United States District Court, D. Hawaii
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,
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 IN PART AND MODIFYING IN PART THE
PROPOSED FINDINGS AND RECOMMENDED DECISION ON CROSS-MOTIONS
FOR SUMMARY JUDGMENT
C. Kay Sr. United States District Judge
reasons set forth below, the Court ADOPTS in part and
MODIFIES in part the Proposed Findings and Recommended
Decision on Cross-Motions for Summary Judgment
(“Recommended Decision”), issued by United States
Bankruptcy Judge Robert J. Faris on November 2, 2016. ECF No.
AND PROCEDURAL HISTORY
The Underlying Bankruptcy Proceeding
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” or “Batiste
creditors”) 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. 2013).
bankruptcy case arose in relation to a real estate
development called Hokuliʻa (“the Project”)
on the Island of Hawaii. Compl. ¶¶ 8-20, ECF No.
1-1; Recommended Decision at 2-3. Lyle Anderson, the company
that originally controlled the Project, borrowed money from
the Bank of Scotland to secure financing for the Project and
created 1250 Oceanside Partners (the “Debtors” or
“Oceanside”) to act as the developer of the
Project. Mem. of Decision on Req. for Admin. Expense
(“Administrative Expense Decision”) at 2, ECF No.
5-10; Compl. ¶ 11. Plaintiffs, trustees of various
trusts and profit sharing plans, purchased lots at
Hokuliʻa. Administrative Expense Decision at 2; Compl.
2008, the Bank of Scotland declared default and SKFI
purchased over $600, 000, 000 in debt from the Bank, along
with the Bank's security interests in the Project.
Administrative Expense Decision at 2-3; Compl. ¶ 19.
Plaintiffs and other lot purchasers filed suit in the Circuit
Court of the Third Circuit of the State of Hawaii against the
developers in connection with the failed Project.
Administrative Expense Decision at 3; Compl. ¶ 18.
2013, the Debtors commenced Chapter 11 bankruptcy
proceedings. Administrative Expense Decision at 3; Compl.
¶ 20. SKFI was a secured creditor and Plaintiffs were
unsecured creditors as a result of the lawsuit they filed in
state court against the Debtors. Administrative Expense
Decision at 3; Compl. ¶ 21.
Debtors and SKFI proposed a Third Amended Joint Consolidated
Plan of Reorganization (“Reorganization Plan”) on
November 22, 2013. See ECF No. 5-7. Under the plan,
the unsecured creditors, including Plaintiffs, would receive
a pro rata distribution from a fund of $750, 000 to satisfy
claims of approximately $33, 700, 000. See
Reorganization Plan at 38, 48; Compl. ¶¶ 25-26.
raised several objections during the confirmation process,
which objections included contesting the amount of the
unsecured creditors' fund. Administrative Expense
Decision at 4; Compl. ¶¶ 26-28. Plaintiffs also
initiated litigation against SKFI in relation to the
Reorganization Plan. Administrative Expense Decision at 4;
Compl. ¶¶ 29-30.
than thirty minutes prior to the hearing on the plan
confirmation, the parties settled. Administrative Expense
Decision at 5; Compl. ¶ 33. 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. ECF No. 36-2. 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. See Settlement Term Sheet at 1. SKFI
also agreed to increase the amount of the unsecured
creditors' fund from $750, 000 to $1, 550, 000.
Id. Additionally, the Settlement Term Sheet 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
See id. The “Bays firm, ” i.e. Bays Lung
Rose & Holma, represented Plaintiffs in the bankruptcy
proceedings and represents Plaintiffs in the instant case.
result of the Settlement Term Sheet, the Reorganization Plan
was confirmed without a contested case hearing.
Administrative Expense Decision at 5. The bankruptcy court
entered its Confirmation Order on June 2, 2014, which order
incorporated and confirmed the Reorganization Plan. Order
Confirming Reorganization Plan (“Confirmation
Order”) 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 16.
the bankruptcy court issued its Confirmation Order,
Plaintiffs filed an administrative expense claim for a
portion of their attorneys' fees and costs.
Administrative Expense Decision at 5; see Mot. for
Payment of Admin. Expenses (“Administrative Expense
Motion”), ECF No. 36-2. The Debtors objected to
Plaintiffs' claim, arguing that the “Batiste
[creditors'] efforts during the course of the bankruptcy
case (i) were directed solely for [the Batiste
creditors'] personal benefit, to the exclusion of the
other unsecured creditors, and (ii) continued, at great
expense to the estate, long after substantially all of any
increased benefit to the other unsecured creditors had become
available.” Debtor's [sic] Opp'n to
Administrative Expense Motion (“Debtors'
Opposition”) at 1, ECF No. 36-2. Attached to the
Opposition was a declaration made by James A. Wagner, counsel
for SKFI, detailing a series of settlement discussions he had
with Bernard Bays, counsel for the Batiste
creditors. See Decl. of James A. Wagner (the
“Wagner Declaration”), ECF No. 36-2. Mr. Wagner
also spoke during the hearing on the Batiste creditors'
administrative expense claim, reiterating in part what was
outlined in his declaration. See Transcript of
Hearing at 14:15-16:15, September 15, 2014, ECF No. 36-2. In
its Administrative Expense Decision, issued October 2, 2014,
the bankruptcy court found that Plaintiffs were entitled to
an administrative expense claim of $55, 000. Administrative
Expense Decision at 16. Plaintiffs did not appeal the
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. Final Decree at 2, ECF No. 10-2.
District Court Proceedings
September 1, 2015, Plaintiffs filed a Complaint and Demand
for Jury Trial in the Circuit Court of the First Circuit of
the State of Hawaii. Count I asserts a claim for breach of
contract, alleging that SKFI breached the Settlement Term
Sheet by opposing Plaintiffs' request for $250, 000 in
attorneys' fees. Compl. ¶¶ 49-53. Count II
asserts a fraud claim, alleging that SKFI falsely represented
that it would not oppose Plaintiffs' application for fees
“[i]n order to induce the Plaintiff[s] to dismiss the
adversary proceedings filed in the bankruptcy case, withdraw
their objections to the SKF[I] claim against Oceanside in the
bankruptcy proceedings, and withdraw their objections to the
Reorganization Plan.” Id. at ¶¶
55-56. Count III asserts a claim for punitive damages in
relation to SKFI's conduct. Id. ¶¶
support of these claims, Plaintiffs allege that
“Oceanside - which was under the control of SKF[I] -
filed an opposition to Plaintiffs' application to recover
the attorneys' fees” and that SKFI's attorney
“submitted a declaration in opposition” to the
application for fees and “appeared at the hearing [on
the application for fees] on behalf of SKF[I], and argued in
opposition to the Plaintiffs' request.”
Id. ¶¶ 44-47.
removed the case to this district court on October 5, 2015.
Notice of Removal, ECF No. 1. That same day, SKFI filed a
Motion to Refer Case to United States Bankruptcy Court. ECF
No. 5. Plaintiffs opposed the motion, claiming that the
bankruptcy court lacked jurisdiction. ECF No. 10. Magistrate
Judge Chang held a hearing on the motion on January 12, 2016,
and on January 16, 2016, issued his Findings and
Recommendation to Grant Defendant's Motion to Refer Case
to United States Bankruptcy Court (“F&R”).
ECF No. 18. On February 26, 2016, over Plaintiffs'
objections, this Court adopted the F&R, referring the
case to the bankruptcy court for pretrial matters. Order
Adopting the F&R, ECF No. 24.
September 9, 2016, Plaintiffs filed a Motion for Partial
Summary Judgment and Memorandum in Support of Motion
(“Plaintiffs' Motion”), ECF No. 36-1, along
with a Separate and Concise Statement of Facts in Support of
Motion, ECF No. 36-2. Plaintiffs sought summary judgment
solely as to Count I of their Complaint. Plaintiffs'
Motion at 3. That same day, Defendant filed a Motion for
Summary Judgment on Plaintiffs' Complaint and Memorandum
in Support (“Defendant's Motion”), ECF No.
36-3, as well as a Separate and Concise Statement in Support
of Motion, ECF No. 36-4. Defendant sought summary judgment on
Counts I, II, and III of Plaintiffs' Complaint.
Defendant's Motion at 1.
bankruptcy court held a hearing on the cross-motions for
summary judgment on October 13, 2016, and on November 2,
2016, issued its Recommended Decision, recommending that this
Court grant summary judgment in favor of Defendant on all
claims. Recommended Decision at 1-2. The case was then
transmitted back to the district court on November 16, 2016.
Notice of Transmittal to District Court, ECF No. 34.
Plaintiffs filed Objections to the Recommended Decision
(“Objections”) on November 16, 2016, ECF No. 35,
and Defendant filed a Response to Objections
(“Response”) on November 30, 2016, ECF No. 37.
Court finds that this matter is suitable for decision without
a hearing, pursuant to Local Rule 7.2(d).
Standard of Review
parties agree that interpretation of the Settlement Term
Sheet for purposes of the summary judgment motions
constitutes a “non-core”
proceeding. See Recommended Decision at 7;
Transcript of Hearing, October 13, 2016 at 18:23-19:2, ECF
No. 36-17; see also Objections at 10. The bankruptcy
court may enter final judgment in a “non-core”
proceeding only if all of the parties consent. 28 U.S.C.
§ 157(c)(2). While SKFI has consented to the bankruptcy
court's entry of a final order, Plaintiffs have not.
Recommended Decision at 7 n.30.
consent, “the bankruptcy judge shall submit proposed
findings of fact and conclusions of law to the district
court, and any final order or judgment shall be entered by
the district judge after considering the bankruptcy
judge's proposed findings and conclusions and after
reviewing de novo those matters to which any party has timely
and specifically objected.” 28 U.S.C. § 157(c)(1);
In re Moran, Civ. No. 12- 00191 LEK-KSC, 2012 WL
3201901, at *6 (D. Haw. July 31, 2012). “The district
judge may accept, reject, or modify the proposed findings ...