Opinion ID: 2633607
Heading Depth: 2
Heading Rank: 1

Heading: Owners' Cross-Appeal

Text: Normally, pursuant to the American Rule, each party is responsible for paying for his or her own litigation expenses. This general rule, however, is subject to a number of exceptions: attorney's fees are chargeable against the opposing party when so authorized by statute, rule of court, agreement, stipulation, or precedent. Lee v. Aiu, 85 Hawai`i 19, 32, 936 P.2d 655, 668 (1997) (citations omitted). Owners assert that they are entitled to an award of attorneys' fees and costs pursuant to the following three exceptions: (1) Rule 11 as [808 Development]'s filing of its lien application was frivolous, wholly lacking in any factual or legal support; (2) HRS § 607-14 as the prevailing party; and (3) HRS § 607-14.5 [16] as against frivolous claims.
HRCP Rule 11 provides in pertinent part: (b) Representations to court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a pleadings, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances: (1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation; (2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; (3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and (4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief. (c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation. (Italics in original.) (Underscored emphases added.) Owners maintain that 808 Development's lien application was frivolous[,] wholly lacking in any factual or legal support. Owners argue that 808 Development violated HRCP Rule 11 for the following reasons: (1) 808 Development was allowed months of extra time to hunt for a signed written [bond and lien] disclosure and failed to provide it at the hearing; (2) when confronted with the ICA's holding in Hiraga, it failed to address it in its reply; (3) when confronted with the express statutory requirements of HRS § 444-25.5 at the March 2, 2004 hearing, 808 Development's counsel claimed that he knew where written bonding and lien rights disclosures signed by [Owners] could be found, yet he failed to produce them; and (4) 808 Development LLC is no longer operating and is merely a shell[;] [t]hus, unless Rule 11 sanctions are issued, 808 [Development] and its counsel will escape any consequences for [their] litigation abuse. 808 Development denies that its lien application was frivolous and argues that it did not violate the specific conditions upon which sanctions can be ordered pursuant to Rule 11(b). 808 Development argues that the unproduced amended contract did not demonstrate its failure to conduct reasonable investigation because (1) it had an unsigned copy of the agreement and (2) Sakatani (the owner of 808 Development) averred under penalty of perjury that an executed copy of the amended contract existed. Additionally, 808 Development contends that the absence of a signed amended contract does not render the entire lien application frivolous. In adopting the abuse of discretion standard for appellate review of Rule 11 sanctions, this court noted that: First, as the Supreme Court noted in Cooter & Gell, a Rule 11 inquiry is heavily fact-intensive, requiring careful consideration of the particular circumstances of each case, and involving questions of reasonableness, credibility and, often, motive. 496 U.S. [384] at 401-02, 110 S.Ct. [2447] at 2459[, 110 L.Ed.2d 359 (1990)]. Because the [circuit] court is better positioned than an appellate court to marshall and weigh the pertinent facts, its determinations are due a substantial degree of deference. Cf. Coll v. McCarthy, 72 Haw.[20] at 28, 804 P.2d [881] at 886 [1991] (Where the court's conclusions are dependent upon the facts and circumstances of each individual case, the clearly erroneous standard of review applies.). Second, we think Rule 11's mandate that attorneys and parties litigate responsibly and in good faith will be furthered by a unitary abuse of discretion standard of review. Deployed on the front lines of litigation, the [circuit] court is best acquainted with the local bar's litigation practices and thus best situated to determine when a sanction is warranted to serve Rule 11's goal of specific and general deterrence. Id., 496 U.S. at 404, 110 S.Ct. at 2460. Abuse of discretion review is better suited than de novo review as a means of ensuring that [circuit] courts' Rule 11 determinations will have real teeth, thereby enhanc[ing] these courts' ability to control the litigants before them. Id. Matter of Hawaiian Flour Mills, Inc., 76 Hawai`i 1, 15-16, 868 P.2d 419, 433-34 (1994). As previously mentioned, the probable cause hearing was scheduled for a little over one month after service of the lien application, i.e., forty days. Thus, Owners' suggestion that 808 Development had  months of extra time to search for the purported amended contract is somewhat exaggerated. In addition, the circuit court denied Owners' motion for Rule 11 sanctions based on its finding that 808 Development had argued for a good faith extension of the law set forth in Hiraga. In addition, 808 Development's failure to discuss Hiraga does not render its arguments frivolous because Hiraga promotes strict adherence to the requirements of the relevant statutes as they relate to a lien application, whereas 808 Development's arguments centered on why the court should exempt it from the strict statutory requirements. Moreover, 808 Development took the position that Owners did not need the required notice and disclosures because of their sophistication and knowledge of lien and bonding issues. Thus, 808 Development's failure to produce the amended contract does not render its arguments frivolous as they were not premised on the existence of the purported amended contract. Lastly, there is nothing in the record to suggest that the circuit court clearly exceeded the bounds of reason in refusing to sanction 808 Development. Accordingly, we hold that the circuit court did not err in denying Owners' Rule 11 motion.
Owners contend that HRS § 607-14 provides another statutory mechanism for reimbursing victims of frivolous lawsuits as `prevailing parties' where the underlying dispute is in the nature of an assumpsit claim. (Emphasis in original.) They argue that the action is an assumpsit claim because 808 Development filed a claim in an attempt to secure and to enforce payment of an alleged contractual debt, by obtaining a secured position, as the first step in its recovery of damages. 808 Development responds that [a]n application for a mechanic's lien is not an action in the nature of assumpsit, but rather is a creature of the mechanic's lien statute which must be strictly construed. It argues that the circuit court properly denied an award of attorneys' fees because Owners brought their claim for attorneys' fees under the assumpsit statute, HRS § 607-14, not the mechanic's lien statute, HRS § 507-47 (1993). [17] 808 Development further asserted that Owners were not entitled to bring their claims under HRS § 507-47 because that statute provides for an award of attorneys' fees only for actions for  foreclosure of a mechanic's lien filed in circuit court and not for mere application of a mechanic's lien. (Emphases in original.) As previously quoted, HRS § 607-14 provides in pertinent part: Attorney's fees in actions in the nature of assumpsit, etc. In all the courts, in all actions in the nature of assumpsit and in all actions on a promissory note or other contract in writing that provides for an attorney's fee, there shall be taxed as attorneys' fees, to be paid by the losing party and to be included in the sum for which execution may issue, a fee that the court determines to be reasonable[.] (Emphasis in original.) Assumpsit is a common law form of action which allows for the recovery of damages for non-performance of a contract, either express or implied, written or verbal, as well as quasi contractual obligations. Blair v. Ing, 96 Hawai`i 327, 332, 31 P.3d 184, 189 (2001) (citation, internal quotation marks, and brackets omitted) (emphasis added). Here, the lien application was brought pursuant to the mechanic's lien statute and, as such, is not a common law action. Moreover, the action was for the attachment of a mechanic's lien to the subject property, not for damages based upon the underlying contract. Therefore, the action was not in the nature of assumpsit; consequently, the circuit court did not abuse its discretion in denying Owners' motion for attorneys' fees pursuant to HRS § 607-14.
Owners contend that HRS § 607-14.5 provides a third basis for an award of attorneys' fees where claims made by the other party are frivolous and not reasonably supported by the facts and the law. Owners disagree with the circuit court's finding that 808 Development made a good faith argument for an extension, modification or reversal of existing law and argues that the finding does not immunize 808 Development from the application of HRS § 607-14.5 because no such argument as to [ Hiraga ] was made by 808 [Development] until after the lower court announced its inclination at the March 2, 2004[ ] hearing, and even then the lower court was merely told that [808 Development's] counsel needed more time to subpoena a signed copy of the so-called amended construction contract[.] 808 Development counters that Owners' claim for an award of attorneys' fees and costs pursuant to HRS § 607-14.5 should be disregarded because it was not first challenged in the circuit court. Specifically, 808 Development contends that: In their July 30, 2004 Motion for Reconsideration, [Owners] contended they had a statutory right to assumpsit fees and costs as the prevailing parties in this case, pursuant to [HRS § 607-14]. [Owners] made no request for attorneys' fees and costs. In their Motion for Attorneys' Fees filed on the same day, [Owners] moved for recovery of attorneys' fees and cost according to the assumpsit statute, Section 607-14, with no request for attorneys' fees and costs pursuant to HRS § 607-14.5. 808 Development argues in the alternative that its claims were not frivolous but were made in good faith. 808 Development's contentions accurately describe the nature of Owners' claims for attorneys' fees under HRS § 607-14.5. At no time did Owners file a claim for attorneys' fees under that section; they fail to indicate in their opening brief where the argument was brought to the attention of the circuit court. We, therefore, decline to consider Owners' argument with respect to HRS § 607-14.5. See HRAP Rule 28(b)(4) (2004).