Title: Laeroc Waikiki Parkside, LLC v. K.S.K.

State: hawaii

Issuer: Hawaii Supreme Court

Document:

Lav Nora

 

*e0FOR PUBLICATION IN WEST'S HAMAI'T REPORTS AND PACIFIC REPORTER"

 

IN THE SUPREME COURT OF THE STATE OF HANAT‘IE)

=--000-==

LAEROC WATKTKI PARKSIDE, LIC, a Hawai'i me 2
Plaintstf-appeliant

liability company,

te ony L002

 

i
w
aang

vs.

K.S.K. (OAHU) LIMITED PARTNERSHIP, a Hawai'i limited
partnerships KENCHIKU SHIRYO KENKYUSHA, LIMITED, a
Japan corporation, as general partner of K.S.K. (Oahu)
Limited Partnership; CONDOTECH’S HAWATIANA RESORTS, INC.,
‘a Hawai'i corporation; JAY C. BLOOM; FRED IZUTSU; and
GLENN NAKAMURA, Defendants-Appellees

 

 

  

and
HOSPITALITY INVESTMENT ADVISORS, LLC a.k.a. HORWATH
HOSPITALITY INVESTMENT ADVISORS, LLC and HORWATH

INVESTMENT ADVISORS, LLC, a Delaware limited
liability company, and DOES 1-10, Defendants
(CIV, NO, 02-1-2013)

 

RESORTQUEST HAWAII, LLC dba ASTON HOTEL & RESORTS
HAWAII, a Hawai'i limited liability company, formerly
known as HOTEL CORPORATION OF THE PACIFIC,” INC. dba
ASTON HOTELS & RESORTS HAWAII, a Hawai'i cocporation,
Plaintiffs-Appetienc

 

LAEROC WAIKIKI PARKSIDE, LLC, a Hawai'i limited
Liability company, Defendant-Appellant

and

DOES 1-50, Defendants

 

LAEROC WAIKIKI PARKSIDE, LLC, a Hawai'l limited
Liability company, Third-Party Plaintiff-Appellant
 

HAWAT'T REPORTS AND PACIFIC REPORTER*!

a

K.S.K. (OAHU) LIMITED PARTNERSHIP, a Hawai'i limited
Partnership; KENCHIKU SHIRYO KENKYUSHA, a Japan
corporation; CONDOTECH’S HAWAIIANA RESORTS, INC.,
a Hawai‘ corporation; JAY C. BLOOM; FRED 12UTSU;
and GLENN NAKAMURA, Third-Party Defendants-Appellees
(Clv. No. 02~1-2695)

 

 

LABROC WAIKIKI PARKSIDE, LLC, a Hawai'i limited
liability company, Plaintiff-Appellant

ve.
HOTEL CORPORATION OF THE PACIFIC, INC., dba ASTON
HOTEL § RESORTS HAWAII, a Hawai'i corporation,
Defendant-Appeliee
and

DOES 1-10, Defendants
(CIV. No.’ 03-1-1036)

i SSSSsSsSsSSSSsSSSSSSSSSSSSS

No. 27583

APPEAL FROM THE FIRST CIRCUIT COURT
(CIV, NOS. 02-1-2013; 02-1-2695; & 03-1-1036)

AUGUST 31, 2007
MOON, C.J., LEVINSON, NAKAYAMA, ACOBA, AND DUFFY, JJ.

PL mH
Plaintif£/Oefendant/Third-Party Plaintiff-Appellant
Laeroc Waikiki Parkside, LLC (Appellant) appeals from the

November 14, 2005 final judgment of the circuit court of the
‘++FOR PUBLICATION IN WEST'S HANAI'T REPORTS AND PACIFIC REPORTER'##

 

 

first circuit (the court)? in favor of Defendants/Third-Party
Defendants-Appellees Jay C. Bloom (Bloom), Fred Tzutsu (Izutsu),
and 6:

enn Nakamuz: ollect

     

ly, Appellees} and

 

(akamura)
against Appellant as to all claims and causes of action in the
second amended complaint filed on May 9, 2003 (the Complaint) in
civ. No. 02-1-2013 [hereinafter C2013) and the third party
complaint filed on June 4, 2003 in Civ. No. 02-1-2695
{hereinafter C2695] relating to Appellant's Purchase Agreement
(Purchase Agreement or Agreement) of the Waikiki Parkside Hotel
(the Hotel). The Complaint alleged breach of contract in Count
, breach of fiduciary duties in Count II, misrepresentation in
Count ITI, nondisclosure in Count IV, indemnification in Count V,
punitive damages in Count VI, and declaratory and injunctive
relief in Count VII.

Appellant also challenges (1) as to the Conplaint, the
court's (a) May 12, 2004 order granting in part and denying in
port Arpellecs’ motion for sumnary judgment with respect to
Counts I, II, III, IV, Vy and VI and the joinder in Appellees’
said motion by Defendants-Appellees K.S.K, (Oahu) Limited \
Partnership (KSK) and Kenchiku Shiryo Kenkyushay (b) the May 19, |
2005 order denying Appellant's motion for reconsideration of the
court's February 16, 2005 oral grant of partial summary judgaent;
(c) the May 19, 2008 order denying Appellant’s motion for partial

sunmary judgment filed on March 22, 2005; and (d) the May 26,

 

1 the Honorable Victoria 5, Marks presided.

3
 

FOR PUBLICATION IN MEST’S HAWAI'I REPORTS AND PACIFIC REFORTERY**

 

2005 order granting in part and denying in part the motion for
sunnary judgnent filed by Defendant-Appellee Condotech’

Hawai ‘ana Resorts, Inc. (Hewaiiana) and Appellees on Counts I,
11, III, 1V, V, and Viz and (2) as to the third party complaint,
the October 19, 2008 order granting in part and denying in part
Hawaiiana and Appellees’ notion for partial sunmary judgment.
The court did not express any specific reasons for granting
summary judgment in any of the above orders or in the Novenber

14, 2005 final judgment.

 

We hold, as to:

(2) the court’s May 12, 2004 order of sunmary judgment,
that there was no genuine issue of material fact to controvert
that Appellees were not parties to the Agreement inasmuch as they
are plainly identified in and acted as the seller’s agents in the
sale of the Hotels

(4) the court’s May 26, 2005 order of sunmary judgnent,
that (a) judicial estoppel and Appellees’ status as non-parties
to the Agreenent did not preclude them from raising the
Nonrecourse Provision (Nonrecourse Provision or 4 8.2 of the

Agreement) exempting Appellees from liability except for “fraud,

 

willful misconduct or criminal misconduct” as a defense,
(b) Appellant failed to produce allegations that satisfy the
prima facie test for the tort of fraudulent inducement; (c) the

Nonrecourse Provision expressly excludes fraud and willful
 

VOR PUBLICATION IN WEST'S HAWAI'T REPORTS AND PACIFIC REFORTER:

 

isconduct from ite scopes (d) Appellant failed to substantiate
that any such freud or willful misconduct existed heres and
(e) Appellant's breach of Fiduciary duty claims do not constitute
fraud or willful misconduct, and therefore are subject to the
Nonrecourse Provision

(3) the May 19, 2005 orders, that based on the reasons
{in the preceding paragraph, the court was correct in denying
Appellant's motions for reconsideration and partial summary
Judgment because Appellees were entitled to summary Judgment a8 a
matter of laws

(4) the October 19, 2008 order, that (a) for the sane
reasons, the court correctly granted Appellees’ notion for
sunmazy judgment on Appellant's Third-Party complaint in C2635
and (b) because the Nonrecourse Provision covers Appellant’ s
clains for breach of fiduciary duty, summary judgment was also
appropriately granted as to Appellant's claim for contribution
arising out of Appellant's settlenent agreenent with Plaintiff

Appellee Pesortques: Hawaii, LLC dbe Aston Hotel & Resorts Hawazi

 

(Aston); and
(5) other arguments presented, that Appellant fails to
raise meritorious clains.
m.
Prior to 2001, KSK owned the Hotel. Hawaiiana managed
the Hotel for KSK.

In 1988, Izutsu became the general manager and oversaw
‘s##YOR PUBLICATION IN WEST'S JAMAI'T REFORTS AND PACIFIC REFORTERI#

 

‘the daily operations of the Hotel.
In May 1992, Izutsu began to report to Bloom, who had

become the vice president and chief operating officer of

 

Hawaiiana. In 1992, Nakamura also began working at the Hotel,
and in 1999 he became chief engineer.

Starting in 1988, Tzutsu held staff meetings with
department heads at the Hotel and kept minutes of the weekly
neetings (the Minutes). Copies of the Minutes were given to
Bloom and were stored in boxes in a storage room at the Hotel.
Appellant claims that Tzuteu admitted the Minutes were a good
starting point for anyone who wanted to know what happened at the
Hotel. Appellant also clains that the Minutes are authentic and
fall within an exception to the hearsay rules under Hawai"t Rules
of Evidence (HRE) Rule 603(b) (6) (1993 & Supp 2006).? Appellees

do not challenge this contention.

 

BRE Wule 60510) :6) sates dn relevant pare:

Rule 603 Meareay exceptions; availability of
declarant iasaterial. The following are not excluded by the
hearsay rule, even though the declarant is available as a
witness:

 

    

 

ij" ener exception:

ie)” Records of reguiarly conducted activity.
nenorandan, Feport, record, or cata compilation,
in any form, of acts, events, conditions
opinions, of diagnoses, nade in the course of a
Pegulariy conducted activity, at or near the
tine of the acts, events, conditions, opinions,
or diagnoses, as shown by the testimony of the
Custodian or other qualified witness, or by
certification that complies with rule 902(12) or
a statute permitting certification, unless the
Sources of information or other civcunstances
Indicate lack of trustworthiness.

 

 

6
‘+sfOR PUBLICATION IN WEST'S IDWAI'E REPORTS AND PACIFIC REFORTERS*®

 

Appellant contends the Minutes reflected that from at
least 1982, the chilled water pipes for the air conditioning
system in the Hotel (CWPs) had failed and allowed condensation to
form within the wall cavities, causing mold to grow throughout
the Hotel. Appellant further claims that the Minutes show water

e through the windows and sliding glass doors, causing mold to

 

expand behind the wallpaper, in guest rooms, and in other

 

corridors of the Hotel.

 

In 1992, KSK renovations to the Hotel included x
insulation of the CWPs for the air conditioning system in the
Hotel, replacement of the Hotel's wall coverings, and treatment
of, the walls for “mildew.” |

In the March 24, 1994 Minutes, it was reported that
“[hlydrochloric acid was used to unclog the pipes, causing strong
cdors. Engineering will schedule clearing of all vertical pipes
during 1ow occupancy.”

Appellant contends the Minutes show that from at least
late Kovenber 1996, mold was present and had to be cleaned from
the air conditioning grills, the walls below the grills, and
condensers within the quest rooms. Appellees point out that fron
1996 to July 2001, when the Hotel was sold to Appellant, there
were approxinately 286 different reports of the weekly managers’
meetings. Of these 286 reports, Appellant was only able to find

ten instances where references were made to mold or mildew.
 

‘*+4FOR PUBLICATION IN WEST'S RAWAI'T REPORTS AND PACIFIC REPORTER:

Appellant alleges that a letter dated April 11, 1997,
which it refers to as the “Ferris Report,” from Ferris & Hamig
Hawaii, Inc., mechanical engineers (Ferris}, to Art Saverkrupp
(suverkrupp), the Hotel's then-chief engineer, denonstrates that

“the water chilling system in the Hotel wi

 

in ‘poor’ condition
and recommended that the water chiller should be replaced and
‘damaged piping insulation’ should be repaired.” Appellees
answer that the Ferris Report “is nothing more than an
incomplete, one page letter . . . ” which is undermined by “other
documents in Appellant's possession [which] clearly establish
that major work . . . was done to the HVAC system after 1997."
‘Appellees further contend that the Ferris Report is not
adnissible evidence because it is an incomplete document and is
speculative as to what the author was attempting to state in the
document. Appellees objected to the consideration of this
document by the court.?

on May 14, 2001, prior to the signing of the Agreement,
Aston and Appellant sent a due diligence check list (Hospitality
Fex) to Bloom through @ facsimile from Hospitality Investment
Advisors, KSK’s broker. The Hospitality Fax stated, “Attached
are lists of items that [Appellant] and Aston will be requesting
while conducting their due diligence at [the Hotell. This
advanced notice will give [Tzutsu] an opportunity to expedite the

process and minimize the disruption to his staff.” Bloom

 

> mis point is net rats

 
 

‘S*4FOR PUBLICATION IN MEST’ S HAWAI'I REPORTS AND PACIFIC REPORTER!

responded and advised Appellant that, consistent with the
Agreement, it was Appellant's duty to conduct its own due

diligence and the seller would not “guess at what documents fit

in what category of the list requested by [Appellant].

 

On June 1, 2001, KSK, as seller, and Appellant, as
buyer, entered into the Purchase Agreement. As noted before,
Hawaiiana managed the hotel for KSK. Bloom, as vice-presiden
and chief operating officer, Izutsu, as the general manager of
the Hotel, and Nakamura, as chief engineer, were employees o!
Hawaliana and were described in the Agreement as “Seller's
Representatives.”

‘The Purchase Agreement provides that “[w]ithin five (5
days after the Contract Date, (June 1, 2001, KSK) will provide
[appellant], at the hotel, with access to all books, records, and
other documents concerning or related to the Hotel, to the extent
in the possession of [KSK], any [KSK's] Affiliate, any consultant

of [KSK], or [KSK’s] Managing Agent.” The Purchase Agreement

 

+ article 1 of the Purchase Agreenent, entitied "Definitions,"
states in relevent part?

Sellerta Representatives, “Seller‘s Beoresentatives”

Sheath i and in his capacity

as President of Selier’s Maraging Agent -
Exutau, an individual, in his copactey a ge
the Wotel, and as an Gnployee of Seller's Man

 

ai manager of
‘ging! Agent.

 

Sn individual, in his capacity a5 the chie? engineer of the
Hotel, to the extent warranties and representations sn
Article € of this Agrcenent are within the scope of Ris Job
Pesponsibilitiee and within hie capscity given his education
and experiences

 

   

(emphaces added.)
   

/FOR PUBLICATION IN WEST'S HDWAI'T REFORTS AND PACIFIC REPORTER

 

additionally provides @ due diligence period of twenty days,
beginning on the contract date, during which Appellant could
inspect the physical premises of the Hctel, and all the records
regarding the Hotel.?

Further, an “As-I8" clause in Article 8, 4 8.2 of the
Agreement states that Appellant, as purchaser, would be “without
recourse or warranty except those expressly set forth” therein.
Paragraph 8.2 also contains a Nonzecourse Provision which states

that Appellant has no recourse against any agent or partner of

 

* Article 5, 1.5.2 of the Agreement states in relevent part:

' Baht to Inerection. During the Due Diligence Period,
Purchaser, uith the copsefation of Seller, shall have the’
ELanL ta have its consultants, surveyors, engineers,
exployecs, contractors, prospective financing sources, and
‘agents {neuect all aspects of the Property, including the
physical condition of the Real Property and the Tangible
Property, the Consumables, and the Operating Supplies, a1]
enviromental aspects of the Real Property, ai] aspects of
the Bockings, Deposits and feintursements, Deposits for
Bookings, Intangible Property, Licenses and Entitienente and
Software’ Prograse; provided that Purchaser's inspections
‘Shall not unreasonably interfere with the operation of the
Hotel, Purchaser shail have the right to conduct, with
Seller's designated agents present, such inventorice of

‘sonal Property ss Purchaser shail desire. Purct

shell also have the right to interview Employees. (bu

Inspect Employee sles and records], examine records and

flies whether in written form or contsined in any electronic '

storage media, speak with the accountants for he Hotel, and

Conduct such Cther inguiries as Purchaser in its sole

Siecretion nay deen appropriate. Purchaser shall be aiven

sSonplete access to all” information’ reavested BY Purchaser’

fng-in Seller's possession or with reseonsble effort By )

 

 

     

 

 

[Gophases sdded.)

+ article 8 $8.2 of the Agreement states in relevant part:
TascIs", Purchaser acknowledges that the sale of the

ane without recourse or warranty except those expressly set
forth herein.

(Emphasis added.)

10
 

‘+4FOR PUBLICATION IN EST’ HAWAI'I REFORTS AND PACIFIC REFORTER*

 

the Seller except for clains arising from “fraud, willful
misconduct, or criminal acte[,]” and that the sole recourse was
against Seller and was limited to sale proceeds paid to Seller.’
Article 6, 4 6.8 provides a Linited representation concerning the
physical condition of the Hotel to the effect that, “{t]here are
no structural or mechanical defects in the Inprovenents which
unreasonably interfere with or prevent the operation of the Hotel
as presently conducted.” Further, Article 6, $ 6.16 provides
that the Seller would not make “any untrue statement of a
material fact, or . . . omit a material fact necessary to make
the statements contained therein not misleading.”

Shortly after the Purchase Agreement was signed on

 

+ article 8, 46.2 further states in relevant part:

recourse Gasinst any scent of partngr of seller, or the

 

 

  

Officers or directors of the partners of Seller, or the
Personal assets of any partner of Seller with respect to any
Sefeult under this hgreenent or any document executed in
Sonnection therewith, of Seller's agente or attorneys

case. ‘Such claim, deneng of cause of action results
Sallan. or such cflicers directors, parsers, attorpeys or

agente,
: mt 7

Seller as specified in this Aareenent.
(Emphases added.)
+ Article 6, 1 6.16 of the Agreenent states:

No representation or uarranty of
Seller in This Agreenent, of in any information, statenent,
of certificate furnished of to be furnished by or on behalf
Of Seller pursuant to this Agreenent or in connection with
the transactions contenplated hereby, contains of shal)
Soneain sny untrue evstenent of 3 materia) fet, OF omits or
Eoutained therein net misleading. “The Disclosure
Information provided to Purchaser cr to which acce:
Being provided to Purchaser is complete and accurate

 

 

 

as

 

(Bmphaeis added.)
a
 

/+FOR PUBLICATION IN WEST'S HAMAI'T REPORTS AND PACIFIC REFORTER*S*

 

June 1, 2001, Peter Morgan (Morgan), Executive Vice President for
Appellant, traveled to the Hotel to conduct the due diligence.
He was given a tour of the Hotel which inclided specific areas
where operations were conducted and records were kept. Morgan
was also introduced to the managers of the various departments
and department heads were advised to provide Morgan with any
information he requested. Appellant contends Morgan was not
given the Minutes or the Ferris Report as the Hospitality Fax
requested, and as the Purchase Agreement required. Appellees
maintain that Appellant hed full access to all records and all
employees in the Hotel during the due diligence period, and it
was Appellant's obligation under the Agreement to ask to see
categories of docunents such 2s maintenance records, financial
records, and records of how the Hotel was run.

on duly 17, 2001, Certified Environments Inc. (CBI), an
engineering firm, completed a property condition report of the

4H

 

1 (CEI Report) for City Bank. At that time, City Bank woe
considering making a loan to Appellant to purchase the Hotel.
According to Appellees, “[nJo mold was cbserved by CET and the
findings in the CEI Report were consistent with the
representations by KSK in the (Agreenent].”

For several months prior to the close of sale of the
Hotel by KSK to Appellant on August 24, 2001, Aston and Appellant
had been negotiating the terme of a managenent contract. Under

this contract, Aston would manage the Hotel for Appellant upon

2
S*sFOR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REFORTER!+®

 

closing of the sale. However, Aston and Appellant were not able
to reach agreement on the terms of the management contract prior
to the closing, Thus, Appellant requested that Hawaiiana remain
as manager on a temporary basis until Appellant could find a
Permanent property manager. On August 24, 2001, Hawaiiana agreed
to manage the Hotel’ for Appellant under the terns and conditions
of the Hawaiiana Management Agreenent (Hawaiiana Agreement).

Hawaiiana managed the Hotel until Appellant and Aston
entered into the Waikiki Parkside Managenent Agreement (Aston
Agreement) dated December 6, 2001, which became effective
December 17, 2001.

‘ on December 12, 2001, Aston’s maintenance chief, Chris
Banks (Banks), toured the property with Nekenura. Banks
testified that during the tour Nakamura voluntarily provided him
with photographs of areas Nakenura thought should be looked at by
Banks. The photographs contained titles written by Nakamura.

For example, photograph no. 13, entitled “RISERS NFEO

RELACGING,“? is of the wall and floor of a guest room with a dark
water stain, Appellees contend that Aston as given these
photographs five days prior to the effective date of the Aston
Agreement and knew there was a possibility the risers would need
reinsulating, yet did nothing to address the issue with Appellant
Prior to the effective date of the Aston Agreenent.

After Appellant began repair work on the Hotel, it

 

+ according to Appellant, the vords “risers need relagsing” mean
that the chilled water pipes rivera need re-ineulation.

 

 

13
‘*++FOR PUELICATION IN WEST'S HANAI'I REFORTS 24D PACIFIC REPORTER*#

claims that its consultants determined there was widespread mold
infestation and recommended that Appellant remove and replace
substantially all of the Hotel’s interior. According te
Appellant, as of October 28, 2004, the total project repair and
renovation costs for the Hotel were $16.2 million.

on July 25, 2002, Aston’s Gary Ettinger (Ettinger) sent
an email to Kelvin Bloom cf Aston which stated, “In my ever so
humble opinion, there is absolutely no way that Hawaiians didn’t
know when they sold, and it would be highly unlikely that
{organ} couldn't have had sone peripheral knowledge if not
specific knowledge.” In a further letter dated August 2, 2002,
Rston’s counsel wrote, “Investigations reveal that Havaiiana, the
prior cuners/managers, and LaeRoc’s agent, had evaluated the HVAC
systen and had concluded the entire system needed to be replaced.

«+ There is also anple evidence that the deteriorated

condition of the insulation on the chilled-water lines was a
known defect.”

Appellant's mechanical engineering expert, Willian
Ivey, testified that in August 2002 he cbserved that the
insulation on the HVAC system was failing and that mold was
growing around the fiberglass insulation around the ClPs.
Appellees contend that Ivey only observed these conditions after
the drywall covering the CWPs was renoved and the pipes were
exposed, Ivey stated that he was able to see these conditions

because “[Appeliant] had opened up the drywall in the location of

ry
 

POR PUBLICATION IN WEST'S HAWAI'I REPORTS AND PACIFIC REFORTER*+*

the chilled water risers in 13 rooms, [and] taken the drywall off

 

in order to examine the condition of the insulation.” Appellees
further assert that when “[Ivey] conducted his initial
inspection, he looked at the fan coil units within 13 rooms which
had been selected by Appellant. when he inspected the area of
the rooms where the fan coil units are housed, he did not see any
mold.”

Appellant responds that Appellees misstated Ivey's
testimony and when Ivey testified in regard to finding mold
during his initial inspection, he said, “Well, I took sone
pictures up there, but I, at that time, wasn’t looking for mold,
so I didn’t see any mold. But now that I go back and look st my
pictures, in sone of them, there is some mold, what appears to be
mold in that area.”

On August 20, 2002, Morgan taped a telephone
conversation with Izutsu regarding the Hotel. Appellant contends
that this conversation is indicative of Appellees!
misrepresentations and non-disclosures. he recorded telephone
conversation between Morgan and Tzutsu is, in part, ae follows.

P [MORGAN]: And on
chilled water pipes ever Leak?

F (I20rs0]! The chilled water pipes, unm, certain
tonite that may from tine to time and uhet they did was open
then up and um, they um, they insulated St, and then put
it Back(s)

Pr" So, before we bought the hotel, you told me that
there, that the air conditicning system wae working finel.]

Fre 'wesy but you know the leaks do happen trom fom
to roomi.]

Pr" So, did the leaks happen efter we bought £¢(71

chilled water pipes, did the

 

 

F:' fz} don’t re-call any leaks after you folks bought
sett
Pr Were there any leaks before we Bought it?

as
 

‘s+*F0R PUBLICATION IN WEST'S HAWAI'I REPORTS AND FACIFIC REFORTER*

Anhy yee there were
You’ and’ (Nakamoral

     

F:
that (s]
Fr (silence - 2 seconds)

jer told me anything about

Appellees contend that this reference to the conversation is
misleading because Izutsu’s silence was due to the fact that he
had answered this question previously in the conversation.

Appellees cite an earlier portion of the conversation as follows:

P [MORGAN]: . . .{DJo you have a quick second for me?
F [1u0TS0): Surei.)
Pr Thank you. You know we are vorking with Aston on
fa couple of things here, unm, ove has to do with roof, um,
Before we bought the hovel you told me that the roof did not
leek. Do you Tenenber that?
fr Gem, not-)
Br bid! the roof ever leak?
Fi Yea, se was becouse, remember the 11th floor had
unm, had um, water coming through.
Pr No, T don’t renenber you ever telling me, oF
‘ ‘showing me the roof on the 11th floor.)
Ps" (2 SECOND SILENCE) Une, (pause)
Pr here else did it leak?
F: Ie, tam, unm, in the um, meeting room(.]
You pever told me about that |]
an, "T thought T'teld you. I thought 1 mentioned
‘11 those things to youl]

   

  

 

 

Appellant, in its reply brief, explains that this
discussion is related to the CWP leaks. Appellees contend that

ant selectively quotes from the transcript of its

 

secretly{-]recorded conversation and misstates the substance of
the conversation to this [c]ourt.”

on Septenber 10, 2002, Appellant submitted its first
amended complaint against KSK, Hawaiiana, and Appellees
(hereinafter collectively Defendants} in C2013.

Aston operated the Hotel for Appellant until the Hotel
was closed for repaize and renovations in February 2003. In

Apeil 2003, Aston was terminated as a result of an ongoing

16
‘s#*F0R PUBLICATION IN WEST'S HAWAI'I REFORTS AND PACIFIC REFORTER!*#

 

dispute between Appellant and Aston regarding the monetary terms
of the Aston Agreement.
on May 9, 2003, Appellant filed its Second Amended

3) as KSK's

 

Complaint. Appellant alleged that Appell
representatives, concealed and/or did not disclose that the
Hotel’s air conditioning system was leaking, needed replacement,
and was causing mold to infest many areas of the Hotel. As
further support, the Complaint alleged that the Hotel roof was
leaking, many of the areas of the Hotel were infested with
termites, and concrete spall!’ existed on and/or under the roof.

on February 6, 2004, Morgan stated that if Izutsu and
Nakamura had given him the minutes, the Ferris Report, and
disclosed the condition of the Hotel, Morgan would have retained
consultants to examine the Hotel's latent defects. According to
Appellant, upon knowing the extent of such latent defects, Morgan
would have recommended to Appellant that the Hotel should not be
purchased.

Appelle

 

filed three motions fo: summary judgnent on
July 16, 2003, December 10, 2004, and July 1, 2005. By orders
dated May 12, 2004, May 26, 2005, and October 19, 2005, the court

granted Appellees’ Motions for Summary Judgment on all of

% A vepall” is “a small fragnent broken from the face or edge of
raterial (as stone, metal, conerete, gless, of a ceramic product) end having
at least one featheredge(.]” Mebster's Third new Internat ional Diet ionary
2iei (1361),

 

uv
 

"FOR PUBLICATION IN WEST'S HAWAI'T REFORTS AND PACIFIC REPORTER**#

 

Appellant’s claims set forth in the Second Amended Complaint in
2013" and Third-Party Complaint in C2695.

On March 22, 2005, Appellant filed a motion for partial
summary judgment. On March 23, 2005, Appellant filed a notion
for reconsideration. By orders dated May 19, 2005, the court
denied both Appellant’s reconsideration and partial summary
judgment motions.

qn,

On appeal, Appellant contends that (1) with regard to
the May 12, 2004 Order, “(t]he [court] should have denied
Appellees summary judgment on Count I because the Agreement is
ambiguous as to whether Appellees were parties to the Agreement;
therefore a genuine issue of material fact exists as to the
intent of the parties to the Agreement,” (2) with regard to the
May 26, 2005 Order “[tJhe [court] should have denied Appellees
summary judgment upon Appellant’s claims in Count I through VI

because yenvine issues of material facts exist regarding

 

Appellant’s claims” in so much as, (2) “{bly application of

Judicial estoppel, Appellees could not take the position that

civil No, 021-2013 (C2013) is the civil suit denominated, as set
forth supra, © Leeroc Waikiki Parkside, LUC, a Hawsi't Linited liability
company ve K.8.K, (Oahu) Linited Partnership; a Hawa" limited partnerehipy
Condotech’s Hauaiisna Resorts, ine., a #avai'd corporations Jay €. Bloom, Fred
Tyuteu; Glenn Nakamura; Hospitality Investment Advirore, LLC, @ Hawas"h
Limited Iiapiiiey conpeny: and Does 1-10

 

 

8 civil No. 2-1-2695 (C2695) ie the clvii suit denominated, as set
forth supra, as Resortquest Hawai'i, LLC dba Aeton Hotels § Resorts Hauai',
Mawai't Tinted 1sabi1ity ccapany, formerly known ae Hotel Corporation ef the
Pacific, Inc. cea Aston Hotels # Resorts Newall, 9 Hawai'i corporation v=
yaeroc Washes Farksise, Ei, a Hawai't Limited Ssabiiity companys ond oes

 

   

18
 

{FOR PUBLICATION IN WEST'S HANAI'T REFORTS AND PACIFIC REPORTER®*#

they were parties to the Agreenent and Appellees were not third-
party beneficiaries of the Agreement, accordingly Appellees could
not enforce the Nonzecourse Provision against Appellant and the
[court] should have denied Appellees summary judgment upon Counts
I through VI", (b) “[s]ince Appellees fraudulently induced
Appellant into the Agreement, the Nonrecourse Provision is
unenforceable against Appellant and the [court] should have
denied Appellees sunnary judgment upon Counts I through VI,"

(c) “[s}ince public policy forbids the inclusion of fraud and
other wilful misconduct in exculpatory/limitation of damages
provisions, the Nonrecourse Provision cannot inmunize Appellees
from Appellant’s fraud and willful misconduct clains in Counts IT
through VI," (d) “[s]ince the Nonrecourse Provision fails to
xefer to tort and willful misconduct claims, expressly excludes
‘fraud, willful misconduct or criminal acts[,]’ and expressly
Limits its application ‘to any default under this Agreement or
any document executed in connection therewith,’ the Nonrecurse
Provision does not innunize Appellees from Appellant's fcaud and
willful misconduct claims in Counts IT through VI," and

(e) “[s]ince the Nonrecourse Provision fails to refer to
Appellees’ fiduciary relationships with Appellant as Appellant’ s
sub-agents, the Nonrecourse Provision does not immunize Appellees
from Appellant's breach of fiduciary duty claims in Counts 11 and
Vv," (3) with regard to the May 19, 2008 order, “[fJor all the

reasons set forth immediately above, the [court] should have

19
 

‘s++F0R PUBLICATION IN WEST’ S HAMAI'T REPORTS AND PACIFIC REPORTERS

 

granted Appellant's motions for reconsideration and partial
sunmary judgment,” and (4) with regard to the October 19 Order,
“(flor ell the reasons set forth immediately above, the {court}
should have denied Appellees’ motion for summary judgment upon
Appellant's claims against Appellees in Appellant’s Third-Party
Complaint in C2695 and, in addition, since the Nonrecourse
Provision fails to refer to Appellees’ fiduciary relationships
with Appellant as Appellant's sub-agents, the Nonrecourse
Provision does not immunize Appellees from Appellant's claim for
contribution arising out of Appellant’s settlement with Aston.”
Ww
. “on appeal, the standard of review for the granting of
summary judgment is identical to that applicable to the trial
court's consideration of the notion.” Lansdell v. County of
Kaua'i, 110 Hawai'i 189, 194, 130 P.3d 1054, 1059 (2006) (citation
omitted). “‘Unlike other appellate matters, in reviewing summary
judgnent decisions an appellate court steps into the shoes of the
trial court and applies the same legal standard as the trial
court applied." Id. (quoting Beamer v. Nishiki, 66 Haw. 572, 1
577, 670 P.2d 1264, 1270 (1983)} (other citation omitted).

‘Thus, “'[a]n award of summary judgment is reviewed de |
hove under the same standard applied by the circuit court.'”
Taniguchi v, Ass'n of Apartment Ouners of King Manor, Inc,, 114
Hawai'i 37, 46, 155 P.3d 1138, 1147 (2007) (quoting French v
Hawai'i Pizza Hut, Inc., 105 Hawai'i 462, 466, 99 P.3d 1046, 1050

20
‘+ePOR PUBLICATION IN MEST’S HAWAI'I REPORTS AND PACIFIC REFORTER'##

 

(2004) (other citations omitted)). It is well settled that
“[s]unmary judgment is appropriate where there is no genuine

issue as to the material fact and the moving party is entitled to

 

judgment as a matter of law. All evidence and inferences must be
viewed in the light most favorable to the non-moving party.”
Exench, 105 Hawai'l at 466, 99 P.3d at 1050 (internal quotation
marks and citations omitted), “‘A fact is material if proof of
that fact would have the effect of establishing or refuting one
of the essential elements of a cause of action or defense
asserted by the parties.’” aniguchi, 114 Hawai'i at 46, 155
P.3d at 1147 (quoting Bremer v. Weeks, 104 Hawai'i 43, 51, 85
P.3d 150, 188 (2004) (other citation omitted)).
v.

Appellees assert that because Appellant does not comply
with Hawai'i Rule of Appellate Procedure (HRAP) Rule 28(b) (3)
(2007) in failing to append copies of the orders relevant to
its points on appeal, Appellant’s appeal should be dismissed.
HRAP Ris 20 (2007) states that “iw)hen the brief uf ax appellant
is otherwise not in conformity with these rules, the appeal may

be dismissed or the brief stricken and monetary or other

 

» BRAP Rule 26(b) states in relevant par

 

Within 40 days after the filing of the record on appeal, the
appellant shall file an opening brief... . There shall
Be sppended to the brief a copy of the judgment, decree,
fingings of fact and conclusione of tam; gzdst, opinion oF
Gecision relevant to any point en appeal, Unless otherwise
ordered by the court.

 

(emphasis added.)
21
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sanctions may be levied by the appellate court.” (Emphases
added.)

tn Light of the discretion granted by HRAP-Rule 30,
Appellant's appeal need not be dismissed. See Morgan v. Planning
Dep't, County of Kauai, 104 Hawai'i 173, 180-81, 86 P.3d 982,
989-90 (2004) (observing that non-compliance with HRAP Rule
28(b) (4) “offers sufficient grounds for the dismissal of the
appeal,” but recognizing that this court “has consistently
adhered to the policy of affording litigants the opportunity to
have their cases heard on the merits, where possible.” (Internal
quotation marks and citations omitted.) Appellees do not claim
ptejudice.

vr.

Appellant argues that because KSK did not file 2 motion
for sunmary judgment to enforce the Nonrecourse Provision against
Appellant and on February 10, 2005, filed a “No Opposition” to
Appellees’ Decenber 10, 2004 notion, KK did not seek to enforce
the Nonrecourse Provision against Appellant. Appellant cites no

authority, presents no analysis as to this argument, and does not

M appellees cite Hona vs Kong, 67 Haw. 15, 15, 675 P.24 769, 770
(1984) (where: appellants’ opening brief did not have the findings of fact and
Conclusions of taw appended, nor did the brief quote the findings and
Conclusions complained of ih the points of error, the court struck the brief,
explaining, “[nawai't Suprene Court Rule (HECR)) Rule 3(b) ie designed so that
briefs sled in compliance cherewitn will show clearly that there 1s appellate
Jurisdiction, what the rulings being appealed are, what the questions of law
presented sré, “shat the standard or standards of feview are, and what the
record reflecte(,]" and “in sll cases of substantial non-compliance with HSCR
Rule 3(b), whether by sppellants or appellees, sanctions up to and including
Gisnissal’ of the appeals will be leviegl]"], as support for this argument.

 

 

 

 

22
   

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explain the relevance of KSK not filing @ motion for summary
judgment. Because Appellant presents no discernible argument,
this court does not consider this contention. See State vy, Bui,

104 Hawa:

 

462, 464 n.2, 92 P.3d 472, 473 n.2 (2004) (“Inasmuch
as Defendant ‘presents no discernable argument in support of this
contention{,} . . . it 48 our prerogative to disregard this
claim.’ (Quoting State v. Moore, 62 Hawai" 202, 206, 921 P.2d
122, 126 (1996).)).

vir.

As to Appellant's issue (1), Appellant contends that
summary judgnent should have been denied because the Purchase
Agreement is ambiguous as to whether Appellees were parties to
the Agreement and therefore a genuine issue of material fact
exists. Appellant argues that, “[s]ince Appellees are expressly
identified in and evidence exists that Appellees agreed to
perform the disclosure obligations under the Agreement, Appellees
intended to be bound by such obligations urder the Agreement.”

vin.

It is well-settled that “[uJnless otherwise agreed, a
person making or purporting to make @ contract with another as
agent for 2 disclosed principal does not become a party to the
contract.” Corps Constr., Ltd, v. Haseoawa, 55 Haw. 474, 476,
522 P.2d 694, 695 (1974) (quoting Restatement (Second) of Agency

§ 320 (1958) (other citations omitted).

23

 
 

/*FOR PUBLICATION IN WEST'S HAMAI'T REPORTS AND PACIFIC REPORTER:

 

In that case, the complaint alleged that the plaintiff
performed excavation work pursuant to a request from defendant
Hasegawa, @ real estate agent, on behalf of defendant Enos
Realty, and the plaintiff was never paid for the work it
performed. Id, at 475, $22 P.2d at 694. At trial it was
determined that Hasegawa did not request the work for hinself,
but served as an “in-between man” for Enos. Id, at 475, $22 F.2d
at 695, This court reasoned that, “{g]iven the unambiguous form

of Hasegawa’s request, the plaintiff's work in compliance at best

 

gave rise to a contract, implied in fact, with Enos{.]” Id. at

 

476, 522 P.2d at 695 (citations omitted).
In Bancakes of Hawaii, Inc, v. Ponare Props. Corp., 85
Hawai'i 300, 944 P.2d 97 (App. 1997), the Intermediate Court of
Appeals (ICA) explained that the law regarding agents and the
contracts entered into by their principals is “well settled," and
quoted connents fron Restatement (Second) of Agency § 320
indicating that only an agent who explicitiv manifests an
Intention to become a party to a contract will be made a party.

Wether or not a person purporting to act as agent for
ancther person becenes party to the contract depends upon
the agreement between such person and the other party. vs
Tey at the tine of making che
notice

 

[A] principal is discto:
contFact in question, the other party to 1th

   

 

 

the agent iz acting for a principal and of the principal's
identity. “Que who curnorte to contract on behalf of a
designated Dereon dese not nanifest by thie that he [or she
# i manifeats Gees the saent bet ze
ipa contract (thati he tor shel makes for ihe principal. In
beence of other facte, the inference Ts that the parties

Se aos ‘ineinel is, snd the scent ie
marty

Ids at 308-09, 944 P.2d at 105-06 (App. 1997) (ellipses and

26
 

‘S*4FOR PUBLICATION IN WEST'S AWAI'T REPORTS AND PACIFIC REPORTER:
brackets in original) (quoting Restatement (Second) of Agency

§ 320 cmt. a, at 67) (emphasis added).
“When reviewing the court’s interpretation of a
contract, the construction and legal effect to be given a
contract is a question of law freely reviewable by an appellate
court.” Mikelson v. United Servs. Auto. Ass'n, 107 Hawai'i 192,
197, 111 P.3d 601, 606 (2005) (quoting Brown v. KFC Nat’) Mont.
Cou, 2 Hawai'i 226, 239, 921 P.2d 146, 159 (1996) (internal

 

quotation marks and citation onitted)). Thus, to determine
whether or not Appellees were parties to the Purchase Agreenent,
the language of the contract must first be examined.

This court has determined that “[iJt is fundamental
that terms of contract should be interpreted according to their
plain, ordinary and accepted use in conmon speech, unless the
contract indicates @ different meaning.” Brown, 62 Hawai'i at
240, 921 P.24 at 160 (quoting Amfac, Inc, v. Waikiki Beachcomber
Inv. fo., 74 Haw. 85, 108, 939 P.24 10, 24 (1992) (citation and
internal quotation marks omitted). Further, “[1]n construing @
contract, a court’s principal objective is to ascertain and
effectuate the intention of the parties as manifested by the
contract in its entirety. If there is any doubt, the
interpretation which most reasonably reflects the intent of the
parties most be chosen.” Id. (quoting Univ, of Hawaii Proft)
Assembly v. Univ, of Havaii, 66 Haw. 214, 219, 659 P.2d 720, 126

(1983) (citations and internal quotation marks omitted)).

258
‘s#+F0R PUBLICATION IN WEST'S HAWAI'E REPORTS AND PACIFIC REFORTERI*#

 

1x,
The plain language of the Agreement indicates that
Appellees axe not parties to the Agreenent, The Agreement
states, “This Agreenent to [pJurchase [the] Hotel is made and
entered into as of June 1, 2001, by and between K.S.K. (Cahu)
Limited Partnership, a Hawai'i Limited partnership, and Laeroc
Waikiki Parkside, LUC, a Hawai'i limited liability company, oF
its permitted assignee.” Appellees are designated only as
“seller's Representatives” and the Agreement thus identifies the
only seller 2s KSK, and the only purchaser as Appellant.
Moreover, as Appellees point out, Appellant’s complaint
identifies Appellees as KSK’s representatives in the sale and
purchase of the Hotel. Paragraph 9 of the Complaint states that
“[appellant) purchased the [Hotel] from Defendant KSK pursuant to
a June 1, 2001 [Agreement], by and between [Appellant,] as
purchaser, and Defendant KSK, as seller(.]" Paragraph 11 of the
Complaint states, “At all relevant times herein prior to the
Sale/Purchase, and as set forth in Article 1 of the Agreement],
lAppellecs] were Defendant KSK’s representatives in the '
Sale/furchase, and were at all such times and thereafter,

 

managerial employees and/or officers of Defendants HAWAIIANA

and/or KSK.” (Emphasis added.)

 

‘Thus, based on the express language of the Agreement,
Appellees appear to be agents and not parties to the Agreement.

As noted above, the only way that an agent making a contract on

26
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behalf of a disclosed principle would become a party to the
‘agreement would be if the agent manifests an intent to become a
Party as “the inference is that the parties have agreed that the
principal is, and the agent is not, 2 party.” Pancakes, 85
Hawai'i at 308-09, 944 P.2d at 105-06 (quoting Restatement
(Second) of Agency § 320 cmt. a, at 67) (emphasis added).
Appellant cites Cox v, McLaughlin, 867 S.W.2d 460 (Ark.
1993), as their sole authority on this issue. In that case, as
Appellant notes, the Arkansas Supreme Court stated that, “the law
is well established that an agent is not liable to a third party
for a contractual obligation made by 2 disclosed principal unless
the agent is specifically named in the contract and there is
evidence of his intent to be bound.” Id. at 463 (citation
omitted). Appellant argues that because Appellees are expressly
identified in the contract and agreed to perform the disclosure
obligations under the Purchase Agreement, they intended to be
hound by the gueement. ~
However, Appellees are explicitly identified as agents
in the Purchase Agreement and the mere fact that they had
obligations and duties in their role as agents does not transform
Appellees from “Seller's Representatives” into parties. i
Appellant failed to provide any evidence as to how, then,
Appellees manifested an intent to be bound by the contract, aside
from the description of their roles within the Agreement. Thus,

Appellees are not parties to the Agreement.

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x. )

As to Appellant's issue (2) (a), Appellant argues that

 

because Appalices took the position in their Jnly 16, 2003
menorandum in support of Appellees’ motion for summary judgment
that they were not parties to the Agreement or third party
beneficiaries, Appellees are judicially estopped from enforcing
the Nonrecourse Provision. Appellant further declares that
“because the [court] accepted Appellees’ position in previously
granting Appellees summary judgment upon Count I... , the
doctrine of judicial estoppel precludes Appellees from taking a
contrary position in their subsequent motion for sunmary

judgment.”

 

Appellant relies on Pancakes. In Pancakes, Sofos
Realty Corporation (Sofos) handled the managing and leasing
duties of Lahaina Shopping Center in Lahaina, Maui, and Lee
carter (Carter) was a real estate agent who worked for Sofos. 85

Hawai'i at 302, $44 P.2d at 100, Sofos and Carter engaged in

 

negotiations with Pancakes of Hawai'i, Ine. (Pancakes), resulting
in Pancakes entering into a lease agreement with Pomare
Properties Corporation (Pomare) to open a restaurant in the
Ishaina Shopping Center. Id. The lease agreenent contained an
explicit waiver of trial by jury. Id, at 303-04, 944 P.2d at
100-01. Due to low foot traffic, Pancakes closed its restaurant
and commenced suit against, inter alia, Sofos, Carter, and

Ponare. Id, at 303, 944 P.2d at 100. Pursuant to the waiver of

28
'“FOR PUBLICATION IN WEST'S HAWAT'I REPORTS AND PACIFIC REPORTERS
nO

trial by jury, Pomare moved to strike Pancakes’ demand for » jury
trial. Id, at 303-04, 944 P.2d at 100-01, ‘The trial court
granted the motion, Id. at 304, 944 P.2d at 101. Pomare
settled, and Pancakes proceeded with its claims against Sofos and
carter. Id.

On appeal, Pancakes contended that Sofos and Carter
were not parties to the agreement, thus they could not use the
agreement to shield thenselves from a jury trial, Id. The ICA
held that Pancakes was correct in its contention and that “there

was clearly no unequivocal act indicating that a jury trial was

 

waived for Sofos, Carter, or any other third party.” Id. at 309,

 

944 P.2d 97 at 106,
With respect to third-party beneficiaries, the ICA
stated that “*{a] third party beneficiary is one for whose
benefit @ promise is made in a contract but who is not a party to
the contract.’” Id, (citations omitted). The ICA further stated

thot “a prime requisite to the status of ‘third party beneficiary

 

a contract is that the parties to the contract must have

 

intended to benefit the third party, who mist be something more
than @ mere incidental beneficiary.'* Id, (citations omitted);
see also Blair v. Ing, 95 Hawai'i 247, 255, 21 P.3d 452, 460
(2001) (explaining that “[t]he essence of a third-party
beneficiary's claim is that others have agreed between thenselves
to bestow a benefit upon the third party but one of the partie

to the agreement fails to uphold his portion of the bargain” and

23
 

FOR PUBLICATION IN WEST'S EAMAI'T REPORTS AND PACIFIC REPORTERS*#

that “the third party beneficiary approach focuses the existence

of a duty entirely on whether the plaintiff was the person

Intended to be

 

tted by the legal services and does not

extend to those incidentally deriving an indirect benefit”

(internal quotation marks and citations omitted) )."*

Appellant argues that, like Sofos’ and Carter's

inability to enforce a jury waiver provision in the lease

agreenent, Appellees are also precluded from enforcing the

Nonrecourse Provision against Appellant since Appellees are not

parties to or third-party beneficiaries of the Agreenent.

However, Eancakes is distinguishable from the case at hand.

‘As Appellees state, they “have never claimed that they

were parties to the . . . Agreement and have also affirmatively

stated

of the .

that they are not claiming to be.third-party beneficiaries

. Agreement." Instead, Appellees argue that

As noted supra, Appellees never clined to be third-party

neueficiaries, and have, in fact, effirmatively stated that they are not

 

Sq te be thirdepe:

y benef eennet be

 

 

Turthernore, Appell

 

third-pacty Seneficiaties since the Agrecnent does not indicate that Leeroc

seis req
118.19, entitied *Wo Ti

Appellees stated, “Your honor, I Just want to say that if we're not parti
re" thay ‘suing us for clains arising out of the purchase agreenent? They
re suing ey and they can't have it both ways.

 

wy

 

feed between thentelve!
fea by B1siz

 

to besten a benefit opon the (Appellees, ]”
She Agreenent explicitly states in Article 18,
ra Party Beneficiary,” that

  

 

 

[tinis Agreenent and each of the provisions hereof are
solely for the benefit of Seller and Purchaser and their
perniteed successors and assigns. No provisions of this
Kgreenent, or of any of the documents and instruments
Checuted in connection herewith, shell be construed as
Greating in any person or entity other than Seller and
Purchaser and their peraitted successors and sesigns any
Fights of any neture whatecever.

 

Appellant argues that at a Febrosry 16, 2005 hearing, counsel for

 

Based on thie statenent,

Repellant asintaine that “{aJecordingly, Appellees took the position that’ they

(cont insed.-«)

30
 

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“Appellant agreed that its sole recourse for any damages in
connection with its purchase of the [HJotel would be against
seller KSK” and that therefore Apnellees are not liable by the
express terms of the Agreenent. (Some capitalization omitted.)
‘As Appellees indicate, “Pancakes is inapplicable . . . because
Paragraph 8.2 contains the express agreement of Appellant not to
pursue claims against any affiliates or representatives of Seller
KSK. Appellees are not attempting to enforce the Purchase
Agreement against Appellant as the agents were attempting to do
with regard to the waiver of jury clause in [sic] in Pancakes.”
Whereas Sofos and Carter attempted to enforce @
provision of the lease agreement agreed to between Pancakes and
Pomare, Appellees here seek to hold Appellant to Paragraph 8.2
which specifically applies to and protects them from liability to
Appellant as agents of KSK. Article 1 of the Agreement defines
Appellees as Seller's agents, see supra, and Paragraph 8.2, in
turn, explicitly protects Sellex’s agents. Therefore, judicial
estoppel as to Appellees’ status as non-parties to the Agreement

does not prevent them from raising the Nonrecourse Provision as a |

 

 

   

defense.
1
¥(.. continued)
were parties to the Purchase Agreenent by using @ negative rather than @
positive statencat™ and question "[x]hy aid Appellees need # non-receuree

 

Provision... . [bJecause they were parties to the Purchase Agreement .”
Fnassuch ae the factual beets of Appellant's “alleged point of error 18 not
part of the record on appeal, this court hes no bsese upon which to rule on
the merite of nis claim.” State v, ioang, 93 Howai'i 333," 396, 3 Pi3d 499,
502 (2000) (citation omitted). Ae zuch, we do not address st

a

 
‘s+#FOR PUBLICATION IN MEST’S HAWAI'I REPORTS AND PACIFIC REFORTER*+#

xt.
As to Appellant's issue (2) (b), Appellant claims that

Appellees fraudulently induced -tppellant to enter into the

Agreement." In support of its fraudulent inducement argument

Appellant cites Fudimote, which concluded that there wi

 

genuine issue of material fact as to whether the plaintiffs’

 

ge does not appear that Appellant directly raised the issue of
fraudulent inducenent below inssmuch a5, as noted above, the Complaint lleged
breach of contract, Breach of fiduciary’ duties, misrepresentation,
Dendisclosure, indsani fication, punitive danages and declaratory ané
ingunctive relief. However, “iiswasi's rules of notice pleading require [only]
that a complaint get forth a short and plain statenent of the claim that
Provides defendant with fair notice of what the plaintiff's claim ie end the
Grounds upon which the claim rests[.]” Geneeve bata Te

95 Hawai'i 23,42, 18 P.3d 695, 909 (2001) (citing Hawaii Rules of Civil
Procedare Hole @(a) (1999); Ale. Ay, 63 Naw, 210, 220, 626 P.26 173, 182
(d581)), and that {pleadings 7 - be construed’ liberatlyl, i" id, {citation
omitted). A liberal resding of Appellant's merepresentation and hondislosure
Glains shows that Appellees should have been on notice of Appellant's
Eraudolent indscenent claine ond "the grounds upon which the claim rest:
Id, (citation omitted). The test for fraudulent inducement requires: "(l) @
Fepresentation of # neverial fact, (2) nade for the purpese of inducing the
Other party eo act, (3) known to be false but reasonably believed true by the
Other party, and (4) Upon which the other party relies and acts to his of her
Gamage.” Eudinte v. Ay, 98 Hawai's 116, 157, 19 F.3d 693, 740 (2001)
(brackets and-eitetions omitted). In Count IIZ, "hisrepresentation,”
Paragraph 28 of the Complaint, appellant states’ that,

 

 

 

 

 

 

 

 

 

Defendant Tzuteu and Defendant akenura represented to
Piaineie® (L]aeroe, aneng cener thingsy that: (a) (the
Hotel's} cect never leaked and had years of life renaining:
(b) [the Hote] never had a ternite infestation; (and)

{e) [t]he mechenieal systens of [the Hotel], including the
HVAC and plunbing systeas, were operating satisfactorily and
in good working order end’ did not need any repairs.

 

 

 

 

Appellant further contends sn Paragraph 30 of the Complaint that “(e)uch
Peprecentations were mage te induce and did indvee [appellant] to purchase the
[Hotel] for an excessive price because [Appellant] did not know the true
Condition of the. [Hotel) and [Appellant] reasonably relied upon such
representation:

Tn Count IV, “Nondisclesure,” Paragraph 24 of the Complaint,
further alleges that “the material fects within or which should have

7 Knowledge a8 set

 

 

 

ppel
been within Defendants [XSK], Havatiana, [and Appell
Zerth above were not known by [Appellant] ‘and ava result, Defendants (KSK],
fieuaisana, [and Appellees} each had a doty to inform (Appellant) of such
hateriel fectac"” he such, Appellant fulfilled the "notice pleading”
Fegulrenent and the frauddlent inducement claim was preserved on appeal

   

 

 

32
 

}POR PUBLICATION IN AEST" HAWAI'I REFORIS AND PACIFIC REFORTER

subscription agreenents were fraudulently induced.” 95 Hawai'i
at 157-158, 19 P.3d at 740-741.

In Fudinote, this court stated the relevant test to
determine what constitutes fraudulent inducement sufficient to
Anvalidate the terms of a contract. To demonstrate fraudulent
Anducenent there must be “(1) a representation of a material
fact, (2) made for the purpose of inducing the other party to
act, (3) known to be false but reasonably believed true by the
other party, and (4) upon which the other party relies and acts
to his or her damage." Id. at 157, 19 P.3d at 740 (brackets and
citations omitted).

However, aside from correctly explaining that where a
contract is fraudulently induced, the exculpatory clause will not
Limit lability, Appellant fails to make any arguments in its
brief regarding any fraudulent inducement except to argue that
“{gliven that [the] factual record raises genuine issues of
material fact whether Appellees, on . . . behalf of KSK,
fraudulently induced Appellant into the Ayrsenent py their
misrepresentations and non-disclosures after the execution of the
Agreenent, the [court] should have denied Appellees summary
judgment on Counts I through VI." Appellant does not specify
what facts denonstrate fraudulent inducement; rather, Appellant
appears to point to the facts, or the “factual record,” in

general.

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AL

The “statement of the case” section of Appellant's
brief contains a subsection entitled “appelteas’

Misrepresentations and Non-Disclosures[.]""* In that section
Appellant Sdentifies four “{m)isrepresentations” or “{nlon-
disclosures.” First, Appellant argues that in a recorded
conversation between Norgen and Tzutev, (a) “Izuteu adnitted he

told Morgan the ‘air conditioning aystem was working fine,’*

(b) Teutsu adnitted “there vere leaks into the roons before
IAlppellent purchased the Hotel and (ec) Izutsu “did not deny that

he and Nakamura never told Morgen about the leaks in the rooms.”
Afpellant points to a portion of the recorded conversation \
previously mentioned, which states a2 follows

P (MORGAN): Were there any leaks before we bought it?
F [TZ0TSU]: Anh, yee there were[-]
Pri You and (Nekendra) never told ne anything about
that (7)

Fr (ellence = 2 seconds)

 

Rppellees respond that this conversation occurred over
a year after the sale of the Hotel when “Morgan called Izutsu out
of the blue, and without telling Tzutsu, taped the conversation.” |
Appellees assert that “Appellant selectively quotes from the |

transcript of its secretly[-]recorded conversation . . «

misstat[ing] the substance of the conversation” and maintain,

% Although Appellant presents no evidence in the argument portion of
its opening brief to support the fraudulent inducenent claim, the title found
in the facts section indicates that Appellant intended this section to refer
tO evidence denonstrating fraudulent inducenent-

 

 

34

 
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instead, that “Izutsu’s silence was due to the fact that he had
already forthrightly answered this question at the outset of the

convxreation.” The conversstion, as related before, stated:

 

P [MORGAN]: [D]o you have @ quick second for me?

F (1z0rs0]: Sure{.}

Pr Thank you. You know we are working with Aston on
4 couple of things here, unm, che has to do with the roof,
tun, before we bought the hotel you told me that the roof
Gia’ not leak. Do you renenber that{?]

Fr Dany mols]

Pi Did’ the roof ever Leak?

Fi Yes, it was because, renenber the 11th floor um,
had una, water coming through,

P! "No T don’t venenber you ever telling me, oF
showing me the roof on the 11th flecr

F:"" (2 SECOND SILENCE) Une, (pause) . =. -

Were else did it lea?

Te, uss, uma in the unm, meeting zoom(.)
You never told me about that.
(Onn, "I thought T'tolé you. i thought 1 mentioned
all those things to you

 

 

‘Thus, Appellees further maintain that “Iautsu accurately stated
that the ‘air conditioning system was working fine’ because the
air conditioning system was working fine and never interfered
with the operation of the Hotel during the time that Izuteu

managed the Hotel except during a renovation project in 1992.”

 

They sigue “[t]his is consistent with the fact thet Appellant
operated the Hotel for eighteen (18) months after the [c]losing
date.”

Appellant does not attempt to show how any of the above
allegations satisfy the elements required for fraudulent
inducement. Taken in the light most favorable to Appellant, as
is required in sunmary judgment proceedings, this conversation
still does not denonstrate that Izutsu fraudulently induced

Appellant to act, as set out in the Fujimoto test. It appears,

35
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based on this conversation, that Appellant was unaware that the
“leaks . . . happen{ed] from room to room” but Appellant fails to
state what material fact was represented. Further, the
conversation between Izutsu and Morgan does not demonstrate that
Izutsu misrepresented a material fact as Izutsu neither confirmed
nor denied that he did not tell Morgan that the roof leaked, nor
does Appellant indicate why this information was a material fact.
Second, Appellant does not explain how this statement
was “nade for the purpose of inducing the other party to act,” as
is required under the Fuiimoto test.” Third, because it is
unclear what material fact Appellant claims was misrepresented,
it cannot be said that this conversation demonstrates that this
statement was “known to be false but reasonably believed true by
the other party.” Because none of the other prongs of the test

are met, it is immaterial whether Appellant “relie[d) and act (ed)

 

 

gumente
‘Separate
Narrant

Aluhough Appellant makes no attempts te “tie up" ¢
with the facts, Jt doce, alo in the facts section include snot
fection eneiticd "Appellant's Reliance Upon KSK's.Repre

an Nen-disclosures” and states in full se follows

     

sntatiens,

   

 

as set forth in Morgan's February €, 2004 Declaration,
Morgan stated that had T2uteu end Nokonura given him the
Minutes, the Ferris Report and disclosed the condition of

the Hotel, Morgan would have retained consultants to examine
the Hotel's latent defects and upon knowing the extent of
Such latent defects, Morgan would nave recennended that the
Hioter not be purchased by Appellant {-] However, given
Appellees’ misrepresentations, concealment and non~
Giecicsures, Appellant closed the purchase of the Hotel on
August 24, 2001+

  

   

‘The appellate courts are pot cbliged to search the record to crystallize the
perties’ orgonents. See Lanai Cou, Inc. v. land Use Comm'n, 105 Hawai'i 296,
S09 n.31y 87 P.3d. 372, 388 n-31 (2004) This court Ta not obligated to sift
through the voluminous record to verify an appellant’ s inadequately documented
Contentions.” (Ciestsons omitted. ))+

 

 

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to his or her damage,” as is required by the fourth prong of the
Eulimote test.
5,

Second, Appellant argues that “Izutsu did not give
Morgan [the] Minutes or [the] Ferris Report.” (Some
capitalization omitted.) Appellant states that “Bloom adnitted
he received Aston and Appellant's due diligence checklists by way
of a May 14, 2001 falx) from [KSK’s broker]” and that the
“{Morgan} Minutes ‘would have been addressed under a category
such as [the] overall condition report.'” In this fax, KSK's
broker allegedly stated that “[a]ttached are lists of items that
LaeRoc . . . will be requesting while conducting their due
diligence at the (Hotel].” However, despite this request,
Appellant maintains that “Izutsu did not copy the Minutes for
Morgan, did not show Morgan the Minutes lecated by Cheryl
Yoshiokal,] did not show Morgan the Minutes in the Storage room,”
and “Morgan was never given or shown the Ferris Report.”

Appallees answer that “pursuant to the express language
of the [Agreenent,] Bloom advised Appellant that Defendants would
not be ‘collecting’ information that may or may not fit within
the description of the documents requested, but as stated in the
[Agreement], all documents would be made available at the Hotel
for Appellant's review.” Further, Appellees maintain that
“[£]rom 1996 to July 2001 when the Hotel was sold to Appellant,

there were approximately 286 different reports of the weekly

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manager's meetings” and “[o]ut of 286 weekly meeting minutes
+ +. Appellant was able to find ten instances where references

¢ mildew” which “concerned using a mildew

 

were made to mold

 

retardant cleaner to clean mildew or mold off of the air
conditioning grills, a single report of an isolated moldy smell,
and one entry of mildew being found in one room of the 255{-]roon
Hotel(.1”

As to the “Ferris Report{,]” Appellees maintain that
“no such document exists” and that what Appellant purports is a
Report is “nothing more than an incomplete, one page letter dated
April 11, 1997. The existing portion of the letter purports to
make a proposal for chiller replacement at the Hotel.” Thus,
Appellees argue that the letter itself was inadmissible and
properly objected to because “we don’t know what the entire
document concludes,” but even if it is considered, “there is no
evidence that any of the Appellees received this document prior
to the sale of the Hotel” and “other documents in Appellant's
possession clearly establish that major work, including the
replacement of the air cooled condenser on the roof at the Hotel
was done to the HVAC system after 1997.” (Citing the CET Report
indicates that approximately $158,090.00 was done by KSK to the
HVAC system from 1997 through 2001.)

Again, although it appears that Appellant cites to the
above matters as evidence of fraudulent inducenent, it fails to

demonstrate how the elements of fraudulent inducement are met.

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These allegations do not indicate how the failure to provide
these docunents was a representation of material fact. It
appears that these documents may have given some insight into
whether there was mold in, or problens with, the air
Conditioning. However, Appellant fails to denonstrate that
Appellees had any duty to provide such docunents or even allege
that the failure to provide them was “for the purpose of inducing
the other party to act” based upon facts “known to be false but

reasonably believed true by the other partyl,]” as is required by

 

Eulimoto. Thus, it does not appear, even construed in a light
most favorable to Appellant, that there was evidence adduced of

fraudulent inducement based on the Minutes or the “Ferris

 

Report
c.
‘Third, Appellant maintains that KSK failed to disclose
Information related to the CEI Report. It states that “City Bank
contracted with [CEI] for a property condition report{.J”

Apparently based on knowledge of this report, Appellant asserte '

 

that, “[o]n July 6, 2001, Morgan sent a copy of the CEI Report to
Bloom and asked [to] ‘Please check with Fred to see if he has any
reports that may clarify some of the issues referenced{.]'”
Appellant further states that “[o]n July 12, 2001, . . . [KSK’s
Attorney] responded that(,] ‘[a]s regards other reports, Seller
does not have the technical expertise to review the Assessment

and decide which, if any [Hotel] materials are applicable.”

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However, Appellant argues that “[cJontrary to [KSK's
Attorney's] statement to Appellant, Nakamura was a menber of the
Hotel Association Advisory Council . ... and had in his office:
(2) Minutes of a February 9, 2000 meeting of the Council” where
there was “a presentation concerning ‘Moisture and Mildew
Problems in the Hospitality Industry Buildings{,]’ . . . (2) a
copy of a [Meeting hand-out) noting the ‘$6.5 Mofature 6 Mildew
Problem’ at a nunber of hotels, and “(3) an April 26, letter
from Civil Mechanical to Nakamura regarding renote television
inspection of waste lines allowing ‘full disclosure of the
condition’ of ‘drain lines’ to @ buyer.”

Appellees contend that because Nakamura was “a menber
of the Hawai‘ Hotel Association Advisory Council and had
materials from meetings or seninars in his office[, he was) an
expert in mold and mildew problems . . . {,] is like stating that
@ lawyer who is a member of the Hawai'i State Bar Association and
has copies of materials from 2 securities litigation seminar in
his office is actually qualified to handle a securities matter”
and “[i]t is rank speculation to make the leap from one to the
other.” As inferred by Appellee, Appellant presents no
discernible argunents regarding how the fact that Nakamura was a
menber of the Hotel Association Advisory Council and had
documents generally discussing mold problens in the hotel
Industry (2ssuming that to be the case) either made him an expert

in mold or mildew problems or explained how withholding any of

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these general documents fraudulently induced Appellant into

buying the Hotel. Thus, we need not address the issue further.

Soe Bul, 104 Howad'l at $64, 92 P.3d at 473
D.

Finally, Appellant argues with respect to the Nakamura
photographs, that “Nakamura knew that the CWP insulation in the
Hotel had failed.” In support of this assertion, Appellant
declares that Aston “put together a report upon the Hotel which
contained 18 Polaroid photographs Nakamura voluntarily gave to
[Aston] on December 12, 2001, containing titles written by
Nakamura” and that “[p]oloroid photograph No. 13 is of the wall
and floor of a guest room with a dark water stain with the
{phrase] “RISERS NEED RELAGGING,” meaning that the CWP risers
need re-insulation. (Some capitalization omitted.) Appellees
answer that Nakamura “voluntarily provided these photos” and

“[t]his is not the act of someone hiding a ‘smoking gun.'*

 

Further, Appellees essert that “at most, the only fact that the
photographs establish is that on December 12, 2001, Nakamura was
aware that the risers behind the wall may be sonething that Aston |
maintenance might want to be avare of” and “[t]his does not
establish any knowledge on the part of Nakamura or the Appellee:
of any problems with the risers prior to December 12, 2001.”
Appellant does not disclose or explain how these
photographs establish that Nakamura knew the CWP insulation had

“failed.” Further, Appellant again fails to relate how any of

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‘S*4F0R PUBLICATION IN WEST'S HANAI'T REPORTS AND PACIFIC REPORTER!

 

these allegations meet any prong of the Fuiimoto test. In fact,
according to Appellant, Nakamura “voluntarily” made these
photographs available. Thus, it is difficult to see how Nakamura
could be “represent(ing) . . . a material fact . . . known to be
false” as Eviimoto requires in making a fraudulent inducenent
claim.

Thus, even if all of the above alleged facts are taken
to be true, Appellant fails to establish that Appellees
fraudulently induced Appellant to buy the hotel. As this court
has repeatedly held, where a party fails to present evidence on
the claim upon which they seek relief, 2 grant of summary
judgment is appropriate. See French, 105 Hawai'i at 465, 99 P.3d
at 1049 (holding that summary judgment was appropriate where the
appellant “failed to make a prima facie showing of age
discrimination”). Appellant maintains that the court granted
summary judgment based solely on the Nonrecourse Provision.

However, as noted above, the court did not provide an expfenation

 

for its grant of summary judgment. Because Appellant has failed
to make initial allegations that satisfy the fraudulent
inducement test, we cannot say that ultimately the court was
incorrect in granting sunmary judgment even assuming summary
judgment was granted based on the Nonrecourse Provision. See
Kahaikupuna v, State, 109 Hawai'i 230, 233-34, 124 P.34 975,
978-79 (2005) (affirming summary judgment on different grounds

than the trial court and explaining that “an appellate court may

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affirm a grant of summary judgment on any ground appearing in the
record, even if the circuit court did not rely on it” (citing

Mccarthy v, Yempuku, 5 Haw. App. 45, 52, 678 P.2d 11, 16 (1984)

(other citation omitted))).
xq.
a.
As to Appellees’ issue (2) (d),” the Nonrecourse
Provision states as follows:

Purchaser further acinowledces that Purchaser shall not have

OF the
Sfficers or directors of the partners of Seller, oF the
Personal sesete of any partner of Seller with respect to any
Befault under this agreeent or any document executed 4m
connection therewith, of Seller's scents or attomevs.,
gkespt where such claim demand or cause of action resulta
Sellen. or such officers directors, partners, attorneys or
agent:

‘Seller an specified in this Aareanent.
(Emphases added.) Interpreting the above provision, Appellant

 

 

alleges that (1) “the [court] misconstrued the ‘except where’
phrase of the Nonrecourse Provision” because “[t]he ‘except

where’ phrase excludes ‘fraud, willful misconduct and criminal

 

acts’ from the inmunizing effect of the entice Nonrecourse
Provision rather than just the ‘sale proceeds’ Limitation in the
last phrase of the Nonrecourse Provision”; and (2) “(bly using
the word ‘recourse’ and the phrase ‘with respect to any default
under this [Purchase] Agreenent or any docunent executed in

connection therewith,’ the Nonrecourse Provision attempts to

% _tesues (2) (c} and (2) (@) are discussed out of chronological order
here in order to logically address Appellant’: claims.

 

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Limit Appellees’ personal liability . . . [but) cannot be read to
release or waive Appellees’ non-contractual liability{.J” As
such, Appellant maintains, the Nonrecourse Provision 4s “narzowly
drafted” and thus cannot “broadly immunize” Appellees.

on the other hand, Appellees maintain the above
provision expressly Limits Appellant's “sole recourse for any
damages in connection with [the) purchase of the Hotel . . . [to
the] seller KSK" and “[t]he language of Section 8.2 of the
Purchase Agreement is clear and unambiguous . . . [+]
express[ing] the intent of Appellant and Seller KSK to limit any
claims that Appellant has under the [Agreement] to claims for
alleged fraud against the seller only.” Thus, Appellees contend
that “Appellant . . . agreed that its sole recourse would be
against the Seller KSK even if its claims arose ‘from any fraud,
willful misconduct or criminal acts’ of Sellers agent.”

As to Appellant's first assertion, as noted above, the

Nonrecuzse Provision prohibits “recourse against any agent . «

 

with respect to any default under this Agreement or any document
executed in connection therewith... except where such claim — |
donand or cause of action results from any fraud, willful |
misconduct, ox criminal acts of Seller, or such officers I
directors, partners, attornevs or agents!.)” (Emphasis added.)

tthe words “except where” “‘should be interpreted according to

their plain, ordinary and accepted use in common speech, unless

“i

 

the contract indicates a different meaning.’” Brown, 82 Hawa:
‘+6F0R PUBLICATION IN WEST’ S HAMAI'T REPORTS AND PACIFIC REPORTER'S

 

at 240, 921 P.2d at 160 (quoting Amfac, 74 Haw. at 108, 839 P.2d

at 24). There is no alternate definition of “except where” in

 

the contract so we construe the phrase “except where” according

   

to its “‘plain, ordinary and accepted use in common speech{.]'”
Id. (quoting Amfac, 74 Haw. at 108, 839 P.2d at 24). The word
“except” can be defined as “with the exclusion or exception of.

Webster's Third New Int'] Dictionary at 791. The word “where” is

defined as “in what situation, position, or circumstance.

 

Id.
at 2602. Applying these definitions, the phrase “except where”
may be read as “with the exclusion or exception of,” id, at 791,
enunerated “situation{s], position|s), or “circumstance[s,]” ide
at! 2602.

Consequently, here, the enumerated circumstances
excluded from the Nonrecourse Provision are “claim[s], denand{s]
or cause(s] of action result [ing] from any fraud, willful
misconduct, or criminal acts of . . . [the] agent [.1”
Appellant's interpretation of the “except where” phrase comports
with a plain language analysis. The “except for” language, then,
entirely renoves certain conduct from the scope of the
Nonrecourse Provision. Accordingly, notwithstanding the general
prohibition of recourse against Seller's agents, the “except
where” provision permits recourse against the agents for claims
of “fraud, willful misconduct, or criminal acts{.]”

Assuming, axauendo, that the Nonrecourse Provision

could be interpreted as Appellees contend, “{w]hen a contract

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term can be interpreted in at least two ways, and when one of
those interpretations would result in a valid contract and the

F would cause the agreement to be vold or illegal, the former

 

 

interpretation is preferred.” Margaret N, Kniffin, Corbin on
Contracts § 24.22 at 232 (rev. ed. 1998). As Appellees’
interpretation would render the agreement void as against public

policy, see infra, Appellant's reading is preferred.

5.

 

Ae to Appellant's second assertion that the Nonrecourse
Provision “cannot be read to release or waive Appellees’
noncontractual lisbility," because the Nonzecourse Provision does
not explicitly contain the words “release” or “waive,” it cites

Eulimoto, 95 Hawai'i at 186, 19 P.3d at 739, and Krohnert v

Yacht Sve, Hawaii, Inc., 4 Haw. App. 190, 198, 664 P.2d 738, 744
(1983). Exculpatory clauses are generally valid unless the

 

bargaining power of the promi superior to that of the

 

promisor. uiimote, 95 Hawai'i at 155, 19 P.3d at 738. In
Euiimote, this court stated that “[iJt is true that a party can
contract to exempt himself from liability for harm caused by his

negligence.” Id, (citing Restatement (Second) of Contracts, §

 

= A nonrecourse provision is sinilar to a exculpatory provision or,
Perhaps nore aptly, a fonrecourse provision ia specific type of exculpatory
Clause. Cf Syizig'v, Johnson, 691°N.E.24 608, 609 (Mass. App. 1996)
(ordinarity, an exculpatory Clause veleases a party from hie wrongful actet
whereas "[a]' nenrecourse clause, on the ether hand, ordinarily creates &
Linitation on perscnal Lisbility.") (Citing Black's Law Dictionary 566, 1057
(@th e6.1990). Thus, the case law analysing exculpatory provisions is
applicable here.

   

 

 

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195 emt. a (2001); 15 Williston on Contracts, § 1750A at 144 (3d
ed. 1972)). However, exculpatory clauses “are strictly construed
against the promisee and will not be enforced if the promise
enjoys a bargaining power superior to the promisor, as where the
Promisor is required to deal with the promisee on his own terms.”
Id. (citations omitted). Therefore, as a general rule,
“*(e]xculpatory clauses will be held void if the agreement is
(2) violative of a statute, (2) contrary to a substantial public
interest, or (3) gained through inequality of bargaining power.’”
Id, at 156, 19 P.3d at 739 (quoting Andrews v. Fitzgerald, 623 F.
Supp. 356, 378 (M.D.N.C. 1993) (other citation omitted) ).

In Euiimoto, this court further quoted Yauger v. Skiing
Enters.. Inc., 557 N.W.2d 60 (Wis. 1996), to the effect that
“[elxculpatory contracts are not favored by the law because they
tend to allow conduct below the acceptable standard of care.
+ + + [A] court closely examines whether such agreements violate
public policy and construes them strictly against the party
seeking to rely on them.” Euiimoto, 95 Hawai'i at 155-56, 19
P.3d at 738-39 (quoting Yauger, $57 N.W.2d at 62) (emphasis
added). Similarly, in Krohnert, the ICA invalidated an
exculpatory clause that shielded a professional marine surveyor
from liability for his own negligence arising from his assessment,
of a wooden ketch. 4 Haw. App at 198-200, 664 P.2d at 743-45,
Although the ICA found that the exculpatory clause in question

was permissive since there was no superior bargaining power, the

a
4S++POR PUBLICATION IN MEST’S HAWAI'I REFORTS AND PACIFIC REFORTERY*#
_
ICA nevertheless held that the parties had not “clearly and

unequivocally” agreed to the clause, Id, at 200, 664 P.2d at
748.

Appellees contend that Fulimote and Krohnert are
distinguishable from the case at hand because those cases
involved unsophisticated parties. They argue that in the instant
case, Paragraph 8.2, the Nonzecourse Provision, was agreed to by
Appellant and Appellant's attorneys, so there was no unequal
bargaining power between Appellant and KSK. Appellees are
correct to the extent that the facts do not indicate this is a
case of unequal bargaining power; however, Fuiimote and Krobnert
dé not limit the rule of strict construction to agreements
involving only unsophisticated parties. Therefore, the rule of
strict construction is applicable in this case.

2.

In pertinent part the Nonrecourse Provision states that
the purchaser shall not have recourse “with respect to any
default under this Agreement or any document executed in
connection therewith.” (Emphasis added). Appellees cite Hoosier
Enexay Rural Elec, Coop, v. Anoco Tax Leasing IV Corp., 34 F.3d
1310 (7th Cir, 1994), to support their argument that “[nJon-
recourse provisions are enforceable to bar claims that go beyond
what was agreed upon in contract.”

In Hoosier, Hoosier Energy and Amoco Tax entered into a

fale-leaseback agreement which contained a nonrecourse

48
 

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provision.” Id, at 1315. Following a disagreement about
Payments, Hoosier Energy brought breach of contract and unjust
enrichment claims against Amoco Tax. Id, at 1314. Amoco Tax
claimed that the nonrecourse provision shielded it from all
liability. Id, Hoosier Energy responded by contending that “the
non-xecourse provision merely prevents it from suing Amoco
Corporation for breach of contract but does not preclude it from
‘suing Amoco Corporation on a non-contract theory such as unjust
enrichment.” Id, at 1316.

In finding that the nonrecourse provision did protect
Amoco Tax from all liability, the Seventh circuit stated,

there 4s no ambiguity as to whether this provision bare

‘ Snon-contract” clains-it clesrly does. Section 17(e) of the
agreenent states that Hoosier Energy has no recourse against
Bacco Cosperation fer any amount payable under the agreement
or for any claim "based on” the agreenent or otherwise "in
Fespect to” the agreement. This language broadly appli
any claim that is in any way "besed en” the sa
Sgreenent or otherwise “in respect to” the agreen

   

     

   

 

 

ack

   

Id. Thus, the court interpreted the “based on” and “in respect
to” language broadly to protect Amoco Tax from liability beyond

claims based in contract. Id

 

   

% the nonrecourse provision stated, in relevant part
Mo recourse shall be had for the paynent of the Section 168
Loans, of for any other enount payable hereunder or for any
‘ 2 tt her

fnecr-in respect te thie Aareenent, against, Anoco Leasing
Corporation (ancco's sole stockholder) -. . oF of any
AfElisate of Anoco . «Lt being expressly understood that
311 obligations of Ande onder thie Agreement are solely
Corporate obligations snd that ail such 2

Leasing Corporation and any other AEfi1ia
is and is hereby agreed to be expressly waived
as a condition of, and as consideration for, the execution
Of this Agreement.

   

Hossiex, 34 F.3d at 1315 (emphases added).
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However, Hoosier is inapplicable here in light of the
strict construction rule adopted in Fuiimote and Krohnert.
First, the “based on” and “in respect to” language in Hoosier is
broader than the “any default under” language in the Nonrecourse
Provision at hand, Second, in light of our determination
regarding the “except where” clause of the recourse provision, it
would be inconsistent to “except” “fraud, willful misconduct, or
criminal acts[,]” of agents but then to limit any recovery of

damages on such claims to those established as available only

 

against the seller. Third, based on the narrow construction
required, the provision limiting Purchaser's “sole recourse” to
the Seller for “the sale proceeds” cannot be read as

Limiting claims for fraud and willful misconduct (as well as
criminal conduct). Finally, where it is against public policy to
allow a party to contract out of fraud or willful misconduct, as
noted infra, it would be against such policy to cap damages for
intentional conduct to that recoverable under the Nonrecourse
Provision trom anotner party.

In sum, under the Agreenent or any document executed in
connection therewith, the Nonrecourse Provision pertains to
default on the contract, and recourse thereon is limited to sale
proceeds. However, the “except where” clause allows clains to be
brought for “fraud, willful misconduct, or criminal acts” against
“Seller, or . . . officers directors, partners, attorneys or

agents{.]” Under the Nonrecourse Provision, then, recovery in

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damages for fraud, willful misconduct, and criminal acts is not
Limited to the seller's proceeds.
xrrr.

Assuming arguendo that the Nonrecourse Provision did
not expressly exclude fraud, willful misconduct, and criminal
acts, as Appellant asserts in issue (2) (c), “public policy
forbids the inclusion of fraud and other willful misconduct in
exculpatory/Limitation of damages provisions[.]” According to
Appellant “[a] term exempting a party fron tort Liability for
harm caused intentionally or recklessly is unenforceable on
grounds of public policy.” Restatement (Second) of Contracts
5 }95(1). See Zimerman v. Northfield Real Estate, Inc., 510
N.E.2d 409, 415 (111. App. Ct. 1986) ("An exculpatory clause
cannot protect persons from the results of their wilful and
wanton misconduct. Such a contractual shield is illegal.”
(Citations omitted.)).

Hawai‘ courts have not stated that public policy

f01

 

ads cxeupting tort Lsbitity in cases of intentional or
reckless tortious conduct. However, as this court said in

Fuiimote, under some circumstances, the public interest will not
countenance an exculpatory clause. “The ultimate determination
of what constitutes the public interest must be made considering
the totality of the circumstances of any given case against the

backdrop of current societal expectations.” Fuiimoto, 95 Hawai'i

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at 155, 19 P.3d at 738 (internal quotation marks and citations
omitted) .

This court further instructed that “[plarties are
permitted to make exculpatory contracts so long as they are
knowingly and willingly made and free from fraud. No public
policy exists to prevent such contracts.” Id, at 156, 19 P.3d at
739 (citations and brackets omitted) (emphasis added). while
“[ilt is true that a party can contract to exempt himself from
Liability for harm caused by his negligence[,}” id. at 155, 19
P.3d at 738 (citations omitted); see also Wheelock v. Sport
Kites, Inc., 839 F. Supp. 730, 736 (D. Haw. 1993) (explaining
that “Hawaid courts permit a waiver of negligence claims”), most
jurisdictions deciding this issue have held that an exemption for
intentional torts and reckless conduct is void as against public
policy. See Alack v. Vic Tanny Int’) of Missouri, Inc., 923
S.W.2d 330, 337 (Mo. 1996) (explaining that “there is no question
thet one may never exonerate oneself from future liability for
intentional torts or for gross negligence, or for activities
involving the public interest” (citations omitted)); Kelluns v.
Exeight Sales Ctrs., Inc., 467 So. 24 816, 617 (Fla. Dist. ct.
App. 1985) ("A party may by an exculpatory clause, absolve itself
of liability for negligence, but an attempt to absolve itself
from liability for an intentional tort is against public policy.”
(Citations omitted.)); see also 8 S. Williston, Williston on
Contracts § 19:23, at 291-97 (4th ed. 1998) ("An attempted

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exemption from Liability for a future intentional tort or crime
or for a future willful or grossly negligent act is generally
hold void, although a release exculpating a party from liability

for negligence may also cover gross negligence where the

 

jurisdiction has abolished the distinction between degrees of

negligence and treats all negligence alike.”

 

Courts have reasoned that a public policy exception is
widely accepted because it is

based on a recognition that sound public policy requires
Greater deterrents to gross negligence or intentional
Risconduct than to ordinary negligence. Moreover, enforcing
fan exculpatory clause as applied to a party's gross
Meconduct dove Little to eid the freedom of contract,
Because while businecepersons may Feasonably anticipate
accidents or ordinary negligence and account for who bears

ih setting the price of a contract,
contracting parties rely on the other’s good faith and fair
dealing,

    

  
 

 

 

Rominicl v. Between the Bridges Marina, 375 F. Supp. 2d 62, 68

(D. Conn, 2005). Finally, as the Restat

 

nt comments, “[a] term
exempting a party from tort liability for harm caused
intentionally or recklessly is unenforceable on grounds of public

policy” because “Itjhe lew of

   

Smposes standards sf contuct

onable risk of harm”

 

for the protection of others against unre
and “[o]ne cannet exempt himself from such liability for harm
that is caused either intentionally or recklessly.” Restatenent

(Second) of Contracts § 195(1) & cmt. a (1979) (citations

omitted) .
Expanding on the rationale and analysis in Fuiimoto and
rohnert, we hold that a nonrecourse provision that explicitly

protects a party from tort lisbility would be permissible as long

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as the agreenent was not unconscionable and it was knowingly and
willingly made, and, adopting the majority view of the states,
such a provision is valid to the extent it does not waive
Liability in situations of intentional or reckless conduct.
Thus, even if the agreenent did not expressly exclude claims of
criminal misconduct, fraud, or willful misconduct, publi policy
would forbid the making of contracts excluding intentional torts.
xiv.

‘As to Appellant's issue (2)(e), Appellant claims that

 

following the Hawaiiana Agreement, Appellees became sub-agents of
Appellant from August 24, 2001 until December 17, 2001, when
Appellees managed the Hotel for Appellant. Based on this
apparent agency relationship, Appellant “is seeking breach of
fiduciary duty (duties of loyalty, due care, utmost good faith
and full disclosure) damages (Count II) and indemnity (Count V)
for all amounts paid to Aston” as a result of Appellant's
settlement agreenent with Aston. Appellant elaborates that
Appeilees are liable for injury arising out of “their acts of
disloyalty, lack of due care, bad faith and non-disclosure.”
xv.
‘The first issue is whether the Nonrecourse Provision

may be applied to claims for breach of fiduciary duty arising out

 

® Ag noted, Aston was a party to this consolidated laweuit but has
ince settied with Appellant. Appellant seeks indemnification for this
Settlenent from Appellees

 

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of the Hawaiiana Agreement. Appellees maintain that Appellant
“released Appellees from all liability from all documents in

connection with the [Agreement]" and because “the Hawaiisna

 

Agreement was executed in connection with the [Agreenent} and
expressly provides that it is entered into ‘to facilitate
completion of the Hotel sale(,]’” the [court] correctly ruled
that the [Nonrecourse Provision] of the [Agreenent]” precluded
Appellant's fiduciary duty claine.

Appellant responds that (1) the Nonrecourse Provision
“does not refer to the Hawaiiana Agreement since the Hawaiiana
Agreenent has its own exculpatory and limitation of damages

provision"; (2) “such inclusion would mean Hawaiiana (agent)

 

the exculpatory provision in the Hawaiiana Agreezent reads as
follows:

‘To the fullest extent permitted by tax, notwithstanding any
Gther" provision of ths Agreement” and” pa a-material oat of
Hhe consideration to [iawtiianal tor che Rareement.
AcceLant) hescby sad van ana releapaa. (avaiianal-fzon any
sia-alt-alsine. tenets [asses dart

ic euenes —
including attorneys teea and costs of Litigatical of

iapeel fant) and Tabltities to lapeel tant of ane nature
hetscever arising oat of, resulting trom or in any say

 

   

Sr nonperforsance of its obligations and responsibilities
yadex this _Aereanent, except an shall arise directly from
Haualiana? sn

 

(Appelient] and (Revaiianal a9)
lewat Sena’ s) "gross negli fact, any.
Gleim of or liability of [Hsvaiiana) to [Appellant] would be
Gifticult to determine and that 2 reasonable estimate of the
haximun amount for each event thereof would be equal to the
Snount of Base Management Fees and incentive Manegenent Fe
pais by {Appellant} to Hawaiians throughout the Term ss
therefore, Omner Agrees that the maximum ancunt of
(Wovaiiana’s] Liabliity to (appellant) for each event of
such grose negligence and willful misconduct will not exceed
the amount of auch Fees

 

   

 

(Emphasis added.)

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would not be liable under the Hawaiiana Agreement to Laeroc
(principal); and (3) “Appellees should have fiduciary duties to
thei: principal (Lecroc) and, to argue otherwise, ix illogical
and against public policy” and that “[a]ccordingly, the Non-
Recourse Provision is inapplicable to Laeroc’s tort claims.”

‘As to its contention (1), Appellant cites to no
authority for its assertion that another exculpatory provision
which also purports to limit Appellants recourse except in the
case of “gross negligence [and] willful misconduct” would render
the Nonrecourse Provision inapplicable. Inasmuch as Appellant
“presents no discernible argument in support of this
contention{,] it is our prerogative to disregard this claim(,]”
Bui, 104 Hawai'i at 464, 92 P.3d at 473 (internal quotation
marks, ellipses, and citation omitted), and we do so here.
Appellant’s contention (2) need not be addressed because the only
issue before us is whether Appellees breached their purported
fiduciary duties to Appellant. Thus, we need not decide whether
Hawaiiana, as agent and party to the Hawaiiana Agreement, would
be liable to Appellant.

As to Appellant's contention (3), we need not construe
the Hawaiiana provision because Appellees base their defense on
the Nonrecourse Provision. The Nonrecourse Provision states that

it will apply “with respect to any default under thie Agreement

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or any document executed in connection therewith.” (Emphasis
added.) The phrase “in connection with” is generally interpreted

broadly and defined as “related to{.1* “Linked tol.1" oF

 

“associated with[.]” See Metro. Prop, & Cas. Ins. Co. v,
Mut. Ins, Co, 793 N.B.2d 1252, 1255 (Mass. App. Ct.

2003) (stating that “*[iJn connection with’ is ordinarily held to
have even a broader meaning than ‘arising out of’ and is defined
as related to, Linked to, or associated with” (citations
omitted) ).

As argued by Appellees, the Havaiiana Agreement was
entered into in order to facilitate the purchase of the Hotel.
The Hawaiiana Agreenent expressly states that “(Appellant]
intends to purchase [the Hotel)” and “intends to complete
purchase of the Hotel . . . on or about August 21, 2001." It
further states that “Manager [(Havaiiana)] is currently managing
the Hotel for the present Owner [(KSK)] thereof (which is an
Affiliate of {HawaSiana}), and wae to terminate such management
upon completion of the sale of the llotel to [Appellant] as
required by the purchase agreenent.”

However, according to the Hawaiiana Agreement, because
“[nppellant] has yet to secure the services of an experienced

hotel manager to operate the Hotel after the closing and desires

the word “therewith® Se defined as “with that.” webstes”

Mow Int*s Dictionary at'2572.. Thus, the issue 5 whether the Hawaiians
Kgreenent was Texecvted in connection” "with that” Agreesent. Because the
phrase “in connection with” is synonymous, we rely on cases intespreting that
Phrase.

 

 

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to secure Nanager’s services on an interim basis for the
management and operation of the Hotel thereafter{,] . .
avaiiana) in orde itote completion of
andas a material accomodation to (Appellantl, is willing to
provide (Appellant) with Hotel management services for a brief
temporary period after the Closing pursuant to the terms and
conditions hereinafter set forth{.]” (Emphasis added.) Further,
in the Term of Agreement section, Appellant and Hawaiiana agreed
that “[t]he term of this Agreenent shall connence upon the
Closing and the conmencement of [Appellant’s] ownership of the
Hotel {.1"
‘ The Hawaiiana Agreement was entered into as a means of
“facilitat (ing) completion of the Hotel sale” and as a “naterial

acconmodation” to Appellant. The terms relate to Appellant's

 

purchase and subsequent ownership of the Hotel. Hawaiiana, the
prior manager of the Hotel, agreed to stay on as manager because
Aopellant had yet to “secure the s«cvices of an experienced hotel
manager.” On the face of the Hawaiiana Agreement, it was plainly
“related to” or “associated with” the Agreement and, thus, isa |
“document executed in connection therewith[.]" As such, the
Nonrecourse Provision is applicable unless there is some other '
reason not to enforce the provision.

xvr.

A.

Appellant argues that even if the Nonrecourse Provision

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would otherwise apply, because “the Nonrecourse provision fails
to identify . . . breach of fiduciary duty” for exclusion, such a
claim is not barred by the provision. (Emphasis omitted.)
Appellant relies on the “strict construction” rule from Bulimoto
and an Illinois U.S. district court case which states that
“sELlinois law does not enforce such [exculpatory] clauses to
exclude claims that are not ‘explicitly covered’ by the terms of
the clause." Kei v. Southwestern Be:
Mobile Svs., LLC, 2003 WL 22595263, *11 n.14 (N.D. T11. 2003)
(citations omitted). However, as noted before, we need only
determine whether the alleged breaches of fiduciary duty
constitute “fraud, willful misconduct, or criminal acts” ~~ the
express exceptions to the Nonrecourse Provision.

‘The only possible exempted category implicated here
would be “willful misconduct.“ As explained above, Pancakes
discussed “willful misconduct." Other courts have explained that
“willfel misconduct” is “misconduct committed voluntarily and
intentionally." Vicky M. v, Northeastern Educ, intermediate Unit
12, 486 F. Supp. 2d 437, 460 (M.D. Pa. 2007) (quoting Blacks Law
Dictionary $4 (7th ed. 1999). As Vicky M. indicated, willful

misconduct involves a conscious indifference to consequences.

 

% as noted infra, Appellant fails to identify any specific acts as
tos breach of fiduciary duty. Insofar as “fraud” is concerned, Appellant
failed to plead fraud, but giving its pleadings on nisrepresentation and non~
disclosure Liberal resding, the pleadings may be construed as pleading
fraudulent inducement. Gee SUOra note 18." Even then, however, Appellant
felled to show fraudulent inducement. See discussion gusta

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(T)he Pennsylvania Supreme Court defined “willful
Bisconduct" to nean that "the actor desized to bring about
fhe result that followed, or at least that he was aware that
it wan substantially certain to ensue,” It ia a seep beyond
Santon misconduct,” which "neans thst the actor has
Antentsonaliy done an act of an unreasonable character, in
aieregard cf a cisk anon to him or so obvious that he must
be taken to have been suare of it, and so great as to make
St highly probable that harm would follow. Zt usually is
accompanied by a conscious indifference to the

 

 

 

 

  

‘Eonseausnces,
‘Id. (citations omitted) (emphasis added) .
B.

However, Appellant fails to identity any specific acts
committed by Appellees that constitute a breach of fiduciary duty
and we thus are only able to analyze the generalized clains
raised in the Complaint.” Appellant first alleges in the
Complaint that Appellees “continued to conceal from and failed to
disclose to [Appellant], such material facts regarding
maintenance, repair and existing condition of the [Hotel] thereby
breaching their fiduciary duties to (Appellant].” ‘There is no
indication, even if these general charges are considered true,
thot Appellees committed such acts “intentionally” or

“voluntarily” or that any such action was “accompanied by a

 

conscious indifference to the consequences.” Id. Thus, no issue

of material fact as to the first allegation arises.

 

“Continued to conceal from and failed to disclose to (Appellant], sun
material facts regarding maintenance, repair and existing condition of the
(Wotel] thereby Bresching their fidvciary duties to [Appellant .]” Appellant
further alleges that "[Appeliees) breached thelr fiduciary duties to

(Appellant) by concealing and failing to disclose to Aston such material facts
reperding maintenance, repair and existing condition of the (Hotel) pricr to
(appellant] entering inte a long term management agreement with Aston.”

 

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The sane is true of Appellant's second allegation in
the Complaint charging that {Appellees} breached their fiduciary
duties to {Appellant} by concealing and failing to disclose to
Aston such material facts regarding maintenance, repair and
existing condition of the (Hotel) prior te [Appellant] entering
{nto a long term management agreenent with Aston.” Once again,
there is no accusation that Appellees have “intentionally done an
act of unreasonable character, in disregard of a risk known to
him or so obvious that he must have been aware of it, and so
great as to nake it highly probable that harm would follow.” Id
(internal quotation marks and citation omitted).

: Appellant simply fails to produce cogent facts that
first, would speak to a breach of fiduciary duty and second,
would implicate willful misconduct. Thus, it appears that
Appellant has failed to raise questions of material fact
regarding Count II, breach of fiduciary duty. Count V relating
to indemnification, hinges on Appellant's breach of fiduciary
claim.™ See opening arief at 43 n.74 (stating that
“Appellant {’s] breach of fiduciary duty (Count 11) and indemnity
(Count V) clains are tort clains arising out of Appellees’
fiduciary relationships with Appellant{]”). As such the court’s

grant of summary judgment based on the Nonrecourse Provision of

* count V of the Complaint alleges that Appellees “are required by
reason of the breaches of fiduciary duties set forth above, to folly and
Gonpietely indennify [Appellant] for any damages. and costs’ (including
reasonable storeys" fees) arising out of Appellant's dispute with Aston.”

 

 

 

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the Agreenent was correct as to Counts II and V relating to
breach of fiduciary duty and indemnification.
xvi,

Because we have concluded that Appellant did not raise
any contentions that implicate “fraud,” a “criminal act,” or
willful misconduct,” we hold that Appellant's fiduciary duty
clains are precluded by the Nonrecourse Provision.” As such we
need not address whether Appellees were subagents, and oved
fiduciary duties to Appellant.

xv.

As to Appellant's issue (3), Appellant argues that,
“[iln relation to the [court's] May 19, 2005 orders, for the sane
reasons set forth above, the [court] should have granted
Appellant's motions for reconsideration and partial sunmary
judgment (based upon judicial estoppel).” For the reasons noted
throughout this opinion the court was ultimately correct in
denying Appellant's motion for reconsideration because Appellees
were entitled to summary judgment on all of Appellant's clains
including its argument concerning judicial estoppel.

xIK.
As to Appellant's issue (4), Appellant argues that

“[s]ince the Appellant's claims are the same as Counts I through

 

% As concluded above, there is a public policy against allowing
parties to contract out of fraud and willful misconduct: Because here,
Appellant dia not produce evidence of frsvd of willfel misconduct in ite
breach of fiduciary claim, it 1s not against publie policy to apply the
Nonrecourse Provision in favor of Appellees.

 

 

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VI except for a contribution claim, the (court) should have
denied Appellees’ motion for partial summary judgment upon the
Appellant's Third-Party Complaint in C2695." The October 19,
2005 order granted summary Judgment in favor of Appellees on the
‘Third-Party Complaint for Count I as to indemnity, Count I1 as to
breach of contract, Count III as to breach of fiductary duty,
Count IV as to miarepresentation, Count V as to nondisclosure,
Count VI as to contribution, and Count VII as to punitive
danages.

With regard to Counts I, III, and VI regarding
indemnity, breach of fiduciary duty, and contribution,
respectively, all three claims arise out of Appellant's alleged
fiduciary duty claims, and for the reasons noted supra, are
subject to the Nonrecourse Provision. With regard to Count VII
as to punitive damages, Appellant does not present a discernable
argument in its opening brief, thus we do not consider this
issue. See supra.”

xx.

Finally, Appellant maintains that “[a]lthough the
[court] granted Appellees’ motions based upon the application of
the Nonrecourse Provision, Appellees made other erroneous

arguments.”

* ith regard to Count II at to breach of contract, Count IV as to
misrepresentation, and Count Vas to nondisclosure, ae these claims are the
Sane as those presented in the Complaint, they are resolved by the discussion
ssunza.

 

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a
9" Decenber

 

First, Appellant states that in “Appell

jum in Support of Motion, Appellens argued that

 

10, 2004 Menor
Appellees’ liability relates to the Agreement and, therefore, is
based upon contract.” However, Appellant responds that “(1}n
relation to Appellant's purchase of the hotel, Appellees made
intentional misrepresentations and intentionally failed to
disclose material facts to Appellant and, as a result Appellees
are personally liable to Appellant.” Appellant cites Restatement
of Agency § 348, “Fraud and Duress,” which states that an agent
can be liable to the injured party even if the tortious conduct
of the agent was done on behalf of the principal.”

On the other hand, Appellees argue that “[wJhile it is

true that an agent may be held individually liable for his own

 

tortious acts, there is an important limitation: the agent must
cause physical harm to the third-party or his property.” First,
Appellees cite Restatement (Second: of Agency § 352 (2006),

In General,”

 

“Agent’s Failure To Perform Duties To Principa!

which states that, “[aJn agent is not liable for harm to @ person
other than his principal because of his failure adequately to
perform his duties to his principal, unless physical ham results |
{rom reliance upon performance of the duties by the acent, or

Restatement (Second) Agency $ 348 (2006) states that “[a}n agent
iho fraudulently makes representations, uses duress, or knowingly assists in
the comission of tortious fraud or duress by his principal or by others is
Subject to Liability in tort to the injured person although the fraud occurs
in 3 transaction on pehalf of the principal.”

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unless the agent has taken control of land or other tangible
things.” (Emphasis added.)

Conment a. of Restatement (Second) of Agency § 352,
states that, “[i]£ a person has a cause of action in tort against
lan agent who has not contracted with him and who holds nothing
for him, it is because the agent has caused him harm by conduct
which is tortious, and not because of the contractual obligations
of the agent to the principal.” The title of Restatenent of
Agency § 352 (Agent's Failure To Perform Duties To Principal)
indicates that this section involves an agent’s duty to the
Principal, whereas Appellant's claim appears to fit the
description quoted above from comment a., i.es, these cases
involving an agent’s tortious conduct directly against @ third
party. Therefore, Restatement (Second) of Agency § 348 better
suits this case, and Appellees’ liability for tort is not limited
to that which causes physical harm. Further, as noted above, the

Nonrecourse Provision would not preclude any of Appellant's

claims of intentional miscondt

 

B,
Second, Appellant argues that “Appellees are personally

liable to Appellant for Appellees’ negligent misrepresentations

 

 

% ay dee reply brief, Appellant argues that the Nonrecourse
Provision ie inspplicable to its tort claims. As discussed, supra,
Aepellent’s tort Claine have no nerst as Appellant failed to present any
evigence thet denonstrated Appellees fraudulently induced Appellant. See
funia. If Appellant hed a valid tort claim, then the Nonrecourse Provision
Sovld not spply in cases of intentional misconduct. See supra. However,
Decasse Appellant has not established a tort claim, this issue is immaterial

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and failures to disclose material facts to Appellant.” This
Jurisdiction has adopted the Restatement (Second) of Torts § 552
addressing the tort of negligent misreprerentstion. See Kohala
Agric. v. Deloitte & Touche, 86 Hawai'i 301, 304, 949 P.2d 141,
144 (App. 1997) (holding that “the tort of negligent
misrepresentation as set forth in the Restatement (Second) of
Torts § 552. . . applies in action against an accountant for
the negligent obtaining and/or communication of information

+ see also Chun v. Park, $1 Haw.

462, 468, 462 P.2d 905, 909 (1969) ("We believe § 552 of

contained in an audit report”

 

Restatement (Second) of Torts . . . is a fair and just
restatement of the law on the issue of negligent
nisrepresentation”). Restatenent (Second) of Torts § 552 (2006)
“information Negligently Supplied For The Guidance Of others,”

states that

fone who in the course of his business or profession supplies
information for the guidance of others in their busines
transactions 2° subject to Iiabitit for harm caused
By thel rellaice upon the iuieraation if
(i) he fails to exercise that care and competence in
Obtaining and conmuniesting the informeson which ste
Fecipient is justified 1
(b) the harm is" suffered
(i) by the person or one of the class of persons for
hose guidance the information was supplied, and
(44) Because of his justifiable reliance upon it’ ina
transaction in which it was intended to
influence his conduct or in 9 transaction
Substantially isentical therewith.

     

them

 

 

Appellant maintains that “substantial evidence exists
that Appellees engaged in intentional and negligent

misrepresentations and nondisclosure.” It states that “Appelle

 

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were to fully disclose . . . to Appellant all information for
Appellant to ‘fairly evaluate’ the Hotel, however Appellees did
not disclose such information to Appellant and, in addition,
Appellees made misrepresentations to Appellant such as the air
conditioning was working fine.” Appellant does not attenpt to
apply the Restatenent standard, or any other standard to
Appellees’ alleged conmission of negligent misrepresentation.
Thus, viewed in a light most favorable to Appellant, Appellant
fails to show that any genuine issue of material fact exists
here.

However, assuming arguendo, there was sufficient
evidence to indicate negligent misrepresentation, such a claim
appears to be covered by the Nonrecourse Provision as negligent
misrepresentation does not fall under any of the exempted
categories of fraud, willful misconduct, or a criminal act.
Therefore, Appellant is precluded from seeking recourse against
Appellees with regard to negligent misrepresentations.

c.

‘Third, Appellant contends that the “As Is” provision,
specifically the first sentence of the Nonrecourse Provision
which states that “{Appellant] acknowledges that the sale of the
Property, including Hotel, is made on an ‘AS-IS’ basis and
without recourse or warranty except those expressly set forth
herein[,1” does not provide Appellees with a defense, (Some

capitalization omitted.) Appellant maintains that “the ‘As Is/

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Provision . . . is expressly subject to the warranties ‘expressly
set forth herein” and “[gliven the warranty of full disclosure
contained in Paragraph 6.16 and under the common law, the “As Ts”
provision . . . does not in any way limit Appellees’ obligation
of full disclosure to Appellant{.]” However, since Appellees do
not appear to raise the “As Is” provision as a defense and do not
respond to this contention in their answering brief, we need not
determine whether the "AS IS” provision could have provided a
defense for Appellees.
D
Fourth, Appellant asserts that because “KSK did not

file a motion for summary judgment to enforce the Nonrecourse
Provision upon Appellant and, on February 10, 2005, . . . filed a
WWo Opposition’ . . . to Appellees’ December 10, 2004 Motion .

= KSK did not seek to enforce the Nonrecourse Provision upon

Appellant." As this is the entirety of Appellant's argument on

 

this point, there is plainty “no discernable argunent in support
of this contention” and we “disregard this claim.” See Bui, 104
Hawai'i at 464, 92 P.3d at 473 (internal quotation marks and
citation omitted). As noted supra, Appellees here seek to hold
Appellant to the Nonrecourse Provision which specifically applies
to and protects them from liability to Appellant as agents of
KSK.

rE.

Finally, in this section, Appellant argues that

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Appellees acted in bad faith, and are therefore liable to
Appellant. However, this court has said that there is no tort of
bad faith outside the context of insurance claims. See doy A.
McElroy, M.D., Inc, v. Marvl Group, Inc., 107 Hawai'i 423, 438,
114 P.3d 929, 944 (App. 2005) (*[T]he Supreme Court expressly
stated that it was unaware of any authority recognizing a
‘tortious bad faith’ cause of action beyond the insurance
context.” (Citing Hokama v. Univ. of Hawai'i, 92 Hawai" 268,
273, 990 P.2d 1150, 1158 (1999).}). Because Appellant's claims
do not arise in the insurance context, Appellant is precluded
from bringing a claim of bad faith.

' xxr.

Accordingly, the November 14, 2005 judgment of the

court is affirmed.

Gienn K. Sato for plaintset/ Ufo —
Gefenaese/thicd’parey
Pleunes¢®-oppeliont StmQeihas

Laeroc Waikiki Parkside, LLC.

Lissa H. Anavews and Ba ad raar oro. '

Devon Peterson (Rush Moore

ILP) for defendants/third~ —
part defendancs-oppeliecs Got
Say co icon, Fred Teuesa,

and Gienn hekemurs Yrere dtgs n+ |

6