Case Title: Arthur v. Sorensen

Citation: 

Docket Number: 

State: hawaii

Court: Hawaii Supreme Court

Date: 1995-11-30T00:00:00Z

Document:
Arthur v. Sorensen  907 P.2d 745 (1995) 80 Hawai`i 159 Mark Scully ARTHUR, Peter Linn Arthur, Philip S. Arthur, Jr., Paul F. Arthur, Mary Arthur Schwed and Ann Arthur Johnston, Plaintiffs-Appellees, v. David Allen SORENSEN, Valerie Ann Sorensen, Stacy Tuck Jung Wong, Tetsuya Yamamoto, Patrick Kwan Lynn Lau, Steven K. Lau, Susanne L. Mingrone, Jo Anne L. Lau, Jason K. Lau, Lau Enterprises, a Hawai`i general partnership, Defendants-Appellants, and John Does 1-10, Jane Does 1-10, Doe Partnerships 1-10, Doe Corporations 1-10 and Doe Entities 1-10, Defendants. No. 17889. Supreme Court of Hawai`i. November 30, 1995. *746 Gene K. Lau, of Lee, Kim, Wong, Yee & Lau, William C. McCorriston and Patrick K. Lau, of McCorriston, Miho & Miller, on the briefs, Honolulu, for defendants-appellants. Steven Guttman, on the briefs, Honolulu, for plaintiffs-appellees. MOON, C.J., and KLEIN, LEVINSON, NAKAYAMA and RAMIL, JJ. KLEIN, Justice. Defendants-Appellants David Allen Sorensen, et al. (collectively "buyers") appeal from a judgment and five prejudgment orders issued by the first circuit court in a contract dispute with the Plaintiffs-Appellees (collectively "trust beneficiaries"), beneficiaries of the Philip S. Arthur and Sarah L. Arthur Revocable Trusts (Trusts). In addition to preliminary matters of appellate jurisdiction, the fundamental issue raised in this case is a matter of statutory interpretation regarding Hawai`i Revised Statutes (HRS) § 514A-62(e) (1993).[1] I. BACKGROUND The facts in this case are not disputed. On or about November 29, 1988, the Trusts sold a piece of property to S & G Developers (developers), a limited partnership composed of Stark Development, Ltd. and Gray Development, Inc. The developers intended to build the Waterpark Towers Condominium Project (the project) on this site. Accordingly, the Trusts obtained, as part of the sales price, seven options to purchase as yet to be built apartments at a discounted price in exchange for selling this land to the developer.[2] The Trusts listed these options with *747 Horita Realty and later agreed to sell five of them to the buyers for $400,000.[3] In a signed letter agreement, dated May 24, 1990 (letter agreement), the buyers agreed to pay the Trusts in two installments of $200,000 each. The buyers completed the initial payment after (a) the Trusts assigned their option rights to the trust beneficiaries (on or about June 15 or 18, 1990) and (b) the buyers executed "reservation and sales agreements" with the developer for the apartments.[4] The buyers agreed to pay another $200,000 upon the earlier of (i) the issuance of the final public report or (ii) one year after execution of the reservation and sales agreements between the buyers and the developer.[5] Sometime after August 1991i.e., over a year after the buyers entered into reservation and sales agreements with the developerthe trust beneficiaries unsuccessfully attempted to collect the remaining $200,000 due under the promissory notes. The developer later issued a final public report on September 6, 1991.[6]See HRS § 514A-40 (1993) (listing conditions under which a final public report may be issued prior to the completion of a project's construction). One week later, on September 13, 1991, the buyers sent a letter to the trust beneficiaries citing HRS § 514A-62 for their claim that the letter agreement was invalid and calling for rescission of the agreement, repayment (with interest) of the $200,000 already paid, and cancellation of the promissory notes. The trust beneficiaries subsequently filed an eight count first amended complaint against the buyers, asserting claims of: breach of contract (Counts I, II, and IV)[7]; breach of implied covenant of good faith and fair dealing (Count III); unjust enrichment (Count VI); fraud and misrepresentation (Count VII); promissory estoppel (Count V); and punitive damages (Count VIII). The buyers filed counterclaims for invalid contract, unjust enrichment, and conversion. The trust beneficiaries and the buyers each moved for summary judgment on the complaint and the counterclaims. The circuit court entered orders granting the trust beneficiaries' motion as to the complaint and denying the buyers' motion. The order simply granted the motion for summary judgment and did not enter judgment against the buyers. The buyers moved for reconsideration *748 of the order granting summary judgment. The circuit court orally denied the motion and later entered an order denying that motion. The buyers moved for leave to take an interlocutory appeal from the order granting the motion for summary judgment, the order denying the buyers' motion for summary judgment, and the oral order denying the motion for reconsideration. In the alternative, the buyers moved for certification of these orders pursuant to Hawai`i Rules of Civil Procedure (HRCP) Rule 54(b).[8] On February 15, 1994, the circuit court entered an order denying leave to take an interlocutory appeal from the orders, but granting the motion for certification. The order simply granted the motion without making any of the findings necessary for certification. Meanwhile, the trust beneficiaries moved for entry of judgment pursuant to the order granting summary judgment, for HRCP Rule 54(b) certification of the judgment, and for an award of prejudgment interest, attorney's fees, and costs. On February 15, 1994, the circuit court entered an order granting the motion. The order awarded judgment to the trust beneficiaries in the amount of $200,000 as to counts I, II, III, and IV of the first amended complaint and adjudged the defendants jointly and severally liable to the trust beneficiaries for the awarded sum. Counts VII and VIII were dismissed. The order was certified under HRCP Rule 54(b) and contained the requisite finding that there was no just reason to delay the entry of judgment. The order also awarded prejudgment interest, attorney's fees, and costs to the trust beneficiaries. On February 15, 1994, the court entered a separate judgment pursuant to the order in favor of the trust beneficiaries and against the buyers for $200,000 as to counts I, II, III and VI, but not as to count IV. On March 8, 1994, the buyers filed a notice of appeal from: (1) the order granting the trust beneficiaries' motion for summary judgment; (2) the order denying the buyers' motion for summary judgment; (3) the order denying the buyers' motion for reconsideration of the order granting summary judgment; (4) the order denying leave to take an interlocutory appeal; (5) the order granting the motion for entry of judgment, prejudgment interest, attorney's fees, and costs; and (6) the judgment entered on February 15, 1994. II. DISCUSSIONA. Appellate Jurisdiction "It is well-settled that every court must determine as a threshold matter whether it has jurisdiction to decide the issue[s] presented. Moreover, subject matter jurisdiction may not be waived and can be challenged at any time." Public Access Shoreline Hawaii v. Hawai`i County Planning Comm'n, 79 Hawai`i 425, 431, 903 P.2d 1246 , 1252 (1995) (internal quotation marks, ellipsis points, and citations omitted). In the instant case, Count V of the first amended complaint and the buyers' counterclaims have not been dismissed or reduced to judgment. Thus, judgment is not final in this case because all rights and liabilities and all claims of all the parties have not been terminated. M.F. Williams, Inc. v. City and County of Honolulu, 3 Haw.App. 319, 322-24, 650 P.2d 599 , 603 (1982). Absent entry of final judgment as to all claims, an appeal may be taken in this case only if leave to take an interlocutory appeal has been granted by the circuit court pursuant to *749 HRS § 641-1(b) (1993)[9] or if certification has been granted pursuant to HRCP Rule 54(b). The order granting the motion for entry of judgment, prejudgment interest, and attorney's fees and costs entered judgment in favor of the trust beneficiaries and against the buyers on counts I, II, III, and IV, and was properly certified for appeal under HRCP Rule 54(b). See Aged Hawaiians v. Hawaiian Homes Comm'n, 78 Hawai`i 192, 200, 891 P.2d 279 , 287, cert. denied, ___ U.S. ___, 116 S. Ct. 77, 133 L. Ed. 2d 36 (1995) (citing TBS Pacific, Inc. v. Tamura, 5 Haw. App. 222, 228, 686 P.2d 37 , 43 (1984)). Although the judgment entered on February 15, 1994 entered judgment in favor of the trust beneficiaries and against the buyers on counts I, II, III and VI, the judgment was not certified under HRCP Rule 54(b). Furthermore, leave to take an interlocutory appeal was neither requested nor granted as to the order denying the defendant's motion for reconsideration. See HRS § 641-1(b), supra note 9. Leave to take an interlocutory appeal was also denied as to the orders granting and denying the parties' respective motions for summary judgment. Similarly, the order granting the trust beneficiaries' motion for summary judgment simply granted the motion without entering judgment and was not certifiable under HRCP Rule 54(b); thus, the purported HRCP 54(b) certification of this order and the order denying the buyers' motion for summary judgment was improper. Finally, the order denying leave to take an interlocutory appeal is not appealable under HRS § 641-1(b). Thus, we hold that appellate jurisdiction is properly invoked in the instant case only as to the February 15, 1994 order granting the trust beneficiaries' motion for entry of judgment, prejudgment interest, attorney's fees, and costs. B. HRS § 514A-62 The buyers claim that HRS chapter 514A, the Condominium Property Act, governs the sale of the options they purchased from the trust beneficiaries. Thus, the buyers contend that they can obviate their obligations under the letter agreement because they entered into that agreement before the developer issued its final public report. See HRS § 514A-62(e), supra note 1. HRS § 514A-62(a) provides in relevant part: The developer (or any other person offering any apartment in a condominium project prior to completion of its construction) shall not enter into a contract or agreement for the sale or resale of an apartment which is binding upon any prospective purchaser until: (1) The commission has issued an effective date for a final public report on the project, and the developer has delivered, or caused to be delivered, to the prospective purchaser, either personally or by registered or certified mail with return receipt requested, a true copy of the final public report together with a true copy of all prior public reports on the project, if any, which have not been previously delivered to such prospective purchaser;.... (2) The prospective purchaser has been given an opportunity to read the report or reports; and (3) The prospective purchaser (A) executes the form of the receipt and notice set forth in subsection (d); and (B) waives the prospective purchaser's right to cancel; provided that if the prospective purchaser does not execute and return the receipt and notice within thirty days from the date of delivery of such reports, or if the apartment is conveyed *750 to the prospective purchaser prior to the expiration of such thirty day period, the prospective purchaser shall be deemed to have receipted for the reports and to have waived the prospective purchaser's right to cancel. (Emphases added.) As enacted in its original form in 1961, HRS § 514A-62 was designed "to protect the buying public" from losses resulting from the "loose handling of funds representing down-payments on individual apartment units[.]" Hse. Stand.Comm.Rep. No. 622, in 1961 House Journal, at 937-38. Furthermore, in 1967, the legislature close[d] the `wholesaling loophole', by amending the present law to include[,] as persons covered by the obligation to give a public report to[,] both the developer and any other person offering a condominium unit prior to the completion of its construction. This broadening of the application of the act [was deemed] necessary in order to meet the practice in which developers sell portions of the project to large investors for resale, often an entire floor. Hse.Stand.Comm.Rep. No. 822, in 1967 House Journal, at 795. The Condominium Property Act also provides that the prospective purchaser may elect to cancel any agreement for the purchase or reservation of an apartment, unless this right has been waived pursuant to HRS § 514A-62(a), supra: at any time prior to the earlier of (1) the conveyance of the apartment to the prospective purchaser or (2) midnight of the thirtieth day following the date of delivery of the final public report to such purchaser, and, upon any such cancellation, [the purchaser] shall be entitled to a prompt and full refund of all moneys paid, less any escrow cancellation fee and other costs associated with the purchase, up to a maximum of $250. HRS § 514A-62(c); see also HRS § 514A-62(e), supra note 1.[10] The buyers claim that the "options" they bought from the Trusts under the letter agreement are non-binding "reservations" that may be rescinded, before or after a final report is issued, pursuant to HRS § 514A-62(e). Thus, the fundamental question raised in this appeal is whether the buyers, as "option purchasers," are entitled to the prophylactic measures contained in HRS § 514A-62(e). There are apparently two types of "reservations" contemplated by HRS chapter 514A. Compare HRS §§ 514A-16(a)(1)(A) (mentioning the "reservation of legal title under an agreement of sale") and -63(a) (mentioning "reservations, without limitation, including the merger or addition or phasing of a project"), with HRS §§ 514A-104 (mentioning a "reservation list" for prospective owner-occupants who have, inter alia, submitted an earnest money deposit) and -105(d) (requiring persons on the reservation list to reaffirm their intent to purchase after receiving the final public report). The first category of reservationsi.e., "sales contracts with reservations"are ordinarily considered to be binding obligations. See, e.g., Black's Law Dictionary 1307 (6th ed. 1990) (defining "reservation" as "[a] clause in a deed or other instrument of conveyance by which the grantor creates, and reserves to himself [or herself], some right ... in the estate granted").[11] The second categoryi.e., "reservation and sales agreements"involves nonbinding rights reserved for the the prospective purchaser in exchange for the payment of an earnest money deposit or downpayment, which is held in trust by the developer *751 subject to certain restrictions. See HRS § 514A-67 (1993) (governing the retention and disbursement of trust funds for various development purposes). Two cases decided by the appellate courts of this state have mentioned "reservation agreements" in the context of HRS chapter 514A or its predecessor, HRS chapter 514. See Nakamura v. Kalapaki Associates, 68 Haw. 488, 494-95, 718 P.2d 1092, 1096-97 (1986) (holding that purchasers were entitled to a refund and cancellation of their reservation agreement, notwithstanding their receipt of a final report and subsequent affirmation of the agreement, because they were not notified of their right to cancel as required by former HRS § 514A-66 whenever a final report is issued more than one year after the preliminary report)[12]; Hugh Menefee, Inc. v. Hale Kekoa Joint Venture, 2 Haw.App. 311, 313, 314, 631 P.2d 597 , 599, 599 (1981) (per curiam).[13] We are not aware of any cases involving "sales contracts with reservations" under HRS chapter 514A. Because both option contracts[14] and "reservation and sales agreements" are not per se binding upon prospective optionees or purchasers,[15] the buyers seem to argue that the *752 option contracts they purchased from the Trusts are encompassed by the term "reservation" in HRS § 514A-62(e). Cf. Heatherly v. Hilton Hawaiian Village, 78 Hawai`i 351, 355, 893 P.2d 779 , 783 (1995) (citing In re Taxes Hawaiian Pineapple Co., 45 Haw. 167, 178-79, 363 P.2d 990 , 997 (1961)).[16] The circuit court, in ruling on the parties' respective motions for summary judgment, implicitly recognized the potential merit of such a claim by "find[ing]" that: 1) Under the factual circumstances of this case, it is not necessary to determine whether the word "option" means the same or substantially the same as the word reservation under Chapter 514 H.R.S. The subject option[,] which was secured by the owners of the property[,] was part of the development negotiations between the owners of the land and the developer. The owner had equal if not greater bargaining power than the developer. The owner cannot be envisioned to be within that class (of prospective condominium unit purchasers) which Chapter 514 was designed to protect. Defendants, allegedly sophisticated purchasers, stand in the shoes of the owners as purchasers of the option. 2) It appears to this Court that what is merely involved is the sale of a valuable contractual right from the owners to the defendants. That sale can be enforced independently of Chapter 514[A]. (Emphasis added.) See also 8/16/92 Transcript at 18 (quoting the court as stating that "this situation is different from the situation where a stranger walks off the street and makes a reservation and calls it an option. I think, there, your argument's very pertinent[.]") (emphasis added). We are persuaded by the circuit court's reasoning in this case. The buyers obtained the rights, previously held by the trust beneficiaries via assignment from the Trusts, to purchase apartment units from the developer upon favorable terms. Clearly, the buyers expected to profit from this investment opportunity once the units became available for sale to the general public, due to a belief that apartment prices would be substantially higher than the favorable prices obtained by purchasing the options. Accordingly, the buyers executed "reservation and sales agreements" with the developer in order to fulfill a condition of the letter agreement under which the options were purchased. The buyers clearly were not bound to perform under the "reservation and sales agreements" with the developers. See HRS § 514A-104(a)(5) (providing for the return of deposits without interest).[17] However, notwithstanding the buyers' ability to rescind their reservation and sales agreements with the developer, they may not rely upon HRS § 514A-62(e) to nullify the letter agreement with the Trusts. The clear intent of HRS § 514A-62 is that prospective purchasers will be protected from unscrupulous and/or fiscally irresponsible developers by requiring all deposits to be placed in escrow, see HRS § 514A-65 (1993),[18] and allowing cancellation of reservation and sales agreements via execution of the statutorily required "receipt and notice" form, which includes the right to a "refund of any downpayment or deposit, less any escrow *753 cancellation fees and other costs, up to $250." HRS § 514A-62(d). The references to "escrow" in these sections and in HRS § 514A-62(c) belie the buyers' argument that, as optionees, they fall within the class protected by HRS § 514A-62. The money the buyers paid for the options was not placed in escrow and cannot be likened to a downpayment or deposit toward the purchase of an apartment. Upon "cancellation" of the letter agreement by the buyers, there would be no "downpayment or deposit" to return to them, because they bought an opportunity (i.e., the Trusts' rights to purchase apartments at a discounted price) and not apartments. It is inconceivable that the Trusts would conditionally "sell" the options to the buyers subject to a full refund of the sales price, with interest, in the event that the options were not later executed by the buyers in their sole discretion. Even if this were the highly unlikely agreement of the parties, it is nowhere set forth in the letter agreement drafted by Valerie Sorenson, one of the buyers. Consequently, the lost opportunity costs associated with the purchase of these options must be borne by the buyers rather than by the Trusts. Thus, we hold that the circuit court properly granted summary judgment in favor of the Trusts and entered judgment against the buyers. C. Prejudgment Interest The trust beneficiaries argue that the circuit court erred by deviating from the statutory interest rate of ten percent when awarding prejudgment interest. The buyers retort that the issue of prejudgment interest cannot be raised without a cross-appeal. In Shoemaker v. Takai, 57 Haw. 599, 561 P.2d 1286 (1977), this court held that an appellee is not ordinarily entitled to attack a judgment without a cross appeal. Id. at 607, 561 P.2d at 1291; see also 9 J. Moore, Moore's Federal Practice ¶ 204.11[3] at 4-52 (1995). However, because the appellant raised an issue related to the award of attorney's fees to the appellee, the court applied an exception to the general rule. Notwithstanding the appellee's failure to file a cross appeal, the court decided a subsidiary issue related to the trial court's concurrent award of attorney's fees to the appellant. Id. (indicating that the latter issue was "closely related, in substance, to [the] question raised on appeal"); see also In re Estate of Lorenzo, 61 Haw. 236, 239, 602 P.2d 521 , 525 (1979) (deciding the subsidiary issue whether the trial court properly granted a motion for jury trial because it was necessarily precedent to the question on appeali.e., whether the trial judge erred in failing to disqualify himself after having presided over the previous bench trial). In the instant case, the question whether the circuit court erred by granting prejudgment interest in an amount less than is statutorily mandated, see HRS § 478-2 (1993),[19] is not subsidiary to, or "closely related, in substance, to[,]" the question raised by the buyersin other words, whether holders of option contracts are entitled to the prophylactic measures contained in HRS § 514A-62(e). Thus, we decline to review the award of prejudgment interest in this case because it has not been properly raised. III. CONCLUSION We hold that the circuit court properly granted summary judgment in favor of the trust beneficiaries and against the buyers. Thus, we affirm the court's order granting the trust beneficiaries' motion to enter judgment and awarding prejudgment interest, attorney's fees, and costs.