Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

In Re Maui Industrial Loan v. Rni-Nv Limited Partnership

November 30, 2011

IN RE MAUI INDUSTRIAL LOAN & FINANCE CO., DEBTOR.
DANE S. FIELD, TRUSTEE, PLAINTIFF-APPELLEE,
v.
RNI-NV LIMITED PARTNERSHIP, A ) NEVADA LIMITED PARTNERSHIP, ) AND MAUI INDUSTRIAL LOAN & ) FINANCE COMPANY, INC., A ) HAWAII CORPORATION, DEFENDANTS- APPELLANT.



The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge

(Chapter 7)

(Adv. No. 10-90069)

ORDER DISMISSING APPEAL

Before the Court are two matters in this bankruptcy appeal: (1) Appellant RNI-NV Limited Partnership's ("Appellant" or "RNI-NV") Motion to Vacate Judgment, Dismiss Appeal and Remand Case to the United States Bankruptcy Court for Further Proceedings ("Motion"), filed on September 9, 2011 [dkt. no. 14]; and (2) Appellee Dane S. Field, Trustee's ("Appellee" or "the Trustee") Countermotion to Dismiss Appeal, or in the Alternative to Strike Appellant's Motion to Vacate Judgment, Dismiss Appeal and Remand Case to the United States Bankruptcy Court for Further Proceedings and to Strike Portions of Appellant's Reply Brief ("Countermotion"), filed on October 3, 2011 [dkt. no. 21]. Appellee filed its memorandum in opposition to the Motion on October 3, 2011, Appellant filed its reply and memorandum in opposition to the Countermotion on October 10, 2011, and Appellee filed its reply to the Countermotion on October 17, 2011. These matters came on for hearing on October 24, 2011. At the hearing, the Court continued the hearing on the underlying bankruptcy appeal ("Appeal"), pending a ruling on the Motion and Countermotion. Appearing on behalf of Appellant were Jerrold Guben, Esq., and Aaron Creps, Esq., and appearing on behalf of the Trustee were Enver Painter, Esq., Lissa Schults, Esq., and Bradley Tamm, Esq. After careful consideration of the Motion and Countermotion, supporting and opposing memoranda, and the arguments of counsel, the Appeal is HEREBY DISMISSED.

BACKGROUND

In the Chapter 7 proceedings below, the Trustee brought an adversary proceeding against RNI-NV seeking to recover $1,040,000 that the debtor, Maui Industrial Loan & Finance Company, Inc. ("Maui Industrial"), paid to it (Adv. Pro. No. 10-90069). In 1999, RNI-NV paid $1,000,000 for forty percent of the stock in Maui Industrial, a nondepository financial services loan company. RNI-NV did not obtain approval from the State Division of Financial Institutions ("DFI") before completing the stock purchase. In 2007, RNI-NV sought to withdraw its investment in Maui Industrial, and the parties entered into a stock repurchase agreement on October 8, 2007, in which Maui Industrial promised to pay RNI-NV a total of $2,500,000 in installments. Maui Industrial paid $1,040,000 on the note, but defaulted. RNI-NV sued Maui Industrial in state court and judgment was entered in RNI-NV's favor on November 4, 2009. Maui Industrial then filed for bankruptcy under Chapter 7 on January 28, 2010. [Notice of Appeal, Exh. A (Memorandum of Decision on Plaintiff's Motion for Partial Summary Judgment, filed 5/16/11 (dkt. no. 1-5) ("Decision")), at 2-3.]

The complaint in the adversary proceeding alleged four counts, including: (1) violation of the Hawaii Business Corporations Act, Haw. Rev. Stat. § 414-111(c) (Count I); (2) violation of the Hawaii Uniform Fraudulent Transfer Act, Haw. Rev. Stat. Chapter 651C (Count II); (3) 11 U.S.C. § 548 (Count III); and (4) transferee liability pursuant to 11 U.S.C. § 550 (Count IV). The Trustee sought summary judgment on Counts I, II, and IV. The bankruptcy judge granted the Trustee's motion for summary judgment in a May 16, 2011 Memorandum of Decision ("Decision"). On June 1, 2011, the parties stipulated to dismiss Count III. RNI-NV filed its Notice of Appeal on May 27, 2011, appealing the May 16, 2011 Decision. The bankruptcy court entered final judgment on June 3, 2011.

I. Appellant's Motion

Appellant asks the Court to vacate the bankruptcy court's June 3, 2011 judgment, dismiss the Appeal, and remand the case to the bankruptcy court for further proceedings. Appellant claims that, after a review of Stern v. Marshall, 131 S. Ct. 2594 (2011), and the lower court cases interpreting it, the bankruptcy court's subject matter jurisdiction to enter the final judgment of June 3, 2011 is questionable. [Mem. in Supp. of Motion at 1-2.]

Appellant states that the consensus among lower courts appears to be that an Article I court, including the United States Bankruptcy Court for the District of Hawai'i, cannot enter a final judgment in a non-core matter, even if the parties "statutorily" consented or submitted themselves to the bankruptcy court's "core" jurisdiction, 28 U.S.C. § 157(c)(1), or their objection to "core" jurisdiction was waived. Because of the lack of "core" jurisdiction and the issuance of a judgment by an Article I court on the Trustee's (1) private rights state law claims, or (2) common law actions, such as state and federal fraudulent transfer claims, are "constitutionally" barred from being adjudicated by an Article I court, RNI-NV submits that the final judgment of June 3, 2011 must be vacated. [Id. at 4-5.]

A. Subject Matter Jurisdiction May Be Raised At Any Time Appellant states that a challenge to the subject matter jurisdiction of a court can be raised at any time, especially where, as in the case at bar, the question as to the constitutional jurisdiction of bankruptcy court to enter a final judgment was decided after the entry of the bankruptcy court judgment. [Id. at 5-7.]

B. No Article I Jurisdiction to Enter Judgment for Non-Core Private Rights or Common Law Claims Core proceedings are those that either arise under

Title 11 or arise in a bankruptcy case. A proceeding is not core if it is "otherwise related to a case under title 11." 28 U.S.C. § 157(c)(l). Appellant argues that, here, the only federal bankruptcy claim, 11 U.S.C. § 548, was dismissed before the entry of the final judgment on June 3, 2011. After Stern, "it is problematic whether an Article I court could issue a final judgment even on a § 548, federal law fraudulent transfer claim." [Id. at 15.] Even if Appellant statutorily "consented" to the core jurisdiction, or waived its right to object to the bankruptcy court's core jurisdiction, since the Trustee was adjudicating only state law claims, § 414-111(c) and § 651C-4, and before its dismissal, a federal fraudulent transfer claim, 11 U.S.C. § 548, there was no "core" jurisdiction for the Article I bankruptcy court to enter a final judgment against. [Id. at 16.]

Appellant argues that the two counts adjudicated in the final judgment were private rights, state law claims, which were available to any creditor of Maui Industrial prior to the filing of the Chapter 7 petition. It argues that a bankruptcy trustee is given standing under § 544(b) to prosecute the state law or common law claims, such as Counts I and II in bankruptcy court, and that raises the issue as to the constitutional authority of the bankruptcy court to enter a judgment on these state law claims, brought by the Trustee under § 544(b) of the Code. [Id. at 18.]

C. Vacating Judgment

Next, Appellant contends that the case law is uncertain as to whether a bankruptcy judge, who has exceeded his authority and improperly issued a final judgment in non-core proceedings, may simply turn or vacate a final judgment into a Federal Rule of Bankruptcy Procedure Rule 9033 Report and Recommendation. Under Rule 9033(d), the district court judge may exercise considerable discretion in determining how to proceed. Here, Appellant argues that, since the bankruptcy court did not constitutionally have subject matter jurisdiction to issue a final judgment in the Trustee's Count I, § 414-111(c), and Count II, § 641C-4 claims, the final judgment of June 3, 2011 must be vacated.

II. Appellee's Opposition and Countermotion

The Countermotion asks the Court to dismiss the Appeal, or in the alternative, to strike portions of Appellant's Reply Brief in the Appeal.

A. Opposition to Appellant's Motion

The Trustee argues that the recent holding in Stern does not apply here because the claims arose out of the bankruptcy itself, and would be resolved in the claims allowance process. According to the Trustee, Stern held that the bankruptcy court below lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim. The Trustee argues that Stern is inapposite to this case for three reasons:

* First, because RNI filed a proof of claim against the bankruptcy estate, (Ex. A attach. hereto), Trustee's action would necessarily be resolved in the claims allowance process;

* Second, the bankruptcy court entered a final judgment on Trustee's claims to avoid transfers to RNI, which Trustee brought pursuant to section 544(b) of the Bankruptcy Code. (Dkt.#9-1). As such, the claims stem from the bankruptcy itself; and

* Third, RNI consented to the bankruptcy court entering final judgment on Trustee's claims.

[Mem. in Opp. at 4-5.]

B. Countermotion

1. Dismissal

The Trustee's Countermotion argues that this Court does not have jurisdiction over the Appeal based on Appellant's failure to file a timely notice of appeal from the final judgment.*fn1 He states that, whether the bankruptcy court had authority to enter a final judgment in the case is irrelevant to whether this Court has subject matter jurisdiction over the Appeal. Further, he argues that Appellant's reliance on Federal Rule of Bankruptcy Procedure 8003(c) is misplaced. Appellant filed a notice of appeal from the bankruptcy court's interlocutory Decision, but it failed to file any notice of appeal from the bankruptcy court's final judgment -- timely or otherwise. As such, the final judgment is not before this Court. Thus, the Trustee argues that, even if this Court were to grant Appellant leave to file its interlocutory appeal from the Decision, the bankruptcy court's final judgment would remain in full force and effect. This Court cannot vacate that judgment. Where the appellant fails to timely file a notice of appeal, the district court should dismiss the appeal. [Id. at 21-23.]

The Trustee also argues that Appellant failed to comply with numerous court rules and failed to cure the defects brought to its attention. The Trustee cites Ninth Circuit case law dismissing appeals for failure to comply with the rules of court. [Id. at 24-25 (citing Community Commerce Bank v. O'Brien (In re O'Brien), 312 F.3d 1135, 1136-37 (9th Cir. 2002) (dismissal warranted by insufficient record and improper brief format and content); N/S Corp. v. Liberty Mut. Ins. Co., 127 F.3d 1145, 1146 (9th Cir. 1997) ("We might have been inclined to overlook all of [appellant's defects], but after Liberty Mutual pointed to these failures, and others, in a motion to dismiss, N/S did not even deign to respond. . . . Enough is enough. We strike the N/S briefs and dismiss its appeal.").] Based on Appellant's failure to correct its defects, the Trustee argues that the Court should dismiss the Appeal. [Id. at 25.]

2. Request to Strike Appellant's Motion

In his Countermotion, the Trustee also asks the Court to strike Appellant's Motion because the Court does not have jurisdiction over the Appeal, and, therefore, has no jurisdiction to hear the Motion. The Trustee argues that the issue that Appellant raises in its Motion does not implicate the bankruptcy court's subject matter jurisdiction, and Appellant cannot belatedly raise it. Moreover, nothing in the record on appeal indicates that Appellant raised this issue before the bankruptcy court, and it clearly did not raise the issue in this Appeal in its initial brief, even though it could have. As such, Appellant should not be allowed to, in effect, file a second opening brief to raise this issue. The Trustee therefore requests the Court strike the Motion.

3. Request to Strike Appellant's Reply Brief

Additionally, the Trustee asks the Court to strike the portions of Appellant's reply brief that relate to the Stern case and raise the issue of the bankruptcy court's authority to enter final judgment. Such new issues should not be ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.