Opinion ID: 2796489
Heading Depth: 3
Heading Rank: 2

Heading: The Remainder of the Punitive Award

Text: The remaining question is whether Bornemann’s conduct justified a $1,042,857.13 punitive award, which is roughly four 13 Neither Bornemann’s second nor his third argument were raised in his post-trial motion to amend the verdict. 21  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  times as large as the $253,000 compensatory award in this case.14 Based on the presence of several aggravating factors, we conclude that it does.
Fraudulent transfers are a common method of shielding assets from creditors and other individuals with legitimate claims to property.15 There is a considerable incentive to defraud because fraudulent transfers are easy to promulgate but difficult to prove: a fraudulent debtor boasts an apparently valid deed while the defrauded creditor must confront the reality that “the intent to hinder, delay, or defraud creditors is seldom susceptible of direct proof.” Uniform Fraudulent Transfer Act, Prefatory Note at 4 (1984). Further, HRS § 651C-8 (Supp. 1985) limits a defrauded creditor’s actual damages to “the value of the asset transferred . . . or the amount necessary to satisfy the creditor’s claim, whichever is less.”16 In other words, at worst the fraudulent debtor is forced to pay what he or she already 14 Although the ICA vacated the $253,000 special damages award, the $253,000 figure still serves as a fair estimation of the statutory interest damages that accrued as of the date of the third jury’s verdict. 15 Fraudulent transfers have been prevalent throughout the entirety of the American judicial tradition. In 1918, the first uniform act codified the “better” decisions of several states that had applied England’s Statute of 13 Elizabeth. The act was updated in 1984 and subsequently adopted by Hawai#i and 42 other states. See Uniform Fraudulent Transfer Act, Prefatory Note at 4 (1984). 16 The availability of punitive damages is not constrained by HRS § 651C-8 because the UFTA contains a savings clause that provides: “Unless displaced by the provisions of this chapter, the principles of law and equity . . . supplement its provisions.” HRS § 651C-10. 22  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  owed. Without the possibility of significant punitive damages, it would be difficult to deter this conduct. We conclude that a fraudulent transfer promulgated with the intent required to impose punitive damages justifies a punitive award at a 2:1 ratio to the actual damages suffered by the plaintiff.17 This amount is supported by comparison to “the civil or criminal penalties that could be imposed for comparable misconduct.” BMW, 517 U.S. at 583. The Hawai#i legislature has declared that treble damages (i.e. a 2:1 ratio) are an appropriate sanction for unfair, deceptive, or fraudulent acts committed in the course of commerce. See HRS § 480-13(b)(1) (Supp. 2005) (punishing deceptive practices with the greater of “threefold damages” or “$1,000” in addition to “reasonable attorney’s fees” and the “costs of suit”). In this case, Bornemann’s decision to sign confirmatory quitclaim deeds immediately after he was served as a defendant in the Kekonas’ fraudulent transfer lawsuit illustrates an intentional decision to hinder the Kekonas’ attempt to collect a legitimate debt. See BMW, 517 U.S. at 576 (“[I]nfliction of economic injury, especially when done intentionally through affirmative acts of misconduct or when the target is financially vulnerable, can warrant a substantial penalty.” (internal citation omitted)). The third jury was justified in imposing 17 This results in an award of treble damages once the compensatory and punitive awards are combined. 23  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  $506,000 in punitive damages against Bornemann based solely on his decision to participate in a fraudulent transfer “with such malice as implies a spirit of mischief or criminal indifference to civil obligations.” Masaki, 71 Haw. at 16-17, 780 P.2d at 575.
The Hawai#i legislature has repeatedly declined to cap punitive damages at treble damages. See Denise E. Antolini, Punitive Damages in Rhetoric and Reality: An Integrated Empirical Analysis of Punitive Damages Judgments in Hawai#i, 1985-2001, 20 J.L. & Pol’y 143, 189-207 (Spring 2004) (explaining that the Hawai#i legislature declined to enact proposed bills that would have capped punitive damages at either twice or three times the compensatory award in 1991, 1993, 1996, 1997, 1998, 1999, and 2001). Accordingly, higher ratios of damages may be imposed to punish and deter aggravated misconduct. In this case, the remaining $536,857.13 of the punitive damages award is supported by the presence of several aggravating factors. First, Bornemann engaged in a pattern of repeated conduct with knowledge that his actions would cause substantial civil harm to the Kekonas. See BMW, 517 U.S. at 576 (“[E]vidence that a defendant has repeatedly engaged in prohibited conduct while knowing or suspecting that it was unlawful would provide relevant support for an argument that strong medicine is required 24  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  to cure the defendant’s disrespect for the law.”). Evidence at trial suggested that in addition to executing multiple fraudulent deeds to the Kâne#ohe property, Bornemann took a mortgage on a substantial portion of Abastillas and Smith’s personal property, signed a blank promissory note, filed fraudulent tax returns, accepted “pass-through” rent payments, filed a “sham” lawsuit, and attempted to drain the Kâne#ohe property of equity by allowing it to fall into foreclosure, all so that the Kekonas would be unable to collect on their original judgment. Indeed, the majority of these actions occurred after Bornemann had received and read the Kekonas’ fraudulent transfer lawsuit. Second, Bornemann harmed an elderly and financially vulnerable couple. See BMW, 517 U.S. at 576, 588 (characterizing conduct that targets elderly or financially vulnerable individuals as “the most serious”); Campbell v. State Farm Mut. Auto. Ins. Co., 98 P.3d 409, 418 (Utah 2004) (holding that financial misconduct by an insurer that targeted a financially and emotionally vulnerable family warranted punitive damages at a 9:1 ratio) cert denied, 543 U.S. 874 (2004); cf. HRS § 48013(b)(1) (providing a damages enhancement for elderly plaintiffs victimized by deceptive practices); HRS § 480-13.5 (providing additional civil penalties of up to $10,000 per deceptive act against an elder). Bornemann’s misconduct occurred in the immediate wake of intense litigation wherein the Kekonas incurred 25  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  substantial litigation fees and costs. The evidence suggests that the defendants saw the Kekonas’ unique vulnerability and sought to exploit it. Because of Bornemann’s participation in the fraudulent transfer of the Kâne#ohe property, the elderly Kekonas could not collect on their judgment and had to sign over their three-bedroom retirement home on the island of Hawai#i to their original attorney. Mr. Kekona died during the pendency of litigation without collecting anything on the original judgment and with his retirement plans greatly disrupted. The Kekonas were forced to consign years of their retirement to full-scale litigation in order to recover amounts that they were legitimately owed. Considered in its entirety, the record supports the punitive damages awarded by the third jury. Six hundred thousand dollars of the award is justified as compensation for the Kekonas’ attorney’s fees and costs. Five hundred and six thousand dollars of the award is justified as a means to deter and punish Bornemann’s intentional participation in a fraudulent transfer. The remainder is justified as a means to punish aggravated misconduct that included targeting an elderly and financially vulnerable couple, and engaging in repeated unlawful conduct with knowledge of the civil harm that conduct created. In sum, we are left with the firm belief that $1,642,857.13 reflects “[t]he degree of malice, oppression, or gross negligence 26  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  which forms the basis for the award and the amount of money required to punish the defendant.” Kang, 59 Haw. at 663, 578 P.2d at 293 (citation and quotation marks omitted). C. The Punitive Damages Award Survives Federal Due Process Review Although “States possess discretion over the imposition of punitive damages, it is well established that there are procedural and substantive constitutional limitations on these awards.” State Farm, 538 U.S. at 416. “The Due Process Clause of the Fourteenth Amendment prohibits a State from imposing a ‘grossly excessive’ punishment on a tortfeasor.” BMW, 517 U.S. at 562. “Elementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him [or her] to punishment, but also of the severity of the penalty that a State may impose.” Id. at 574. “To the extent an award is grossly excessive, it furthers no legitimate purpose and constitutes an arbitrary deprivation of property.” State Farm, 538 U.S. at 417. Federal due process review is de novo, Cooper Indus., 532 U.S. at 435, and is based on three guideposts: (1) the degree of reprehensibility of the defendant’s conduct; (2) the ratio of the punitive damages award to the harm suffered by the plaintiff; and (3) a comparison to the civil penalties authorized or imposed in comparable cases. See BMW, 517 U.S. at 575. Given that these guideposts were considered at length in our state law analysis, 27  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  and mindful of the de novo standard required by the Supreme Court, we conclude that the punitive damages awarded by the third jury did not violate Bornemann’s federal due process rights.