Kekona v. Bornemann.
349 P.3d 361
Haw.2015Background
- In 1993 the Kekonas obtained a $191,828.27 judgment against Abastillas and Smith. Immediately after, Abastillas and Smith transferred two properties (Kāneʻohe and Honolulu Park Place) to Dr. Michael Bornemann; Bornemann also signed a blank security agreement and took a security interest in meager personal items. The Kekonas sued alleging fraudulent transfers under HRS chapter 651C.
- At three separate trials, juries found the transfers fraudulent (the third trial applied the clear-and-convincing standard mandated on remand) and found Bornemann lacked good-faith receipt; juries assessed punitive damages against Bornemann ($250,000 in first trial reduced; $594,000 in second; $1,642,857.13 in third).
- The third jury awarded $253,000 in compensatory interest damages and $1,642,857.13 in punitive damages; the circuit court denied post-trial reduction motions.
- The ICA vacated the punitive award as grossly excessive and gave the Kekonas the option to remit $1,392,857.10 or retry; it also vacated the $253,000 special damages award. The Kekonas petitioned for certiorari.
- The Hawaiʻi Supreme Court reviewed whether the punitive award was supported by state-law standards (clear-and-convincing, Kang/Masaki framework) and whether it violated the Due Process Clause (BMW/State Farm guideposts), and reinstated the full punitive award.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Availability of punitive damages for fraudulent transfers | Punitive damages are available to punish intentional fraudulent transfers that deliberately frustrate collection of judgments | Punitive damages should not apply or should be limited in fraudulent-transfer cases | Court: Punitive damages are available for fraudulent transfers when state standard (clear and convincing) is met |
| Sufficiency of evidence to support punitive damages (state law) | Kekona: Evidence (post-transfer conduct, sham suits, tax/file manipulations, pass-through rents, attorney fees, targeting elderly plaintiffs) shows intentional, aggravated misconduct warranting the award | Bornemann: Conduct not sufficiently reprehensible; claimed loans and transactions were legitimate; challenged amount and some fee evidence | Court: Evidence supported jury’s finding of wanton/intentional misconduct and the magnitude of award; $600k of award justified as reasonable attorney fees; remaining amount justified by aggravating factors |
| Excessiveness under Hawaiʻi appellate review (abuse of discretion) | Award within trial jury discretion given malice, duration, targeting, repeated acts, and fees | Award was grossly excessive; ICA reduced it to $250k equivalent | Court: Appellate reversal was erroneous; award was not palpably unsupported or outrageously excessive under state law |
| Federal due process (Fourteenth Amendment) | Kekona: Award neither arbitrary nor grossly excessive under BMW/State Farm guideposts; deterrence and punishment proper | Bornemann: Ratio and amount violate Due Process; award is grossly excessive | Court: Under de novo federal review, award passes BMW/State Farm guideposts (reprehensibility, ratio, comparison to penalties) and does not violate due process |
Key Cases Cited
- Cooper Indus. v. Leatherman Tool Group, 532 U.S. 424 (standard of review for constitutional excessiveness; de novo review)
- BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (Due Process guideposts for punitive-damages excessiveness)
- State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (limitations and guideposts for punitive damages under Due Process)
- Masaki v. General Motors Corp., 71 Haw. 1 (Haw. 1987) (clear-and-convincing standard and elements for punitive damages under Hawaiʻi law)
- Kang v. Harrington, 59 Haw. 652 (Haw. 1978) (appropriate measure of punitive damages; intent/malice standard)
- Lee v. Aiu, [citation="85 Hawai'i 19"] (Haw. 1997) (plaintiff's attorney fees may be considered as part of punitive damages when reasonable and necessary)
- Romero v. Hariri, 80 Haw. App. 450 (Haw. App. 1996) (standard for appellate review of punitive damages verdicts)