One Kalakaua Senior Living Association v. Clay

529 P.3d 710, 153 Haw. 232

• Court: Hawaii Intermediate Court of Appeals
• Decided: May 26, 2023
• Docket: CAAP-17-0000538
• Status: Published

Opinion

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Electronically Filed Intermediate Court of Appeals CAAP-XX-XXXXXXX 26-MAY-2023 07:46 AM Dkt. 80 MO

NO. CAAP-XX-XXXXXXX

IN THE INTERMEDIATE COURT OF APPEALS

OF THE STATE OF HAWAI‘I

ONE KALAKAUA SENIOR LIVING ASSOCIATION, a Hawaii non-profit corporation, Plaintiff-Appellee, v. ALICE CLAY, Defendant-Appellant, and HAWAI‘I STATE DEPARTMENT OF HEALTH, Defendant-Appellee, and DOES 1-10, Defendants.

APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CIVIL NO. 1CC16-1-000229)

MEMORANDUM OPINION (By: Leonard, Presiding Judge, Wadsworth and McCullen, JJ.)

Defendant-Appellant Alice Clay (Clay) appeals from the

Circuit Court of the First Circuit's: (1) December 19, 2016

order granting Plaintiff-Appellee One Kalakaua Senior Living

Association's (Association) motion for partial summary judgment

as to Count I; (2) December 19, 2016 order denying Clay's motion

for leave to file a counterclaim; (3) June 28, 2017 order

granting Association's motion for partial summary judgment as to NOT FOR PUBLICATION IN WEST'S HAWAIʻI REPORTS AND PACIFIC REPORTER

Count III; and (4) June 28, 2017 final judgment, which was

amended on November 15, 2017. 1 Based on the discussion below, we

affirm in part and vacate in part.

I. BACKGROUND

Clay has been a resident and owner at One Kalakaua

Senior Living Condominium Project (One Kalakaua) since 1997.

The background in this case spans over two decades and involves

a long-standing dispute between Clay and Association over One

Kalakaua's operation as an assisted living facility. Because

they are central to this appeal, we begin with One Kalakaua's

governing documents.

A. One Kalakaua's Governing Documents

1. Declaration

In 1995, One Kalakaua's Declaration (Declaration) was

recorded with the Bureau of Conveyances, describing the project

as "a single monolithic building consisting of 14 floors" and

the "entire second floor is a skilled nursing facility

consisting of beds, patient lounge, recreation and dining area,

physical therapy room, beauty shop, nurses station and

administrative area, lobby and waiting area." (Declaration,

1 The Honorable Karen T. Nakasone presided over the December 19, 2016 orders, and the Honorable Keith K. Hiraoka presided over the June 28, 2017 order and final judgment, and the November 15, 2017 amended final judgment.

We note that Clay's opening brief does not comply with the Hawai‘i Rules of Appellate Procedure (HRAP) Rule 28(b)(4).

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Article 5.0, 5.1(d)). The third to fourteenth floors have

apartments, elevators, a lobby, corridors, mechanical and

electrical rooms, and a trash chute. (Declaration, Article

5.1(e)).

The common elements of One Kalakaua include the

"skilled nursing facility, patient lounge, recreation and dining

area, physical therapy room, beauty shop, nurses station and

administrative area [that] are located on the second floor."

(Declaration, Article 6.4(b)). "Each apartment shall have

appurtenant thereto the following undivided interest in all the

common elements of the Project for determination of the common

profits, expenses, voting and for all other purposes."

(Declaration, Article 7.0).

The Declaration vested the administration of One

Kalakaua in Association. (Declaration, Article 11.0). "The

purpose of this Association is to provide a means for the

governance of the Project as a senior living facility, providing

such services and amenities as the Association may from time to

time deem appropriate in furtherance of such purpose."

(Declaration, Article 11.1(b)).

"The One Kalakaua Club is that part of the Association

which provides services and amenities through the facilities to

the owners and occupants of the apartments in the Project."

(Declaration, Article 11.5). Available to the owner as part of

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the common expense are meals, the wellness program, arts and

crafts program, recreational program, and other social programs.

(Declaration, Article 11.5(a)). Available to the owner through

One Kalakaua Club upon request and purchase are the beauty

salon, the skilled nursing facility, and "[o]ther services or

uses that are offered." (Declaration, Article 11.5(b))

(emphasis added).

The Declaration also requires that

[a]ll apartment owners . . . shall be bound by and comply strictly with the provisions of this Declaration, the By Laws of the Association and all agreements, decisions, and determinations of the Association duly and lawfully made or amended from time to time, and failure to comply with any of same shall be grounds for an action to recover sums due, for damages or injunctive relief, or both[.]

(Declaration, Article 14.0).

The Declaration defines "Act" as "the provisions of

Chapter 514A, Hawaii Revised Statutes [(HRS)], as the same may

be amended from time to time." 2 (Declaration, Article 1.0(a)).

The Declaration provides for "Compliance with Laws" and that

"[i]n the event of conflict the Act shall prevail over the

Hawaii Nonprofit Corporation Act and an owner shall not excuse

2 In 2017, the legislature repealed HRS chapter 514A and made clear that HRS "chapter 514B applies to all condominiums in the State, provided that such application shall not invalidate existing provisions of a condominiums governing documents, if to do so would invalidate a developer's reserved rights[.]" 2017 Haw. Sess. Laws Act 181, §§ 1, 2 at 629; S.B. 292, S.D. 1, 29th Leg., Reg. Sess. (2017), available at https://www.capitol.hawaii.gov/session2017/bills/SB292_SD1_.pdf; S.B. 292, H.D. 1, 29th Leg., Reg. Sess. (2017), available at https://www.capitol.hawaii.gov/session2017/bills/SB292_HD1_.pdf; S.B. 292, C.D. 1, 29th Leg., Reg. Sess. (2017), available at https://www.capitol.hawaii.gov/session2017/bills/SB292_CD1_.pdf.

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an owner from observing any law and any regulation of any

governmental body." (Declaration, Article 20.3). "Any dispute

involving an apartment owner, the Association, the Board, or the

Managing Agent shall be submitted to arbitration as required by

the Act." (Declaration, Article 21.0) (emphasis added).

2. By Laws

Also in 1995, One Kalakaua's "By Laws" (By Laws) were

recorded with the Bureau of Conveyances. The By Laws explain

that the "mere acquisition or rental of any apartment or the

mere act of occupancy of any apartment will signify that these

By Laws are accepted, ratified, and will be complied with." (By

Laws, Introduction/Preamble).

The By Laws provide that, "in the use of" One

Kalakaua, "[e]very apartment owner and occupant shall at all

times keep his apartment in a strictly clean and sanitary

condition and observe and perform all laws, ordinances, rules

and regulations now or hereafter made by any governmental

authority or the Association for the period during which the

same are applicable to the use of" One Kalakaua. (By Laws,

Article V, Section 3(A)(6)). Also "in the use of" One Kalakaua,

"[n]o unlawful use shall be made of the Project or any part

thereof, and all valid laws, orders, rules and regulations of

all governmental agencies having jurisdiction thereof

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(collectively "Legal Requirements") shall be strictly complied

with." (By Laws, Article V, Section 3(A)(11)).

Apartment owners "need not comply with any Legal

Requirement so long as it shall be so contesting the validity or

applicability thereof, provided that noncompliance shall not

create a dangerous condition or constitute a crime or an offense

punishable by fine or imprisonment," and also "that no part of

the Project shall be subject to being condemned or vacated by

reason of noncompliance . . . ." (By Laws, Article V,

Section 3(A)(11)(ii)).

"All costs and expenses, including reasonable

attorney's fees, incurred by or on behalf of the Association for

. . . [e]nforcing any provision of the Declaration, By Laws,

House Rules, and the Condominium Property Act . . . against an

owner . . . shall be promptly paid on demand to the Association

by such person . . . ." (By Laws, Article V, Sections 5(C),

5(C)(3), and 5(C)(4)).

"Each apartment owner . . . shall comply strictly with

the By Laws and with the administrative rules and regulations

adopted . . . . Failure to comply with any of the same shall be

ground for an action to recover sums due, for damages or

injunctive relief, or both . . . ." (By Laws, Article V,

Section 9).

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The By Laws "are subordinate and subject to all

provisions of the Declaration and any amendments thereto and the

Condominium Property Act ([HRS] chapter 514A, . . . as amended)

which shall control in case of any conflict." (By Laws,

Article VI, Section 3). "At the request of any party, any

dispute . . . involving . . . the Association . . . relating to

the interpretation, application or enforcement of [HRS chapter

514A], Declaration, By Laws, House (Building) Rules . . . shall

be subject to arbitration and disposition as provided under

Part VII, Arbitration, under said Chapter 514A." 3 (By Laws,

Article VI, Section 8) (emphasis added).

The By Laws also give the Board power to adopt, amend

or repeal House Rules. (By Laws, Article V, Section 4).

3. House Rules

The House Rules, approved August 2015 and effective

October 2015, declare that One Kalakaua "is a fee-simple

condominium multipurpose senior living community that exists to

support the current and enhance the future lifestyle needs of

our residents." (House Rules, Section 1 - Introduction,

Mission/Vision/Values – Our Community). "The amenities

(programs and services) offered by our community are geared to

3 The By Laws make mediation available in assessment disputes and court actions by an owner "against an Association . . . to enforce any provision of the Declaration, By Laws, House Rules, or [HRS chapter 514A] . . . ." (By Laws, Article V, Sections 1(D)(5), 1(E) and 5(D)).

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meet the needs of seniors who are independent as well as those

who benefit from supervised assistance of others." (House

Rules, Section 1 - Introduction, Mission/Vision/Values – Our

Community). One Kalakaua's mission is to "strive to be a leader

in senior living by providing a gracious, friendly, and secure

residential community that offers residents and their family's

[sic] peace of mind through wellness and assisted living

programs that support the continuum of care and 'aging in

place'." (House Rules, Section 1 - Introduction,

Mission/Vision/Values – Our Mission).

The House Rules also acknowledge that One Kalakaua's

"operation requires special policies and services in compliance

with the State of [Hawai‘i], Department of Health [(DOH)],

Assisted Living Regulations . . . ." (House Rules, Section 1 -

Introduction, Acknowledgement). The House Rules then disclose

that "One Kalakaua has adopted polices and services in

compliance with the State of [Hawai‘i], [DOH], Assisted Living

Regulations, Hawaii Administrative Rules [(HAR)], Title 11,

Chapter 90." (House Rules, Section 5 – Senior Living, Senior

Living Disclosures).

The House Rules provide that "[a] 2-step TB clearance

is required before move-in" and an "[a]nnual TB clearance is

required from the [DOH], and must be obtained with written

documentation given to the facility, for Independent Contracted

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Caregivers." (House Rules, Section 2 - Administration,

Registration, Section 5 – Senior Living, Resident Arranged

Health Services). The club dues include the "State required TB

clearance for all new move-ins and annually thereafter." (House

Rules, Section 6 – Services, Services Included in Monthly Fees –

Club Dues). "Mandatory tuberculin skin testing is also offered

annually" and included in the monthly fees for the Independent

Living-Wellness Program. (House Rules, Section 5 – Senior

Living, Continuum of Care – Independent Living-Wellness

Program).

"Owners and occupants as well as their guests shall

observe and adhere to the House Rules, Declaration, and Bylaws."

(House Rules, Section 2 – Administration, Violations). The

minimum fine is $50, and the maximum fine is $350. (House

Rules, Section 2 – Administration, Violations). Also, "[t]he

Board may impose charges or penalties for violations of the

Declaration, Bylaws, or House Rules" including "[e]njoin, abate

or remedy by appropriate legal proceedings, either at law or in

equity, the continuance of any breach, and all costs thereof,

including attorney's fees, shall be borne by the defaulting

apartment owner." (House Rules, Section 2 – Administration,

Violations).

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B. Clay and Assisted Living

Clay acquired Unit 1503 in 1997, and Unit 1204 in

2004. Clay resided in Unit 1503 until 2012, when she

transferred Unit 1503 to another person and then resided in

Unit 1204.

According to Clay, from 1997 to 2000, Association

hired Life Care Services to provide assisted living at One

Kalakaua. Clay "was President of One Kalakaua at the time the

assisted living services ceased being provided by an independent

contractor at the end of calendar year 2000 and voted in favor

of the termination of that independent contractor." Clay

averred that, in 2001, "One Kalakaua began to provide assistance

in living services in a manner which raised licensing and

insurance issues . . . ."

Also in 2001, HAR § 11-164's Exhibit A was amended.

HAR § 11-164 Exhibit A (Amended 2001, Repealed 2018). Applying

to programs licensed under Title 11 chapters 85-105, Exhibit A

provided that "[a]ll residents, employees, contract workers, and

volunteers working more than 10 hours per week are required to

have an Entry TB Evaluation (as described in #2 below) within 1

year prior to starting work and Annual Tuberculosis Re-

evaluations" except for buildings with no patient care, patients

of acute inpatient facilities, and infants under twelve months

old. (Emphases added.)

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In 2002, One Kalakaua established itself as an

assisted living facility as reflected in the 2015 license below:

See Exhibit "V" of Association's Motion for Partial Summary

Judgment as to Count I. The license identifies the 166 units

within One Kalakaua.

C. The 2002 Litigation

Clay filed a second amended complaint alleging the

following: (1) "Count I Violation of Duty of Prudent Business

Practices and Breach of Fiduciary Duties[,]" and (2) "Count II

Violation of Declaration/Ultra Vires[.]" (Formatting altered.)

As to Count I, Clay argued that Association breached its

fiduciary duties for the following reasons:

(a) improperly operating One Kalakaua as an Assisted Living Facility first without proper licensing and proper insurance, and then without first obtaining an amendment to the Declaration;

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(b) directly providing the assisted living services through Association employees, and thereby incurring ever increasing expenses including for wages and insurance, instead of hiring a proper vendor;

(c) using common area funds and club dues to subsidize what should be "pay as you go" services;

(d) reducing or eliminating services provided as part of the club dues in order to use the funds for the assisted living services;

(e) failing to fund the building reserve;

(f) failing to provide timely audits; and

(g) promulgating improper House Rules[.]

(Formatting altered and emphasis added.)

Clay sought, inter alia, declaratory relief for

Association's "violation of the Declaration and/or By-Laws and

acting ultra vires" in "breach of their fiduciary duties, by

obtaining a license to act as an Assisted Living Facility, and

operating [Association] as an Assisted Living Facility, without

first presenting the issue to the homeowners and obtaining the

necessary votes to amend the Declaration and By-Laws[.]"

In 2004, the Honorable Elizabeth E. Hifo concluded:

(1) "The Declaration did not need to be amended to obtain an

assisted living license and the Board did not breach its

fiduciary duty by obtaining the assisted living facility

license[,]" and (2) "The doctrine of judicial estoppel bars

Plaintiffs from claiming that the Declaration was violated or

needed to be amended or that the Board breached its fiduciary

duty by obtaining the assisted living facility license."

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Judge Hifo found that, in the Declaration, "'other

services offered' at One Kalakaua by the One Kalakaua Club are

'based on the owner and/or occupant, requesting and/or

purchasing the same.'" Judge Hifo also found that Clay "admits

that all 'other services offered' include assisted living

services and that One Kalakaua charges for all 'other services

offered.'"

On December 8, 2004, Judge Hifo entered a judgment in

favor of Association and against Clay.

D. The 2016 Litigation

1. Pre-complaint

In 2011, DOH's Tuberculosis Control Branch answered

questions from the Hawaii Long Term Care Association (2011 Q&A).

One of the scenarios posed by the Hawaii Long Term Care

Association closely resembled the situation at One Kalakaua:

Facility is a condominium that has been also licensed as an [assisted living facility]. Residents privately own and purchase their units and do not necessarily receive [assisted living facility] services or oversight. [Assisted living facility] services are an ala-carte feature that they must purchase separately and the majority of the residents and independent [sic] receive no [assisted living facility] services. Because residents own their unit, management has no enforcement mechanism. Are independent residents and their visitors required to have TB clearance? Is there an opportunity to address this for units that are privately owned?

(Formatting altered.) The Tuberculosis Control Branch responded

that

[a]ll residents of a facility licensed under Title 11, Chapters 85-105 by the [DOH] (Office of Health Care

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Assurance) are required to comply with TB clearance requirements. The independence of a resident and utilization of services is not used to determine if TB clearance is required. If the entire condominium is licensed by the Office of Health Care Assurance, all residents of the facility would be required to have TB clearance. TB clearance is not required for visitors.

In 2012, 2013, and 2014, Clay complied with the TB

screening requirement.

In October 2015, Clay refused the TB reevaluation.

This refusal continued for several months, and Association

imposed a $50 fine in a third notice of non-compliance, a $100

fine in a fourth notice, a $200 fine in a fifth notice, a $350

fine in a sixth notice, and another $350 fine in the seventh,

and final, notice. 4

4 The non-compliance notices were as follows:

Second Notice: Dated November 5, 2015 with a compliance due date of November 20, 2015.

Third Notice: Dated November 23, 2015 with a $50.00 fine, a new compliance due date of December 4, 2015, and a warning of being assessed a $100.00 fine.

Fourth Notice: Dated December 7, 2015 with $100.00 fine, a new compliance due date of December 18, 2015, and a warning of being assessed a $200.00 fine.

Fifth Notice: Dated December 21, 2015 with a $200.00 fine, a new compliance due date of January 8, 2016, and a warning of being assessed a $350.00 fine.

Sixth Notice: Dated January 11, 2016 with a $350.00 fine, a new compliance due date of January 27, 2016, and a warning of being assessed a $350.00 fine.

Seventh Notice: Dated January 28, 2016 with a $350.00 fine.

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On the day before the final notice, Clay filed a

special proceeding in circuit court seeking to compel mediation

with Association under HRS § 514B-161(a), which was assigned to

the Honorable Gary W.B. Chang. Clay clarified that the only

issue was the $50 fine she paid and would like to get back. On

February 19, 2016, Judge Chang ruled that "the Court is unable

to find sufficient legal authority authorizing [it] to issue an

order compelling mediation[,]" and denied the petition without

prejudice.

2. Association's Complaint

On February 4, 2016, Association filed a verified

complaint (Complaint) alleging three counts.

In Count I, Association requested a declaration that:

(1) "state law requires that all One Kalakaua

residents undergo annual TB skin testing as set

forth in HAR Title 11, Chapter 164;"

(2) "Clay's refusal since October 2015 to undergo the

annual TB skin test (or secure a letter from her

physician demonstrating her medical inability to

take the TB skin test, undergo a chest X-ray to

clear her of TB infection, and respond to annual

Health Department TB-focused questionnaires

thereafter) is a violation of HAR Title 11,

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Chapter 164, and also of [Association's] House

Rules; and"

(3) Association "is entitled to levy fines (and all

other penalties allowable under the House Rules)

against Ms. Clay for her refusal to undergo the

annual TB skin test (or the previously stated

alternative)."

(Formatting altered.)

In Count II, Association requested that the circuit

court "enjoin Ms. Clay from residing in the One Kalakaua

condominium community unless and until Ms. Clay demonstrates

that she has undergone either the annual TB skin test or the

previously stated alternative." The parties later stipulated to

dismiss this count as Clay submitted documents showing she was

screened for TB in May 2016 (seven months after her previous TB

screening expired).

In Count III, Association requested attorneys' fees

and costs related to Clay's refusal to take the TB skin test,

under HRS §§ 514B-157 (2006), 607-9 (1993), and 607-14.5

(Supp. 2015).

One Kalakaua attached to its Complaint as Exhibit C

the 2011 Q&A.

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3. Clay's Answer

On February 26, 2016, Clay filed a five-page answer to

the Complaint proffering nineteen defenses including that she

"relies as an affirmative defense upon the . . . breach of [One

Kalakaua's] governing documents." Clay filed no counterclaim

with her answer.

4. Clay's Motion for Mediation

Ten days after filing her answer, Clay moved to compel

mediation, which the circuit court granted but explained that it

was not a stay of the case and the case would proceed in normal

course. Association later represented that the "parties have

engaged in court-ordered mediation" and "there was no settlement

on the substantive issues in the case[.]"

5. Motion for Summary Judgment on Count I (Declaratory Relief)

In June 2016, Association moved for summary judgment

on Count I (declaratory relief), arguing that undisputed facts

demonstrated that Clay refused to take a TB test from

October 22, 2015 to May 19, 2016, which violated One Kalakaua's

By Laws and House Rules. Association also asserted that it was

entitled to levy fines against Clay for refusing to comply with

the TB testing requirements.

In her response to Association's motion for summary

judgment, Clay argued that:

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(1) [Association] has no authority to enforce state law against Ms. Clay;

(2) [Association] must amend its By-Laws and/or Declaration in order to enforce the DOH regulations against Ms. Clay and the entire One Kalakaua Project;

(3) The Board owes a fiduciary duty to Ms. Clay and all of the residents of One Kalakaua pursuant to its operating an [assisted living facility] within One Kalakaua;

(4) Ms. Clay's doctor's note satisfied the DOH guidelines and demonstrates the ambiguity within their regulations and the Board's interpretation of the same;

(5) Ms. Clay was penalized by the Board in violation of House Rules and the DOH regulations;

(6) Ms. Clay's defenses to the Motion and Complaint are not barred by the doctrine of res judicata; and

(7) Ms. Clay respectfully requests a continuance under [Hawai‘i Rules of Civil Procedure (HRCP)] Rule 56(f).

In its December 19, 2016 Order, the circuit court

granted summary judgment "because there are no disputed issues

of material fact and [Association] has demonstrated entitlement

to judgment as a matter of law . . . ." The circuit court found

that it was undisputed that Clay refused the TB screening in

October 2015. The circuit court further found that this refusal

"violated applicable state health department laws and the One

Kalakaua rules."

The circuit court stated that it

rejects Ms. Clay's arguments in opposition to the Motion that [Association] cannot enforce state laws on grounds that only the State of [Hawai‘i] can do so. As a regulated entity under the state health law provisions that are cited in the moving papers, [Association] is bound to follow those state law provisions.

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The circuit court clarified that "while it is being

characterized by Ms. Clay as enforcement of state law,

[Association] is trying to enforce its own rules and comply with

state law, which it is required to do as a licensed" assisted

living facility.

Finally, the circuit court stated that it "rejects

Ms. Clay's arguments that One Kalakaua is improperly operating

as an [assisted living facility] in breach of its fiduciary

duties." To that, the circuit court concluded that "[t]hese

arguments were fully litigated and decided upon in the 2002

complaint, resulting in the 2004 judgment before Judge Hifo, and

are accordingly barred by principles of res judicata."

6. Motion for Leave to File Counterclaim

Also in June 2016, Clay moved for leave to file a

counterclaim, arguing that (1) she did "not unduly [delay] in

bringing the instant motion; (2) the amendment to the pleadings

will not prejudice [One Kalakaua]; (3) [she] will be damaged

should she not be allowed to file her Counterclaim; and (4) the

motion is made in good faith and not for undue purposes." Clay

explained that she "did not initially file a counterclaim as she

was hopeful the matters would be resolved in mediation."

Clay attached her proposed counterclaim, which alleged

eight counts. All counts were based on the propriety of One

Kalakaua operating as an assisted living facility. In

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particular, Counts 6 through 8 were in pertinent part, as

follows:

COUNT VI[ 5] BREACH OF FIDUCIARY DUTY

. . . .

39. The Board breached its duties to Ms. Clay and the members of [One Kalakaua] when it unilaterally converted One Kalakaua to an [assisted living facility], and held the owners financially responsible for the maintenance of the [assisted living facility] while requiring the owners and residents to adhere to the regulations of the [DOH], as interpreted by [One Kalakaua].

39. The Board further violated its duties to Ms. Clay individually when [sic] fined Ms. Clay in excess of $1,000.00 and ultimately sued her in an attempt to force her to comply with the Board's new rules or otherwise be able to prevent her from entering her home until the Board deemed she was in compliance. Then, after suing Ms. Clay, the Board and [One Kalakaua] Executive Director spoke out against Ms. Clay at meetings, blaming her for wasting [One Kalakaua] funds on the lawsuit and publishing such statements in [One Kalakaua] literature and meeting minutes.

COUNT VII[ 6] NEGLIGENT INFLICTION OF EMOTIONAL DISTRESS

43. [One Kalakaua] breached this duty by, in violation of the governing documents and state law, unilaterally converting her fee simple property to an [assisted living facility], holding her financially responsible for the operation of the [assisted living facility] while forcing her to adhere to the rules and regulations of the [DOH].

44. The Board further inflicted distress upon Ms. Clay when it fined Ms. Clay in excess of $1,000.00 and ultimately sued her in an attempt to force her to comply with the Board's new rules or otherwise be able to prevent her from entering her home until the Board deemed she was

5 Count 6 included two paragraphs numbered 39. 6 Count 7 included two paragraphs numbered 44.

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in compliance. Then, after suing Ms. Clay, the Board and [One Kalakaua] Executive Director spoke out against Ms. Clay at meetings, blaming her for wasting [One Kalakaua] funds on the lawsuit and publishing such statements in [One Kalakaua] literature and meeting minutes.

COUNT VIII BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING

49. [One Kalakaua] and the Board violated its duties under HRS §§ [sic] 514B-9-10 [sic] when it began to operate an [assisted living facility] in One Kalakaua, charging the owners and residents of the property regardless of individual usage, while holding both subject to the rules and regulations it determined were applicable, ultimately suing Ms. Clay and attempting to receive Court authority to prevent her from entering the property until the Board determined she was in compliance with the Board's rules.

During the November 30, 2016 hearing on Clay's motion,

Clay's attorney explained that "once it became clear to us that

mediation, reaching an amicable resolution to this dispute was

not possible through mediation. . . [t]hat's when Ms. Clay

accepted the cost of litigation, and that this would be

litigated, which is why we then filed a motion for leave to file

the counterclaim."

Clay's attorney further explained, "they have changed

from being awarded [sic] license to now operating this full-

scale [assisted living facility], which is the crux of

Ms. Clay's counterclaim, it's the operation of it." In

discussing the source of her counterclaim, Clay's attorney

clarified, "[t]he source of Ms. Clay's counterclaim is the 2011

internal memo between the [DOH] that the board seems to rely

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upon to say they can now enforce the [DOH] regulations against

Ms. Clay."

The circuit court asked, "where in the counterclaim do

you talk about the 2011 memo, and the alleged wrongdoing that

stems from the memo[,]" and Clay's attorney did not provide a

responsive answer. Clay's attorney then stated to the circuit

court, "if you're at all considering denying this, you could

deny it without prejudice, and we could submit a new

counterclaim with the evidence we've received since then, could

more substantially justify Ms. Clay's counterclaims."

The circuit court inquired, "So, at the time you filed

the motion for leave to file the counterclaim, you didn't have

this 2011 letter?" Clay's attorney responded, "I believe this

was filed before the MSJ, Your Honor, and that letter came as

part of the MSJ." But, Association's attorney clarified that he

provided Clay with a copy of the proposed complaint and the 2011

Q&A:

I sent a copy of the proposed complaint that we were going to file, including the exhibits to Mr. Revere, and said, [t]his is what we're going to file, let us know if Ms. Clay changes her position, and the 2011 letter from the DOH was referenced in the complaint, and I believe it was attached as Exhibit C.

So that information was provided to Mrs. Clay's counsel before the lawsuit was ever filed.

The record also reflects that the 2011 Q&A was attached as

Exhibit C to the filed Complaint.

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denied Clay's motion for leave to file a counterclaim as

"The claims set forth in the proposed Counterclaim are barred both by the statute of limitations and by the doctrine of res judicata. The Court rejects Clay's argument that the continuing tort doctrine applies. Accordingly, the Motion For Leave to File Counterclaim is denied based upon futility of amendment." 7. Motion for Summary Judgment on Count III (Fees and Costs)

In February 2017, Association moved for partial

summary judgment on Count III for attorneys' fees and costs,

relying on HRS §§ 514B-157 and 607-9. Association asserted

that, up until January 31, 2017, it incurred $98,311.82 in fees

and costs.

In opposition, Clay argued that she requested to

mediate, she is a dissenter, Association was not a prevailing

party in Count II, and equity requires that the court deny

Association's motion.

Association later requested an additional $17,773.55

in attorneys' fees and costs for matters litigated from

January 2017 to May 2017. On June 28, 2017, the circuit court

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granted Association's motion for partial summary judgment

pursuant to HRS § 514B-157. 7

In its amended final judgment, the circuit court

entered judgment in favor of Association and against Clay in

Counts I and III, and dismissed Count II without prejudice. The

circuit court awarded Association $109,401.53 in attorneys'

fees, $6,693.84 in costs, and post-judgment interest. Clay

filed a timely notice of appeal.

II. DISCUSSION

On appeal, Clay contends that the circuit court erred

by (1) granting Association's motion for summary judgment and

denying her motion for leave to file a counterclaim based on res

judicata and (2) awarding attorney's fees and costs.

A. Summary Judgment and Counterclaim

In her first two points of error, Clay challenges the

circuit court's res judicata reasoning in granting Association's

motion for summary judgment on Count I and denying her motion

for leave to file a counterclaim. Based on the discussion

below, we hold that the circuit court did not err in granting

Association's motion for summary judgment and did not abuse its

7 The circuit court awarded $17,783.55 in attorney's fees and costs to Association, while Association had requested $17,773.55 in attorney's fees and costs.

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discretion in denying Clay's motion for leave to file a

counterclaim.

1. Res Judicata

"In the past, the term 'res judicata' was used to

describe both claim preclusion (res judicata) and issue

preclusion (collateral estoppel)." PennyMac Corp. v. Godinez,

148 Hawai‘i 323, 328 n.5, 474 P.3d 264, 269 n.5 (2020) (citation

omitted). But, the appellate courts have since clarified that

these are "separate doctrines that involve distinct questions of

law." Id. (citation omitted).

Here, the doctrine of issue preclusion applies. See

State v. Taniguchi, 72 Haw. 235, 239, 815 P.2d 24, 26 (1991)

(explaining that the appellate courts "have consistently held

that where the decision below is correct it must be affirmed

. . . even though the lower tribunal gave the wrong reason for

its action") (citation omitted).

Issue preclusion "may preclude the relitigation of a

fact or issue that was previously determined in a prior action

on a different claim or cause of action between the same parties

or their privies." Dannenberg v. State, 139 Hawai‘i 39, 59-60,

383 P.3d 1177, 1197-98 (2016) (formatting altered). The test

for issue preclusion requires establishing the following four

elements:

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(1) the issue decided in the prior adjudication is identical to the one presented in the action in question;

(2) there is a final judgment on the merits;

(3) the issue decided in the prior adjudication was essential to the final judgment; and

(4) the party against whom [issue preclusion] is asserted was a party or in privity with a party to the prior adjudication.

Bremer v. Weeks, l04 Hawai‘i 43, 54, 85 P.3d 150, 161 (2004)

(citation omitted, brackets in the original, and formatting

altered).

2. One Kalakaua's Operation as an Assisted Living Facility

Following a trial in the 2002 case, Judge Hifo ruled

that the "Declaration did not need to be amended to obtain an

license[.]" Judge Hifo found, among other things, that Clay

failed to prove by a preponderance of the evidence that by

operating as an assisted living facility "Defendants acted

without authority, or against the interests of One Kalakaua" or

that "Defendants have violated the Declaration or Bylaws or

their fiduciary duty in any other manner." Judge Hifo concluded

that Association "complied with and [has] not violated the

Declaration or the Bylaws of One Kalakaua or any other governing

document" and "have not breached any duty to" Clay. Judge Hifo

then entered judgment in favor of Association and against Clay.

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In this case, the circuit court stated that it

"rejects Ms. Clay's arguments that One Kalakaua is improperly

operating as an [assisted living facility] in breach of its

fiduciary duties." To that, the circuit court concluded that

"[t]hese arguments were fully litigated and decided upon in the

2002 complaint, resulting in the 2004 judgment before Judge

Hifo, and are accordingly barred by principles of res judicata."

This is the conclusion that Clay challenges, and this conclusion

applies only to Clay's argument that One Kalakaua is improperly

operating as an assisted living facility in breach of its

fiduciary duties.

The circuit court appears to have used the term "res

judicata" in a general overarching manner, but the four

requirements of issue preclusion were nonetheless met. Judge

Hifo determined that Association did not violate the Declaration

or By Laws, or breach its fiduciary duty, by operating as an

assisted living facility, Judge Hifo entered a final judgment in

favor of Association and against Clay, the issues litigated were

essential to the final judgment, and the parties were the same.

Bremer, 104 Hawai‘i at 54, 85 P.3d at 161.

Thus, Clay was precluded from asserting violation of

the Declaration and By Laws or breach of fiduciary duties

regarding One Kalakaua's operation as an assisted living

facility in this case. See Dannenberg, 139 Hawai‘i at 59-60, 383

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P.3d at 1197-98. And the circuit court's conclusion that Clay

was barred from asserting that Association breached its

fiduciary duty by operating as an assisted living facility was

not wrong.

3. The Circuit Court Did Not Err in Granting Summary Judgment

More to the point, the circuit court decided on the

motion for summary judgment based primarily on Association's

governing documents and the relevant regulations, and not solely

on res judicata.

This court reviews the granting of summary judgment de

novo. Nuuanu Valley Ass'n v. City & Cnty. of Honolulu, 119

Hawai‘i 90, 96, 194 P.3d 531, 537 (2008). Viewing the evidence

in the light most favorable to the non-moving party, "summary

judgment is appropriate if the pleadings, depositions, answers

to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to a

judgment as a matter of law." Id. (citation omitted).

In its motion for summary judgment as to Count I,

Association argued that "HRS § 321-482(a) vests the Health

Department with authority over assisted living facilities," HRS

§ 321-482(c) requires assisted living facilities to comply with

DOH administrative rules, HAR § 11-90-3(g) requires assisted

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living facilities to be licensed every two years, HAR § 11-90-

3(j) suspends such license for failing to comply, HAR § 11-90-

9(a)(1) requires the facility to maintain records including TB

clearance, and HAR § 11-164-10 requires TB examination for all

residents. Association also explained that the 2011 Q&A made

clear that "[a]ll residents of a facility licensed under

Title 11, Chapters 85-105 by [DOH] are required to comply with

TB clearance requirements" and "[t]he independence of a resident

and utilization of services is not used to determine if TB

clearance is required."

Association's exhibits included the Declaration,

By Laws, House Rules, DOH license, 2011 Q&A, and a July 2014

notice reminding residents of the TB requirements. Association

also attached correspondence regarding Clay's refusal to comply

with TB screening.

With the pleadings before it, the circuit court first

found that "applicable state law, including HAR Title 11,

Chapter 164, and other provisions set forth in [Association's

Motion for Partial Summary Judgment], are applicable and compel

[Association] to require all One Kalakaua residents to undergo

an annual tuberculosis test." Clay does not challenge this

finding in her opening brief.

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The circuit court next found that it was undisputed

that Clay refused the TB screening in October 2015, which Clay

also does not challenge.

Finally, the circuit court found that this refusal

violated DOH "laws" and One Kalakaua rules. Clay does not

challenge this finding either. See State v. Barros, 98 Hawai‘i

337, 343 n.4, 48 P.3d 584, 590 n.4 (2002) (noting that "[i]f a

finding is not properly attacked, it is binding; and any

conclusion which follows from it and is a correct statement of

law is valid") (citation omitted).

The circuit court then granted summary judgment

"because there are no disputed issues of material fact and

[Association] has demonstrated entitlement to judgment as a

matter of law . . . ."

a. State Law

An assisted living facility is "a combination of

housing, health care services, and personalized supportive

services designed to respond to individual needs, to promote

choice, responsibility, independence, privacy, dignity, and

individuality." HRS § 321-15.1 (2010). DOH "shall have general

charge, oversight, and care of the health and lives of the

people of the State, and shall pursue as a goal, the achievement

of health equity" and "may adopt rules that it deems necessary

for the public health and safety" for various situations

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including an assisted living facility. HRS § 321-1(a)

(Supp. 2015); § 321-11(10) (2010).

"Any person, agency, or organization engaged in

providing, coordinating, or monitoring comprehensive services to

. . . assisted living facilities, shall meet the standards of

conditions, management, and competence set by the department,

and hold a license in good standing issued for this purpose by

the department." HRS § 321-482(a) (Supp. 2015). Complying with

the rules adopted is a condition for obtaining a license, and

DOH "may suspend or revoke a license if the department deems

that the agency is unwilling or unable to comply with the rules

adopted . . . ." HRS § 321-482(c) and (f) (Supp. 2015). DOH

rules "have the force and effect of law." HRS § 321-10 (2010).

HAR Title 11 Chapter 90 (adopted 1999) governs

assisted living facilities, establishing "minimum standards and

requirements for licensure to protect the health, welfare, and

safety of residents in such facilities." HAR § 11-90-1.

"Assisted living facilities shall serve the purpose of providing

a combination of housing, meal services, health care services,

and personalized supportive services designated to respond to

individual needs." HAR § 11-90-1. An assisted living facility

applies the principles of "(1) Aging in place; (2) Negotiated

plan of care; and (3) Managed risk." HAR § 11-90-1.

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All assisted living facilities "shall meet all

requirements for licensure under state law." HAR § 11-90-3(a).

HAR § 11-90-9(a) requires that the assisted living facility

"shall establish policies and procedures to maintain a system of

records and reports which shall include . . . [a c]opy of a

current physician or primary care provider's report of

resident's physical examination which includes tuberculosis

clearance and verification that the resident is free from other

infectious or contagious diseases."

The purpose of HRS Chapter 164 was "to establish

minimum requirements for the control of [TB] in the State." HAR

§ 11-164-1 (Adopted 1981, Repealed 2018).

Requirements for examination for [TB] of employees, patients and other individuals working or residing in healthcare facilities regulated by [DOH] shall be provided in Exhibit A, "Tuberculosis Examination For All Health Care, Domiciliary Care, Day Care, and Residential Facilities and Programs Licensed under Title 11, Chapters 85-105, by the [DOH], August, 2001."

HAR § 11-164-10, Exhibit A (Amended 2001, Repealed 2018).

Exhibit A provided that "[a]ll residents, employees,

contract workers, and volunteers working more than 10 hours per

week are required to have an Entry TB Evaluation . . . within 1

evaluations . . . ." "Any person who violates any provision of

this chapter shall be fined not more than $500 or imprisoned for

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not more than one year or both." HAR § 11-164-11 (Adopted 1981,

Repealed 2018).

b. Analysis

Again, in Count I, Association requested three

declarations from the circuit court. First, Association

requested declaratory relief that "state law requires that all

One Kalakaua residents undergo annual TB skin testing as set

forth in HAR Title 11, Chapter 164[.]" HAR § 11-164-10 provided

that individuals residing in healthcare facilities are regulated

by Exhibit A. Exhibit A governed programs licensed under

Title 11 chapters 85-105 and provided that "[a]ll residents

. . . are required to have . . . Annual Tuberculosis Re-

evaluations[.]"

Assisted living facilities are regulated by HAR

Title 11 Chapter 90, and Association established that One

Kalakaua is an assisted living facility licensed by DOH. Thus,

Association established there was no genuine issue that HAR

Title 11 Chapter 164 requires One Kalakaua residents to screen

for TB annually.

Association next requested a declaration that "Clay's

refusal since October 2015 to undergo the annual TB skin test

. . . is a violation of HAR Title 11, Chapter 164, and also of

[Association's] House Rules." Association provided

correspondence establishing that Clay refused to screen for TB,

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which Clay does not refute. As discussed above, HAR § 11-164-10

and Exhibit A require residents of licensed assisted living

facilities to screen for TB annually. Association submitted its

DOH license as an assisted living facility. In addition, One

Kalakaua's House Rules require residents to screen for TB

annually. (House Rules, Section 2 - Administration,

Registration, Section 6 – Services, Services Included in Monthly

Fees – Club Dues). Thus, Association established that there was

no genuine issue that Clay's refusal to screen for TB violated

HAR Title 11, Chapter 164 and One Kalakaua's House Rules.

Finally, Association requested a declaration that it

"is entitled to levy fines (and all other penalties allowable

under the House Rules) against Ms. Clay for her refusal to

undergo the annual TB skin test (or the previously stated

alternative)." One Kalakaua's House Rules allow fines for

violation of House Rules, and House Rules provide that annual TB

screening is required. (House Rules, Section 2 -

Administration, Registration, Section 2 – Administration,

Violations, Section 6 - Services, Services Included in Monthly

Fees - Club Dues). Thus, Association established that there was

no genuine issue that it may levy fines for Clay's refusal to

screen for TB under One Kalakaua's House Rules.

Here, One Kalakaua established that it was entitled to

a declaratory relief on Count I because, even when viewing the

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filings and evidence it presented in the light most favorable to

Clay, no genuine issue existed as to One Kalakaua's three

requests for declaratory relief in Count I of its complaint.

In defending the motion, Clay did not dispute that she

refused to screen for TB, and did not "set forth specific facts

showing that there is a genuine issue for trial" as to the

declaratory relief requested. Dairy Rd. Partners v. Island Ins.

Co., 92 Hawai‘i 398, 412, 992 P.2d 93, 107 (2000). Instead, Clay

argued that Association attempted to enforce State law and

failed to amend the By Laws and House Rules and breached its

fiduciary duty with respect to operating as an assisted living

facility, the latter of which was litigated and resolved in the

2002 litigation as discussed above.

Thus, the circuit court did not err in granting

Association's motion for summary judgment on Count I.

4. The Circuit Court Did Not Abuse Its Discretion in Denying Clay's Motion For Leave to File a Counterclaim

Clay also contends that the circuit court "committed

reversible error where it . . . denied [her] Motion for Leave to

File a Counterclaim as moot due to res judicata where Ms. Clay

was challenging facts that had occurred after the initial

lawsuit and court order." Clay argues that the "allegations in

the previous complaint then, and the Court's findings therein,

pertain to [Association] obtaining the assisted living license,

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and its actions prior to obtaining said license." Clay asserts

that these "allegations and court findings are categorically

different than the allegation in [her] proposed Counterclaim, as

well as [Association's] complaint seeking injunctive relief to

require [her] to adhere to the regulations of [DOH]."

The circuit court denied Clay's motion for leave to

file her counterclaim finding that the "claims set forth in the

proposed Counterclaim are barred both by the statute of

limitations and by the doctrine of res judicata." The Court

then stated that it "rejects Clay's argument that the continuing

tort doctrine applies" and denied her motion for leave to file

the counterclaim "based upon futility of amendment."

Clay challenges the circuit court's ruling only to the

extent that it applied res judicata.

In her motion for leave to file a counterclaim, Clay

argued that Association "wrongfully has acted as if it amended

the Declaration and Bylaws when it began operating a full-

service [assisted living facility] from within One Kalakaua

. . . ." In all counts except Count V, Clay alleged in some

form that the Association violated its declaration, bylaws, or

fiduciary duty by operating as an assisted living facility.

Count V alleged unjust enrichment in operating as an assisted

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As discussed above, the circuit court met the four

requirements of issue preclusion and the issue of Association

operating as an assisted living facility was precluded. Clay

contends on appeal that her claims included allegations of

events that occurred in late 2011 and after, but these

allegations were thoroughly interwoven with her allegations

Association was violating its governing documents and fiduciary

duty by operating as an assisted living facility, and Clay never

explained below (nor does she on appeal) what claims she was

asserting based on these allegations separate and apart from her

precluded claims. Indeed, at the hearing of her motion for

leave to file the counterclaim, she conceded that "the crux" of

her claim was "the operation of" One Kalakaua as an assisted

living facility, i.e., the very issue that is precluded.

To the extent Counts 6, 7, and 8 of Clay's proposed

Counterclaim included allegations challenging Association's

post-2011 enforcement of DOH regulations regarding TB testing

against Clay, we have affirmed the circuit court's grant of

summary judgment on Count I of Association's Complaint, i.e., a

grant of declaratory judgment that, among other things:

(1) Clay's refusal to comply with TB clearance requirements

violated HAR Title 11, Chapter 164 and One Kalakaua's House

Rules; and (2) Association was entitled to levy fines and other

penalties allowable under its House Rules against Clay for her

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refusal to comply with TB clearance requirements. See, e.g., By

Laws, Article IV, Section (1)(p); Article V, Section 9 and House

Rules; Section 2 – Administration, Violations (authorizing both

fines and an action for injunctive relief, such as seeking an

order enjoining residence at One Kalakaua for failure to comply

with the Bylaws).

Given the context in which Clay sought to file her

proposed Counterclaim, 8 she never explained below (nor does she

explain on appeal) what claims she was asserting or could assert

based on Association's post-2011 enforcement of DOH regulations

regarding TB testing that were separate and apart from her

precluded claims. 9

Under these circumstances, the circuit court did not

abuse its discretion in denying Clay's motion to file a

counterclaim. See HRCP Rule 13(f); Marks v. Marks, 51 Haw. 548,

8 Clay's motion for leave to file the counterclaim and Association's motion for summary judgment on Count I were both filed in June 2016 and were both heard and decided during the same November 30, 2016 hearing. The orders denying Clay's motion and granting Association's motion were both entered on December 19, 2016. 9 During the November 30, 2016 hearing on Clay's motion, her counsel asserted that "the source of Ms. Clay's counterclaim is the 2011 internal memo between [DOH] that the board seems to rely upon to say they can now enforce the [DOH] regulations against [her]." But, when the circuit court asked where in the counterclaim Clay raised the 2011 Q&A, Clay's counsel's answer was nonresponsive. See supra at 21-22.

In fact, Clay's proposed counterclaim did not mention the 2011 Q&A, despite the fact that it was attached as an exhibit to Association's February 4, 2016 Complaint, and was thus available to Clay when she filed her February 26, 2016 answer, as well as when she later moved for leave to file the counterclaim.

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560, 563, 465 P.2d 996, 1002, 1004 (1970); Bailey v.

Duvauchelle, 143 Hawai‘i 234, 426 P.3d 458, No. CAAP-XX-XXXXXXX,

2018 WL 4627593 at *4 (App. Sept. 27, 2018) (SDO) (explaining

that the "denial of an HRCP Rule 13(f) motion is reviewed for

abuse of discretion"); Bank of Hawaii v. Mostoufi, 138 Hawai‘i

141, 377 P.3d 1059, No. CAAP-XX-XXXXXXX, 2016 WL 3615334 at *2

(App. June 30, 2016) (SDO) (same).

Moreover, in her opening brief, Clay did not challenge

the circuit court's independent basis for denying her motion for

leave to file the counterclaim – that her proposed claims were

barred by the applicable statutes of limitations. Instead,

after Association's answering brief pointed out this deficiency

(and the related waiver of Clay's argument), Clay made a statute

of limitations argument in her reply brief. There, she claimed

she had not waived her statute of limitations argument and could

raise the issue for the first time in her reply brief because

she had made a statute of limitations argument in the circuit

court, in her reply memorandum in support of her motion for

leave to file the counterclaim and at the hearing of her motion.

Clay's position, which deprived Association of an

opportunity to answer her argument challenging an independent

basis for the circuit court's ruling, patently violates HRAP

Rule 28(b)(4) and (7). See Hawaii Ventures, LLC v. Otaka, Inc.,

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114 Hawai‘i 438, 472 n.17, 164 P.3d 696, 730 n.17 (2007)

("[Appellant's] aforementioned point of error is deemed waived

for failure to present any argument in its opening brief in the

first instance and presenting such arguments in its reply brief

to which no answer could be made"); Galliard v. Rawsthorne, 150

Hawai‘i 169, 178, 498 P.3d 700, 709 (2021) (same). Thus, this

untimely challenge is deemed waived. HRAP Rule 28(b)(4) and

(7); Galliard, 150 Hawai‘i at 178, 498 P.3d at 709; Hawaii

Ventures, 114 Hawai‘i at 472 n.17, 164 P.3d at 730 n.17; In re

Hawaiian Flour Mills, Inc., 76 Hawai‘i 1, 14 n.5, 868 P.2d 419,

432 n.5 (1994) (explaining that arguments raised for the first

time in the reply brief are deemed waived).

Under these circumstances, we cannot conclude that the

circuit court exceeded the bounds of reason or disregarded rules

or principles of law and, thus, we cannot conclude that the

circuit court abused its discretion in denying Clay's motion for

leave to file her counterclaim.

B. Attorneys' Fees, Costs, And Fines

Clay's remaining points of error challenge the circuit

court's award of attorneys' fees and costs, as well as fines

imposed by the Association.

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1. Attorney's Fees and Costs

In Count III of its Complaint, Association sought an

award of attorney's fees and costs. Association moved for

summary judgment on Count III, and Clay objected. Relying on

HRS § 514B-161(a) (Supp. 2016), Clay argued that she "should not

be required to pay [Association's] excessive attorneys' fees

under HRS § 514B-157 as she requested mediation of this dispute

on multiple occasions, both before and after [Association] chose

to sue [her], and did mediate in good faith once the Court

compelled [Association] to participate in said mediation."

Association countered that it was not required to mediate

because its complaint fell under an HRS § 514B-161(b) exception.

The circuit court granted Association's motion for

summary judgment ordering Clay to pay $92,006.25 in attorney's

fees and $6,305.27 in costs for legal services rendered from

November 2015 to January 2017, plus an additional $17,783.55 for

legal services rendered since January 2017. The circuit court

relied on HRS § 514B-157, 10 and made no determination regarding

10 HRS § 514B-157(a) provides:

(a) All costs and expenses, including reasonable attorneys' fees, incurred by or on behalf of the association for: (1) Collecting any delinquent assessments against any owner's unit; (2) Foreclosing any lien thereon; or (continued . . .)

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Clay's HRS § 514B-161(a) argument or Association's HRS § 514B-

161(b) counterargument.

On appeal, Clay again relies on HRS § 514B-161(a) and

argues that the circuit court "committed reversible error where

it awarded attorneys' fees where [she] demanded mediation on

numerous occasion [sic], which [Association] refused and

opposed, without ever finding on the record whether [she] did

request and have a right to mediation and how such finding

impacted the award of fees[.]" Clay also relies on Ass'n of

Apartment Owners of Discovery Bay v. Mitchell, 134 Hawai‘i 251,

339 P.3d 1052 (2014).

HRS § 514B-161(a) requires participation in mediation

under certain circumstances, and the circuit court may consider

a party's refusal to mediate in awarding fees and costs:

If an apartment owner or the board of directors requests mediation of a dispute involving the interpretation or enforcement of the association of apartment owners' declaration, bylaws, or house rules, the other party in the dispute shall be required to participate in mediation. Each party shall be wholly responsible for its own costs of participating in mediation, unless both

(. . . continued) (3) Enforcing any provision of the declaration, bylaws, house rules, and this chapter, or the rules of the real estate commission; against an owner, occupant, tenant, employee of an owner, or any other person who may in any manner use the property, shall be promptly paid on demand to the association by such person or persons; provided that if the claims upon which the association takes any action are not substantiated, all costs and expenses, including reasonable attorneys' fees, incurred by any such person or persons as a result of the action of the association, shall be promptly paid on demand to such person or persons by the association.

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parties agree that one party shall pay all or a specified portion of the mediation costs. If a party refuses to participate in the mediation of a particular dispute, a court may take this refusal into consideration when awarding expenses, costs, and attorneys' fees.

HRS § 514B-161(a) (emphases added).

Mediation, however, is not mandatory under HRS § 514B-

161(b) where the health and safety of unit owners are at issue:

"Nothing in subsection (a) shall be interpreted to mandate the mediation of any dispute involving . . . [a]ctions seeking equitable relief involving threatened property damage or the health or safety of association members or any other person[.]"

HRS § 514B-161(b)(1) (Supp. 2016) (emphases added).

In Mitchell, the association was awarded attorney's

fees and costs pursuant to HRS § 514B-157, over Mitchell's

objections, which included that the association refused to

mediate the dispute pursuant to HRS § 514B-161(a). 134 Hawai‘i

at 252-53, 339 P.3d at 1053-54. On appeal and certiorari,

Mitchell challenged the award of fees and costs, arguing that

the association's refusal to participate in mediation precluded

it from receiving an award of fees and costs under HRS § 514B-

161(a). 134 Hawai‘i at 254-55, 339 P.3d at 1055-56.

The Hawai‘i Supreme Court explained that although the

court has discretion under HRS § 514B-161(a) to consider the

refusal to mediate in awarding fees and costs, it "cannot assume

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that the circuit court in this case exercised such discretion

simply by virtue of having reduced the [association's] fee

award, because the hearing transcript is silent on the matter."

134 Hawai‘i at 254-55, 339 P.3d at 1055-56. The supreme court

noted that Mitchell expressly raised HRS § 514B-161(a), and

"[g]iven the legislature's intent to encourage mediation of

condominium disputes, the circuit court should have addressed

whether HRS § 514B-161(a) applied." 134 Hawai‘i at 255, 339 P.3d

at 1056.

The supreme court then directed the circuit court on

remand to "determine whether the [association] refused to

participate in mediation, and if so, the circuit court should

consider, on the record, such refusal in determining whether to

award attorney's fees and costs." Id.

As in Mitchell, we cannot assume that the circuit

court considered the application of HRS §§ 514B-161(a) and (b)

because the circuit court made no ruling on the matter despite

it being expressly raised by both parties. The circuit court,

thus, erred in granting summary judgment on Count III and abused

its discretion in awarding attorney's fees and costs.

On remand, the circuit court should determine, on the

record, whether HRS § 514B-161(a) or (b) controls in this case.

And should the circuit court determine that HRS § 514B-161(a)

controls, the circuit court should then place on the record

44 NOT FOR PUBLICATION IN WEST'S HAWAIʻI REPORTS AND PACIFIC REPORTER

whether a refusal to mediate, if any, was taken into

consideration when awarding fees and costs.

Finally, in light of our decision to vacate the

circuit court's award of fees and costs and remand this case for

further proceedings, we need not address Clay's alternative

arguments based on public policy and HAR § 11-90-10(b)(3).

2. Association Fines

In conjunction with her challenge of attorney's fees

and costs, Clay argues that the imposition of fines was "well

over the maximum by the House Rules, but the Board did not give

[her] notice or an opportunity for a hearing, and actively

opposed [her] requests for mediation." As discussed above, the

imposition of a fine was authorized. However, the basis for the

circuit court's approval of fines in excess of the $350.00

maximum is unclear. Therefore, on remand, the circuit court is

directed to determine the propriety of the fines in the amount

of $1,050.00.

III. CONCLUSION

Based on the foregoing, we affirm the circuit court's

(1) December 19, 2016 order granting Association's motion for

partial summary judgment as to Count I and (2) December 19, 2016

order denying Clay's motion for leave to file a counterclaim.

We vacate the circuit court's (1) June 28, 2017 order granting

Association's motion for partial summary judgment as to

45 NOT FOR PUBLICATION IN WEST'S HAWAIʻI REPORTS AND PACIFIC REPORTER

Count III and (2) November 15, 2017 amended final judgment, and

remand this case to the circuit court for further proceedings

consistent with this Memorandum Opinion.

DATED: Honolulu, Hawai‘i, May 26, 2023.

On the briefs: /s/ Katherine G. Leonard Presiding Judge Terrance M. Revere, Andrew D. Chianese, /s/ Clyde J. Wadsworth for Defendant-Appellant. Associate Judge

Peter W. Olson, /s/ Sonja M.P. McCullen John P. Duchemin, Associate Judge (Cades Schutte), for Plaintiff-Appellee.