Court Opinion

ID: 4238539
Source: CourtListenerOpinion
Date Created: 2018-01-23 19:09:33.797997+00
Date Added: 2024-06-11T14:42:34.138743
License: Public Domain

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                                                              Electronically Filed
                                                              Supreme Court
                                                              SCWC-14-0000916
                                                              23-JAN-2018
                                                              08:03 AM

           IN THE SUPREME COURT OF THE STATE OF HAWAI#I

                                 ---o0o---

      FLORENCIO E. DELA CRUZ, ANASTACIA A. DELA CRUZ, and
    JENNIFER M. RESPECIO, Petitioners/Plaintiffs-Appellants,

                                    vs.

    IRENE B. QUEMADO, MARVIN QUEMADO, JR., and BRYAN T. HIGA,
                Respondents/Defendants-Appellees.

                            SCWC-14-0000916

         CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
              (CAAP-14-0000916; CIV. NO. 08-1-1089)

                            JANUARY 23, 2018

 RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

             OPINION OF THE COURT BY RECKTENWALD, C.J.

                            I.   Introduction

          While this case concerns civil claims arising from an

armed robbery, our decision focuses on the circuit court’s entry

of default and subsequent decisions regarding the default.
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             On the afternoon of June 1, 2006, jewelry business

owners Florencio Dela Cruz and Anastacia Dela Cruz (“the Dela

Cruzes”) were robbed at gunpoint by Marvin Quemado, Jr.

(“Marvin”), and Bryan Higa (“Higa”).         Marvin and Higa were

indicted in federal court and pled guilty to conspiracy to commit

robbery, robbery, and using and carrying a firearm during and in

relation to the robbery.

             In May 2008, the Dela Cruzes and their daughter,

Jennifer Respecio (together, “Petitioners”), filed a civil suit

against Irene Quemado (“Irene”), Marvin’s mother, alleging that

Irene was negligent because she invited the Dela Cruzes to her

home and exposed her son Marvin to the Dela Cruzes’ valuable

jewelry.1    Petitioners contended that Irene’s actions

unreasonably increased the risk that Marvin would rob the Dela

Cruzes.     Petitioners argued that, based on Marvin’s history of

drug abuse and felony convictions for possession and promotion of

drugs, Marvin’s actions were foreseeable, and thus, Irene had a

duty to control Marvin’s conduct to prevent “foreseeable harm.”

             Irene answered, and the case proceeded in litigation

for a number of years.      However, after Irene and her attorney

failed to appear at a scheduled settlement conference in February

      1
            Although Petitioners also brought claims against Marvin and Higa,
only issues related to the negligence claim against Irene are before this
court.

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2013, the Circuit Court of the First Circuit entered default

against Irene.2    Irene moved for reconsideration of the entry of

default and to set aside the entry of default, and the circuit

court denied both motions.

            Petitioners moved for entry of default judgment against

Irene.   Although the circuit court had entered the default

against Irene, and denied her motion to set aside the entry of

default, it denied Petitioners’ motion for entry of default

judgment.    In the order denying Petitioners’ motion to enter

default judgment against Irene, the circuit court also sua sponte

dismissed Petitioners’ claims against Irene with prejudice.

Subsequently, the circuit court entered final judgment against

Petitioners as to their claims against Irene.

            The Intermediate Court of Appeals (ICA) affirmed the

circuit court’s decision denying entry of default judgment, based

on the merits of Petitioners’ negligence case.          Dela Cruz v.

Quemado, 137 Hawai#i 36, 42, 364 P.3d 934, 940 (App. 2015).

            In their application for writ of certiorari,

Petitioners presented questions related to foreseeability and the

standard of evidence used by the ICA.         We accepted certiorari and

requested supplemental briefing on whether the circuit court:

(1) abused its discretion in entering default against Irene, (2)

     2
            The Honorable Karen T. Nakasone presided.

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abused its discretion in not setting aside the entry of default

against Irene, and (3) erred in sua sponte dismissing

Petitioners’ claims and then entering judgment against

Petitioners.

            We hold that the circuit court abused its discretion in

entering default against Irene and in failing to set aside the

entry of default.      We further hold that the circuit court erred

in sua sponte dismissing Petitioners’ claims with prejudice and

entering final judgment against them.          As set forth below, we

therefore vacate and remand the case for further proceedings

consistent with this opinion.

                              II.   Background

A.    Negligence Claim

            On May 30, 2008, Petitioners filed a complaint in

circuit court against Irene Quemado, Marvin Quemado, and Bryan

Higa.3   The following allegations are set forth in the complaint:

            Petitioners Florencio and Anastacia Dela Cruz were the

owners of Flor and Annie Jewelry.          On June 1, 2006, the Dela

Cruzes went to Irene Quemado’s house at Irene’s invitation, to

      3
            In December 2009, the court entered defaults for both Marvin and
Higa, as they both failed to answer the complaint or file any pleadings after
being served. On January 22, 2014, Petitioners moved for entry of default
judgment against Marvin and Higa. On February 12, 2014, the court granted
Petitioners’ motion and entered judgment against Marvin and Higa and required
that they pay damages to Petitioners. The circuit court included its entry of
judgment against Marvin and Higa in its June 6, 2014 final judgment.

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exchange jewelry.    Irene invited her son Marvin to examine and

try on some of the jewelry.      The complaint alleged that Marvin

“had a criminal history of using and promoting illegal drugs,

including felony convictions for possessing and promoting drugs,

and was on parole/probation for his felony drug conviction[.]”

           Marvin examined the jewelry and asked if he could try

on a gold necklace.     Marvin took the necklace upstairs and was

gone for about twenty minutes before Irene went upstairs to check

on him.   According to the complaint, while he was upstairs,

Marvin “conspired and devised a plan” with Higa to rob the Dela

Cruzes of their jewelry.

           The Dela Cruzes left Irene’s house and arrived at their

next appointment at a nearby restaurant, where Higa robbed

Florencio at gunpoint.     Marvin and Higa were later arrested and

indicted in federal court, where they pled guilty to multiple

charges related to the robbery.

           Petitioners contended that Irene was negligent in

exposing Marvin to the jewelry because it unreasonably increased

their risk of harm.     They asserted that Irene knew “or should

have known” about Marvin’s drug use, and that Marvin “had a gun

and associated with violent criminals, such as [Bryan] Higa.”

Thus, they contended that Irene should be held liable because

Marvin’s actions were “foreseeable” given his prior history of

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drug use and felony convictions for possession and promotion of

drugs.

            Irene filed a motion to dismiss the complaint for

failure to state a claim.        She argued that the complaint failed

to allege that she engaged in any of the criminal actions of the

other defendants.      She asserted that she did not know of or

engage in any misconduct, and that her son, Marvin, was over

eighteen years of age at the time of the robbery.

            The circuit court denied Irene’s motion to dismiss in

December 2009.      Throughout 2010 and 2011, the parties

corresponded regarding the applicability of Irene’s insurance

policy to the case.       Petitioners moved for and were granted six

continuances to file their pretrial statement.            Petitioners filed

a pretrial statement in December of 2011, and Irene filed her

pretrial statement on January 18, 2012.           Irene argued, inter

alia, that she had no duty to Petitioners, that she did not

breach any duty, that she did not cause Petitioners’ injury, and

that she was “not liable for the unforeseeable acts of third

parties.”

B.    Default

      1.    Entry of Default

            On February 17, 2012, Petitioners filed a request and

notice for a trial setting status conference.            The trial setting

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status conference was scheduled for March 15, 2012.            A March 14,

2012, minute order provides that “off-by agreement, trial setting

status conference continued to:        4/10/11,4 8:30 am.      Mr. Jones

informed to file an amended notice.”5         The record reflects that

Johnaaron M. Jones, Irene’s attorney, did not file the amended

notice.   Jones did not attend the trial setting status conference

on April 10, 2012.      The court set the dates for a settlement

conference, a trial readiness conference, trial, and motion in

limine deadlines.     The scheduled dates were included in the court

minutes, and the court issued a trial setting status conference

order setting forth the following dates:          the settlement

conference on February 13, 2013, the trial readiness conference

on March 13, 2013, and trial the week of April 8, 2013.

            Irene and Jones failed to appear at the scheduled

settlement conference on February 13, 2013.6          As a sanction for

her failure to appear, the circuit court entered an order of

entry of default against Irene, citing Rules of the Circuit

      4
            The minutes incorrectly state the year as 2011; it should be 2012.
      5
             There is no indication in the record that notice of the date to
which the trial status conference was continued, April 10, 2012, was mailed to
the parties.
      6
            The February 13, 2013, court minutes stated that the court mailed
a copy of the trial setting status conference order to Mr. Jones. The trial
setting status conference order included as an attachment the “Settlement
Conference Guidelines for Jury Trials.” The guidelines provided that failure
to appear at the settlement conference could result in sanctions as provided
in RCCH Rule 12.1(a)(6). The guidelines specified, “If you are a defendant,
failure to comply may result in entry of default against you.”

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Courts of the State of Hawai#i (RCCH) Rule 12.1(a)(6).7             The

February 13, 2013 court minutes state:
           The court took judicial notice of the records and
           files and history of this case and noted the non-
           appearance of Mr. Jones on the Trial Setting Status
           Conference of 4/12/12 where a copy of the TSSC order
           was mailed to him.8

           . . .

           The court also noted the last appearance by Mr. Jones
           was the 1/18/12 filing of Defendant’s pretrial
           statement.

           Court held colloquy with [Petitioners’ counsel] re:
           contacts with Mr. Jones.

           The court further noted no withdrawal was filed by Mr.
           Jones.

           Court finds sanctions under 12.1(6) is appropriate and
           will hold defendant in default . . .

           The circuit court also based its order on its finding

     7
           RCCH Rule 12.1(a)(6) provides in pertinent part:

           The failure of a party or his attorney to appear at a
           scheduled settlement conference, the neglect of a
           party or his attorney to discuss or attempt to
           negotiate a settlement prior to the conference, or the
           failure of a party to have a person authorized to
           settle the case present at the conference shall,
           unless a good cause for such failure or neglect is
           shown, be deemed an undue interference with orderly
           procedures. As sanctions, the court may, in its
           discretion:

           (i) Dismiss the action on its own motion, or on the
           motion of any party or hold a party in default, as the
           case may be;
           (ii) Order a party to pay the opposing party’s
           reasonable expenses and attorneys’ fees;
           (iii) Order a change in the calendar status of the action;
           (iv) Impose any other sanction as may be appropriate.
      8
            The court provided an incorrect date: the trial setting status
conference was held on April 10, 2012, and not April 12, 2012. The April 10,
2012 court minutes do not state that a copy of the trial setting status
conference order was mailed to Mr. Jones.

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that Irene and her attorney had “failed to discuss or attempt to

negotiate a settlement prior to the conference, failed to have a

person authorized to settle the case present at the conference,

and failed to deliver a confidential settlement letter to the

Judge” prior to the conference.        In its order of entry of

default, filed March 6, 2013, the circuit court stated that it

found no good cause for Jones’s “series of failures and neglect.”

In addition to holding Irene in default, the circuit court

ordered her to pay Petitioners’ attorney’s fees in the amount of

$2,074.25.

      2.      Motion for Reconsideration of Entry of Default and
              Motion to Set Aside Default Judgment

              On March 15, 2013, Jones, on Irene’s behalf, filed a

motion to reconsider default judgment9 and awarding of attorney’s

fees.      He argued that he made “[t]he errors in this case,” and

that Irene “should be given an opportunity to litigate her claims

and defenses on the merits.”        Jones attached a declaration in

which he asserted that he did not receive notice of the

settlement conference and did not intentionally attempt to delay

trial.      He declared that in January 2013, he closed his main

office and went into semi-retirement.         He declared that he

      9
            The motion should have sought reconsideration of the entry of
default (not default judgment) because, although the court had entered default
against Irene, as of March 15, 2013, it had not entered a default judgment.

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notified the post office of his change of address and sent out

notice of his new telephone number.         He also declared that he was

just recovering from a long illness.

            The circuit court denied Irene’s motion for

reconsideration, stating, without further explanation, that it

found “good cause” to deny the motion without a hearing.

            Also on March 15, 2013, Irene filed a motion to set

aside “default judgment”10 and the award of attorney’s fees,

arguing that she could meet the requirements for setting aside a

default entry specified in BDM, Inc. v. Sageco, Inc., 57 Haw. 73,

76, 549 P.2d 1147, 1150 (1976).        First, because Petitioners had

filed multiple motions to continue, it would be disingenuous for

them to claim they would be prejudiced by reopening the case when

so little time had passed since the entry of default.             Second,

Irene argued that she had a meritorious defense because she did

not breach a duty of care to Petitioners and was not the cause of

Petitioners’ injuries.      Third, Irene asserted that her attorney

had not received notice of the settlement conference, and

therefore the default was not caused by inexcusable neglect or a

willful act on her part.

            In their opposition to Irene’s motion to set aside,

      10
            Again, the motion should have sought to set aside the entry of
default, not default judgment.

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Petitioners refuted Irene’s arguments.           First, Petitioners argued

that they would be prejudiced by the reopening of the case

because Petitioners had “suffered financially and emotionally

while this case has been prolonged due to Mr. Jones’ inexcusable

neglect.”     Second, Petitioners contended that Irene failed to

prove that she had a meritorious defense.           Third, Petitioners

argued that Irene failed to show that her default was not the

result of inexcusable neglect, asserting that her failure to

attend the settlement conference was part of “a series of

inexcusable neglect, non-response, and neglect of attorney

responsibilities[.]”11

            The circuit court denied Irene’s motion to set aside.

The order also specified that the attorney’s fees portion of the

sanction was to be imposed on Jones.

C.    Motion for Entry of Default Judgment, Dismissal of Remaining
      Claims, and Final Judgment

            In May 2013, Petitioners filed a motion for entry of

default judgment against Irene pursuant to Hawai#i Rules of Civil

Procedure (HRCP) Rule 55(b).12        The court minutes from a

      11
            As to the neglect, Petitioners listed in detail, and provided
exhibits to support, a history of their communication with Jones.
      12
            HRCP Rule 55(b)(2) provides, in relevant part:

            [T]he party entitled to a judgment by default shall
            apply to the court therefor. . . . If the party
            against whom judgment by default is sought has
            appeared in the action, the party (or, if appearing by
                                                                (continued...)

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September 2013 hearing on the motion state that the court “voiced

it’s [sic] concern re: liability” and was “inclined to deny

Plaintiffs’ motion but under [HRCP] Rule 55, the court set a

proof hearing” for October 2013.             The proof hearing was held on

October 18, 2013.        Although Irene and her attorney were present

at the proof hearing, the circuit court prohibited them from

participating in the hearing because Irene was in default.13

Petitioners testified about the events on the day of the robbery

and their claim that Irene should be liable for the conduct of

her son.

              On December 2, 2013, the circuit court entered its

“Findings of Fact [FoF], Conclusions of Law [CoL], and Order

     12
          (...continued)
               representative, the party’s representative) shall be
               served with written notice of the application for
               judgment at least 3 days prior to the hearing on such
               application. If, in order to enable the court to
               enter judgment or to carry it into effect, it is
               necessary to take an account or to determine the
               amount of damages or to establish the truth of any
               averment by evidence or to make an investigation of
               any other matter, the court may conduct such hearings
               or order such references as it deems necessary and
               proper and shall accord a right of trial by jury to
               the parties when and as required by any statute.
     13
              Specifically, the court stated:

              I'm not going to permit you to make any argument or
              any statement but I’ll permit you to state your
              position in like two sentences or less for the record
              just to -- because you are here for Irene Quemado,
              even though she’s been in default, all right, and the
              court has declined your request to set aside the
              default but you may make just a brief position
              statement and that’s it for this hearing.

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Denying [Petitioners’] Motion for Entry of Default Judgment.”

The circuit court found that only Marvin and Higa, and not Irene,

were involved in the robbery.         The court also found a lack of

evidence to establish that Irene participated in the planning or

commission of the robbery and a lack of evidence to impose

liability on Irene for the criminal conduct of Marvin and Higa.

Concluding that there were insufficient factual and legal bases

for imposing liability on Irene, the circuit denied Petitioners’

motion for entry of default judgment.

            In the order, the circuit court also dismissed

Petitioners’ claims against Irene with prejudice.             Subsequently,

the circuit court entered final judgment against Petitioners.

D.    ICA Proceedings

            Petitioners argued in the ICA that the circuit court

erred in denying their motion for default judgment against Irene

“because there were sufficient factual and legal bases” to impose

liability on her for the criminal conduct of Marvin and Higa,

that the trial court erred in concluding that it was not

reasonably foreseeable that Marvin would commit a violent crime

given his history of drug possession and promotion, and that the

circuit court erred in concluding that Irene’s “affirmative

conduct did not create the circumstances that afforded the

opportunity for [] Marvin and [] Bryan to commit the robbery.”

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            The ICA subsequently published its opinion affirming

the circuit court’s orders and judgments.           Dela Cruz, 137 Hawai#i

at 42, 364 P.3d at 940.       The ICA held, “[b]ased on the circuit

court’s undisputed FOFs and viewing the evidence in the light

most favorable to [Petitioners], Marvin’s conduct was not

foreseeable and Irene owed [them] no duty of care to refrain from

exposing Marvin to Florencio and Anastacia’s jewelry.”               Id. at

41-42, 364 P.3d at 939-40.

E.    Application for Writ of Certiorari

            This court accepted Petitioners’ application for writ

of certiorari.      Petitioners argue that the ICA erred in holding

that Marvin’s conduct was not foreseeable, and that it erred by

applying the wrong standard of evidence in reviewing the circuit

court’s denial of Petitioners’ motion for entry of default

judgment.

            Subsequently, this court ordered the parties to submit

supplemental briefing on three questions:
            1.    Whether the circuit court abused its discretion
                  in entering default against Respondent Irene
                  Quemado pursuant to Hawai#i Rules of the Circuit
                  Courts Rule 12.1.

            2.    Whether the circuit court abused its discretion
                  in not setting aside the entry of default
                  against Respondent Irene Quemado. See, e.g.,
                  BDM, Inc. v. Sageco, Inc., 57 Haw. 73, 549 P.2d
1147 (1976); Rearden Family Trust v. Wisenbaker,
                  101 Hawai#i 237, 65 P.3d 1029 (2003).

            3.    Whether the circuit court erred in sua sponte
                  entering judgment against the movant in a

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                  liability hearing held pursuant to Hawai#i
                  Rules of Civil Procedure Rule 55(b)(2).

            Both parties then submitted supplemental briefs.

                        III.    Standards of Review

A.    RCCH Rule 12.1 Sanctions

            “[T]his court . . . reviews an award of [RCCH] Rule

12.1 sanctions under the abuse of discretion standard.”              Canalez

v. Bob’s Appliance Serv. Center, Inc., 89 Hawai#i 292, 300, 972
P.2d 295, 303 (1999).       “A . . . court abuses its discretion

whenever it exceeds the bounds of reason or disregards rules or

principles of law or practice to the substantial detriment of a

party.”    Shanghai Inv. Co., Inc. v. Alteka Co., Ltd., 92 Hawai#i

482, 491-92, 993 P.2d 516, 525-26 (2000) (internal quotation

marks and citations omitted).

B.    Motion to Set Aside

            “Because the denial of [a] motion to set aside []

default [] stems from the exercise of [the trial court’s]

discretion in imposing sanctions under RCCH Rule 12.1, we regard

such a denial as subject to the same review standard of abuse of

discretion.”     Rearden Family Tr. v. Wisenbaker, 101 Hawai#i 237,

254, 65 P.3d 1029, 1046 (2003).

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                               IV.    Discussion

A.    The Circuit Court Abused its Discretion in not Setting Aside
      the Entry of Default Against Irene.

      1.      Jurisdiction

              As an initial matter, we must address jurisdiction.

Petitioners urge that because Irene did not timely file a cross-

appeal, this court does not have jurisdiction to consider whether

the circuit court abused its discretion in entering, and in not

setting aside, the default.          However, the requirement that an

appellee cross-appeal applies only when the appellee seeks to

“attack a judgment . . . with a view either to enlarging his own

right or of lessening the rights of his adversary.”             Shoemaker v.

Takai, 57 Haw. 599, 607, 561 P.2d 1286, 1291 (1977); Zane v.

Liberty Mut. Fire Ins. Co., 115 Hawai#i 60, 73 n.14, 165 P.3d
961, 974 n.14 (2007) (rejecting the argument that the respondent

who prevailed in trial court was required to cross-appeal an

issue raised on appeal by the petitioner).

              Irene was not required to cross-appeal because she was

seeking only to defend the circuit court’s judgment, and not

seeking to modify it.        See Shoemaker, 57 Haw. at 607, 561 P.2d at

1291.      The proceedings in this case were unique in that the

circuit court entered default against Irene and denied her motion

to set aside, but then ultimately held in her favor.              Irene

prevailed on the merits, and thus had no reason to challenge the

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circuit court’s judgment.      See Zane, 115 Hawai#i at 73 n.14, 165
P.3d at 974 n.14.

     2.   Entry of Default Pursuant to RCCH Rule 12.1(a)(6)

          In the circumstances of this case, we conclude that

entry of default imposed as a RCCH Rule 12.1(a)(6) sanction for

failure to attend the settlement conference was an abuse of

discretion.   In reaching this conclusion, we note that the record

does not contain any evidence that Irene herself was aware of the

settlement conference but nevertheless failed to attend.            Thus,

the imposition of the severe sanction of dismissal, without some

opportunity for Irene to provide an explanation, was premature.

Cf. Wisenbaker, 101 Hawai#i at 242, 65 P.3d at 1034 (when

defendant failed to attend a settlement conference, trial court

issued an order to show cause and provided the defendant an

opportunity to explain why default should not be entered); see

also RCCH Rule 12.1(a)(6).      This is particularly so where, as

here, Irene had actually litigated the case for years.

     3.   Failure to Set Aside Default Entered Pursuant to RCCH
          Rule 12.1(a)(6)

          We hold that the circuit court also abused its

discretion in not setting aside the entry of default.            This

holding is based on our precedent in Rearden Family Trust v.

Wisenbaker.   In Wisenbaker, the trial court entered default

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judgment against the defendant as a sanction pursuant to RCCH

Rule 12.1(a)(6) after he failed to appear personally at a

settlement conference.     101 Hawai#i at 243, 65 P.3d at 1035.             The

defendant had requested that the court continue the conference

because he had to care for a family member, and had sent his

attorney to appear on his behalf.        Id. at 241-42, 65 P.3d at

1033-34.   The court denied the defendant’s request and issued an

order to show cause (OSC), requiring the defendant to explain why

default judgment should not be entered against him.           Id. at 242,
65 P.3d at 1034.    When defendant did not appear at the hearing,

the court entered default against him.         Id. at 243, 65 P.3d at

1035.

           The defendant subsequently filed a motion to set aside,

with an accompanying affidavit from his counsel stating that the

defendant had not been properly served and that his counsel had

misunderstood the hearing schedule and, accordingly, did not

inform the defendant of the correct date of the hearing.            Id. at

244, 65 P.3d at 1036.     The court deferred ruling on the motion to

set aside and ordered further settlement negotiations, which

Wisenbaker participated in.      Id. at 245-46, 65 P.3d at 1037-38,

After the parties notified the court that they failed to reach a

settlement, the court summarily denied the defendant’s motion to

set aside the default judgment.       Id. at 246, 65 P.3d at 1038.

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          On appeal, we held that the court abused its discretion

in denying the motion to set aside.        Id. at 254, 65 P.3d at 1046.

We noted that the defendant’s failure to appear at the OSC

hearing may have been an “inadvertent omission” on his part, as

there was confusion as to the date of the OSC hearing.            Id. at

253, 65 P.3d at 1045.

          Moreover, we affirmed that “defaults and default

judgments are not favored and that any doubt should be resolved

in favor of the party seeking relief, so that, in the interests

of justice, there can be a full trial on the merits.”            Id.   We

explained that the court had the ability to “levy lesser

sanctions” for the defendant’s failure to attend the settlement

conference, which “[i]n our view, . . . would [have] better

serve[d] the interest of justice,” and cited with approval to

cases imposing attorney’s fees and monetary sanctions.            Id. at

255, 65 P.3d at 1047.

          We hold that the denial of the motion to set aside the

entry of default against Irene was an abuse of discretion.

Nothing in the record indicates that Irene’s failure to appear at

the settlement conference was intentional.         In Wisenbaker, the

defendant was unaware of the correct date of the OSC hearing, and

this court vacated the judgment in favor of the plaintiff and

instructed that the circuit court grant the motion to set aside

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default, because the defendant’s failure to attend was

inadvertent.   Wisenbaker, 101 Hawai#i at 253, 255, 65 P.3d at

1045, 1047.    Here, similarly, Irene stated that her failures were

due to her attorney not receiving notice of the settlement

conference and therefore being unaware of it.          Irene’s counsel,

Jones, declared that they did not receive notice that the

conference had been scheduled because he had closed his law

office and gone into “semi-retirement.”

           Moreover, the circuit court had the discretion to

impose lesser sanctions for Irene’s failure to appear at the

settlement conference.     Wisenbaker, 101 Hawai#i at 255, 65 P.3d

at 1047.   Here, as part of its order entering default, the

circuit court ordered Jones to pay Plaintiffs’ attorney’s fees

for the settlement conference and for prior attempts to comply

with settlement conference negotiations provisions.           We view the

monetary sanctions imposed against Jones to be a “lesser

sanction” which “better serve[s] the interest of justice.”             See

Wisenbaker, 101 Hawai#i at 255, 65 P.3d at 1047.          As in

Wisenbaker, default in this case was too harsh a sanction,

because it prevented Irene from litigating the merits of the

claim, when the record indicated that her failure to attend the

conference was not intentional.       Accordingly, we find that the

trial court abused its discretion in failing to set aside the

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default.

B.     The Circuit Court Erred When it Dismissed Petitioners’
       Claims and Entered Judgment Against Them.

            In Hupp v. Accessory Distributors, Inc., the ICA

interpreted HRCP Rule 55(b)(2) to provide discretion for courts

to order proof of liability hearings before entering default

judgment.     1 Haw. App. 174, 179-180, 616 P.2d, 233, 236-37 (1980)

(“trial courts must be given leeway in their discretion to

require proof of liability in the support of a default

judgment”).     Hupp held that in such a hearing, the nondefaulting

party must adduce evidence which would be sufficient at trial to

overcome a motion for directed verdict.           Id. at 180, 616 P.2d at

237.

            Here, the court followed the procedure set forth in

Hupp and conducted a proof hearing on liability.             The court

explained in its order denying Petitioners’ motion for entry of

default judgment that it was assessing whether Petitioners met

their prima facie standard of proof under HRCP Rule 55(b)(2).

The court found that there was a lack of evidence to establish

that Irene participated in the crimes against Petitioners, and

that there was a lack of evidence to impose liability on Irene

for the criminal conduct of her son, Marvin, and his friend,

Higa.    Accordingly, the court denied the motion for entry of

default judgment.

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           The court erred, however, when it dismissed the claims

against Irene with prejudice and subsequently entered final

judgment against Petitioners.       When the court found that

Petitioners failed to meet the prima facie standard of proof

under HRCP Rule 55(b)(2), it should have denied Petitioners’

motion for entry of default judgment, and allowed the case to

proceed.

           In re Villegas, 132 B.R. 742, 747 (B.A.P. 9th Cir.

1991), is squarely on point.       In Villegas, following a Federal

Rule of Civil Procedure (FRCP) Rule 55(b)(2) liability hearing,

the bankruptcy court refused to enter default judgment in favor

of the nondefaulting party and entered judgment in favor of the

defaulting party.      Id. at 746.    The Bankruptcy Appellate Panel

of the Ninth Circuit held that the bankruptcy court did not abuse

its discretion in conducting an evidentiary hearing pursuant to

Rule 55(b)(2), and affirmed the refusal to enter default judgment

in favor of the nondefaulting party.        Id.   However, as to entry

of judgment in favor of the defaulting party, it held:
           While a trial court has great discretion in
           considering issues and evidence in a hearing pursuant
           to Rule 55(b)(2), we find no authority that would
           allow a trial court to enter judgment in favor of the
           defaulting party following such a hearing. To enter
           such a judgment against the non-defaulting party
           because of the failure of that party to sustain its
           burden of proof would make the hearing under Rule
           55(b)(2) the same as a trial on the merits. In this
           regard, the appellants were, in essence, forced to
           trial without having the benefit of the procedural
           protection offered by the Federal Rules of Civil

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          Procedure, including the opportunity to conduct
          discovery in accordance with these rules.

Id. at 746-47.

          Thus, the Villegas court vacated the judgment entered

in favor of the defaulting party and remanded the case to allow

the nondefaulting party the opportunity to conduct discovery and

present their case at trial. Id. at 747.

          “[T]he stated purpose for the Villegas rule is to avoid

forcing the non-defaulting party to trial without having the

benefit of the procedural protections offered by the Federal

Rules of Civil Procedure, including the opportunity to conduct

discovery.”   In re Dugger, No. ADV. 08-90002, 2012 WL 2086562, at

*12 (B.A.P. 9th Cir. June 8, 2012).        The Dugger court noted that

it was particularly unjust to enter judgment against the

nondefaulting party when it had not had the opportunity to

conduct discovery, because the defaulting party there had been

sanctioned by the bankruptcy court for its repeated failures to

cooperate with the nondefaulting party’s discovery efforts.              Id.

          Here, the circuit court erred in dismissing

Petitioners’ claims and entering judgment against them.            The

circuit court’s actions “made the hearing under Rule 55(b)(2) the

same as a trial on the merits,” but Petitioners were deprived of

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procedural protections, including the opportunity to conduct full

discovery.14   See Villegas, 132 B.R. at 746-47.

            Instead of dismissing the claims against Irene, the

circuit court should have denied entry of default and allowed the

litigation to proceed, so that additional discovery and motions

could be filed and, if appropriate, a trial conducted.             The

circuit court erred when it dismissed Petitioners’ claims and

entered judgment in favor of Irene.         In future cases, when trial

courts deny a motion for entry of default judgment, the

appropriate subsequent course of action is to set aside the

default, and allow the case to proceed on the merits.

            Finally, we note that the circuit court should not have

prohibited Irene from speaking at the proof hearing.             “‘[E]ntry

of default under RCCH Rule 12.1(a)(6)(i) for failure to follow

settlement conference requirements . . . precludes a defaulted

defendant from contesting liability in any proof hearing held as

a result of the default, although the defaulted defendant may

still contest the amount of its liability.’”           Wisenbaker, 101

Hawai#i at 243 n.13, 65 P.3d at 1035 n.13 (quoting Kam Fui Trust

      14
            In their opposition to the motion to set aside default judgment,
Petitioners argued that they sought to depose Irene, but Jones did not
respond, and they cited Jones’s non-response as a factor contributing to their
motion for enlargement of time to file pretrial statements. Petitioners
argued that they served Irene with a request of production of documents, to
which Jones did not respond. By entering judgment in Irene’s favor, the court
essentially forced Petitioners to trial without the benefit of conducting full
discovery. See Dugger, 2012 WL 2086562, at *12.

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v. Brandhorst, 77 Hawai#i 320, 325, 884 P.2d 383, 388 (App.

1994))(emphasis added); Occidental Underwriters of Hawai#i, Ltd.

v. American Sec. Bank, 5 Haw. App. 431, 433, 696 P.2d 852, 854

(App. 1985) (“[u]pon the entry of default, [defendant] had lost

its standing to contest the fact of its liability . . . but still

had standing to contest the amount of its liability.”).15             Trial

courts must permit parties in default to contest damages at proof

hearings.    See Kamaunu v. Kaaea, 99 Hawai#i 432, 439, 56 P.3d
734, 741 (App. 2002) (ordering trial on sole issue of damages).

                              V.   Conclusion

            For the foregoing reasons, we conclude that the circuit

court erred in entering the default, and erred in refusing to set

aside the entry of default.        The court further erred in

dismissing Petitioners’ claims with prejudice and in entering

judgment against them.      We therefore vacate the ICA’s February 1,

2016 judgment, vacate the circuit court’s June 6, 2014 final

judgment as to Irene,16 vacate the circuit court’s March 5, 2013

order entering default, and vacate the circuit court’s May 17,

      15
            Courts in other jurisdictions similarly hold that a defaulted
party may contest the amount of damages at a liability hearing. See, e.g.,
Bys Inc. v. Smoudi, 228 Ariz. 573, 578, 269 P.3d 1197, 1202 (Ariz. App. 2012)
(holding that a defaulted party may still appear in the action to contest
damages); Burge v. Mid-Continent Cas. Co., 123 N.M. 1, 8, 933 P.2d 210, 217
(N.M. 1996)(holding that a defaulting party only admits to liability, and is
entitled to a hearing on the determination of damages).
      16
            We do not disturb the portions of the June 6, 2014 judgment
entering judgment against Marvin and Higa.

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2013 order denying Irene’s motion to set aside default judgment,

and remand the case for further proceedings consistent with this

opinion.

Joseph P.H. Ahuna, Jr., and              /s/ Mark E. Recktenwald
David K. Ahuna
for petitioners                          /s/ Paula A. Nakayama

Johnaaron Murphy Jones for               /s/ Sabrina S. McKenna
respondent Irene B. Quemado
                                         /s/ Richard W. Pollack

                                         /s/ Michael D. Wilson

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