Court Opinion

ID: 9941682
Source: CourtListenerOpinion
Date Created: 2024-02-16 18:05:18.638307+00
Date Added: 2024-06-11T13:46:53.243593
License: Public Domain

NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER

                                             Electronically Filed
                                             Intermediate Court of Appeals
                                             CAAP-XX-XXXXXXX
                                             16-FEB-2024
                                             07:49 AM
                                             Dkt. 77 SO

             NOS. CAAP-XX-XXXXXXX AND CAAP-XX-XXXXXXX

               IN THE INTERMEDIATE COURT OF APPEALS
                        OF THE STATE OF HAWAI#I

     NEW BANGKOK, INC. DBA PATTAYA THAI, Plaintiff-Appellee,
                                  v.
 GLENN K.C. HO AND OHK SOOK HO, CO-TRUSTEES OF THE GLENN K.C. HO
 REVOCABLE LIVING TRUST DATED APRIL 4, 2003 AND THE OHK SOOK HO
            REVOCABLE LIVING TRUST DATED APRIL 4, 2003,
                       Defendants-Appellants,
                                 and
   JOHN DOES 1-10; JANE DOES 1-10; DOE CORPORATIONS 1-10; DOE
        PARTNERSHIPS 1-10; AND DOE TRUSTS 1-10, Defendants

       APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
                    (CIVIL NO. 1CC181001575)

                    SUMMARY DISPOSITION ORDER
  (By: Leonard, Acting Chief Judge, Nakasone and Guidry, JJ.)

          In these consolidated appeals, Defendants-Appellants

Glenn K.C. Ho and Ohk Sook Ho (Mrs. Ho), Co-Trustees of the Glenn

K.C. Ho Revocable Living Trust Dated April 4, 2003 and the Ohk

Sook Ho Revocable Living Trust Dated April 4, 2003 (together, the

Hos) appeal from the:    (1) July 10, 2019 Order Denying [the Hos']

Motion to Set Aside Entry of Default, Filed on December 12, 2018

and Entry of Default Judgment Ordered April 10, 2019 (Order

Denying Set Aside); and (2) October 25, 2019 Order Granting
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Plaintiff New Bangkok, Inc. dba Pattaya Thai's [(New Bangkok's)]

Motion for Award of Attorneys' Fees and Costs Incurred in

Defending Against [the Hos'] Motion to Set Aside Entry of

Default, filed on December 12, 2018 and Entry of Default Judgment

Ordered April 10, 2019 (Order Granting Fees and Costs), both

entered by the Circuit Court of the First Circuit (Circuit

Court).1    The Hos also challenge the First Amended Default

Judgment and Order entered (upon remand) on May 1, 2020 (Default

Judgment).

             In CAAP-XX-XXXXXXX, the Hos raise a single point of

error, contending the Circuit Court abused its discretion in

denying their motion to set aside the default and the Default

Judgment.     In CAAP-XX-XXXXXXX, the Hos raise a single point of

error, challenging the Order Granting Fees and Costs on various

alternative grounds.

             Upon careful review of the record and the briefs

submitted by the parties, and having given due consideration to

the arguments advanced and the issues raised by the parties, we

resolve the Hos' points of error as follows:

             (1)   At the time that the Circuit Court decided the

Hos' motion to set aside the default and the default judgment,

the three-prong test set forth in BDM, Inc. v. Sageco, Inc., 57

Haw. 73, 77, 549 P.2d 1147, 1150 (1976), abrogated prospectively

by Chen v. Mah, 146 Hawai#i 157, 457 P.3d 796 (2020), applied to

a determination of whether to set aside a default.        Pursuant to

the BDM test, a motion to set aside default should be granted

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             The Honorable James S. Kawashima presided.

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whenever the court finds: "(1) that the nondefaulting party will

not be prejudiced by the reopening; (2) that the defaulting party

has a meritorious defense; and (3) that the default was not the

result of inexcusable neglect or a wilful act."           Id. (citation

omitted).    Each of the BDM three factors are grounded in equity

principles, and a merits-oriented outcome is favored over

preserving the finality of a judgment.           See J.K. v. D.K., 153

Hawai#i 268, 274-75, 533 P.3d 1215, 1221-22 (2023).

            Here, the Circuit Court made the following findings of
fact and conclusions of law in the Order Denying Set Aside:
                             FINDINGS OF FACT
            1.   The Court takes judicial notice of the records and
                 files herein;

            2.   Defendants were afforded and declined the opportunity
                 to engage in arbitration with Plaintiff; and
            3.   New owners are in possession of the real property that
                 was the subject of the lease at issue in this action.

                            CONCLUSIONS OF LAW

            1.   Due to the ownership change referenced supra, and the
                 potential changes or alterations to the real property
                 at issue, the Court cannot find that no prejudice will
                 be suffered by Plaintiff if the default judgment is
                 vacated in this case;

            2.   The defense of arbitration is a jurisdictional
                 challenge that would require vacatur of default
                 judgment, and the Court does not find that vacatur is
                 warranted; and

            3.   Defendant has failed to establish excusable neglect.

            We first address the issue of prejudice.         It is

undisputed that on September 7, 2018, the Hos notified New

Bangkok that the subject property was being sold, and on October

2, 2018, a deed was recorded conveying the property to a third

party.   New Bangkok filed its Complaint on October 3, 2018, the

day after the property was conveyed.        Because ownership of the

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property was already transferred, the setting aside of the

Default Judgment would not have created any problems of proof or

prejudice for New Bangkok that did not already exist at the time

that New Bangkok filed its Complaint.     "The mere fact that the

nondefaulting party will be required to prove [its] case without

the inhibiting effect of the default upon the defaulting party

does not constitute prejudice which should prevent a reopening."

BDM, 57 Haw. at 76, 549 P.2d at 1150.

           Next, we consider whether the default was a result of
inexcusable neglect or a wilful act.     In Cnty. of Haw. v. Ala

Loop Homeowners, 123 Hawai#i 391, 424-25, 235 P.3d 1103, 1136-37

(2010) (citation omitted), abrogated on other grounds by Tax

Found. of Haw. v. State, 144 Hawai#i 175, 199, 439 P.3d 127, 151

(2019), the Hawai#i Supreme Court held that a charter school's

failure to hire private counsel to file an answer constituted

excusable neglect, and that the circuit court abused its

discretion in denying the school's motion to set aside the entry

of default.   The charter school had tendered the defense of the

complaint to the attorney general, but default was entered before

an agreement was reached with the attorney general for

representation.   Id. at 424, 235 P.3d at 1136-37.     The supreme

court noted that the school had not simply ignored the complaint,

but had made an effort to obtain representation through the

attorney general, and there was no lengthy delay between the

entry of default and the filing of the motion to set aside the

default.   Id. at 423-24, 235 P.3d at 1135-36.

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           Here, the Hos similarly made an effort to secure

representation, and when they learned that default judgment had

been entered, and were unable to reach the attorney, secured

other counsel to file the motion to set aside default judgment.

Mrs. Ho avered that after she and her husband were served with

New Bangkok's First Amended Complaint, they consulted with their

long-term attorney Vernon Tashima, who "referred us to Craig

Furusho, Esq. to handle the litigation.     I understood from Mr.

Furusho that he had obtained an extension to answer the
complaint.   With the understanding that Mr. Furusho was retained

to represent our interests I waited for communications from him

on the status."   Around April 10, 2019, Mrs. Ho learned that New

Bangkok had obtained a default judgment and retained other

counsel to file the motion to set aside the default judgment

after she was unable to reach Mr. Furusho.     The Hos' May 8, 2019

motion to set aside the default judgment was filed less than one

month after the order granting default judgment was entered and

two days after the (original) default judgment was entered.       In

light of, inter alia, Ala Loop Homeowners and the short period of

time between the entry of the default judgment and the Hos'

motion to set aside, we conclude that the Circuit Court clearly

erred in concluding that the Hos failed to establish excusable

neglect.

           Finally, we consider whether the Hos had a potentially

meritorious defense.   "Determining whether a defense is

potentially meritorious, requires an evaluation of the possible,

rather than probable, effect of the defense on the decision

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maker."    Briones v. State, 74 Haw. 442, 464, 848 P.2d 966, 977

(1993) (footnote omitted).       "All that is necessary to satisfy the

'meritorious defense' requirement is to allege sufficient facts

that, if true, would constitute a defense[.]           U.S. v. Aguilar,

782 F.3d 1101, 1107 (9th Cir. 2015) (citation omitted).

            Here, the Hos raised various defenses including that

the Lease upon which New Bangkok's Amended Complaint relied was

already terminated.      In support of their motion to set aside, the

Hos pointed to various provisions of the Lease and the
declaration of Mrs. Ho supporting their defensive argument that

the Lease expired by its terms on July 31, 2017, and that if New

Bangkok wanted to extend the Lease, it was required to provide a

written notice, which it did not.         Under the applicable standard,

we conclude that the Circuit Court clearly erred in failing to

find that the Hos had a potentially meritorious defense.2

            In light of the above, we conclude that the Circuit

Court abused its discretion in entering the Order Denying Set

Aside.

            (2) The Hos challenge the Order Granting Fees and Costs

on various alternative grounds, including on grounds that the

Circuit Court abused its discretion in awarding fees and costs to

New Bangkok in light of the Circuit Court's abuse of discretion

in entering the Order Denying Set Aside.          This argument has

merit.    The Order Granting Fees and Costs will be vacated,

      2
            We decline to address the other defenses raised in the Hos' motion
to set aside the default judgment.

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without prejudice to a new request for attorneys' fees and costs

after completion of further proceedings in the Circuit Court.

          For these reasons, the Circuit Court's July 10, 2019

Order Denying Set Aside, October 25, 2019 Order Granting Fees and

Costs, and May 1, 2020 Default Judgment are vacated.      This case

is remanded to the Circuit Court for further proceedings

consistent with this Summary Disposition Order.

          DATED: Honolulu, Hawai#i, February 16, 2024.

On the briefs:                        /s/ Katherine G. Leonard
                                      Acting Chief Judge
John S. Rhee,
Madisson L. Heinze,                   /s/ Karen T. Nakasone
(Dentons US LLP),                     Associate Judge
for Defendants-Appellants.
                                      /s/ Kimberly T. Guidry
Brian W. Tilker,                      Associate Judge
H. Shan Wirt,
Erik A. Rask,
(Torkildson Katz Hetherington
 Harris & Knorek),
for Plaintiff-Appellee.

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