Chen v. Mah.

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

Electronically Filed

Supreme Court

SCWC-XX-XXXXXXX

30-JAN-2020

09:19 AM

IN THE SUPREME COURT OF THE STATE OF HAWAII

---o0o---

________________________________________________________________

GRACE CHEN,

Respondent/Plaintiff-Appellee,

vs.

JONATHAN WILLIAM MAH, D.D.S.;

JONATHAN MAH, DDS, INC., a Hawaii corporation,

Petitioners/Defendants-Appellants.

________________________________________________________________

SCWC-XX-XXXXXXX

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS

(CAAP-XX-XXXXXXX; CIV. NO. 12-1-2495-10)

JANUARY 30, 2020

McKENNA, POLLACK, AND WILSON, JJ., WITH RECKTENWALD, C.J.,

CONCURRING AND DISSENTING IN PART AND CONCURRING IN THE

JUDGMENT, WITH WHOM NAKAYAMA, J., JOINS

OPINION OF THE COURT BY McKENNA, J.

I. Introduction

This case concerns a compensation dispute based on an oral

agreement between an independent contractor dentist, Dr. Grace

Chen (“Chen”), and the dentist who retained her services, Dr.

Jonathan Mah (“Mah”), and his corporation, Jonathan Mah, DDS,

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

Inc. (“Corporation”) (collectively, “Defendants”). In sum,

default and subsequent default judgment as to certain claims

were entered against Defendants, and a bench trial was held

regarding damages on some remaining claims. Defendants

unsuccessfully appealed the Circuit Court of the First Circuit’s

(“circuit court”)1 denial of their motion to set aside entry of

default, and their motion for reconsideration and/or for new

trial to the Intermediate Court of Appeals (“ICA”). See Chen v.

Mah, CAAP-XX-XXXXXXX (App. Mar. 14, 2019) (SDO).

We hold the circuit court did not abuse its discretion in

denying Defendants’ Hawaiʻi Rules of Civil Procedure (“HRCP”)

Rule 55(c) motion to set aside entry of default on the grounds

they failed to satisfy the second and third prongs of the test

governing HRCP Rule 60(b) motions to set aside default

judgments. The three prongs are: (1) the nondefaulting party

will not be prejudiced by the reopening, (2) the defaulting

party has a meritorious defense, and (3) the default was not the

result of inexcusable neglect or a wilful act. Although HRCP

Rule 55(c), by its plain language, only requires a showing of

“good cause” to set aside an entry of default, binding precedent

required the circuit court to apply the HRCP Rule 60(b) standard

to Defendants’ motion. The circuit court also did not err in

its other rulings.

1

The Honorable Gary W.B. Chang presided.

2

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

Requiring a movant under HRCP Rule 55(c) to satisfy HRCP

Rule 60(b) requirements, however, contradicts the plain language

of the former rule, which only requires “good cause.” Thus, we

therefore now hold that HRCP Rule 55(c) motions are governed

only by the “good cause” standard explicitly stated in the rule,

and that movants seeking to set aside an entry of default

pursuant to HRCP Rule 55(c) need not satisfy the three-prong

test applicable to HRCP Rule 60(b) motions to set aside default

judgments. Our holding is prospective only, however, as trial

courts were required to follow precedent requiring parties

seeking to set aside an entry of default pursuant to HRCP Rule

55(c) to satisfy the three-prong test for HRCP Rule 60(b)

motions. Therefore, by announcing this “new rule,” we must

avoid unfair prejudice to parties and trial courts that have

relied on binding precedent, and our holding applies only to

decisions on motions to set aside entries of default after the

date of this opinion. See Kahale v. City and Cty. of Honolulu,

104 Hawaiʻi 341, 348, 90 P.3d 233, 240 (2004).

Accordingly, we affirm the May 3, 2019 judgment on appeal

entered by the ICA pursuant to its March 14, 2019 summary

disposition order (“SDO”), which affirmed the circuit court’s

July 6, 2016 final judgment.

3

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

II. Background

A. Procedural and factual background through the July 13, 2013

hearing on Defendants’ motion to set aside entry of default

On October 3, 2012, Chen filed a twenty-four page complaint

against Defendants in circuit court, which included forty-two

detailed preliminary factual allegations. In summary, Chen

alleged she and Defendants entered into an oral compensation

agreement in November 2008 under which the Corporation agreed to

retain her professional services as an independent contractor

associate dentist and to compensate her for treating dental

patients at its principal place of business according to a

formula under which she was entitled to be regularly paid 40% of

the gross income produced to the Corporation for her dental work

on patients adjusted or reduced by (1) 40% of the gross income

not actually collected from her patients or their insurance

carriers and (2) 50% of the lab fees incurred by her patients

for her treatment of them.

According to the complaint, the Corporation commenced

paying Chen a couple of months after she started working in late

2008 based on its collection of income produced from her work,

adjusted as reflected above, and regularly provided her with

supporting documentation describing in detail all adjustments

for uncollected income and patients’ lab fees, and this practice

continued until November 5, 2011.

4

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

The complaint further alleged that several months after

beginning work, when Chen asked for a written compensation

agreement or a partnership, and repeated this request several

times, on each occasion, Mah represented he would have

partnership documents prepared and provided to her, but this

never happened. Chen alleged that when Mah made these

representations, he misled and lied to her as he had no

intention of making her a partner as evidenced by him making

similar representations to other dental associates and not

making them partners, as she later learned.

Chen alleged she continued working based on Mah’s

representations that he would make her a partner, and in fact,

accelerated and increased her work efforts and hours of work as

an associate dentist to favorably impress Mah of her abilities

and worthiness to be his partner. The complaint alleges that,

by July 2011, Chen had increased her work schedule to four days

a week while working eight hours per day on weekends and twelve

hours per day on Mondays and Tuesdays, and, as a result, Chen

produced gross income for the Corporation exceeding $1 million

for both calendar years 2010 and 2011, generating substantial

income for Defendants consisting of the Corporation’s 60% share

of her gross income. Chen alleged she relied upon and trusted

Defendants to accurately calculate and timely pay her the

5

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

correct amounts of money owned to her under their compensation

agreement.

According to the complaint, after November 5, 2011,

Defendants suddenly, and without explanation, stopped providing

any calculations and supporting documentation to Chen and her

compensation payments became erratic and changed to rounded lump

sums. Chen alleged that in 2012, Defendants failed to provide

her with a 1099 miscellaneous income form for 2011 despite her

repeated requests and failed to pay her any compensation since

June 15, 2012. According to the complaint, the Corporation paid

Chen $359,874.18 in 2011, and Defendants had underpaid her

approximately $200,000 or more in income, but she was unable to

determine the amount with certainty without the Corporation’s

accounting documents. Chen also alleged the Corporation had

paid her $92,500 in 2012, but she had been underpaid at least

$45,669.76 through her August 23, 2012 resignation by admission

of Defendants’ accountant Gloria Thompson in her unsupported

September 14, 2012 two-page accounting compilation.

The complaint further alleged Mah and his wife had personal

federal tax liens filed against them for 2005-2009 for hundreds

of thousands of dollars in unpaid income tax, with tax liens

still pending against them in 2011, and that upon information

and belief, in October 2011, Mah used portions of the monies

owed to her to pay these delinquent tax liens. Chen further

6

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

alleged she had made multiple efforts in 2011 and 2012 to meet

and speak with Mah to obtain an accounting and explanation of

the above, but Mah repeatedly evaded her or cancelled meetings

at the last minute. Chen also alleged she made repeated demands

for accounting documents and for payment of the estimated unpaid

amounts exceeding $200,000 owed to her, but Defendants failed or

refused, raising excuses and attempting to charge exorbitant

copying fees, and providing only Gloria Thompson’s accounting

compilation.

The complaint further alleged that by failing to timely pay

her, Defendants had prevented Chen from timely filing her 2011

income taxes and making regular contributions to her own

retirement plan, thereby causing her to incur a penalty in an

amount to be determined. Chen also alleged that two days after

she was coincidentally seated next to Mah on a flight from Hilo

to Honolulu on August 8, 2012 and complained to Mah about being

owed substantial funds and not being provided accounting

records, Mah announced to all associate doctors he was closing

his office and hiring an independent CPA to review all doctors’

compensation for 2012 in response to Chen’s complaint, but

despite that, Mah and at least one associate dentist continued

to work out of his office, along with staff. Chen also alleged

that on August 10, 2012, the Corporation’s office manager texted

all associate doctors that they were welcome to have their own

7

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

CPAs review the data. Chen submitted a resignation letter on

August 23, 2012, requesting accounting documents and sums owed

by August 28, 2012.

Based on these detailed factual allegations, Chen’s

complaint asserted causes of action in twelve counts:

declaratory judgment (Count I), accounting (Count II), breach of

contract and of implied covenant of good faith and fair dealing

(Count III), conversion (Count IV), fraud (Count V),

intentional/negligent misrepresentation (Count VI), intentional

infliction of emotional distress (Count VII), unjust enrichment

(Count VIII), statutory fraudulent transfer (Count IX), common

law fraudulent transfer (Count X), constructive trust/equitable

lien (Count XI), and punitive damages (Count XII).

Before the complaint was filed on October 3, 2012, Chen’s

retained counsel, Dennis King (“King”), sent a demand letter

dated September 10, 2012, to Defendants. The letter demanded

Defendants immediately pay Chen the delinquent amounts owed to

her in the amount of $237,268.92 for past due compensation owed

to her, inclusive of attorney’s fees of $4,750, and that

Defendants deliver to King’s office accounting and billing

statements, daily production, worksheets, and lab fees for

services performed by Chen for the period from January 1, 2011

to September 10, 2012. The demand letter stated: “If I do not

receive the above payment and these records on or before 5 PM on

8

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

Saturday, September 15, 2012, I have been instructed to

immediately file suit against you and your company to recover

these amounts and any other amounts owed to Dr. Chen after

obtaining your documents and performing a full accounting of

your delinquent payments based on the claims, among others,

described below.”

Mah and King had several discussions and communications by

e-mail and regular mail between September 11, 2012 and October

3, 2012. During the discussions, King asked Mah if he had an

attorney as King preferred to speak to Mah’s attorney. Mah

indicated, however, he did not have an attorney but had spoken

to a friend who was an attorney and did not want to incur the

high expenses of an attorney. Most of the discussions concerned

attempts by Mah and King to informally resolve the matter, by

Chen obtaining Mah’s documents without pursuing litigation.

Specifically, on or about September 11, 2012, Mah called

King in response to the demand letter. Mah had informed King

that he did not have an attorney representing him in this

matter. Also on September 11, 2012, Mah provided the two-page

compilation report summary2 purportedly of compensation paid and

owed to Chen from 2008 through 2012, but it did not include any

2

An undated report was attached as “Exhibit C” to Defendants’ memorandum

in opposition to the entry of default judgment, but according to King,

contained different figures than the one provided to King on September 11,

2012.

9

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

information identifying who authored the document, and no backup

documentation was provided. In an email dated September 12,

2012, King requested backup documentation and contact

information for Mah’s CPA. King also noted that if Mah altered,

changed, or destroyed relevant documents, Chen would have no

choice but to assert the spoliation rule against him in any

ensuing litigation if the matter could not be resolved before

litigation, but that he “look[ed] forward to receiving . . .

[Mah’s] supporting documents and the CPA contact information

. . . so that this matter can be resolved before 9/15/12.”

On September 14, 2012, Mah indicated that because he did

not have duplicates, and because Chen had allegedly previously

removed accounting records without prior authorization in July

2012, Mah was not willing to allow the records to be removed

from the dental office for photocopying, but he would permit

King and Chen to inspect all accounting data at the dental

office, which was consistent with what Mah allowed all associate

doctors to do. Mah indicated, however, any copies made would be

done at the dental office by the office manager at one dollar

per page. King responded in an e-mail to Mah that he was not

authorized to pay one dollar per page for 3,000 pages of

documents, that he was only requesting documents for 2011 and

2012, and that he was willing to accept e-mailed or faxed copies

of Mah’s accountant’s summary of monthly totals for collections

10

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

and non-collection adjustments and lab fees for each month from

and after January 1, 2011 to the present for Chen’s billings for

her services.

Following this exchange, Mah called King on September 15,

17, 24, and 28, and October 2, and 3, 2012.3 Mah indicated he

was in the process of attempting to comply and furnish relevant

accounting data to King, and King asked Mah why it was taking so

long. Mah explained there were voluminous records from 2008 to

2012; King clarified he was only interested in 2012 despite

Mah’s explanation that reviewing only one year, 2012, would not

generate an accurate result. King then gave Mah a new deadline.

According to Mah, because of the ever-changing deadlines to

comply with requests, together with King’s assurances of

resolving the matter without litigation, Mah felt he was misled

and confused into believing there was still time to resolve this

matter informally. Further, according to Mah, because King made

assurances during their telephone conversations that Mah and

Chen would avoid litigation by attempting to resolve this matter

informally, and because King was seemingly reasonable, cordial,

and professional, Mah, in good faith, trusted King, and was

under the impression that King was available to mediate and

assist the parties in resolving this matter. In addition,

according to Mah, King never recommended to Mah to obtain the

3

The logs indicate Mah did not contact King after October 3, 2012.

11

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

assistance or advice of another attorney, or stated that King

had a duty of loyalty to Chen to act solely in her best

interests at Mah’s expense.

After their telephone conversation on October 3, 2012, King

sent an e-mail to Mah that same day, summarizing the

conversation, and stating that “[t]o date you still have not

provided the accounting documents initially requested in

November[] 2011 by Dr. Chen or by her on numerous occasions

thereafter,” that Mah’s requirement that copies of documents

cost one dollar per page was unaffordable and unreasonable, that

“we are at an impasse with regard to you producing the

accounting documents,” and that “[r]egrettably because of your

unwillingness to produce these documents willingly within a

reasonable time and to pay [Chen] what she is owed, I have

recommended that Dr. Chen pursue this matter through the courts.

After you retain counsel, please have your attorney contact me.”

According to King, he did not mislead Mah in any way about

trying to settle the case without litigation and Mah knew on

their last conversation on October 3, 2012 that the matter was

going to proceed to court based on King’s recommendation and

that the parties had reached an impasse.

The complaint was served on Defendants in Hilo, Hawaiʻi on

October 8, 2012, by serving Mah in both his personal capacity as

well as the registered agent for Corporation. Mah was also

12

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

served with discovery requests on that date. On October 31,

2012, Chen promptly filed a request for entry of default on the

complaint, and default was entered against Defendants by the

circuit court clerk that same day. Copies of the clerk’s entry

of default were served on Defendants by U.S. mail on November 2,

2012.

There was no further activity in the litigation until May

24, 2013, when Chen filed a motion for default judgment, and a

hearing was set for July 9, 2013. The motion requested damages

from Defendants on the following counts only: Counts III (breach

of contract), IV (conversion), V (fraud by concealment by

retaining her compensation without accounting), VI (fraud by

misrepresentation of intention to make Chen a partner), VIII

(unjust enrichment), and XI (constructive trust/equitable lien).

On June 20, 2013, Defendants, through their attorney, filed

a motion to set aside the October 31, 2012 entry of default

(“motion to set aside entry of default”), which was set for a

hearing on July 18, 2013. Attached to the motion was a

declaration by Mah, dated June 18, 2013, alleging, among other

things, that Mah only “recently learned” that default against

Defendants had been filed on October 31, 2012, that Mah never

realized King “was adversely taking action against me while

negotiating a resolution,” and that Mah was misled by King in

13

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

his representations to try and settle the case without

unnecessary litigation.

Defendants also filed an ex parte motion to shorten time

for hearing their motion to set aside entry of default, asking

that the hearing on their motion be set for before the July 9,

2013 hearing date for Chen’s motion for default judgment. The

circuit court denied this ex parte motion on the grounds that

there was no showing why the motion to set aside entry of

default was not filed earlier to obviate the need to shorten

time.

At the July 9, 2013 hearing, however, the circuit court

denied Chen’s first motion for default judgment without

prejudice.

On July 10, 2013, Chen filed a memorandum in opposition to

Defendants’ motion to set aside entry of default. Attached to

the memorandum was a declaration by King dated July 10, 2013,

which stated, among other things, that since October 3, 2012,

King had not had any discussions or communications with Mah

except through the service of court documents.

At the July 18, 2013 hearing on Defendants’ motion to set

aside entry of default, the circuit court clarified the standard

it would apply:

And the entry of default, setting aside requires the

showing of essentially three things, one, there’s no

prejudice to the plaintiff, number two, that the defendant

has a meritorious defense andm number three, that the

14

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

default entered as a result of -- did not enter because of

inexcusable neglect.

The circuit court then inquired for which of Chen’s twelve

counts Defendants had meritorious defenses.4 Defense counsel

argued Defendants had meritorious defenses for the fraud claims

because this was not a fraud, but an accounting case.

The circuit court then inquired what the meritorious

defense was for Chen’s fraud claim in Count V (fraud by

concealment by retaining her compensation without accounting).

Defense counsel responded that, “[b]asically, the accounting

reflects that [Defendants] overpaid Chen.” According to defense

counsel, Defendants had nothing to hide, were willing to do the

accounting, and let the numbers resolve the case. Defense

counsel went on to state that the classification of some of

Chen’s billings were being bounced back by the insurance

companies and were not reimbursed because “they were not

proper.” According to defense counsel, Chen was expecting

Defendants to front generic gross amounts without getting

4

Defendants did not assert separate defenses as to each of the twelve

counts in their motion to set aside entry of deafult. Rather, they asserted

they “have a meritorious defense” as they “den[ied] any monies owed to

Plaintiff” and “claim[ed] in good faith that Plaintiff was overpaid in

compensation as documented in the accounting that has been made available to

opposing counsel”; Defendants had offered for inspection and copying their

accounting documents and retained an independent accountant to “provide a

summary of the voluminous accounting data.”

Defendants also alleged they were led to believe that if all of the

information was turned over, Chen would not take action. Defendants asserted

they would not have failed to file an answer had King not misled Defendants

into believing legal action would not be taken if the accounting documents

were provided.

15

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

compensation back, and the crux of the case was going to be

accounting.

The circuit court probed further and asked if Mah ever told

Chen that there was an overpayment requiring an adjustment, to

which defense counsel responded in the affirmative, citing to

Exhibit 9 in Chen’s memorandum in opposition to Defendants’

motion to set aside entry of default.5 That exhibit was a letter

informing associates of the Corporation that compensation was

switching from production-based to collections-based. The

5

Exhibit 9 is a June 25, 2012 letter signed by Mah and addressed to the

“associates” of the Corporation. It stated:

We are providing this letter to you for inclusion in

your records regarding the method of disbursement of

compensation checks.

Prior to July 1, 2012, disbursement of compensation

checks were based upon estimated production numbers. This

meant that the time between the claims being sent out and

the actual funds that were collected (including necessary

adjustments) could be between a few days for a simple

procedure to 90 days or more for more complex procedures.

The growth of the office has resulted in increased

expenses, staffing costs, and many more transactions that

are processed. As a consequence of this, our accountant

has strongly advised us to implement a change from

production to a collection method of disbursing

compensation checks.

What this means is compensation checks will now be

given out once the money has been collected from the

insurance companies and patients accordingly.

This change should make a much more streamlined

process in the office, as well as reduce the number of man

hours needed.

Be assured that this will in no way mean less

compensation, but rather change only when payments are

disbursed. This change will help keep office expenses

steamlined [sic].

16

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

circuit court then asked the defense, “And where does he talk

about an overpayment and then he’s going to now make an

adjustment?” To that inquiry, the following exchange occurred

with the circuit court:

MR. KIDANI: In terms of the overpayment, that came up in

the audit that was done by the accountant, Thompson.

THE COURT: When was that done?

MR. KIDANI: That was done in 2012 when this whole issue

came up, and this was the information that was being given

to Mr. King directly from our client. And that audit

continued on an ongoing basis through 2012 into 2013. And

that was –-

. . . .

. . . part of the delay of the information that was -- that

they were waiting for.

THE COURT: Where in Exhibit 9 . . . does Dr. Mah explain

that there was an overpayment and now we have to make an

adjustment, therefore, we’re not going to pay you in the

same fashion that we did before?

MR. KIDANI: That wasn’t in that letter.

. . . .

. . . I think that was what was conveyed by him to all the

associates. It wasn’t in this letter.

THE COURT: Okay, where in his declaration does he talk

about the timing of when he told Dr. Chen that there was an

overpayment and he is making an adjustment?

MR. KIDANI: . . . [S]tarting with paragraph 14 of his

declaration, he indicated in 2011 and ’12 that he first

started learning of the overpayment. And it goes on into

15 -- 14, 15, 16.

THE COURT: Why don’t you just point me to the paragraph

and the language in Dr. Mah’s declaration attached to your

motion where he says he informed the plaintiff, Dr. Chen,

that there was this overpayment so he’s making an

adjustment.

. . . .

17

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

MR. KIDANI: Okay. Paragraph 21[6] was when he informed all

the doctors of the complaint and his investigation started

and that Gloria Thompson was retained at that point to

complete the investigation. It was after Gloria Thompson

finished that that information was given to Dr. Chen on the

overpayment.

Defense counsel clarified that Gloria Thompson, the “independent

CPA” hired by Defendants, finished her final report in April

2013 after she got all the 2012 numbers. The circuit court

noted, however, that the complaint had been filed in October

2012 and there had been no audit finished before the lawsuit was

filed.

In response to defense arguments regarding the fraud

claims, Chen’s counsel argued Mah’s letter was written

generically that the reimbursement program would be changing,

but it did not give notice that it was going to change

retroactively. Rather, Chen’s counsel argued Chen had been

strung along to continue working with the Corporation, and

although she had repeatedly asked for her compensation and

accounting, Mah would keep saying it was coming and therefore

6

Paragraph 21 of Mah’s declaration states:

On or about August 10, 2012, I sent a written message

to all Associate Doctors. My message was as follows:

“Based upon a complaint made by Dr. Chen on August 8,

concerning improper and inaccurate calculations of doctors

[sic] compensation. Dr. Mah has hired an independent CPA

to review all doctors [sic] compensation for 2012. Dr. Mah

considers the doctors [sic] professional compensation a

serious matter, and for that reason effective immediately,

the office will be closed to all associate doctors until

this matter is resolved. All associate doctors are welcome

to have their own CPA review the same data. If you have

any questions or concerns please contact Dr. Mah.”

18

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

induced her to keep working, trusting that the accounting would

eventually be produced. Chen’s counsel also argued the second

basis for the fraud claim was Mah’s dangling the prospect of a

partnership in front of her while she was being grossly

underpaid.

Defense counsel replied that Mah’s testimony would show

that partnership was never offered to Chen. Further, according

to defense counsel, even if that had occurred, it could not

serve as a basis for fraud because there was no clear and

convincing evidence suggesting Mah did anything intentional to

deceive Chen. Additionally, as for the accounting, according to

defense counsel, Chen had access to raw data and so it was not a

situation in which Mah was trying to hide anything. According

to defense counsel, Chen not liking the results of the audit did

not constitute fraud.

Defense counsel also argued that once the accounting was

finished, the numbers would not change that substantially, and

would just show whether Chen was entitled to money or not.

Turning to “excusable neglect,” defense counsel noted that

prior to the filing of the complaint, Mah had been in discussion

with King, and therefore both parties were attempting to resolve

the case without litigation. Defense counsel argued that Mah,

although a dentist, was like a layperson from the neighbor

islands, who “hear[s] things a different way.” Thus, although

19

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

King had stated to Mah in an October 3, 2012 e-mail that he

recommended Chen pursue the matter through the courts, this did

not mean there was an impasse.

After hearing the arguments,7 the circuit court ruled

Defendants did not meet their burden of proof because it was

“unable to find the existence of a meritorious defense as to

liability,” and also “unable to find that the default entered as

a result of any excusable neglect on the part of the

defendants.” Specifically, the circuit court stated:

The court concludes that the defendant did not meet

the burden of proof under the Hawai[ʻ]i case law, the BDM

case. The court agrees with the defendant that there

really is no prejudice[8] within the meaning of the BDM case

to the plaintiff if default is set aside. However, with

respect to meritorious defense as to liability, the court

is unable to conclude that the record shows that the

defendant has -- or the defendants have meritorious

defenses as to liability. The arguments really go to

damages which they are not precluded from litigating even

if they are in default. The case law permits a defendant

in default to continue to litigate the question of damages.

As to excusable neglect, there really is an

insufficient basis in the record to support a finding or

conclusion that the defendants were excusably negligent in

failing to respond to the complaint. It really -- the

record only shows that the defendant was avoiding his

obligations under the law to respond to the complaint in a

timely fashion. Although the plaintiff[] did not give the

defendants much latitude in terms of the 20 days to respond

to the complaint, the plaintiff moved very quickly after

the 20 days expired to obtain the entry of default. So

there was very little opportunity for negotiation on

extensions of time or things of that nature, but no

overtures were made by the defense to the plaintiff to

7

Defense counsel also argued why Chen would not be prejudiced if the

default was set aside. The circuit court agreed. As those arguments are not

at issue, they are not detailed here.

8

Because the circuit court found the first prong, that the nondefaulting

party would not be prejudiced, was satisfied, the arguments regarding this

prong have not been included.

20

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

request additional time to respond to the complaint. So

plaintiff cannot be faulted, although the court does note

that the plaintiff[] moved extremely expeditiously giving

virtually no time for the defense to have additional

extensions of time to respond to the complaint. But that

does not prejudice the plaintiff’s right to pursue the

default remedies.

So the court is unable to find the existence of a

meritorious defense as to liability, and the court is

unable to find that the default entered as a result of any

excusable neglect on the part of the defendants. So there

is no basis for this court setting aside the entry of

default.

But the court does recognize that the record shows

the defendants appear to have at least arguments regarding

-- and potential defenses regarding damages. So what the

court will do is deny the motion to set aside the entry of

default. However, in denying the motion, the court will

permit the defendant to file an answer setting forth their

defenses to the damages claims in this case. The answer

must be filed by next Friday, July 26, 2013.

(Emphases added.) The circuit court entered its order denying

Defendants’ motion to set aside entry of default on August 8,

2013.

B. Procedural and factual background following the July 13,

2013 hearing on Defendants’ motion to set aside entry of

default

Defendants then filed their answer on July 26, 2013. The

answer set forth eight defenses centering around the assertion

that Chen was not only fully paid, but overpaid by Defendants

and the insurance companies because she had misrepresented her

work in billing codes. According to Defendants, Chen was

therefore not owed any damages; overpayments should have offset

any payments and Chen should return overpayments to Defendants;

Chen should not be allowed equitable relief because she had

unclean hands for overcharging patients; Chen’s request for

21

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

damages (presumably for her fraud claim regarding the “dangling”

partnership offer) was not related to the oral agreement between

Chen and Defendants regarding compensation for her services, and

therefore Chen, was not entitled to any claim for damages based

on a “pending arrangement” because no consideration was

exchanged; and there was a lack of clear and convincing evidence

to support Chen’s claims.

On August 19, 2013, the circuit court set a trial for

September 29, 2014. However, prior to that date, Chen filed a

second motion for default judgment (“motion for default

judgment”) on August 4, 2014. Defendants filed their opposition

memorandum on August 19, 2014. A hearing was held on August 27,

2014. The circuit court agreed with Chen that liability was not

at issue because Defendants had defaulted and therefore the

well-pled allegations of the complaint were required to be taken

as true.9 Therefore, the circuit court also agreed to enforce

the compensation formula Chen had asserted. Defendants,

however, challenged the calculation of damages, and the circuit

9

Once a default is established, a defendant cannot contest the factual

allegations of a plaintiff’s claim for relief, but the court considers

whether the unchallenged facts constitute a legitimate cause of action. 10A

Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure Civ. §

2688.1 (4th ed. 2019).

22

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

court inquired whether it was “required to convene[,] at a

minimum[,] a proof hearing if not a trial on damages.”10

Chen responded that she was required to only present “a

prima facie case or at least sufficient evidence to pass a

motion for directed verdict,” and that she had presented

“substantially more evidence than that.”11 Chen had provided a

timely expert report by a CPA evidencing her damages. Chen

argued Defendants would have to present evidence to refute her

evidence, but that an expert report attached to Defendants’

opposition memorandum had not been produced in discovery and

should not be able to be relied upon. The one document

Defendants had attached to their opposition memorandum that was

previously produced was Exhibit I, a report by Gloria Thompson.

Chen argued, however, that Gloria Thompson’s report was based on

10

As noted in Dela Cruz v. Quemado, 141 Hawaiʻi 338, 346, 409 P.3d 742,

750 (2018), the ICA in Hupp v. Accessory Distribs. Inc., 1 Haw. App. 174, 616

P.2d 233 (App. 1980) interpreted HRCP Rule 55(b)(2) to provide discretion for

courts to order proof of liability hearings before entering default

judgment. 1 Haw. App. at 179-180, 616 P.2d at 236-37 (“trial courts must be

given leeway in their discretion to require proof of liability in the support

of a default judgment”). Hupp held that in such a hearing, the nondefaulting

party must adduce evidence which would be sufficient at trial to overcome a

motion for directed verdict. 1 Haw. App. at 180, 616 P.2d at 237.

11

Hawaiʻi appellate decisions have, however, consistently held that even

when a defendant cannot contest liability after entry of default, the

defendant may still contest the amount of its liability at proof hearings.

See Occidental Underwriters of Hawaii, Ltd., v. Am. Sec. Bank, 5 Haw. App.

431, 433, 696 P.2d 852, 854 (App. 1985) (“Upon the entry of default,

[defendant] had lost its standing to contest the fact of its liability, but

still had standing to contest the amount of its liability.” (citations

omitted)); Kamaunu v. Kaaea, 99 Hawaiʻi 432, 439, 56 P.3d 734, 741 (App. 2002)

(requiring trial courts to permit parties in default to contest damages at

proof hearings). We affirmed these requirements in Dela Cruz, 141 Hawaiʻi at

347, 409 P.3d at 751.

23

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

Defendants’ purported compensation formula, which differed from

the one Chen had pled in her complaint, and which also differed

from the formula achieved when examining past payments received

by Chen that were not in dispute; moreover, Defendants did not

provide any supporting documents. Accordingly, Chen argued “a

trial would serve no purpose here.”

Defendants responded that the compensation formula was

based on income produced, i.e., amounts collected, not billed.

When the circuit court asked what the proper amounts asserted by

Defendants were, Defendants pointed to Exhibits E, F, G, and H,

which had been produced as Hawaiʻi Rules of Evidence Rule 1006

“summaries” of the over 5,000 pages of financial documents

originally produced to Chen in response to her request for

production. Defendants asserted the summaries were created by

office staff over the course of four to five months under Mah’s

supervision of reconciliations performed by the office. Chen

also challenged the admissibility of the exhibits because they

were newly created documents and she was not given the

opportunity to examine Defendants’ numbers; further, Chen

questioned whether Mah could attest that he made or verified

each of the entries in the exhibits.

The circuit court ultimately concluded it could not

consider the evidence produced by Defendants in opposition

because trial “should not be by ambush.” Instead, the circuit

24

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

court relied on the well-pleaded facts in the complaint and the

evidence submitted by Chen and granted Chen’s motion for default

judgment as to Count III (breach of contract) and Count VIII

(unjust enrichment). Damages were ordered in the total amount

of $406,392.89; $335,731.68 plus interest was awarded for

damages for 2011, and $70,661.21 was awarded for damages for

2012. The circuit court denied the motion for default judgment

as to Count IV (conversion), Count V (fraud), Count VI

(intentional/negligent misrepresentation), and Count XI

(constructive trust/equitable lien).12

Prior to the bench trial regarding damages on the remaining

counts of the complaint, on August 13, 2014, Chen filed a motion

to strike previously unidentified witnesses, in which she noted

the circuit court had issued a trial setting status conference

order dated August 19, 2013, that set forth various trial

deadlines, including the submission of expert reports by May 30,

2014 and the final naming of witnesses by July 1, 2014, and that

Defendants failed to meet these deadlines with their untimely

August 11, 2014 filing. At a hearing held on September 10,

2014, the circuit court denied the motion as to non-expert

12

This court subsequently ruled in Dela Cruz that “[i]n future cases,

when trial courts deny a motion for entry of default judgment, the

appropriate subsequent course of action is to set aside the default, and

allow the case to proceed on the merits.” 141 Hawaiʻi at 347, 409 P.3d at

751. The circuit court had, however, already awarded damages based on the

breach of contract and unjust enrichment counts.

25

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

testimony, i.e., the court would permit lay witnesses to

testify, but granted the motion as to expert testimony as it had

previously ordered disclosure by a certain date.

A bench trial on damages only was then held on September

30, 2014 through October 3, 2014 on the following four claims:

Count IV (conversion), Count V (fraud), Count VI

(intentional/negligent misrepresentation), and Count XI

(constructive trust/equitable lien). The remaining unresolved

claims, Count I (declaratory judgment), Count II (accounting),

Count VII (intentional infliction of emotional distress), Count

IX (statutory fraudulent transfer), Count X (common law

fraudulent transfer), and Count XII (punitive damages) were

dismissed without prejudice and were not the subject of the

trial.

At trial, the circuit court received testimony from Chen,

Mah, and people who previously worked for Defendants. Parties

submitted their post-trial memoranda on November 7, 2014. At a

post-trial hearing held on November 10, 2014, the circuit court

summarized its decision and tasked Chen with drafting more

detailed findings of fact and conclusions of law. In sum, the

circuit court denied Count IV (conversion) for Chen’s failure to

present legal authority; denied Count X (constructive

trust/equitable lien) for insufficiency of the evidence; found

in favor of Chen as to Count V (fraud), and in so doing found

26

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

Mah to not be a credible witness; and also found in favor of

Chen as to Count VI (intentional/negligent misrepresentation).

As to the two claims that it found in favor of Chen, Counts V

(fraud) and VI (intentional/negligent misrepresentation), the

circuit court noted the damages awarded were the same damages

previously awarded to Chen by it by default judgment for Counts

VIII (unjust enrichment) and III (breach of contract).

Accordingly, the circuit court entered judgment in favor of Chen

and against Defendants in the same amounts indicated previously.

On July 6, 2016, the circuit court entered its findings of fact

(“FOF”) and conclusions of law (“COL”) and final judgment.

On July 18, 2016, Defendants filed a motion for

reconsideration and/or for new trial, in which Defendants

asserted five grounds:

A. Defendants have obtained newly discovered evidence

regarding claims by more than 50 of Plaintiffs former

patients that will be filed with the Regulated Industries

Complaints Office of the State of Hawaii Department of

Commerce and Consumer Affairs. These claims directly impact

the amount of compensation and “damages” allegedly owed to

Plaintiff.

B. An accountant has determined that Dr. Chen was

overpaid by $161,110.

C. The Court committed clear legal error by finding a

fiduciary relationship/duty in the independent contractor

context.

D. The Court committed clear legal error by applying the

law governing an employer/employee relationship to an

independent contractor.

E. The Court committed clear legal error by piercing the

corporate veil in violation of Hawaii Supreme Court

precedent.

27

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

At a September 6, 2016 hearing, the circuit court denied

this motion. Although the circuit court expressed concern that

offsets to Chen’s claims for damages may exist based on

subsequent remedial measures taken by Defendants to address

patient complaints against Chen for poor quality of service,

that defense was never pled by Defendants, and even if it had

been, Defendants could have brought forth such evidence at

trial, but failed to do so. For this reason also, the circuit

court declined to re-open the case to receive such evidence.

The circuit court also concluded Defendants’ efforts to

introduce a report by an accountant, William Andersen, showing

Chen was overpaid, did not constitute grounds for a new trial

because his testimony had previously been stricken by the

circuit court for Defendants’ failure to comply with the circuit

court’s trial setting order. Lastly, the circuit court

concluded Defendants’ argument that it had “pierced the

corporate veil” when it held Mah liable for the acts of

Corporation did not constitute grounds to grant their motion as

the complaint was styled against both Mah and the Corporation.

C. Appeal to the ICA

Defendants timely filed a notice of appeal to the ICA, and

presented four points on appeal:

[1.] The circuit court violated the public policy favoring

resolution of cases on the merits and failed to properly

apply the Hawai[ʻ]i Supreme Court’s test regarding setting

aside an entry of default. The record shows that, although

28

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

Dr. Mah and the Company did not timely file an Answer to

the Complaint, Dr. Mah did engage in months of informal

discovery with Appellee’s counsel, providing documents and

information requested by Appellee and her counsel. This

process went for approximately seven months before Appellee

filed a Motion for Default Judgment.

[2.] The circuit court erred in excluding substantial

evidence of liability and/or damages.

[3.] The circuit court erred in denying Dr. Mah and the

Company’s Motion for Reconsideration and/or for New Trial,

given newly discovery [sic] evidence of Appellee’s

malpractice, substantial evidence of overpayments to

Appellee, the improper creation of new law regarding

fiduciary duties, applying employment law to an independent

contractor relationship, and improperly piercing the

corporate veil.

[4.] The circuit court erred by signing scripted findings

of fact and conclusions of law, a practice that has been

widely condemned by numerous courts.

The ICA rejected the Defendants’ challenges.

As to the first point on appeal, the ICA cited BDM, Inc. v.

Sageco, Inc., 57 Haw. 73, 549 P.2d 1147 (1976), which had set

forth a three-prong test to determine whether to set aside an

entry of default:

[A] motion to set aside a default entry or a default

judgment may and should be granted whenever the court finds

(1) that the nondefaulting party will not be prejudiced by

the reopening, (2) that the defaulting party has a

meritorious defense, and (3) that the default was not the

result of inexcusable neglect or a wilful act.

Chen, SDO at 2 (citing BDM, 57 Haw. at 76, 549 P.2d at 1150).

The ICA noted that “[i]f a moving party fails to establish any

prong of the test, it is not an abuse of discretion to refuse to

set aside the default.” Id. (citing Citicorp Mortg., Inc. v.

Bartolome, 94 Hawaiʻi 422, 439, 16 P.3d 827, 844 (App. 2000);

Park v. Tanaka, 75 Haw. 271, 281, 859 P.2d 917, 922 (1993);

29

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

Dillingham Inves. Corp. v. Kunio V. Yokoyama Tr., 8 Haw. App.

226, 236, 797 P.2d 1316, 1321 (1990)).

The ICA concluded the circuit court did not err in denying

Defendants’ motion to set aside entry of default. Chen, SDO at

5. As to Defendants’ argument that the circuit court erred when

it concluded Defendants lacked a meritorious defense because it

focused only on the fraud claim and failed to address the

remaining eleven claims, the ICA stated the circuit court had

addressed all of the claims:

The Circuit Court did not limit its determination to Mah’s

defenses against the fraud claim but instead stated, in

general terms, that “[Defendants’] arguments really go to

damages which they are not precluded from litigating even

if they are in default.” While [defense] counsel . . .

repeatedly limited his argument to the fraud claims, in its

ruling, the Circuit Court did not limit its ruling to just

the fraud claim.

Chen, SDO at 3.

The ICA also concluded Defendants’ argument that their

failure to answer the complaint was the result of excusable

neglect lacked merit. Chen, SDO at 3. The ICA observed that

[t]he Hawaiʻi Supreme Court has recognized that

circumstances that do not rise to the level of excusable

neglect include a defendant’s failure to answer a properly

served complaint without any reason, for an improper

reason, or without seeking the approval or extension from

the court, as well as circumstances in which there is a

lengthy delay between the entry of default and the filing

of the motion to set aside the default.

Chen, SDO at 3–4 (citations omitted). The ICA highlighted that

Defendants had been made fully aware of the nature of Chen’s

demands and concerns, that an impasse had been reached, and that

30

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

litigation was imminent. Chen, SDO at 4. Moreover, although

Mah may have been surprised as to the filing of the complaint

given the various discussions he had with King for weeks, Mah

had not cited any reason for failing to respond to the complaint

once it had been filed. Id.

As to the second point on appeal, the ICA concluded

Defendants failed to present arguments in accordance with Hawaiʻi

Rules of Appellate Procedure (“HRAP”) Rule 28(b)(7) (2016)13 and

therefore waived the argument. Chen, SDO at 6. In any event,

the ICA concluded the argument lacked merit because it was well

within the circuit court’s discretion to strike the testimony of

Defendants’ witnesses for their failure to comply with its

deadline for disclosing witnesses, and Defendants presented no

cogent argument to demonstrate the circuit court abused its

discretion in doing so. Id.

As to the third point on appeal, the ICA concluded the

circuit court did not err when it denied Defendants’ motion for

13

HRAP Rule 28(b)(7) states in relevant part:

(b) Opening Brief. Within 40 days after the filing

of the record on appeal, the appellant shall file an

opening brief, containing the following sections in order

here indicated:

. . . .

(7) The argument, containing the contentions of the

appellant on the points presented and the reasons therefor,

with citations to the authorities, statutes and parts of

the record relied on. . . . Points not argued may be deemed

waived.

31

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

new trial, as the verdict was not against the manifest weight of

the evidence. Chen, SDO at 8–9 (citing Richardson v. Sport

Shinko (Waikiki Corp.), 76 Hawaiʻi 494, 503, 880 P.2d 169, 178

(1994); Miyamoto v. Lum, 104 Hawaiʻi 1, 11, 84 P.3d 509, 519

(2004)). Although Defendants contended that, at trial, there

was substantial evidence demonstrating they overpaid Chen by

$161,100, thereby offsetting the damages awarded to Chen, Chen

had presented testimonial evidence of the compensation formula

agreed upon with Mah, documentary evidence of past compensation

and changes to her compensation in November 2011, and other

evidence regarding Mah’s promises to include her in a

partnership and Chen’s consequent increased production due to

those promises; further, the circuit court had found Mah to not

be credible. Chen, SDO at 9.

As to the fourth point on appeal, the ICA noted Defendants

presented no authority that it was improper or prohibited for a

court to adopt findings of fact or conclusions of law drafted by

a party, as the circuit court had directed. Chen, SDO at 10.

Additionally, to the extent that the circuit court may have

erred in entering FOF 34 and COLs FF, GG, ZZ, and AAA, in which

the circuit court determined or otherwise implied a fiduciary

employer-employee relationship existed between Chen and Mah, the

ICA concluded such a relationship did not serve as the basis for

the circuit court’s determination of damages on the fraud and

32

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

misrepresentation claims. Id. According to the ICA, any such

error was therefore harmless and did not warrant relief. Chen,

SDO at 10-11 (citing Dupree v. Hiraga, 121 Hawaiʻi 297, 320 n.28,

219 P.3d 1084, 1107 n.28 (2009)). Similarly, Defendants’

argument that the circuit court erroneously pierced the

corporate veil was inapposite to the circuit court’s

determination that Mah was liable for fraud and

misrepresentation on the basis of his representations to Chen as

an agent of Corporation, which exposed him to personal

liability. Chen, SDO at 11 (citing Laeroc Waikiki Parkside, LLC

v. K.S.K. (Oahu) Ltd. P’ship, 115 Hawaiʻi 201, 228 n.31, 166 P.3d

961, 988 n.31 (2007)).

Accordingly, the ICA affirmed the circuit court’s July 6,

2016 final judgment. See id.

D. Application for writ of certiorari

Defendants timely filed their application for a writ of

certiorari (“Application”) on June 27, 2019 from the May 3, 2019

judgment on appeal entered by the ICA pursuant to its March 14,

2019 SDO.

Defendants present the following five questions in their

Application:

[1.] Did the ICA gravely err in failing to set aside the

circuit court’s entry of default, where (1) the record

shows the circuit court failed to analyze all twelve causes

of action in the complaint regarding meritorious defenses

and the record contains substantial evidence of a

meritorious defense to one or more causes of action; and

33

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

(2) the circuit court failed to consider the lulling of a

pro se party into inaction by engaging in months of

discovery and communications before and after obtaining an

entry of default, then using a long delay to help justify a

purported failure to defend the case.

[2.] Did the ICA gravely err in creating new law in

Hawai[ʻ]i by affirming the circuit court’s finding of a

fiduciary relationship in an independent contractor

relationship?

[3.] Did the ICA gravely err in creating new law in Hawaii

by permitting the circuit court to apply the law regarding

employers and employees to an independent contractor

relationship?

[4.] Did the ICA gravely err in allowing the circuit court

to pierce the corporate veil and hold a shareholder liable

for the purported acts of a corporation without any

allegation or finding of alter ego/piercing the corporate

veil?

[5.] Did the ICA gravely err in adopting scripted findings

that turned what amounted to an advocate’s trial brief into

findings of [f]act and conclusions of law?

On certiorari, the parties reiterate the arguments they had

presented to the ICA.14

III. Standards of Review

A. Motion to set aside an entry of default

“The application of HRCP Rule 55 . . . is reviewed for

abuse of discretion.” Cty. of Haw. v. Ala Loop Homeowners, 123

Hawaiʻi 391, 404, 235 P.3d 1103, 1116 (2010) (citation omitted),

14

On August 28, 2019, we ordered that the parties submit

supplemental briefs not exceeding ten pages by September 18, 2019, addressing

the following question:

Is a movant filing a motion to set aside entry of default

under Hawaiʻi Rules of Civil Procedure Rule 55(c) required

to show (1) that the non-defaulting party will not be

prejudiced by the reopening, (2) that the defaulting party

has a meritorious defense, and (3) that the default was not

the result of inexcusable neglect or a wilful act?

Consistent with their previous submissions, the parties answered in the

affirmative.

34

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

abrogated on other grounds by Tax Found. of Haw. v. State, 144

Hawaiʻi 175, 439 P.3d 127 (2019).

B. Motion for reconsideration

“The trial court’s ruling on a motion for reconsideration

is reviewed under the abuse of discretion standard.” Kamaka v.

Goodsill Anderson Quinn & Stifel, 117 Hawaiʻi 92, 104, 176 P.3d

91, 103 (2008) (citation omitted). Further,

[a]s this court has often stated, “the purpose of a motion

for reconsideration is to allow the parties to present new

evidence and/or arguments that could not have been

presented during the earlier adjudicated motion.”

Reconsideration is not a device to relitigate old matters

or to raise arguments or evidence that could and should

have been brought during the earlier proceeding.

Id. (alteration in original) (citation omitted).

C. Motion for new trial

Both the grant and the denial of a motion for new trial

[are] within the trial court's discretion, and we will not

reverse that decision absent a clear abuse of discretion.

An abuse of discretion occurs “where the trial court has

clearly exceeded the bounds of reason or disregarded rules

or principles of law or practice to the substantial

detriment of a party litigant.” It is also within the

appellate court's discretion to limit the issues of a new

trial upon remand.

Costales v. Rosete, 133 Hawaiʻi 453, 465, 331 P.3d 431, 443

(2014) (alteration in original) (citations omitted).

IV. Discussion

A. Counts remaining on appeal

As a preliminary matter, following the dismissal without

prejudice of the following claims, the circuit court dismissed

them with prejudice in its final judgment, and they are

35

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

therefore not further discussed in this opinion: Count I

(declaratory judgment), Count II (accounting), Count VII

(intentional infliction of emotional distress), Count IX

(statutory fraudulent transfer), Count X (common law fraudulent

transfer), and Count XII (punitive damages). Also not discussed

are Count IV (conversion) and Count XI (constructive

trust/equitable lien), as the circuit court had ruled against

Chen on those claims after the bench trial and she did not

appeal. Thus, at issue are Count III (breach of contract) and

Count VIII (unjust enrichment), for which the circuit court

granted Chen a default judgment with damages in the amount of

$406,392.89, and Count V (fraud) and Count VI

(intentional/negligent misrepresentation), for which the circuit

court awarded the same damages after the bench trial on damages.

B. Whether the circuit court erred in denying Defendants’ HRCP

Rule 55(c) motion to set aside entry of default

1. Standard governing HRCP Rule 55(c) motions

HRCP Rule 55(c) governs the setting aside of an entry of

default. HRCP Rule 55(c) provides that “[f]or good cause shown

the court may set aside an entry of default and, if a judgment

by default has been entered, may likewise set it aside in

accordance with Rule 60(b).”

The circuit court and the ICA cited to BDM for the

proposition that Hawaiʻi courts apply the three-prong test

36

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

applicable to HRCP Rule 60(b) motions to determine whether to

grant a motion to set aside an entry of default filed pursuant

to HRCP Rule 55(c):

[A] motion to set aside a default entry or a default

judgment may and should be granted whenever the court finds

(1) that the nondefaulting party will not be prejudiced by

the reopening, (2) that the defaulting party has a

meritorious defense, and (3) that the default was not the

result of inexcusable neglect or a wilful act.

Chen, SDO at 2.15

15

In BDM, this court referred to the “excusable neglect” standard

governing HRCP Rule 60(b) motions despite the “good cause” language of HRCP

Rule 55(c) on the premise that the setting aside of a defendant’s default,

alone, would not allow litigation to proceed, and that the circuit court

would also need to grant an extension of time for the defendant to answer the

complaint, else “an anomalous situation in which [defendants] would be forced

to remain in default but [plaintiff] would be foreclosed from obtaining entry

of a default” would result. 57 Haw. at 75, 549 P.2d at 1149. BDM stated

that the “excusable neglect” standard of HRCP Rule 6(b) governing

enlargements of time for performing an act “required or allowed to be done at

or within a specified time” would therefore also have to be considered with

respect to whether an extension of time to answer the complaint should be

considered. 57 Haw. at 75-76, 549 P.2d at 1149.

The premise that an official extension of time pursuant to the

“excusable neglect” standard would be necessary to allow a circuit court

defendant to file an answer to the complaint after expiration of the twenty

days provided for by HRCP Rule 12(a) (2000) was, however, mistaken. If

default has not been requested and entered pursuant to HRCP Rule 55(a), there

is no HRCP rule rendering an answer filed after twenty days of service of

process ineffective. In fact, in our circuit courts, counsel and parties

often provide the courtesy of informally extending time for answering

complaints without court involvement, and simply do not request a formal

entry of default until after the courtesy time has expired. See Guidelines

of Professional Courtesy and Civility for Hawaiʻi Lawyers Section 2(a) (2018)

(“[A] lawyer who manifests professional courtesy and civility [] [a]grees to

reasonable requests for extensions of time or continuances without requiring

motions or other formalities.”). Thus, BDM’s premise for juxtaposing the

“excusable neglect” standard under HRCP Rule 6(b) and HRCP Rule 60(b) to HRCP

Rule 55(c) motions to set aside default judgments was in error. In any

event, BDM further noted that “[i]t is difficult for us to imagine a case in

which ‘good cause’ might be found for setting aside an entry of default and

yet ‘excusable neglect’ for the failure to file the answer, which failure

occasioned the entry of the default, should not also be found.” 57 Haw. at

76, 549 P.2d at 1149.

37

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

Although HRCP Rule 55(c) provides that “[f]or good cause

shown the court may set aside an entry of default and, if a

judgment by default has been entered, may likewise set it aside

in accordance with Rule 60(b)[,]” the parties, the circuit

court, and the ICA all agree Defendants were required to also

meet the three-prong test applicable to motions to set aside

default judgments under HRCP Rule 60(b), which requires a

showing that “(1) the nondefaulting party will not be prejudiced

by the reopening, (2) that the defaulting party has a

meritorious defense, and (3) that the default was not the result

of inexcusable neglect or a wilful act.” BDM, 57 Haw. at 76,

549 P.2d at 1150.

In BDM, a per curiam opinion, this court stated:

[D]efaults and default judgments are not favored and that

any doubt should be resolved in favor of the party seeking

relief, so that, in the interests of justice, there can be

a full trial on the merits. It should be noted that a

motion to set aside a default entry, which may be granted

under Rule 55(c) ‘for good cause shown’, gives the court

greater freedom in granting relief than is available on a

motion to set aside a default judgment where the

requirements of Rule 60(b) must be satisfied. 10 Wright and

Miller, Federal Practice and Procedure, Civ. § 2693 at 313

(1973). ‘Despite these differences, the elements advanced

in support of a motion under Rule 55(c) will be the same

whether relief is sought from a default entry or from a

default judgment.’ Wright and Miller supra, Civ. s 2692 at

301.

In general, a motion to set aside a default entry or

a default judgment may and should be granted whenever the

court finds (1) that the nondefaulting party will not be

prejudiced by the reopening, (2) that the defaulting party

has a meritorious defense, and (3) that the default was not

the result of inexcusable neglect or a wilful act. 10

Wright and Miller, Federal Practice and Procedure § 2696

(1973). The mere fact that the nondefaulting party will be

required to prove his case without the inhibiting effect of

38

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

the default upon the defaulting party does not constitute

prejudice which should prevent a reopening.

Id. (citations omitted).

Also, in Ala Loop Homeowners, we stated:

Defaults are generally disfavored. See Rearden Family Trust

v. Wisenbaker, 101 Hawaiʻi 237, 254, 65 P.3d 1029, 1046

(2003) (holding that “defaults and default judgments are

not favored and [] any doubt should be resolved in favor of

the party seeking relief, so that, in the interests of

justice, there can be a full trial on the merits”)

(citations omitted). In BDM, Inc. v. Sageco, Inc., 57 Haw.

73, 549 P.2d 1147 (1976), this court held that a party

seeking to set aside a default must demonstrate the

following three factors:

In general, a motion to set aside

a default entry or a default judgment may and

should be granted whenever the court finds

(1) that the nondefaulting party will not be

prejudiced by the reopening, (2) that the

defaulting party has a meritorious defense, and

(3) that the default was not the result of

inexcusable neglect or a wilful act.

123 Hawaiʻi at 423, 235 P.3d at 1135 (alteration in original).

The ICA has held that a defendant moving to set aside an

entry of default pursuant to HRCP Rule 55(c) must satisfy the

three-prong test applicable to HRCP Rule 60(b) motions, and has

specifically held that all three prongs must be satisfied for a

trial court to grant a motion to set aside entry of default.

See The Nature Conservancy v. Nakila, 4 Haw. App. 584, 589-91,

671 P.2d 1025, 1030-31 (1983); Manley v. Mac Farms, Inc., 1 Haw.

App. 182, 184-85, 616 P.2d 242, 244 (1980); Hupp, 1 Haw. App. at

177-78, 616 P.2d at 236. In addition, although this court has

39

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

not actually held that HRCP Rule 55(c) movants must satisfy the

three prongs, our cases suggested as much in dicta.16

Despite the language of HRCP Rule 55(c) allowing

entries of default to be set aside based only on a showing

of “good cause,” trial courts, including the circuit court

in this case, were required to follow binding precedent,

which held that parties seeking to set aside an entry of

default pursuant to HRCP Rule 55(c) must satisfy the three-

prong test for HRCP Rule 60(b) motions. Therefore, we

analyze the circuit court and ICA rulings based on the

standard that the circuit court was required to follow at

the time of its ruling, which was that Defendants had the

burden of establishing the following to prevail on their

motion to set aside entry of default: (1) the nondefaulting

party will not be prejudiced by the reopening, (2) the

defaulting party has a meritorious defense, and (3) the

default was not the result of inexcusable neglect or a

wilful act. In addition, the burden was on Defendants to

16

Along this line, if lack of “excusable neglect” is a requisite showing

for a HRCP Rule 55(c) motion, then this clearly contradicts the plain

language of the rule, which only requires “good cause,” a much lower standard

under Hawaiʻi law, which basically only requires a showing of “good cause”

under the circumstances of the situation. In contrast, we have held that

ignorance of the rules or law cannot be “excusable neglect.” See Enos v.

Pac. Transfer & Warehouse, Inc., 80 Hawaiʻi 345, 353, 910 P.2d 116, 124 (1996)

(making it difficult for anyone to meet the lack of “excusable neglect”

requirement of HRCP Rule 60(b) motions). Thus, incorporation of this HRCP

Rule 60(b) requirement into a HRCP Rule 55(c) analysis violates the plain

language of the rule.

40

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

establish that each prong had been satisfied. See In re

RGB, 123 Hawaiʻi 1, 17, 229 P.3d 1066, 1082 (2010).

2. The circuit court did not abuse its discretion by

denying Defendants’ HRCP Rule 55(c) motion to set

aside entry of default

As noted above, the circuit court ruled in favor of the

Defendants on the first prong regarding prejudice to Chen, but

ruled against the Defendants on the second and third prongs

regarding meritorious defenses and excusable neglect. In their

first question on certiorari, Defendants allege the ICA erred in

failing to set aside the circuit court’s entry of default

because: (1) with respect to the second prong, the record shows

the circuit court failed to analyze all twelve causes of action

in the complaint regarding meritorious defenses and the record

contains substantial evidence of a meritorious defense to one or

more causes of action; and (2) with respect to the third prong,

the circuit court failed to apply this court’s stated policy of

favoring a trial on the merits and failed to consider the

lulling of a pro se party into inaction by engaging in months of

discovery and communications before and after obtaining an entry

of default, then using a long delay to help justify a purported

failure to defend the case.

We address the third prong first because it is dispositive.

To prevail, Defendants had the burden of establishing that their

default “was not the result of inexcusable neglect or a wilful

41

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

act.” Under Hawaiʻi law, ignorance of the rules or law cannot be

“excusable neglect.” Enos, 80 Hawaiʻi at 353, 910 P.2d at 124

(1996).

Defendants argue this court held that courts are to resolve

any doubt in favor of the party seeking relief. See Rearden

Family Trust, 101 Hawaiʻi at 254, 65 P.3d at 1046 (“We affirm

that defaults and default judgments are not favored and that any

doubt should be resolved in favor of the party seeking relief,

so that, in the interests of justice, there can be a full trial

on the merits.” (internal quotation marks and citations

omitted)).

Defendants also argue the ICA gravely erred when it

affirmed the circuit court’s denial of their motion to set aside

default, as the circuit court failed to consider the “lulling,

discovery, and ‘lengthy delay’” in Chen’s filing for default

judgment. Importantly, Defendants assert that both before and

after the complaint was filed, King “engaged in ‘multiple

follow-up telephone discussions’ with Dr. Mah,” which had the

“effect of lulling Dr. Mah into believing this dispute would be

resolved if he simply cooperated with [King].”

The record, however, does not reflect any continued

discussions between the parties after the complaint was filed.

The citations to the record by defense counsel to support the

assertion that Mah and King had “multiple follow-up telephone

42

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

discussions” following the filing of the complaint do not

support the defense’s position. Rather, the citation is to

King’s declaration regarding the contents of a September 10,

2012 demand letter, which was sent prior to the filing of the

complaint on October 3, 2012.

Indeed, as pointed out by Chen and the ICA, the record does

not reflect any communications between Mah and King after

October 8, 2012, when the complaint was served. See Chen, SDO

at 4–5 (“Mah has not cited any reason for failing to respond to

the Complaint once it had in fact been filed.” (citation

omitted)). Even Mah’s phone logs do not show any conversations

with King following October 3, 2012. In sum, according to the

record, upon service of the complaint on October 8, 2012, all

non-court related communication between the parties had ceased.

Accordingly, even if there had been some informal discovery

and efforts to avoid litigation before October 3, 2012, and even

if all doubts were resolved in favor of Defendants regarding

Mah’s misunderstanding of the parties’ alleged impasse,

Defendants fail to identify anything in the record to explain

why, after the filing of the complaint, Mah continued to be

“lulled” by King into thinking that litigation could be avoided

if Mah cooperated with King; there simply was no further

communication between them. In other words, although Mah

asserts he never realized King was adversely taking action

43

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

against him while negotiating a resolution, any “negotiations”

had ceased as of the filing of the complaint. See Chen, SDO at

5 (“Mah does not assert that there was any effort to continue

these discussions after the Complaint was filed, and Mah failed

to seek any extensions from the Circuit Court to, for example,

obtain more time to resolve the dispute out of court. . . . Mah

[did not] file[] the motion to set aside the entry of default

[until] after Dr. Chen had filed her First Motion for Default

Judgment, nearly nine months following the filing of the

Complaint.”).17

The record reflects that during the pre-complaint

discussions, King asked Mah if he had an attorney as King

preferred to speak to Mah’s attorney, but Mah indicated “he did

not have [an attorney] but had spoken to a friend who was an

attorney and did not want to incur the high expenses of an

attorney.” Then, despite service of the complaint on October 8,

2012, and prompt notice of the November 2, 2012 entry of

default, Mah took no action until being served with Chen’s May

24, 2013 motion for default judgment. Mah is not an uneducated

person lacking resources or access to counsel. Under the

circumstances, the circuit court did not abuse its discretion in

17

Mah’s declaration dated June 18, 2013, does not supply a different

timeline of events. Additionally, it vaguely states that Mah did not learn

until “recently” of the entry of default, even though he was served with

notice of the entry of default on or about November 2, 2012.

44

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

ruling the Defendants failed to show that their default “was not

the result of inexcusable neglect or a wilful act.”

Defendants’ failure to meet this prong is dispositive.18

C. Prospectively, a HRCP Rule 55(c) motion to set aside entry

of default is to be evaluated based only on whether there

has been a showing of “good cause”

1. Prospective new standard governing HRCP Rule 55(c)

As explained in Section IV.B.1 above, HRCP Rule 55(c),

which governs the setting aside of an entry of default provides

that “[f]or good cause shown the court may set aside an entry of

default and, if a judgment by default has been entered, may

likewise set it aside in accordance with Rule 60(b).” Thus, the

plain language of HRCP Rule 55(c) requires only that a party

18

Defendants’ remaining assertions on certiorari also lack merit. The

circuit court also did not abuse its discretion on the second prong regarding

meritorious defense as the circuit court did not limit the hearing on their

motion to set aside entry of default to a discussion of the fraud claim, as

they assert; rather, the circuit court invited arguments regarding

Defendants’ alleged meritorious defenses as to all counts.

Defendants’ assertion that the circuit court erred in finding Corporation had

a fiduciary duty to provide Chen with documentation to support her

compensation was not clearly erroneous under the circumstances. Lahaina

Fashions, Inc. v. Bank of Haw., 131 Hawaiʻi 437, 456, 319 P.3d 356, 375 (2014)

(discussing situations that can give rise to a fiduciary relationship).

Defendants assert the circuit court precluded evidence of overpayments,

offsets, and/or set-offs, but do not identify what specific evidence was

wrongfully precluded. Defendants do not explain why it was not within the

circuit court’s discretion to strike Defendants’ expert testimony for failure

to comply with the August 19, 2013 order setting various trial deadlines.

Defendants argue improper piercing of the corporate veil when the circuit

court held Mah personally liable, but fail to address the circuit court’s

conclusion that Mah’s liability did not stem from his status as a

shareholder. Even if the circuit court had ruled Mah an alter ego of

Corporation, however, it does not appear this would have constituted error.

See Calipjo v. Purdy, 144 Hawaiʻi 266, 277-78, 439 P.3d 218, 229-30 (2019)

(discussing alter ego factors under Hawaiʻi law). Finally, contrary to

Defendants’ assertion that the circuit court adopted “scripted findings,” the

record shows the circuit court provided a detailed oral ruling and then

ordered King to draft proposed findings of fact and conclusions of law

consistent with its decision.

45

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

show “good cause” to set aside an entry of default and indicates

that the setting aside a default judgment is governed by HRCP

Rule 60(b).

Our cases have also expressed our policy of disfavoring

defaults and default judgments and of resolving any doubt in

favor of the party seeking relief, so that, in the interests of

justice, there can be a full trial on the merits. BDM, 57 Haw.

at 76, 549 P.2d at 1150; Ala Loop Homeowners, 123 Hawaiʻi at 423,

235 P.3d at 1135. And we have specifically noted that a motion

to set aside a default entry, which may be granted under

HRCP Rule 55(c) “for good cause shown,” gives the trial court

greater freedom in granting relief than is available on a motion

to set aside a default judgment where the requirements of

HRCP Rule 60(b) must be satisfied. BDM, 57 Haw. at 76, 549 P.2d

at 1150; Ala Loop Homeowners, 123 Hawaiʻi at 423, 235 P.3d at

1135.

Yet, after this court’s 1976 per curiam opinion in BDM, our

appellate opinions have held that motions to set aside entries

of default under HRCP Rule 55(c) must satisfy the three-prong

test for HRCP Rule 60(b) motions.

We acknowledge that under federal law, the “good cause”

standard governing vacating an entry of default under Federal

Rules of Civil Procedure (“FRCP”) Rule 55(c) is the same

standard that governs vacating a default judgment under FRCP

46

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

Rule 60(b). Franchise Holding II, LLC v. Huntington Rests.

Grp., Inc., 375 F.3d 922, 925 (9th Cir. 2004).19 Yet,

notwithstanding their persuasiveness, interpretations of the

FRCP by federal courts are by no means conclusive with respect

to our interpretation of any rule within the HRCP. Kawamata

Farms, Inc. v. United Agri Prods., 86 Hawaiʻi 214, 256, 948 P.2d

1055, 1097 (1997).

The discussions regarding HRCP Rule 55(c) in this opinion

persuade us to overrule our precedent to the contrary and hold

that HRCP Rule 55(c) motions are governed only by the plain

language “good cause” standard explicitly stated in the rule.

Therefore, movants seeking to set aside an entry of default

pursuant to HRCP Rule 55(c) need no longer satisfy the three-

19

Even in federal courts, however,

[a]lthough the more specific grounds for relief set

forth in Rule 60(b) [were] frequently [] regarded as

included within the concept of “good cause” for purposes of

Rule 55(c), the courts ha[d] generally acknowledged that

“good cause” is a broader and more liberal standard than

anything found in Rule 60(b), and that, consequently,

something less may be required to warrant the opening of an

entry of default than would be necessary to set aside a

default judgment. (Citation omitted.) Thus, while

“excusable neglect” has often been considered a reason for

inaction sufficient to satisfy the good cause test, several

courts have recognized that relief may be granted under

Rule 55(c) even when the neglect giving rise to the default

cannot, strictly speaking, be characterized as excusable.

William H. Danne, Jr., Annotation, What Constitutes “Good Cause”

Allowing Federal Court to Relieve Party of his Default Under Rule 55(c)

of Federal Rules of Civil Procedure, 29 A.L.R. Fed. 7, § 2[a] (1976),

available at

https://www.westlaw.com/Document/I512442d1136011da931cf6e6a5b3cd63/View

/FullText.html?transitionType=Default&contextData=(sc.Default)&VR=3.0&R

S=cblt1.0 (citations omitted).

47

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

prong test applicable to HRCP Rule 60(b) motions to set aside

default judgments.

Good reasons exist to have different standards governing

HRCP Rule 55(c) motions to set aside entry of default as

compared to HRCP Rule 60(b) motions to set aside default

judgment.

First, a HRCP Rule 55(c) motion seeks to set aside an entry

of default during a pending litigation in which judgment has yet

to enter. In contrast, a HRCP Rule 60(b) motion to set aside a

default judgment seeks to set aside a judgment on which not only

the parties to the lawsuit, but also other members of the

public, may have relied.

Second, HRCP Rule 60(b) motions require a showing of a lack

of “excusable neglect,” yet HRCP Rule 55(c) motions only require

“good cause,” which is a much lower standard under Hawaiʻi law,

as further discussed below; yet we have held that ignorance of

the rules or law cannot be “excusable neglect.” Enos, 80 Hawaiʻi

at 353, 910 P.2d at 124. Thus, even if a movant seeking to set

aside an entry of default pursuant to HRCP Rule 55(c) can

establish “good cause,” the movant might not be able to meet the

lack of “excusable neglect” requirement for HRCP Rule 60(b)

motions. Thus, incorporation of this HRCP Rule 60(b)

requirement into a HRCP Rule 55(c) analysis violates the plain

language of HRCP Rule 55(c).

48

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

Finally, requiring a party seeking to set aside entry of

default to satisfy the three-prong test applicable to HRCP Rule

60(b) motions is in tension with our expressed policy of

disfavoring defaults and default judgment and of resolving any

doubt in favor of the party seeking relief. In this case,

Defendants inexplicably waited more than seven months after

service of the complaint to move to set aside the entry of

default. Yet, a plaintiff could move for entry of default

twenty-one days after service of a complaint. Even if a

defendant filed a HRCP Rule 55(c) motion to set aside entry of

default the very next day, under our current law, the defendant

would be required to satisfy all three prongs of the HRCP Rule

60(b) test applicable to motions to set aside default judgments.

This seems unfair.20

Thus, we therefore now hold that HRCP Rule 55(c) motions

are governed only by the “good cause” standard explicitly stated

in the rule, and that movants seeking to set aside an entry of

20

The Chief Justice opines that it is sensible to continue considering

the HRCP Rule 60(b) factors to HRCP Rule 55(c) because nearly every federal

circuit, as well as many states, apply them to motions to set aside entry of

default. We note, however, that in the federal courts, there is no

counterpart to HRCP Rule 41(b)(2) (2012) allowing involuntary dismissals to

be set aside for “good cause,” and it appears a plaintiff seeking to

reinstate claims involuntarily dismissed pursuant to FRCP Rule 41(b) must

file a motion under FRCP Rule 60(b). See Link v. Wabash R. Co., 370 U.S.

626, 630, 632 (1962). Thus, our rule is different, and we actually erred by

adopting the HRCP Rule 60(b) standard that contravenes our “good cause” rule.

For all of these reasons, we disagree with the Chief Justice that the BDM

factors are appropriate to consider in determining whether to set aside an

entry of default.

49

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

default pursuant to HRCP Rule 55(c) need not satisfy the three-

prong test applicable to HRCP Rule 60(b) motions to set aside

default judgments.

Our holding is prospective. Trial courts were required to

follow ICA holdings requiring parties seeking to set aside an

entry of default pursuant to HRCP Rule 55(c) to satisfy the

three-prong test for HRCP Rule 60(b) motions. Therefore, by

holding that movants seeking to set aside an entry of default

pursuant to HRCP Rule 55(c) need not satisfy the three-prong

test, we are announcing a “new rule.” In announcing this “new

rule,” we must avoid unfair prejudice to parties and trial

courts who have relied on binding precedent. Therefore, our

holding applies only to decisions on motions to set aside entry

of default under HRCP Rule 55(c) after the date of this

opinion.21 See Kahale, 104 Hawaiʻi at 348, 90 P.3d at 239.

2. What constitutes “good cause”

In Doe v. Doe, 98 Hawaiʻi 144, 44 P.3d 1085 (2002), in the

context of a Hawaiʻi Family Court Rules (“HFCR”) Rule 59(a)

motion for a new trial, we stated:

“Good cause” [] “depends upon the circumstances of the

individual case, and a finding of its existence lies

largely in the discretion of the officer or court to which

[the] decision is committed.”

21

Our holding also applies to the identical language of Rules 55(c) in

the District Court Rules of Civil Procedure as well as the Hawaiʻi Family

Court Rules.

50

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

98 Hawaiʻi at 154, 44 P.3d at 1095 (second alteration in

original) (citation omitted).22 Thus, whether “good cause”

exists to set aside an entry of default will depend upon the

circumstances of the individual case, and whether good cause

exists will “lie[] largely in the discretion of the [] court to

which [the] discretion is committed.”

It is not possible to provide one definition of “good

cause,” as standards governing whether “good cause” exists

depend not only upon the circumstances of the individual case,

but also upon the specific court rule at issue. This is because

in addition to HRCP Rule 55(c) at issue in this case and HFCR

Rule 59(a) referenced above, there are numerous court rules in

which the phrase “good cause” appears.”23 Many of these rules

use the phrase “good cause” in contexts that differ from the

“good cause” required to set aside an entry of default pursuant

22

Doe also referred to a Black’s Law Dictionary entry, stating that

“[t]he term ‘good cause’ has been defined to mean ‘a substantial reason

amounting in law to a legal excuse for failing to perform an act required by

law.’” 98 Hawaiʻi at 154, 44 P.3d at 1095 (quoting Good Cause, Black's Law

Dictionary (6th ed. 1990)). We note that Black’s Law Dictionary, however,

now defines “good cause” as “[a] legally sufficient reason. Good cause is

often the burden placed on a litigant (usu. by court rule or order) to show

why a request should be granted or an action excused.” Good Cause, Black’s

Law Dictionary (11th ed. 2019).

23

See, e.g., HRAP Rule 29(b) (2016) (allowing an appellate court to

further extend time to file a brief only upon “good cause” shown); Rules of

the Circuit Courts of the State of Hawaiʻi (“RCCH”) Rule 7(e) (2007) (allowing

continuance of a trial date only upon a showing of “good cause”); Hawaiʻi

Rules of Penal Procedure (“HRPP”) Rule 5(c)(5) (2014) (allowing a district

court to continue a preliminary hearing after commencement “for good cause”);

HRPP Rule 24(e) (2011) (stating that jurors shall be allowed to take notes

during trial “[e]xcept upon good cause articulated by the court”).

51

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

to HRCP Rule 55(c), and address different policy considerations

dictating stricter or more lenient definitions of “good cause”

or differing approaches on how to determine whether “good cause”

exists depending on the court rule and circumstances at issue.24

The rule most analogous to HRCP Rule 55(c)’s “good cause”

language is HRCP Rule 41(b)(2). HRCP Rule 41(b)(2) provides in

relevant part that an involuntary dismissal entered “[f]or

failure to prosecute or to comply with these rules or any order

of the court” “may be set aside and the action or claim

reinstated by order of the court for good cause shown upon

motion duly filed not later than 10 days from the date of the

order of dismissal.” Just as we have stated “defaults and

24

For example, in the context of HRPP Rule 48(c)(8) (2000), which allows

for periods of time a trial is delayed “for good cause” to be excludable from

the six month period trial must commence, we have stated that “good cause

means ‘a substantial reason that affords legal excuse,’” that a period of

delay must have been “unanticipated and not reasonably foreseeable,” and a

showing of the efforts taken by the government and judiciary to limit delay

is required to establish “good cause.” State v. Abregano, 136 Hawaiʻi 489,

497-99, 363 P.3d 838, 846-48 (2015). Thus, we have required the government

to establish the existence of “good cause” and have required a “substantial

reason” when the finding impacts a defendant’s speedy trial rights under HRPP

Rule 48 in a criminal case. Id. In contrast, in construing a former court

rule allowing this court to extend the time for filing the record on appeal

for “good cause,” we summarily held that “[a]lthough dismissal of an appeal

for late docketing is within the power of this court, mitigating factors in

the instant case, such as the trial judge’s delay in disposing of the motion

to proceed in forma pauperis, justify this court’s grant of an extension of

time and weigh against a dismissal of the appeal.” State v. Kicklighter, 57

Haw. 566, 568, 560 P.2d 1304, 1306 (1977) (citation omitted). Then, in the

context of HRCP Rule 26(c) (2004), which allows a court to enter a protective

order regarding discovery for “good cause,” we have adopted a completely

different approach, balancing an insurer’s need for a person’s health

information against the injury that might result from the disclosure of that

health information outside of the litigation. Brende v. Hara, 113 Hawaiʻi

424, 431, 153 P.3d 1109, 1116 (2007).

Thus, we have taken different approaches to what constitutes “good

cause” depending on the court rule and the circumstances at issue.

52

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

default judgments are not favored and that any doubt should be

resolved in favor of the party seeking relief,” BDM, 57 Haw. at

76, 549 P.2d at 1150, we have also stated that “[i]nvoluntary

dismissals of a complaint with prejudice are not favored, and

should be ordered only in extreme circumstances.” In re

Blaisdell, 125 Hawaiʻi 44, 49, 252 P.3d 63, 68 (2011). Also, in

the context of an appeal of a HRCP Rule 41(b) dismissal and the

denial of a motion for reconsideration of that dismissal, we

also stated that “a corporation should be allowed an opportunity

to secure counsel before permitting an entry of default against

the corporation or, as in this case, dismissing the action,

recognizing a ‘preference for giving parties an opportunity to

litigate claims or defenses on the merits[.]’” Shasteen, Inc.

v. Hilton Hawaiian Village Joint Venture, 79 Hawaiʻi 103, 109,

899 P.2d 386, 392 (1995) (alteration in original) (citation

omitted).

Thus, HRCP Rule 55(c) relates to setting aside an

“involuntary” entry of default against a defendant, while HRCP

Rule 41(b)(2) relates to its counterpart, the setting aside of

an involuntary dismissal of a plaintiff’s claims. Both HRCP

Rules 41(b)(2) and 55(c) require “good cause” to allow the

setting aside and reinstatement of a plaintiff’s claims or a

defendant’s defenses.

53

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

In Ryan v. Palmer, 130 Hawaiʻi 321, 310 P.3d 1022 (App.

2013), the ICA addressed HRCP Rule 41(b)(2) in the context of

reviewing a trial court’s denial of a motion to set aside an

involuntary dismissal for failure to file a pretrial statement

as allowed by RCCH Rule 12(q) (2007). Because the language of

RCCH Rule 12(q) is patterned after HRCP Rule 41(b)(2), the ICA

applied HRCP Rule 41(b)(2) in its review of the RCCH Rule 12(q)

dismissal. See 130 Hawaiʻi at 323, 310 P.3d at 1024. The ICA

did not define what would constitute “good cause” for purposes

of HRCP Rule 41(b)(2), but cited to our case law construing HRCP

Rule 41(b)(2), including In re Blaisdell and Shasteen. Id.25

In In re Blaisdell, this court stated, “[O]ur case law

informs us that the sanction of dismissal of a complaint with

prejudice is one of last resort where lesser sanctions would not

serve the interest of justice,” and “an order of dismissal

cannot be affirmed absent deliberate delay, contumacious

25

The Chief Justice posits that the comparison between HRCP Rules 41(b)

and 55(c) and the application of HRCP Rule 41(b) cases to define HRCP Rule

55(c) are inapt because “the phrase ‘good cause’ is used in the context of

setting aside sua sponte dismissals of plaintiffs’ actions under Rule

41(b)[,]” while “under Rule 55(c), a party must satisfy the good cause

standard to set aside an entry of default that was entered upon the opposing

party’s motion.” HRCP Rule 41(b) does not, however, require “good cause” for

a sua sponte dismissal; rather, it requires “good cause” to set aside a sua

sponte dismissal, which is the same standard for setting aside an entry of

default under HRCP Rule 55(c). In addition, the Chief Justice posits that

because In re Blaisdell and Shasteen were appeals from orders of dismissal,

not from denials of motions to set aside a dismissal for “good cause,” it is

unhelpful to review these cases. The Chief Justice ignores that we address

the “good cause” factors in these cases because they were cited to by Ryan,

which addressed a HRCP Rule 41(b) motion requiring “good cause” to set aside

a dismissal. Ryan, 130 Hawaiʻi at 323, 310 P.3d at 1024.

54

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

conduct, or actual prejudice.” 125 Hawaiʻi at 49, 252 P.3d at 68

(quoting Shasteen, 79 Hawaiʻi at 107, 899 P.2d at 390). More

specifically, we stated that in order for a dismissal with

prejudice based on HRCP Rule 41(b) to not constitute an abuse of

discretion, there must be deliberate delay of the plaintiff

causing actual prejudice or contumacious conduct. 125 Hawaiʻi at

49-50, 252 P.3d at 68-69. We noted that “[a]lthough the law

presumes injury from unreasonable delay, the presumption of

prejudice is rebuttable upon a showing that actual prejudice did

not occur.” 125 Hawaiʻi at 49, 252 P.3d at 68 (citation omitted)

(emphasis added). We also stated, however, that “[b]ecause the

interests of justice are best served by resolving a case on its

merits, absent a clear record of delay or contumacious conduct,

‘the careful exercise of judicial discretion requires that a

[trial] court consider less severe sanctions and explain, where

not obvious, their inadequacy for promoting the interests of

justice.’” Id. (second alteration in original) (quoting

Schilling v. Walworth Cty. Park & Planning Comm’n, 805 F.2d 272,

275 (7th Cir. 1986)).

Shasteen, cited by In re Blaisdell, in turn, also stated

that “a dismissal of a complaint is such a severe sanction, that

it should be used only in extreme circumstances where there is

clear record of delay or contumacious conduct and where lesser

sanctions would not serve the interest of justice.” 79 Hawaiʻi

55

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

at 107, 899 P.2d at 390 (internal quotation marks, brackets,

ellipsis, and footnote omitted) (quoting Lim v. Harvis Contr.,

Inc., 65 Haw. 71, 73, 647 P.2d 290, 292 (1982)).

Thus, although our opinions did not specifically so state,

these rulings provide guidance regarding the “good cause”

required to set aside a dismissal under HRCP Rule 41(b)(2), as

Ryan concerned a HRCP Rule 41(b)(2) motion and relied on In re

Blaisdell and Shasteen. Our cases indicate “good cause” exists

to set aside a dismissal under HRCP Rule 41(b)(2) if there is no

(1) deliberate delay and/or contumacious conduct; or (2) if

deliberate delay or contumacious conduct exist, there is no

actual prejudice that cannot be addressed through lesser

sanctions.

Accordingly, by analogy, these factors should also be

considered in determining whether “good cause” exists under HRCP

Rule 55(c). “Good cause” should exist to set aside an entry of

default if: (1) the defendant did not deliberately fail to plead

or otherwise defend26 or engage in contumacious conduct;27 or

26

We note that “deliberate delay” has been construed to not include time

due to the unavailability of counsel. Shasteen, 79 Hawaiʻi at 108, 899 P.2d

at 391 (“[T]wo of the five continuances were as a result of requests made by

[the plaintiff] corporation. However, the requests were based on reasons

directly related to the unavailability of [the plaintiff] corporation’s

attorney. Moreover, although [the defendant], in advancing its argument with

respect to delay, contends that ‘[the plaintiff] undertook no genuine effort

to find successor counsel [where] [h]aving counsel was critical,’ we review

this contention as it relates to the second factor, contumacious conduct.”)

(Sixth and seventh alterations in original.) Thus, the same analysis should

apply to deadlines missed due to the unavailability of counsel. As in

(continued. . .)

56

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

(b) if the defendant did deliberately fail to plead or otherwise

defend or engage in contumacious conduct, there is no actual

prejudice to the plaintiff28 that cannot be addressed through

lesser sanctions.29

We reiterate, however, that whether “good cause” exists

will depend upon the circumstances of the individual case. And

as indicated in 10A Charles Alan Wright & Arthur R. Miller,

Federal Practice and Procedure Civ. § 2693 (4th ed. 2019),

appellate courts have demonstrated a marked deference to

decisions granting relief against default entries.

(. . .continued)

Shasteen, any allegation that a defendant caused unavailability of counsel

should be evaluated under the “contumacious conduct” prong.

27

In In re Blaisdell, this court stated that “[w]ithout evidence that

Blaisdell conducted himself in a willfully defiant manner, his actions did

not amount to what this court considers ‘contumacious conduct.’” 125 Hawaiʻi

at 50, 252 P.3d at 69. This court also noted that Black’s Law Dictionary

defined “contumacious conduct” as “[w]illfully stubborn and disobedient

conduct.” Shasteen, 79 Hawaii at 107 n.7, 899 P.2d at 390 n.7 (alteration in

original) (citing Contumacious Conduct, Black’s Law Dictionary (6th ed.

1990)).

28

“The mere fact that the nondefaulting party will be required to

prove his case without the inhibiting effect of the default upon the

defaulting party does not constitute prejudice which should prevent a

reopening.” BDM, 57 Haw. at 76, 549 P.2d at 1150 (citation omitted).

29

A trial court must also state why a lesser sanction is insufficient to

serve the interests of justice. In re Blaisdell, 125 Hawaii at 50-51, 252

P.3d at 69-70. We have previously stated that a trial court can impose some

lesser sanction, such as an award of attorney’s fees caused by the default,

as a condition for setting aside the entry of default. See Dela Cruz, 141

Hawaiʻi at 346, 409 P.3d at 750.

57

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***

V. Conclusion

Based on the reasons explained above, we affirm the ICA’s

May 3, 2019 judgment on appeal, which affirmed the circuit

court’s July 6, 2016 final judgment.

Mark G. Valencia /s/ Sabrina S. McKenna

(Stephanie M. Segovia

with him on the briefs), /s/ Richard W. Pollack

for petitioner

/s/ Michael D. Wilson

Dennis W. King,

for respondent

58