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Batiste v. Sun Kona Finance I, LLC

United States District Court, D. Hawaii

February 26, 2016

WILLIAM BATISTE AND VIRGINIA BATISTE, AS TRUSTEES OF THE WILLIAM AND VIRGINIA BATISTE REVOCABLE TRUST DATED JANUARY 23, 2001; RICHARD L. DVORAK AND TERESA D. DVORAK, AS TRUSTEES OF THE RICHARD L. DVORAK LIVING TRUST, JENNIE ANN FREIMAN, INDIVIDUALLY AND AS TRUSTEE OF THE JENNIE ANN FREIMAN PROFIT SHARING PLAN; STUART H. MENDEL, INDIVIDUALLY AND AS TRUSTEE OF THE JENNIE ANN FREIMAN PROFIT SHARING PLAN, Plaintiffs,
v.
SUN KONA FINANCE I, LLC; JOHN AND JANE DOES 1-15; DOE PARTNERSHIPS 1-15; DOE CORPORATIONS 1-15; and DOE ENTITIES 1-15, Defendants.

ORDER ADOPTING THE FINDINGS AND RECOMMENDATIONS TO GRANT DEFENDANT’S MOTION TO REFER CASE TO UNITED STATES BANKRUPTCY COURT

Alan C. Kay Sr. United States District Judge.

For the reasons set forth below, the Court ADOPTS Magistrate Judge Kevin S.C. Chang’s January 16, 2016 Findings and Recommendations to Grant Defendant’s Motion to Refer Case to United States Bankruptcy Court (for pretrial matters), ECF No.

FACTS AND PROCEDURAL HISTORY

I. Bankruptcy Proceedings

Plaintiffs William Batiste and Virginia Batiste, as trustees of the William and Virginia Batiste Revocable Trust dated January 23, 2001; Richard L. Dvorak and Teresa D. Dvorak, as trustees of the Richard L. Dvorak Living Trust; Jennie Ann Freiman, individually and as trustee of the Jennie Ann Freiman Profit Sharing Plan; and Stuart H. Mendel, individually and as trustee of the Jennie Ann Freiman Profit Sharing Plan (collectively, “Plaintiffs”) and Defendant Sun Kona Finance, I, LLC (“SKFI”) were previously creditors in the Chapter 11 bankruptcy case, In re 1250 Oceanside Partners, Case No. 13-00353 (Bankr. D. Haw. 2014). The bankruptcy case arose in relation to a real estate development called Hokuliʻa (“the Project”) on the Island of Hawaii. Motion to Refer Case to United States Bankruptcy Court (“Motion”), Ex. H (Bankruptcy Court’s Memorandum of Decision on Request for Administrative Expense (“Administrative Expense Decision”[1])) at 2, ECF No. 5-10; Compl. ¶ 8, ECF No. 1-1. Lyle Anderson, who originally controlled the Project, borrowed money from the Bank of Scotland to secure financing for the Project. Motion, Ex. H at 2, ECF No. 5-10. Anderson created 1250 Oceanside Partners (“the Debtors” or “Oceanside”) to act as the developer of the Project. Id.; Compl. ¶ 11, ECF No. 1-1. Plaintiffs purchased lots at Hokuliʻa. Motion, Ex. H at 2, ECF No. 5-10; Compl. ¶ 8, ECF No. 1-1.

In 2008, the Bank of Scotland declared default and SKFI purchased over $600, 000, 000 in debt from the Bank of Scotland along with the bank’s security interests in the Project. Motion, Ex. H at 2-3, ECF no. 5-10; Compl. ¶ 19, ECF No. 1-1. Plaintiffs as well as other lot purchasers filed suit against the developers in connection with the failed Project. Motion, Ex. H at 3, ECF No. 5-10; Compl. ¶ 18, ECF No. 1-1.

In 2013, the Debtors commenced Chapter 11 bankruptcy proceedings. Motion, Ex. H at 3, ECF no. 5-10; Compl. ¶ 20, ECF No. 1-1. SKFI was a secured creditor. Motion, Ex. H at 3, ECF no. 5-10. Plaintiffs were unsecured creditors as a result of the lawsuit filed against the Debtors. Compl. ¶ 21.

The Debtors and SKFI proposed a Third Amended Joint Consolidated Plan of Reorganization (“Reorganization Plan”) on November 22, 2013. See Motion, Ex. E (Order Confirming Plan Proponents’ Third Amended Joint Consolidated Plan of Reorganization (the “Confirmation Order”)) at 21, ECF No. 5-7.[2]Under the plan, the unsecured creditors, including Plaintiffs, would receive a pro rata distribution from a fund of $750, 000 to satisfy claims of over $33, 000, 000. Id. at 63, 73; Compl. ¶¶ 25-26, ECF No. 1-1.

Plaintiffs raised several objections during the confirmation process, including contesting the amount of the unsecured creditors’ fund. Motion, Ex. H at 4, ECF no. 5-10; Compl. ¶¶ 26-28, ECF No. 1-1. Plaintiffs also initiated litigation against SKFI in relation to the Reorganization Plan. Motion, Ex. H at 4, ECF no. 5-10; Compl. ¶¶ 29-30, ECF No. 1-1.

Less than thirty minutes prior to the hearing on the plan confirmation, the parties settled. Motion, Ex. H at 5, ECF No. 5-10; Compl. ¶ 33, ECF No. 1-1. The settlement was memorialized in writing as the Amended Batiste/Davis/Sun Kona Finance I, LLC Binding Settlement Term Sheet (the “Settlement Term Sheet”) and was signed by attorneys representing SKFI, the Debtors, Plaintiffs, and the Davis Creditors.[3] Motion, Ex. E at 128, ECF No. 5-7. As part of the Settlement Term Sheet, Plaintiffs agreed to withdraw their objections to the Reorganization Plan and dismissed adversary proceedings and claims against the Debtors, SKFI, and related individuals. Id. SKFI also agreed to increase the amount of the unsecured creditors fund from $750, 000 to $1, 550, 5000. Id. The Settlement Term Sheet additionally included the following provision, at issue in the instant case: “SKFI and the Davis Creditors will not oppose an administrative expense claim by the Bays firm in the amount of $250, 000 for making a substantial contribution to the case.” See Id. The “Bays firm, ” i.e. Bays Lung Rose & Holma, represented Plaintiffs in the bankruptcy proceedings and represents Plaintiffs in the instant case.

As a result of the Settlement Term Sheet, the plan was confirmed without a contested case hearing. Motion, Ex. H at 5, ECF No. 5-10. The bankruptcy court entered its Confirmation Order on June 2, 2014, which incorporated and confirmed the Reorganization Plan. Motion, Ex. E at 2, ECF No. 5-7. The Confirmation Order approved the Settlement Term Sheet, made it “binding on the parties, ” and “incorporated [it] into the [Reorganization] Plan.” Id. at 17. The Reorganization Plan, as confirmed by the bankruptcy court in it Confirmation Order, provided that the bankruptcy court would retain jurisdiction as follows:

11.1 Retention of Jurisdiction
Notwithstanding the entry of the Confirmation Order or the occurrence of the Effective Date, the Bankruptcy Court shall retain jurisdiction over the Chapter 11 Cases and any of the proceedings related to the Chapter 11 Cases pursuant to section 1142 of the Bankruptcy Code and 28 U.S.C. § 1334 to the fullest extent permitted by the Bankruptcy Code and other applicable law, including, without limitation, such jurisdiction as is necessary to ensure that the purpose and intent of the Plan is carried out, provided, however, that the Bankruptcy Court shall not have jurisdiction with respect to Tax Claims that arise solely after the Effective Date. Without limiting the generality of the foregoing, the Bankruptcy Court shall retain jurisdiction for the following purposes:
(g) resolve any cases, controversies, suits or disputes that may arise in connection with the consummation, interpretation or enforcement of the Plan, or the Confirmation Order, including the release and injunction provisions set forth in and contemplated by the Plan and the Confirmation Order or any Person’s rights arising under or obligations incurred in connection with the Plan, or the Confirmation Order;
(o) enforce all orders, judgments, injunctions, releases, exculpations, indemnifications and rulings issued or entered in connection with the Chapter 11 Case, or the Plan;
(q) determine any other matters that may arise in connection with or relate to the Plan, the Disclosure Statement, the Confirmation Order, or any contract, instrument, release, indenture or other agreement or document created in connection with the Plan, the Disclosure Statement, or the Confirmation Order, except as otherwise provided in the Plan;
(r) determine any other matter not inconsistent with the Bankruptcy Code.

Id. at 91-95.

After the bankruptcy court issued its Confirmation Order, Plaintiffs “filed a claim for reimbursement of a portion of their attorneys’ fees and costs as administrative expenses.” Motion, Ex. H at 5, ECF No. 5-10. The Debtors objected to Plaintiffs’ claim. Id. In its Administrative Expense Decision, the bankruptcy court found that Plaintiffs were “entitled to an administrative expense claim of $55, 000.”[4] Id. at 16.

On June 22, 2015, the bankruptcy court issued a Final Decree, which 1) discharged the Debtors, their representatives, and their appointed professionals from further duties and responsibilities, 2) approved the Debtors’ Post-Confirmation Final Reports; 3) directed that all orders and judgments continue in effect and operation; and 4) closed the case.

Plaintiffs’ Memorandum in Opposition to Defendant Sun Kona Finance I, LLC’s Motion to Refer Case to United States Bankruptcy Court ...


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