Title: Thompson v. AIG Hawaii Insurance Company, Inc.

State: hawaii

Issuer: Hawaii Supreme Court

Document:

LAW LIBHAR
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IN THE SUPREME COURT OP THE STATE OF HAWAT'L

n-+ 000 +

 

TERRIE L. THOMPSON and DWIGHT THOMPSON,
Plaintiffs/Counterclaim Defendants-Appel lees,

 

AIG HAWAII INSURANCE COMPANY, INC., a Hawai'i
corporation; and AMERICAN INTERNATIONAL ADJUSTMENT
COMPANY, INC., a Delware corporation, Defendants/
counterclainants Cross-Claim Plaintiffs/Cross-Claim
Defendants-Appellants,

BURTON D. GOULD, Defendant/Cross-Claim Plaintift/
Cross-Claim Defendant,

TARRY MARK POLSKY, Dei

 

 

ndant /Crosa-Claim Plaintiff,

POLSKY & GOULD, a Hawai'i partnership, Defendant/
cross-Claim Defendant /Cross-Claim Plaintiff-Appellee,

JOSEPHINE D. MEDEIROS, Defendant /Cross-Claim
Plaintiff-Appel1

 

JOHN DOES 2-10, DOB CORPORATIONS 1-20, DOE
PARTNERSHIPS 1-10, AND DOE ENTITIES 1-10, Defendants.

 

 

gq 8
No. 27463 ge 8 oa
APPEAL FROM THE secon cxRewir cous ABZ,
(CIV. NO, 93-0140(1)) SEI", m
Be 2 9
ES
SEPTEMBER 5, 2006 2

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

OPINION OF THE COURT BY MOON, C.J.
‘This appeal concerns the sole question whether the

plaintiffs-appellees Terrie L. Thompson (Mrs. Thompson) and

 
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Dwight Thompson (Mr. Thompson) [hereinafter, collectively, the
plaintiffs] are entitled to rescind a settlenent agreement,
releasing all claims for personal injuries arising from an
automobile accident, on the ground of unilateral metake,
purauant to Restatement (Second) of Contracts (hereinafter,
Restatenent] §§ 153 and 154 (1981), quoted infra. Briefly

end motor vehicle

 

stated, Mrs. Thonpecn was involved in a reai
collision caused by defendant Josephine D. Medeiros, who is not a
party to the instant appeal. The plaintiffs! eventually settled
their personal injury claim with Medeiros in the amount of

automobile liability

 

$35,000, which was paid by Medeiros
insurer, defendant-appellant AIG Hawai'i Insurance Company, Inc.
(AIG), through its adjusting company, defendant-appellant
American International Adjustment Company, Inc. (ATAC)*
Ihereinafter, AIG and AIAC are collectively referred to as the
defendants]. At the time of the settlement, the plaintiffs
believed that the $35,000 represented the liability limit of
Medeiros’s motor vehicle insurance policy when, in fact, the
policy limit was $300,000. The plaintiffs brought suit against
Medeiros, their former attorneys, AIG, and AIAC, seeking, inter

alia, rescission of the settlenent agreement. Ultimately, the

Although Mrs. Thompson was the only one involved in the accident, Mr.
‘Thonpeon asserted 2 claim for lose of consortium.

2 ae ali times relevant herein, AIAC, as the adjusting agent for AIG,
handled ali liability claims against AIG. Thus, the acts of AINC and/or ite
‘employees and agents are imputed to AIG.

 

 
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Circust Court of the Second Circuit? found that the settlement
agreenent was unenforceable on the ground of unconscionability
and granted the plaintiffe’ motion for summary judgment. An
amended final judgment was entered on August 2, 2005.

on appeal, the defendants advance two points of error
committed by the circuit court. First, the defendants contend

that the circuit court failed to apply Hawai'i Revised Statutes

 

(uRS) § 490:2-302 (1993), quoted infra, which dictates that
unconscicnability is determined under the circumstances existing
at the time the contract was made. Second, the defendants clain
that there are genuine issues of material facts regarding whether
the settlement agreement was unconscionable, thereby rendering
summary judgment inappropriate.

For the reasons discussed herein, we vacate the circuit
court's August 2, 2005 amended final judgment and remand this
case for further proceedings consistent with this opinion,

1. BACKGROUND
actual Backsround

on October 6, 1990, Mrs. Thompson was involved in a

 

rear-end motor vehicle collision caused by Medeiros (the
accident). As a result of the accident, Mrs. Thompson sustained

severe pergonal injuries, including bilateral temporonandibular

 

> the Honorable Reinette M. Cooper presided over the underlying
proceedings unless otherwise indicated

 
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joint displacements, post-traumatic stress disorder, depression,
and cervical, thoracic, and right shoulder injuries.

Shortly after the accident, the plaintiffs retained
defendant Burton D. Gould -- a non-party to the instant appeal --
as counsel to represent them in connection with their personal
injury claim against Medeiros (hereinafter, the personal injury
action]. As a result of settlenent negotiations between Gould
and the defendants’ senior clains adjuster, Billie R. Long, the
plaintiffs entered into @ settlement agreenent on June 26, 2992.
In return for a payment of $35,000, the plaintiffs released all
clains arising fron the accident [hereinafter, the 1991 release]
against Medeiros. The plaintiffs executed the 1991 release based
upon Gould's representation that Long had informed him that the
$35,000 represented the entirety of Medeiros’s liability
insurance coverage when, in fact, the policy limit was $300,000.
Gould testified in hie deposition that Long had represented that

she was paying the policy limit of $35,000 in order to settle the

 

personal injury action:

© IBy plaintiffs’ counsel) At the time that you
purpertedly settled [ehe plainéifts') claims again
meseiros} for $35,000, you were under the inpression
that. [Medeiros] had only’s $35,000 minimum policy
Limit of bodily injury Liability coverage through
(AIG), “correct”
[By Goula) Ye
ow did you gain that inpression?
Well, in talking with (Leug], I remember asking for a
lot tore, and then part of the conversation went well,
2 don't =
wen you say “asking for a lot more," what do you
You know, I am talking about memory now. I think I
might have asked for seventy or something like that.

 

 

 

 

 

 
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©. In other words, you thought [NMr#. Thompson’ a] claine
were worth a 10t more than $35,000, correct?
A. Yes, double, something Like that, yes. And then she

4 something co the effect, weil, we don’t have
that. Rll there is, ie the chirty'five, Something

 

 

ifke enae
° Are those the exacts words?
Al Okay, 1am going to try to get the exact worde. When

we were negotiating, she sald, you can have the
thirty-five, 1 renenber. And with everything else she
said before ~~ taking it out of context, it’s hard,

‘snd with che fact
je, was just a private person,
you know, not a’ business percon, and with what she
Baid, 1 believe there was only thirty-five. when she
Said, well, we don't have that, all I have ie the
thirty-five.” To me, that would mean the thirty-five
tsinimim policy.

 

 
 

+ In other words, she didn't say, vell, 1 can
Stter you thirty-five and that’s it. She Said, you
Gan have the thirey-five, Tome, that meant that.

 

 

Gould further testified that:

 

 

  

©. [By plaintiffs’ counsel) when you were taiking about
the humbers in excess of $35,000, she had said, we
don't have that?

A. ‘By Gould) “Yes. Like, oh, no, but you can have the
eniety-five

9. Your impression wae she didn’t have insurance coverage
for the value of claim in excess of §35,0007

A. Yes, yes. And the impression wasn’t gained from just

 

one’ set of words or phrases, it was the entire
conversation and the previous calls, just her
actitude. . . . The thirty-five to me means that’s
‘tat their policy limits are, because there was 20
tention of thirty-five before, where che had made an
offer, and said, well, you can have the thirty-five
that I offered you last time. She said, you can have
the thirty-five that we have, or something Like that.

   

rt is undisputed that Gould never inquired about Medeiros’ s
a,

 

policy Limit, or requested a declaration page from AIG. Ine!
as indicated above, Gould assumed that the $35,000 offer by Long
represented Medeiros’s policy limit.

Long, however, testified that she represented to Gould

that $35,000 was all the authority that she had to settle the

 

personal injury action. Specifically, Long state

 
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Me. Gould cane down to $55,000 from hie initial demand. 1
advised I could order the check today if he would accept the

(Emphasis added.) Long's testimony further reveals that:

©. [By plaintiffs’ counsel] [YJou . « . found out that
rt. Thompson’ e Sedical special danages eotaied
37,273.08, is that correct?

 

 

 

 

 

 

 

 

   
 

a. ay tong)’ Yee

@." Go at chat point on april 1, 2991, you knew chat mre.
‘Thompaon was receiving chiropractic treatment, that
her injuries were whiplash, snd that her medical
xpentee were §7,273-00, 18 that correct?

a vee

—And’at that point, you then requested a
Case of $35,000?

@: hy’ dia you choose the number $35,000 for the reserve?

KL Reserving ie just guese work. “You just try to pick an
amount that you think te appropriate and that your
Settlement will be under thet amount.

©. what would happen if you just said, iet’s reserve this
t'$300,000.

A. Gh, T couldn't have. There wae nothing to support it.
Your paper mst support what you're requesting

@ So it’s not really guess work. It’s an estination,
then:

a. Seve'an estimation.

G: okay. what went into the estimation that this should
be Yeserved at $35,000?

A. The fact that {,] within eix months, che had $7,000 and
fone dollare worth of medical bills. f had no idea
hhow long she would be treating or how much coverage
she had

0. And 0 with your
specials, you requ

a Yee.

@.” " And ds it correct that your goal is to settle cases
for as little as possible?

AL My goal is to settle cases for their valve.

 

When asked the reasons why she considered the settlement with the

plaintiffs a “good settlement” -- i.e,, specifically, “is that an

teled the ci

 

 

indication on your part that you thought you had

cheaply?" -- she replied, ‘No. I settled it for ite true value.”
Additionally, Gould recommended that the plaintiffs

pursue a claim for underinsured motorist (UIM) benefits from
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their own no-fault insurance carrier, Fireman's Fund Insurance
Company (Fireman’s Fund). That same day, June 26, 1991, Gould
presented a UIM claim to Firenan’s Fund, stating in his letter

that

 

Mire], Thompson wae very seriously injured in an accident on
October €, 1990 [sic]. [Medetres’s] insurance company,
Ric... paid their full policy Limit of ¢35,000 on June
26, issn:

 

‘Thereafter, Fireman's Fund refused the UIM claim on the basis
that the plaintiffs had failed to obtain the full available
bodily injury liability insurance coverage from Medeiros.‘
B. Procedural History

a. ‘The Complaint

on February 22, 1993, the plaintiffs, via their new

attorneys, filed suit against their former attorneys -- Gould,
defendant Larry Mark Polsky, and their attorneys’ law firm,

defendant Polsky & Gould,* -- and the defendants based on the

 

«prior to Fireman's Fund's discovery of Medeiros's policy linit,
Pireman‘a Fund offered $15,000 in which to settle the plaintiffs’ UIM claim.
However, Gould eclined such offt

 

 

* as previously stated, Gould Je not a party to the instant appeal;
similarly, Polsky and Poleky & Gould are not parties to this appeal
thereinatter, Gould, Polaky, and Polsky 4 Gould are collectively referred to
ae the former sttorseys). On Apri? 23, 1983) ‘and Polsky £ Gould moved
for partial summary judgnent in the instant ¢ reing that

   

Gould did not becone associated with Polsky until

october 1, 1992(, when they formed the partuership of Polsky

E Gould).” Polsky has never had any physical contact with

{ene plaineitfel, and(,] in point of fact, Polaky's only

contact in this atter was to make certain that the lawsuit

Which (could) filed on behalf of [the plaintiffs] against

{Medeires) was expeditiously carries forvara in a conpetent

manner, Also, (Gould and Polsky] agreed that any

abilities eltner might possess vie a vie thelr law

practices, would be borne personally by each other; said
(eoneinued....)

 

 
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circumstances surrounding the settlement of their claims arising

out of the accident.‘ On March 10, 1994, the plaintiffs amended

 

their complaint to add Medeiros as a party.’ The amended

 

complaint alleged: (1) negligence as againet Medeiros and the
former attorneys; (2) breach of fiduciary duty against the former
attorneys; (3) negligent misrepresentation against Gould and the
defendants; (4) fraud and unfair claime practices against the

defendants; (5) unfair deceptive acts or practices, in violation

 

of HRS § 480-2 (1993), against the defendants and the former
attorneys; and (6) joint and several liability against all

defendants [hereinafter, the rescission action] .

 

 

continued)
Tiabilities having occurred prior to the date the
partnership was formed, to wit, prior to Ocrober 2, 1952,

‘The plaintiffs, hovever, in their oppotition, maintained that, shortly after
the fornation Sf Poleky'& Gould, Polsky took over the representation of the
plaintiffs and responsibility for the personal injury action £led by Gould
fn April 27, 1992. The motion for partial summary judgrent wae orally denied,
‘on May 20, 1993.

 

+ In their request for exenption from the court annexed arbitration
program, filed on February 22, 1993, the plaintiffs indicated that Mrs
‘Thompson's wedicai and therapeutic treatment expenses vere in exce
$54,000. They further stated that the jury verdict value was expected to be
substantially in excess of 150,000." The plaintiffs’ request for exemption
was granted the next day. Also,'in their anowering brief, ‘filed on March 10,
fe plaintiffs maintain that Mrs. Thompson's medical bills have
1d €o $135,000 as a result of the accident

 

   

     

 

 

* on October 27, 1994, Medeiros £11ed a motion requesting the circuit
court to sever the case against her fron the instant action. therein,
Medeiros argued that it would be unfair to have her case decided
Simultaneously with the insurance case and professional malpractice case
inagmuch as it would be *inpossible ae the case ie presently structured for
[Medeiros] to have this case decided withour prejudicial information with
regard co the issue of insurance and the amounts of coverage.” Medeiros’
notion was subsequently granted on January ¢, 1998.

   

   
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2. Motion to Rescind the 1991 Relea

 

on December 9, 1994, the plaintiffs filed a motion to

rescind the 1991 release (the motion to rescind). ‘The plaintiffs
asserted that, under Gossinger v. Association of Apartment Owners
Rege: a Wai, 73 Haw. 412, 835 P.2d 627 (1992), this

court held that, in order to rescind a release, the “mistake”
must relate to a “past or a present fact." 1d. at 421-22, 635
P.2d at 632 (“If the mistake relates clearly to a past or a
present fact ,] the renedy of cancellation will be awarded.
(Citation omitted.)). The plaintiffs argued that they and/or
Gould entered into the 1961 release agreement under the mistaken
belief that $35,000 was the bodily injury liability policy limit
of Medeiros’s coverage with AIG. They contended that the fact
that Medeiros had a $300,000 policy limit vas a “past or a
present fact” at the tine the purported release was signed. The
plaintiffs, therefore, maintained that they were entitled to
rescind the 1991 release because of their and Gould’s unilateral

mistake as to Medeiros’s policy limit. On December 19, 1994, the

 

defendante filed their opposition to the plaintiffs’ motion to
rescind, contending that a unilateral mistake by the plaintitts
and/or the plaintiffe’ attorney regarding the amount of available
insurance coverage was not a valid basis to rescind the 1992
release.

At a hearing held on December 19, 1994, the parties

stipulated that the motion to rescind would be treated as one for

 
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summary judgment. The parties further agreed that there was no
dispute that, at the time the plaintiffs signed the 1991 release,
the plaintiffs and Gould believed that the plaintiffs were
receiving Medeiros's policy limit. The circuit court* determined
that Gossinger was controlling and that the plaintiffs had made a
unilateral mistake as to a “past or a present fact, thereby
entitling them to rescission. The circuit court issued ite
written order ranting the plaintiffs’ motion for summary
judgment on March 13, 1995 [hereinafter, the Summary Judgment
order].

3. The Settlement Agreement of the Rescission Action

On Decenber 12, 1995, the plaintiffs, the defendants,

the former attorneys, and Medeiros entered into a settlenent
agreenent (hereinafter, the 1995 settlement acreenent], wherein
they agreed

to terminate, settle and compromise a1] claims and
controversies, except a set forth herein, still existing
between them as get forth nore fully below:

THON, THEREFORE, [ehe parties) mutually (ebael +

i. ‘the total value of [ehe plaintiffs’) claim for
general danages as sot forth in their First Anended
Complaint ie $135,000, 2 portion of which M[re)- Thompson
has received as follove:

Op of about June 26, 1991, (the (plaintiffs)

received $35,000 from [the defendants] on behalf of
{nedei ros}

   

 

 

b. on February 10, 1995, [the plaintiffs}
received an additional $35,000" from (the defendants) on
benal? of [Medeiros]

 

+ the Honorable B. John McConnell presided over this matter.

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me current outetanding value of (the plaintiffe']
clains against. (Medeiros) iz $65,000, however, this amount
Shall only be due and owing to the [pllaintitte under the
following conditions:

‘a. (The defendante] chall appeal (the Sunmary
Judgnent order]

'B. If the Hawai'i state suprene Court affirms
(ene summary: Judgment order], then (the defendant) wil
pay, on behalf of [Medeiros], $65,000, general damages only.
fo (the plaintifte!

e. If the Hawai'i State Suprene Court reverses
(the Summary dudgnent] Order then a trial will be
held solely on the issue of the validity of the (1991
release

  

 

 

2. if the trier of fact determines that
the June 26, 1991 [velease] is invalid, [the defendants]
wilt pay, of behalf of [Medeiros], $65,000, general danag
Only, to (the plaintiffs)

Dl if the trier of fact determines that
che (1992 release ie valid, then there will be no
further payment to (the plaintiffs)

3. [the former attorneys) agree to pay (the
plaintifte] the sum of $6,000, (The plaintiffs) acknowledge
Phat €2,000 has already been received from (the former
attorneys]

<. All claine of (the plaintiffs) against (the
defendante) will be dismissed with prejudice except a6 to
the validity of the [release] dated June 26, 1951

 

 

 

 

In eum, all parties to the 1995 settlement agreement
agreed that: (1) the total value of the plaintiffs’ claim for
general damages was $135,000; (2) the plaintiffs had been paid

$70,000 by AIG on behalf of Medeiros; (3) the payment of the

 

remaining $65,000 would be conditioned upon the appellate court
resolution of whether the plaintiffs were entitled to rescind the
1991 release; and (4) the former attorneys would pay the
plaintiffs an additional $4,000, having already paid the
plaintiffs $2,000.

consequently, on March 24, 1995, the defendants filed a

motion for certification, pursuant to Hawai'i Rules of Civil

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Procedure (HRCP) Rule 54(b) (2004),” of the Summary Judgment
order. The circuit court entered judgment in favor of the
plaintiffs on December 27, 1995.

4. Appeal Before the Intermediate Court of
Appeals (ICA)

on January 9, 1996, the defendants timely filed their
notice of appeal. This court, on two separate occasions, March

25 and September 3, 1996, dismii

 

d the appeal for lack of
juriediction because the circuit court's final judgment did not
resolve all clains against all parties. On Novenber 18, 1996,
the circuit court entered an amended judgment. Thereafter, on
Decenber 9, 1996, the defendants filed their notice of appeal
‘The defendants’ appeal was subsequently assigned to the
ICA. On Septenber 29, 1997, the ICA, via a memorandum opinion,

remanded the case to the circuit court with instructions for

 

+ ince Rule 54 provides in relevant part:

(©) dudanent upon multiple claine_ox involving,
multiple parties” When more than one claim for relief ie
Presented in an action. . or when mltiple parties are
Involved, the court may direct the entry of final judgment
as to one or more but fewer than all of the claine or
parties only upon an express determination that there {# no
Just reason for delay and upon an express ¢irection for the
entry of judgment. In the absence of such determination and
Sireceion, any’ form of decision =. which
aajudicatee fever than all the claims or the righte and
ifabilities of fever than all the parties shall not
terminate the action as to any of the clains or parties{.]

 

 

 

(emphasis in original.)

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Gisposition. Specifically, the ICA disagreed with the circuit

 

court's application of Gossinger, noting that

Im Gopsinger, the court cited as a general rule that{,]

 

LE1f a claim te made for damages for an snjury, @
lise settlenent is ordicarily not made voidable
eed

    

fe because the injury was greater and 1
longer than was expected at the tine of the
settlenent, if the parties knew or had reason to know
that the extent of the Injury was uncertain and chat
was the very reason for the Compromise

73 Haw, at 420, 25 P.2d at 622 (quoting € A. Corbin,
$ i292 (2962)). However,

(i)n cases [where there is a mistake as to the extent
of nature of injuries.) an important inquiry 8
“iether the mistake relied upon in aid of cancellation
related toa past or a present fact or related purely
£9 a surmise or opinion as to the future development
of @ know and existing illness or injury. 1¢ the
early to a past

‘istion will

135 P.24 at 632 [(citation onitted)]

  

 

 

 

 

‘Thus. Gossinger clearly amplies to cases involving
reociesion of a setelonent sareenent based upon a Mistake as
ko the nature ‘edo

‘following, we told that Gossinger dose not apply to cases
here the mistake is to the limite of an insurance colicy.

(Some brackets in original.) (Emphasis added.) The ICA
concluded that the proper application is set forth in AIG Hawai'i
Insurance Co. v. Bateman, 62 Hawai'i 453, 923 P.2d 395 (1996),

wherein this court adopted the general principles of Restatement

8§ 152, 153, and 154 regarding when a mistake is an appropriate

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basis for rescinding a settlement agreement." Id, at 457-58,

 

923 P.2d at 399-400. Restatement § 153 stati

here a mistake of one party at the tine a contract
was made se to a besic assumption on which he made the
Contract has s material effect on the agreed exchange of
performances that is adverse to him,

inder the rule stated inf is¢, and

ow e

of the contract would be unconscionable, oF

‘tbr
of big fault chused the mistake.

(Emphases added.) See also Bateman, 82 Hawai'i at 457, 923 P.2d

   

 

at 399, In turn, section 15¢ provides:

 

* gpecitically, the Ick stated that:

In Bateman, Billy Batenent (Bateman) was driving a car
owed by Flor corpuz (Corpus) when he was involved ina)
motor vehicle accident with Pat Vicente (Vicente). AIG wae
Corpix's automobile ineurance carrier. AIG brought «
Geclaratory action for a detersination of whether it had a
uty to defend Bateman because he was not « permissive user
Of the car and therefore not a “covered person.” The
Cizcule court denied such declaratory relief and AIO
appealed. However, during the pendency of
ane Vicente agreed to settle Vicente’ s bodily
ageinet Bateman for the policy limits of $35,000.
Thereafter, the supreme court held that Bateman was not a
permissive user of the insured vehicle and eherefore not a
“covered person” under the ingurance contract. 1d, at 457,
923 P.ad at 724-25. Ae @ regult, AIG brought a subsequent.
action to rescind the settienent agreement with Vicente on
the basis of a mitual mistake of law (i.¢,, mistake on
whether it had a duty to defend Bateman)” Although the

 

 

     

thea

jaa proper basis for rescinding a settienent acreesent—
Zd_At-auch, the principles eet forth in gatenan covers the
imediate determination of whether a unilateral aietake of
fact Gen mistake an co policy Linitel can serve asa

(Bxphasis added.)
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A party bears the risk of @ mistake when
(a)"the risk i allocated to him by agreement of the
parties, or

Tb) he ie auare, at the tine the contract is made, that he
has only Limited knowledge with respect to the facts to
hich the mistake Prelate but treate his linited knowledge
fe sufticient; oF

{c) the risk ie allocated to him by the court on the ground
Chat it ie reasonable in the circumstances to do 0

 

 

 

 

 

See also Bateman, 62 Hawai'i at 458, 923 P.2d at 400
In applying Restatement §§ 153 and 184, the ICA vacated
the Summary Judgment Order and remanded the case to the circuit
court with instructions that it determine whether the plaintifts,
vat the time the settlement agreement was made," had only limited
knowledge with respect to the limit of the liability policy.

specifically, the ICA stated:

‘The record on appeal does not eufficiently indicate the
extent of [the pllaintiffe’ knowledge with respect to the
GIales Of the lability policy, ana therein lies a genuine

woe of material fact. Ag such, we resand the case for a
determination of whether {the pliaintifts bore the risk of
Siatake as £0 policy Linite inder subsection (b) (of
Rettatenent § 154

 

‘The ICA further indicated:

if [the pliaineifts are ultimately found to have borne
tthe risk of mistake under sussection (b), then they are
precluded from feecinding the settienant agreement. Tf (the
Bilaineseee ave ultimately found to have not borne the risk
bf aistake under subsection (b), then [che plaintiffs can
Yeocind the settlenent agreenent only if there is a finding
that (1) the effect of the sistake ie such that enforcenent
Sf the contract would be unconscionable, or (2) the other
jarty had reason to know of the mistake or his or her fault
Caused the mistake.

 

 

 

 

 

None of the parties filed a motion for reconsideration of the

ICA's opinion as permitted pursuant to Hawai'i Rules of Appellate

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Procedure (HRAP) Rule 40 (2004),"* or an application for writ of
certiorari, pursuant to HRAP Rule 40.1 (2004) .””

5. Motion for Summary Judgment
Whether the Release was Unconscionable

  

Upon remand to the circuit court, the plaintiffs, on
January 28, 2002, filed a motion for summary judgnent on the

issue whether the 1991 release was unconscionable, which is the

 

basis of the instant appeal. The plaintiffs argued that, becaus

cies . . . stipulated [in the 1995 settlement
agreenent] that the value of the pisintiffe® claims is

$335, 000[,] ae a matter of lav, the $35,000 release, sought
fo be enforced by (the dJefendants, 18 unconscionable when

the stipulated value of the claims ie, $135,000.

t]he

   

   

 

on February 19, 2002, the defendants filed their
memorandum in opposition to the plaintiffs’ motion. They
maintained that unconscionability ie determined “under the
circunstances existing at the tine of the making of the

contract." (Quoting HRS § 490:2-302 cmt. 1) (Other citations

 

BAP Rule 40 provides in pertinent part:

(a) Time. A motion for reconsideration may be filed
by 2 party only within 10 days after the filing of the
opinion, dispositional order, of ruling unless by special
Yeave additional tine is granted during such period by =
judge or justice of the appellate court involved.

(Underscored emphasis in original.)
© WRAP Rule 40.1 provided in relevant part:

(a) Auplication: when filed. No later than 30 days
after the fi1ing of an opinion, dlepositionsl order, or
Fulings of the [TCA] '. ."., any party may apply in writing
fo the suprene court for a’writ of certiorari to review such
opinion, dispositional crder, or ruling

(underecored emphasis in original.) Although not applicable to this case, the
Hine perioa in which a writ of certiorari mst be filed vae later extended to
ninety daye. MRAP Rule 40-2" (2006)

 

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omitted.) The defendants, therefore, asserted that the $35,000

consideration for the 1991 release was “not a nominal or

 

unconscionable amount” in light of Mrs, Thompson’s medical

specials at the time of the execution of the 1991 release, which

 

was $7,273.08. The defendants further argued that Long's
testimony creates a genuine issue of material fact as to whether
the 1991 release was unconscionable. As previously stated, Long
testified that, when the 1991 release was executed, she
reasonably believed that she had settled the plaintiffs’ case for
its ‘true value" in view of Mrs. Thompson's medical specials at
the time.

‘A hearing was held on February 28, 2002, at which time
the circuit court orally granted the plaintiffs’ motion,

indicating that

 

I'm going to grant the Motion for Summary Judgment on
fe of wnether the [1991] release is unconscionabl
‘Think'that a claim -- ALO claim agent that settles
fof $35,000 knowing that, you know, a Plaintiff is

cling with her knowing that she's going elsewhere for
underinsured when ehe knows AIG's policy limit is 300,000,
Smacks of unconsclonability. And but for the fact that
Mire-] Thompson went and tried to get further danages from
the underinsured policy, that’s the only reason chey learned
that in Zact AIG hed a policy Limit of ($]300,000, sot
(6135, 000.

‘So i think -- 1 think, given all of those
circumstances, it appears to the court that the [1992]
Felease for $35,000 vas unconscionable.

   

 

    

 

 

on March 13, 2002, the circuit court issued its written order

Ihereinafter, the rescission order], which stated that:

 

YT 18 HEREBY ORDERED that, in following the directives
of the [IC's] ‘September 29, 1997 Menorandun Opinion herein,
the court finde, as a matter of lav, that it in
unconscionable to enforce a Release of personal intury
‘siaima_tor £15,000 when the stimulated value of those ciains

 

 

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i £125,009, and therefore, [the plaintiffs’ Motion for
Stenazy‘Juagnese on the Teive of Wether the (2991) Release
{fe Uncanscionable te. GRANTED.
(Capitalization and bold enphasis in original.) (Underscored
emphasis added.) The defendants, on March 22, 2002, filed a
motion for reconsideration of the circuit court‘s rescission
order. The defendants argued that the circuit court, at the
hearing on the plaintiffs’ motion, made a mistake of fact
regarding whether AIG's clains adjustor, ixe,, Long, knew prior

to June 26, 1991, when the 1991 release was executed, that the

 

plaintiffs or their counsel intended to make a UIM claim. The
defendants attached to their motion Long's affidavit, wherein she

attested that:

9. Gould never advised me orally or in writing that
he inteidea to make a{ Uim) claim cn behalf of [are
Thompson] prior to June 26, 1991, when the release was
executed. "I never had any converaations with or received
any correspondence from Pirenan’s fund... regarding ithe)
Umm clain until after Septeaber 20, 1993.

Jo. At no time prior to September 20, 1951 did I know
that (che plaineifts of] Gould sntendea to nake a UIM claim
ageinst Fireman's Fund arising from the October 6, 1990 auto
secidene

Tl, When I settled (Mra. Thompson's) claim for
$35,000 on June 26, 1981, T had no knowledge that Could o
{eho plaineiffs) iseended to make a UIN claim against
Firenan’s fund. The first time T becane aware that Gould or
(the plaintiff] intended co make @ UIM claim against
Fireman's Fund was on Septesber 20, 1991, when 1 learned
that Gould requested AIG's declaration sheet which indicated
that [J Medeiros had $300,000 in (bodily injury] peliey
Tinie.

 

 

 

The plaintiffs, however, argued in their memorandum in
opposition, filed on April 12, 2002, that the rescission order
Gid not contain such finding or mistake of fact. They further
reminded the circuit court of the ICA’ memorandum opinion in

which the ICA specifically remanded the case for the

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determination, inter alia, whether “the effect of the mistake is
such that enforcement of the contract would be unconscionable,”
as mandated by Restatement § 153, and not whether the 1991

release was unconscionable at the time of its execution,

 

on April 23, 2002, the circuit court held a hearing on
the defendants’ motion, wherein the circuit court stated:

have not heard any argunent that gives me pause to change
fy sing ae to my earlier ruling.

T hear that I may have been incorrect av to the
defendant (e'] knowledge of the] plaintiff (e’] intent to
file an underinsured Rotorist action. I’m not convinced
that AiG needs to be avare that they were planning to do
that when they entered into the contract oF the settlement,

‘iat {am faced with ie that AlG, on this case. had a
$300,000 policy Lime, They ofteres 535,000, which (the!
DIAINiETe believed were the Lisite, and there was an
Eceeptance. snot find for a case that bas « stipulated
value of [135,0001. that that release wag unconscionable,

eet eneta z pte

 

 

Taleo recall thet there were dealings eubsequent to
tthe $35,000 acceptance in which AIG offered ($35,000) more,
you know, and it eens to we that clearly that release wae
Unconseionable st $35,000 under the circumstance:

‘okay. So, Twill stand by my decision and deny your
motion fo¥ reconsideration

 

 

(emphases added.) The written order denying the defendante’
motion for reconsideration was entered on May 24, 2002.

prior to the issuance of the circuit court's May 24,
2002 order, the parties stipulated as to the plaintiffs’ “Limited
knowledge,“ pursuant to Restatement § 154(b), on May 15, 2002.
Specifically, the parties agreed that the plaintiffs did not sign
the 1991 release with “Limited knowledge’ with respect to
Nedeiros’s policy limit. Thus, in light of the ICA's Septenber

29, 1997 memorandum opinion, all triable issues had been

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resolved. Consequently, the circuit court entered final judgment
against the defendants on June 18, 2002.

on duly 8, 2002, the defendants timely filed a notice
of appeal from the June 18, 2002 judgment. This court, on
October 11, 2002 and May 19, 2003, diemissed the defendants’
appeal because the final judgment (1) failed to comply with HRCP
Rule 58 (2004)" and (2) lacked specificity ae to the claims that
have been resolved and dismissed, respectively. On August 2,
2005, the circuit court filed an amended final judgment. Notice
of entry of the amended final judgment was filed on August. 16,
2005. The defendants then timely appealed.

TT. STANDARDS OF REVIEW

A. Summary Judament

“We review the circuit court’s grant or denial of
summary judgment de nove." Simmons v. Puu, 105 Hawai'i 112, 117,
94 P.3d 667, 672 (2004) (quoting Hawai'i Cnty. Fed. Credit Union
vw. Keka, 94 Hawai'i 213, 221, 11 P.3d 1, 9 (2000)). This court

has noted that

in relevant parts

 

© ameP Rule $8 provias

When the court directs that a party recover only money oF
Costs or that all relief be denied, the clerk shall enter
Judgment forthwith upon receipt by'him of the direction; but
men the court directs entry of judgment for other relief,
the judge shall promptly settle or approve the form of the
judgnent and direct that it be entered by the clerk. The
Hiling of the judgnent in the office of the clerk
constitutes the entry of the judgment; and the judgment is
hot effective before such entry. The entry of the judgeent
shall not be delayed for the taxing of costs. Every,
Judgment shall be eet forth on a separate document

   

 

 

 

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(elumary Judgment is appropriate if the pleadings,
depositions, answers to interrogatories, and adnissions on
Eile, together with the affidavits, if any, show that there
ie no genuine isgue ae to any material fact and that the
roving party i¢ entitied to juagnent ae a matter of law. 2.
fact dematerial if proof of that fact would have the effect
Of establishing or refuting one of the essential elevents of
cause of action or defense asserted by the parties. The
evidence met be viewes in the light most favorable to the
hon-moving party. In other words, ve must view all of the
Cvidence and the inferences drawn therefrom in the light
mnost favorable £0 the party opposing the motion.

 

 

Simmons, 105 Hawai" at 117-18, 94 P.3d at 672-73 (quoting Kahale
w.City & County of Honolulu, 104 Hawai" 314, 344, 90 P.3d 233,

236 (2004))-

B.  Rescission

Rescivsion and cancellation are equitable renedié
‘The relief granted by 2 court in equity 1e discretionary and
Will not be overturned on review unless the circuit court
Gbused ite discretion by Lesuing a decision that clearly
exceeds the bounds of reason or disregarded rules or
principles of law oF practice to the substantial detriment,
Of the appellant.

AIG Hawai'i Ins, Co. v. Bateman, 82 Hawai'i 453, 456-57, 923 P.2d
395, 398-99 (1996) (citations, brackets, and internal quotation

 

marks omitted).
IIT. DISCUSSION
As previously stated, the sole issue before this court
ie whether the circuit court erred in determining, in the context
of a motion for summary judgment, that the effect of the
enforcement of the 1991 release would be, as a matter of law,

unconscionable, thereby entitling the plaintiffs to rescission.

 

‘The defendants contend that the circuit court erred becaus

(2) BRS § 490:2-302 dictates that unconscionability is determined

 

under the circumstances existing when the contract was made; and

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(2) there are genuine issues of material fact regarding whether
the 1991 release was unconscionable. We address each of the
defendants’ contentions in turn.”
AL whether 490:2-3 Lies to tant Case

The defendants contend that the circuit court failed to
apply HRS § 490:2-302 inasmich as it determined that the 1991
release was unconscionable -- “not under the circumstances
existing at the time, but rather under the circumstances existing
years later," pointing to the 1995 settlement agreement, wherein

the parties stipulated that the value of the plaintiffs’ claims

was $135,000.

HRS § 490:2-302, contained within the Uniform

Commercial Code, provides:

Baconscionabie contract or clause. (1) if the court
as a natter of law finds the contract of any clause of the
contract to have been unconscionable at the time it wae
mmade[,] the court may refuse to enforce the contract, or it
may enforce the resainder of the contract without the
unconscionable clause, or it may so limit the application of
fany unconscionable clause as to avoid any unconseionable
result.

{2)_wnen st in clained or appears to the court that

or any Clause thereof may be unconscionablel,]
all be afforded a reasonable opportunity to
present evidence as to ite comercial setting, purpose end
effect to aid the court in making the determination

 

 

 

    

 

M [We note that, inasmuch as the defendants failed to seek further
review of the ICh's ménorandun opinion by way of a notion for reconsideration
or an application for writ of certiorari, we need not address the defendante”
arguments challenging the 1CA's holding or analysie. See Ditto y, Mecurdy, 96
Hawai'i 123, 128, 44 P.34 274, 279 (2002) (stating that va determination of @
question of jaw made by an appellate court in the course of an action becomes
the law of the case and may not be disputed by a reopening of the question at
a later stage of the litigation") (citation and internal quotation marke
oniteed)

 

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al.) HRS § 490:1-103 (Supp. 2005),

 

(Bold emphasis in ori:

 

however, provides in relevant part

(a) This chapcer shall be Liberally construed ané
applies to promote ite uideriying purposes and policies,
E)' ro simplify, clarity, and modernize the law
governing ccnmercial transactions; tand)
(2) olpermie the continued expansion of comercial
Reactices through custos, usage, and agreement
Sf the parties (-1

 

 

(pmphases added.) Moreover, HRS § 490:2-102 (1993) defines the

 

scope of Article 2, entitled "Sales, within which HRS

§ 490:2-302 is located, to apply to

transactions in goods; [*) it does not apply to any
Eraneaction which(,] although in the form of an

Gneonditional contract to sell or present sale(.] ie
Intended to operate only asa security transaction[-]

 

Consequently, HRS § 490:2-302 is solely applicable to commercial
transactions concerning the sale of goods, as the subject statute
expressly provides that “the parties shall be afforded a
reasonable opportunity to present evidence as to its commercial
setting, purpose and effect to aid the court in making the
determination’ whether the contract or clause is unconscionable.
HRS § 490:2-302(2) (emphasis added). Indeed, the instant case
does not involve a commercial transaction relating to the sale of
% aoode" means

fall things (including specially manufactured goods) which

fre movable at the tine of identification to the contract

for gale other than the money in which the price is to be

paid, investment securities (Article 8) and things in

Retion.scoade" also includes the unbors young of animals
ind growing crops and other identified things attached to

fealty a8 described in the section on goods co be severed
from Fealty (section 490:2-107)-

 

HRS § 490:2-105 (2993).

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goods, and, therefore, HRS § 490:2-302 is inapplicable to the
rescission of a release ina personal injury action. The
defendants have not explained the reason that HRS § 490:2-302 ie
applicable to the execution of a personal injury release.
Moreover, as the ICA concluded in ite memorandum opinion, the
proper test to determine whether rescission of a release is
warranted is elaborated in Restatement §§ 152 (mutual mistake)
and 153 (unilateral mistake), which this court adopted in
Bateman, 82 Hawai'i at 457-58, 923 P.2d at 299-400. Accordingly,
we hold that the circuit court did not err in declining to apply
HRS § 490:2-302 in its determination whether the 1992 release was
unconscionable.
BE. eI 2: i

The defendants argue that the circuit court erred in
granting sunmary judgment because genuine issues of material fact
existed with respect to whether the 1991 release was voidable
based on unconscionability. specifically, the defendants
maintain that they

offered $35,000 believing this to be the fair and negotiated
value of (Mrs. Thompson's) claim in light of her previous
Known at that ime, June

 

 

[t]he evidence establishes that the June 26,
wae not unconscionable. A $35,000

eration for the [1991] release was not a nominal or
unconscionable amount. re vas five times more than ire.
‘Thompson’s) nedical specials as of June 26, 1991,
($7,273.08). There is no evidence [the p]iaintift{e were]
pre ‘OF improperly induced to settle her clain
Drenaturely. «

   

  

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Sees

(parenthesie in original.) The evidence to which the defendants

refer is Long's testimony that she believed the plaintiffs

 

personal injury action against Medeiros was settled for its “true
value" in view of Mre, Thompson’s medical specials at the tine
‘As such, the defendante contend that *[t]his testimony alone

ue of material fact

 

established, ipso facto, a genuine i
concerning whether the June 26, 1991 release was unconscionabl

 

The defendants further maintain, as they did in their motion for
reconsideration, that the circuit court’s ruling contained a
misstatement of fact regarding whether Long knew, prior to, June
26, 1991, that the plaintiffs intended to make a UIM claim. The
defendants argued that Long's affidavit, attached to their motion
for reconsideration, clearly established that Leng was not aware
of the plaintiffs’ intention to file a UIN clain.

As previously quoted, section 153 of the Restatement,
entitled ‘when Mistake of One Party Makes the a Voidable,”
provides:

Saterial fa ‘et

dable! aoe Tek
under the nile stated in #154, and

(a) the effect of the mistake is-sich chat enforcesent

to eeesetnet patty had reason to know of the miscake
of hie fault caused the mistake.

(Bmphases added.) Section 154 explains that a party bears the

risk of a mistake when:

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(a) the risk is allocated to him by agreement of the
parties, oF

(>) he is-aware, at the tine the contract is made, shat he
hag oslv- limited knowledge with respect to the facts es

nigh aces Bu 5

 

‘ae autticient, or
(CJ the risk ie ellocsted to him by the court on the ground
that it ie reasonable in the circumstances £0 30 #0

 

(Bmphasis added.) Inasmich as the ICA’s holding ie law of the
case, gee supra note 14, the issues central to the determination

whether the 1991 release was voidable, as announced by the ICA

 

and contained within Restatenent §§ 153 and 154, are:
(2) whether the plaintiffs executed the 1991 release with
“Limited knowledge" that they “treat (ed) as sufficient” such that
they should bear the risk of mistake, Restatement § 154(b); and,
(2) Af not, whether the effect of enforcement of the 1991 release
would be unconscionable, Restatement § 153(a).

Plaintiffs’ Limited Knowledge

 

As previously stated, the plaintiffs executed the 1991
release based upon Gould’s representation that Long had informed
hhim that the $35,000 offer to settle represented the entirety of
Medeiros’s liability insurance coverage, when, in fact, the
policy limit was $300,000. Gould, however, never inguired or

either by direct oral or written inguiry to Leng or

 

confirmed
via interrogatories directed to the defendants as permitted under
available discovery rules -- the policy limit of Medeiros’ s
Viability insurance. Rather, Gould assumed Long’s
representations, made during hie negotiations with her, meant

that the $35,000 offer was, in fact, the policy limit. see

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Restatement § 154, cmt. a (indicating that a party “may be barred
from avoidance [of the contract] if the mistake was the result of
his failure to act in good faith and in accordance with

reasonable etandarde of fair dealing"). Nevertheless, the

 

parties, on May 15, 2002, stipulated that the plaintiffs did not
have limited knowledge as to Medeiros’s policy limit when they
signed the 1991 release and, thus, did not bear the risk of

mistake. Consequently, for purposes of our analys:

 

we accept
the parties’ stipulation and focus our attention on the
application of Restatement § 153, i.e., whether a mistake of one
party, at the time of the contract, as to a basic assumption on
which the party made the contract has a material adverse effect
such that enforcement of the contract would be unconscionable.
2. Unconscionability

As previously stated, the parties agreed in the 1995
settlenent agreenent that the value of the plaintiffs’ clains was
$135,000. They alec stipulated, on May 15, 2002, that the
plaintiffs did not have limited knowledge as to Medeiros’s policy
Limit at the time they entered into the 1991 release. Based upon
the foregoing stipulations, the circuit court concluded that the
effect of enforcing a $35,000 release, executed by the parties on
June 26, 1991, would be unconscionable in light of the stipulated
value of $135,000. We cannot agree, however, with the circuit
court's reliance upon the $135,000 stipulated value for two

reasons: (2) the requirements of section 153 of the Restatement;

 

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and (2) the stipulated value appears to assess the combined value
of the claims arising out of the personal injury and the
rescission actions.

As previously quoted, Restatenent § 153 expressly
authorizes a party to void a contract where that party’s mistake

“at the time a contract was mde... h

the agreed exchange of performances that is advert

a material effect on

 

to him,"

 

(emphasis added), such that, inter alia, the enforcement of the
contract would be unconscionable. By its plain language, the
proper determination is whether, at the time the contract was

2

 

made -- in this case, 1991 -- and in light of the unilate:

mistake, the enforcement of the contract, i.e., the release,

 

would be unconscionable. The dispositive question, then, is
whether the $125,000 stipulated value represents the value of
plaintiffs’ personal injury claim in 1991.

In the instant case, the parties agreed in the 1995,
settlement agreement that “the total value of [the plaintiffs’)
claims for general damages ae set forth in their First Anended
Complaint is $135,000[.]" (Buphasis added.) The aforenentioned

sentence is preceded by a paragraph describing the plaintiffs’

 

complaint as seeking damages against the defendants, the former

attorneys, and Medeiros for

 

intentional infliction of enotional distress; negligent
infliction of enotional distress; unfair and deceptive act
of practices in violation of ARS Sections 420-2 through 430-
3h; negligent misrepresentation; fraud) unfair practices;
breach of fiduciary duties and exemplary and punitive
damages [(collectively, the rescission clains)] of danaccs

 

 

 

 

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axiging out of [wre. . se
Accident with Josephine Medeiros and/or the settlement

2 ‘ith [ene dete: r

‘aubasguent thereto.

(Emphases added.) The above-quoted paragraph is then followed by
a sentence indicating the parties’ “desire to terminate, settle

and compromise all claims and controversies, except as set forth

herein, still existing between them as set forth more fully below

 

[(ise., the appeal regarding the grant of plaintiffs’ motion to
rescind and for sunmary judgment) .]* (Emphasis added.)

Based upon the plain language of the 1995 settlement
agreement, “all claims and controversies” include not only the
rescission claims but also the personal injury claim. It follows
then that the $135,000 value represents “the total value of [the
plaintiffs’) claim for general damages as set forth in the First
Amended Complaint” (emphasis added), i.e., the rescission action,
and seemingly the “damages arising out of [the personal injury
action] and/or the settlement negotiatione with [the defendants
regarding the personal injury action]. (Emphasie added.) Thus,
in our view, there is @ genuine issue of material fact as to
whether the stipulated value represents only the value of
plaintiffs’ personal injury claim or includes the value of both
the personal injury claim and the rescission claims. Moreover,
even if we were to assume that it represents only the personal
injury claim, there is also a genuine issue of material fact
whether the $135,000 assessment represents the value at the time

entered into the 1991 rele:

 

the parti ) a8 required by section

 

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153 of the Restatement. Accordingly, we hold that the circuit
court erred in relying upon the 1995-etipulated value to conclude
that the 1991 release was unconscionable and in granting summary
Judgnent in favor of the plaintiffs.
IV. coNcuuszoN
Based on the foregoing, we vacate the circuit court's
August 2, 2005 amended final judgment and remand this case for

further proceedings consistent with this opinion.

on the brief

Roy F. Bpstein and

Carios De Perez Mesa

(of Epstein € Peres Mesa), .

for detendante/councer= Biaxaliornron
Ciainante cross-clain

plaintiffe/crose-claim Dusete, OS merely ar &
Setendance-appeliance

Rig Hawail ine. Con znc.
tnd American International
Aajusteent co.) ine.

 

Yom €. Busy br
Woodruff K. Soldner (of

Leavitt, Yanane © Soldner) ,

for plaintifts/counterclain

defencante-appellees Terrie

L. Thompson and Dwight

Thompson

 

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