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In Re Robert Norton Moran v. Gratitude Group

July 31, 2012


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

(Chapter 11)


On March 9, 2012, the bankruptcy court filed its Proposed Findings of Fact and Conclusions of Law and Recommended Judgment Granting Plaintiff's Motion for Summary Judgment and for Decree of Foreclosure ("F&R"). Defendants Gratitude Group, a Hawai`i limited partnership ("Gratitude"), and Bob & Elice Company, LLC, a Hawai`i limited liability company ("BEC", all collectively "Defendants"), filed their objections to the F&R ("Objections") on March 23, 2012. Plaintiff James N. Duca ("Plaintiff") filed his response to Defendants' Objections ("Response") on April 4, 2012. On April 11, 2012, the bankruptcy court transmitted these documents to this district court with a report and recommendation ("Report"), recommending that this Court accept the F&R.*fn1 On June 29, 2012, pursuant to this Court's order, Defendants filed a declaration of counsel with copies of relevant documents from the Adversary Proceeding.

The Court finds this matter suitable for disposition without a hearing pursuant to Rule LR7.2(d) of the Local Rules of Practice of the United States District Court for the District of Hawai`i ("Local Rules"). Further, the Court finds that it is not necessary to receive additional evidence beyond what the parties presented in the Adversary Proceeding. See Fed. R. Bankr. P. 9033(d). After careful consideration of the F&R, the parties' submissions, and the relevant legal authority, the Court HEREBY ACCEPTS the bankruptcy court's F&R for the reasons set forth below.


Plaintiff filed his Motion for Summary Judgment ("Motion"), with a supporting concise statement of material facts ("Plaintiff's CSOF"), in the Adversary Proceeding on November 22, 2011.*fn2 Defendants filed their Memorandum in Opposition, with their supporting concise statement of material facts ("Defendants' CSOF"), on January 13, 2012.*fn3 Plaintiff filed his Reply, with a declaration by Robert Norton Moran ("Moran Declaration"), on January 20, 2012.*fn4 The bankruptcy court held a hearing on the Motion on January 27, 2012.*fn5 The bankruptcy court entered the F&R pursuant to its "related to" jurisdiction because the Adversary Proceeding is a non-core matter, and Defendants did not consent to entry of final judgment by the bankruptcy court. [F&R at 9 (citing 28 U.S.C. § 1334(b); 28 U.S.C. § 157).]

The parties do not contest the following relevant facts set forth in the bankruptcy court's F&R:

1. Plaintiff . . . is a natural person and a resident of the City and County of Honolulu, State of Hawaii.

2. Defendant Gratitude Group ("Defendant Gratitude") is a Hawaii limited partnership.

3. Defendant Bob & Elice Company, LLC ("Defendant BEC") is a Hawaii limited liability company that is the general partner of Defendant Gratitude.

4. Robert Norton Moran ("Debtor") is a Debtor in a Chapter 11 case pending before the United States Bankruptcy Court for the District of Hawaii, namely, Case No. 10-03696.

5. In 2007, Defendant Gratitude, Judith Moran and Debtor Moran executed and delivered to Plaintiff a Promissory Note dated August 15 ("Note") to evidence a joint and several indebtedness of $400,000.00 loaned by Plaintiff. The money was deposited into a Hawaii escrow in order to finance the acquisition by Defendant Gratitude and Debtor of the Pine Meadows Apartments in Abilene, Texas, and was to be repaid in Honolulu, Hawaii.

6. As a part of the same transaction, Defendant Gratitude signed a Term Loan Agreement ("Term Loan Agreement"), Assignment of Rights to Payments and Distributions ("Assignment of Payments") and a Security Agreement ("Security Agreement"), by which Defendant Gratitude granted a security interest in the collateral named therein to secure the repayment of the indebtedness.

7. Plaintiff filed a financing statement with the Bureau of Conveyances of the State of Hawaii to perfect his security interest in the collateral furnished to Plaintiff on the Note by Defendant Gratitude. That financing statement was recorded as Document No. 2007-140381 ("Financing Statement").

8. Defendant BEC is the general partner of Defendant Gratitude.

10. Defendant Gratitude is the owner of Gratitude Group of Texas, LLC ("Gratitude Texas"), which is in turn the co-owner or joint venturer with Debtor in the Abilene apartment complexes known as the Fairmont and Pine Meadows apartments. The pleadings on file with this court reflect that the relationship between Debtor and Gratitude Texas has been contentious and litigious. If Defendant Gratitude's interest in Gratitude Texas is foreclosed upon and acquired by Plaintiff or a third party by way of a foreclosure sale, this can alter Debtor's ability to develop a consensual reorganization plan.

11. Defendant Gratitude or Gratitude Texas and the Debtor have asserted claims against each other. If Defendant Gratitude pays the Debtor's obligation to Plaintiff, Debtor will no longer owe it. If Debtor's claims against Defendant Gratitude or Gratitude Texas have merit and provide rights of set off, Debtor may no longer owe this indebtedness to anyone.

12. The Debtor's rights and obligations will be affected by a determination in Debtor's pending adversary proceeding whether the Debtor is a joint venture partner with Defendant Gratitude or Defendant Gratitude's affiliated entities. It is possible that this issue may also be determined in this action.

13. On June 13, 2008 Plaintiff received and applied approximately $240,000 of funds received from Debtor to the balance due on the Note. The effect of that payment was to reduce the principal balance owing on the Note to $200,000[.]

14. Debtor made monthly payments of $2,000 on the Note from July 13, 2008 to and including November 13, 2010.

15. No payments on the Note have been made by anyone since December 13, 2010.

16. Defendants Gratitude and BEC have failed, neglected and refused to pay the amounts due to Plaintiff. Defendant Gratitude and BEC owe the remaining balance of the Note, which includes $200,000 in principal, interest, attorneys' fees and costs.

17. The repayment of the Note is secured by collateral more particularly described in the Term Loan Agreement, Assignment of Payments, Security Agreement, and Financing Statement.

. . . . 19. Pursuant to the Security Agreement, the collateral therein is defined as: ""Collateral." The Collateral shall consist of all right, title and interest of Debtor now owned or hereafter acquired with respect to (a) the limited liability company members' equity interest in Gratitude Group of Texas, LLC, a Texas limited liability company, and (b) all money or property due or becoming due to Debtor [Defendant Gratitude] or transferred to Debtor [Defendant Gratitude] from that limited liability company, whether by way of debt, repayment of debt, ...

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