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In re Maui Industrial Loan & Finance Co. Inc.

United States District Court, District of Hawaii

March 5, 2015

In re MAUI INDUSTRIAL LOAN & FINANCE CO., INC., Debtor.
v.
DENNIS I. HINAHARA; MYRA S. HINAHARA, Defendants. DANE S. FIELD, Plaintiff,

CERTIFIED QUESTION; ORDER CERTIFYING QUESTION OF LAW FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII

J. Michael Seabright United States District Judge

I. INTRODUCTION

This Order certifies to the Hawaii Supreme Court an important and unsettled question of Hawaii law, the answer to which will resolve a dispositive issue pending before the United States District Court for the District of Hawaii in this adversary bankruptcy proceeding. Based on the following, the court determines that the requirements of Hawaii Rule of Appellate Procedure (“HRAP”) 13(a) are satisfied, [1] and certifies the following question of Hawaii partnership law to the Hawaii Supreme Court:

Is an individual partner’s knowledge of a fact relating to the partnership and/or to partnership affairs necessarily imputed to (1) the other individual partners; (2) the partnership itself and not the other individual partners; or (3) both the partnership and the other individual partners?

II. BACKGROUND

This action arises out of a Ponzi scheme perpetrated by Lloyd Kimura (“Kimura”).[2] Plaintiff bankruptcy trustee Dane S. Field (“Trustee”), seeks to avoid nearly a million dollars of fraudulent transfers made to Defendants Dennis and Myra Hinahara (the “Hinaharas”) by Debtor Maui Industrial Loan and Finance Company, Inc., which sometimes did business as Maui Finance Company (“MFC”) in connection with Kimura’s Ponzi scheme. Currently before the court are Objections under 28 U.S.C. § 157(c)(1) to a July 11, 2014 Proposed Findings of Fact and Conclusions of Law (“PFOF/PCOL”) of the United States Bankruptcy Court for the District of Hawaii that, among other matters, found that the Hinaharas took most of the transfers in good faith.[3]

At issue here is a question of Hawaii partnership law based on the Uniform Partnership Act (“UPA”) § 12 (previously adopted in Hawaii Revised Statutes (“HRS”) § 425-112 (1972)), and the Revised Uniform Partnership Act (“RUPA”) § 102(f) (adopted in HRS § 425-102(f) (2000)).[4] Specifically, UPA § 12 provides:

Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner.

Likewise, RUPA § 102(f) provides:

A partner’s knowledge, notice, or receipt of a notification of a fact relating to the partnership is effective immediately as knowledge by, notice to, or receipt of a notification by the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner.

By Order of February 20, 2015, the court concluded that the “fraud on the partnership” exception in UPA § 12 and RUPA § 102(f) (“except in the case of a fraud on the partnership committed by or with the consent of that partner”) does not apply to the facts of this action. See Field v. Hinahara (In re Maui Indus. Loan & Fin. Co.), ___ F.Supp. 3d ___, 2015 WL 736226, at *6 (D. Haw. Feb. 20, 2015). In that Order, the court also agreed with the Bankruptcy Court that facts related to Kimura’s knowledge of the Ponzi scheme are “facts related to the partnership, ” even if he was not acting at all times in the best interests of the Kimura/Hinahara partnerships. Id. at *8 n.16.

Given those conclusions, the court squarely faces a straightforward question -- is Kimura’s knowledge of his Ponzi scheme imputed to the Hinaharas (who were partners with Kimura in certain real estate transactions) individually, or is Kimura’s knowledge of his Ponzi scheme imputed only to the partnerships themselves (or both)? To understand the context for the issue, the court first sets forth relevant background facts regarding the Ponzi scheme, and then explains why the answer to this unsettled question is dispositive of the issue now before the court in Trustee’s Objections to the Bankruptcy Court’s PFOF/PCOL.

A. Kimura’s Ponzi Scheme[5]

Kimura was a certified public accountant on Maui who, beginning in 1985, was the principal owner and the person in control of MFC. PFOF/PCOL at 3, ¶ 3. MFC was licensed under Hawaii law as a “nondepository financial services loan company, ” engaged in the business of making loans. Id. ΒΆ 2. Although Hawaii law forbids nondepository financial services loan companies from accepting deposits from the ...


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