One Kalakaua Senior Living Association v. Clay ( 2023 )

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Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
26-MAY-2023
07:46 AM
Dkt. 80 MO
NO. CAAP-XX-XXXXXXX
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI‘I
ONE KALAKAUA SENIOR LIVING ASSOCIATION,
a Hawaii non-profit corporation, Plaintiff-Appellee, v.
ALICE CLAY, Defendant-Appellant, and
HAWAI‘I STATE DEPARTMENT OF HEALTH, Defendant-Appellee, and
DOES 1-10, Defendants.
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
(CIVIL NO. 1CC16-1-000229)
MEMORANDUM OPINION
(By: Leonard, Presiding Judge, Wadsworth and McCullen, JJ.)
Defendant-Appellant Alice Clay (Clay) appeals from the
Circuit Court of the First Circuit's: (1) December 19, 2016
order granting Plaintiff-Appellee One Kalakaua Senior Living
Association's (Association) motion for partial summary judgment
as to Count I; (2) December 19, 2016 order denying Clay's motion
for leave to file a counterclaim; (3) June 28, 2017 order
granting Association's motion for partial summary judgment as to
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Count III; and (4) June 28, 2017 final judgment, which was
amended on November 15, 2017. 1 Based on the discussion below, we
affirm in part and vacate in part.
I. BACKGROUND
Clay has been a resident and owner at One Kalakaua
Senior Living Condominium Project (One Kalakaua) since 1997.
The background in this case spans over two decades and involves
a long-standing dispute between Clay and Association over One
Kalakaua's operation as an assisted living facility. Because
they are central to this appeal, we begin with One Kalakaua's
governing documents.
A. One Kalakaua's Governing Documents
1. Declaration
In 1995, One Kalakaua's Declaration (Declaration) was
recorded with the Bureau of Conveyances, describing the project
as "a single monolithic building consisting of 14 floors" and
the "entire second floor is a skilled nursing facility
consisting of beds, patient lounge, recreation and dining area,
physical therapy room, beauty shop, nurses station and
administrative area, lobby and waiting area." (Declaration,
1 The Honorable Karen T. Nakasone presided over the December 19, 2016
orders, and the Honorable Keith K. Hiraoka presided over the June 28, 2017
order and final judgment, and the November 15, 2017 amended final judgment.
We note that Clay's opening brief does not comply with the Hawai‘i Rules of
Appellate Procedure (HRAP) Rule 28(b)(4).
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Article 5.0, 5.1(d)). The third to fourteenth floors have
apartments, elevators, a lobby, corridors, mechanical and
electrical rooms, and a trash chute. (Declaration, Article
5.1(e)).
The common elements of One Kalakaua include the
"skilled nursing facility, patient lounge, recreation and dining
area, physical therapy room, beauty shop, nurses station and
administrative area [that] are located on the second floor."
(Declaration, Article 6.4(b)). "Each apartment shall have
appurtenant thereto the following undivided interest in all the
common elements of the Project for determination of the common
profits, expenses, voting and for all other purposes."
(Declaration, Article 7.0).
The Declaration vested the administration of One
Kalakaua in Association. (Declaration, Article 11.0). "The
purpose of this Association is to provide a means for the
governance of the Project as a senior living facility, providing
such services and amenities as the Association may from time to
time deem appropriate in furtherance of such purpose."
(Declaration, Article 11.1(b)).
"The One Kalakaua Club is that part of the Association
which provides services and amenities through the facilities to
the owners and occupants of the apartments in the Project."
(Declaration, Article 11.5). Available to the owner as part of
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the common expense are meals, the wellness program, arts and
crafts program, recreational program, and other social programs.
(Declaration, Article 11.5(a)). Available to the owner through
One Kalakaua Club upon request and purchase are the beauty
salon, the skilled nursing facility, and "[o]ther services or
uses that are offered." (Declaration, Article 11.5(b))
(emphasis added).
The Declaration also requires that
[a]ll apartment owners . . . shall be bound by and comply
strictly with the provisions of this Declaration, the By
Laws of the Association and all agreements, decisions, and
determinations of the Association duly and lawfully made or
amended from time to time, and failure to comply with any
of same shall be grounds for an action to recover sums due,
for damages or injunctive relief, or both[.]
(Declaration, Article 14.0).
The Declaration defines "Act" as "the provisions of
Chapter 514A, Hawaii Revised Statutes [(HRS)], as the same may
be amended from time to time." 2 (Declaration, Article 1.0(a)).
The Declaration provides for "Compliance with Laws" and that
"[i]n the event of conflict the Act shall prevail over the
Hawaii Nonprofit Corporation Act and an owner shall not excuse
2 In 2017, the legislature repealed HRS chapter 514A and made clear
that HRS "chapter 514B applies to all condominiums in the State, provided
that such application shall not invalidate existing provisions of a
condominiums governing documents, if to do so would invalidate a developer's
reserved rights[.]" 2017 Haw. Sess. Laws Act 181, §§ 1, 2 at 629; S.B. 292,
S.D. 1, 29th Leg., Reg. Sess. (2017), available at
https://www.capitol.hawaii.gov/session2017/bills/SB292_SD1_.pdf; S.B. 292,
H.D. 1, 29th Leg., Reg. Sess. (2017), available at
https://www.capitol.hawaii.gov/session2017/bills/SB292_HD1_.pdf; S.B. 292,
C.D. 1, 29th Leg., Reg. Sess. (2017), available at
https://www.capitol.hawaii.gov/session2017/bills/SB292_CD1_.pdf.
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an owner from observing any law and any regulation of any
governmental body." (Declaration, Article 20.3). "Any dispute
involving an apartment owner, the Association, the Board, or the
Managing Agent shall be submitted to arbitration as required by
the Act." (Declaration, Article 21.0) (emphasis added).
2. By Laws
Also in 1995, One Kalakaua's "By Laws" (By Laws) were
recorded with the Bureau of Conveyances. The By Laws explain
that the "mere acquisition or rental of any apartment or the
mere act of occupancy of any apartment will signify that these
By Laws are accepted, ratified, and will be complied with." (By
Laws, Introduction/Preamble).
The By Laws provide that, "in the use of" One
Kalakaua, "[e]very apartment owner and occupant shall at all
times keep his apartment in a strictly clean and sanitary
condition and observe and perform all laws, ordinances, rules
and regulations now or hereafter made by any governmental
authority or the Association for the period during which the
same are applicable to the use of" One Kalakaua. (By Laws,
Article V, Section 3(A)(6)). Also "in the use of" One Kalakaua,
"[n]o unlawful use shall be made of the Project or any part
thereof, and all valid laws, orders, rules and regulations of
all governmental agencies having jurisdiction thereof
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(collectively "Legal Requirements") shall be strictly complied
with." (By Laws, Article V, Section 3(A)(11)).
Apartment owners "need not comply with any Legal
Requirement so long as it shall be so contesting the validity or
applicability thereof, provided that noncompliance shall not
create a dangerous condition or constitute a crime or an offense
punishable by fine or imprisonment," and also "that no part of
the Project shall be subject to being condemned or vacated by
reason of noncompliance . . . ." (By Laws, Article V,
Section 3(A)(11)(ii)).
"All costs and expenses, including reasonable
attorney's fees, incurred by or on behalf of the Association for
. . . [e]nforcing any provision of the Declaration, By Laws,
House Rules, and the Condominium Property Act . . . against an
owner . . . shall be promptly paid on demand to the Association
by such person . . . ." (By Laws, Article V, Sections 5(C),
5(C)(3), and 5(C)(4)).
"Each apartment owner . . . shall comply strictly with
the By Laws and with the administrative rules and regulations
adopted . . . . Failure to comply with any of the same shall be
ground for an action to recover sums due, for damages or
injunctive relief, or both . . . ." (By Laws, Article V,
Section 9).
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The By Laws "are subordinate and subject to all
provisions of the Declaration and any amendments thereto and the
Condominium Property Act ([HRS] chapter 514A, . . . as amended)
which shall control in case of any conflict." (By Laws,
Article VI, Section 3). "At the request of any party, any
dispute . . . involving . . . the Association . . . relating to
the interpretation, application or enforcement of [HRS chapter
514A], Declaration, By Laws, House (Building) Rules . . . shall
be subject to arbitration and disposition as provided under
Part VII, Arbitration, under said Chapter 514A." 3 (By Laws,
Article VI, Section 8) (emphasis added).
The By Laws also give the Board power to adopt, amend
or repeal House Rules. (By Laws, Article V, Section 4).
3. House Rules
The House Rules, approved August 2015 and effective
October 2015, declare that One Kalakaua "is a fee-simple
condominium multipurpose senior living community that exists to
support the current and enhance the future lifestyle needs of
our residents." (House Rules, Section 1 - Introduction,
Mission/Vision/Values – Our Community). "The amenities
(programs and services) offered by our community are geared to
3 The By Laws make mediation available in assessment disputes and court
actions by an owner "against an Association . . . to enforce any provision of
the Declaration, By Laws, House Rules, or [HRS chapter 514A] . . . ." (By
Laws, Article V, Sections 1(D)(5), 1(E) and 5(D)).
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meet the needs of seniors who are independent as well as those
who benefit from supervised assistance of others." (House
Rules, Section 1 - Introduction, Mission/Vision/Values – Our
Community). One Kalakaua's mission is to "strive to be a leader
in senior living by providing a gracious, friendly, and secure
residential community that offers residents and their family's
[sic] peace of mind through wellness and assisted living
programs that support the continuum of care and 'aging in
place'." (House Rules, Section 1 - Introduction,
Mission/Vision/Values – Our Mission).
The House Rules also acknowledge that One Kalakaua's
"operation requires special policies and services in compliance
with the State of [Hawai‘i], Department of Health [(DOH)],
Assisted Living Regulations . . . ." (House Rules, Section 1 -
Introduction, Acknowledgement). The House Rules then disclose
that "One Kalakaua has adopted polices and services in
compliance with the State of [Hawai‘i], [DOH], Assisted Living
Regulations, Hawaii Administrative Rules [(HAR)], Title 11,
Chapter 90." (House Rules, Section 5 – Senior Living, Senior
Living Disclosures).
The House Rules provide that "[a] 2-step TB clearance
is required before move-in" and an "[a]nnual TB clearance is
required from the [DOH], and must be obtained with written
documentation given to the facility, for Independent Contracted
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Caregivers." (House Rules, Section 2 - Administration,
Registration, Section 5 – Senior Living, Resident Arranged
Health Services). The club dues include the "State required TB
clearance for all new move-ins and annually thereafter." (House
Rules, Section 6 – Services, Services Included in Monthly Fees –
Club Dues). "Mandatory tuberculin skin testing is also offered
annually" and included in the monthly fees for the Independent
Living-Wellness Program. (House Rules, Section 5 – Senior
Living, Continuum of Care – Independent Living-Wellness
Program).
"Owners and occupants as well as their guests shall
observe and adhere to the House Rules, Declaration, and Bylaws."
(House Rules, Section 2 – Administration, Violations). The
minimum fine is $50, and the maximum fine is $350. (House
Rules, Section 2 – Administration, Violations). Also, "[t]he
Board may impose charges or penalties for violations of the
Declaration, Bylaws, or House Rules" including "[e]njoin, abate
or remedy by appropriate legal proceedings, either at law or in
equity, the continuance of any breach, and all costs thereof,
including attorney's fees, shall be borne by the defaulting
apartment owner." (House Rules, Section 2 – Administration,
Violations).
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B. Clay and Assisted Living
Clay acquired Unit 1503 in 1997, and Unit 1204 in
2004. Clay resided in Unit 1503 until 2012, when she
transferred Unit 1503 to another person and then resided in
Unit 1204.
According to Clay, from 1997 to 2000, Association
hired Life Care Services to provide assisted living at One
Kalakaua. Clay "was President of One Kalakaua at the time the
assisted living services ceased being provided by an independent
contractor at the end of calendar year 2000 and voted in favor
of the termination of that independent contractor." Clay
averred that, in 2001, "One Kalakaua began to provide assistance
in living services in a manner which raised licensing and
insurance issues . . . ."
Also in 2001, HAR § 11-164's Exhibit A was amended.
HAR § 11-164 Exhibit A (Amended 2001, Repealed 2018). Applying
to programs licensed under Title 11 chapters 85-105, Exhibit A
provided that "[a]ll residents, employees, contract workers, and
volunteers working more than 10 hours per week are required to
have an Entry TB Evaluation (as described in #2 below) within 1
year prior to starting work and Annual Tuberculosis Re-
evaluations" except for buildings with no patient care, patients
of acute inpatient facilities, and infants under twelve months
old. (Emphases added.)
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In 2002, One Kalakaua established itself as an
assisted living facility as reflected in the 2015 license below:
See Exhibit "V" of Association's Motion for Partial Summary
Judgment as to Count I. The license identifies the 166 units
within One Kalakaua.
C. The 2002 Litigation
Clay filed a second amended complaint alleging the
following: (1) "Count I Violation of Duty of Prudent Business
Practices and Breach of Fiduciary Duties[,]" and (2) "Count II
Violation of Declaration/Ultra Vires[.]" (Formatting altered.)
As to Count I, Clay argued that Association breached its
fiduciary duties for the following reasons:
(a) improperly operating One Kalakaua as an Assisted Living
Facility first without proper licensing and proper
insurance, and then without first obtaining an amendment to
the Declaration;
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(b) directly providing the assisted living services through
Association employees, and thereby incurring ever
increasing expenses including for wages and insurance,
instead of hiring a proper vendor;
(c) using common area funds and club dues to subsidize what
should be "pay as you go" services;
(d) reducing or eliminating services provided as part of
the club dues in order to use the funds for the assisted
living services;
(e) failing to fund the building reserve;
(f) failing to provide timely audits; and
(g) promulgating improper House Rules[.]
(Formatting altered and emphasis added.)
Clay sought, inter alia, declaratory relief for
Association's "violation of the Declaration and/or By-Laws and
acting ultra vires" in "breach of their fiduciary duties, by
obtaining a license to act as an Assisted Living Facility, and
operating [Association] as an Assisted Living Facility, without
first presenting the issue to the homeowners and obtaining the
necessary votes to amend the Declaration and By-Laws[.]"
In 2004, the Honorable Elizabeth E. Hifo concluded:
(1) "The Declaration did not need to be amended to obtain an
assisted living license and the Board did not breach its
fiduciary duty by obtaining the assisted living facility
license[,]" and (2) "The doctrine of judicial estoppel bars
Plaintiffs from claiming that the Declaration was violated or
needed to be amended or that the Board breached its fiduciary
duty by obtaining the assisted living facility license."
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Judge Hifo found that, in the Declaration, "'other
services offered' at One Kalakaua by the One Kalakaua Club are
'based on the owner and/or occupant, requesting and/or
purchasing the same.'" Judge Hifo also found that Clay "admits
that all 'other services offered' include assisted living
services and that One Kalakaua charges for all 'other services
offered.'"
On December 8, 2004, Judge Hifo entered a judgment in
favor of Association and against Clay.
D. The 2016 Litigation
1. Pre-complaint
In 2011, DOH's Tuberculosis Control Branch answered
questions from the Hawaii Long Term Care Association (2011 Q&A).
One of the scenarios posed by the Hawaii Long Term Care
Association closely resembled the situation at One Kalakaua:
Facility is a condominium that has been also licensed as
an [assisted living facility]. Residents privately own
and purchase their units and do not necessarily receive
[assisted living facility] services or oversight.
[Assisted living facility] services are an ala-carte
feature that they must purchase separately and the
majority of the residents and independent [sic] receive
no [assisted living facility] services. Because
residents own their unit, management has no enforcement
mechanism. Are independent residents and their visitors
required to have TB clearance? Is there an opportunity
to address this for units that are privately owned?
(Formatting altered.) The Tuberculosis Control Branch responded
that
[a]ll residents of a facility licensed under Title 11,
Chapters 85-105 by the [DOH] (Office of Health Care
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Assurance) are required to comply with TB clearance
requirements. The independence of a resident and
utilization of services is not used to determine if TB
clearance is required. If the entire condominium is
licensed by the Office of Health Care Assurance, all
residents of the facility would be required to have TB
clearance. TB clearance is not required for visitors.
In 2012, 2013, and 2014, Clay complied with the TB
screening requirement.
In October 2015, Clay refused the TB reevaluation.
This refusal continued for several months, and Association
imposed a $50 fine in a third notice of non-compliance, a $100
fine in a fourth notice, a $200 fine in a fifth notice, a $350
fine in a sixth notice, and another $350 fine in the seventh,
and final, notice. 4
4 The non-compliance notices were as follows:
Second Notice: Dated November 5, 2015 with a compliance due
date of November 20, 2015.
Third Notice: Dated November 23, 2015 with a $50.00 fine,
a new compliance due date of December 4,
2015, and a warning of being assessed a
$100.00 fine.
Fourth Notice: Dated December 7, 2015 with $100.00 fine, a
new compliance due date of December 18,
2015, and a warning of being assessed a
$200.00 fine.
Fifth Notice: Dated December 21, 2015 with a $200.00 fine,
a new compliance due date of January 8,
2016, and a warning of being assessed a
$350.00 fine.
Sixth Notice: Dated January 11, 2016 with a $350.00 fine,
a new compliance due date of January 27,
2016, and a warning of being assessed a
$350.00 fine.
Seventh Notice: Dated January 28, 2016 with a $350.00 fine.
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On the day before the final notice, Clay filed a
special proceeding in circuit court seeking to compel mediation
with Association under HRS § 514B-161(a), which was assigned to
the Honorable Gary W.B. Chang. Clay clarified that the only
issue was the $50 fine she paid and would like to get back. On
February 19, 2016, Judge Chang ruled that "the Court is unable
to find sufficient legal authority authorizing [it] to issue an
order compelling mediation[,]" and denied the petition without
prejudice.
2. Association's Complaint
On February 4, 2016, Association filed a verified
complaint (Complaint) alleging three counts.
In Count I, Association requested a declaration that:
(1) "state law requires that all One Kalakaua
residents undergo annual TB skin testing as set
forth in HAR Title 11, Chapter 164;"
(2) "Clay's refusal since October 2015 to undergo the
annual TB skin test (or secure a letter from her
physician demonstrating her medical inability to
take the TB skin test, undergo a chest X-ray to
clear her of TB infection, and respond to annual
Health Department TB-focused questionnaires
thereafter) is a violation of HAR Title 11,
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Chapter 164, and also of [Association's] House
Rules; and"
(3) Association "is entitled to levy fines (and all
other penalties allowable under the House Rules)
against Ms. Clay for her refusal to undergo the
annual TB skin test (or the previously stated
alternative)."
(Formatting altered.)
In Count II, Association requested that the circuit
court "enjoin Ms. Clay from residing in the One Kalakaua
condominium community unless and until Ms. Clay demonstrates
that she has undergone either the annual TB skin test or the
previously stated alternative." The parties later stipulated to
dismiss this count as Clay submitted documents showing she was
screened for TB in May 2016 (seven months after her previous TB
screening expired).
In Count III, Association requested attorneys' fees
and costs related to Clay's refusal to take the TB skin test,
under HRS §§ 514B-157 (2006), 607-9 (1993), and 607-14.5
(Supp. 2015).
One Kalakaua attached to its Complaint as Exhibit C
the 2011 Q&A.
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3. Clay's Answer
On February 26, 2016, Clay filed a five-page answer to
the Complaint proffering nineteen defenses including that she
"relies as an affirmative defense upon the . . . breach of [One
Kalakaua's] governing documents." Clay filed no counterclaim
with her answer.
4. Clay's Motion for Mediation
Ten days after filing her answer, Clay moved to compel
mediation, which the circuit court granted but explained that it
was not a stay of the case and the case would proceed in normal
course. Association later represented that the "parties have
engaged in court-ordered mediation" and "there was no settlement
on the substantive issues in the case[.]"
5. Motion for Summary Judgment on Count I (Declaratory
Relief)
In June 2016, Association moved for summary judgment
on Count I (declaratory relief), arguing that undisputed facts
demonstrated that Clay refused to take a TB test from
October 22, 2015 to May 19, 2016, which violated One Kalakaua's
By Laws and House Rules. Association also asserted that it was
entitled to levy fines against Clay for refusing to comply with
the TB testing requirements.
In her response to Association's motion for summary
judgment, Clay argued that:
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(1) [Association] has no authority to enforce state law
against Ms. Clay;
(2) [Association] must amend its By-Laws and/or Declaration
in order to enforce the DOH regulations against Ms. Clay
and the entire One Kalakaua Project;
(3) The Board owes a fiduciary duty to Ms. Clay and all of
the residents of One Kalakaua pursuant to its operating an
[assisted living facility] within One Kalakaua;
(4) Ms. Clay's doctor's note satisfied the DOH guidelines
and demonstrates the ambiguity within their regulations and
the Board's interpretation of the same;
(5) Ms. Clay was penalized by the Board in violation of
House Rules and the DOH regulations;
(6) Ms. Clay's defenses to the Motion and Complaint are not
barred by the doctrine of res judicata; and
(7) Ms. Clay respectfully requests a continuance under
[Hawai‘i Rules of Civil Procedure (HRCP)] Rule 56(f).
(Formatting altered.)
In its December 19, 2016 Order, the circuit court
granted summary judgment "because there are no disputed issues
of material fact and [Association] has demonstrated entitlement
to judgment as a matter of law . . . ." The circuit court found
that it was undisputed that Clay refused the TB screening in
October 2015. The circuit court further found that this refusal
"violated applicable state health department laws and the One
Kalakaua rules."
The circuit court stated that it
rejects Ms. Clay's arguments in opposition to the Motion
that [Association] cannot enforce state laws on grounds
that only the State of [Hawai‘i] can do so. As a regulated
entity under the state health law provisions that are cited
in the moving papers, [Association] is bound to follow
those state law provisions.
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The circuit court clarified that "while it is being
characterized by Ms. Clay as enforcement of state law,
[Association] is trying to enforce its own rules and comply with
state law, which it is required to do as a licensed" assisted
living facility.
Finally, the circuit court stated that it "rejects
Ms. Clay's arguments that One Kalakaua is improperly operating
as an [assisted living facility] in breach of its fiduciary
duties." To that, the circuit court concluded that "[t]hese
arguments were fully litigated and decided upon in the 2002
complaint, resulting in the 2004 judgment before Judge Hifo, and
are accordingly barred by principles of res judicata."
6. Motion for Leave to File Counterclaim
Also in June 2016, Clay moved for leave to file a
counterclaim, arguing that (1) she did "not unduly [delay] in
bringing the instant motion; (2) the amendment to the pleadings
will not prejudice [One Kalakaua]; (3) [she] will be damaged
should she not be allowed to file her Counterclaim; and (4) the
motion is made in good faith and not for undue purposes." Clay
explained that she "did not initially file a counterclaim as she
was hopeful the matters would be resolved in mediation."
Clay attached her proposed counterclaim, which alleged
eight counts. All counts were based on the propriety of One
Kalakaua operating as an assisted living facility. In
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particular, Counts 6 through 8 were in pertinent part, as
follows:
COUNT VI[ 5]
BREACH OF FIDUCIARY DUTY
. . . .
39. The Board breached its duties to Ms. Clay and
the members of [One Kalakaua] when it unilaterally
converted One Kalakaua to an [assisted living facility],
and held the owners financially responsible for the
maintenance of the [assisted living facility] while
requiring the owners and residents to adhere to the
regulations of the [DOH], as interpreted by [One Kalakaua].
39. The Board further violated its duties to
Ms. Clay individually when [sic] fined Ms. Clay in excess
of $1,000.00 and ultimately sued her in an attempt to force
her to comply with the Board's new rules or otherwise be
able to prevent her from entering her home until the Board
deemed she was in compliance. Then, after suing Ms. Clay,
the Board and [One Kalakaua] Executive Director spoke out
against Ms. Clay at meetings, blaming her for wasting [One
Kalakaua] funds on the lawsuit and publishing such
statements in [One Kalakaua] literature and meeting
minutes.
. . . .
COUNT VII[ 6]
NEGLIGENT INFLICTION OF EMOTIONAL DISTRESS
. . . .
43. [One Kalakaua] breached this duty by, in
violation of the governing documents and state law,
unilaterally converting her fee simple property to an
[assisted living facility], holding her financially
responsible for the operation of the [assisted living
facility] while forcing her to adhere to the rules and
regulations of the [DOH].
. . . .
44. The Board further inflicted distress upon
Ms. Clay when it fined Ms. Clay in excess of $1,000.00 and
ultimately sued her in an attempt to force her to comply
with the Board's new rules or otherwise be able to prevent
her from entering her home until the Board deemed she was
5 Count 6 included two paragraphs numbered 39.
6 Count 7 included two paragraphs numbered 44.
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in compliance. Then, after suing Ms. Clay, the Board and
[One Kalakaua] Executive Director spoke out against
Ms. Clay at meetings, blaming her for wasting [One
Kalakaua] funds on the lawsuit and publishing such
statements in [One Kalakaua] literature and meeting
minutes.
. . . .
COUNT VIII
BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING
. . . .
49. [One Kalakaua] and the Board violated its duties
under HRS §§ [sic] 514B-9-10 [sic] when it began to operate
an [assisted living facility] in One Kalakaua, charging the
owners and residents of the property regardless of
individual usage, while holding both subject to the rules
and regulations it determined were applicable, ultimately
suing Ms. Clay and attempting to receive Court authority to
prevent her from entering the property until the Board
determined she was in compliance with the Board's rules.
During the November 30, 2016 hearing on Clay's motion,
Clay's attorney explained that "once it became clear to us that
mediation, reaching an amicable resolution to this dispute was
not possible through mediation. . . [t]hat's when Ms. Clay
accepted the cost of litigation, and that this would be
litigated, which is why we then filed a motion for leave to file
the counterclaim."
Clay's attorney further explained, "they have changed
from being awarded [sic] license to now operating this full-
scale [assisted living facility], which is the crux of
Ms. Clay's counterclaim, it's the operation of it." In
discussing the source of her counterclaim, Clay's attorney
clarified, "[t]he source of Ms. Clay's counterclaim is the 2011
internal memo between the [DOH] that the board seems to rely
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upon to say they can now enforce the [DOH] regulations against
Ms. Clay."
The circuit court asked, "where in the counterclaim do
you talk about the 2011 memo, and the alleged wrongdoing that
stems from the memo[,]" and Clay's attorney did not provide a
responsive answer. Clay's attorney then stated to the circuit
court, "if you're at all considering denying this, you could
deny it without prejudice, and we could submit a new
counterclaim with the evidence we've received since then, could
more substantially justify Ms. Clay's counterclaims."
The circuit court inquired, "So, at the time you filed
the motion for leave to file the counterclaim, you didn't have
this 2011 letter?" Clay's attorney responded, "I believe this
was filed before the MSJ, Your Honor, and that letter came as
part of the MSJ." But, Association's attorney clarified that he
provided Clay with a copy of the proposed complaint and the 2011
Q&A:
I sent a copy of the proposed complaint that we were
going to file, including the exhibits to Mr. Revere, and
said, [t]his is what we're going to file, let us know if
Ms. Clay changes her position, and the 2011 letter from the
DOH was referenced in the complaint, and I believe it was
attached as Exhibit C.
So that information was provided to Mrs. Clay's
counsel before the lawsuit was ever filed.
The record also reflects that the 2011 Q&A was attached as
Exhibit C to the filed Complaint.
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In its December 19, 2016 order, the circuit court
denied Clay's motion for leave to file a counterclaim as
follows:
"The claims set forth in the proposed Counterclaim are
barred both by the statute of limitations and by the
doctrine of res judicata. The Court rejects Clay's
argument that the continuing tort doctrine applies.
Accordingly, the Motion For Leave to File Counterclaim
is denied based upon futility of amendment."
7. Motion for Summary Judgment on Count III (Fees and
Costs)
In February 2017, Association moved for partial
summary judgment on Count III for attorneys' fees and costs,
relying on HRS §§ 514B-157 and 607-9. Association asserted
that, up until January 31, 2017, it incurred $98,311.82 in fees
and costs.
In opposition, Clay argued that she requested to
mediate, she is a dissenter, Association was not a prevailing
party in Count II, and equity requires that the court deny
Association's motion.
Association later requested an additional $17,773.55
in attorneys' fees and costs for matters litigated from
January 2017 to May 2017. On June 28, 2017, the circuit court
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granted Association's motion for partial summary judgment
pursuant to HRS § 514B-157. 7
In its amended final judgment, the circuit court
entered judgment in favor of Association and against Clay in
Counts I and III, and dismissed Count II without prejudice. The
circuit court awarded Association $109,401.53 in attorneys'
fees, $6,693.84 in costs, and post-judgment interest. Clay
filed a timely notice of appeal.
II. DISCUSSION
On appeal, Clay contends that the circuit court erred
by (1) granting Association's motion for summary judgment and
denying her motion for leave to file a counterclaim based on res
judicata and (2) awarding attorney's fees and costs.
A. Summary Judgment and Counterclaim
In her first two points of error, Clay challenges the
circuit court's res judicata reasoning in granting Association's
motion for summary judgment on Count I and denying her motion
for leave to file a counterclaim. Based on the discussion
below, we hold that the circuit court did not err in granting
Association's motion for summary judgment and did not abuse its
7 The circuit court awarded $17,783.55 in attorney's fees and costs to
Association, while Association had requested $17,773.55 in attorney's fees
and costs.
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discretion in denying Clay's motion for leave to file a
counterclaim.
1. Res Judicata
"In the past, the term 'res judicata' was used to
describe both claim preclusion (res judicata) and issue
preclusion (collateral estoppel)." PennyMac Corp. v. Godinez,
148 Hawai‘i 323, 328 n.5, 474 P.3d 264, 269 n.5 (2020) (citation
omitted). But, the appellate courts have since clarified that
these are "separate doctrines that involve distinct questions of
law." Id. (citation omitted).
Here, the doctrine of issue preclusion applies. See
State v. Taniguchi, 72 Haw. 235, 239, 815 P.2d 24, 26 (1991)
(explaining that the appellate courts "have consistently held
that where the decision below is correct it must be affirmed
. . . even though the lower tribunal gave the wrong reason for
its action") (citation omitted).
Issue preclusion "may preclude the relitigation of a
fact or issue that was previously determined in a prior action
on a different claim or cause of action between the same parties
or their privies." Dannenberg v. State, 139 Hawai‘i 39, 59-60,
383 P.3d 1177, 1197-98 (2016) (formatting altered). The test
for issue preclusion requires establishing the following four
elements:
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(1) the issue decided in the prior adjudication is
identical to the one presented in the action in
question;
(2) there is a final judgment on the merits;
(3) the issue decided in the prior adjudication was
essential to the final judgment; and
(4) the party against whom [issue preclusion] is asserted
was a party or in privity with a party to the prior
adjudication.
Bremer v. Weeks, l04 Hawai‘i 43, 54, 85 P.3d 150, 161 (2004)
(citation omitted, brackets in the original, and formatting
altered).
2. One Kalakaua's Operation as an Assisted Living
Facility
Following a trial in the 2002 case, Judge Hifo ruled
that the "Declaration did not need to be amended to obtain an
assisted living license and the Board did not breach its
fiduciary duty by obtaining the assisted living facility
license[.]" Judge Hifo found, among other things, that Clay
failed to prove by a preponderance of the evidence that by
operating as an assisted living facility "Defendants acted
without authority, or against the interests of One Kalakaua" or
that "Defendants have violated the Declaration or Bylaws or
their fiduciary duty in any other manner." Judge Hifo concluded
that Association "complied with and [has] not violated the
Declaration or the Bylaws of One Kalakaua or any other governing
document" and "have not breached any duty to" Clay. Judge Hifo
then entered judgment in favor of Association and against Clay.
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In this case, the circuit court stated that it
"rejects Ms. Clay's arguments that One Kalakaua is improperly
operating as an [assisted living facility] in breach of its
fiduciary duties." To that, the circuit court concluded that
"[t]hese arguments were fully litigated and decided upon in the
2002 complaint, resulting in the 2004 judgment before Judge
Hifo, and are accordingly barred by principles of res judicata."
This is the conclusion that Clay challenges, and this conclusion
applies only to Clay's argument that One Kalakaua is improperly
operating as an assisted living facility in breach of its
fiduciary duties.
The circuit court appears to have used the term "res
judicata" in a general overarching manner, but the four
requirements of issue preclusion were nonetheless met. Judge
Hifo determined that Association did not violate the Declaration
or By Laws, or breach its fiduciary duty, by operating as an
assisted living facility, Judge Hifo entered a final judgment in
favor of Association and against Clay, the issues litigated were
essential to the final judgment, and the parties were the same.
Bremer, 104 Hawai‘i at 54, 85 P.3d at 161.
Thus, Clay was precluded from asserting violation of
the Declaration and By Laws or breach of fiduciary duties
regarding One Kalakaua's operation as an assisted living
facility in this case. See Dannenberg, 139 Hawai‘i at 59-60, 383
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P.3d at 1197-98. And the circuit court's conclusion that Clay
was barred from asserting that Association breached its
fiduciary duty by operating as an assisted living facility was
not wrong.
3. The Circuit Court Did Not Err in Granting
Summary Judgment
More to the point, the circuit court decided on the
motion for summary judgment based primarily on Association's
governing documents and the relevant regulations, and not solely
on res judicata.
This court reviews the granting of summary judgment de
novo. Nuuanu Valley Ass'n v. City & Cnty. of Honolulu, 119
Hawai‘i 90, 96, 194 P.3d 531, 537 (2008). Viewing the evidence
in the light most favorable to the non-moving party, "summary
judgment is appropriate if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law." Id. (citation omitted).
In its motion for summary judgment as to Count I,
Association argued that "HRS § 321-482(a) vests the Health
Department with authority over assisted living facilities," HRS
§ 321-482(c) requires assisted living facilities to comply with
DOH administrative rules, HAR § 11-90-3(g) requires assisted
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living facilities to be licensed every two years, HAR § 11-90-
3(j) suspends such license for failing to comply, HAR § 11-90-
9(a)(1) requires the facility to maintain records including TB
clearance, and HAR § 11-164-10 requires TB examination for all
residents. Association also explained that the 2011 Q&A made
clear that "[a]ll residents of a facility licensed under
Title 11, Chapters 85-105 by [DOH] are required to comply with
TB clearance requirements" and "[t]he independence of a resident
and utilization of services is not used to determine if TB
clearance is required."
Association's exhibits included the Declaration,
By Laws, House Rules, DOH license, 2011 Q&A, and a July 2014
notice reminding residents of the TB requirements. Association
also attached correspondence regarding Clay's refusal to comply
with TB screening.
With the pleadings before it, the circuit court first
found that "applicable state law, including HAR Title 11,
Chapter 164, and other provisions set forth in [Association's
Motion for Partial Summary Judgment], are applicable and compel
[Association] to require all One Kalakaua residents to undergo
an annual tuberculosis test." Clay does not challenge this
finding in her opening brief.
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The circuit court next found that it was undisputed
that Clay refused the TB screening in October 2015, which Clay
also does not challenge.
Finally, the circuit court found that this refusal
violated DOH "laws" and One Kalakaua rules. Clay does not
challenge this finding either. See State v. Barros, 98 Hawai‘i
337, 343 n.4, 48 P.3d 584, 590 n.4 (2002) (noting that "[i]f a
finding is not properly attacked, it is binding; and any
conclusion which follows from it and is a correct statement of
law is valid") (citation omitted).
The circuit court then granted summary judgment
"because there are no disputed issues of material fact and
[Association] has demonstrated entitlement to judgment as a
matter of law . . . ."
a. State Law
An assisted living facility is "a combination of
housing, health care services, and personalized supportive
services designed to respond to individual needs, to promote
choice, responsibility, independence, privacy, dignity, and
individuality." HRS § 321-15.1 (2010). DOH "shall have general
charge, oversight, and care of the health and lives of the
people of the State, and shall pursue as a goal, the achievement
of health equity" and "may adopt rules that it deems necessary
for the public health and safety" for various situations
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including an assisted living facility. HRS § 321-1(a)
(Supp. 2015); § 321-11(10) (2010).
"Any person, agency, or organization engaged in
providing, coordinating, or monitoring comprehensive services to
. . . assisted living facilities, shall meet the standards of
conditions, management, and competence set by the department,
and hold a license in good standing issued for this purpose by
the department." HRS § 321-482(a) (Supp. 2015). Complying with
the rules adopted is a condition for obtaining a license, and
DOH "may suspend or revoke a license if the department deems
that the agency is unwilling or unable to comply with the rules
adopted . . . ." HRS § 321-482(c) and (f) (Supp. 2015). DOH
rules "have the force and effect of law." HRS § 321-10 (2010).
HAR Title 11 Chapter 90 (adopted 1999) governs
assisted living facilities, establishing "minimum standards and
requirements for licensure to protect the health, welfare, and
safety of residents in such facilities." HAR § 11-90-1.
"Assisted living facilities shall serve the purpose of providing
a combination of housing, meal services, health care services,
and personalized supportive services designated to respond to
individual needs." HAR § 11-90-1. An assisted living facility
applies the principles of "(1) Aging in place; (2) Negotiated
plan of care; and (3) Managed risk." HAR § 11-90-1.
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All assisted living facilities "shall meet all
requirements for licensure under state law." HAR § 11-90-3(a).
HAR § 11-90-9(a) requires that the assisted living facility
"shall establish policies and procedures to maintain a system of
records and reports which shall include . . . [a c]opy of a
current physician or primary care provider's report of
resident's physical examination which includes tuberculosis
clearance and verification that the resident is free from other
infectious or contagious diseases."
The purpose of HRS Chapter 164 was "to establish
minimum requirements for the control of [TB] in the State." HAR
§ 11-164-1 (Adopted 1981, Repealed 2018).
Requirements for examination for [TB] of employees,
patients and other individuals working or residing in
healthcare facilities regulated by [DOH] shall be provided
in Exhibit A, "Tuberculosis Examination For All Health
Care, Domiciliary Care, Day Care, and Residential
Facilities and Programs Licensed under Title 11, Chapters
85-105, by the [DOH], August, 2001."
HAR § 11-164-10, Exhibit A (Amended 2001, Repealed 2018).
Exhibit A provided that "[a]ll residents, employees,
contract workers, and volunteers working more than 10 hours per
week are required to have an Entry TB Evaluation . . . within 1
year prior to starting work and Annual Tuberculosis Re-
evaluations . . . ." "Any person who violates any provision of
this chapter shall be fined not more than $500 or imprisoned for
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not more than one year or both." HAR § 11-164-11 (Adopted 1981,
Repealed 2018).
b. Analysis
Again, in Count I, Association requested three
declarations from the circuit court. First, Association
requested declaratory relief that "state law requires that all
One Kalakaua residents undergo annual TB skin testing as set
forth in HAR Title 11, Chapter 164[.]" HAR § 11-164-10 provided
that individuals residing in healthcare facilities are regulated
by Exhibit A. Exhibit A governed programs licensed under
Title 11 chapters 85-105 and provided that "[a]ll residents
. . . are required to have . . . Annual Tuberculosis Re-
evaluations[.]"
Assisted living facilities are regulated by HAR
Title 11 Chapter 90, and Association established that One
Kalakaua is an assisted living facility licensed by DOH. Thus,
Association established there was no genuine issue that HAR
Title 11 Chapter 164 requires One Kalakaua residents to screen
for TB annually.
Association next requested a declaration that "Clay's
refusal since October 2015 to undergo the annual TB skin test
. . . is a violation of HAR Title 11, Chapter 164, and also of
[Association's] House Rules." Association provided
correspondence establishing that Clay refused to screen for TB,
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which Clay does not refute. As discussed above, HAR § 11-164-10
and Exhibit A require residents of licensed assisted living
facilities to screen for TB annually. Association submitted its
DOH license as an assisted living facility. In addition, One
Kalakaua's House Rules require residents to screen for TB
annually. (House Rules, Section 2 - Administration,
Registration, Section 6 – Services, Services Included in Monthly
Fees – Club Dues). Thus, Association established that there was
no genuine issue that Clay's refusal to screen for TB violated
HAR Title 11, Chapter 164 and One Kalakaua's House Rules.
Finally, Association requested a declaration that it
"is entitled to levy fines (and all other penalties allowable
under the House Rules) against Ms. Clay for her refusal to
undergo the annual TB skin test (or the previously stated
alternative)." One Kalakaua's House Rules allow fines for
violation of House Rules, and House Rules provide that annual TB
screening is required. (House Rules, Section 2 -
Administration, Registration, Section 2 – Administration,
Violations, Section 6 - Services, Services Included in Monthly
Fees - Club Dues). Thus, Association established that there was
no genuine issue that it may levy fines for Clay's refusal to
screen for TB under One Kalakaua's House Rules.
Here, One Kalakaua established that it was entitled to
a declaratory relief on Count I because, even when viewing the
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filings and evidence it presented in the light most favorable to
Clay, no genuine issue existed as to One Kalakaua's three
requests for declaratory relief in Count I of its complaint.
In defending the motion, Clay did not dispute that she
refused to screen for TB, and did not "set forth specific facts
showing that there is a genuine issue for trial" as to the
declaratory relief requested. Dairy Rd. Partners v. Island Ins.
Co., 92 Hawai‘i 398, 412, 992 P.2d 93, 107 (2000). Instead, Clay
argued that Association attempted to enforce State law and
failed to amend the By Laws and House Rules and breached its
fiduciary duty with respect to operating as an assisted living
facility, the latter of which was litigated and resolved in the
2002 litigation as discussed above.
Thus, the circuit court did not err in granting
Association's motion for summary judgment on Count I.
4. The Circuit Court Did Not Abuse Its Discretion in
Denying Clay's Motion For Leave to File a Counterclaim
Clay also contends that the circuit court "committed
reversible error where it . . . denied [her] Motion for Leave to
File a Counterclaim as moot due to res judicata where Ms. Clay
was challenging facts that had occurred after the initial
lawsuit and court order." Clay argues that the "allegations in
the previous complaint then, and the Court's findings therein,
pertain to [Association] obtaining the assisted living license,
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and its actions prior to obtaining said license." Clay asserts
that these "allegations and court findings are categorically
different than the allegation in [her] proposed Counterclaim, as
well as [Association's] complaint seeking injunctive relief to
require [her] to adhere to the regulations of [DOH]."
The circuit court denied Clay's motion for leave to
file her counterclaim finding that the "claims set forth in the
proposed Counterclaim are barred both by the statute of
limitations and by the doctrine of res judicata." The Court
then stated that it "rejects Clay's argument that the continuing
tort doctrine applies" and denied her motion for leave to file
the counterclaim "based upon futility of amendment."
Clay challenges the circuit court's ruling only to the
extent that it applied res judicata.
In her motion for leave to file a counterclaim, Clay
argued that Association "wrongfully has acted as if it amended
the Declaration and Bylaws when it began operating a full-
service [assisted living facility] from within One Kalakaua
. . . ." In all counts except Count V, Clay alleged in some
form that the Association violated its declaration, bylaws, or
fiduciary duty by operating as an assisted living facility.
Count V alleged unjust enrichment in operating as an assisted
living facility.
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As discussed above, the circuit court met the four
requirements of issue preclusion and the issue of Association
operating as an assisted living facility was precluded. Clay
contends on appeal that her claims included allegations of
events that occurred in late 2011 and after, but these
allegations were thoroughly interwoven with her allegations
Association was violating its governing documents and fiduciary
duty by operating as an assisted living facility, and Clay never
explained below (nor does she on appeal) what claims she was
asserting based on these allegations separate and apart from her
precluded claims. Indeed, at the hearing of her motion for
leave to file the counterclaim, she conceded that "the crux" of
her claim was "the operation of" One Kalakaua as an assisted
living facility, i.e., the very issue that is precluded.
To the extent Counts 6, 7, and 8 of Clay's proposed
Counterclaim included allegations challenging Association's
post-2011 enforcement of DOH regulations regarding TB testing
against Clay, we have affirmed the circuit court's grant of
summary judgment on Count I of Association's Complaint, i.e., a
grant of declaratory judgment that, among other things:
(1) Clay's refusal to comply with TB clearance requirements
violated HAR Title 11, Chapter 164 and One Kalakaua's House
Rules; and (2) Association was entitled to levy fines and other
penalties allowable under its House Rules against Clay for her
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refusal to comply with TB clearance requirements. See, e.g., By
Laws, Article IV, Section (1)(p); Article V, Section 9 and House
Rules; Section 2 – Administration, Violations (authorizing both
fines and an action for injunctive relief, such as seeking an
order enjoining residence at One Kalakaua for failure to comply
with the Bylaws).
Given the context in which Clay sought to file her
proposed Counterclaim, 8 she never explained below (nor does she
explain on appeal) what claims she was asserting or could assert
based on Association's post-2011 enforcement of DOH regulations
regarding TB testing that were separate and apart from her
precluded claims. 9
Under these circumstances, the circuit court did not
abuse its discretion in denying Clay's motion to file a
counterclaim. See HRCP Rule 13(f); Marks v. Marks, 51 Haw. 548,
8 Clay's motion for leave to file the counterclaim and Association's
motion for summary judgment on Count I were both filed in June 2016 and were
both heard and decided during the same November 30, 2016 hearing. The orders
denying Clay's motion and granting Association's motion were both entered on
December 19, 2016.
9 During the November 30, 2016 hearing on Clay's motion, her counsel
asserted that "the source of Ms. Clay's counterclaim is the 2011 internal
memo between [DOH] that the board seems to rely upon to say they can now
enforce the [DOH] regulations against [her]." But, when the circuit court
asked where in the counterclaim Clay raised the 2011 Q&A, Clay's counsel's
answer was nonresponsive. See supra at 21-22.
In fact, Clay's proposed counterclaim did not mention the 2011 Q&A,
despite the fact that it was attached as an exhibit to Association's
February 4, 2016 Complaint, and was thus available to Clay when she filed her
February 26, 2016 answer, as well as when she later moved for leave to file
the counterclaim.
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560, 563, 465 P.2d 996, 1002, 1004 (1970); Bailey v.
Duvauchelle, 143 Hawai‘i 234, 426 P.3d 458, No. CAAP-XX-XXXXXXX,
2018 WL 4627593 at *4 (App. Sept. 27, 2018) (SDO) (explaining
that the "denial of an HRCP Rule 13(f) motion is reviewed for
abuse of discretion"); Bank of Hawaii v. Mostoufi, 138 Hawai‘i
141, 377 P.3d 1059, No. CAAP-XX-XXXXXXX, 2016 WL 3615334 at *2
(App. June 30, 2016) (SDO) (same).
Moreover, in her opening brief, Clay did not challenge
the circuit court's independent basis for denying her motion for
leave to file the counterclaim – that her proposed claims were
barred by the applicable statutes of limitations. Instead,
after Association's answering brief pointed out this deficiency
(and the related waiver of Clay's argument), Clay made a statute
of limitations argument in her reply brief. There, she claimed
she had not waived her statute of limitations argument and could
raise the issue for the first time in her reply brief because
she had made a statute of limitations argument in the circuit
court, in her reply memorandum in support of her motion for
leave to file the counterclaim and at the hearing of her motion.
Clay's position, which deprived Association of an
opportunity to answer her argument challenging an independent
basis for the circuit court's ruling, patently violates HRAP
Rule 28(b)(4) and (7). See Hawaii Ventures, LLC v. Otaka, Inc.,
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114 Hawai‘i 438, 472 n.17, 164 P.3d 696, 730 n.17 (2007)
("[Appellant's] aforementioned point of error is deemed waived
for failure to present any argument in its opening brief in the
first instance and presenting such arguments in its reply brief
to which no answer could be made"); Galliard v. Rawsthorne, 150
Hawai‘i 169, 178, 498 P.3d 700, 709 (2021) (same). Thus, this
untimely challenge is deemed waived. HRAP Rule 28(b)(4) and
(7); Galliard, 150 Hawai‘i at 178, 498 P.3d at 709; Hawaii
Ventures, 114 Hawai‘i at 472 n.17, 164 P.3d at 730 n.17; In re
Hawaiian Flour Mills, Inc., 76 Hawai‘i 1, 14 n.5, 868 P.2d 419,
432 n.5 (1994) (explaining that arguments raised for the first
time in the reply brief are deemed waived).
Under these circumstances, we cannot conclude that the
circuit court exceeded the bounds of reason or disregarded rules
or principles of law and, thus, we cannot conclude that the
circuit court abused its discretion in denying Clay's motion for
leave to file her counterclaim.
B. Attorneys' Fees, Costs, And Fines
Clay's remaining points of error challenge the circuit
court's award of attorneys' fees and costs, as well as fines
imposed by the Association.
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1. Attorney's Fees and Costs
In Count III of its Complaint, Association sought an
award of attorney's fees and costs. Association moved for
summary judgment on Count III, and Clay objected. Relying on
HRS § 514B-161(a) (Supp. 2016), Clay argued that she "should not
be required to pay [Association's] excessive attorneys' fees
under HRS § 514B-157 as she requested mediation of this dispute
on multiple occasions, both before and after [Association] chose
to sue [her], and did mediate in good faith once the Court
compelled [Association] to participate in said mediation."
Association countered that it was not required to mediate
because its complaint fell under an HRS § 514B-161(b) exception.
The circuit court granted Association's motion for
summary judgment ordering Clay to pay $92,006.25 in attorney's
fees and $6,305.27 in costs for legal services rendered from
November 2015 to January 2017, plus an additional $17,783.55 for
legal services rendered since January 2017. The circuit court
relied on HRS § 514B-157, 10 and made no determination regarding
10 HRS § 514B-157(a) provides:
(a) All costs and expenses, including reasonable
attorneys' fees, incurred by or on behalf of the
association for:
(1) Collecting any delinquent assessments against any
owner's unit;
(2) Foreclosing any lien thereon; or
(continued . . .)
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Clay's HRS § 514B-161(a) argument or Association's HRS § 514B-
161(b) counterargument.
On appeal, Clay again relies on HRS § 514B-161(a) and
argues that the circuit court "committed reversible error where
it awarded attorneys' fees where [she] demanded mediation on
numerous occasion [sic], which [Association] refused and
opposed, without ever finding on the record whether [she] did
request and have a right to mediation and how such finding
impacted the award of fees[.]" Clay also relies on Ass'n of
Apartment Owners of Discovery Bay v. Mitchell, 134 Hawai‘i 251,
339 P.3d 1052 (2014).
HRS § 514B-161(a) requires participation in mediation
under certain circumstances, and the circuit court may consider
a party's refusal to mediate in awarding fees and costs:
If an apartment owner or the board of directors requests
mediation of a dispute involving the interpretation or
enforcement of the association of apartment
owners' declaration, bylaws, or house rules, the other
party in the dispute shall be required to participate in
mediation. Each party shall be wholly responsible for its
own costs of participating in mediation, unless both
(. . . continued)
(3) Enforcing any provision of the declaration, bylaws,
house rules, and this chapter, or the rules of the
real estate commission;
against an owner, occupant, tenant, employee of an owner,
or any other person who may in any manner use the property,
shall be promptly paid on demand to the association by such
person or persons; provided that if the claims upon which
the association takes any action are not substantiated, all
costs and expenses, including reasonable attorneys' fees,
incurred by any such person or persons as a result of the
action of the association, shall be promptly paid on demand
to such person or persons by the association.
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parties agree that one party shall pay all or a specified
portion of the mediation costs. If a party refuses to
participate in the mediation of a particular dispute, a
court may take this refusal into consideration when
awarding expenses, costs, and attorneys' fees.
HRS § 514B-161(a) (emphases added).
Mediation, however, is not mandatory under HRS § 514B-
161(b) where the health and safety of unit owners are at issue:
"Nothing in subsection (a) shall be interpreted
to mandate the mediation of any dispute involving
. . . [a]ctions seeking equitable relief
involving threatened property damage or the
health or safety of association members or any
other person[.]"
HRS § 514B-161(b)(1) (Supp. 2016) (emphases added).
In Mitchell, the association was awarded attorney's
fees and costs pursuant to HRS § 514B-157, over Mitchell's
objections, which included that the association refused to
mediate the dispute pursuant to HRS § 514B-161(a). 134 Hawai‘i
at 252-53, 339 P.3d at 1053-54. On appeal and certiorari,
Mitchell challenged the award of fees and costs, arguing that
the association's refusal to participate in mediation precluded
it from receiving an award of fees and costs under HRS § 514B-
161(a). 134 Hawai‘i at 254-55, 339 P.3d at 1055-56.
The Hawai‘i Supreme Court explained that although the
court has discretion under HRS § 514B-161(a) to consider the
refusal to mediate in awarding fees and costs, it "cannot assume
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that the circuit court in this case exercised such discretion
simply by virtue of having reduced the [association's] fee
award, because the hearing transcript is silent on the matter."
134 Hawai‘i at 254-55, 339 P.3d at 1055-56. The supreme court
noted that Mitchell expressly raised HRS § 514B-161(a), and
"[g]iven the legislature's intent to encourage mediation of
condominium disputes, the circuit court should have addressed
whether HRS § 514B-161(a) applied." 134 Hawai‘i at 255, 339 P.3d
at 1056.
The supreme court then directed the circuit court on
remand to "determine whether the [association] refused to
participate in mediation, and if so, the circuit court should
consider, on the record, such refusal in determining whether to
award attorney's fees and costs." Id.As in Mitchell, we cannot assume that the circuit
court considered the application of HRS §§ 514B-161(a) and (b)
because the circuit court made no ruling on the matter despite
it being expressly raised by both parties. The circuit court,
thus, erred in granting summary judgment on Count III and abused
its discretion in awarding attorney's fees and costs.
On remand, the circuit court should determine, on the
record, whether HRS § 514B-161(a) or (b) controls in this case.
And should the circuit court determine that HRS § 514B-161(a)
controls, the circuit court should then place on the record
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whether a refusal to mediate, if any, was taken into
consideration when awarding fees and costs.
Finally, in light of our decision to vacate the
circuit court's award of fees and costs and remand this case for
further proceedings, we need not address Clay's alternative
arguments based on public policy and HAR § 11-90-10(b)(3).
2. Association Fines
In conjunction with her challenge of attorney's fees
and costs, Clay argues that the imposition of fines was "well
over the maximum by the House Rules, but the Board did not give
[her] notice or an opportunity for a hearing, and actively
opposed [her] requests for mediation." As discussed above, the
imposition of a fine was authorized. However, the basis for the
circuit court's approval of fines in excess of the $350.00
maximum is unclear. Therefore, on remand, the circuit court is
directed to determine the propriety of the fines in the amount
of $1,050.00.
III. CONCLUSION
Based on the foregoing, we affirm the circuit court's
(1) December 19, 2016 order granting Association's motion for
partial summary judgment as to Count I and (2) December 19, 2016
order denying Clay's motion for leave to file a counterclaim.
We vacate the circuit court's (1) June 28, 2017 order granting
Association's motion for partial summary judgment as to
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Count III and (2) November 15, 2017 amended final judgment, and
remand this case to the circuit court for further proceedings
consistent with this Memorandum Opinion.
DATED: Honolulu, Hawai‘i, May 26, 2023.
On the briefs: /s/ Katherine G. Leonard
Presiding Judge
Terrance M. Revere,
Andrew D. Chianese, /s/ Clyde J. Wadsworth
for Defendant-Appellant. Associate Judge
Peter W. Olson, /s/ Sonja M.P. McCullen
John P. Duchemin, Associate Judge
(Cades Schutte),
for Plaintiff-Appellee.
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