Fasi v. Fasi

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Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
31-OCT-2024
08:29 AM
Dkt. 164 SO

NO. CAAP-20–0000777

IN THE INTERMEDIATE COURT OF APPEALS

OF THE STATE OF HAWAI#I

KANEKAPOLEI SYDNEY FERNANDEZ FASI, Plaintiff-Appellee, v.
DAVID FRANCIS FASI, Defendant-Appellant

APPEAL FROM THE FAMILY COURT OF THE FIRST CIRCUIT
(FC-D NO. 17-1-6358)

SUMMARY DISPOSITION ORDER
(By: Hiraoka, Presiding Judge, and Wadsworth and Nakasone, JJ.)

This appeal arises out of divorce proceedings between
Defendant-Appellant David Francis Fasi (Husband) and Plaintiff-
Appellee Kanekapolei Sydney Fernandez Fasi (Wife). Husband
appeals from the "Decree Granting Divorce and Awarding Child
Custody" (Divorce Decree), entered on December 2, 2020, by the
Family Court of the First Circuit (Family Court).1/ Husband also
challenges parts of the Family Court's: (1) May 29 2020 "Order
Re: Evidentiary Hearing" (Evidentiary Hearing Order); (2)
December 2, 2020 "Order Granting in Part and Denying in Part
[Husband's] Motion for Reconsideration, Filed July 20, 2020" and
(3) March 3, 2021 "Findings of Fact and Conclusions of Law"
(FOFs/COLs or 3/3/21 FOFs/COLs).2/

1/
The Honorable Gale L.F. Ching presided.
2/
In his notice of appeal, Husband also purports to appeal from the
Family Court's November 1, 2018 "Order Granting [Wife's] Attorney's Fees and
Costs Associated with '[Wife' s] Motion for an Order Compelling [Husband] to
Produce Documents, et. al.,' Filed 10/31/2017." However, Husband's opening
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Husband raises two points of error on appeal. First,
he contends that the Family Court erred by (a) classifying his
12.5% interest in a real estate development company (CDLLC) as
Category 5 marital partnership property rather than marital
separate property, (b) adopting a fair market value (FMV) of
"$1,272,470"3/ for his 12.5% interest in CDLLC, as of the June 30,
2019 valuation date4/ (Valuation Date), and (c) "awarding half of
this net market value to Wife in the property division." Second,
Husband contends that the Family Court erred by adopting (a) a
Category 1 net market value of zero for Wife's one-sixth (16.6%)
interest in an LLC (FPLLC) at the date of marriage (DOM), (b) a
zero value for Wife's 16.6% interest in FPLLC as of the Valuation
Date, and (c) a zero value for Husband's Category 2 share of the
increase in the value of Wife's interest in FPLLC during the
marriage.5/
After reviewing the record on appeal and the relevant
legal authorities, and giving due consideration to the issues
raised and the arguments advanced by the parties, we resolve
Husband's contentions as follows.

I.

Husband's first point of error raises three issues. We
address each, in turn, below.

brief states no point of error and presents no argument concerning the
November 1, 2018 order. Any argument regarding that order is thus deemed
waived. See Hawai#i Rules of Appellate Procedure (HRAP) Rule 28(b)(4), (7).
3/
The Family Court found the value of Husband's interest in CDLLC to
be $1,271,470, not $1,272,470.
4/
In a Stipulation and Order Re: Valuation, filed on September 4,
2019, the parties agreed to use, and the Family Court approved their use of,
June 30, 2019, as the date of divorce valuation of the FMV of Husband's CDLLC
interest and Wife's FPLLC interest.
5/
In addition, Husband summarily challenges more than two dozen FOFs
in the Evidentiary Hearing Order and the 3/3/21 FOFs/COLs, but presents no
specific argument as to why any of them is clearly erroneous. "This court is
not obliged to address matters for which the appellant[] ha[s] failed to
present discernible arguments." Hussey v. Say, 139 Hawai #i 181, 191, 384 P.3d
1282, 1292 (2016) (quoting Exotics Hawai#i-Kona, Inc. v. E.I. Du Pont De
Nemours & Co., 116 Hawai#i 277, 288, 172 P.3d 1021, 1032 (2007)) (internal
quotation marks omitted); see HRAP Rule 28(b)(7). Nor are we obliged to try
to match unidentified quotations of court statements in the opening brief to
specific FOFs. We therefore do not address these summary challenges.

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A. The Family Court did not clearly err in determining that
Husband's interest in CDLLC was a Category 5 marital asset.

Husband contends that the Family Court erred in finding
that his 12.5% ownership interest in CDLLC, which was provided to
him by his brother-in-law, was not a "gift." He argues that as a
gift, his CDLLC interest should have been considered Marital
Separate Property.
Under Hawaii's Marital Partnership Model governing the
division of property in divorce proceedings, "Marital Separate
Property" is defined as, inter alia:

All property that (1) was acquired by the spouse-owner
during the marriage by gift or inheritance, (2) was
expressly classified by the donee/heir-spouse-owner as his
or her separate property, and (3) after acquisition, was
maintained by itself and/or sources other than one or both
of the spouses and funded by sources other than marital
partnership income or property.

Hamilton v. Hamilton, 138 Hawai#i 185, 200, 378 P.3d 901, 917
(2016) (quoting Hussey v. Hussey, 77 Hawai#i 202, 206-07, 881
P.2d 1270, 1274-75 (App. 1994), overruled on other grounds by
State v. Gonsales, 91 Hawai#i 446, 984 P.2d 1272 (App. 1999)).
Marital Separate Property is excluded from the marital
partnership and is not subject to division at divorce. Kakinami
v. Kakinami, 127 Hawai#i 126, 142, 276 P.3d 695, 711 (2012).
"A 'gift' is generally defined as a voluntary transfer
of property by one person to another without any consideration or
compensation therefor." Welton v. Gallagher, 2 Haw. App. 242,
245, 630 P.2d 1077, 1081 (1981). Here, Husband's asset and debt
statements, signed under penalty of perjury and filed before
trial, listed the CDLLC asset as having a negative $5000 value,
then as having an unknown value with a "Debt Owed Against [It],"
consisting of a "$5000 loan." Husband testified at trial that
his interest in CDLLC was a "gift," but he also stated that the
$5000 "entry fee" was an "advance" from his brother-in-law, as
follows:

And there's supposed to be a $5,000, you know -- I don't
even know what they call it - entry fee or whatever for each
of the partners. But I'm going to advance it, you know.
I'm going to pay it. What he said is, I'm going to pay it.

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And you know what? You guys can pay me back if you make any
money.

In FOF 42(a), the Circuit Court determined:

42. [Husband's] Minority Interest in [CDLLC]
a. During the marriage, [Husband] purchased a
12.5% minority interest in [CDLLC] for $5,000.00, which was
advanced by [Husband's] brother in law . . . . The Court
finds that [Husband's] 12.5% minority interest in [CDLLC]
was a Category 5 marital asset, to be divided equally
between the parties in this divorce.

Based on our review of the record, we conclude that FOF
42(a), which presents mixed determinations of fact and law, is
supported by substantial evidence and is not clearly erroneous.

B. The Family Court did not clearly err in determining the
value of Husband's 12.5% interest in CDLLC.

Husband contends that the Family Court erred in finding
that Husband's 12.5% interest in CDLLC had a FMV of $1,271,470
on the Valuation Date, based on the opinion of Wife's valuation
expert, Gary Kuba. Husband asserts that "[i]n order to establish
the magnitude of Kuba's error," Husband's rebuttal expert,
Shelley Tanaka, "using Kuba's own figures, provided an
alternative computation of the Husband's interest in Cottonwood
at [the date of the conclusion of the evidentiary part of the
trial]." Husband appears to argue that the Family Court erred or
otherwise abused its discretion in striking "those figures from
Tanaka's report and testimony, claiming she was providing her own
appraisal 'through the back door.'"
In an August 2, 2019 "Motion to Set Order (Pretrial
Order No. 1)," the Family Court set a November 1, 2019 deadline
for the exchange of expert reports. At a pretrial hearing on
December 24, 2019, the Family Court ruled that because no report
from Tanaka providing an affirmative valuation of Husband's
interest in CDLLC was disclosed by the November 1, 2019 deadline,
Tanaka could provide rebuttal opinions, but could not provide an
affirmative opinion of the value of Husband's CDLLC interest.
Accordingly, at trial on March 10, 2020, during Tanaka's direct
examination, the Family Court allowed Tanaka "to only criticize
and critique Mr. Kuba's report[,]" and struck certain statements

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in Tanaka's report regarding the value of CDLLC.
In these circumstances, the Family Court did not abuse
its discretion by limiting Tanaka's testimony to rebuttal
opinions and striking her affirmative statement or opinions
regarding the value of Husband's CDLLC interest. See Glover v.
Grace Pac. Corp., 86 Hawai#i 154, 164, 948 P.2d 575, 585 (App.
1997) (ruling that the trial court acted within its discretion
when it struck the plaintiff's economic loss expert witness from
witness list based on failure to furnish final opinion before
discovery cutoff date); Swink v. Cooper, 77 Hawai#i 209, 214, 881
P.2d 1277, 1282 (App. 1994) (holding that circuit court did not
abuse its discretion in precluding expert witness from testifying
about opinion not disclosed in discovery).
We also reject Husband's argument that the Family Court
should have credited Tanaka's rebuttal testimony over Kuba's
testimony. As factfinder, the Family Court heard all of the
admitted evidence, evaluated and weighed each expert's testimony
along with the corroborating evidence, and found Kuba's updated
opinion that the FMV of Husband's 12.5% interest in CDLLC was
$1,271,470 "to be credible." FOFs 42(a)through 42(p). Although
the court did not mention Tanaka by name in the FOFs, the court
plainly considered her testimony, as reflected in the court's
discussion of whether the subject 225 lots "should be valued
individually or as part of a bulk sale value[.]"6/ FOF 42(i).
The Family Court's determinations of Kuba's credibility and the
weight to be given to each expert's testimony were well within
its broad discretion and role as factfinder. See Fisher v.
Fisher, 111 Hawai#i 41, 46, 137 P.3d 355, 360 (2006). The Family
Court did not clearly err in finding that Husband's 12.5%
interest in CDLLC had an FMV of $1,271,470 on the Valuation
Date.7/

6/
Tanaka testified in part that in estimating the value of CDLLC,
Kuba should have used "the bulk sale value" instead of "the sum of the retail
values" of the 225 lots.
7/
Relatedly, we conclude that FOFs 42(p) and 43 are supported by
substantial evidence and are not clearly erroneous.

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C. The Family Court did not clearly err in awarding half of the
court-determined FMV of Husband's CDLLC interest to wife.

Husband does not present a separate argument supporting
his contention that the Family Court erred by awarding half of
the court-determined FMV of Husband's CDLLC interest to Wife in
the property division. Because we have concluded that the Family
Court did not clearly err in determining that Husband's interest
in CDLLC was a Category 5 marital asset, and its FMV on the
Valuation Date was $1,271,470, we affirm the court's decision to
award half of that value to Wife.

II.

Husband contends that the Family Court erred in
determining that Wife's 16.6% interest in FPPLC had a zero value
at DOM and at the Valuation Date, and there was no Category 2
increase in the value of Wife's FPLLC interest during the
marriage. These contentions have merit.

A. The Family Court clearly erred in finding that Wife's FPLLC
interest had a zero value at DOM.

The Divorce Decree includes a Property Division Chart
attached as Exhibit "B." "Part C: Assets and Debts at [DOM]"
lists "Fernandez Partnership (16.67% interest)" — which appears
to be the predecessor of FPLLC — with a zero net value at DOM.
On December 30, 2020 Husband filed his notice of appeal from the
Divorce Decree. Subsequently, the Family Court entered the
3/3/31 FOFs/COLs pursuant to Hawai#i Family Court Rules (HFCR)
Rule 52(a). In FOF 41(e), the Family Court found that Wife's
FPLLC interest had a FMV of $175,000 at DOM.
In DL v. CL, 146 Hawai#i 328, 463 P.3d 985 (2020),
the Hawai#i Supreme Court noted that "HFCR Rule 52(a) does not
prohibit a family court from entering supplemental findings after
a notice of appeal as long as they do not substantively modify
pre-appeal findings." Id. at 339 n.8, 463 P.3d at 996 n.8
(emphasis added). Here, changing the FMV of Wife's FPLLC
interest from zero to $175,000 at DOM was a substantive
modification. In these circumstances, that modification was

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invalid, and Husband properly challenges the zero FMV stated in
the Divorce Decree.
FPLLC's primary assets are a two-acre parcel of
unimproved land and a three-acre parcel with two buildings on it
located in Kapolei. The unimproved land is leased to three
companies that use the land primarily for storage, under short-
term leases. The three-acre parcel is primarily leased to two
related family companies, with portions subleased to other
related family companies.
Wife's business valuation expert Eddy N. Kemp (Kemp)
used a combined income-based and asset-based approach to find
that Wife's 16.6% interest in FPLLC as of December 1997 was
$175,000. His approach took into account the 1997 real estate
value of FPLLC's land, as well as 1997 rent of $363,000 and net
operating income after expenses of $295,000. Although Wife
received K-1 tax forms from FPLLC, which required her to pay
taxes on phantom income, FPLLC distributed income to its members
to cover that tax liability up until tax year 2016, so Wife had
no FPLLC tax expense at DOM.
Husband's expert Tanaka determined the primary value of
Wife's FPLLC interest was in the land it owned, and found FPLLC's
land was valued at $5,420,000 at DOM. Tanaka found Wife's pro
rata interest in FPLLC was $500,000 at DOM, then applied a 50%
discount for lack of control and lack of marketability to arrive
at a $250,000 DOM value.
Based on our review of the record, there was no
substantial evidence to support the Family Court's finding that
Wife's FPLLC interest had a zero value at DOM. The court clearly
erred in stating that value.

B. The Family Court clearly erred in finding that Wife's FPLLC
interest had a zero value on the Valuation Date and did not
increase in value during the marriage.

Kemp testified that FPLLC's real estate value increased
to $9.412 million as of the Valuation Date, and on that date
FPLLC had total assets of $10.878 million. In contrast, Tanaka
testified that the combined real estate value of the properties

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rose from $5,420,000 in 1997 to $13,520,000 as of December 2018.
In determining there was no increase in the value of
Wife's FPLLC interest during the period from 1997 to 2019, the
Family Court listed the following findings at FOF 41(s)(i) to
41(t) describing the financial difficulties faced by FPLLC:

i. [FPLLC] was formed and is operated to
manage its real estate assets for the
benefit of the other . . . family
businesses that occupy its real estate
holdings, and not to maximize its real
property assets for a profit.

ii. The . . . family businesses that occupy
the real estate holdings of [FPLLC] hold
long term leases at below fair market
rents;
iii. The . . . largest tenant of [FPLLC] is on
a rent abatement, due to financial
problems . . . and this factor negatively
affects the expected income of [FPLLC].

iv. Although [FPLLC] owns valuable real estate
and cash assets, [Wife], as well as a
prospective buyer of [Wife's] 16.6%
minority interest has no control or means
to get access to any of the company's
assets . . . .

v. The real estate assets owned by [FPLLC]
are in need of substantial repair and
rehabilitation, due to deferred
maintenance of the buildings and grounds,
and those repairs are likely to consume
most or all of the company's available
cash.
vi. Although [Wife] does not receive any
distributions from the company, and
distributions to cover tax liabilities
have been stopped since 2016, she does
receive a K-1 each year for phantom
taxable income from the company, and
therefore [Wife's] ownership of the
company results in an income tax liability
each year, with no associated
distributions of income.
vii. As both [Wife's] expert, Eddy Kemp, and
[Husband's] expert, Shelley Tanaka
conceded, a potential investor/purchaser
of [Wife's] interest in [FPLLC] would have
numerous other profitable real estate
investment vehicles to choose from, which
unlike [FPLLC] are intended to generate a
profit to their investors, and as such,
this Court finds that the appraisal
evidence and opinions of Category 2
marital appreciation of [Wife's] interest
in [FPLLC] presented by the parties . . .

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are not credible in view of the above
important and significant factors
negatively impacting the fair market value
and salability of Wife's 16.6% minority
interest.

. . . .

t. The Court did not find the expert business
valuation reports presented by the parties to be credible
evidence of any Category 2 appreciation of [Wife's] 16.6%
minority interest.

The Family Court appears to have disregarded important
aspects of Kemp's valuation that fully accounted for these
factors. As to the concerns raised in FOFs 41(s)(i) to (iii),
Kemp testified that in making his valuation, he weighted an
income-based valuation more heavily than an asset-based
valuation, because there were significant concerns negatively
affecting income for FPLLC. He cited the fact that there were
issues regarding the primary tenant casting doubt on its ability
to operate, and that management was "investigating the sale of
the enterprise." Kemp noted that "[l]onger term it is expected
that the two properties owned by the company will either be sold
or redeveloped into warehousing or other uses that will generate
profits for the owners."
Kemp accounted for the poor prospects regarding rental
income by giving a 20% greater weight to an income valuation
approach. Under Kemp's valuation, the asset-based value of
Wife's interest at the Valuation Date was $932,141 and assigned a
40% weight, while the income value was $532,000 and assigned a
60% weight, in arriving at a blended value of $692,056 before
other discounts.
The concern raised in FOF 41(s)(iv) was also accounted
for by Kemp in both his 1997 and 2019 valuations of Wife's
interest. For the 1997 valuation, Kemp applied a 30% lack of
control discount, and for the June 30, 2019 valuation, Kemp
applied a 35% minority interest (i.e., lack of control) discount.
FOF 41(s)(v), finding that FPLLC's properties were "in
need of substantial repair and rehabilitation" was also accounted
for in Kemp's valuation as of June 30, 2019. Kemp increased the
company's liabilities by $1.834 million to account for deferred

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maintenance projects, based on contractor estimates provided to
him by the company.
The Family Court's finding in FOF 41(s)(vi) that since
2016, the company has stopped making distributions to members to
cover phantom tax liabilities, does not provide a basis to
disregard Kemp's valuation as of June 30, 2019. Wife's mother
testified the reason distributions stopped was to accumulate
funds for renovations. Kemp found that as of the June 30, 2019
valuation date, renovation costs were estimated at $1.834 million
while the company had accumulated $2.738 million in cash.
Therefore, there was no longer a reason to stop distributions for
K-1 tax liability going forward.
The Family Court's finding in FOF 41(s)(vii), that both
Wife's and Husband's experts conceded a potential investor "would
have numerous other profitable real estate investment vehicles to
choose from," misses the point of their business valuations,
which applied substantial discounts to account for the
difficulties associated with a sale of Wife's interest. For
example, Kemp's engagement letter and related trial testimony
specifies he was engaged to estimate the FMV of Wife's FPLLC
interest, and defines FMV as "the price at which property would
change hands between a willing buyer and a willing seller where
neither is under compulsion to act and each is reasonably
informed of relevant information." In determining an FMV of
$525,000 for Wife's interest as of the Valuation Date, Kemp
incorporated all of the factors and concerns raised by the Family
Court.
To support its conclusion that the FMV of Wife's FPLLC
interest did not increase during the marriage, the Family Court
relied on Kemp's statement that "[i]n reality, it's unlikely that
this interest could be sold to anyone." This statement
contradicted all of Kemp's prior detailed testimony, and was
offered without supporting evidence.
The Family Court also disregarded Tanaka's valuation of
Wife's FPLLC interest. Before applying discounts for lack of
control and marketability, Tanaka found Wife's pro rata interest

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in FPLLC was $500,000 at DOM and $2,500,000 as of December 31,
2018. She then applied a 50% combined lack of control and
marketability discount to the 1997 value of $500,000 to arrive at
$250,000 for Wife's interest at DOM. Tanaka applied a combined
47% lack of control and marketability discount to Wife's pro rata
interest of $2,500,000 in 2018 to arrive at a value of $1,330,000
for Wife's interest as of December 2018.8/
We do not mean to suggest that the Family Court was
required to adopt either Kemp's or Tanaka's valuation wholesale.
We highlight Kemp's valuation only to show that all or
substantially all of the factors relied upon by the Family Court
to rationalize a zero value for Wife's FPLLC interest on the
Valuation Date were in fact considered by Kemp in his valuation.
The Family Court's findings that Wife's FPLLC interest had zero
value on the Valuation Date and did not increase in value during
the marriage are not supported by substantial evidence. These
findings and related conclusions, including FOF 19 in the
Evidentiary Hearing Order and FOFs 41(s), 41(t), 41(u), and 41(v)
in the 3/3/21 FOFs/COLs, are therefore clearly erroneous.

III.

For the reasons discussed above, we vacate those
portions of the Family Court's May 29, 2020 "Order Re:
Evidentiary Hearing," December 2, 2020 "Decree Granting Divorce
and Awarding Child Custody" (including the Property Division
Chart attached as Exhibit "B"), and March 3, 2021 "Findings of
Fact and Conclusions of Law" that found or otherwise concluded
that Wife's FPLLC interest had zero value on the June 30, 2019
Valuation Date and did not increase in value from the date of
marriage to the Valuation Date. We also vacate those portions of
the Divorce Decree (including the Property Division Chart) that
reflect an equalization payment that is based in part on the
Family Court's finding that Wife's FPLLC interest had zero value

8/
Tanaka's report was written in April 2019. However, she testified
that the value of FPLLC would likely be higher as of the date of her testimony
on February 24, 2020.

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on the Valuation Date and did not increase in value during the
marriage. We remand this case to the Family Court for further
proceedings consistent with this Summary Disposition Order.

DATED: Honolulu, Hawai#i, October 31, 2024.

On the briefs:
/s/ Keith K. Hiraoka
Peter Van Name Esser Presiding Judge
for Defendant-Appellant.

Steven J. Kim /s/ Clyde J. Wadsworth
for Plaintiff-Appellee. Associate Judge

/s/ Karen T. Nakasone
Associate Judge

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