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A Lis Pendens Is A Powerful, But Limited, Tool For Hawaii Real Estate Litigation Lawyers

Friday, October 25th, 2013

In Hawaii, a Notice of Pendency of Action, or Lis Pendens, is a written notice, filed in the Bureau of Conveyances, stating that there is a pending lawsuit regarding the ownership of that specific real property.  Although seemingly simple, a Notice of Pendency of Action is an enormous encumbrance on a piece of property, and should be used sparingly.  In fact, once the lis pendens is filed, the property becomes nearly impossible to transfer because a buyer will not purchase property whose title is in question.  HRS § 634–51, which authorizes a Notice of Pendency of Action provides as follows:

Recording notice of pendency of action. In any action concerning real property or affecting title or the right of possession of real property, the plaintiff, at the time of filing the complaint, and any other party at the time of filing a pleading in which affirmative relief is claimed, or at any time afterwards, may record in the bureau of conveyances a notice of the pendency of the action, containing the names or designations of the parties, as set out in the summons or pleading, the object of the action or claim for affirmative relief, and a description of the property affected thereby. From and after the time of recording the notice, a person who becomes a purchaser or incumbrancer of the property affected shall be deemed to have constructive notice of the pendency of the action and be bound by any judgment entered therein if the person claims through a party to the action; provided that in the case of registered land, section 501–151 shall govern.

The Notice of Pendency of Action had such a potential for litigation abuse that in 1994, the Hawaii Supreme Court in S. Utsunomiya Enterprises, Inc. v. Moomuku Country Club, 75 Haw. 480, 866 P.2d 951 (Hawaii 1994), clarified the limited use of the NOPA.  In Utsunomiya, the Hawaii Supreme Court wrote that “a lis pendens may only be filed in connection with an action (1) ‘concerning real property,’ (2) ‘affecting title’ to real property, or (3) ‘affecting … the right of possession of real property.’” (quoting Kaapu v. Aloha Tower Dev. Corp., 72 Haw. 267, 269–70, 814 P.2d 396, 397 (1991) (citing HRS § 634–51)).  Furthermore, the Court stated that, “a]lthough the lis pendens doctrine may be applied to actions other than foreclosures, application of the doctrine must be restricted ‘in order to avoid its abuse.'”  Utsunomiya, 75 Haw. at 513.  Finally, the court held that “the lis pendens statute must be strictly construed and … the application of lis pendens should be limited to actions directly seeking to obtain title to or possession of real property.” Id. at 510.


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Agency Relationship in Hawaii

Tuesday, August 16th, 2011

A person may be held liable for the acts of another if an agency relationship is established.  According to the Hawaii Supreme Court, “an agency relationship may be created through actual or apparent authority.”  Cho Mark Oriental Food, Ltd. v. K & K Intern., 73 Haw. 509, 515-17 (1992) (Brackets and citations omitted.).  There are two types of actual authority; express actual authority and implied actual authority.  Id.  Express actual authority is created by an express agreement.  Id.  In the alternative, implied actual authority “may arise either independent of any express grant of authority or it may arise as a necessary or reasonable implication required to effectuate some other authority expressly conferred by the principal.”  Id.  “The focus is on the agent’s understanding of his authority inasmuch as the relevant inquiry is whether the agent reasonably believes, because of the conduct of the principal (including acquiescence) communicated directly or indirectly to him, that the principal desired him so to act.” Id.

With regard to apparent authority, the Hawaii Supreme Court held in Cho also held as follows:

Apparent authority arises when “the principal does something or permits the agent to do something which reasonably leads another to believe that the agent has the authority he was purported to have.”  The critical focus is not on the principal and the agent’s intention to enter into an agency relationship, but on whether a third party relies on the principal’s conduct based on a reasonable belief in the existence of such a relationship.  Apparent authority can occur under the following circumstances:

 (1)The principal has manifested his consent to the exercise of such authority or has knowingly permitted the agent to assume the exercise of such authority; (2). . . the third person knew of [the principal’s actions]. . .and, acting in good faith, had reason to believe, and did actually believe, that the agent possessed such authority; and (3) . . . the third person, relying on such appearance of authority, has changed his position and will be injured or suffer loss if the act done or transaction executed by the agent does not bind the principal.

Cho Mark Oriental Food, Ltd. v. K & K Intern., 73 Haw. at 516-17.  (Brackets and citations omitted.)

When an agent acts with apparent authority, “the principal can be vicariously liable to wronged third parties even when the agent acts wholly out of personal motive or with the purpose of defrauding his principal and even when the principal is innocent and deprived of any benefit.”  Premium Financing Specialists, Inc. v. Hullin, 90 S.W.3d 110, 113 (Mo.App.W.D. 2002).  It is important to make sure that anyone purportedly acting as your agent is acting in your best interests since you may be liable for his or her actions.

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Misrepresentation and Fraud in Hawaii

Tuesday, August 9th, 2011

If a person or entity has been deceived, Hawaii law provides for a means of redress.  Under Hawaii’s doctrine of fraudulent inducement, if a person enters into a contract due to the misrepresentations of the other contracting party, the person lied to may ask the court to invalidate the terms of the contract.  The Hawaii Supreme Court recognizes the elements of fraudulent inducement to be as follows:

To constitute fraudulent inducement sufficient to invalidate the terms of the contract, there must be (1) a representation of material fact, (2) made for the purpose of inducing the other party to act, (3) known to be false but reasonably believed true by the other party, and (4) upon which the other party relies and acts to [his or her] damage.

Matsuura v. E.I. du Pont de Nemours and Co., 102 Hawaii 149, 162-63, 73 P.3d 687, 700-01 (Hawaii 2003) (quoting Hawaii Community Federal Credit Union v. Keka, 94 Hawaii 213, 230, 11 P.3d 1, 18 (2000)).

However, not every representation will be actionable.  The Intermediate Court of Appeals has held that only the following representations are actionable:

The false representation, to be actionable, must relate to a past or existing material fact, and not to the happening of future events[.]  Generally, fraud cannot be predicated upon statements [that] are promissory in their nature at the time they are made and [that] relate to future actions or conduct.  A promise relating to future action or conduct will be actionable, however, if the promise without the present intent to fulfill the promise[.]

Pancakes of Hawaii, Inc. v. Pomare Properties Co., 85 Hawaii 300, 312 944 P.2d 97, 109 (Haw.Ct.App. 1997) (quoting Honolulu Federal Savings and Loan Ass’oc v. Murphy, 7 Haw.App. 196, 200 753 P.2d 807, 811 (Haw.Ct.App. 1988)). 

Additionally, the party seeking to have the contract invalidated must prove that his or her reliance on the false representation was a reasonable one.  Exotics Hawaii-Kona, Inc. v. E.I. Du Pont De Nemours & Co., 116 Hawai’i 277, 172 P.3d 1021 (2007).  Finally, in addition to the above mentioned elements, the party seeking to invalidate the contract will have to prove that he or she suffered some sort of injury or damage as a result of the other party’s misrepresentations.  Matsuura, 102 Hawaii at 163, 73 P.3d at 701. 

Moreover, the Hawaii Unfair and Deceptive Trade Practices Act (H.R.S. § 480-2) provides a remedy to consumers and investors injured through marketing materials that had a “capacity to mislead.”  A Plaintiff prevailing in a claim under H.R.S. § 480-2 may be awarded treble damages, attorneys fees and costs (H.R.S. § 480-13). 



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The Hawaii Dam Safety Act

Saturday, October 2nd, 2010

We successfully represented property owners damaged by the Ka Loko Dam breach that occurred on Kauai on March 14, 2006.  See our previous blogs dated  November 3, 2009 (http://legalblog.hawaii-attorney.net/2009/11/) and September 26, 2007 (http://legalblog.hawaii-attorney.net/2007/09/26/the-kaloko-dam-case/).  The Ka Loko Dam breach killed seven people.  The Dam Safety Act (HRS § 179D-1, et. al.) was revised in 2007 as a result of the Ka Loko Dam breach.  According to an article by KHON2, the State of Hawaii is planning to hold statewide hearings about proposed new dam regulation.  Ideally, these proposals will provide more effective regulations and oversight for existing dams and for the construction of new dams in Hawaii.  Please find below a link to this KHON2 article for more details. 


These hearings are long overdo. 

The Dam Safety Act provides that “the Legislature finds and declares that the inspection and regulation of all dams or reservoirs are properly a matter of regulation under the police powers of the State.”  HRS § 179D-2 (as amended in 2007).

The Legislative History of the Dam Safety Act succinctly states as follows:

This Bill provides for the inspection and regulation of construction, operation and removal of certain dams in order to protect the health, safety and welfare of the citizens of the State by reducing the risk of failure of such dams.

S.C. Rep. 325 Haw. House. Stand. Comm. Rpt. 365, Reg. Sess. (1987).

To fulfill this purpose, the Hawaii Legislature created certain procedures and duties to the board to affirmatively regulate dams in this State which are contained in HRS § 179D-6 (amended in 2007). 

Hopefully, the hearing will produce dam regulations and oversight far superior than those that existed prior to March 14, 2006 and those amended in 2007.

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The Kaloko Dam Settlement

Tuesday, November 3rd, 2009

The Kaloko Dam flood was a terrible tragedy, about which I previously posted in September of 2007. I am happy to report that we have reached a successful settlement, which will allow our clients to restore their idyllic property.

Our clients’ property, on the island of Kauai, was severely damaged by the Ka Loko Dam flood. I represented one of the largest property owners damaged by the Ka Loko Dam flood. Admittedly, I was part of a team of plaintiffs attorneys. (A case this size had to be handled by a team of attorneys). The case allowed me to work with some of Hawaii’s best attorneys. It was also an honor to watch the manner in which this difficult case was handled by the Court. As an advocate, I was not always pleased with every ruling, however, the way the Court controlled the litigation was inspiring. I also participated in the mediation skillfully handled by Warren Price and Keith Hunter. It was conducted over several months and involved multiple parties and insurance carriers. This complex case involved every imaginable issue of law and procedure. The attorneys for the plaintiffs and the defendants handled this difficult case with the highest degree of courtesy and professionalism.

In my September 2007 Kaloko Dam blog, I wrote the following:

We are very proud to represent this family in their pursuit for justice. In a few years, we intend to write a follow up to this blog in which we will describe how we helped our clients restore their beautiful Kauai landscape.

This outcome will allow our clients to restore their home to the condition it was in before the flood. I also hope that this settlement allows the Kauai community to continue the process of healing from this tragedy.

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Real Estate Settlement Procedures Act (RESPA)

Wednesday, June 3rd, 2009

The Real Estate Settlement Procedures Act (RESPA), 12 U.S.C.A Section 26, et seq, was enacted by Congress to “effect certain changes in the settlement process for residential real estate that will result:”

(1) in more effective advance disclosures to home buyers and sellers of settlement costs;

(2) in the elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services;

(3) in a reduction in the amounts home buyers are required to place in escrow accounts established to insure the payment of real estate taxes and insurance; and

(4) in slight reform and modernization of local recordkeeping of land title information.

12 U.S.C.A. Section 2601(b).

A particular RESPA disclosure that must be made by a lender includes the following:

Each person who makes a federally related mortgage loan shall disclose to each person who applies for the loan, at the time of application for the loan, whether the servicing of the loan may be assigned, sold, or transferred to any other person at the time while the loan is outstanding.

12 U.S.C.A Section 2605(a)(emphasis added).

The failure of a lender to make the above disclosure establishes a private right of action for the borrower against the lender. Sanborn v American Lending Network, 506 F.Supp.2d 917, 923 (D.Utah, 2007).

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Truth in Lending Act in Hawaii

Tuesday, February 17th, 2009

The Truth in Lending Act (TILA) found in 15 U.S.C.A. section 1601, et. seq. was enacted to “protect consumers and promote the ‘informed use of credit.'” Washington v Americquest Mortgage.Co., 2006 WL 1980201, *6 (N.D.Ill., 2006). As such, TILA requires creditors to conspiciously disclose certain terms and costs information prior to a credit transaction. Id. This information includes, but is not limited to, the annual percentage rate and “finance charge,” order of disclosures, and use of different terminology. 15 U.S.C.A. section 1632(a).

The Statute of Limitation on a TILA action is one year for closed ended credit cases pursuant to 15 U.S.C.A. section 1640. The exception to the one year statute of limitation is when the remedy sought is to enforce the right of rescission under 15 U.S.C.A. section 1635. 15 U.S.C section 1635 provides that in any consumer credit transaction in which a security interest is retained or acquired in any real property which is used as the residence of the person to whom credit is extended, the obligor has the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the disclosures required by the Truth in Lending Act, whichever is later, by notifying the creditor of his intention to rescind. 15 U.S.C section 1635. 15 U.S.C section 1635 applies to loans on unimproved lots that are intended for recreational or residential use. Charnita, Inc. v. F. T. C., 479 F.2d 684, 686-87, (C.A.3, 1973).

For a link to commercial litigation areas regularly practiced by this office please click here.

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Disclosure of Defects in Hawaii

Friday, January 9th, 2009

This blog will discuss (i) whether the seller of a home has a duty to disclose material facts regarding the property to a buyer and (ii) whether the realtor and/or seller of a home has a duty to disclose material facts regarding the property to a buyer. The short answer is that a seller has an absolute duty to disclose material facts to the buyer. Although this obligation is usually handled by the seller in the disclosure statement, the legal obligation arises from the common law and a variety of statutes.

For example, pursuant to HRS section 508, a seller (or an agent of a seller, ie. real estate agent) may be found liable for failure to disclose defects in property sold. HRS section 508D-1 requires “disclosure by seller (and extended to realtor) of “material facts” relating to property that are (1) within the knowledge or control of the seller, or (2) can be observed from a visible, accessible area, or are required under section 508D-15.” Material fact is defined as “any fact, defect, or condition, past or present, that would be expected to measurably affect the value to a reasonable person of the residential property being offered for sale.”
However, there are several defenses available to the seller. Accordingly, HRS section 508D-13 provides that:

Information in a disclosure statement that has not been disclosed or becomes inaccurate regarding a material fact as a result of an act, agreement, or occurrence (or otherwise becomes known to seller) after the statement is provided to the buyer does not violate this chapter.

Therefore, if the material defects arise after the buyer purchased the home, then there is no valid claim against the seller.

There must be evidence that the seller had prior knowledge of the defect. According to HRS section 508D-1, “the material fact that is required to be disclosed must be within the knowledge of the seller or visible to the seller.”

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Hawaii Unlicensed Contractor Liability: 2

Friday, January 2nd, 2009

In my previous blog I discussed whether, under Hawaii law, a homeowner must pay for services provided by an unlicensed contractor. This blog will consider whether a subsequent procurement of a Hawaii license by a previously unlicensed contractor can validate a contract that was agreed upon while the contractor was still unlicensed.

It is my opinion that a subsequent procurement of a license by an unlicensed contractor will not validate a previously illegal contract. I will explain. In Hawaii, a contract made with an unlicensed contractor is, as a matter of law, an illegal contract since it is in violation of HRS chapter 444. Therefore, it seems likely that if a contractor obtains a license after the contract is created, he still will not be able to collect payment for work performed while previously unlicensed. See HRS 444-22. The statute itself provides that the failure to obtain a license shall prevent such persons from recovering for work done or material and supplies so long as “such person failed to obtain a license. . .prior to contracting for such work.” (emphasis added). The clear language of the statute indicates that a license must be obtained before the contract was made in order to prevent the harsh consequences of HRS 444-22.

Although there is no Hawaii case directly on point, this is consistent with other state court rulings applying statutes similar to Hawaii’s existing law. The North Carolina Supreme Court interpreted their statute strictly, holding that a contract “cannot be validated by the contractor’s subsequent procurement of a license.” Brady v Fulghum, 308 SE.2d 327, 331 (NC, 1983) affirmed by Jenco v Signature Homes, Inc., 468 S.E.2d 533, 535 (NC. App., 1996), and Currin & Currin Const., Inc. v Lingerfelt, 582 S.E.2d 321, 324 (NC. App., 2003). That North Carolina Court also rejected the unlicensed contractor’s argument of “substantial compliance.” Id. North Carolina courts have consistently read the statute strictly and without exceptions. Admittedly, North Carolina has subsequently changed its statute which superseded this holding. The current North Carolina statute expressly allows payment to a contractor who subsequently procures a license so long as that contractor substantially complied with the licensing requirements. California has also changed their statute to allow for “substantial compliance by the contractor”. As of the creation of this blog, the Hawaii legislature has not so modified its statute.

The plain language of the Hawaii statute provides that the failure to obtain a license shall prevent such persons from recovering for work done or material and supplies so long as “such person failed to obtain a license. . . prior to contracting for such work.” (emphasis added). It is likely that a Hawaii court will enforce this statute strictly and require that the procurement of a license must be made before the contractor (i) agrees to do the work and (ii) begins performance.

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Hawaii Unlicensed Contractor Liability

Tuesday, December 23rd, 2008

We are occasionally asked whether an unlicensed contractor is entitled to collect compensation for work provided to a contracting party. A corollary of this issue is whether the monies already paid to the contractor must be refunded to the contracting party.

HRS 444-9 requires that no person shall “act or assume to act, or advertise” as a contractor (under the definition contained in HRS 444-1) without a license previously obtained by the licensing board. Further, HRS chapter 444 imposes penalties for violation of this statute, including but not limited to HRS 444-22. HRS 444-22 provides that:

The failure of any person to comply with any provision of this chapter shall prevent such person from recovering for work done, or materials or supplies furnished, or both on a contract or on the basis of reasonable value thereof, in a civil action, if such person failed to obtain a license under this chapter prior to contracting for such work.

HRS 444-22 prohibits unlicensed contractors from recovering for work performed, materials and/or supplies furnished. There is a strong public policy behind this rule. The Hawaii Supreme Court has explained this policy:

HRS chapter 444, providing for the licensing of contractors, expresses a very strong public policy that contractors in this state should apply for, and retrieve licenses, and the provisions of HRS 444-22, which are sweeping in their terms, are obviously intended to produce harsh results in furtherance of this policy.

Butler v Obayashi, 71 Haw. 174, 177 (1990).

It has been contended that parties contracting with unlicensed contractors should be barred from bringing suit since they too are parties to the illegal contract. However, the Hawaii Intermediate Court of Appeals (“ICA”) in Jones v Phillipson found this argument unpersuasive. Jones v Phillipson, 92 Haw 117, 124-126 (1999). The ICA held that “a contract with an unlicensed contractor is not void ab initio, and this section [HRS 444-22] does not bar a member of the public, who is party to such a contract, from bringing suit to recover breach of contract damages from an unlicensed contractor”. Id at 126. The ICA determined that any other result “would defeat the purpose of protecting the public by providing a shield from litigation for an unlicensed builder.” Id; citing Domach v Spencer, 101 Cal.App.3d 308, 311 (1980) (In Jones the Hawaii Supreme Court cited Domach, a California case, because it recognized that the California statue was similar to the Hawaii statute).

Similarly, in Butler the Hawaii Supreme Court decided that, regardless of whether a contracting party knew that the contractor was unlicensed, an unlicensed contractor is still prohibited from recovering for work pursuant to HRS 444-22. Butler at 177. These two Hawaii cases, Butler and Jones, clearly establish that a party contracting with an unlicensed contractor may bring suit against the contractor regardless of whether they knew that the contractor was unlicensed.

In an analogous case, Domach v Spencer, the homeowners filed a claim against the contractor for breach of contract for failing to provide “workmanlike construction”. Domach at 308. In that case, the contractor demanded greater compensation than was originally contracted for to complete the home. Id. at 310. Although the homeowners paid the contractor the agreed amount, at trial the homeowners demanded that all the monies be returned since the contractor was not licensed. The Domach court found in favor of the homeowners and awarded an amount necessary to pay for reparation of any “unworkmanlike” construction. Id. at 314. Regrettably, the Domach opinion does not explain the extent to which damages were awarded (including whether the homeowners were allowed to recover the money paid to the contractor or simply money paid for repair of the defective construction).

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