The ruling is considered significant by critics of the company because it starts the process by which Perfect Title could be banned from filing anything with the state Bureau of Conveyances for five years.
But Perfect Title President Donald Lewis dismissed Circuit Judge Ronald Ibarra's finding, saying it came from a "court that doesn't exist."
And even if the ruling was valid, it would undermine the foundation of the worldwide private-contract system, throwing into question any signed agreements between individuals, Lewis said.
"It's absurd," he said. "The whole concept of private contracts would be in jeopardy."
The company's title searches, which trace land ownership to the 1850's using Hawaiian Kingdom law, generally have been dismissed as meaningless by most in the real estate industry.
But because dozens of the documents have been filed at the bureau and invariably conclude that existing titles in Hawaii are junk, they are creating a host of problems, with some homeowners even refusing to pay mortgages based on Perfect Title's findings.
In the Big Island case, Ibarra granted a motion asking that the company's title report for a 5.8-acre North Kona parcel and a related warranty deed issued by David Keanu Sai, described as the kingdom's "regent" and a partner of Lewis, be expunged.
The judge also ordered Perfect Title and other defendants in the case, including Sai, to pay more than $4,000 in attorney fees and court costs, plus $5,000 in damages, according to minutes of the Feb. 24 hearing.
Several days later, Sai sent a letter to Ibarra warning the judge that he would be held accountable in a Hawaiian court for his actions. Don't "underestimate the effect of Hawaiian law," Sai wrote.
Ibarra declined comment.
The Big Island lawsuit was filed by heirs of Henry Haiha, who was awarded a land patent grant for the Kona parcel and five adjacent acres in 1920.
When a buyer for the 5.8-acre property was found last year, a title company refused to issue title insurance because of Perfect Title's report, which claimed the registered owners didn't really own the land, and the subsequent deed.
An heir who opposed the sale hired Perfect Title to do the title search. Once the search was concluded, that heir was deeded the property by Sai.
Arnold Lum, a Native Hawaiian Legal Corp. attorney representing the heirs who filed the lawsuit, said the land sale is expected to go through once the documents are expunged.
Other attorneys said they hoped Ibarra's ruling will help prevent the Perfect Title problem from spreading.
If the company is hit with two more similar rulings involving documents it filed last year, Perfect Title would be barred from filing anything with the bureau for five years without court permission.
Lum cited a law enacted last year dealing with bogus liens to argue for the expungement.
But Lewis said his company's title searches aren't liens but simply reports done under contract with individuals.
"It isn't right for the courts or the Legislature or anyone to (intervene) in private contracts," he said.