No. SCWC-16-0000858 Thursday, June 6, 2019, 8:45 a.m.

THOMAS FRANK SCHMIDT AND LORINNA JHINCIL SCHMIDT, Petitioners/Plaintiffs-Appellants/Cross-Appellees, vs. HSC, INC., A HAWAII CORPORATION; RICHARD HENDERSON, SR.; ELEANOR R.J. HENDERSON, Respondents/Defendants-Appellees/Cross-Appellants, and JOHN DOES 1–10; JANE DOES 1–10; DOE CORPORATIONS 1–10; and DOE UNINCORPORATED ASSOCIATIONS, INCLUDING PARTNERSHIPS 1–10, Defendants.

The above-captioned case has been set for argument on the merits at:

Supreme Court Courtroom
Aliiolani Hale, 2nd Floor
417 South King Street
Honolulu, HI 96813

Attorney for Petitioners:

R. Steven Geshell

Attorney for Respondents:

Paul Alston of Dentons US LLP

NOTE: Certificate of Recusal, by Chief Justice Mark E. Recktenwald, filed 02/22/19.

NOTE: Order assigning Circuit Court Judge Jeffrey P. Crabtree, in place of Recktenwald, C.J., recused, filed 02/26/19.

COURT: Nakayama, Acting C.J., McKenna, Pollack, and Wilson, JJ., and Circuit Court Judge Crabtree, in place of Recktenwald, C.J., recused.

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Brief Description:

The parties in this case return to this court for the third time after our decision in Schmidt v. HSC, Inc., 131 Hawaii 497, 319 P.3d 416 (2014) (“Schmidt II”). Previously, Petitioners/Plaintiffs-Appellants/Cross-Appellees Thomas Frank Schmidt and Lorinna Jhincil Schmidt (collectively, “Schmidts”) obtained a 2004 final judgment against Realty Finance, Inc. (“RFI”) for $537,000 in excess proceeds from a foreclosure sale, but later learned that RFI had already transferred those proceeds to creditors of its parent company, Respondent/Defendant-Appellee/Cross-Appellant HSC, Inc. (“HSC”), leaving RFI insolvent. On April 7, 2006, the Schmidts filed Civil No. 06-1-228 in the Circuit Court of the Third Circuit (“circuit court”), alleging RFI fraudulently transferred the excess proceeds under Hawai?i Revised Statutes (“HRS”) § 651C-7, part of Hawaii?’s Uniform Fraudulent Transfer Act (“HUFTA”). Following a bench trial, the circuit court concluded the Schmidts did not prove by clear and convincing evidence RFI actually intended to hinder, delay, or defraud any creditors of RFI and entered judgment in favor of Respondents/Defendants-Appellees/Cross-Appellants HSC, Richard Henderson, Sr., and Eleanor R.J. Henderson (collectively, “Respondents”). On appeal, the Intermediate Court of Appeals (“ICA”) did not address the merits of the circuit court’s findings and instead held that the complaint was untimely because the statute of limitations, HRS § 651C-9(1), ran from the date of the actual transfer of proceeds, not from the date the Schmidts discovered the fraudulent nature of a transfer.

In Schmidt II, we held that the statute of limitations of HRS § 651C-9(1) runs from the date the Schmidts discovered the fraudulent nature of the transfer, not from the date of the transfer. We therefore remanded the case to the ICA to address the merits of the Schmidts’ arguments on appeal as to whether they had proven by clear and convincing evidence RFI actually intended to hinder, delay, or defraud any creditors of RFI, and for reconsideration of whether the Schmidts’ HUFTA claim was timely.

On remand, the ICA concluded the circuit court erred by dismissing the Schmidts’ claims on the merits, as the facts established by the record proved by clear and convincing evidence that RFI actually intended to hinder, delay, or defraud creditors of RFI, as required by HRS § 651C-4(a)(1). The ICA then remanded the case to the circuit court for additional factual findings regarding timeliness, specifically regarding when the Schmidts discovered, or could reasonably have discovered, the fraudulent nature of the transfers. The circuit court then concluded in relevant part that the Schmidts’ HUFTA claim was time-barred as they could reasonably have discovered the fraudulent nature of the transfers on or before February 21, 2005 (before the Schmidts had learned of the existence of the transfers), but did not file a complaint until April 7, 2006, past the one-year statute of limitations period for HUFTA claims under HRS § 651C-9(1).

The Schmidts unsuccessfully appealed to the ICA then filed an Application for Writ of Certiorari on February 19, 2019. They present the same issues they previously argued before the ICA, all related to the date the circuit court determined the Schmidts could reasonably have discovered the fraudulent nature of the subject transfers. The Schmidts assert they could not reasonably have discovered the fraudulent nature of the transfers until the July 26, 2005 deposition of Michael Chagami, the chief financial officer of HSC, during which they learned RFI was insolvent, and that their HUFTA claim was therefore timely filed within the one-year statute of limitations period.