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.

Batiste v. Sun Kona Finance I, LLC

United States District Court, D. Hawaii

January 12, 2017

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 IN PART AND MODIFYING IN PART THE PROPOSED FINDINGS AND RECOMMENDED DECISION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

          Alan C. Kay Sr. United States District Judge

         For the 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. 34-1.

         FACTS AND PROCEDURAL HISTORY

         I. The Underlying Bankruptcy Proceeding

         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” 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).

         The 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. ¶ 8.

         In 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.

         In 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.

         The 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.

         Plaintiffs 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.

         Less 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.[1] 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 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 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.

         After 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.[2] 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 decision.

         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. Final Decree at 2, ECF No. 10-2.

         II. District Court Proceedings

         On 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. ¶¶ 60-63.

         In 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.

         SKFI 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.

         On 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.

         The 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.

         The Court finds that this matter is suitable for decision without a hearing, pursuant to Local Rule 7.2(d).

         STANDARD

         I. Standard of Review

         The parties agree that interpretation of the Settlement Term Sheet for purposes of the summary judgment motions constitutes a “non-core” proceeding.[3] 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.

         Absent 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 ...


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.