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Electronically Filed
Supreme Court
SCWC-12-0000703
02-MAR-2017
08:54 AM
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---oOo---
________________________________________________________________
KARL ROBERT BRUTSCH,
Respondent/Plaintiff-Appellee/Cross-Appellant,
vs.
CELIA KAY BRUTSCH,
Petitioner/Defendant-Appellant/Cross-Appellee.
________________________________________________________________
SCWC-12-0000703
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-12-0000703; FC-D NO. 09-1-2906)
MARCH 2, 2017
McKENNA, POLLACK, WILSON, JJ.,
WITH RECKTENWALD, C.J., DISSENTING, WITH WHOM NAKAYAMA, J.,
JOINS
OPINION OF THE COURT BY McKENNA, J.
I. Introduction
This case arises from a contentious divorce proceeding
between Celia Kay Brutsch (“Wife”) and Karl Robert Brutsch
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(“Husband”). Wife timely applied for writ of certiorari
(“Application”) from the Judgment entered by the Intermediate
Court of Appeals (“ICA”) pursuant to its May 12, 2015 Summary
Disposition Order (“SDO”). In relevant part, the ICA vacated in
part the Family Court of the First Circuit’s (“family
court[’s]”): (1) “Decree Granting Absolute Divorce and Awarding
Child Custody” (“divorce decree”) because it denied Husband any
Category 3 credit for gifts and inheritance, and (2) “Order Re:
Plaintiff’s Motion for Reconsideration and for Rule 68
Attorney’s Fees Filed February 16, 2012” and “Order Denying
Plaintiff’s Motion for Reconsideration of Decision Announced
March 14, 2012, Filed March 21, 2012.”
In her Application, Wife presents two questions:
A. Given [Husband’s] failure to document a consistent
amount for his inheritance, show it was used for marital
expenses, or rebut a presumption of gift to the marital
partnership, did the ICA commit grave error when it
substituted its own judgment for that of the trial
judge, and vacated his ruling rejecting [Husband’s]
demand for $134,235, $140,000, $190,000, $236,235, or
$324,235,[1] in Category 3 credits?
B. Given [Husband’s] failure to tender a comprehensive
settlement offer as to all contested issues, offer to
settle any one of the contested matters, or justify his
request for fees with billings or time sheets, did the
ICA commit grave error when it substituted its own
judgment for that of the trial judge, and vacated his
ruling denying [Husband’s] demand for [Hawaiʻi Family
Court Rules] Rule 68 fees and costs?
1
Husband requested $134,235 in Category 3 credits in his motion for
reconsideration. According to Wife, he had requested these other amounts
before.
2
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With respect to the first issue in the Application, we hold
that the ICA was correct in ruling that the family court erred
in stating that the record was “bereft of any competent or
credib[le] evidence that . . . monies were actually contributed
to the marriage,” and therefore remanding this issue for further
proceedings, along with other rulings of the family court that
are not at issue in the Application. Brutsch v. Brutsch, No.
CAAP-12-0000703, at 7 (App. May 12, 2015) (SDO). When the
family court addresses the issue of Category 3 credits on
remand, however, it must do so in light of this court’s rulings
regarding Category 3 credits in Hamilton v. Hamilton, 138 Hawaiʻi
185, 378 P.3d 901 (2016). In addition, at various points in
this litigation, Husband argued differing amounts for Category 3
credits. At oral argument, Husband conceded that the only
amounts he claims for Category 3 credits total $134,235,
consisting of gifts reflected in checks totalling $74,235, the
$40,000 total he received as gifts in $10,000 increments, and
the $20,000 annuity he inherited used to purchase a Jacuzzi for
the Maunawili house. Therefore, the family court’s review of
possible Category 3 credits will be limited to those amounts,
totalling $134,235. In addition, in determining Category 3
credits, the family court must also address whether Husband
already received credit for any of the subject amounts through
Wife’s pre-trial purchase of Husband’s interest in the Maunawili
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home, as Husband has conceded that Wife bought out his interest
in the home.
With respect to the second issue in the Application, this
court recently held that Hawaii Family Court Rules (“HFCR”) Rule
68 does not apply to proceedings governed by Hawaii Revised
Statutes (“HRS”) § 580-47 (Supp. 2011). See Cox v. Cox, 138
Hawaii 476, 382 P.3d 288 (2016). This divorce proceeding is
governed by HRS § 580-47. We therefore vacate the ICA’s ruling
vacating the family court’s denial of Husband’s HFCR Rule 68
motion. In doing so, we further explain why in Cox we held HFCR
Rule 68 inapplicable in divorce cases.
II. Background
A. Factual Background
1. Overview
Husband and Wife (collectively, “the couple”) were married
in 1991. The couple has a son born in 1996 and a daughter born
in 2001. Husband filed for divorce on September 8, 2009.
Although the only issues in the Application concern
Husband’s alleged Category 3 credits and his HFCR Rule 68
motion, there were many issues addressed by the family court
during this contentious divorce and related proceedings. Five
days before Husband filed for divorce, Wife filed for and
obtained a temporary restraining order. There were pre-decree
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motions concerning temporary custody, temporary child support,
occupancy of the marital residence, wasting of assets,
prohibition against abuse, payment of monthly financial
obligations, attorney’s fees and costs, sharing of marital
expenses, and payment of expenses for private school, for
psychological evaluations or treatment, and for appointment of
custody evaluators. There were also multiple pre-trial motions
concerning the same topics.
With respect to child custody, before trial, the family
court appointed a Custody Evaluator. After various studies, the
Custody Evaluator recommended that Wife be awarded sole legal
and physical custody of the minor children.
As Wife had already bought out Husband’s interest in the
family home before trial, the main issues requiring resolution
at the October 3–4, 2011 trial were child custody and some
property division matters. According to Husband, child custody
was the most hotly contested dispute.
After the trial, the family court rendered its oral ruling
on November 2, 2011. In summary, the family court (1) denied
mother’s request for sole custody of the children and instead
maintained joint legal and joint physical custody and the
couple’s time-sharing schedule; (2) addressed child support and
payment of the children’s private school and extracurricular
expenses; (3) deferred decisions to the couple regarding the
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children’s higher education expenses and how to use their
existing education funds; (4) addressed medical and dental
insurance and past due amounts; (5) addressed life insurance
policy requirements; (6) decided how the couple would claim tax
dependencies of their children; (7) determined how the couple’s
retirement funds would be equalized; (8) ordered that artwork be
sold and proceeds evenly split; (9) ordered that all joint
accounts be evenly split, and provided that each party was to
take his or her own items out of the safety deposit box; (10)
decided how joint securities and separately titled stock
accounts were to be divided; (11) determined how to divide
automobiles and the boat; and (12) awarded Husband all of his
family business interest and his Kaneohe Yacht Club membership.
Additionally, as noted, the property divided between the parties
did not include the couple’s family home in Maunawili, as Wife
had purchased Husband’s interest prior to trial. Finally, the
family court also indicated it would award Wife attorney’s fees
and costs, and eventually awarded Wife $21,984.46 in fees and
costs.
The court did not address any possible Category 3 credit
for Husband or whether Husband should receive attorney’s fees
pursuant to HFCR Rule 68.2 On February 16, 2012, Husband filed a
2
HFCR Rule 68 states:
(continued . . .)
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“Motion for Reconsideration and for Rule 68 Attorney’s Fees”
(“Motion”) based on a September 30, 2010, Rule 68 letter offer.3
The offer was apparently rejected by Wife.
Husband argued that the primary issue in the divorce
proceedings was the children’s custody, not property division.
Accordingly, because Wife did not prevail in her quest for sole
custody, Husband’s attorney argued that Wife was responsible for
Husband’s attorney’s fees that were incurred after the Rule 68
offer was made for services rendered on the issue of the
children’s custody, and claimed entitlement to $15,500 in
(. . . continued)
At any time more than 20 days before any contested hearing
held pursuant to HRS sections 571-11 to 14 (excluding law
violations, criminal matters, and child protection matters)
is scheduled to begin, any party may serve upon the adverse
party an offer to allow a judgment to be entered to the
effect specified in the offer. Such offer may be made as
to all or some of the issues, such as custody and
visitation. Such offer shall not be filed with the court,
unless it is accepted. If within 10 days after service of
the offer the adverse party serves written notice that the
offer is accepted, any party may then file the offer and
notice of acceptance together with proof of service thereof
and thereupon the court shall treat those issues as
uncontested. An offer not accepted shall be deemed
withdrawn and evidence thereof is not admissible, except in
a proceeding to determine costs and attorney’s fees. If
the judgment in its entirety finally obtained by the
offeree is patently not more favorable than the offer, the
offeree must pay the costs, including reasonable attorney’s
fees incurred after the making of the offer, unless the
court shall specifically determine that such would be
inequitable.
HFCR Rule 68.
3
The Motion also refers to an August 29, 2011 letter, which Husband asserted
was a second HFCR Rule 68 offer letter. However, Husband does not argue that
he is entitled to fees based on the August 29, 2011 offer letter, likely
because Husband explicitly specified that the offer was a “package deal.”
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attorneys’ fees in fees under HFCR Rule 68. The Rule 68 offer
letter stated:
Please consider this an HFCR Rule 68 offer to settle
all matters relating to this divorce. As you know, you
have 10 days from the receipt of this offer to accept it,
otherwise it is deemed rejected, and if you do not obtain a
result that is patently better as to property division or
child custody/visitation/support at trial, your client will
owe [Husband] costs and attorney’s fees from the date of
this offer.
We propose that the property division between the
parties be as set out in the enclosed Property Division
Chart. Basically, we have divided the marital home and the
associated mortgage, so this issue is resolved. Otherwise,
the Chart shows that each party keep the assets and debts
presently in their own names. Note that I have discounted
the values of the 401k’s by 30% (for state and federal
taxes) because these are pretax amounts. [Wife] takes all
the household effects presently in the house (except for
the two rattan chairs and [Husband’s] personal items).
Each party shall keep the children’s trust monies (which
derive from [Husband’s] father’s inheritance) for the
children’s educational expenses only and be required to
account for the trust monies upon demand by the other
party. Each party pays their own debts ([Wife] will, of
course, be responsible for payment of the new mortgage on
the marital residence which she is acquiring per the
agreement of the parties). [Husband] waives any claim to
an equalization payment.
Neither party is seeking alimony.
As for the children, we propose that the parties
share joint legal and physical custody of the children.
Child support shall be paid per Guidelines. [Husband]
shall continue to cover the children for medical insurance,
and the parties will split equally all uncovered medical
expenses, including orthodontic care. The parties will
split the children’s tuitions in proportion to their
incomes (presently the ratio is 59% for [Husband] and 41%
for [Wife]), and the parties will split equally all other
children’s educational expenses (e.g., after-school care,
extracurricular activities, school lunch expense, etc.).
The parties will work out a sharing arrangement (e.g., 4-3-
3-4 or 5-2-2-5) and agree on sharing for school breaks,
birthdays, holidays, etc. If the parties cannot agree on
the sharing arrangement, they shall mediate the issue
before filing any court action.
We believe that this settles all the issues in this
case. We await your reply.
Husband also argued that he was entitled to $134,235 in
Category 3 credits based on the evidence at trial. In the
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Motion, Husband cited to “Plaintiff’s Ex. 10” as evidence. That
exhibit included canceled checks from the estate of Husband’s
late father in the amounts of $50,000, $9,235, and $15,000, and
an investment statement for a beneficiary annuity apparently
valued at $20,000. Without providing any record citations,
Husband also asserted that “[he] . . . testified about receiving
$40,000 in four $10,000 payments as gifts from his father from
1996 to 2001 just before his father died. . . . [Husband]
testified that he spent . . . [gifted] funds on the house (which
[Wife] now owns), on a boat (which [Husband] now owns), and
other expenses during the marriage.” In summarizing his motion,
Husband argued:
Based on the summary of the above issues, [Wife] owes
[Husband] at least $13,000 in Rule 68 attorney’s fees, and
probably $15,500. In addition, the credits to which [Wife]
is entitled under this Court’s decision are more than
cancelled by the credit to which [Husband] is entitled in
Category 3 credit. Even though the net of these amounts is
that [Wife] owes [Husband] about $50,000 (this is assuming
that this Court awards [Wife] almost $22,000 in attorney’s
fees which, as argued above, is not justified), [Husband]
is not looking for an award against [Wife] of this amount.
[Husband] is simply requesting that this Court’s final
decree state that neither party owes the other any amount.
As [Husband] offered in his Rule 68 letter over a year ago
and in his most recent Rule 68 letter (which even threw in
a $20,000 incentive which is no longer offered as [Wife]
chose to go to trial at great expense to the parties and
the marital estate), this should simply be a “walk-away”
marriage with joint custody of the children. Based on such
a decree, the only matter left for the parties to end this
long unnecessarily drawn out affair will be to sell their
art collectibles and divide the proceeds as ordered by this
Court.
If [Husband] is not awarded his Category 3 credit and
is required to make payments to [Wife] for attorney’s fees
and an amount from his 401(k), then even the offer to
settle here as a “walk away” marriage is withdrawn, and
[Husband] will seek his full remedies on appeal.
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At a hearing on March 14, 2012, the court orally ruled on
Husband’s Motion, stating:
With regard to the motion for reconsideration, the court
could have and should have perhaps been more precise. But
by its omission the court implicitly ruled on the claim for
Category 3 reimbursements. The court will explicitly do so
at this time. The court finds that while it may be
accurate to state that [Husband] did receive monies, the
record is bereft of any competent or credibility [sic]
evidence that monies were actually contributed to the
marriage. Therefore the Rule -- the Category 3 claim
ultimately fails for lack of evidence as far as what’s been
presented to the court at this particular juncture. So
therefore that portion of the motion for reconsideration is
denied.
With regard to the other issue as to the attorney’s
fees, the attorney’s fees [issue] is bound up as part of
the motion for recon but also as part of the Rule 68. The
court finds based on the credible evidence that given the
fact that the motion for recon is denied as to the Category
3 claim, with regard to the attorney’s fees and costs
claimed by defendant respondent [sic] is indeed
appropriate. The Rule 68 is predicated on the entire
decree being patently more favorable or unfavorable
depending upon the offer. [Wife’s attorney’s] argument
with regard to the fact that the Rule 68 offer that was
presented was not a complete offer, that resounds with the
court.
On the question of custody, again it was clear that
[Wife]’s claim was that she wanted full custody.
[Husband]’s advocating joint, to establish joint. However,
a significant portion of the decree also dealt with the
financial issues which would be the portion of the motion
for reconsideration. In balance the decree is not patently
more favorable to one or the other, therefore Rule 68
fails. The court’s prior orders with regard to the $21,900
[for Wife’s attorney’s fees] stand[]. Court will affirm
that amount. That order will be signed by the court.[4]
Husband filed a subsequent motion for reconsideration of the
March 14, 2012 oral ruling, which was denied.
The family court entered its “Decree Granting Absolute
Divorce and Awarding Child Custody” on April 2, 2012.
4
The family court entered its written order on April 2, 2012.
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2. Husband’s Inheritance
In his Motion, Husband did not provide the family court
with citations to the record regarding each of the gifts or the
inheritance received by Husband from his father, nor did Husband
provide citations in his Response to the Application. Husband,
however, provided some citations in the opening brief for his
cross-appeal to the ICA. [100:20–21] The following is a
summary of Husband’s trial testimony and the citations provided
in the ICA brief on the inheritance issue.
Husband testified that in 1996, Husband’s father gifted
$10,000 for the purchase of a family home in Waikele. He
asserted that in 1999 and 2001, Husband’s father gifted $10,000
three separate times. That money was also used to purchase the
Waikele house and home furnishings.5
In 2001, during the marriage, Husband’s father died.
Husband incrementally received a “substantial inheritance” of at
least $70,000. Because Husband was “very much into boating,”
about $20,000 of the inheritance funds was used to purchase a
boat, $10,000 on an SUV to pull the boat, both of which he
received in the divorce decree. The remainder was “invested
back into the [Maunawili] house,” for painting the house, a new
5
Wife testified the couple sold the Waikele house and received $150,000 in
proceeds. That money went to state and federal taxes, to pay off a portion
of Husband’s personal loan, summer school and other educational activities
for the children, and for repairs on the Maunawili home.
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bathroom, electrical work, new flooring, a patio, a Jacuzzi, and
putting in a rock wall.
Part of Husband’s inheritance included a share of his
father’s bakery and the building in which it was located.
Husband’s brother received the remaining share in the bakery and
building. Since 2001, Husband and his brother, in partnership,
have rented out the building. Husband received his share of the
monthly rental proceeds, amounting to approximately $10,000 to
$20,000 a year, depending on the money spent to upkeep the
building in any given year. For a period, “all the money” was
used to pay Son’s private school tuition of $16,000.
Neither the Pennsylvania building nor its rental income was
the subject of Husband’s Motion with respect to Category 3
credits. Despite only claiming an alleged Category 3 credit of
$134,235 in his Motion, Husband also included the Pennsylvania
rental income, in the amount of $190,000, as a claimed Category
3 credit in his cross-appeal to the ICA. Notably, Husband had
argued in his pre-trial Trial Memorandum that he should be
awarded Category 3 credit for the rental income generated by the
Pennsylvania building, in addition to the checks and annuity he
received as an inheritance from his late father.
At oral argument, however, Husband clarified his Category 3
claim, and conceded that he is claiming Category 3 credit only
for the checks totalling $74,235, the $40,000 total he testified
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he received from his father consisting of four $10,000 gifts
received in 1996, and 1999 to 2001, and a $20,000 annuity he
testified he inherited and used to purchase a Jacuzzi for the
Maunawili home. Thus, the maximum amount of the Husband’s
possible Category 3 credit, as argued by Husband’s counsel, is
$134,235.
Pursuant to HFCR Rule 52(a), after the filing of the
appeals to the ICA, on October 8, 2012, the court issued its
“Findings of Fact and Conclusions of Law.” In its Findings of
Fact, the family court explained the extensive pre-trial, trial,
and post-trial proceedings of this contentious divorce case. In
its Conclusions of Law, the family court concluded that its
“November 2, 2011 oral trial decision was proper, appropriate,
just and equitable under the circumstances . . . .” It also
ruled that its “decision to deny . . . [Husband]’s . . . Motion
. . . was proper, appropriate, just and equitable under the
circumstances . . . .”
E. Appeal to the ICA
On August 9 and 13, 2012, respectively, Wife and Husband
both timely appealed to the ICA. The issues we address on
certiorari arise out of Husband’s cross-appeal. Before
addressing that cross-appeal, we note that Wife contended in her
appeal that the family court erred in: (1) awarding Wife and
Husband joint physical legal custody of the parties’ two
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children and continuing the alternating-week custody schedule;
and (2) its ruling regarding child support, education and
medical expenses, and reimbursement for pre-decree expenses.
See Brutsch, SDO at 2. The ICA affirmed the family court with
respect to issue (1) and concluded that the family court had
made some errors concerning matters in issue (2), and ordered a
remand. See id. at 4–6.
Husband’s cross-appeal raised the two issues that are the
subject of the Application. He argued the family court erred
in: (1) failing to award Husband any Category 3 credit; (2)
denying Husband’s request for Rule 68 attorney’s fees; and (3)
awarding Wife $21,984.46 in attorney’s fees and costs.
With respect to the cross-appeal, the ICA held that
“Husband was not required to trace the money he received in
gifts and inheritances into specific purchases that contributed
to the marriage in order to be entitled to a Category 3 credit,”
and that therefore “the [f]amily [c]ourt erred in denying
Husband any Category 3 credit on this basis.” Id. at 7.
As to the award of Rule 68 attorney’s fees, the ICA
concluded that, pursuant to Owens v. Owens, 104 Hawaii 292, 310,
88 P.3d 664, 682 (App. 2004), the matter must be remanded to the
family court for a determination as to “whether its final
judgment on child custody is patently not more favorable to Wife
than Husband’s HFCR Rule 68 offer on the custody issue.”
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Brutsch, SDO at 8–9. On remand, the family court was also
directed to consider whether HFCR Rule 68 attorney’s fees with
respect to financial issues would be appropriate, in light of
the family court’s consideration on remand of Husband’s Category
3 credits. See id. at 9. The ICA noted that “if the [f]amily
[c]ourt determines that the judgment entered . . . was patently
not more favorable to Wife than Husband’s offer, it should
consider whether the award of fees would be inequitable.” Id.
The ICA did not find the family court abused its discretion
in awarding Wife attorney’s fees, and therefore affirmed the
award. See id.
Based in part on the foregoing, the ICA “(1) affirm[ed] in
part and vacate[d] in part the [d]ivorce [d]ecree; (2) vacate[d]
the [f]amily [c]ourt’s denial of Husband’s request for HFCR Rule
68 attorney’s fees; (3) affirm[ed] the Order Awarding Attorney’s
Fees to Wife; and (4) remand[ed] the case for further
proceedings consistent with this Summary Disposition Order.”
Id. at 9–10.
F. Application for Writ of Certiorari
As noted earlier, Wife presents two questions to this
court:
A. Given [Husband’s] failure to document a consistent
amount for his inheritance, show it was used for marital
expenses, or rebut a presumption of gift to the marital
partnership, did the ICA commit grave error when it
substitute its own judgment for that of the trial judge,
and vacated his ruling rejecting [Husband’s] demand for
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$134,235, $140,000, $190,000, $236,235, or $324,235, in
Category 3 credits?
B. Given [Husband’s] failure to tender a comprehensive
settlement offer as to all contested issues, offer to
settle any one of the contested matters, or justify his
request for fees with billings or time sheets, did the
ICA commit grave error when it substituted its own
judgment for that of the trial judge, and vacated his
ruling denying [Husband’s] demand for HFCR Rule 68 fees
and costs?
We accepted certiorari and held oral argument on the
Application.
III. Standards of Review
A. Family Court Decisions
Generally, the family court possesses wide discretion
in making its decisions and those decisions will not be set
aside unless there is a manifest abuse of discretion.
Thus, we will not disturb the family court’s decision on
appeal unless the family court disregarded rules or
principles of law or practice to the substantial detriment
of a party litigant and its decision clearly exceeded the
bounds of reason.
Kakinami v. Kakinami, 127 Hawai‘i 126, 136, 276 P.3d 695, 705
(2012) (quoting Fisher v. Fisher, 111 Hawai‘i 41, 46, 137 P.3d
355, 360 (2006)).
It is well established that a family court abuses its
discretion where “(1) the family court disregarded rules or
principles of law or practice to the substantial detriment
of a party litigant; (2) the family court failed to
exercise its equitable discretion; or (3) the family
court’s decision clearly exceeds the bounds of reason.”
Id. at 155-56, 276 P.3d at 724-25 (emphasis omitted) (quoting
Tougas v. Tougas, 76 Hawai‘i 19, 26, 868 P.2d 437, 444 (1994)).
B. Property Division
Hawaii’s appellate courts “review the family court’s final
division and distribution of the estate of the parties under the
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abuse of discretion standard, in view of the factors set forth
in HRS § 580-47 and partnership principles.” Tougas, 76 Hawai‘i
at 26, 868 P.2d at 444 (quoting Gussin v. Gussin, 73 Haw. 470,
486, 836 P.2d 484, 492 (1992)) (footnote omitted). “The family
court’s determination of whether facts present valid and
relevant considerations authorizing a deviation from the
partnership model division is a question of law that this court
reviews under the right/wrong standard of appellate review.”
Gordon v. Gordon, 135 Hawai‘i 340, 348, 350 P.3d 1008, 1016
(2015) (citing Jackson v. Jackson, 84 Hawai‘i 319, 332–33, 933
P.2d 1353, 1366–67 (App. 1997)).
C. Findings of Fact and Conclusions of Law
The family court’s FOFs are reviewed on appeal under
the “clearly erroneous” standard. A[n] FOF is clearly
erroneous when (1) the record lacks substantial evidence to
support the finding, or (2) despite substantial evidence in
support of the finding, the appellate court is nonetheless
left with a definite and firm conviction that a mistake has
been made. “Substantial evidence” is credible evidence
which is of sufficient quality and probative value to
enable a person of reasonable caution to support a
conclusion.
On the other hand, the family court’s COLs are
reviewed on appeal de novo, under the right/wrong
standard. COLs, consequently, are [ ]not binding
upon an appellate court and are freely reviewable for
their correctness.
Kakinami, 127 Hawai‘i at 136, 276 P.3d at 705 (quoting Fisher,
111 Hawai‘i at 46, 137 P.3d at 360).
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IV. Discussion
A. Husband’s Claimed Category 3 Credit
We recently published a comprehensive opinion addressing
alleged Category 3 credits similar to those at issue in this
case. See Hamilton, 138 Hawaiʻi 185, 378 P.3d 901. In his
Motion before the family court, Husband claimed that he should
have been awarded $134,235 as Category 3 credit, consisting of
the following:
$40,000 in gifts from Husband’s father prior to his death in 2001
(spent on couple’s former Waikele home, proceeds from which were
spent on taxes, paying down Husband’s personal loan, the children’s
educational expenses, and repairs to the Maunawili home)
$74,235 – sum of checks received from Husband’s father’s estate
(spent on a boat, an SUV, and improvements to the Maunawili home)
$20,000 – value of an inherited annuity (spent on installing a
jacuzzi at the Maunawili home)
Wife testified that she was unaware that Husband received
funds from his father’s estate other than $10,000 that was
gifted to each family member, including Husband, totaling
$40,000. Wife was aware that Husband “received money to make
payments for . . . [S]on’s tuition occasionally.”
Although the family court was initially silent at the
November 2, 2011 hearing as to why no Category 3 credit was
given to Husband, at the March 14, 2012 hearing on Husband’s
Motion, the court explained its reasoning as follows: “the
record is bereft of any competent or credib[le] evidence that
[Husband’s inherited or gifted] monies were actually contributed
to the marriage.” The ICA, however, found the family court
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erred by denying Category 3 credit on this basis. See Brutsch,
SDO at 7.
On remand, the family court must address Husband’s alleged
Category 3 credits in light of this court’s rulings in Hamilton.
In addressing the alleged Category 3 credits, we also note that
the parties had reached an outside agreement with respect to the
Maunawili home, with Wife purchasing Husband’s share prior to
trial. Accordingly, to the extent Husband may have invested any
Category 3 credits into this particular marital partnership
property, Husband may have already received credit for Category
3 amounts he invested in this home. The family court must also
address this issue. In addition, the family court must
therefore address whether, pursuant to Hamilton, any of the
alleged Category 3 amounts constituted gifts.
B. Attorney’s Fees Pursuant to HFCR Rule 68
The second issue on certiorari concerns the family court’s
denial of Husband’s HFCR Rule 68 motion for attorney’s fees,
which the ICA vacated based on its decision in Owens v. Owens,
104 Hawaii 292, 88 P.3d 664 (App. 2004). In Owens, the ICA held
that the family court was required to address an HFCR Rule 68
offer issue by issue. See id. at 310, 88 P.3d at 682. If the
offer on an issue was not sufficiently specific or if the
parties had settled an issue, Rule 68 fees would not be
permitted for fees incurred on that issue. See id. at 308–09,
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88 P.3d at 680–81. Otherwise, to ascertain whether fees should
be awarded under Rule 68, the family court would need to examine
the result on each remaining issue to see if the end result
obtained by the offeree as a whole was patently not more
favorable than the offer. See id. at 310, 88 P.3d at 682.
Owens was decided under a previous version of HFCR Rule 68,
which required that if all requirements for the award of HFCR
Rule 68 fees had been met, the court “shall make an award of
reasonable attorney’s fees and costs to the offeror unless it
specifically determines that such an award would be inequitable,
considering the provisions of HRS § 580-47.” Id. Effective
January 1, 2015, HFCR Rule 68 had been amended to omit the
reference to HRS § 580-47.
We recently held in Cox v. Cox, 138 Hawaii 476, 382 P.3d
288 (2016), that HFCR Rule 68 does not apply to proceedings
governed by HRS § 580-47. HFCR Rule 68, which allows for an
award of attorney’s fees in addition to costs, is quite
different from Rule 68 of the Hawaii Rules of Civil Procedure,
which only allows for costs. In Cox, in summary, we first ruled
that HFCR Rule 68 contravenes HRS § 580-47 because while HRS §
580-47(a) requires that an attorney fee award “shall appear just
and equitable,” HFCR Rule 68 mandates the award of attorney’s
fees to a party unless the court specifically determines that an
award would be inequitable. See id. at 481, 382 P.3d at 293.
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Second, we concluded that HFCR Rule 68 abridges substantive
rights of parties in violation of HRS § 602-11 (1985), which
prohibits rules of practice and procedure from modifying the
substantive rights of litigants, as the rule contravened the
dictates of the governing statute, HRS § 580-47. Finally, we
pointed out that the operation of HFCR Rule 68 generated
substantial complications due to inherent difficulties in
applying its provisions. See id.
This divorce proceeding is governed by HRS § 580-47.
Therefore, pursuant to Cox, Husband is not entitled to fees
under HFCR Rule 68. This case further highlights why we
invalidated HFCR Rule 68 in divorce cases.
First, the facts of this case illustrate the difficulty in
applying HFCR Rule 68, as more fully explained in Cox. See id.
at 483-89, 382 P.3d at 295-301. The HFCR Rule 68 offer in this
case covers property division, child custody, child visitation,
and child support. Husband’s property division offer includes
specific offers as to retirement accounts, household effects,
rattan chairs, personal items, children’s trust monies, the use
and accounting thereof, payment of debts, child custody, child
support, medical insurance for the children, uncovered medical
expenses, orthodontic care expenses, tuition expenses,
educational expenses, including after school care expenses,
extracurricular activity expenses, school lunch expenses, time
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sharing arrangements, and time sharing for special days.
According to Owens, the family court would be required to
evaluate Husband’s offer issue by issue, and only allow fees for
those issues on which Husband met HFCR Rule 68 requirements.
This would appear contrary to Husband’s Rule 68 offer letter,
which appears to have been a package deal as it started by
stating, “Please consider this a[] HFCR Rule 68 offer to settle
all matters relating to this divorce.”
Moreover, the Owens standard is extremely difficult to
apply. Attorney fee billings are not itemized in minutes or
hours spent on discrete issues such as those included in the
HFCR Rule 68 offer in this case.6 In fact, in this case,
Husband’s counsel did not keep hourly records, and estimated the
time he had spent on child custody issues. As it did in this
case, HFCR Rule 68 actually leads to substantial appellate
litigation in divorce cases just on Rule 68 issues, as the
parties argue its applicability and application. Such
protracted, contentious divorce proceedings are especially
harmful when the divorcing couple has children.
6
Because HFCR Rule 68 has been invalidated in divorce cases and is therefore
inapplicable in this case, we do not address whether HFCR Rule 68 actually
requires an evaluation of fees “issue by issue” or whether the offer must be
compared to the judgment obtained as a whole. We note that HFCR Rule does
state that “[i]f the judgment in its entirety finally obtained by the offeree
is patently not more favorable than the offer, the offeree must pay the
costs, including reasonable attorney’s fees incurred after making of the
offer, unless the court shall specially determine that such would be
inequitable.”
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With respect to children, this case illustrates an
additional concern regarding an award of attorney’s fees under
HFCR Rule 68 as stated in Cox. Cox noted that a threat to
impose payment of attorney fees may deter a parent from seeking
a custody determination that would be in the best interests of
the child:
This tendency to potentially coerce a settlement is
all the more problematic in actions involving child custody
and visitation, which are both subject to HFCR Rule 68 . .
. . Because the determination of the terms of custody and
visitation is dictated by the “best interests of the
child,” HRS § 571-46 (Supp. 2013), . . . “the possible
impact on a party’s pocketbook should have no influence on
the child custody issue.” . . . However, HFCR Rule 68’s
threat of penalizing a party-offeree, by requiring payment
of the party-offeror’s attorney’s fees, could “deter a
party whose genuine concern for the best interests of the
child is motivating him or her to contest the award of
child custody and/or visitation from continuing to contest
the award of child custody and/or visitation.”
Id. at 487-88, 382 P.3d 299-300 (footnote and some internal
citations, brackets, and quotation marks omitted).
Establishing a financial disincentive for a parent to
contest custody, when that parent has a legitimate concern for
the best interests of the child, not only undermines the
foundational principle of custody award determinations, but
“[i]t is [also] contrary to societal interests” that such
decisions are made without financial influence. Id. In this
case, Husband argued for HFCR Rule 68 fees on the grounds that
the main issue at trial was child custody. Thus, the concerns
expressed in Cox apply.
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Importantly, in this case, the Child Custody Evaluator had
recommended sole legal and physical custody to Wife. Wife was
therefore advocating for a decision on child custody which, in
the court-appointed Child Custody Evaluator’s view, was in the
best interests of the minor children. As factfinder, the family
court was well within its discretion to rule otherwise, and we
in no way question the joint custody ruling made by the family
court. Yet, HFCR Rule 68 would on its face mandate an attorney
fee award to Husband when he obtained a ruling contrary to the
Child Custody Evaluator’s recommendation. This case therefore
illustrates how HFCR Rule 68 could not only be coercive, but
could also run counter to the best interests of the child in
child custody disputes.
Along these lines, it must also be noted that HFCR Rule 68
has a much more coercive impact on divorcing spouses with less
financial resources as there exists the threat of having to pay
a spouse’s attorney’s fees if one does not prevail on an issue
in a divorce case, including an issue of child custody. In
divorce cases, it is not unusual for one spouse to have much
greater financial power. There are many divorce cases in which
one spouse remains unrepresented by an attorney. In those
cases, only the spouse with an attorney can take advantage of
HFCR Rule 68. Thus, the spouse that cannot afford an attorney
could be court ordered to pay the attorney fees of a spouse with
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significantly greater financial resources. This was the exact
situation in Cox.
Even if both spouses had attorneys, as in this case, the
spouse with greater economic power was in a much better position
to make or reject a HFCR Rule 68 offer, knowing that he or she
had the financial resources to withstand any later decision on
fees. For the spouse without economic power, an adverse HFCR
Rule 68 award could be financially devastating. Therefore, HFCR
Rule 68 was a potentially coercive tool for a spouse with
economic resources to exercise power and control over the spouse
without economic might. This concern was exacerbated in
divorces involving domestic violence where the divorce was
initiated by a battered spouse to end that power and control.
Finally, HRS § 580-47(a) and (f) allow a family court to
make orders that are “just and equitable,” including orders
awarding attorney’s fees and costs.7 Unfortunately, HFCR Rule 68
7
HRS § 580-47 provides in pertinent part:
§580-47 Support orders; division of property. (a) Upon
granting a divorce . . .the court may make any further orders as
shall appear just and equitable . . . (4) allocating, as between
the parties, the responsibility for the . . . attorney’s fees .
. . incurred by each party by reason of the divorce. In making
these further orders, the court shall take into consideration:
the respective merits of the parties, the relative abilities of
the parties, the condition in which each party will be left by
the divorce, the burdens imposed upon either party for the
benefit of the children of the parties, the concealment of or
failure to disclose income or an asset, or violation of a
restraining order issued under section 580-10(a) or (b), if any,
by either party, and all other circumstances of the case.
(continued . . .)
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allowed for the issuance of attorney fee orders in divorce cases
that were not “just and equitable.” For example, in this case,
the family court had made an attorney fee and costs award in
favor of Wife pursuant to HRS § 580-47, awarding her $21,984.46
in fees and costs, and had denied Husband’s request for $15,500
in fees under HFCR Rule 68; additional sums could have been
requested for subsequent litigation. Yet, pursuant to its
interpretations of HFCR Rule 68, the ICA ordered a remand for
the family court to consider whether Husband should be entitled
to HFCR Rule 68 fees. Therefore, the court rule contradicted
and could have negated the family court’s award of “just and
equitable” fees and costs pursuant to the statute. It is noted
that even without HFCR Rule 68 being applicable to divorce
cases, pursuant to HRS § 580-47, a family court has full
(. . . continued)
. . .
(f) Attorney's fees and costs. The court hearing any motion for
orders either revising an order for the custody, support,
maintenance, and education of the children of the parties, or an
order for the support and maintenance of one party by the other,
or a motion for an order to enforce any such order or any order
made under subsection (a) of this section, may make such orders
requiring either party to pay or contribute to the payment of the
attorney's fees, costs, and expenses of the other party relating
to such motion and hearing as shall appear just and equitable
after consideration of the respective merits of the parties, the
relative abilities of the parties, the economic condition of each
party at the time of the hearing, the burdens imposed upon either
party for the benefit of the children of the parties, the
concealment of or failure to disclose income or an asset, or
violation of a restraining order issued under section 580-10(a)
or (b), if any, by either party, and all other circumstances of
the case.
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authority to be able to make attorney fee orders in divorce
cases that are in fact just and equitable.
The Dissent incorporates its opinion in Cox and reiterates
its position that HFCR Rule 68 can be interpreted in a manner
consistent with HRS § 580-47. Based on reasons stated here and
in Cox, we respectfully disagree. We reiterate that there is
significant case precedent holding court rules inapplicable
where they conflict with legislative mandates, see Cox, 138
Hawaii at 482-83, 382 P.3d at 294-95, and we note that pending
cases are governed by existing rules, even if rule amendments
applicable to future cases can be made.8
This case involves an appeal of a family court order
denying Husband’s motion for HFCR Rule 68 fees. Husband brought
the motion after the family court had already ordered Husband to
pay Wife “just and equitable” attorney’s fees pursuant to HRS §
580-47. Applying the existing language of HFCR Rule 68, the ICA
vacated the family court’s order denying Husband’s motion, and
ordered the family court to reconsider its ruling in light of
that language. The conflict between the statute and the rule
could not be more clear. We therefore vacate the ICA’s ruling
8
The Family Court Rules Committee is able to propose a revised version of
HFCR Rule 68 that conforms with HRS § 580-47 and addresses the concerns
expressed in Cox and in this case, including the presumptive entitlement to
fees acknowledged by the Dissent, which conflicts with HRS § 580-47.
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vacating the family court’s denial of Husband’s HFCR Rule 68
motion.
V. Conclusion
For these reasons, the ICA’s SDO and Judgment on Appeal
with respect to Husband’s cross-appeal is affirmed in part and
vacated in part. The ICA’s ruling vacating in part the family
court’s “Decree Granting Absolute Divorce and Awarding Child
Custody” on the grounds it denied Husband any Category 3 credit
for gifts and inheritance, is affirmed pursuant to the
supplemental instructions in this opinion. The ICA’s order
vacating the family court’s “Order Re: Plaintiff’s Motion for
Reconsideration and for Rule 68 Attorney’s Fees Filed February
16, 2012” and “Order Denying Plaintiff’s Motion for
Reconsideration of Decision Announced March 14, 2012, Filed
March 21, 2012” are affirmed based only on the issue of the
Category 3 credits, but to the extent the ICA vacated these
orders for the family court to address Husband’s HFCR Rule 68
motion, the ICA’s SDO and Judgment on Appeal are vacated. This
matter is remanded to the family court for further proceedings
consistent with this opinion.
Peter Van Name Esser and /s/ Sabrina S. McKenna
P. Gregory Frey
for petitioner /s/ Richard W. Pollack
Samuel P. King, Jr. /s/ Michael D. Wilson
for respondent
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