Schnidt v. HSC, Inc.Â

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Electronically Filed
Supreme Court
SCWC-29454
15-JAN-2014
10:17 AM

IN THE SUPREME COURT OF THE STATE OF HAWAI#I

---o0o—

THOMAS FRANK SCHMIDT and LORINNA JHINCIL SCHMIDT,
Petitioners/Plaintiffs-Appellants, Cross-Appellees,

vs.

HSC, INC., a Hawai#i corporation,
RICHARD HENDERSON, SR., and ELEANOR R.J. HENDERSON,
Respondents/Defendants-Appellees, Cross Appellants.

SCWC-29454

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(ICA NOS. 29454 and 29589; CIV. NO. 06-1-0228)

January 15, 2014

NAKAYAMA, ACTING C.J., ACOBA, McKENNA, AND POLLACK, JJ., AND
CIRCUIT JUDGE GARIBALDI, IN PLACE OF RECKTENWALD, C.J., RECUSED

OPINION OF THE COURT BY ACOBA, J.

We hold that, in accordance with the text of Hawai#i

Revised Statutes (HRS) § 651C-9(1) (1993)1 pertaining to the

1
HRS § 651C-9 is set forth infra.

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Uniform Fraudulent Transfers Act (UFTA2), that the one year

limitations period that begins on the date a transfer “was or

could reasonably have been discovered by the claimant” commences

when a plaintiff discovers or could reasonably have discovered a

transfer’s fraudulent nature. The Intermediate Court of Appeals

(ICA), however, held that the limitations period begins when the

transfer, rather than its fraudulent nature, is discovered, and

resultingly affirmed the October 7, 2008 judgment of the Circuit

Court of the Third Circuit (the court)3 that dismissed the action

brought by Petitioners/Plaintiffs-Appellants Thomas Frank Schimdt

and Lorinna Jhincil Schmidt (collectively, Petitioners) on the

ground that the statute of limitations period had run on

Petitioners’ action.4 Based on this ruling, the ICA did not

reach Petitioners’ points of error on the merits of the case

2
HRS Chapter 651C represents Hawai#i’s adoption of the UFTA. The
UFTA is a uniform act that has been adopted by 45 jurisdictions. See 7A
Uniform Laws Annotated, Part II at 2-3 (2006).

3
This case involves proceedings before three different judges. As
explained in greater detail infra, Realty Finance Inc. (RFI) initially filed a
foreclosure action in the First Circuit Court under case number CIV. 97-1235-
03. The Honorable Kevin S. Chang presided over the initial proceedings.
Realty Finance, Inc. v. Schmidt (Realty II), No. 23441, 2004 WL 541878, at *1
n.3 (Haw. 2004) (mem.).
The judgment in that case was eventually remanded to the First
Circuit Court by this court in Realty II. The Honorable Karen N. Blondin
presided over the proceedings on remand.
Following the entry of final judgment in Civ. No. 97-1235-03,
Petitioners filed the action that is the subject of the instant appeal, Civ.
No. 06-1-228 in the Circuit Court of the Third Circuit. The Honorable Greg K.
Nakamura presided. In this opinion, the reference to “the court” is used to
describe the presiding court in each of the three trial proceedings. However,
the judge presiding over specific proceedings is noted.

4
The opinion was filed by the Honorable Alexia D.M. Fujise, the
Honorable Katherine G. Leonard, and the Honorable Lisa M. Ginoza.

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raised in Petitioners’ October 29, 2008 appeal from the court’s

October 7, 2008 final judgment in favor of Respondents/

Defendants-Appellees, HSC, Inc. (HSC), Richard Henderson Sr.

(Richard), and Eleanor Henderson (Eleanor), (collectively,

Respondents). Because the ICA erred in its ruling on the statute

of limitations issue and should have decided the merits of the

claim raised in Petitioners’ appeal, we vacate the October 9,

2013 judgment of the ICA filed pursuant to its August 30, 2013

Memorandum Opinion and remand the case to the ICA for disposition

consistent with this opinion.
I.

A.

This case can be traced back to a complaint for

foreclosure filed in the court5 on March 27, 1997, by RFI against

Petitioners, as well as Amerasian Land Co. (Amerasian)6 and

Turlington Corporation, filed in Civ. No. 97-1235-03.7

5
The Honorable Kevin S. Chang, in the First Circuit Court,
presided.

6
Neither RFI, Amerasian, nor Turlington Corporation are parties to
this present action.

7
As explained in greater detail infra, the proceedings that are the
issue of this appeal are distinct from, but related to the proceedings in the
First Circuit Court under case Civ. No. 97-1235-03 described supra. Hence,
the facts of that case are not a part of the record on appeal. For the
purposes of background, the facts of that case are taken from the ICA opinion
in Realty Finance, Inc. v. Schmidt, (Realty I), No. 23441 (Haw. App. June 27,
2002) (mem.), available at http://www.state.hi.us/jud/ica23441mop2.htm#, and
from the supreme court Opinion in Realty II.

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On June 10, 1991, Petitioners executed and delivered a

promissory note secured by a mortgage to Investors Finance, Inc.

(Investors) in the amount of $228,853.72. Realty II, 2004 WL

541878, at *1. On June 11, 1995, Petitioners executed and

delivered a second promissory note and mortgage to Investors in

the amount of $225,000 in a separate property transaction. Id.

at *1. Thereafter, Investors assigned and transferred both the

1991 and 1995 notes and mortgages to RFI. Id. Petitioners

subsequently defaulted on the notes and mortgages and RFI

initiated a foreclosure action against Petitioners and all

defendants on March 27, 1997. Id.

On February 24, 1998, the court granted a motion for

summary judgment and an interlocutory decree of foreclosure for

RFI, and determined the principal and interest amounts owed by

Petitioners to RFI. Id. at *2. In the aftermath of the court’s

February 24, 1998 judgment, RFI sold Petitioners’ notes and

mortgages to another investor, Waikiki Investments 418, Inc.

(Waikiki Investments), and allowed Waikiki Investments to collect

the monies owed on the notes and mortgages in order to discharge

the mortgages burdening the mortgaged properties. Id. at *3.

Waikiki Investments collected a total of $534,000 from Amerasian

and Lulani Properties, LLC (Lulani) before eventually defaulting

on its agreement with RFI. Id. at *4.

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RFI then filed notice reasserting its status as real-

party-in-interest and resumed foreclosure proceedings against

Petitioners. Id. After re-entering the case, RFI filed a motion

for an order approving confirmation of the private sale of the

subject properties on October 25, 1999. Realty I, slip op. at 9.

Subsequently, on December 21, 1999, Petitioners and Amerasian

filed a memorandum maintaining that the $534,000 paid to Waikiki

Investments should be credited to the debt owed by Petitioners to

RFI. Id. at 12. On January 6, 2000, RFI filed an opposition

memorandum arguing that it was not obligated to credit the

$534,000 payment. Id. In an Order filed on January 31, 2000,

the court apparently agreed with RFI’s position that it was not

required to give Petitioners credit for the $534,000 paid to

Waikiki Investments. Realty II, 2004 WL 541878, at *5.

Without informing Petitioners, in February 2000 RFI

transferred the proceeds of the foreclosure sale to four

creditors of RFI’s parent company, HSC. Schmidt v. HSC, Inc.,

No. 29454, 2013 WL 4711524, at *2 (Haw. App. Aug. 30, 2013). The

funds were transferred to Richard, Eleanor, the law firm of

Goodsill, Anderson, Quinn, and Stifel, (Goodsill), and Kamehameha

Schools, Bishop Estate (Kamehameha Schools). Richard was the

President of HSC. Eleanor was his wife and a director of HSC.

Goodsill and Kamehameha Schools were apparently creditors of HSC,

and not RFI.

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However, after RFI transferred the proceeds of the

foreclosure sale to the creditors of HSC, this court in Realty II

agreed that RFI should have credited Petitioners for the payments

made to Waikiki Investments. Realty II, 2004 WL 541878, at *8.

Therefore, this court reversed the court’s January 30, 2000 Order

and remanded to that court for further proceedings consistent

with this court’s order. Id.

B.

On remand, the court8 issued a December 21, 2004 final

judgment with regard to the surplus sale proceeds, requiring RFI

to repay approximately $537,000 to Petitioners. At this point,

Petitioners were still unaware that the proceeds of the

foreclosure sale had been transferred.

On March 18, 2005, the parties’ counsel met to discuss

RFI’s payment of the December 21, 2004 final judgment. At the

meeting, Petitioners’ counsel received RFI’s monthly bank

statement for February, 2000. The monthly bank statement

revealed that following the payment from the foreclosure

commissioner, RFI wrote four checks, one for $54,399.55, one for

$78,000.00, one for $119,393.42, and one for $165,058.42. The

monthly bank statement also indicated that the ending balance in

8
The Honorable Karen N. Blondin, in the First Circuit Court,
presided over the proceedings on remand.

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RFI’s bank account was $71,857.79. However, there was apparently

no indication of who received the checks.

On April 20, 2005, counsel for both parties attended a

“meet and confer” regarding the four checks listed in the monthly

bank statement. The results of the “meet and confer” are not a

part of the record. However, it is undisputed that at the

meeting, counsel for Petitioners received copies of the four

checks and discovered that the checks were made “to insiders.”

On July 26, 2005, counsel for Petitioners deposed

Michael Chagami (Chagami), the treasurer of HSC, Inc. Chagami

explained that RFI transferred the proceeds of the foreclosure

sale to HSC to “satisfy certain obligations of HSC.” Chagami

further stated that as of December of 2004, RFI was “insolvent.”

Subsequently, on September 1, 2005, Petitioners filed

an ex parte motion for issuance of execution and garnishment of

the December 21, 2004 judgment against the assets of both RFI and

HSC. In their memorandum in support of the motion, Petitioners

asserted that the transfers were fraudulent under HRS §§ 651C-

4(a)(1) (1993), 651C-4(a)(2) (1993), and HRS § 651C-5 (1993).9

Accordingly, Petitioners asserted that they were entitled to

execution and garnishment against the assets transferred under

HRS § 651C-7(b) (1993). The court denied Petitioners’ motion

9
HRS § 651C-5 establishes the circumstances under which a transfer
by a debtor is fraudulent as to a present creditor. Petitioners did not file
a cause of action under HRS § 651C-5 in their Complaint.

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“without prejudice to filing a separate action against the proper

parties.”

C.

On April 7, 2006, Petitioners filed a Complaint with

the court against Respondents in Civ. No. 06-1-0611-04 that is

the subject of the instant appeal. The Complaint alleged, inter

alia, that the transfers were fraudulent and Petitioners were

entitled to remedies under HRS § 651C-7.

The case proceeded to a bench trial on July 1 and 2,

2008. The parties submitted written closing arguments on July

31, 2008. In their closing argument, Petitioners asserted that

the transfers violated HRS § 651C-4(a)(1)10 because they were

10
HRS § 651C-4 provides in relevant part as follows:

§ 651C-4 Transfers fraudulent as to present and future creditors.

(a) A transfer made or obligation incurred by a debtor is
fraudulent as to a creditor, whether the creditor's claim
arose before or after the transfer was made or the
obligation was incurred, if the debtor made the transfer or
incurred the obligation:
(1) With actual intent to hinder, delay, or defraud any
creditor of the debtor; or
(2) Without receiving a reasonably equivalent value in
exchange for the transfer or obligation, and the debtor:
(A) Was engaged or was about to engage in a business or a
transaction for which the remaining assets of the debtor
were unreasonably small in relation to the business or
transaction; or
(B) Intended to incur, or believed or reasonably should have
believed that the debtor would incur, debts beyond the
debtor's ability to pay as they became due.

(b) In determining actual intent under subsection (a)(1),
consideration may be given, among other factors, to whether:
(1) The transfer or obligation was to an insider;
. . .
(3) The transfer or obligation was disclosed or concealed;
(4) Before the transfer was made or obligation was incurred,

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made with “[a]ctual intent to hinder, delay, or defraud

Petitioners.” Additionally, Petitioners asserted that their

claims fell within the statute of limitations established by HRS

§ 651C-9(1).11 In opposition, Respondents asserted that

Petitioners “failed to prove actual intent clearly and

convincingly,” see Kekona v. Abastillas, 113 Hawai#i 174, 181-82,

150 P.3d 823, 830-31 (2006) (holding that the clear and

convincing standard applies to UFTA fraudulent transfer claims),

and that Petitioners’ “claim was not timely filed.”

On October 7, 2008, the court entered the following

relevant findings of fact (findings), conclusions of law

(conclusions), and Order:

the debtor was sued or threatened with suit;
(5) The transfer was of substantially all the debtor's
assets;
. . .
(9) The debtor was insolvent or became insolvent shortly
after the transfer was made or the obligation was incurred;
. . . .

(Emphases added.)

11
HRS § 659C-9 provides in relevant part as follows:

§ 651C-9 Extinguishment of cause of action.

A cause of action with respect to a fraudulent transfer or
obligation under this chapter is extinguished unless action
is brought:

(1) Under section 651C-4(a)(1), within four years after the
transfer was made or the obligation was incurred or, if
later, within one year after the transfer or obligation was
or could reasonably have been discovered by the claimant;
. . . .

(Emphases added.)

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Findings of Fact

. . . .
5. This action relates to four allegedly fraudulent
transfers by RFI: (a) a check payable to Defendant [Eleanor]
dated February 11, 2000 in the amount of $78,000; (b) a
check payable to [Goodsill] dated February 15, 2000 in the
amount of $119,393.42; © a check payable to Defendant
[Richard] dated February 11, 2000 in the amount of
$54,399.55; and (d) a check payable to [Kamehameha Schools]
in the amount of $165,058.42 from Februrary 2000 . . . .
6. The Transfers were made from the proceeds of a
mortgage foreclosure sale which involved a transaction in
which [Petitioners] were the mortgagors, and RFI, a
subsidiary of HSC, was the mortgagee.
7. The foreclosure sale proceeds received by RFI were
used for the Transfers. The Transfers were payable to
creditors of HSC.
8. There were some suspicious circumstances regarding the
Transfers:
a. HSC was the parent company of RFI. The Transfers were
made to creditors of HSC in order to pay RFI’s obligations
to HSC;
b. they were made through a separate account apparently
created to effectuate them;
c. they were made immediately after receipt of the
proceeds of the foreclosure sale; and
d. [Petitioners] appealed the trial court’s judgment, so,
at the time of the Transfers, it was questionable whether
RFI would prevail on appeal. In order for RFI to prevail on
appeal, the appellate court would have to determine that it
was appropriate to require [Petitioners] to, in effect, pay
twice in order to obtain a release from the judgment
received by RFI in the foreclosure action: once to the
assignee of the judgment, and once to RFI itself.
9. These circumstances did not constitute clear and
convincing evidence of any actual intent on the part of
[Respondents] to hinder, delay, or defraud any creditors of
RFI:
a. When the Transfers were made, there was no actual debt
owed to the Plaintiffs by RFI.
b. There was no expert testimony demonstrating that the
Transfers were in violation of generally accepted accounting
practices.
c. At the time of the Transfers, there was no business
need to retain cash for the benefit of [Petitioners] should
[Petitioners] prevail upon appeal. The onus was on
[Petitioners] to obtain a stay in order to maintain the
status quo pending the appeal. This would have enabled them
to have a fund available to recover from if they prevailed
on appeal. [Petitioners] did not obtain such a stay.
d. At the time of the Transfers, RFI had bona fide debts
owed to HSC and there was a legitimate business purpose in
transferring RFI’s assets to reduce those debts.
. . . .
f. RFI did not conceal the Transfers by, for example, not
recording the Transfers in its accounting records or by

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entering into agreements with the transferees not to
disclose the existence of the Transfers.
g. The Transfers did not render RFI insolvent at the time
they were made.
h. RFI did not terminate its existence after the
Transfers.

Conclusions of Law

. . . .

5. Despite the facts reflecting in [findings] 8(a)-8(d),
[Petitioners] did not prove by clear and convincing evidence
that RFI actually intended to hinder, delay, or defraud any
creditors of RFI, as required by HRS § 651C-4(a)(1).

Order of Dismissal

Based on the foregoing [findings and conclusions] . . . this
action is to be dismissed and judgment is to be entered in
favor of [Respondents] and against [Petitioners].

(Emphases added.) The court did not discuss Respondents’

argument that Petitioners’ claim was untimely under HRS § 651C-

9(1).

Following the court’s ruling in favor of Respondents,

Respondents filed a Motion for Attorneys Fees and Costs on

October 10, 2008. Petitioners filed an opposition memorandum.

After Petitioners appealed to the ICA, on January 9, 2009, the

court issued an “Order on [Respondents’] Motion for Attorneys

Fees and Costs Filed on October 10, 2008, requesting that the

matter be remanded to the court for . . . an order [] setting

forth the . . . award of attorney's fees and costs.”12

12
Subsequently, Respondents filed two motions to temporarily remand
the case to the court to allow the court to rule on the attorney’s fees issue.
The ICA denied both motions without prejudice.

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II.

A.

Petitioners appealed to the ICA on November 5, 2008.

In their Opening Brief filed on March 19, 2009, Petitioners

challenged the court’s conclusion that Respondents did not intend

to hinder, defraud, or delay Petitioners by transferring funds

from RFI to HSC, and several findings supporting that conclusion.

Respondents filed a cross-appeal on January 9, 2009. In their

Opening Brief on cross-appeal, Respondents asserted that

Petitioners’ UFTA claim under HRS § 651C-4(a)(1) was time-barred.

Respondents also argued in their cross-appeal that the court

erroneously denied their request for attorneys’ fees. The ICA

did not discuss Petitioners’ arguments that the court’s findings

and conclusions were erroneous. See discussion infra. Rather,

the ICA ruled on the statute of limitations issue raised in the

cross-appeal instead, holding that Petitioners’ UFTA claim should

have been dismissed as untimely.

B.

In their cross-appeal, Respondents maintained that

pursuant to HRS § 651C-9(1), “claims based upon [HRS §651C-

4(a)(1) must] be filed ‘within four years after the transfer was

made [in this case, in February, 2000] . . . or, if later, within

one year after the transfer . . . was or could have been

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discovered by the claimant.[13]’” (Quoting HRS § 651C-9(1).)

Here, Petitioners’ claim was brought more than four years after

the transfers were made in Februrary, 2000. Therefore, according

to Respondents, “[Petitioners’] claim was timely . . . only if []

they had no knowledge of the disputed transfers prior to April 8,

2005 [one year before Petitioners filed their Complaint] and []

they could not have discovered them before that date with

reasonable diligence.”

As to Petitioners’ discovery of the disputed transfers,

Respondents contended that under the discovery rule, “the only

discovery necessary to trigger the running of the one-year

discovery extension is the discovery of the transfers

themselves.” (Emphasis in original.) According to Respondents,

Petitioners “became aware of the existence of the transfers . . .

on March 18, 2005.” (Emphasis in original.) Therefore,

Respondents maintain, “[Petitioners’] claim expired on March 18,

2006,” prior to the filing of Petitioners’ Complaint on April 7,

2006.

Additionally, Respondents argued that Petitioners

should have discovered evidence of the transfers “long before

April 8, 2005,” one year before Petitioners’ Complaint was filed.

13
The section of HRS § 659C-9(1) allowing a plaintiff to bring an
action under HRS § 651C-4(a)(1) within one year after the transfer could
reasonably have been discovered by the claimant is referred to herein as the
“discovery rule.”

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According to Respondents, “after [this court] ruled in

[Petitioners’] favor on March 18, 2004 . . . [Petitioners] had

tools they could, and should have used to discover the disputed

transfers[.]” However, Respondents maintain that Petitioners

“delayed meaningfully seeking discovery into [Respondents] assets

until March 2005[.]” Therefore Petitioners “have no one to blame

but themselves for the extended delay in discovering their []

claim[.]”

C.

In their Answering Brief on cross-appeal, Petitioners

argued that the one year period in the discovery rule does not

begin until the plaintiffs discover the “fraudulent nature” of

the transfer. (Citing Freitag v. McGhie, 947 P.2d 1186 (Wash.

1997).) Petitioners maintained that they “were not aware of the

fraudulent transfers until as early as April 20, 2005.” Hence,

according to Petitioners the one year period did not begin until

April 20, 2005 at the earliest, making their UFTA claim filed on

April 7, 2006 timely.

They also contended that they did not initiate

discovery earlier because “there was no judgment filed in the

foreclosure actions regarding the surplus of the sale proceeds

until December 21, 2004.” Petitioners declared that following

remand by this court, there was “extensive pleading” because

Respondents “opposed the accounting action and forced

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[Petitioners] to make numerous pleadings to finally result in

judgment in their favor.” Petitioners explained that “at no time

did RFI’s counsel tell [Petitioners] that RFI was unable to pay

any monetary judgment . . . over $1,500.”

Also, Petitioners advanced several alternative theories

as to why their claim was timely. They contended (1) that the ex

parte motion filed for execution/and or garnishment filed on

September 1, 2005, “could [also] be construed [] as a

commencement of an action under HRS § 651C-9(1),” (2) that their

claim was timely under HRS § 657-20 (1993),14 which “extends the

statute of limitations by fraudulent concealment,” and (3) that

“the statute of limitations of a UFTA claim starts when the

creditor has a final judgment against the debtor, not on the date

when the transfer was made[.]” (Citing Cortez v. Vogt, 52 Cal.

App. 4th 917 (1997).)

In their Reply Brief, Respondents again argued that

Petitioners’ UFTA claim was untimely under the one year period

set forth in HRS § 651A-9(1). Respondents asserted that they

“did not fraudulently conceal the transfers,” and that the

holding in Cortez that the statute of limitations starts when a

final judgment is entered “has now been rejected by virtually all

jurisdictions.”

14
See HRS § 657-20, quoted infra.

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III.

The ICA agreed with Respondents’ position that the one

year period in HRS § 651C-9(1) begins on the date that the

transfer was discovered, rather than on the date the plaintiff

discovers “the fraudulent nature of the transfer.” Schmidt, 2013

WL 4711524, at *4-5. The ICA recognized that among the other

jurisdictions adopting the UFTA, “there is no uniformity in the

interpretation” of provisions analogous to HRS § 651C-9(1).

Id. at *5. However, “the [discovery rule] plainly,

unambiguously, and explicitly extends the four year time limit to

no later than one year after the transfer has been discovered (or

reasonably should have been discovered).” Id. at *4 (emphasis in

original).

“The term ‘transfer’ is specifically defined in HRS §

659C-(9)(1) to mean ‘every mode, direct or indirect, absolute or

conditional, voluntary or involuntary, of disposing of or parting

with an asset or an interest in an asset, and includes a payment

of money, a release, a lease, and the creation of a lien or

encumbrance.’” Id. The ICA noted that if “the Hawai#i

Legislature intended to require knowledge of the ‘fraudulent

nature’ [of the transfer] to trigger the UFTA statute of

limitations, it could have included such language in its statute,

as Arizona’s legislature has done, but it did not.” Id.

Therefore, the ICA reasoned that the “plain meaning” of HRS §

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651C-9(1) required the one year period to begin on March 18,

2005, the date Petitioners discovered the existence of the

transfers. Id. at *5.

Further, the ICA explained that “[i]t is uncontroverted

that, on March 18, 2005, [Petitioners] received a Realty Finance

bank account statement showing that the four checks . . . were

disbursed by Realty Finance[.]” Id. at *4. “Thus, on March 18,

2005, [Petitioners] discovered that the transfers occurred.” Id.

Consequently, the ICA concluded that “[Petitioners’] UFTA claim

was extinguished no later than one year after their discovery of

the transfers on March 18, 2005, and their April 7, 2006

complaint was untimely.” Id. at *5.

As a result, the ICA did not discuss several arguments

raised by the parties. First, the ICA held that because

Petitioner’s UFTA claim was extinguished by HRS § 651C-9(1), it

“need not reach the merits of [Petitioners’] points of error

contending that the [court] erred in [] rejecting their claims.”

Id. at *5. Second, the ICA held that it was “unnecessary to

address [the] contention” that “the transfers could have been

discovered” at an earlier date. Id. at *4 n. 7. Finally, the

ICA did not discuss any of the alternative theories that

Petitioners raised in support of their position that their claim

was timely.

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As to Respondents’ argument that the court erred in

denying their request for attorneys’ fees, the ICA related that

“Respondents’ subsequent motions to [the ICA] for temporary

remand to allow the [court] to rule on [Respondents’] Hawai#i

Rules of Civil Procedure Rule 60 motion were denied without

prejudice on February 10, 2009 and April 23, 2009.” Id. at *5.

Thus, “the [court] never entered an order determining the amount

of attorneys fees and/or costs or the basis for such an award.”

Id. The ICA “conclude[d] that th[e] case should be remanded for

the limited purpose of allowing the [court] to enter a ruling on

the substance of [Respondents’] request for attorneys’ fees and

costs.” Id. (citing Life of the Land v. Ariyoshi, 57 Haw. 249,

251, 553 P.2d 464, 466 (1976) (per curiam)). Ultimately, the ICA

“affirm[ed] the [c]ourt’s October 7, 2008 Final Judgment” and

“remand[ed] th[e] case for a ruling on [Respondents’] request for

attorneys’ fees and costs.” Id. at *6.

IV.

In their Application, Petitioners ask: (1) “Whether the

ICA . . . [erred in] deciding that Petitioners UFTA claim was

barred by the one-year statute of limitations and [in] failing to

decide that [the court’s] decision erroneously decided that

Petitioners’ UFTA claim was not proven, and therefore, . . .

[denied] Petitioner’s recovery[,]” and (2) “Whether the ICA . . .

[erred in] remanding the case for a decision on Respondents’

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request for attorneys’ fees under HRS § 607-14 and recovery of

costs, without deciding the merits of their attorney fee

request.” A Response was filed on October 31, 2013. A Reply was

filed on November 7, 2013.
V.

As to the initial part of the first question presented

in their Application, Petitioners again argue that their UFTA

claim was timely under four alternative theories. First,

Petitioners maintain that the one year statute of limitations set

forth in HRS § 651C-9(1) begins on the date the fraudulent nature

of the transfer is discovered, rather than on the date the

transfer itself is discovered. Second, Petitioners contend that

“the ex parte motion . . . for execution and/or garnishment . . .

could be construed as a commencement of an action under HRS §

651C-9.” Third, Petitioners argue that under HRS § 657-20,15

the statute of limitations is extended by six years due to

15
HRS § 657-20 provides in relevant part as follows:

§ 657-20 Extension by fraudulent concealment.

If any person who is liable to any of the actions mentioned
in this part or section 663-3, fraudulently conceals the
existence of the cause of action or the identity of any
person who is liable for the claim from the knowledge of the
person entitled to bring the action, the action may be
commenced at any time within six years after the person who
is entitled to bring the same discovers or should have
discovered, the existence of the cause of action or the
identity of the person who is liable for the claim, although
the action would otherwise be barred by the period of
limitations.

(Emphases added.)

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fraudulent concealment. Fourth, Petitioners assert that

limitations period set forth in HRS § 651C-9(1), which allows the

defendants to file an HRS § 651C-4(a)(1) action “within four

years after the transfer was made” actually begins “when the

judgment was final in the underlying action.” (Citing Cortez, 52

Cal. App. 4th at 917.)

VI.

A.

Petitioners’ first theory as to why their claim was

timely is that the “discovery rule” does not begin until a

plaintiff discovers the “fraudulent nature” of the transfer. To

reiterate, under HRS § 651C-9(1), “a cause of action with respect

to a fraudulent transfer[16] . . . is extinguished unless action

is brought,” inter alia, “within one year after the transfer

. . . was discovered . . . or could reasonably have been

discovered by the claimant.” (Emphasis added.)

Petitioners argue that “the effect of HRS § 651C-9 is

to extinguish a cause of action for a fraudulent transfer, not

just any transfer.” (Emphasis in original.) According to

Petitioners, the ICA’s plain language analysis “reads the word

fraudulent out of the first sentence of HRS § 651C-9.” (Emphasis

16
HRS § 651C-9 refers to “a fraudulent transfer or obligation.”
Pursuant to HRS § 651C-4, either a “transfer made” or an “obligation incurred
by a debtor” can be fraudulent. In this case, Petitioners are challenging the
transfer of funds from RFI to HSC, and not an “obligation incurred” by RFI.
Hence, the “obligation” language in HRS § 651C-9 is inapplicable to this case.

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in original.) Petitioners also point out that several cases,

including United States v. Green, 2007 WL 1748698 (S.D. Ohio June

15, 2007), and Freitag, “used the fraudulent nature of the

transfer as commencing the statute of limitations.”17 (Emphasis

in original.)

Petitioners maintain that their UFTA claim, filed on

April 7, 2006, was timely because they “were not aware of the

fraudulent transfers until as early as April 20, 2005,” when they

received copies of the checks used in the transfers and

discovered that the transfers were not made “to proper creditors

of RFI.” According to Petitioners, they did not discover “the

damage [they suffered] . . . until the Chagami deposition on July

26, 2005,” when “for the first time they were informed that RFI

was unable to pay the judgment.”

B.

On the other hand, in their Response, Respondents argue

that “the ICA’s reading of HRS § 651C-9(1) was correct” because

“the plain language [of HRS § 651C-9] directs” that claims are

extinguished “one year after a creditor discovers the disputed

transfers.” Further, Respondents contend that the Hawai#i

17
Apparently as a part of the same argument, Petitioners cite Hayes
v. City and County of Honolulu, 81 Hawai#i 391, 917 P.2d 718 (1996), Anderson
v. State, 88 Hawai#i 241, 965 P.2d 783 (App. 1998), Blair v. Ing, 95 Hawai#i
247, 21 P.3d 452 (2001), and Vidniha v. Miyaki, 112 Hawai#i 336, 145 P.3d 879
(2006), for the proposition that Petitioners’ “UFTA claim accrued when they
discovered or through reasonable diligence should have discovered the damage,
the fraudulent nature of the transfers, and the causal connection between the
duty and the damage[.]”

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legislature has not “chosen to modify [HRS § 651C-9(1)]” with

“language that says the repose period starts after the fraudulent

character of a transfer is first revealed[.]” Hence, Respondents

declare that this court should not add to HRS § 651C-9(1)

“unwritten requirements that the Hawai#i legislature omitted.”

Additionally, Respondents relate that under HRS

§ 1-24, “Hawai#i courts [must] promote uniformity in the

interpretation of uniform laws.” According to Respondents, “most

jurisdictions that have adopted Hawai#i’s version of the [UFTA]”

have held that the one year period in HRS § 651C-9(1) begins on

the date that plaintiffs discovered the transfer, and not its

fraudulent nature. Respondents attached, as an appendix to their

Response, a table of other states that adopted the same statute

of limitations under the UFTA. In the appendix, Respondents

relate that twenty-eight other states have concluded that the one

year discovery period begins when the transfer itself is

discovered. Respondents assert that, contrastingly, only two

jurisdictions have held that the one year period begins when the

plaintiff discovers the fraudulent nature of the transfer.

Finally, Respondents argue that even if this court

interprets the one year period as beginning when Petitioners’

knew or should have known of the fraudulent nature of the

transfers, Petitioners’ claim is still time-barred because

Petitioners were “dilatory in efforts to discover[] both the

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transfer and the alleged evidence of [Respondents’] actual

intent.” According to Respondents, therefore, Petitioners should

have known of the fraudulent nature of the transfers more than a

year before their Complaint was filed on April 8, 2006.

In their Reply, Petitioners counter that the cases

cited in the appendix are not persuasive, because many of the

cases are either federal or state trial court decisions, and not

state appellate court decisions. Petitioners also relate that

many of the cases cited by Respondents actually do not support

the position that the one year period begins to run when the

transfers themselves are discovered.

VII.

Initially, it must be observed that the court did not

discuss the statute of limitations in its findings and

conclusions and therefore did not issue any findings or

conclusions regarding when Petitioners discovered the “fraudulent

nature” of the transfers. Similarly, the ICA did not discuss the

date Petitioners’ discovered the “fraudulent nature” of the

transfers.

A.

As explained by the Hawai#i federal bankruptcy court,

“[s]ome courts read the [HRS § 651C-9(1)] statute literally and

hold that the period begins to run as soon as a creditor

discovered or reasonably could have discovered the transfer, even

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if no one knew the transfer was fraudulent.” In re Maui Indus.

Loan & Fin. Co., 454 B.R. 133, 137 (Bankr. D. Haw. 2011).

However, other jurisdictions “have held that the one year period

does not begin to run until the fraudulent nature of the transfer

is discovered or reasonably discoverable.” Id. The Hawai#i

bankruptcy court adopted the second view, predicting that “the

Hawai#i state courts [will] follow the [] rule which is more

protective of innocent creditors.” Id.

B.

Both the language of HRS § 651C-9(1) and the underlying

purpose of the UFTA suggest that the one year period begins when

a plaintiff discovers the fraudulent nature of a potential

transfer. Those courts holding that the one year period begins

once the plaintiff discovers the transfer itself claim to

generally rely on “the actual language used in the statute.” In

re Hill, 2004 WL 5694988, at *3 (M.D. Fla. Nov. 4, 2004)

(internal quotation marks omitted). In Hill, the federal

district court interpreting Florida’s UFTA statute noted the one

year period begins following the discovery of the “transfer,” and

not “the fraudulent nature of the transfer.” Id. According to

that court, “[i]f the Florida legislature meant for actions

brought within one year of when the ‘fraudulent nature of the

transfer’ was or could reasonably have been discovered by the

claimant to be timely, it could have so provided in the savings

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clause.” Id. The federal district court noted that the Arizona

legislature had amended its UFTA provision to read “within one

year after the fraudulent nature of the transfer was

[discovered.]” Id. Hill, therefore, interpreted the UFTA

limitations provision as barring all actions not “brought within

one year after the alleged transfers were or could reasonably

have been discovered[.]” Id. (internal quotation marks omitted).

On the other hand, it has been asserted that “[c]ommon

sense and the statutory purpose of the UFTA necessitate a finding

that the statute begins to run with the discovery of the

fraudulent nature of the conveyance.” Freitag, 947 P.2d at 1189.

In Freitag, the Washington Supreme Court explained that the

“UFTA, obviously, discourage[s] fraud.” Id. Therefore, to rule

that the one year period began at the date of the transfer “would

be to rule in complete derogation of the UFTA[.]” Id. at 1190.

Moreover, “[i]f the statute were to begin to run when

the transfer was made, without regard as to whether the claimant

discovered or could have discovered the fraudulent nature of the

transfer, those successful at concealing a fraudulent transfer

would be rewarded.” Id. “The statute should not reward a person

for successful concealment of fraud.” Id. Hence, the Washington

Supreme Court held that the UFTA limitation statute “provides a

one-year period from the date of discovery of the fraudulent

nature of the transfer within which to initiate a claim[.]” Id.

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The interpretation of the UFTA limitations provision

advanced in Freitag is consistent with our statute. First, HRS §

651C-9 begins by stating “[a] cause of action with respect to a

fraudulent transfer or obligation is extinguished unless action

is brought [within the relevant period].” (Emphasis added.)

Next, HRS § 651C-9(1) provides that, for actions brought under

HRS § 651C-4(a)(1), such as the action in this case, the

limitations period extends until “one year after the transfer

. . . was or could reasonably have been discovered[.]” The term

“transfer” in HRS § 651C-9(1) clearly refers to the “fraudulent

transfer” identified in the preceding sentence. “Laws in pari

materia, or upon the same subject matter, shall be construed with

reference to each other. What is clear in one statute may be

called upon in aid to explain what is doubtful in another.”

State v. Kamana#o, 118 Hawai#i 210, 218, 188 P.3d 724, 732 (2008)

(citations and internal quotations marks omitted). Hence, when

HRS § 651C-9(1) is construed in pari matera with the introductory

sentence in HRS § 651C-9, it is plain that the limitations period

extends until one year after the fraudulent transfer was

discovered. Thus, the limitations period begins when the

plaintiffs discover that a fraudulent transfer, and not simply a

transfer, occurred.

Additionally, it has been explained that in

interpreting statutes, this court “must read statutory language

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in the context of the entire statute and construe it in a manner

consistent with its purpose.” Blaisdell v. Dep’t of Pub. Safety,

113 Hawai#i 315, 318, 151 P.3d 796, 799 (2007) (internal

quotation marks omitted). As explained by the Washington Supreme

Court, the obvious purpose of the UFTA is to prevent fraud and to

provide a remedy to those who are victims of fraudulent

transfers. See Freitag, 947 P.2d at 1189. In the context of the

entire statute, the discovery rule allows plaintiffs to preserve

fraud claims when they could not have discovered the existence of

those claims prior to the expiration of the statute of

limitations. This purpose would be undermined if the one year

period began once plaintiffs discovered the existence of a

transfer, even if they were unaware of its fraudulent nature.

Under that interpretation, plaintiffs would lose the right to

pursue a remedy in court for fraudulently incurred injuries even

though they could not have become aware of the existence of their

claims.

Finally, “[t]he legislature is presumed not to intend

an absurd result, and legislation will be construed to avoid, if

possible, inconsistency, contradiction, and illogicality.” Kim

v. Contractors License Bd., 88 Hawai#i 264, 270, 965 P.2d 806,

812 (1998). Therefore, “[d]eparture from the literal

construction of a statute is justified” if “such a construction

yields an absurd and unjust result obviously inconsistent with

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the purposes and polices of the statute.” Leslie v. Bd. of

Appeals of Cnty. of Hawai#i, 109 Hawai#i 384, 393, 126 P.3d 1071,

1080 (2006) (internal quotation marks omitted). Here, it would

be legally absurd and unjust to interpret the discovery rule to

preclude claims under the UFTA if plaintiffs were never aware

they held a potential claim. Additionally, as explained in

Freitag, such an interpretation would produce the result of

rewarding those “successful at concealing a fraudulent transfer.”

947 P.2d at 1189.

In sum, interpreting the discovery rule as allowing

plaintiffs to file an action within one year of the discovery of

the “fraudulent nature” of a transfer, rather than of the

transfer itself, is consistent with the statutory language

referring to the transfer as a “fraudulent transfer.”

Additionally, this interpretation is consonant with the statutory

purpose of preventing fraud. Finally, such an interpretation

promotes the specific purpose of the discovery rule within the

statutory context, i.e., allowing plaintiffs to pursue otherwise

untimely claims after discovering their existence. Hence, under

HRS § 651C-9(1), Petitioners could bring their HRS § 651C-4(a)(1)

claim within a year after discovering the “fraudulent nature” of

the transfer from RFI to MSC.

C.

Respondents’ contention that this court must interpret

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the one year period in HRS § 651C-9(1) as beginning from the date

the plaintiffs discover the transfer itself to promote uniformity

with other jurisdictions interpretations of the UFTA is

incorrect. Respondents’ appendix purportedly demonstrating that

twenty-eight other jurisdictions have held that the one year

period begins when the transfer was discovered is inaccurate.

First, the cases from many of the jurisdictions cited

in the appendix do not discuss the one year “discovery rule” at

all. Many of the cases cited in Respondents’ appendix discuss

the four year period, not the one year “discovery rule.”18

Additionally, some of the cases cited in Respondents’ appendix do

not concern the UFTA extinguishment provision requiring that the

fraudulent transfer action must be brought either within four

years of the date the transfer was made or within one year of the

date the transfer was discovered, whichever was later.19 Thus,

18
See, e.g., In re S. Health Care of Arkansas,
Inc., 299 B.R. 918 (Bankr. E.D. Ark. 2003); Sands v. New Age Family P’ship,
Ltd., 897 P.2d 917 (Colo. Ct. App. 1995); Steinberg v. A Analyst Ltd., 2009 WL
806780 (S.D. Fla. 2009); Kent v. White, 631 S.E.2d 782 (Ga. Ct. App. 2006);
Marwil v. Cluff, 2007 WL 2608845 (S.D. Ind. 2007); In re Schaefer, 331 B.R.
401 (Bankr. N.D. Iowa 2005); In re Mi-Lor Corp., 233 B.R. 608, 616 (Bankr. D.
Mass. 1999); In re Nat’l Audit Defense Network, 367 B.R. 207 (Bankr. D. Nev.
2007); Sasco 1997 NI, LLC v. Zudkewich, 767 A.2d 469 (N.J. 2001); Anderson v.
Godley, 2009 WL 2881080 (W.D.N.C. Sept. 8, 2009); In re Sun Valley Products,
Inc., 328 B.R. 147, 156 (Bankr. D.N.D. 2005); In re C.F. Foods, L.P., 280 B.R.
103, 112 (Bankr. E.D. Pa. 2002); In re Supplement Spot, LLC, 409 B.R. 187, 201
(Bankr. S.D. Tex. 2009); Smith v. Am. Founders Fin., Corp., 365 B.R. 647, 677
(S.D. Tex. 2007); cf. Selvage v. J.J. Johnson & Associates, 910 P.2d 1252,
1258 (Utah Ct. App. 1996) (discussing a different type of UFTA action not
subject to the Utah equivalent of HRS § 651C-9(1)).

19
See, e.g., McWilliams v. McWilliams, 970 So. 2d 200, 203 (Miss.
Ct. App. 2007) (interpreting the general Mississippi statute of limitations,
rather than the UFTA statute of limitations); Gibson v. Trant, 58 S.W.3d 103,
117 (Tenn. 2001) (resolving a medical malpractice claim, not a UFTA claim,

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none of these cases examine the issue of when a transfer was

“discovered” under the UFTA limitations statute. These cases are

thus irrelevant to the question of when a transfer is

“discovered” under HRS § 651C-9(1).

In several of the cases cited by Respondents, the court

did hold that the one year period began when the plaintiffs

discovered the transfer itself. However, in those cases, the

plaintiffs did not raise the argument that the one year period

did not begin until they discovered the “fraudulent nature” of

the transfer.20 Hence, none of those courts analyzed the issue

of when the one year period begins.

Finally, some of the cases cited by Respondents

actually appear to interpret the one year discovery period as

beginning on the date the “fraudulent nature” of the transfer was

discovered. For example, in Norwood Grp., Inc. v. Phillips, 828

A.2d 300 (2003), the New Hampshire Supreme Court held that the

under the general Tennessee statute of limitations); Potts v. Celotex Corp.,
796 S.W.2d 678, 680 (Tenn. 1990) (discussing a products liability action,
rather than a UFTA claim); cf. In re Heaper, 214 B.R. 576, 583 (B.A.P. 8th
Cir. 1997) (holding that the Missouri UFTA did not apply because the transfer
occurred prior to the date Missouri enacted the UFTA).

20
See, e.g., Cendant Corp.v. Shelton, 473 F. Supp. 2d 307 (D. Conn.
2007); Joslin v. Grossman, 107 F. Supp. 2d 150 (D. Conn. 2000); Pereyron v.
Leon Constantin Consulting, Inc., 2004 WL 1043724 (Del. Ch. 2004); Gulf Ins.
Co. v. Clark, 20 P.3d 780, 783 (Mont. 2001); Intili v. DiGiorgio, 300 N.J.
Super. 652, 660, 693 A.2d 573, 577 (Ch. Div. 1997); In re Ewbank, 359 B.R.
807, 810 (Bankr. D.N.M. 2007); Duffy v. Dwyer, 847 A.2d 266 (R.I. 2004);
Supreme Bakery, Inc. v. Bagley, 742 A.2d 1202 (R.I. 2000); Duran v.
Henderson, 71 S.W.3d 833 (Tex. Ct. App. 2002); Blesh v. Johnson, 2006 WL
5838212 (Vt. 2006); Sandhill Oil Co., Inc. v. Ross, 2001 WL 34034445 (Neb.
Dist. Ct. 2001) (trial court decision).

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plaintiffs’ claims did not fall within the one year discovery

rule because the claims were brought “more than one year after

the plaintiffs discovered that the sale was allegedly

fraudulent.” Id. at 304 (emphasis added). Similarly, in

Salisbury v. Majesky, 817 N.E.2d 1219 (Ill. App. 2004), the

Appellate Court of Illinois, Third District, stated that the

discovery period began when the plaintiff “should have reasonably

known, at the very least, that a possible cause of action may

have existed for fraudulent transfer.” Id. at 1223. Moreover,

Respondents omit several cases that begin the one year discovery

period when the plaintiffs could have discovered the fraudulent

nature of the transfers.21

In total, the cases cited in Respondents’ appendix do

not support Respondents’ contention that “most jurisdictions”

have adopted the ICA’s interpretation of HRS § 651C-9(1).

Instead based on the foregoing, it is evident that as the ICA

concluded, “there is no uniformity in the interpretation of the

‘extinguishment’ provision.” Schmidt, 2013 WL 4711524, at *5.

21
See, e.g., Johnston v. Crook, 93 S.W.3d 263, 271-72 (Tex. App.
2002) (“Because the 272 warranty deed did not conclusively establish when
Receiver knew or should have known about the allegedly fraudulent transfer of
the house, Crook's summary judgment proof did not conclusively establish
limitations had run on Receiver’s challenge to that transfer.” (emphasis
added)); Gilbert Bros., Inc. v. Gilbert, 630 N.E.2d 189, 192 (Ill. App. 1994)
(“[T]he statute starts to run when a person knows or reasonably should know of
his injury and that it was wrongfully caused.” (emphasis added)); In re G-I
Holdings, Inc., 313 B.R. 612, 641 (Bankr. D.N.J. 2004); Fidelity Nat’l Title
Ins. Co. v. Howard Savings Bank, 436 F.3d 836 (7th Cir. 2006) (interpreting
Illinois law).

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As noted, of those courts that actually considered the issue,

some courts have concluded that, based on the plain language of

the statute, the limitations period begins at the date of the

transfer itself. In re Hill, 2004 WL 5694988, at *3; see also In

re Spitaleri, 2006 WL 4458357, at *2 (Bankr. N.D. Ohio May 9,

2006). Yet, other courts have concluded that based on the

statutory purpose, the limitations period begins on the date the

fraudulent nature of the transfer is discovered. Freitag, 947

P.2d at 1189; Hu v. Wang, 2009 WL 1919367, at *6 (Cal. Ct. App.

July 6, 2009) (unpublished). Also, as discussed supra, one or

the other position has been adopted by several jurisdictions

without analysis.

In Cnty. of Hawai#i v. Unidev, LLC, 129 Hawai#i 378, 301

P.3d 588 (2013), this court concluded that the mandate in HRS §

1-24 that uniform acts “shall be so interpreted and construed as

to effectuate their general purpose to make uniform the laws of

the states and territories which enact them,” HRS § 1-24, did not

apply in the face of “conflicting interpretations of the [uniform

acts] . . . in other states.” Unidev, 129 Hawai#i at 393, 301

P.3d at 603. As explained previously, the other states to

interpret the UFTA have not construed the extinguishment

provision in a uniform manner. Hence, HRS § 1-24 is not

controlling here.

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VIII.

Based on the foregoing, the one year statute of

limitations period begins on the date the fraudulent nature of

the transfer “was or could reasonably have been discovered by the

claimant.” HRS § 651C-9(1). The ICA incorrectly held that the

statute of limitations runs from the date of the transfer, rather

than the date that Petitioners discovered the fraudulent nature

of the transfer. Hence, the ICA’s October 9, 2013 judgment must

be vacated.

IX.

As to Petitioners’ second alternative theory,

Petitioners contend that the ex parte motion for execution and/or

garnishment filed on September 1, 2005 could be construed as the

“commencement of an action under HRS § 651C-9.” However,

Petitioners cite to no legal authority in support of this

conclusory statement. No argument is presented as to why filing

the ex parte motion in a different proceeding could be construed

as a commencement of the present action. Hence, it is not

necessary to discuss this argument further. See Norton v. Admin.

Dir. of the Court, 80 Hawai#i 197, 200, 908 P.2d 545, 548 (1995)

(stating that this court may “disregard [a] particular

contention,” if the Petitioner “makes no discernable argument in

support of that position”); see also Aames Funding Corp. v.

Mores, 107 Hawai#i 95, 104, 110 P.3d 1042, 1051 (2005) (“Because

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the Moreses do not provide any discernible legal argument as to

their contention . . . we do not address this contention

further.”).

X.

As to Petitioners’ third alternative theory,

Petitioners maintain that “under HRS § 651C-10, the law of fraud

discovery applies.” HRS § 651C-1022 states that “unless

displaced by the provisions of [the UFTA], the principles of law

. . . relating to . . . fraud . . . supplement its provisions.”

Petitioners apparently characterize HRS § 657-20, which extends

the statute of limitations by six years if a potential defendant

fraudulently conceals the existence of a cause of action, as a

principle of law “relating to fraud” and therefore contend that

“HRS § 657-20 applies to the UFTA claim per HRS § 651C-10.”

Petitioners rely on two federal district court cases, Rundgren v.

Bank of New York Mellon, 777 F. Supp. 2d 1224 (D. Haw. 2011)

(Seabright, J.) and Balog v. Center Art Gallery-Hawai#i, 745 F.

Supp. 1556, 1572-73 (D. Haw. 1990) (Ezra, J.), that applied the

22
HRS § 651C-10 provides as follows:

§ 651C-10 Supplement of provisions.

Unless displaced by the provisions of this chapter, the
principles of law and equity, including the law merchant and
the law relating to principal and agent, estoppel, laches,
fraud, misrepresentation, duress, coercion, mistake,
insolvency, or other validating or invalidating cause,
supplement its provisions.

(Emphases added.)

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doctrine of fraudulent concealment in non-UFTA cases. According

to Petitioners, HRS § 657-20 and the doctrine of fraudulent

concealment applies to UFTA claims generally. However,

Petitioners do not provide any definition of “fraudulent

concealment” and therefore do not explain why the facts of this

case constitute fraudulent concealment under any controlling

legal standard. Petitioners therefore do not make any

discernable argument as to why the doctrine of fraudulent

concealment should apply to the facts of this case. Thus, we

need not decide this issue.23

XI.

Fourth, Petitioners assert that under Cortez, “the

[four year] statute of limitations on an UFTA claim starts when

the creditor has a final judgment against the debtor, not on the

date the transfer was made.” To reiterate, HRS § 651C-9(1) sets

forth two alternate limitations periods for actions brought under

HRS § 651C-9(1), either “within four years after the transfer was

made,” or “if later, within one year after the transfer or

obligation was or could have reasonably been discovered by the

23
In their Application, Petitioners state that “on September 7,
2005, Schmidts’ counsel wrote a demand letter to the Defendant shown in
Exhibit 84 but there was no response.” Petitioners further contend that “the
undisputed facts are that RFI, by and through [Respondents], were concealing
RFI’s financial condition and the ‘upstream’ transfer of RFI’s assets to
[Respondents]. Such conduct tolls the statute of limitations.” However,
Petitioners do not cite any authority for this proposition, or cite any cases
that explain when the doctrine of fraudulent concealment applies in these
circumstances.

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claimant.” As explained supra, the second limitations period

allows plaintiffs to file suit even if they could not have

discovered the existence of their cause of action within the four

year period.

Petitioners’ first theory was that their UFTA claim was

timely under the second prong of the statute, i.e., the one year

“discovery rule.” Under their alternate theory, Petitioners take

the position that their claim was also timely under the first

prong of HRS § 651C-9(1) because, as in Cortez, their claim was

brought within four years of the final judgment in the underlying

action between Petitioners and RFI.

In Cortez, the California Court of Appeals observed

that the UFTA statute of limitations section stated that it began

at “the time the transfer was made.” 52 Cal. App. 4th. at 929.

Nevertheless, Cortez determined that, based on prior California

law, “where there is an alleged fraudulent transfer made during a

pending lawsuit that will establish where in fact, and the extent

to which, a debtor-creditor relationship exists . . . the [four

year] limitation period does not commence to run until the

judgment in the underlying action becomes final.” Id. at 937.

Numerous courts have explained that the decision in

Cortez is contrary to the plain language of the UFTA limitations

provision stating that the four year statute of limitations

begins “within four years after the transfer was made[.]”

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(Emphasis added.) That language “clearly indicates that an

action . . . must be brought within four years of the date the

transfer was made.” Levy v. Markal Sales Corp., 724 N.E.2d 1008,

1012 (Ill. App. 2000). Consequently, “the explicit language

provides that the four-year provision runs from the date of

transfer rather than the date of judgment.” SASCO, 767 A.2d at

473. Thus, Petitioners’ contention that the four year

limitations period began when the judgment was filed in the

underlying action is contradicted by the language of the

statute.24

Cortez explained that if a creditor asserts that a

transfer was fraudulently made by a debtor to escape potential

liability in another suit, the creditor may be required to file a

second action based on the fraudulent transfer before the initial

suit is concluded in order to meet the four year deadline.

Cortez, 52 Cal. App. 4th at 932. If the creditor subsequently

fails in the initial action, then both the underlying action and

24
See, e.g., Levy, 724 N.E.2d at 1012 (“We are not convinced by the
Cortez analysis.”); SASCO 767 A.2d at 473 (rejecting Cortez); Clark, 20 P.3d
at 786 (“[W]e join other jurisdictions which have criticized the ultimate
determination of the California court in Cortez.”); Moore v. Browning, 50 P.3d
852, 860 (Ariz. Ct. App. 2002) (“Unlike the court in Cortez, we are unable to
discern . . . any intent to toll the statute of repose until a judgment is
filed.”); K-B Bldg. Co. v. Sheesley Const., Inc., 833 A.2d 1132, 1136 (Pa.
Sup. Ct. 2003) (“Cortez has been roundly criticized and is against the weight
of authority in this area.”); cf. Supreme Bakery, Inc. v. Bagley, 742 A.2d
1202, 1205 (R.I. 2005) (holding that the four year limitations period begins
on the date of the transfer).

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the fraudulent transfer claim would be dismissed, and the actions

“will have resulted in needless effort and expense to both

parties and the court.” Id. The California Court of Appeals

further noted that the Minnesota Supreme Court had used similar

reasoning when interpreting the Uniform Fraudulent Conveyance Act

(UFCA), the predecessor to the UFTA. Lind v. O.N. Johnson, 282

N.W. 661, 667-68 (Minn. 1938).

However, Petitioners point to nothing indicating our

legislature intended to deviate from the plain language of the

statute providing that the limitations period begins on the date

of the transfer, rather than the underlying judgment, based on

such concerns.25 See Levy, 724 N.E.2d at 1013 (noting “the

concerns expressed by [Cortez] regarding the potential of

needless litigation,” but holding that “the [UFTA] plainly

contemplates that such provisional litigation may be necessary

under certain circumstances”). Hence, Petitioners’ argument that

the statute of limitations began to run when the judgment in the

underlying action was filed is incorrect.

25
Cortez maintains that the commentary to Section 7 of the UFTA
cites Lind with approval. However, Section 7 enumerates the potential
remedies available in UFTA actions. Section 7, therefore, has nothing to do
with the statute of limitations set forth in Section 9.
The commentary to Section 7 cites Lind for the proposition that
"the remedies specified in [Section 7] . . . are cumulative." 7A Uniform Laws
Annotated, Part II at 157. Thus, the citation to Lind in the Commentary does
not pertain to the date the statute of limitations begins to run.

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XII.

Based on the foregoing, the ICA incorrectly held that

the statute of limitations runs from the date of the transfer,

rather than from the date that Petitioners’ discovered the

fraudulent nature of the transfer. The ICA also did not decide

the merits of the case, as requested by Petitioners in their

Opening Brief on appeal.

In the second part of the first question in their

Application, Petitioners state that “the ICA’s authorities do not

support . . . the refusal to decide [Petitioners’] appeal

issues[.]” In their Response, Respondents asserted that “[t]he

Petition for Certiorari should be rejected” but did not discuss

the proper disposition of the case should this court overrule the

ICA on the statute of limitations issue. Finally, in their

Reply, Petitioners again maintained that they “ha[d] shown

conclusively that the trial court committed several significant

reversible errors,” but that “[t]he ICA did not even address

Petitioners’ points of error and arguments[.]”

Here, the ICA’s decision on the statute of limitations

provision in HRS § 651C-9(1) was wrong as a matter of law. We

therefore vacate its ruling on that issue and remand that issue

to the ICA. Additionally, we remand the case to the ICA for a

ruling on the merits of the case, as raised in Petitioners’

appeal herein from the October 7, 2008 judgment, irrespective of

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its decision on the statute of limitations issue on remand.

See Hamilton ex rel. Lethem v. Lethem, 119 Hawai#i 1, 12, 193

P.3d 839, 850 (2008)(holding that the ICA incorrectly ruled that

the case was moot and therefore “remand[ing] the case to the ICA

with instructions to address the merits of Father’s case”);

Bocalbos v. Kapiolani Med. Ctr. for Women & Children, 89 Hawai#i

436, 443, 974 P.2d 1026, 1033 (1999) (vacating the ICA’s opinion

dismissing an appeal for lack of jurisdiction and “remand[ing]

the appeal to the ICA for a decision on the merits”); Abadilla v.

Iwata, SCWC-29851, 2013 WL 4458874, at *11; see also HRS § 602-5

(allowing this court to “do such acts” that are “necessary to

carry into full effect the powers which are or shall be given to

it by law or for the promotion of justice in matters pending

before it”).

Finally, as to the second question presented in their

Application, the ICA’s judgment remanded the case to the court

for a determination of whether Respondents were entitled to

attorneys’ fees. A determination of whether Respondents are

entitled to attorneys’ fees cannot be made in light of our

disposition on the first question inasmuch as the prevailing

party must be determined on remand. Consequently, the ICA’s

judgment as to this issue is also vacated and remanded.

XIII.

Based on the foregoing, the October 9, 2013 judgment of

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the ICA is vacated and the case remanded to the ICA for

proceedings consistent with this opinion.

R. Steven Geshell, /s/ Paula A. Nakayama
for petitioner
/s/ Simeon R. Acoba, Jr.
Paul Alston,
for respondent /s/ Sabrina S. McKenna

/s/ Richard W. Pollack

/s/ Colette Y. Garibaldi

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