “uncashed check” and “bad
address” categories; (2) Kemp was an adequate representative of
the Class; and (3) Plaintiffs were entitled to attorneys’ fees
and costs, and remand with instructions to dismiss as to those

matters.

 

* We affirm the courts July 16, 2003 Final Judosent ineofar as it
Getermined that (1) named Plaintift, Ann C. Kemp, has 8 property interest in
Child support payments collected on her behalf By Oefendant-Appellant /Cross
Jppeliee State of Hawai" Child Support Enforcement Agency (CSEA), (2) the
CEEA is" flasclary for the purpose of disbursing child support payments, and
(3) the SEA has @ fcuclary daty to disburse child support payments within
two working days of receiving notification that a negotiable instrument hes
cleared, oF within two working days of receiving cash.

Ke discussed with respect to Plaintitfs" cross-appeal, we alse
effizm the court's (1) grent of summary judgment with respect to (a) accrued
Interest for child support disbursements, and (5) the determination that
Plaintifts are not entitied te an scecunting of accrued interest, cs well as.
(2) the court's ruling in the Final Judgment that the CSEA does not have
implied contractual duties to obligees

 

 

  
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Plaintiffs cross-appeal from the Final Judgment
challenging the findings contained in the Sunmary Judgment Order,
filed July 14, 2000, that (1) Plaintiffs had no cognizable
property interest in any interest earned on delinguent child
support disbursements and (2) as such, Plaintiffs were not
entitled to an accounting of any interest earned on delinquent
disbursements. Plaintiffs also challenge the court’s conclusion
in the Final Judgment that the CSEA does not have implied
contractual duties to obliges. We hold that (1) the court did
not err in granting CSEA summary judgment on the grounds that
Plaintiffs do not have a property right on accrued interest for
child support disbursements made outside the statutory two-day
period, (2) Plaintiffs are not entitled to an accounting of the
accrued interest, and (3) the CSEA does not have implied
contractual duties to obliges. Accordingly, we affirm those
parts of the Summary Judgment Order and Final Judgment from which
the Plaintiffs cross-appeal

I.
aL

A brief history of the development and purpose of the
CSEA is useful. In 1975, Congress created a federal-state
cooperative program of child support enforcement under Title IV-D
of the Social Security Act. The Auditor, State of Hawai'i,
Follow Up Management Audit of the Child Support Enforcement
Agency, A Report to the Governor and the Legislature of the state
of Hawaii, Rep. No, 00-06 at 1 (February 2000) [hereinafter,

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SSS

2000 Audit}. The CSEA was established pursuant to HRS chapter
5760 and was originally placed under the administration of the
Department of Social Services and Housing (now Department of
Hunan Services). Id, In July 1987, the CSEA was made a division
of the Attorney General's Office. Id. The CSEA is charged with
enforcing child support orders.‘ The CSEA collects payments from
non-custodial parents and disburses the collected amounts to
state and federel government agencies and to custodial parents.
‘The program has two primary purposes: (1) to recover public
assistance benefits paid by the government for dependent children
from non-custodial parents; and (2) to help custodial parents who
are not receiving public assistance remain self-sufficient by
assisting them in the collection of child support. Id. at 2.
‘The CSEA must receive and disburse child support

payments when required to do so by @ child support order. Id.
‘The agency locates and contacts non-custodial parents who fail to
comply with child support orders. Id, If necessary, the agency
uses statutory powers to enforce compliance, including submission

to genetic testing to establish paternity, seizure of income tax

 

+The 2000 Audit defines child support in the following manne:

 

weniid Support” means payzent for the necessary
support and maintenance of 2 dependent child as required by
Ione, Typically, a court or administrative agency issues an
order establishing thet a parent who does not have
(physical) custody of the child (the noncustodial parent)
Shes chile support to or on behalf of s child, or to the
ferent, quardian, cr other person having custody of the
Enild {the custodiel parent); In some cases, the payment
goes directly to a government agency a# “reimbursement” for
Meltare benefits received by the child.

 

The Auditor, State of Hawas't,
semen’ Report tou or and the Leaisisture of
Siiawaii, Rep. No- 00-06 at 1 (February 2000).

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returns, forfeiture of property, denial of passports, suspension
Id

of licenses, and freezing of financial asset:

 

B.
Pursuant to 42 U.S.C. § 652 (2000)* the federal

government monitors the CSEA for “substantial compliance” with

the statutes and regulations governing the disbursement of child

support payments, meaning that 75%* of payments be made within

+ 42 U.S.C. § 65244) (3) {A} (444) (2000), entdtied “Child Support and
Establishnent of Paternity; Duties of Secretary; Chllé support management
information system,” provider in pertinent part, se fellows

(3) The Secretary (of Health and Hunan Services) may
waive any requirenent of paragraph (1) [requiring approval
Of the autonsted asta processing system) ] of any condition
Specified under section 654(16) of this titie [Iproviaing
Guidelines for automated systen)} and shall waive the single
Statewide system requirenent under sections 654 (16) and 68
of this title with respect to a state if =

(a) the State demonstrates to the satisfaction of the

Secretary that the State has oF can develop an

alternative system or systens that enable the State ——

 

 

   

* (Gis) to substantially comply with the
requirenente of this part{-T

(emphasis added.)
4 45.C.F.R. § 308.2(b) (2008), entitied “Required program compliance

criterias Establishment of paternity end support order,” provides in pertinent
part:

 

ib)... The State must have and use procedures
required in thie paragraph in at least 75 percent of
the cases reviewed,
(2) Tf an erder for support is required and
eetablished during the review period, the cose
ects the requirements, notwithstanding the
Tinefranes for: establishment of cases. 2
specified in Sec. 303.2(b) of this chapters
provision of services in interstate Iv-O caces
per $303.7(al, (bl, (c)(4) through (6), and
{e)(8) and (5]'of this chapter; and location and
support order establishment under $6 303-3(b) (3)
ana (5), an¢.303-4(@) of thie chapter
(2) If tn order was required, but not
established curing the review perioc, the State
Bust determine the last required action and
Getermine whether the action wae taken Within
the apprepriste tinefrane.
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the various time frames established under 45 C.F.R. § 302.32

(2004) .”

 

745 c.F.R. § 302.32(b) (2008), entitled “Collection and
disbursement of support payments by the IV-D Agency,” provides in pertinent
part:

(b) Tinefrancs for disbursement of support payments by State
Giebureenent nit (S00) under section 454B Of the (Social
Security) Act.

(2) Ih interstate 1V-0 cases, ancunts collected by the
responding State on behalf of the initiating state must be
forwarded to the initiating State within 2 business dave of
the date of receipt by the SOU in the responding sta
accordance with §203.7(¢) (7) (iv)

(2) Anounts collected by the IV-D agency on behalf of
recipiente of aid under the State's title IV-A or IV-E plan
fer whom an assignment under sections 408 (2) (3) oF
251 (a) 7) ef the Act 4s effective shall be disbursed by the
S00 within the Zollowing timeframes!

{s) except aa specified under paragraph (b) (2) (4¥) of

this section, if the SDU sends payment to the family

(other than payments sent to the family from the state

share of assigned support collections), the SOU must

Send these payments a

{in which the payment was received by the

‘S00. Any payment passed through to the family from

the ‘state share of assigned support collections must

be sent to the fonily Miehin 2 businese gave of the
date of receipt by the S00.

(AL) Except a6 specified under paragraph (b) (2) (4v) of

this section, when the SOU sends collections to the

family for the month after the month the family
becones ineligible for title IVA, the SOU must send
collections to the family within 2 business dave of
the date of receipt by the sbU.

(i) Except as specified under paragraph (b) (2) (iv)

Of this section, when the SDU sends collections to the

I-E fester care agency under § 302.52(b) (2). and (4)

of this part, the SOU must send collections to the

IV-E agency within 15 business dave of the end of the

‘outh in which the support was received by the S00;

iv) Collections as 2 result of Federsl incone tax

refund offset paid to the fanily under section

457 (a) (2) (dy) 0f the Actor distributed in title IV-E

foster care cases under § 302.52(b) (4) of this part,

must be sent to the 1V-A faniiy or IV-E agency, as
appropriste, within 30 calendar davs of the date of

Snitisl receipt by the 1¥-0 agency, Unless state lav

requires s postvoffsct appeal process anc an appeal ie

filed timely, in which case the SoU must send any.

payment to the IVR fanily or IV-E agency within 25

Eslendar days of the date the appeal is resolved.

(3) (4) Except as provides uncer paragraph (b) (3) ($4)
of this section, amounts collected on behalf of individuale
Feceiving services under § 302.33 of this part shall be
Gisbursed by the SOU pursuant to section 45) of the Act,

of receipt by the S00
TET} Collections due the family under section

 

  

 

 

 

 

 

 

 

 

 

 

(continued.
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on March 30, 1999, Michael Meaney (Meaney), then
administrator of the CSEA, filed a report with the federal
government stating that the CSEA was in “substantial compliance”
for the period of July 1, 1998 through December 31, 1998. A
preliminary report for the first quarter of 1999 indicated that
the CSEA distributed 91.48" of payments within the time limits
prescribed by law, well above the federal government’ s
substantial compliance standard.

In recent years, there have been many complaints sbout
CSER, primarily concerning alleged shortcomings in processing
child support payments and poor agency response to clients’
problens. Margery Bronster, then-Attorney General, and Meaney
testified before the State Senate Ways and Means Committee that
the CSER's voice response unit averaged 2,500 calls per day since
Joly 1998, when the agency’s new automated system was
implenented. One thousand callers per day were served by the

automated system, but the remaining 1,500 requested to speak to a

 

"(osontinved)

157 (a) (2) (iv) of the Act as a result of Federal income tax
Fefund offset must be sent to the family
Gaus of the date of initial receipt in the IV-D agency,

 

 

(a) TE State law requires 2 post-offeet appeal
process and an appeal is timely flied, in which case the S00
must send any payment to the fanily within 15 calendar dave
Of the date the appea is resolved: or

(B) Ae provided in §303.72(h) (5) of this

 

chapter
cempni

  

ised.)
+ according to Michsel Meaney, the statistics reported to the
fal goversnent regarding timeliness of payments exclude “unidentified or
held payments.” Alten Kagaws, chief accountant for the CSEA from 1986 to
1596, explained that federal iaw allows the CSEA to exclude unidentsties
payments, properly held payments, and non-Title IV-D cases from the reports on
Eimely disbursement of child support payments.

8

0

   

 

 

 
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Live operator, The CSEA estimated that the average call required
15 minutes to complete. The volume of calls overwhelmed the CSEA
staff. The apparent lack of customer service was compounded by

the fact that the ratio of cases to caseworker in Hawai'i wi

 

1,000 cases per caseworker, although industry stendards dictate
that @ ratio of $00 cases per caseworker is unacceptably high.
‘Alton Kagawa (Kagawa), the chief accountant of the CSEA
from September 1986 to September 1988, explained that the KEIKI
systen was designed to meet requirements for the timely and
accurate processing of payments and disbursements. It was @
significant change from the previous system, KFRI, which was
designed primarily for bookkeeping in 1984, but was used for
additional purposes as well. With KEIKI, the CSEA had 2 fully
automated system that integrated financial, enforcement,
paternity and order establishment, and modification services.
Agency officials asserted that the rush to complete the
KEIKI system may have had unanticipated outcones, resulting in an
overwhelming need for assistance among agency clients. The 2000
Audit noted that, in Report No, 96-12, Audit of the
Implenentation of the Child Support Enforcement Agency’ s
Infomation System, the Auditor “found fault with the overly

ambitious initial scope of the information system project,

 

inadequate technical resources assigned to the project, and .
[xecommended) completing # support and maintenance plan.” 2000

audit at 8.
 

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In 1999, the Office of the Auditor of the State of
Hawai'i (the Auditor) conducted a follow up management audit of
the agency.” In the 2000 Audit, the Auditor noted that

the agency has failed to address longstanding weaknesses in
ite financial management and has not implenentea
Feconmendations of previous audite pertaining to financial
Sanagenent. Bank accounts are not reconciled snd accurately
Feported and accounting for interest earnings 1s

Isproper ‘The deficiencies include (a) inadequate
Gata cleanup; ixsining, and maintenance for the agency's
Sctenated systems; (B) weak personnel management, including
failure to inplenent an"agency reorganization? and {c) the
inability to respond effectively to the needs of ite clients
(eustedial and nencustedial parents)

   

Id. at 11. The Auditor further found that “‘Bad data’ -
erroneous information stored in agency computer records - lead to
such problems as KEIKI . . . generating duplicate records or
erroneously initiating or suspending activities, contributing to
client frustration and complaints.” Id. In addition to these
problens, the Auditor discovered that “[t]he agency may have
improperly used interest earnings for purposes not authorized by
law and has commingled state and federal funds in violation of
legislative intent and accounting principles.” Id, at 15.

The financial management of CSEA has improved
significantly since the publication of the 2000 Audit. Many of
the recommendations of the Auditor, such as monthly bank

reconciliations, have been adopted. Also, CSEA hired a Certified

+ Management audits “examine the effectiveness of prograns or the
efficiency of agencies or both.” The Auditor, state of Hawai'i Follow Up
Manasenent Audit of the Chilo dupcort Enforcement Aaenev, A Report to The
Governor and the Lesislatize of the State of fasta, sep Ne. 00-0 at
Preface (Feb, 2000). Moreover, “{t]hese audits are also called program
Sugits, when they focus on whether prograns are attaining the cbjectives ond
Fesults expected of then, and operations audits, when they exanife how well
agencies are organized and managed and how efficiently they acquire ane
stilize resources.” dd.

 

 

   

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_

Public Accountant, Sherry Wang (Wang), as its Chief Financial
officer, which the Auditor had been recommending since 1992. Id.
at 8.

1.

AL

on May 19, 1998, in FC-D No. 98-1824, Kemp was divorced

from her husband. Under the divorce decree, Kemp was awarded
custody of their minor child. As reflected on the May 19, 1998
order of Income Assignment, Kemp was awarded child support in the
amount of $380 bi-weekly. On May 20, 1998, Kemp's attorney sent
copies of the Order of Income Assignment to the Department of
Finance Payroll Office of the husband’s employer and to the CSEA.
The payments were deducted from the husband’s paychecks starting
on Nay 29, 1998. Despite numerous inquiries to CSEA, the agency
did not issue checks to Kemp until July 20, 1998 and July 22,
1998, as a result of “glitches” caused by the transfer to the new
KEIKI system. Kemp testified that all of her payments since then
have been timely.

B.

on August 26, 1998, Kemp filed suit against the CSEA on

behalf of herself and all others similarly situated, The
complaint contained six counts: (1) Count 1, for declaratory
relief; (2) Count 11, for injunctive reliefs (3) Count 111, for
danages caused by breach of implied contract; (4) Count IV, for

damages caused by breach of fiduciary duty; (5) Count V, for an

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accounting and information; and (6) Count VI, for the creation of
a common fund.

On February 5, 1999, the court" designated the suit as
complex litigation. On May 17, 1999, the court! entered an
“order Certifying Class and Class Issues” (Class Order) providing
that the “case shall proceed as a class action under Hawaii Rules
of Civil Procedure [(HRCP)] Rule 23(b)(2)["] only." The Class
Order defined the Plaintiff Class as follows:

All Persons vho, within to years prior to the filing
of the Complaint herein, were entitled to receive child
Support payments through the CSEA of the State of Hawas't;
and all Persons who, more than two years before the filing
‘subject to a legal disability,

Child support payments through the
CSEA of the State of Hawai'i, and whose legal disability

sd. one year prior to the filing of the ney anc
I Persone who sre hereafter entitled to
fuppore payments through the CSEA of the State of Hawa,

 

  

          

within the tine
Halts set forth In the Hawaii Revised Statutes, including
Persons for whose benefit child support payments ore
tendered.

(Emphasis added.)
‘The court determined that the conmon questions of fact
and law included, but were not limited to (1) whether Defendants

violated any law by disbursing child support payments after the

“the Honorable Kevin S.C. Chang presided,
"the Honorable Gail C. Nakatani presided.

© Hawai'i Rules of Civil Procedure {MRCP} Rule 251b)(2) (2006),
entitled “clase actions maintainable,” provides in relevant part

an action may be maintained es  cless action if the
prerequisites of subdivision (a) fe satisfied, and sn
beaitson:

   

iz) the party opposing the class has acted or refused
to act on grounds generally applicable te the class, thereby
hnaking appropriate final injunctive relief or corresponding
Geclaratory Telief with respect to the class as a wnelel-]
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time periods set by lew: (2) whether Plaintiffs are entitled to
any Anterest earned on child support payments held in the
interest-bearing account; (3) whether retention of interest
earned on child support payments after the expiration of the tine
period set by law constitutes a taking of property without due
process of law; and (4) whether Plaintiffs are entitled to an
injunction requiring the CSEA to comply with the time periods set
by law.

On June 7, 1999, the case was assigned to Judge
McKenna. On April 26, 2000, Kemp filed a Motion for Partial
Summary Judgment seeking: (1) @ ruling that Plaintiffs have
property rights in the interest earned on child support payments
that are not paid within the time limits prescribed by law; (2)
ruling that the retention of the interest on delinguent payments
by the CSEA or the State of Hawai'i is @ taking of private

property for public use without just compensation within the

 

meaning of the United States Constitution and the Hawai'i
Constitution; and (3) an order that the CSEA and/or the State of
Hawai'i must provide Plaintiffs with a full and complete
accounting of the funds that they have had in their possession.
on April 28, 2000, CSEA filed a Motion for Summary
Judgment, asserting various defenses against Plaintiffs’ clains.
Defendants asserted that the suit was barred by sovereign

inmunitys that the action was barred because HRS § 576D-10 (Supp.

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2005)” “earmarks” any interest earned for other purposes; that
there was no statutory basis for Plaintiffs’ claim to interest
earned; that state statutes specifically provide that Plaintiffs
were not entitled to interest prior to judgment being obtained:
that Plaintiffs did not have a property interest in any interest
that may have accrued on child support payments; and that the
amount of money, in the form of interest, was de minimis and did
not rise to a constitutionally protected property right.
on July 14, 2000, the court entered its Sumary

Judgment Order (the Sunnazy Judgment Order) granting CSEA partial
sunnery judgment. In the Summary Judgment Order, the court
concluded, inter alia, that the nenbers of the Plaintiff class
did not have a cognizable property interest in the interest
generated by child support payments held by CSEA in an interest-
bearing account thet were disbursed delinquently. However, the
court did conclude that the Plaintiffs had a protected property
interest in the corpus, or principal, of the child support
payments and, accordingly, ordered 2 future accounting regarding
the corpus of child support payments that remained unpaid within
the prescribed time periods as of July 31, 2000." Pursuant to

% ans § £760-10 (Supp. 20051, gntitied “Collection and disbureel of
child supports direct. payment exception,” provides in pertinent pare that the
Gheerest' Fealized fron the special interest bearing account for Child: soppore
paynents be used for “related coate of the neintensnce and operation of the
Credit Of the general func." she statute was suended in 1559 te reflect that
Snterest shal2’alse be used “(tio inprove the child support enforcement

agency’s ability to promptly disburse payments to the custedial parent.” 1989
Haw. Sess, L, Act 300, 3 at 821.

 

 

‘ry Wang, CSEA'S Chief Financial Officer, wes initially unable
fon regarding delinquent and held paysents fron the
(cominved.)

  

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the Stipulation Re: Accounting Date approved and filed on

July 11, 2002, the relevant date was changed to February 28,
2002.
um.
Following the court's grant of partial summary
judgment, the following matters were left for determination.

Count 1 Declaratory Relief:

(a) wyether delay by the CSEA in disbursing child
support payments Within the tine {vanes specified violates
HRS § s71=22-2(€)7

(2) Whether child support payments become the property
of the minor obliges upon expiration of the two or five
working-dey period specifies by HRS § S71°52.2(e) and
hether of not 0 concluding and/er not concluding that any
accrued interest after that point is also the obliges’ s
Property would frustrate the purpose of HRS chapter $72
bna/er would provice an incentive for renaining in violation
of a valia seacute

(3) wether RS $5 571-52.2(e) and $760-10 are
statutes which are in pari materia and must be read in 3
henner consistent wath their Legislative purpose and which
oes not emaacolate oF delete one another:

a) ‘whether Defendants hold child support payments for
the benefit of the oblig to HRS § 5760-10, and
wisther Defendants are fiduclaries for the purpose of
‘Sisbursine those pements~

 

  

 

OF the ident ses
Of the persons to wnom child support disbursenents are still

 

 

Count 11, requesting Injunctive Relief

(1) hether Plaineitfs are entitled to an injunction
cizecting Defendants to inmedletely [begin] disbursements of
delinguent chile support payments; and

(2) whether Plaintiffs are entstled to an injunction
directing defendants to implement e system by which chile
Support payments will be disbursed within the tine frame
required by statute.

 

“ccominaes)
aysten, “ae required by the court's Sunmary Judgnent Order. She eventuslly
persuaded CSEA staff to create = program that would allow her to obtain that
Enformetion from the REIKI aystem: his allowed her to comply ith the
court's Summary Jusgnent Order with respect to an accounting, provide the
federal government with accurate information regarding the collection and
distrizution of child support, and to fully understand the CSEA's financial
picture by 2002.

 

as
‘**FOR PUBLICATION IN MEST’S HAWAI'I REPORTS AND PACIFIC REFORTER***

 

count 111, claiming damages for Breach of Implied
Contractual Duties:

a

uShurse chi euppes ine

{range requires by MRS § S71-82.2(@17

(2)St eo, ubether the Defendants axe failing to
Fequired by Whe $ S1i-S2-z(e17 and

(3) If s0, waether through such failure, the
Detenaante have materially Breaches any #vch implied
contractual duties

 

count 1¥, claiming damages for Breach of Fiduciary Duty:

(1) nether under HRS § S76D-10, Defendants are
required to hold collected child support payments in trust
fer the benefit of the sbligees, particularly the childrens
asd

 

(2) 14 20, whether Defendants have foiled te abide by

pavmente withia the tine Trane requires by HRS $577
Srzie)

Count v, requesting an Accounting/Information

child support psvmente ona Pisely batiay and
(2) Tf eo, x7 7
provide Plaintiffs with an accounting or information

concerning such persons;

Count VI, requesting the Creation of 2 Common fund, for the
benefit Of the Class; to distribute any delinquent child
support payments.

 

(emphases added.)
A bench trial took place with respect to the foregoing
matters from September 10 to 20, 2002, with Kemp, individually,
as next friend of Lindsay Agnes Kemp, and as representative of
the Plaintiff Class as defined in the Class Order, see supra
section II.B, and the CSEA as parties. Plaintiffs’ expert, steve
Sakamaki (Sakanaki), presented testimony questioning whether up
to nine million dollars in child support payments had sonehow
disappeared in the CSEA’s accounting system and renained
unaccounted for, based on his inability to reconcile information

obtained from the KEIKI system to the CSEA’s bank accounts.

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on October 22, 2002, the court entered its Memorandum
of Decision (the Menorandun of Decision). Regarding Plaintiffs’
allegation that there were up to nine million dollars in unpaid
child support payments, upon which the entire complaint was
based, the court found that Plaintiffs failed to meet their
burden of proof. The court found that, based on the improvements
made to the KEIKI system, see supra note 14, it was likely that
Sakamaki's inability to reconcile the information in the KEIKI
system with CSEA’s bank accounts was caused by “bad data” and
incomplete data, rather than actual mismanagement of funds.

Pertaining to the timeliness of disbursenents, the
court first noted that, although the class action lawsuit had
been pending for over four years, Kemp vas the only custodial
parent class menber to testify to a delay in the processing of
payments since the KEIKI system was implemented in 1998. The

court then concluded that the “overwhelming majority of child

 

‘support payments” were being disbursed in a timely manne:

[t]he strong weight of uncontroverted evidence indicates
that after the initial problems of 1998, and excluding
Eituations involving "bed addressee” or other “holds” on
disbursement authorized by 1a", the CSEA has been disbursing
tthe gverwhelaine naiority of child support payments received
that ore subject to [HRS] § $71-52.2(e) within two days of
ite receipt of the forwarded checks.

 

(Emphases added.)
Although the trial revesled evidence that, for the most
part, the CSEA was making timely disbursements of child support,

it also revealed that there were problems with “uncashed checks”

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‘s+POR PUBLICATION IN WEST’S HAWAI'T REPORTS AND PACIFIC REPORTERS**

and holds due to “bad addresses.” The CSEA issued checks
totaling $619,016 to custodial parents from @ Bank of Hawas'l
account that had been inactive since the implementation of the
KEIKI system in 1998, that remain uncashed. There were
additional outstanding checks from other accounts which were
opened subsequent to the implementation of the KEIKI system in
1998 that also renain uncashed. The CSEA reported an additional
$1,079,000 in checks issued from these accounts and outstanding
for more than 90 days as of February 28, 2002. The CSEA checks
state that they are void if not cashed within 90 days. The CSEA
had been aware of the problem of “uncashed checks” but had not
attempted to rectify the situation to ensure that financial
support reached custodial parents.

The court found that, as of July 4, 2002, the CSEA had
$1,711,532 on “hold” due to “bad addresses.” All CSEA checks
contain a warning, stated in the following manner:

You must notify the child support enforcenent agency
Innediately of any change fo your mailing address to insure
Gninterropted distribution of available

Change of address Information should be
Ghile support office if you live in Havai's, or to the
Feturn acdress on the envelope if you live out of state,

 

   

If you move or change your address without netif}
peynent will be nailed to the forwarding eddress that i3
provided by the Fost Office. Sopport payments that cannot
Bevnelled because of the lack of a good nelling address may
be returned te the obl:gor/payor.

 

 

When a check is returned because of a “bad address” the CSEA
requests forwarding information from the United States Postal
Service. In recent years, automated computer cross-checks with

other agencies’ databases have been implemented. The CSEA has

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made no other attempt to locate the persons whose checks have
been returned due to “bad addresses.”

‘The court decided that although there was no evidence
of nine million dollars of unpaid child support, the CSEA was
holding $3,609,548 in child support payments because checks had
been issued and not redeemed or the checks had been returned as
undeliverable (i.e., the “uncashed check” and “bad address”
funds).

The court, relying on Office of Hawaiian Affairs v.
State, 96 Hawai'i 368, 400, 31 P.3d 901, 913 (2001), found that
Count 1, claim 1, regarding violation of HRS § 571-52.2(e), was
not justiciable because there was a “lack of judicially
discoverable and manageable standards{.)” Furthermore, the court
found that the requisite “actual controversy” mandated by HRS
§ 632-1 (1993)* did not exist because the parties agreed that
the two-day time limit was “triggered” upon CSEA’s receipt of the
check. The court therefore declined to grant a declaratory
Judgment on this issue.

In connection with Count I, claim 2, regarding the

property rights of minor obligt

 

sand the allegation that
allowing the agency to retain interest earned on late payments

would create an incentive to violate a valid statute, the court

   
 
 

entitled "Juriedietion: controversies subject

ratory judgment may be granted in civil
cases where an actual controversy existe between contending
parties, oF where the court is satisfied that antagoalseic
Elains are present between the Farties involved which
Gndicate insinent and inevitable 1itigation(-)

13

 
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ee

found that Plaintiffs “undoubtably” have a cognizable property
interest in the child support payments granted on their behalf at
the point in time when the CSEA's bank receives notification that
the negotiable instrument has cleared in situations involving
such instruments or upon receipt of @ cash payment by the CSEA.
The court found that the remainder of the claim did not request
declaratory relief available under HRS § 632-1. Therefore, the
court only granted declaratory relief to the extent that
Plaintiffs had a cognizable property interest in the child
support paynents collected on their behalf when the CSEA's bank
notifies the agency that @ negotiable instrument has cleared or
when the CSEA receives a cash payment.

The court found that Count I, claim 3, requesting 2
declaration that HRS $5 571-52.2(e) and 576D-10 are statutes
which are in pari materia, was not @ proper request for
declaratory relief. The court found that Plaintiffs were merely
seeking an advisory ruling and, therefore, denied this request
for declaratory relief.

The court declined to issue a declaratory ruling
regerding Count I, claim 4, requesting a declaration that the
agency holds child support disbursements for the benefit of minor
obligees, because it did not concern an actual controversy. The
court stated, “there is no actual controversy with respect to the
issue of whether Defendants hold child support payments for the
benefit of the obliges pursuant to H.R.S. § $76D-10 -- it is
axionatic that they do.” The court did grant Plaintiffs’ request

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for declaratory relief to the extent that it found that CSEA has
a fiduciery relationship with the obligees.

Regarding Count I, claim $, concerning the CSEA'Ss
fiduciary and implied contractual duties, the court found that as
2 consequence of its fiduciary relationship with the obligees,
CSEA has a fiduciary duty to disburse child support payments
within two days of receipt, noting that the duty was triggered at
the time when (1) CSEA's bank notified CSEA that 2 negotiable
instrument had cleared or (2) upon receipt of a cash payment.
Therefore, the court oranted Plaintiffs’ fifth request for
declaratory relief inasmuch as CSEA had a fiduciary duty to
disburse payments in a timely manner. However, the court found
that CSEA did not have an implied contractual duty te disburse
payments within the time limits set forth in HRS § $71-52.2(e),
noting that in cases where inplied contracts had been found to
exist, there were only two parties involved and there was a
mutual intent to contract. The portion of the request for
declaratory relief regarding implied contractual duties thus was
denied.

In connection with Count I, claim 6, requesting an
accounting of obligees who were owed child support disbursements,
the court had ordered, in its Summary Judgment Order, that CSEA
provide 2 full and complete accounting of overdue child support
payments in its possession as of July 31, 2000. By stipulation,
the relevant date was changed to February 28, 2002. Based on the
evidence adduced at trial that CSEA is now disbursing child

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support payments within the time limits prescribed by HRS § 571-

52.2(e), the court set aside that part of the Summary Judgment
Order. However, the court did order CSEA to provide an
accounting regarding funds in the “uncashed check” and “bad
address” categories, finding that the plaintiffs in the “uncashed
check” and “bad address” categories fell under the third

definition of the class:

[ALL Persons who were after the filing of the Class order on
Nay 19, 1999, entitled to recesved (sic) child support
payments through the CSEA of the State of Hawal't, and who
Gig not or wili not, receive their chile support payments,
Without legal justification, within the tine limits

Yoreh in the Ravel Revised Statutes, ineluding persons for
hose Benefit child support payments are tendered.

   

 

 

 

 

‘Therefore the court ordered as follow

ae ete seecun! ae

Becenberii,2002, ord that this sccoonting most be
Eotted and proviced in tho separate liste: (1) ¢ list
En alphabetical order by the custodial parent? last
Raness which shall also. snclvge. the first names of the
Elstodsal. parents, the check dates, the check numbers,
Sha the angunte ef the outstanding checks: and (2) a
Uise'In chronological’ order by check dates, which
Shall also include check manbere, amounts of checks,
tnd custodial parents’ last ond first names

 

 

©) ih ey duty to or:
the Teae address” sith respect
he CSUR Zor “bad addresses” and have rensineg

‘gutstending forat Least 20 dave as of December 31,
Haag "ike accounting must be sorted end provided tn
uo separate lists: {1} a list in alphabetical order
by the custodial parents’ last names, which shall also
Exclude the first nanes of the custodial parents, the
Gheck dates, the check numbers, ond the amounts of the
‘sutstanding’ checks; and (2) 2 List in chronological
order by check dates, which shall also include check
funbers, ancunts of checks, and custodial parents’
Jast and first nanes(.]

   

(Emphases added.) Plaintiffs note that the CSEA has never

provided such an accounting.

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With regard to Count II, claim 1, seeking an injunction
requiring the CSEA to innediately begin disbursing delinquent
child support payments, the court found that Plaintiffs vere
requesting prospective relief and, therefore, CSEA's defense of
sovereign immunity did not apply. Furthermore, the court found
that Plaintiffs had prevailed on the merits of the case,™ that
custodial parents would suffer irreparable injury absent
Anjunctive relief, that the prospective harm to Plaintiffs
outweighed any harm threatened by the injunction, and that the
public interest would not be adversely affected by the injunction
but, rather, would be served by it.!” Accordingly, the court
found that Plaintiffs were entitled to 2 mandatory injunction
requiring CSEA to disburse the child support payments in the
“outstanding checks” and “bad address” categories.

Regarding Count II, claim 2, which would require the
CSEA to institute @ system by which child support payments would
be disbursed in a timely manner, the court found that Plaintiffs
failed on the merits because CSEA proved that it was disbursing

the overwhelming majority of child support payments pursuant to

“According to the court, Plaintiffs prevasied inasmuch as the court
declared that they had s constitutionally protected property interest in the
Serpe of child support payments collected by the CSEA. The court ordered an
Sccouneing of funds held in the “outstanding check” and "bad addre:
estegories, anc concluded that CSEA hada fiduciary duty te disburse child
Support payments.

 

    

© gins fourcprong kest for the granting of ingunctive 1
tthe court is set forth in, et
Hotes Fin. Aosasy, 66 Fead'ieees 2809 (ist Gare SEDI

23

 

set used by

  
‘+++70R PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REFORTERY*

orders of income assignment within two days. Therefore,

 

Plaintiffs were not entitled to injunctive relief on this issue.
c.

Regarding Count III, requesting damages for breach of
implied contractual duties, the court found in favor of
Defendants based on the finding that CSEA had no implied
contractual duties to disburse child support payments within the
time Limits set forth by the Hawai'i Revised Statutes.

D.

‘The court ruled on Count IV, requesting damages for
breach of fiduciary duty, in conjunction with Count Vz,
requesting the creation of a common fund. Regarding Count IV,
claim 1, whether the CSEA is required to hold collected child
support payments in trust for the benefit of the obligees, the
court found that no express trust wes created by the statutory
schene governing the CSEA. However, the court opined that
trust relationship did result fron the statutory scheme, which
could be characterized ae “implied,” “resulting,” or
“constructive.” Regarding Count IV, claim 2, the court found
that CSEA had not breached its fiduciary duties by failing to
disburse child support payments in the time frames provided by
law because Plaintiffs had failed to prove any continuing
violations of the relevant statutes. However, because the court
had determined that there was an ongoing problem with payments

being held in the “uncashed check” end “bad addr

 

8” funds, the
court ordered that the relief sought in Count VI be granted and

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—_

any money in those categories not disbursed pursuant to the March
31, 2004 accounting, to be discussed infra, would becone part
of a common fund to benefit the Plaintiff Class.

In ordering that the child support payments held in the
“uncashed check” and “bad address” categories become a common
fund, the court found that the designation of the class under
HRCP Rule 23(b) (2) did not preclude monetary relief, since the
primary relief sought was declaratory and injunctive. The court
further found that the issue of whether Plaintiffs were entitled
to monetary relief was tried by the express or implied consent of
the parties pursuant to HRCP Rule 15(b)** inasmuch as the
Complaint requested an accounting and the court ordered an

accounting in its Summary Judgment Order. Hence, according to

% th dts memorandum of decision, the court states thet “the

accounting shell be provided by March 21, 2002.” However, the memorandum of
Gecision is dated and was filed on October 22, 2002.” The Award Order issued
By the court en July 26, 2003, eiscussed infra, makes clear that the proper
Soe ie March 31) 200

 

 

 

% —Rce Role 15(b) (2006), entitied “Amended and supplenental
pleadingsy Anendnents to conform to the evidence,” states:

nen Leaves not raised by the pleadings are tried by
express of implied consent of the parties, they shell be
treated in all respects o8 if they had beon raised in the
pleadings. “Such amendment of the pleadings as may be
Recesssry to cause then to conform to the evidence and to
Teise these dseues sey be made upon motion of any party at
any tine, even after judguent; But failure so to enend does
fot affect the resvit of the trial of these issues. If
Ceidence is objected to at the trial on the ground that it
Se not within the issuer nade by pleadings, the court nay
allow che pleadings to be amenced nd ehali do so freely’
then the presentation of the merits of the action ill be
[ubserved thereby and the cbjecting party fails to satisty
the court that the adnissien of such evidence would
prejudice the party in maintaining the party's action or
Befense open the nerite. The court say grant a continuence
te enable the cbjecting party to meet such evidence.

 

 

 

 

 

  
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the court, CSEA was put on notice that Plaintiffs were seeking
monetary damages.

Regarding Count V, which requested an accounting and
information, the court ruled that there were persons who had not
received child support payments on a timely basis and ordered an
accounting of such by March 31, 2004, as discussed supra.

Ww.

on December 9, 2002, the court entered its Order Re:
Post-becision Hearing which required Plaintiffs to submit motions
dealing with attorneys’ fees and costs and the creation of @
conmon fund and the uses to which such 2 common fund would be
put.

on Decenber 17, 2002, Kemp filed a Motion for an Award
of Interim Costs and Attorneys’ Fees. Kemp requested attorneys’
fees in the amount of $628,607.54 and costs in the amount of
$99,065.40.

on Decenber 18, 2002, Kenp filed a Motion Regarding a
Common Fund. Kemp argued that any undisbursed funds from the
“uncashed check” and “bad address” categories be used for the
benefit of the Class consistent with the purposes of the Child
Support Enforcement Act under the cv pra doctrine, rather than
escheat to the State. Kenp claimed that escheating the money to
the State would reward the State for “failing to perform its
fiduciary duty to get this money to the proper recipient.”
According to Kemp, the cy pres doctrine allows the court to
distribute unclained funds “‘for the indirect prospective benefit

26
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of the class.'" (Quoting In Re: Airline Ticket Comm'n Antitrust
tig., 268 F.3d 619, 625 (8th Cir. 2001).) (Citations omitted.)

Kenp suggested that the unclained funds be distributed to the
Legal Aid Society of Hawai'i (LASH), which would provide
assistance to custodial parents encountering difficulty getting
their child support disbursements from the CSEA regardless of the
custodial parent's income. The CSEA opposed this motion,
contending that such distribution of the unclaimed money would
violate the purpose of the Child Support Enforcement Act by
“expropriating money from the affected custodial parent payees in
the ‘bad address’ and ‘uncashed checks’ categories and spending
it on services unrelated to the provision of child support to the
intended custodial parent payees.”

on January 7, 2003, Kenp filed a “Motion for Incentive
Award Payment to Class Representative Ann C. Kemp,” stating that
“[clourts routinely approve incentive awards to compensate named
plaintiffs for the services they provided and the risks they
incurred during the course of the class action litigation.” The
CSEA opposed the request for an incentive award on the grounds
that there is no statute or Hawai'i precedent allowing for such
an award against the State: that Kemp filed the lawsuit
voluntarily and any inconvenience was therefore undertaken
voluntarily; that where public monies are involved, the law does
not require compensations that the monies for which the court has

ordered an accounting are outside the parameters of the complaint

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and outeide the class for which Kemp is @ representative: and
that Kemp did not prevail on many of the issues raised.

on January 22, 2003, the CSEA filed its memorandum in
opposition to the award of attorneys’ fees. The CSBA argued that
Plaintiffs were not entitled to attorneys’ fees because
(2) sovereign inmunity precludes the action upon which an award
of attorneys’ fees would be based and there is no statute
entitling Plaintiffs to such an awards (2) the fees and costs
must be rejected or discounted because Plaintiffs did not prevail
on a majority of the issues; (3) trial of the issues on which
Plaintiffs prevailed was unnecessary and Plaintiffs’ counsel
should not be rewarded for bringing such issues to trial: (4)
“common benefit” did not extend to Plaintiffs in this actions
(5) @ class fund had not been established and unless one was, the
award of attorneys’ fees would be premature; (6) Plaintiffs’
attorneys were not “private attorneys general”; and (7) if
entitled to attorneys’ fees and costs, Plaintiffs had the burden
to submit documentation of reasonable hours relating to distinct
clains.

on July 3, 2003, CSEA filed a supplementary menorandum
in opposition to Plaintiffs’ request for attorneys’ fees.

Attached to this memorandum was the declaration of James P.

 

> ihe, private, attorney general” doctrine ig referred to in Inne

Sons, 96 Hawaii 27, 29-32, 28 Psd 602, 604-07
(2001. The privete attorney general doctrine requires consideration of

Sia}, the strength oF socletal inportance of the public policy vindicated by
the Litigation, (2) the necessity for private enforcement and the magnitude of
the resultant Gurden on the plaintsf® (and) (3) the number of people standing
to benefit fron the decision.” Jd, at 29, 25 F.3dat €0¢ (internal quotation
sarks ond citation omitted)

    

 

 

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Schratz (Schratz), an attorney specializing in auditing billing
statenents, who had audited the statements submitted by
Plaintiffs’ counsel in support of their request for attorneys’
fees. Schratz identified overbilling and duplicative activity
and recomended that the award for attorneys’ fees and costs be
reduced accordingly. Schratz also recommended that the court
disallow the costs associated with Sakamaki’s testimony, in
consideration of the fact that Sakamaki’s testimony was
disregarded by the court. After these deductions, the remaining
fees that Schartz suggested were fair and reasonable amounted to
$261, 381.50 and the costs he deened to be fair and reasonable
amounted to $63,277.61

on July 16, 2003, the court entered its Award Order.
The court granted Plaintiffs’ Motion for Costs and Attorneys’
Fees pursuant to the “conmon benefit,” “common fund," or “private
attorney general” doctrines. ‘The court found that Plaintiffs’
counsel expended over 2,000 hours to

pureve @ novel, complicated, and difficult case, with no
Seeurance that they would receive one penny of compensation
for their efforts. Although Plaintafts’ counsel did not
prevail on the claim for interest on pat due child support
Payments, they did, inter alla, establish the availability
Of sudicial intervention to enforce constitutional rights te
the corpus of chile support peysents, over the strenusus and
repeated sovereign immunity arguments of the State

 

 

In recognition that sone of the work of the Hawai'i and mainland

attorneys was duplicativ

 

the court reduced the hourly rate from
$350.00 billed by the mainland attorneys and $250.00 billed by
the Hawai'i attorneys to $185.00. Furthermore, the court

disallowed the 32.08 hours billed by associates of the mainland

29
 

“S**FOR PUBLICATION IN KEST’S HAWAI'I REPORTS AND PACIFIC REPORTER":

associates who were not specially adnitted to practice in Hawai'i
for this case. However, the court allowed an additional 50 hours
for time spent in the future proceedings," for a total of
2,201.47 hours, resulting in attorneys’ fees of $403,951.20.
Although Schrat2 urged the court to disallow costs pertaining to
Sakanaki's testimony, the court did not accept that
reconmendation, finding that, although the court rejected his
conclusions, his testimony was beneficial to the court's
understanding of the CSEA’s accounting practices. The court did,
however, accept CSEAs objection to $2,354.45 in travel costs,
thus awarding $96,710.95 in costs. The court declined to assign
the funds remaining in the “uncashed check” and “bad address”
categories after distribution of all distributable funds to LASH.
Instead, the court ordered that any funds remaining in those
categories after March 31, 2004, be applied to the attorneys’
fees and costs ordered under the conmon fund theory, or to be
“held or distributed by Defendants pursuant to applicable law."
Finally, the court denied Plaintiffs’ motion for an incentive
award payment to Kemp.
v.
on July 16, 2003, the court entered its Final Judgment,

which reiterated the Memorandum of Decision but also included

the “future proceedings” contesplated by the court included

preparation of proposed clase action notice and mencranda regarding the
Proposed role of e neutral sccountant to oversee the accounting order by the
30

   

 
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orders for giving Notice to Class Menbers about the Final
Judgment.

on July 28, 2003, CSEA filed a Motion to Anend Findings
of Fact and Conclusions of Law and to Anend Judgment.
Specifically, CSEA objected to the court's findings that the

issues regarding monetary relief and the “reasonableness” of
CSEA’s retention of funds in the “uncashed check” and “bad
address” categories were tried by express or inplied consent of
the parties, claiming that the issue was tried only in regards to
Plaintiffe’ claim to the interest generated from late payments,
not to any claim on the payments held in the “uncashed check” or
“bad address” categories. CSEA contended that “[t]he only
factual issues in the case that were tried by the parties were
the timeliness of payments to custodial parents under [HRS] §
571-82.2(e) [,]" not the reasonableness of efforts to locate
obligees with bad addresses or of efforts to make payees with
uncashed checks redeem their paynents.

CSEA claimed that it was never put on notice that the
“real claim” being tried was whether the agency acted reasonably
in attempting to disburse the child support payments held in the
“uncashed check” and “bad address” categories. CSEA further
contended that it did not expressly or implicitly consent to
trying those issues. According to the CSEA, under HRCP Rule

15(b),# the court could not treat the complaints as amended to

‘See supca note 19.
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++#POR PUBLICATION IN WEST’S HAWAI'I REPORTS AND PACIFIC REPORTER***

fit the facts adduced at trial because “the course of the trial
did not depart so materially from the image of the controversy
pictured in the pleadings or by the discovery process that it
would become necessary to adjust the pleadings to reflect the
case as it was actually litigated in the courtroom.” (Emphasis
omitted.) CSEA maintained that the issue of the “uncashed check”
and “bad address” categories was tried only in the context of
timeliness raised by the Complaint, and not in the context of the
reasonableness of the agency's actions. On August 14, 2003, the
court denied this motion.

on September 11, 2003, the CSEA filed its Notice of
Appeal, appealing from (1) the Award Order; (2) the Final
Judgment; and (3) the Anendnent Order. The CSEA also challenges
the Memorandum of Decision. On Septenber 25, 2003, Plaintiffs
filed their Notice of Cross-Appeal appealing from (1) the Sunmary
Judgment Order; and (2) the Final Judgment. Plaintiffs also
challenge the Nemorandum of Decision.

vi.

CSEA raises five points of error on appeal. It argues
that the court erred (1) in its conclusion that CSEA breached its
fiduciary duty regarding uncashed and undeliverable checks and
violated the constitutional rights of recipients in those

categories; (2) in determining that Kemp could adequately

 

represent persons who had failed to cash checks or notify CSEA
when they changed their addresses; (3) in its conclusion that the
Plaintiff Class had created a conmon fund of undistributed money

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for the purposes of awarding costs and attorney's fees; (4) in
awarding attorney's fees because the CSEA was protected under the
doctrine of sovereign immunity: and (5) in awarding Plaintitt
Class attorney's fees and erred in the amount, “particularly
given [P)laintiffs’ overall lack of success.”

In conjunction with its first point of error, CSEA
argues that “[it] did nothing wrong.” In conjunction with its
second point of error, CSEA maintains that the class definition
wes inproperly expanded to include persons in the “uncashed
check” and “bad address” categories. Finally, in conjunction
with its third point on appeal, CSEA contends that (a) the court
disregarded the rights of the federal government and the non-
custodial parent in its conclusion that Plaintiffs had created a
conmon fund, and (b) the court discussed “three different legal
theories (connon fund, conmon benefit, private attorney general)
without analysis or discussion of any of them.” CSEA requests
that the court’s Final Judgment be reversed and the case remanded
with instructions to enter judgment on its behalf.

In response, Plaintiffs assert that (1) the issues
raised by CSEA regarding breach of fiduciary duty, violation of
constitutional righte, the identity of the class representative,
and the definition of the class are moot inasmuch as CSEA has
fully complied with the provisions of the Final Judgment related
to an accounting, notice, and disbursement; (2) “the court’s
actions were proper in response to the request for an accounting”
because “one of the hallmarks of an action for an accounting is

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that it confers upon the court broad power in equity to fashion a
remedy that is appropriate to the facts of the cases” (3) “Kemp
was an appropriate class representativer” (4) under HRCP Rule
23(b) (2), the class definition did not have to be precise; and
(5) the award of fees was proper because (a) CSEA is not
protected by sovereign inmunity, and (b) fees were appropriately
awarded and were of @ proper amount.

In reply, CSEA maintains that (1) there is no legal
basis for requiring the CSEA to take further action with respect
to uncashed checks and “bad address” checks; (2) CSEA’s
compliance with the Final Judgment does not render the issue of
the attorney's fees moot; (3) the federal governnent has an
interest in the funds deposited with the CSER; (4) the 2000 audit
which concluded that the CSEA had “substandard internal
accounting practices” does not mean that CSEA has failed to make
timely external payments, has breached a fiduciary duty, or has
infringed on constitutional property rights; and (5) although the
court initially ordered an accounting, the court subsequently
approved a stipulation extending the accounting date, and later
set aside its summary judgment order in this respect.

Plaintiffs raise three issues on cross-appeal: (1) the
court erred in ruling that the class had no property interest in
the interest earned upon child support payments that were not
paid within the time required by law; (2) “the court erred by not
ordering CSEA to provide Plaintiffs with an accounting of
interest that had been earned with regard to individual class

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members whose child support had not been paid within the tine
Limits prescribed by law"; and (3) the court erred in concluding
that the CSEA did not have an implied contractual duty to
disburse payments within the time frame provided by law.

In conjunction with their points on appeal, Plaintiffs
argue that (1) “the CSEA is required to disburse payments within

two business days of collection and is authorized by statute to

 

retain [interest] earned only during that limited period
(2) “earned interest is property taken without just
compensation”; (3) “the position taken by Plaintiffs is

consistent with Hawai'i precedent”; (4) “sovereign immunity does

 

not prevent an accounting”; and (5) “CSEA had an implied
contractual duty to disburse child support payments in = timely
manner.” Plaintiffs request that this court reverse the Summary
Judgment Order insofar as it orders that Plaintiffs do not have a
property interest in the interest earned on the corpus of child
support payments held by the CSEA. Plaintiffs further request
that the Final Judgment be reversed and that the case be remanded
to the court with instructions to permit the accounting requested
by Plaintiffs. Finally, Plaintiffs request that the Memorandum
of Decision, as reiterated in the Final Judgment, be reversed and
that the court rule as a matter of law that an implied-in-fact
contract existed between Plaintiffs and the CSEA regarding timely
disbursement of child support payments.

In response, CSEA asserts on cross-appeal that

(2) “Plaintiffs seek an advisory opinion on their entitlement to

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interest” because the court’s finding that CSEA was not
delinquent was not challenged; (2) “Plaintiffs are not entitled
to an accounting of interest” on late payments because the
court's finding that CSEA was not delinguent was not challenged:
and (3) “Plaintiffs seek an advisory opinion on the existence of
fan implied contract” because (a) the issue of an implied contract
is moot inasmuch as the court’s finding that CSEA was not
delinquent was not challenged, and (b) “Plaintiffs are asserting
an implied-in-law contractual duty based on their subjective view
of what is ‘equitable’ and such claim is barred by sovereign
immunity.

In reply, Plaintiffs contend that (1) the Summary
Judgment Order should be reviewed de nove: (2) CSEA misrepresents
the court's finding that it was not delinquent; (3) the issue of
whether Plaintiffs have @ property interest in interest earned on
money held by CSEA is not moot inasmuch as Plaintiffs have not
“had a chance to do discovery or present evidence on that issues”
(4) “this court should recognize a property interest in interest
earned by the CSEA on delinquent payments;” (5) if such property
interest is recognized, Plaintiffs are entitled to an accounting:
and (6) this claim is based upon an implied-in-fact contract
which “has all the elenents of a bailment.”

vit.

Based on our conclusions, supra, we only discuss the
standards of review relevant to this disposition. The CSEA's
first issue on appeal, whether CSEA breached its fiduciary duties

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and violated the constitutional rights of the class members, is a
question of law. See Lewis v. Knutson, 699 F.2d 230, 235 (Sth
Cir. 1983) (holding that the existence of a fiduciary duty is a

question of law).

 

westions of law are reviewable de novo under
the right [or] wrong standard of review.” Mikelson v. Unit
Serve. Auto. Ass'n, 107 Hawai'i 192, 197, 111 P.3d 601, 606
(2005) (quoting Ditto v, McCurdy, 102 Hawai'i 518, 521, 78 P.3d
331, 334 (2003)). Inasmuch as Plaintiffs also claim a
constitutional violation of their property rights, we review
questions of constitutional law under the right or wrong
standard. Freitas v. Admin, Dir. of Courts, 108 Hawai'i 31, 37,
116 P.3d 673, 679 (2005).

‘The CSEA’s second issue on appeal questions whether the
court erred in finding that Kemp adequately represented the class
members who fell under the “uncashed check” and “bad address”
categories.

A trial court ie vested with “broad discretion in deciding

ether to certify a class,” and discretionary authority 1s

homaliy tndisturbed on review. Filipe v. chang, €2 Haw.

626, 636, 610 F.2d 298, 301 (1980). But where the record

Giscloses 2 possible misapprehension or misapplication of

Role 25" criteria, it is sncunbent upon us te conduct ©

careful review of the rule's application to the facts

involved, especially where questions respecting the adequacy
of representation are raised.

Life of the Land v. Land Use Comm'n, 63 Haw. 166, 180, 623 P.2d

431, 443 (1981) (footnote omitted) .

 

‘The CSEA's third issue raised on appeal, whether the
court erred in ruling that the Plaintiff Class had created a
common fund that could be used for attorneys’ fees and costs, is

reviewed de novo under the right or wrong standard. See Montalvo
2
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va Chang, 64 Haw. 345, 642 P.2d 1321 (1982), overruled in part
by, chun ve rs. of ¢ Ret, Sys., 92 Hawai'i
432, 922 P.2d 127 (2000) (applicability of common fund doctrine
reviewed de novo).

Kemp's first two issues on appeal, whether the court
erred in ruling that the Plaintiff Class did not have a
constitutionally protected property interest in any interest
accrued by child support payments held by the CSEA and whether
the court erred in not ordering an accounting of such interest,
arise from the court’s Summary Judgment Order. The court's grant
or denial of summary judgment is reviewed de novo. Hawaii Cntv.
Fed, Credit Union v. Keka, 94 Hawai'i 213, 221, 11 P.3d 1, 9
(2000) (citation omitted). Pursuant to HRCP 56, summary judgment
Ss granted only when “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any . . . show that there is no genuine issue as
to any material fact and that the moving party is entitled to =
Judgment ae a matter of law.” Pioneer Mill Co, v. Dow, 90
Hawas't 289, 295, 978 P.2d 727, 733 (1999).

Kemp's third issue on appeal, whether the court erred
in concluding that the CSEA did not have an implied contractual
duty to disburee child support payments in a timely manner, is a
question of law, which is reviewed de novo. Mikelson, 107

Hawai'i at 197, 111 P.3d at 606.

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vain.
A

CSEA’s second issue on appeal is discussed first
because our detexmination that Kenp was not an adequate class
representative is dispositive of other issues on appeal. To
reiterate, CSEA’s second point on appeal challenges the court's
determination that Kemp could adequately represent class members
in the “uncashed check” and “bad address” categories. Plaintiffs
assert that CSEA never filed 2 motion challenging Kenp’s ability
to act as class representative. hile no separate motion was
filed, CSEA did object to Kenp acting as class representative in
its “Memorandum in Opposition to Plaintiff’s Motion for Order
Determining Class Issues.” CSEA argued that “[Kenp)‘s non-Title
IV-D status raises serious questions about [her] standing to
bring suit on behalf of Title IV-D participants and about the
alleged conmonality te facts and law that allegedly underpin this
action, in regards to [Kenp]'s burden under HRCP [Rule] 23(a)."

Plaintiffs also allege that the issue of the propriety
of Kenp as class representative is moot, along with the issues of
breach of fiduciary duty and definition of the class, because
CSEA has fully complied with the provision of the Final Judgnent
related to an accounting, notice, and disbursenent.

B.

We first address Plaintiffs’ mootness argunents
inasmuch as moctness implicates this court's jurisdiction to
address the issues herein. See Life of the Land v. Burns, 59

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Haw. 244, 250, 580 P.2d 405, 409 (1978) (stating that,
ordinarily, “‘courts will not consume time deciding abstract
propositions of lew or moot cases, and have no jurisdiction to do
sol]’" (quoting Territory v. Aldridge, 35 Haw. 565, 568 (1940))
Plaintiffs assert that CSEA’s arguments regarding breach of
fiduciary duty, violation of constitutional rights, identity of
class representatives and the definition of the class are moot
inasmuch as CSEA complied with the provisions of the Final
Judgnent requiring CSEA to (1) provide an accounting with regard
to persons falling within the “bad address” and “uncashed check”
categories, (2) send notice and follow-through with a claim
procedure to persons in those categories, and (3) disburse money
to those submitting claims to the CSEA.

With respect to mootness, the following has been stated
by this court:

A cose is moot if it hae lost its character as a present,
Live controversy of the kind that must exist if courts are
fe avoid advisory opinions on abstract propositions of Law.
The role is one Of the prudential rules of judicial
Eelt-governance founded in concern about the proper-and
Broperly linited-role of the courts in a denocratic society.
fie have said the sult must remain alive throughout the
course of Litigation to the moment of final appellate
Sisposition to escape the mootness bar.

Kona Old Hawaiian Trails Group v. Lyman, 69 Haw. 61, 87, 734 P.2d
261, 165 (1987) (internal citations, quotation marks, and

brackets omitted). Simply put, “lal

 

is moot if the

reviewing court can no longer grant effective relief.” City Bank

vs Sale Ventures II, 7 Haw, App. 130, 134, 748 P.2d 812, 815
(1988) (quoting United States v. Oreaon, 718 F.2d 299, 302 (9th
cir. 1983)).

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Sn

CSEA’s contention that the issues it raises are not
moot is persuasive. The effective relief it seeks is the vacatur

of the court's award of attorney's fees. CSEA argues that

 

“{elhere was no legal basis for imposing any liability or
injunctive relief on CSEA for uncashed checks and bad addresses.”
Accordingly, inasmuch as @ live controversy remains as to the
imposition of liability on the CSEA, including the award of
attorney's fees, and in light of the availability of effective
relief, the issues raised by the CSEA are not moot

notwithstanding its compliance.

 

‘The party seeking class certificetion assumes the
borden of “establishing the four prerequisites for class
certification delineated in Rule 23(a)” as well as “demonstrating
the presence of a suitable situation for the maintenance of a
class action” under HRCP Rule 23(b). Life of the Land, 63 Haw.
at 180-81, 623 P.2d at 443 (internal citations omitted). "A
failure to satisfy the burden in any respect can result in a
denial of the necessary certification.” Jd, at 181, 623 P.2d at
443 (citations omitted). HRCP Rule 23(a) entitled “Prerequisites
to a class action,” states as follows:

One or more menbere of a class may sue or be sued as
cepresentative parties on benelf of all only if (1) the
Eises is so tunerous that Joiner of all members is
Inpracticable, (2) there are questions of lew or fact common
tothe class, (3) the clains or defenses of the
Fepresentetive parties are typical of the clains or defenses
Gf the close, and. (4) the representative parties will felrly
Ghd adequately protect the interests of the class.

 

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upon review, this court must determine whether Kemp met these
requirements and was thus an appropriate class representative.
The CSEA contends that Kemp's claims were not “typical

of the claims or defe

 

of the class.” In Life of the Land,
this court stated that “(t]he crucial question here is

paraphrased in (Moore's Federal Practice] as ‘what Is The

 

Individual Claim (Or Defense) Of The Class Representative,’ and

 

the primary requisite is that his claim or defense be essentially

similar to the claims or defenses throughout the class." Id. at

182, 623 P.2d at 444 (citing 3B Moore's Federal Practice 1 23.06-
2 at 23-191 (1980)). As to the requirement of HRCP Rule 23(a) (3)

that the claims of the representative be typical of the claims of
the class as a whole, this court has equated typicality with the
absence of conflict of interest. Id. at 183, 623 P.2d at 445.
Kemp fails to meet the requirement of HRCP Rule
23(a) (3). “{A) class representative must be part of the class
and ‘possess the same interest and suffer the same injury’ as the
class menbers.” Amchem Prods. Inc. v. Windsor, $21 U.S. $91,
625-26 (1997) (quoting E, Tex, Motor Freight Svys., Inc.

Rodriguez, 431 U.S. 395, 403 (1977) (quoting Schlesinger v.
Reservists Comm, to Stop the War, 418 U.S. 208, 216 (1974)).

Kenp's individual claim was that she was entitled to interest
earned on child support payments that were disbursed in an
untimely manner. Kemp's claim was based on the presumption that
the CSEA was not disbursing child support payments within the
time periods prescribed by la. On the other hand, the claim of

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the Plaintiffs in the “uncashed check” and “bad address” category
was inherently dissimilar to Kemp's claim. The court found that
those plaintiffs were entitled to the corpus of child support
payments made for their benefit that were sent out by the CSEA in
a timely manner, but were not redeened.

The claims of the Plaintiffs in the “uncashed check”
and “bad address” categories rested on the fact that the CSEA was
disbursing child support payments in @ timely manner, but
allegedly wae making no attempt to ensure that the obligees
actually received the funds. Kemp's claims and the clains of
obligees whose child support payments were held in the “uncashed
check” or “bad address” categories are based on failures at
different times in the disbursement process. Kemp's claim is
grounded on the CSEA’s alleged failure to comply with its
statutory duty to disburse child support payments within the time
specified in HRS § 571-52.2(e), whereas the claims of the
“uncashed check” and “bad address” Plaintiffs are premised on the
failure of those Plaintiffs to redeem checks that were sent in a
timely manner or to notify the agency of their new address.
Hence, Kemp's claim to interest made on late child support
Gisbursenents was not “essentially similar” to the claims of the
Plaintiffs in the “uncashed check” and “bad address” categories
such that Kemp satisfied the typicality requirement of HRCP
23(a) (3).

Plaintiffs concede that Kemp “did not have a personal
situation that covered all the relief provided by the court.”

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a

However, Plaintiffs assert that she had claims “related” to the
other claims and that she performed her responsibilities as class
representative in an exemplary manner. As discussed supra, a
claim must be more than “related” to satisfy the requirements of
HRCP Rule 23(a). Also, with all due regard to Kemp's role, the
manner in which she performed her duties is wholly irrelevant to
whether she was an appropriate class representative. The fact
remains that she did not “‘possess the same interest and suffer
the same injury’ as the class members.” Bmchem Products, $21
v.s. at 625-26.

Further, the significance of Kemp's role is illustrated
by the binding effect of 2 judgment on class members. ACP Rule
23(c) (2) states in relevant part:

In eny class action maintained under subdivision (b) (3), the
Court shall direct to the nenbers of the class the best
notice practicable under the circunstances, including
Tralvidval notice to all mesbers who can be identified
through reasonable effort The notice shall advise
meaber thats = (8) "
wl iL ah ta

   

(Emphasis added.) See also Akau v. Olohana Corp,, 65 Haw. 383,
368, 652 P.2d 1130, 1134 (1982) (explaining that “[a] judgment in
a class action consisting of the people actually injured will
bind the members who aze all those allowed to sue(]").

In DuPont v. Wvly, 61 P.R.D. 615, 621 (D. Del. 1973),
the United states District Court for the District of Delaware
Giscussed the importance of @ proper class representative:

‘The requtrenent thet the representative parties will

feirly and agequately protect the interest of the class

playe’s crucis! rele in the class action scheme of amended

Rule 23. Since thet schene holds the potential of binding

Clase menbere who have no actual knowledge of the suit, the
Sequizenenss of due process, 2 well as the necessity for

“4

 
‘sePOR PUBLICATION IN WEST’ S HANAT'T REFORTS AND PACIFIC REPORTER***

a

confidence in the judicial proce:
Sepresentative parties cen be counted upon to
defend the interests of all menbers of the cl

‘See also Van de Walle vy. Unimation, Inc., @ Del. J. Corp. L. 623,

628-29 (Del. Ch. 1983) (stating that “[i]t is agreed, by all

demands assurance that
sehfally

 

   

 

courts, that the selection of a proper class representative is an
important consideration”); World Forei 1 1
Romeo, 55 F.R.D. 26, 29 (S.D.N.Y. 1972) (concluding that
Plaintiff was not an appropriate class representative because the
concerns of the plaintiffs he would represent were “of no concern
to [him]"). We agree with the proposition in yly that an
appropriate class representative that can “faithfully defend the
interests of all menbers” is of the utmost importance in 2 class

action, Wyly, 61 F.R.D. at 621.

 

‘The CSEA also argues that the “class” as defined by the
court in its Memorandum of Decision, was an improper expansion of
the class as defined in the Class Order. The class was
originally certified to include obliges “who did not or will not
receive their child support payments, without leaal
Justification, within the time limits set forth in the Hewai'i
Revised Statutes{.]” The CSEA argues that the “without legal
justification” qualification necessarily excludes those obligees
who did not receive their child support payments as a result of
their own actions, i.e, failing to redeem timely mailed checks
or failing to notify the CSEA of a change of address. We believe

the CSEA's argument is persuasive. “Without legal justification”

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implies that the child support payment did not reach the obliges
because of the CSEA’s actions. The CSEA cannot compel a
custodial parent to redeem the child support check or to submit
the necessary information informing the CSEA of a current address
for the custodial parent. Rather, the failure of the custodial
parent to redeem the check or to update his or her address is 2
“legal justification” for the CSEA’s inability to disburse funds
held in the “uncashed check” and “bad address” categories.
Therefore, we hold that the court erred in including those
obligees in the class definition.

Because Kemp could not adequately represent obligees
whose child support payments were held in the “uncashed check”
and “bad address” categories and because those obligees were not
included in the class as it was defined in the Class Order, the
judgnents in favor of the obligees whose child support payments
were held in the “uncashed check” and “bad address” categories
are vacated and remanded with orders to dismiss. Amchem, 521
0.8. 592; Lierboe v, State Farm Mut, Auto, Ins. Co, 350 F.3d
1018 (9th cir. 2003).

a.

‘The CSEA claims that the court erred in finding that
the agency breached its fiduciary duty to custodial parents whose
payments were held in the “uncashed check” and “bad address”
categories. Because we have determined that the Plaintiffs in
the Yuncashed check” and “bad address” categories were not
adequately represented, the conclusion that the CSEA breached its

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fiduciary duty towards those plaintiffs must be vacated. Anchen,
521 U.S, $91; Lierboe, 350 F.3d 1018.
x.

‘The CSEA's third point on appeal alleges that the court
erred in awarding attorneys’ fees to Plaintiffs. In its Opening
Brief, CSEA states that “[e]ven though there was no valid class,
[the] CSEA has complied with and does not argue on appeal the
invalidity of the relief concerning notice and disbursement to
the ‘class’ menbers. However, the award of attorneys’ fees,
based in part on the existence of a ‘class’ was error[.]”
Plaintiffs note that the CSEA was able to distribute millions of
dollars from the “uncashed check” and “bad address” funds within
several months of being ordered to do so. The CSEA itself agrees
that it has “fully complied with the portion of the judgnent
requiring, where possible, notice to and repayment of persons in
the uncashed check and bad address categories.”

Plaintiffs misinterpret the CSEA’s appeal of the award
of fees and costs ae an argument that the court “exceeded its
authority in ordering disbursement of these funds(.]” On the
contrary, the CSEA is arguing that the money remaining in the
“uncashed check” and “bad address” accounts after March 31, 2004
was not under the control of the court and thus was unavailable
for an award of attorneys’ fees and costs. The CSEA contends
that the federal government, the non-custodial parents, and the

Hawas't Legislature all had superior claims to the money.

a
 

‘49F0R PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REFORTER*

CSEA maintains that the federal governnent has a
superior claim to the money in order to reimburse the government
for public assistance payments nade to families who were supposed
to receive child support payments through the CSEA as provided
for under 45 C.F.R. § 302.32. See supra note 7, Further, the
CSEA contends that the non-custodiel parents have a superior
claim to any money in the “bad address” category that is not
Gisbursed by Narch 31, 2004 based on the warning that is printed
on all CSEA checks. As noted previously, the warning states in
relevant part, “Support payments that cannot be mailed because of
the lack of @ good mailing address may be returned to the
obligor/payor.” Finally, the CSEA argues that the State has a
superior claim to any money left in the “uncashed check” and “bad
address” funds after that money is deened abandoned pursuant to
HRS § 523A-13 (1993)* and goes through the lengthy process to
escheat the abandoned funds to the State’s general fund set forth
in HRS chapter 523.

Pursuant to the “Anerican Rule,” each party usually
pays its ovn litigation expenses. Schefke v. Reliable Collection
Agency, Ltd., 96 Hawai'i 408, 444, 32 P.3d 52, 88 (2001); Chun,
92 Hawai'i at 439, 992 P.2d at 134. There are several exceptions
to this general rule which allow fee-shifting such that the

losing party pays the fees of the prevailing party, “when so

RS § $29K-13_ (19931, entitled “Property held by courte and public

agencies,” provides that “[ilntangible property held fer the omer by s court,

State, of other governsent, governmental subdivision or agency, public.

Corporation, ef public authority which remsine unclaimed by the owner for more

than one year after becoming payable or sistributable is presuned ebancened.”
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OO

authorized by statute, rule of court, agreement, stipulation, or
precedent.” Id, (citations omitted). Inasmuch as we have
determined that the obligees whose child support payments were
held in the “uncashed check” and “bad address” categories were
not adequately represented by Kemp, thus rendering it improper
for the court to decide issues pertaining to those obliges,
Plaintiffs cannot be considered the prevailing party such that 2
fee-shifting exception to the American Rule, such as the common
fund doctrine, can be inveked. An improper award of attorneys’
fees and costs is reversed. See e.c., JAZ, Inc. v. Foley, 104
Hawai'i 148, 85 P.34 1099 (App. 2004) (reversing award of fees
following reversal on appeal of lower court’s decision on the
merits). Based on the foregoing, the award of attorneys’ fees
and costs is reversed.

XI.

‘The CSEA’s fourth point of appeal contends that it was
protected from the award of attorneys’ fees under the doctrine of
sovereign immunity. The court never made a specific ruling
regarding the applicability of sovereign inmunity to the request
for attorneys’ fees. Because we have already determined that the
award of attorneys’ fees and costs was improper inasmuch as
Plaintiffs have not prevailed on their claims, we need not
determine whether such an award was barred by sovereign immunity.

XII.

he CSEA’s £1fth point on appeal is that the court

erred in awarding fees and costs to Plaintiffs and erred in the

4
 

/*FOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REPORTER***

 

amount of the award, especially considering Plaintiffs’ overall

lack of success on the pleaded complaints. Having already

 

reversed the court's award of attorneys’ fees and costs pursuant
to the conmon fund doctrine, because Plaintiffs were not entitled
to such an award, we need not determine whether the amount the
court awarded was appropriate.
xu.
A
Plaintiffs’ first and second points on their cross~
appeal concern their claim to interest earned on allegedly
delinquent child support payments and their request for an

accounting of said interest. Plaintiffs contend that the court

erred in ruling

hat based on (HRS) §§ 5760-10, (") 661-8, [") 662-2, ("") and
662-8, [°] Plaintifs has no state property interest on
peyments not made within the tine pericd prescribed by [HRS]
§ 271-52.2(e]. Therefore, members of the Plaintift (C)lass
have no Gognizable State Constitutional property interest
Dazed’ on (HRS) § 571-52.2(e) on any interest accrued on
Teterpaid child support payments:

 

Plaintiffs also contend that the court erred in granting summary

 

* see sumza note 19.

® as § 661-8 (1993), entitled “interest,” provides that “Inlo

shall be allowed on any claim up to the time of the rendition of
thereon by the court, unless upon a contract expressly stipulating
Tor the payment of interest, or upon a refund of a payment into the *Litiga
clains fund" as provided by’ Law.

 

      

 

% RS § 662-2 (1993), entitled "Waiver and Liability of state,”
provides that “[tihe State hereby waives its inmonity for Liability for the
Ecrea of its employees and shall be liable in the same nanner and to the
extent as ¢ private individual under like circumstances, but shail not be
Llable for interest prior to judgrent or for punitive damages.”

 

 

® uns § €62-8 (2993) provides that “{ojn 312 final judgments
rendered against the State in actions instituted under this chapter, interest
Shall be computed at the rate of four per cent = year from the date of
Judgment up to, but not exceeding, thirey days after the date of approval of
any appropriation act providing for paysent of the judgnent.”

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OO
judgment in favor of the CSEA regarding the Plaintiffs’ request
for an accounting of “accrued interest on monies paid into the
Anterest bearing account since 1987. . . because members of the
Plaintiff (C)lass have no cognizable property interest in such
interest,” as discussed above.

Although the court ruled against the Plaintiffs
regarding their claim to interest earned on delinquent child
support payments, the court reserved the issues regarding
entitlement to the cozpus of any delinquent child support
payments for trial because there was a genuine issue of material
fact of whether such payments existed. As stated supra, the
issue of whether there were delinquent payments was tried, with
Kemp being the only custodial parent class menber providing
testimony. As mentioned before, after the trial, the court
concluded that “the strong weight of uncontroverted evidence
indicates that after the initial problems of 1998, and excluding

» . sholds'
disbursenent authorized by las, the CSEA has been disbursing the
overwhelming majority of child support payments received that are

subject to [HRS] § 571-52.2(e) within two days of its receipt of

 

the forwarded check (Emphases added) .
CSEA, however, argues that Plaintiffs’ challenge to the

court's ruling on interest and accounting therewith is “moot”

inasmuch as Plaintiffs failed to challenge the “court’s finding

= hs noted, Kemp use the only custods

had received paymenté late.

parent to testify that she

 

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of non-delinquency.” CSEA argues that this failure on the part
of Plaintiffs renders the court's finding binding on this court.

However, as Plaintiffs maintain, it appears that the
CSEA misconstrues the court's finding. The court found that as a
result of the transition from the KFRI system to the KETKI
system, “glitches occurred, resulting in delay of child support
payments for several months.” The court also determined that
payments to Kemp were not paid on time. The court observed that
millions of dollars in the “bad address” and “uncashed check”
categories remained with the CSEA. But, the court also found
that an “overwhelming majority” of payments were being made ina
timely fashion. Thus, there remained a number of payments that
were being disbursed outside of that period. Inasmuch as the
CSEA's reliance on the moctness doctrine is grounded on its
nisinterpretation of the court's finding in this regard, the
moctnese doctrine, assuming it was germane, is inapplicable.

The question remains as to whether Plaintiffs have a
property right in the interest earned on child support payments
not disbursed within the statutory time period. The court
observed that Plaintiffs “specifically assert that they are not
requesting recognition of a property interest based on Title IV-D
but rather based on Hawaii law, the Hawaii State Constitution,
and the (United States) Constitution{,]” and further ruled that
“the governing federal statutes and federal regulations are

silent on the issue of interest.” Apparently, Plaintiffs
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i

specifically requested relief under HRS § 571-52.2(e).*

With respect to the existence of a property interest,
the court relied on Bd. of 2 2 vy, 408
U.S. S64, 577 (1972), for the general proposition that
“{p)roperty interests . . . are not created by the Constitution.
Rather they are created and their dimensions are defined by
existing rules or understendings that stem from an independent
source such as state law-rules or understandings that secure
certain benefits and that support claims of entitlement to those
benefits.”

‘The court noted thet Plaintiffs, in seeking declaratory
relief, specifically requested a ruling from the court that “any
accrued interest on child support funds in interest bearing
accounts created pursuant to [HRS] § 576D-10 after the expiration
of the statutory period(s) under [HRS] § 571-52.2(e) is the
obligee’s property.” In footnote 2 of the Sunmary Judgment
order, the court recognized the possibility of a property right
in interest:

Although there appears to be case low requiring
ninterest” oF “blight camages” to be paid when payment after
a “taxing” hae occurred, see ¢.9., (Kashiwa v. Coney], $5
Hows 650; 659-59, [372 P.2a 348, 352-53] (1962), the court
has been unable to find any Haueii cases holding that a
delay in payment constitutes a taking. If the child support
payments have bean wrongfulsy withheld, then the court

 

» — piaintitts argue thet [t]he legislative history of (HRS)
§ 571.52.2(e] reflects a Fecogniticn By the [l]egisiature that custodial
farents urgently need support paynente and. . . shes concern thet the
Payments. . Be transmitted » . . 98 quickly 4s posaibie” and that “(t)here
Pome Tenguage in either the statute or the legislative history to indicate
+s PC siylingent s+ 1 to provide the CSEA with a financial windfall if it
1ée'tg fellow the legislative mandate to get the money out to the proper
perton within the tinefrane provided by law.” These arguments, however, do
Pecveseabliah fleintifts’ entitlement to accrued interest in the CSEA funds
Under the statute:

 

 

 

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agrees thet, 9 under Eennettl vy, white, 865 F.2d 1395 (34
Cies"i969)], a taking has occurred; it is then possible that
porguant to’ Kashiugy (45 Haw at 657, equitable, entitlenent
fo interest may exsot. See alas,

ek Cores), 151 F.58 1i9¢" 119981," for a cisconsion on the
Ecamon Law “interest follows principal” rule, which
apparently is an entrenched rule under English common Law,
Which may apply in Hawaii pursuant to (HRS) § 1-1 (1983).

 

 

(Emphasis in original and emphasis added.)

As

 

Flier noted, in granting partial summary judgment

in favor of the CSEA, the court held that neither Kemp nor

 

members of the Plaintiff Class have “cognizable state
constitutional property interest(s] based on [HRS] § 571-52.2(e)
on any interest accrued on late-paid child support payments.” A

review of the statutes cited by the court in its ruling confirms

 

that the statutes are silent as to whether Plaintiffs possess a
property right in the accrued interest for payments disbursed
outside of the two-day period.”

‘The court determined that Plaintiffs do not have a
property right to interest based on the court's interpretation of
the relief sought by Plaintiffs. Inasmuch as the court's
interpretation of the relief sought by Plaintiffs is not
challenged on appeal, it cannot be said that the court was wrong
in its ruling that the CSEA was entitled to partial sunmary
judgnent on the basis that Plaintiffs “have no cognizable state

constitutional property interest based on [HRS] § 571-52.2(e) on

* see supra note 13.
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ee

any interest accrued on late-paid child support payments.”
As related by the court in the quoted footnote above,
case law exists as to the possibility of a property right under
the common law “interest follows principal” rule. See generally,
Schneider, 151 F.3d at 1199-1201 (providing a background and
relevent case law on the conmon law “interest follows principal”
rule). However on appeal, Plaintiffs do not argue @ common law
property right. Under the circumstances, we affirm the court’s

ruling in this respect.

 

Given that in this case Plaintiffs do not have @
property right to the accrued interest on CSEA’s delayed
disbursements under HRS § 571-52.2(e), it follows that Plaintiffs
are not entitled to an accounting of these funds. Hence, no
reason exists to disturb the court's ruling with regard to
Plaintiffs’ second argument on cross-appeal.

xIv.

a

Plaintiffs’ final iseve on appeal is that the court

erred in finding that the CSEA did not have an implied
contractual duty to disburse payments within the time frame
provided by law.” In its Memorandum of Decision, the court

stated that

ag stated gupga, in conjunction with their third point on appesl,

Plaintiffs maintain that “CSEA had an implied contractual duty to disburi

EG Ruppert payments ins tinely manner." Plaintiffs use the terns “timely

Sanners* within the statutory pefiod of tine,” and “within the statutory

Tides’ we assume that they mean within the two day statutory period by all
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the various cases in which “implied contracts” were found to
exist are distinguishable from the case at hané
Smportantiy, they involved two party transact son()
sieutions, as compared to the facts of this cese, which
involves #¢ least four parties... « In addition «

ine’ parties Intended to
enter into a contractual relationship, and “implied
Contracts” also require the existence of a mutual intent to

 

      

‘The court does not find that the statutory schene involved
in this case evidences an intent to contract. The law
creates statutory and fiduclary obligations, but no implied

With respect to implied contracts, this court has stated as

follow:

 

 
     

in fact, res
their acts, as in the case where @ person performs service
for anther, who accepts the sane, the services not being
performed under such circumstances av to show that they were
[otended to be gratuitous, or where @ person performs
services for snother on request

Durette v, Aloha Plastic Recycling, 105 Hawai'i 490, $04, 100

P.3d 60, 74 (2004) (emphasis added) (internal citations and

          

quotation marks omitted) (citing Wall_v. Focke, 21 Haw. 399, 404-
05 (Haw. Terr. 1913)).

Based on this definition, it is apparent that the
court’s determination that no implied contract exists between the
CSEA and obligees was correct. The essential element of an
implied contract that is missing from this factual situation is
an apparent mutual intent to forma contract. Pursuant to the
definition employed above, the intent to incur mutual obligations
is implied from the actions of the parties. Contrastingly, in
the instant situation, the mutual obligations are created by a
complex and comprehensive statutory and regulatory structure
which creates obligations for the agency, the non-custodial

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OO

parent, and the non-custodial parent's employer. The actions of
these parties do not create the obligations, therefore, they
cannot be said to create an implied contract. Based on the
foregoing reasoning, the conclusion of the court that no implied
contract existed is affirmed.
5

As stated supra, in conjunction with their argument
that an implied-in-fact contract existed, Plaintiffs assert in
their reply brief on cross-appeal that “a transaction such as
this . . . contains all the elements of a bailnent.” Plaintiffs
make this argument for the first time on appeal. “As a general
rule, if a party does not raise an argument at trial, that
argument will be deemed to have been waived on appeal; this rule
applies in both criminal and civil cases.” State v, Moses, 102
Hawai'i 449, 456, 77 P.3d 940, 947 (2003); see also State ws
Hoglund, 71 Haw. 147, 150, 785 P.2d 1311, 1313 (1990) (stating

that “(glenerally, the failure to properly raise an issue at the

 

trial level precludes a party from raising that issue on

appeal {

 

. Accordingly, this argument has not been preserved
for appeal and we do not address it.
xv.

For the foregoing reasons, with respect to CSEA's
appeal, the July 16, 2003 Final Judgment of the court is vacated
in part and remanded with instructions to dismiss that part of
the Final Judgment determining that (1) the CSEA breached its
Hiduciary duty to obligees in the “uncashed check” and “bad

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address” categories; (2) Kemp was an adequate representative of
the Class; and (3) Plaintiffs were entitled to attorneys’ fees
and costs, but is affirmed in other respects.”

With respect to the Plaintiffs’ Cross-Appeal, we affirm
(2) the conclusions in the Summary Judgment Order that Plaintiffs
had no cognizable property interest in any interest earned by
delinquent payments and, thus, had no right to an accounting and
(2) the conclusion in the Final Judgment that the CSEA had no
implied contractual duties to obliges in the “uncashed check”

and “bad address” categories.

on the briefs: Gro

Dorothy Sellers, Adina L. .
Cunningham, and Kimberly Bhi Lome

Tsumoto, Deputy Attorneys

Goneras, for Beeendanes! Dea Srey ree
Mepetdenes sess Scent
sepeiices!

Francis T. O’Brien and A S
Christopher D. Ferrara for

Plaintiffs-Appellees/ Wom €. Butts th
Cross-Appellants.

 

 

‘See sumza note 3.
58