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                                                               Electronically Filed
                                                               Supreme Court
                                                               SCWC-12-0000703
                                                               02-MAR-2017
                                                               08:54 AM




            IN THE SUPREME COURT OF THE STATE OF HAWAIʻI

                            ---oOo---
________________________________________________________________

                        KARL ROBERT BRUTSCH,
           Respondent/Plaintiff-Appellee/Cross-Appellant,

                                     vs.

                        CELIA KAY BRUTSCH,
         Petitioner/Defendant-Appellant/Cross-Appellee.
________________________________________________________________

                             SCWC-12-0000703

          CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
               (CAAP-12-0000703; FC-D NO. 09-1-2906)

                               MARCH 2, 2017

                McKENNA, POLLACK, WILSON, JJ.,
  WITH RECKTENWALD, C.J., DISSENTING, WITH WHOM NAKAYAMA, J.,
                             JOINS

                 OPINION OF THE COURT BY McKENNA, J.

                             I.   Introduction

    This case arises from a contentious divorce proceeding

between Celia Kay Brutsch (“Wife”) and Karl Robert Brutsch
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(“Husband”).      Wife timely applied for writ of certiorari

(“Application”) from the Judgment entered by the Intermediate

Court of Appeals (“ICA”) pursuant to its May 12, 2015 Summary

Disposition Order (“SDO”).         In relevant part, the ICA vacated in

part the Family Court of the First Circuit’s (“family

court[’s]”): (1) “Decree Granting Absolute Divorce and Awarding

Child Custody” (“divorce decree”) because it denied Husband any

Category 3 credit for gifts and inheritance, and (2) “Order Re:

Plaintiff’s Motion for Reconsideration and for Rule 68

Attorney’s Fees Filed February 16, 2012” and “Order Denying

Plaintiff’s Motion for Reconsideration of Decision Announced

March 14, 2012, Filed March 21, 2012.”

      In her Application, Wife presents two questions:

             A. Given [Husband’s] failure to document a consistent
                amount for his inheritance, show it was used for marital
                expenses, or rebut a presumption of gift to the marital
                partnership, did the ICA commit grave error when it
                substituted its own judgment for that of the trial
                judge, and vacated his ruling rejecting [Husband’s]
                demand for $134,235, $140,000, $190,000, $236,235, or
                $324,235,[1] in Category 3 credits?

             B. Given [Husband’s] failure to tender a comprehensive
                settlement offer as to all contested issues, offer to
                settle any one of the contested matters, or justify his
                request for fees with billings or time sheets, did the
                ICA commit grave error when it substituted its own
                judgment for that of the trial judge, and vacated his
                ruling denying [Husband’s] demand for [Hawaiʻi Family
                Court Rules] Rule 68 fees and costs?




1
   Husband requested $134,235 in Category 3 credits in his motion for
reconsideration. According to Wife, he had requested these other amounts
before.


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     With respect to the first issue in the Application, we hold

that the ICA was correct in ruling that the family court erred

in stating that the record was “bereft of any competent or

credib[le] evidence that . . . monies were actually contributed

to the marriage,” and therefore remanding this issue for further

proceedings, along with other rulings of the family court that

are not at issue in the Application.         Brutsch v. Brutsch, No.

CAAP-12-0000703, at 7 (App. May 12, 2015) (SDO).            When the

family court addresses the issue of Category 3 credits on

remand, however, it must do so in light of this court’s rulings

regarding Category 3 credits in Hamilton v. Hamilton, 138 Hawaiʻi

185, 378 P.3d 901 (2016).       In addition, at various points in

this litigation, Husband argued differing amounts for Category 3

credits.   At oral argument, Husband conceded that the only

amounts he claims for Category 3 credits total $134,235,

consisting of gifts reflected in checks totalling $74,235, the

$40,000 total he received as gifts in $10,000 increments, and

the $20,000 annuity he inherited used to purchase a Jacuzzi for

the Maunawili house.      Therefore, the family court’s review of

possible Category 3 credits will be limited to those amounts,

totalling $134,235.      In addition, in determining Category 3

credits, the family court must also address whether Husband

already received credit for any of the subject amounts through

Wife’s pre-trial purchase of Husband’s interest in the Maunawili

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home, as Husband has conceded that Wife bought out his interest

in the home.

       With respect to the second issue in the Application, this

court recently held that Hawaii Family Court Rules (“HFCR”) Rule

68 does not apply to proceedings governed by Hawaii Revised

Statutes (“HRS”) § 580-47 (Supp. 2011).             See Cox v. Cox, 138

Hawaii 476, 382 P.3d 288 (2016).            This divorce proceeding is

governed by HRS § 580-47.          We therefore vacate the ICA’s ruling

vacating the family court’s denial of Husband’s HFCR Rule 68

motion.      In doing so, we further explain why in Cox we held HFCR

Rule 68 inapplicable in divorce cases.

                                II.   Background

A.     Factual Background

       1.     Overview

       Husband and Wife (collectively, “the couple”) were married

in 1991.      The couple has a son born in 1996 and a daughter born

in 2001.      Husband filed for divorce on September 8, 2009.

       Although the only issues in the Application concern

Husband’s alleged Category 3 credits and his HFCR Rule 68

motion, there were many issues addressed by the family court

during this contentious divorce and related proceedings.                Five

days before Husband filed for divorce, Wife filed for and

obtained a temporary restraining order.             There were pre-decree



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motions concerning temporary custody, temporary child support,

occupancy of the marital residence, wasting of assets,

prohibition against abuse, payment of monthly financial

obligations, attorney’s fees and costs, sharing of marital

expenses, and payment of expenses for private school, for

psychological evaluations or treatment, and for appointment of

custody evaluators.      There were also multiple pre-trial motions

concerning the same topics.

    With respect to child custody, before trial, the family

court appointed a Custody Evaluator.         After various studies, the

Custody Evaluator recommended that Wife be awarded sole legal

and physical custody of the minor children.

    As Wife had already bought out Husband’s interest in the

family home before trial, the main issues requiring resolution

at the October 3–4, 2011 trial were child custody and some

property division matters.       According to Husband, child custody

was the most hotly contested dispute.

    After the trial, the family court rendered its oral ruling

on November 2, 2011.      In summary, the family court (1) denied

mother’s request for sole custody of the children and instead

maintained joint legal and joint physical custody and the

couple’s time-sharing schedule; (2) addressed child support and

payment of the children’s private school and extracurricular

expenses; (3) deferred decisions to the couple regarding the

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children’s higher education expenses and how to use their

existing education funds; (4) addressed medical and dental

insurance and past due amounts; (5) addressed life insurance

policy requirements; (6) decided how the couple would claim tax

dependencies of their children; (7) determined how the couple’s

retirement funds would be equalized; (8) ordered that artwork be

sold and proceeds evenly split; (9) ordered that all joint

accounts be evenly split, and provided that each party was to

take his or her own items out of the safety deposit box; (10)

decided how joint securities and separately titled stock

accounts were to be divided; (11) determined how to divide

automobiles and the boat; and (12) awarded Husband all of his

family business interest and his Kaneohe Yacht Club membership.

Additionally, as noted, the property divided between the parties

did not include the couple’s family home in Maunawili, as Wife

had purchased Husband’s interest prior to trial.              Finally, the

family court also indicated it would award Wife attorney’s fees

and costs, and eventually awarded Wife $21,984.46 in fees and

costs.

       The court did not address any possible Category 3 credit

for Husband or whether Husband should receive attorney’s fees

pursuant to HFCR Rule 68.2         On February 16, 2012, Husband filed a


2
    HFCR Rule 68 states:

                                                               (continued . . .)

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“Motion for Reconsideration and for Rule 68 Attorney’s Fees”

(“Motion”) based on a September 30, 2010, Rule 68 letter offer.3

The offer was apparently rejected by Wife.

      Husband argued that the primary issue in the divorce

proceedings was the children’s custody, not property division.

Accordingly, because Wife did not prevail in her quest for sole

custody, Husband’s attorney argued that Wife was responsible for

Husband’s attorney’s fees that were incurred after the Rule 68

offer was made for services rendered on the issue of the

children’s custody, and claimed entitlement to $15,500 in


(. . . continued)
            At any time more than 20 days before any contested hearing
            held pursuant to HRS sections 571-11 to 14 (excluding law
            violations, criminal matters, and child protection matters)
            is scheduled to begin, any party may serve upon the adverse
            party an offer to allow a judgment to be entered to the
            effect specified in the offer. Such offer may be made as
            to all or some of the issues, such as custody and
            visitation. Such offer shall not be filed with the court,
            unless it is accepted. If within 10 days after service of
            the offer the adverse party serves written notice that the
            offer is accepted, any party may then file the offer and
            notice of acceptance together with proof of service thereof
            and thereupon the court shall treat those issues as
            uncontested. An offer not accepted shall be deemed
            withdrawn and evidence thereof is not admissible, except in
            a proceeding to determine costs and attorney’s fees. If
            the judgment in its entirety finally obtained by the
            offeree is patently not more favorable than the offer, the
            offeree must pay the costs, including reasonable attorney’s
            fees incurred after the making of the offer, unless the
            court shall specifically determine that such would be
            inequitable.

HFCR Rule 68.
3
   The Motion also refers to an August 29, 2011 letter, which Husband asserted
was a second HFCR Rule 68 offer letter. However, Husband does not argue that
he is entitled to fees based on the August 29, 2011 offer letter, likely
because Husband explicitly specified that the offer was a “package deal.”



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attorneys’ fees in fees under HFCR Rule 68.           The Rule 68 offer

letter stated:

                 Please consider this an HFCR Rule 68 offer to settle
           all matters relating to this divorce. As you know, you
           have 10 days from the receipt of this offer to accept it,
           otherwise it is deemed rejected, and if you do not obtain a
           result that is patently better as to property division or
           child custody/visitation/support at trial, your client will
           owe [Husband] costs and attorney’s fees from the date of
           this offer.
                 We propose that the property division between the
           parties be as set out in the enclosed Property Division
           Chart. Basically, we have divided the marital home and the
           associated mortgage, so this issue is resolved. Otherwise,
           the Chart shows that each party keep the assets and debts
           presently in their own names. Note that I have discounted
           the values of the 401k’s by 30% (for state and federal
           taxes) because these are pretax amounts. [Wife] takes all
           the household effects presently in the house (except for
           the two rattan chairs and [Husband’s] personal items).
           Each party shall keep the children’s trust monies (which
           derive from [Husband’s] father’s inheritance) for the
           children’s educational expenses only and be required to
           account for the trust monies upon demand by the other
           party. Each party pays their own debts ([Wife] will, of
           course, be responsible for payment of the new mortgage on
           the marital residence which she is acquiring per the
           agreement of the parties). [Husband] waives any claim to
           an equalization payment.
                 Neither party is seeking alimony.
                 As for the children, we propose that the parties
           share joint legal and physical custody of the children.
           Child support shall be paid per Guidelines. [Husband]
           shall continue to cover the children for medical insurance,
           and the parties will split equally all uncovered medical
           expenses, including orthodontic care. The parties will
           split the children’s tuitions in proportion to their
           incomes (presently the ratio is 59% for [Husband] and 41%
           for [Wife]), and the parties will split equally all other
           children’s educational expenses (e.g., after-school care,
           extracurricular activities, school lunch expense, etc.).
           The parties will work out a sharing arrangement (e.g., 4-3-
           3-4 or 5-2-2-5) and agree on sharing for school breaks,
           birthdays, holidays, etc. If the parties cannot agree on
           the sharing arrangement, they shall mediate the issue
           before filing any court action.
                 We believe that this settles all the issues in this
           case. We await your reply.

    Husband also argued that he was entitled to $134,235 in

Category 3 credits based on the evidence at trial.            In the


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Motion, Husband cited to “Plaintiff’s Ex. 10” as evidence.                That

exhibit included canceled checks from the estate of Husband’s

late father in the amounts of $50,000, $9,235, and $15,000, and

an investment statement for a beneficiary annuity apparently

valued at $20,000.     Without providing any record citations,

Husband also asserted that “[he] . . . testified about receiving

$40,000 in four $10,000 payments as gifts from his father from

1996 to 2001 just before his father died. . . .           [Husband]

testified that he spent . . . [gifted] funds on the house (which

[Wife] now owns), on a boat (which [Husband] now owns), and

other expenses during the marriage.”         In summarizing his motion,

Husband argued:

                  Based on the summary of the above issues, [Wife] owes
           [Husband] at least $13,000 in Rule 68 attorney’s fees, and
           probably $15,500. In addition, the credits to which [Wife]
           is entitled under this Court’s decision are more than
           cancelled by the credit to which [Husband] is entitled in
           Category 3 credit. Even though the net of these amounts is
           that [Wife] owes [Husband] about $50,000 (this is assuming
           that this Court awards [Wife] almost $22,000 in attorney’s
           fees which, as argued above, is not justified), [Husband]
           is not looking for an award against [Wife] of this amount.
           [Husband] is simply requesting that this Court’s final
           decree state that neither party owes the other any amount.
           As [Husband] offered in his Rule 68 letter over a year ago
           and in his most recent Rule 68 letter (which even threw in
           a $20,000 incentive which is no longer offered as [Wife]
           chose to go to trial at great expense to the parties and
           the marital estate), this should simply be a “walk-away”
           marriage with joint custody of the children. Based on such
           a decree, the only matter left for the parties to end this
           long unnecessarily drawn out affair will be to sell their
           art collectibles and divide the proceeds as ordered by this
           Court.
                  If [Husband] is not awarded his Category 3 credit and
           is required to make payments to [Wife] for attorney’s fees
           and an amount from his 401(k), then even the offer to
           settle here as a “walk away” marriage is withdrawn, and
           [Husband] will seek his full remedies on appeal.



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       At a hearing on March 14, 2012, the court orally ruled on

Husband’s Motion, stating:

             With regard to the motion for reconsideration, the court
             could have and should have perhaps been more precise. But
             by its omission the court implicitly ruled on the claim for
             Category 3 reimbursements. The court will explicitly do so
             at this time. The court finds that while it may be
             accurate to state that [Husband] did receive monies, the
             record is bereft of any competent or credibility [sic]
             evidence that monies were actually contributed to the
             marriage. Therefore the Rule -- the Category 3 claim
             ultimately fails for lack of evidence as far as what’s been
             presented to the court at this particular juncture. So
             therefore that portion of the motion for reconsideration is
             denied.
                    With regard to the other issue as to the attorney’s
             fees, the attorney’s fees [issue] is bound up as part of
             the motion for recon but also as part of the Rule 68. The
             court finds based on the credible evidence that given the
             fact that the motion for recon is denied as to the Category
             3 claim, with regard to the attorney’s fees and costs
             claimed by defendant respondent [sic] is indeed
             appropriate. The Rule 68 is predicated on the entire
             decree being patently more favorable or unfavorable
             depending upon the offer. [Wife’s attorney’s] argument
             with regard to the fact that the Rule 68 offer that was
             presented was not a complete offer, that resounds with the
             court.
                    On the question of custody, again it was clear that
             [Wife]’s claim was that she wanted full custody.
             [Husband]’s advocating joint, to establish joint. However,
             a significant portion of the decree also dealt with the
             financial issues which would be the portion of the motion
             for reconsideration. In balance the decree is not patently
             more favorable to one or the other, therefore Rule 68
             fails. The court’s prior orders with regard to the $21,900
             [for Wife’s attorney’s fees] stand[]. Court will affirm
             that amount. That order will be signed by the court.[4]

Husband filed a subsequent motion for reconsideration of the

March 14, 2012 oral ruling, which was denied.

       The family court entered its “Decree Granting Absolute

Divorce and Awarding Child Custody” on April 2, 2012.




4
    The family court entered its written order on April 2, 2012.


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      2.     Husband’s Inheritance

      In his Motion, Husband did not provide the family court

with citations to the record regarding each of the gifts or the

inheritance received by Husband from his father, nor did Husband

provide citations in his Response to the Application.               Husband,

however, provided some citations in the opening brief for his

cross-appeal to the ICA.         [100:20–21]     The following is a

summary of Husband’s trial testimony and the citations provided

in the ICA brief on the inheritance issue.

      Husband testified that in 1996, Husband’s father gifted

$10,000 for the purchase of a family home in Waikele.               He

asserted that in 1999 and 2001, Husband’s father gifted $10,000

three separate times.        That money was also used to purchase the

Waikele house and home furnishings.5

      In 2001, during the marriage, Husband’s father died.

Husband incrementally received a “substantial inheritance” of at

least $70,000.       Because Husband was “very much into boating,”

about $20,000 of the inheritance funds was used to purchase a

boat, $10,000 on an SUV to pull the boat, both of which he

received in the divorce decree.          The remainder was “invested

back into the [Maunawili] house,” for painting the house, a new


5
   Wife testified the   couple sold the Waikele house and received $150,000 in
proceeds. That money    went to state and federal taxes, to pay off a portion
of Husband’s personal   loan, summer school and other educational activities
for the children, and   for repairs on the Maunawili home.


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bathroom, electrical work, new flooring, a patio, a Jacuzzi, and

putting in a rock wall.

    Part of Husband’s inheritance included a share of his

father’s bakery and the building in which it was located.

Husband’s brother received the remaining share in the bakery and

building.    Since 2001, Husband and his brother, in partnership,

have rented out the building.        Husband received his share of the

monthly rental proceeds, amounting to approximately $10,000 to

$20,000 a year, depending on the money spent to upkeep the

building in any given year.       For a period, “all the money” was

used to pay Son’s private school tuition of $16,000.

    Neither the Pennsylvania building nor its rental income was

the subject of Husband’s Motion with respect to Category 3

credits.    Despite only claiming an alleged Category 3 credit of

$134,235 in his Motion, Husband also included the Pennsylvania

rental income, in the amount of $190,000, as a claimed Category

3 credit in his cross-appeal to the ICA.          Notably, Husband had

argued in his pre-trial Trial Memorandum that he should be

awarded Category 3 credit for the rental income generated by the

Pennsylvania building, in addition to the checks and annuity he

received as an inheritance from his late father.

    At oral argument, however, Husband clarified his Category 3

claim, and conceded that he is claiming Category 3 credit only

for the checks totalling $74,235, the $40,000 total he testified

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he received from his father consisting of four $10,000 gifts

received in 1996, and 1999 to 2001, and a $20,000 annuity he

testified he inherited and used to purchase a Jacuzzi for the

Maunawili home.        Thus, the maximum amount of the Husband’s

possible Category 3 credit, as argued by Husband’s counsel, is

$134,235.

       Pursuant to HFCR Rule 52(a), after the filing of the

appeals to the ICA, on October 8, 2012, the court issued its

“Findings of Fact and Conclusions of Law.”             In its Findings of

Fact, the family court explained the extensive pre-trial, trial,

and post-trial proceedings of this contentious divorce case.                  In

its Conclusions of Law, the family court concluded that its

“November 2, 2011 oral trial decision was proper, appropriate,

just and equitable under the circumstances . . . .”               It also

ruled that its “decision to deny . . . [Husband]’s . . . Motion

. . . was proper, appropriate, just and equitable under the

circumstances . . . .”

E.     Appeal to the ICA

       On August 9 and 13, 2012, respectively, Wife and Husband

both timely appealed to the ICA.             The issues we address on

certiorari arise out of Husband’s cross-appeal.              Before

addressing that cross-appeal, we note that Wife contended in her

appeal that the family court erred in: (1) awarding Wife and

Husband joint physical legal custody of the parties’ two

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children and continuing the alternating-week custody schedule;

and (2) its ruling regarding child support, education and

medical expenses, and reimbursement for pre-decree expenses.

See Brutsch, SDO at 2.      The ICA affirmed the family court with

respect to issue (1) and concluded that the family court had

made some errors concerning matters in issue (2), and ordered a

remand.   See id. at 4–6.

     Husband’s cross-appeal raised the two issues that are the

subject of the Application.       He argued the family court erred

in: (1) failing to award Husband any Category 3 credit; (2)

denying Husband’s request for Rule 68 attorney’s fees; and (3)

awarding Wife $21,984.46 in attorney’s fees and costs.

     With respect to the cross-appeal, the ICA held that

“Husband was not required to trace the money he received in

gifts and inheritances into specific purchases that contributed

to the marriage in order to be entitled to a Category 3 credit,”

and that therefore “the [f]amily [c]ourt erred in denying

Husband any Category 3 credit on this basis.”           Id. at 7.

     As to the award of Rule 68 attorney’s fees, the ICA

concluded that, pursuant to Owens v. Owens, 104 Hawaii 292, 310,

88 P.3d 664, 682 (App. 2004), the matter must be remanded to the

family court for a determination as to “whether its final

judgment on child custody is patently not more favorable to Wife

than Husband’s HFCR Rule 68 offer on the custody issue.”

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Brutsch, SDO at 8–9.         On remand, the family court was also

directed to consider whether HFCR Rule 68 attorney’s fees with

respect to financial issues would be appropriate, in light of

the family court’s consideration on remand of Husband’s Category

3 credits.       See id. at 9.     The ICA noted that “if the [f]amily

[c]ourt determines that the judgment entered . . . was patently

not more favorable to Wife than Husband’s offer, it should

consider whether the award of fees would be inequitable.”                   Id.

       The ICA did not find the family court abused its discretion

in awarding Wife attorney’s fees, and therefore affirmed the

award.      See id.

       Based in part on the foregoing, the ICA “(1) affirm[ed] in

part and vacate[d] in part the [d]ivorce [d]ecree; (2) vacate[d]

the [f]amily [c]ourt’s denial of Husband’s request for HFCR Rule

68 attorney’s fees; (3) affirm[ed] the Order Awarding Attorney’s

Fees to Wife; and (4) remand[ed] the case for further

proceedings consistent with this Summary Disposition Order.”

Id. at 9–10.

F.     Application for Writ of Certiorari

       As noted earlier, Wife presents two questions to this

court:

              A. Given [Husband’s] failure to document a consistent
                 amount for his inheritance, show it was used for marital
                 expenses, or rebut a presumption of gift to the marital
                 partnership, did the ICA commit grave error when it
                 substitute its own judgment for that of the trial judge,
                 and vacated his ruling rejecting [Husband’s] demand for


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                 $134,235, $140,000, $190,000, $236,235, or $324,235, in
                 Category 3 credits?

              B. Given [Husband’s] failure to tender a comprehensive
                 settlement offer as to all contested issues, offer to
                 settle any one of the contested matters, or justify his
                 request for fees with billings or time sheets, did the
                 ICA commit grave error when it substituted its own
                 judgment for that of the trial judge, and vacated his
                 ruling denying [Husband’s] demand for HFCR Rule 68 fees
                 and costs?

We accepted certiorari and held oral argument on the

Application.

                          III.    Standards of Review

A.     Family Court Decisions

                    Generally, the family court possesses wide discretion
              in making its decisions and those decisions will not be set
              aside unless there is a manifest abuse of discretion.
              Thus, we will not disturb the family court’s decision on
              appeal unless the family court disregarded rules or
              principles of law or practice to the substantial detriment
              of a party litigant and its decision clearly exceeded the
              bounds of reason.

Kakinami v. Kakinami, 127 Hawai‘i 126, 136, 276 P.3d 695, 705

(2012) (quoting Fisher v. Fisher, 111 Hawai‘i 41, 46, 137 P.3d

355, 360 (2006)).

              It is well established that a family court abuses its
              discretion where “(1) the family court disregarded rules or
              principles of law or practice to the substantial detriment
              of a party litigant; (2) the family court failed to
              exercise its equitable discretion; or (3) the family
              court’s decision clearly exceeds the bounds of reason.”

Id. at 155-56, 276 P.3d at 724-25 (emphasis omitted) (quoting

Tougas v. Tougas, 76 Hawai‘i 19, 26, 868 P.2d 437, 444 (1994)).

B.     Property Division

       Hawaii’s appellate courts “review the family court’s final

division and distribution of the estate of the parties under the


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abuse of discretion standard, in view of the factors set forth

in HRS § 580-47 and partnership principles.”              Tougas, 76 Hawai‘i

at 26, 868 P.2d at 444 (quoting Gussin v. Gussin, 73 Haw. 470,

486, 836 P.2d 484, 492 (1992)) (footnote omitted).               “The family

court’s determination of whether facts present valid and

relevant considerations authorizing a deviation from the

partnership model division is a question of law that this court

reviews under the right/wrong standard of appellate review.”

Gordon v. Gordon, 135 Hawai‘i 340, 348, 350 P.3d 1008, 1016

(2015) (citing Jackson v. Jackson, 84 Hawai‘i 319, 332–33, 933

P.2d 1353, 1366–67 (App. 1997)).

C.     Findings of Fact and Conclusions of Law

                    The family court’s FOFs are reviewed on appeal under
              the “clearly erroneous” standard. A[n] FOF is clearly
              erroneous when (1) the record lacks substantial evidence to
              support the finding, or (2) despite substantial evidence in
              support of the finding, the appellate court is nonetheless
              left with a definite and firm conviction that a mistake has
              been made. “Substantial evidence” is credible evidence
              which is of sufficient quality and probative value to
              enable a person of reasonable caution to support a
              conclusion.

                    On the other hand, the family court’s COLs are
                    reviewed on appeal de novo, under the right/wrong
                    standard. COLs, consequently, are [ ]not binding
                    upon an appellate court and are freely reviewable for
                    their correctness.

Kakinami, 127 Hawai‘i at 136, 276 P.3d at 705 (quoting Fisher,

111 Hawai‘i at 46, 137 P.3d at 360).




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                                IV.   Discussion

A.     Husband’s Claimed Category 3 Credit

       We recently published a comprehensive opinion addressing

alleged Category 3 credits similar to those at issue in this

case.      See Hamilton, 138 Hawaiʻi 185, 378 P.3d 901.           In his

Motion before the family court, Husband claimed that he should

have been awarded $134,235 as Category 3 credit, consisting of

the following:

        $40,000 in gifts from Husband’s father prior to his death in 2001
         (spent on couple’s former Waikele home, proceeds from which were
         spent on taxes, paying down Husband’s personal loan, the children’s
         educational expenses, and repairs to the Maunawili home)
        $74,235 – sum of checks received from Husband’s father’s estate
         (spent on a boat, an SUV, and improvements to the Maunawili home)
        $20,000 – value of an inherited annuity (spent on installing a
         jacuzzi at the Maunawili home)

       Wife testified that she was unaware that Husband received

funds from his father’s estate other than $10,000 that was

gifted to each family member, including Husband, totaling

$40,000.      Wife was aware that Husband “received money to make

payments for . . . [S]on’s tuition occasionally.”

       Although the family court was initially silent at the

November 2, 2011 hearing as to why no Category 3 credit was

given to Husband, at the March 14, 2012 hearing on Husband’s

Motion, the court explained its reasoning as follows: “the

record is bereft of any competent or credib[le] evidence that

[Husband’s inherited or gifted] monies were actually contributed

to the marriage.”        The ICA, however, found the family court

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erred by denying Category 3 credit on this basis.               See Brutsch,

SDO at 7.

       On remand, the family court must address Husband’s alleged

Category 3 credits in light of this court’s rulings in Hamilton.

In addressing the alleged Category 3 credits, we also note that

the parties had reached an outside agreement with respect to the

Maunawili home, with Wife purchasing Husband’s share prior to

trial.      Accordingly, to the extent Husband may have invested any

Category 3 credits into this particular marital partnership

property, Husband may have already received credit for Category

3 amounts he invested in this home.            The family court must also

address this issue.         In addition, the family court must

therefore address whether, pursuant to Hamilton, any of the

alleged Category 3 amounts constituted gifts.

B.     Attorney’s Fees Pursuant to HFCR Rule 68

       The second issue on certiorari concerns the family court’s

denial of Husband’s HFCR Rule 68 motion for attorney’s fees,

which the ICA vacated based on its decision in Owens v. Owens,

104 Hawaii 292, 88 P.3d 664 (App. 2004).             In Owens, the ICA held

that the family court was required to address an HFCR Rule 68

offer issue by issue.         See id. at 310, 88 P.3d at 682.         If the

offer on an issue was not sufficiently specific or if the

parties had settled an issue, Rule 68 fees would not be

permitted for fees incurred on that issue.             See id. at 308–09,

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88 P.3d at 680–81.     Otherwise, to ascertain whether fees should

be awarded under Rule 68, the family court would need to examine

the result on each remaining issue to see if the end result

obtained by the offeree as a whole was patently not more

favorable than the offer.       See id. at 310, 88 P.3d at 682.

     Owens was decided under a previous version of HFCR Rule 68,

which required that if all requirements for the award of HFCR

Rule 68 fees had been met, the court “shall make an award of

reasonable attorney’s fees and costs to the offeror unless it

specifically determines that such an award would be inequitable,

considering the provisions of HRS § 580-47.”           Id.   Effective

January 1, 2015, HFCR Rule 68 had been amended to omit the

reference to HRS § 580-47.

     We recently held in Cox v. Cox, 138 Hawaii 476, 382 P.3d

288 (2016), that HFCR Rule 68 does not apply to proceedings

governed by HRS § 580-47.       HFCR Rule 68, which allows for an

award of attorney’s fees in addition to costs, is quite

different from Rule 68 of the Hawaii Rules of Civil Procedure,

which only allows for costs.       In Cox, in summary, we first ruled

that HFCR Rule 68 contravenes HRS § 580-47 because while HRS §

580-47(a) requires that an attorney fee award “shall appear just

and equitable,” HFCR Rule 68 mandates the award of attorney’s

fees to a party unless the court specifically determines that an

award would be inequitable.       See id. at 481, 382 P.3d at 293.

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Second, we concluded that HFCR Rule 68 abridges substantive

rights of parties in violation of HRS § 602-11 (1985), which

prohibits rules of practice and procedure from modifying the

substantive rights of litigants, as the rule contravened the

dictates of the governing statute, HRS § 580-47.            Finally, we

pointed out that the operation of HFCR Rule 68 generated

substantial complications due to inherent difficulties in

applying its provisions.       See id.

    This divorce proceeding is governed by HRS § 580-47.

Therefore, pursuant to Cox, Husband is not entitled to fees

under HFCR Rule 68.      This case further highlights why we

invalidated HFCR Rule 68 in divorce cases.

    First, the facts of this case illustrate the difficulty in

applying HFCR Rule 68, as more fully explained in Cox.             See id.

at 483-89, 382 P.3d at 295-301.        The HFCR Rule 68 offer in this

case covers property division, child custody, child visitation,

and child support.     Husband’s property division offer includes

specific offers as to retirement accounts, household effects,

rattan chairs, personal items, children’s trust monies, the use

and accounting thereof, payment of debts, child custody, child

support, medical insurance for the children, uncovered medical

expenses, orthodontic care expenses, tuition expenses,

educational expenses, including after school care expenses,

extracurricular activity expenses, school lunch expenses, time

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sharing arrangements, and time sharing for special days.

According to Owens, the family court would be required to

evaluate Husband’s offer issue by issue, and only allow fees for

those issues on which Husband met HFCR Rule 68 requirements.

This would appear contrary to Husband’s Rule 68 offer letter,

which appears to have been a package deal as it started by

stating, “Please consider this a[] HFCR Rule 68 offer to settle

all matters relating to this divorce.”

      Moreover, the Owens standard is extremely difficult to

apply.     Attorney fee billings are not itemized in minutes or

hours spent on discrete issues such as those included in the

HFCR Rule 68 offer in this case.6           In fact, in this case,

Husband’s counsel did not keep hourly records, and estimated the

time he had spent on child custody issues.            As it did in this

case, HFCR Rule 68 actually leads to substantial appellate

litigation in divorce cases just on Rule 68 issues, as the

parties argue its applicability and application.              Such

protracted, contentious divorce proceedings are especially

harmful when the divorcing couple has children.


6
   Because HFCR Rule 68 has been invalidated in divorce cases and is therefore
inapplicable in this case, we do not address whether HFCR Rule 68 actually
requires an evaluation of fees “issue by issue” or whether the offer must be
compared to the judgment obtained as a whole. We note that HFCR Rule does
state that “[i]f the judgment in its entirety finally obtained by the offeree
is patently not more favorable than the offer, the offeree must pay the
costs, including reasonable attorney’s fees incurred after making of the
offer, unless the court shall specially determine that such would be
inequitable.”


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    With respect to children, this case illustrates an

additional concern regarding an award of attorney’s fees under

HFCR Rule 68 as stated in Cox.        Cox noted that a threat to

impose payment of attorney fees may deter a parent from seeking

a custody determination that would be in the best interests of

the child:

                 This tendency to potentially coerce a settlement is
           all the more problematic in actions involving child custody
           and visitation, which are both subject to HFCR Rule 68 . .
           . . Because the determination of the terms of custody and
           visitation is dictated by the “best interests of the
           child,” HRS § 571-46 (Supp. 2013), . . . “the possible
           impact on a party’s pocketbook should have no influence on
           the child custody issue.” . . . However, HFCR Rule 68’s
           threat of penalizing a party-offeree, by requiring payment
           of the party-offeror’s attorney’s fees, could “deter a
           party whose genuine concern for the best interests of the
           child is motivating him or her to contest the award of
           child custody and/or visitation from continuing to contest
           the award of child custody and/or visitation.”



Id. at 487-88, 382 P.3d 299-300 (footnote and some internal

citations, brackets, and quotation marks omitted).

    Establishing a financial disincentive for a parent to

contest custody, when that parent has a legitimate concern for

the best interests of the child, not only undermines the

foundational principle of custody award determinations, but

“[i]t is [also] contrary to societal interests” that such

decisions are made without financial influence.           Id.   In this

case, Husband argued for HFCR Rule 68 fees on the grounds that

the main issue at trial was child custody.          Thus, the concerns

expressed in Cox apply.


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    Importantly, in this case, the Child Custody Evaluator had

recommended sole legal and physical custody to Wife.             Wife was

therefore advocating for a decision on child custody which, in

the court-appointed Child Custody Evaluator’s view, was in the

best interests of the minor children.          As factfinder, the family

court was well within its discretion to rule otherwise, and we

in no way question the joint custody ruling made by the family

court.    Yet, HFCR Rule 68 would on its face mandate an attorney

fee award to Husband when he obtained a ruling contrary to the

Child Custody Evaluator’s recommendation.           This case therefore

illustrates how HFCR Rule 68 could not only be coercive, but

could also run counter to the best interests of the child in

child custody disputes.

    Along these lines, it must also be noted that HFCR Rule 68

has a much more coercive impact on divorcing spouses with less

financial resources as there exists the threat of having to pay

a spouse’s attorney’s fees if one does not prevail on an issue

in a divorce case, including an issue of child custody.              In

divorce cases, it is not unusual for one spouse to have much

greater financial power.        There are many divorce cases in which

one spouse remains unrepresented by an attorney.             In those

cases, only the spouse with an attorney can take advantage of

HFCR Rule 68.     Thus, the spouse that cannot afford an attorney

could be court ordered to pay the attorney fees of a spouse with

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significantly greater financial resources.            This was the exact

situation in Cox.

       Even if both spouses had attorneys, as in this case, the

spouse with greater economic power was in a much better position

to make or reject a HFCR Rule 68 offer, knowing that he or she

had the financial resources to withstand any later decision on

fees.     For the spouse without economic power, an adverse HFCR

Rule 68 award could be financially devastating.             Therefore, HFCR

Rule 68 was a potentially coercive tool for a spouse with

economic resources to exercise power and control over the spouse

without economic might.        This concern was exacerbated in

divorces involving domestic violence where the divorce was

initiated by a battered spouse to end that power and control.

       Finally, HRS § 580-47(a) and (f) allow a family court to

make orders that are “just and equitable,” including orders

awarding attorney’s fees and costs.7           Unfortunately, HFCR Rule 68


7
    HRS § 580-47 provides in pertinent part:

                   §580-47 Support orders; division of property. (a) Upon
             granting a divorce . . .the court may make any further orders as
             shall appear just and equitable . . . (4) allocating, as between
             the parties, the responsibility for the . . . attorney’s fees .
             . . incurred by each party by reason of the divorce. In making
             these further orders, the court shall take into consideration:
             the respective merits of the parties, the relative abilities of
             the parties, the condition in which each party will be left by
             the divorce, the burdens imposed upon either party for the
             benefit of the children of the parties, the concealment of or
             failure to disclose income or an asset, or violation of a
             restraining order issued under section 580-10(a) or (b), if any,
             by either party, and all other circumstances of the case.

                                                               (continued . . .)

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allowed for the issuance of attorney fee orders in divorce cases

that were not “just and equitable.”          For example, in this case,

the family court had made an attorney fee and costs award in

favor of Wife pursuant to HRS § 580-47, awarding her $21,984.46

in fees and costs, and had denied Husband’s request for $15,500

in fees under HFCR Rule 68; additional sums could have been

requested for subsequent litigation.          Yet, pursuant to its

interpretations of HFCR Rule 68, the ICA ordered a remand for

the family court to consider whether Husband should be entitled

to HFCR Rule 68 fees.       Therefore, the court rule contradicted

and could have negated the family court’s award of “just and

equitable” fees and costs pursuant to the statute.             It is noted

that even without HFCR Rule 68 being applicable to divorce

cases, pursuant to HRS § 580-47, a family court has full


(. . . continued)
            . . .

            (f) Attorney's fees and costs. The court hearing any motion for
            orders either revising an order for the custody, support,
            maintenance, and education of the children of the parties, or an
            order for the support and maintenance of one party by the other,
            or a motion for an order to enforce any such order or any order
            made under subsection (a) of this section, may make such orders
            requiring either party to pay or contribute to the payment of the
            attorney's fees, costs, and expenses of the other party relating
            to such motion and hearing as shall appear just and equitable
            after consideration of the respective merits of the parties, the
            relative abilities of the parties, the economic condition of each
            party at the time of the hearing, the burdens imposed upon either
            party for the benefit of the children of the parties, the
            concealment of or failure to disclose income or an asset, or
            violation of a restraining order issued under section 580-10(a)
            or (b), if any, by either party, and all other circumstances of
            the case.



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authority to be able to make attorney fee orders in divorce

cases that are in fact just and equitable.

          The Dissent incorporates its opinion in Cox and reiterates

its position that HFCR Rule 68 can be interpreted in a manner

consistent with HRS § 580-47.          Based on reasons stated here and

in Cox, we respectfully disagree.           We reiterate that there is

significant case precedent holding court rules inapplicable

where they conflict with legislative mandates, see Cox, 138

Hawaii at 482-83, 382 P.3d at 294-95, and we note that pending

cases are governed by existing rules, even if rule amendments

applicable to future cases can be made.8

      This case involves an appeal of a family court order

denying Husband’s motion for HFCR Rule 68 fees.             Husband brought

the motion after the family court had already ordered Husband to

pay Wife “just and equitable” attorney’s fees pursuant to HRS §

580-47.     Applying the existing language of HFCR Rule 68, the ICA

vacated the family court’s order denying Husband’s motion, and

ordered the family court to reconsider its ruling in light of

that language.       The conflict between the statute and the rule

could not be more clear.         We therefore vacate the ICA’s ruling




8
   The Family Court Rules Committee is able to propose a revised version of
HFCR Rule 68 that conforms with HRS § 580-47 and addresses the concerns
expressed in Cox and in this case, including the presumptive entitlement to
fees acknowledged by the Dissent, which conflicts with HRS § 580-47.


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vacating the family court’s denial of Husband’s HFCR Rule 68

motion.

                              V.   Conclusion

    For these reasons, the ICA’s SDO and Judgment on Appeal

with respect to Husband’s cross-appeal is affirmed in part and

vacated in part.     The ICA’s ruling vacating in part the family

court’s “Decree Granting Absolute Divorce and Awarding Child

Custody” on the grounds it denied Husband any Category 3 credit

for gifts and inheritance, is affirmed pursuant to the

supplemental instructions in this opinion.          The ICA’s order

vacating the family court’s “Order Re: Plaintiff’s Motion for

Reconsideration and for Rule 68 Attorney’s Fees Filed February

16, 2012” and “Order Denying Plaintiff’s Motion for

Reconsideration of Decision Announced March 14, 2012, Filed

March 21, 2012” are affirmed based only on the issue of the

Category 3 credits, but to the extent the ICA vacated these

orders for the family court to address Husband’s HFCR Rule 68

motion, the ICA’s SDO and Judgment on Appeal are vacated.                This

matter is remanded to the family court for further proceedings

consistent with this opinion.

Peter Van Name Esser and                  /s/ Sabrina S. McKenna
P. Gregory Frey
for petitioner                            /s/ Richard W. Pollack

Samuel P. King, Jr.                       /s/ Michael D. Wilson
for respondent


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