United States District Court, D. Hawaii
In re 1250 OCEANSIDE PARTNERS, Debtor.
ROGER ARNOLD BUCKLES, Individually and as Trustee of the Roger Arnold Buckles and Cindy Kiyono Buckles Revocable Family Trust dated October 29, 1991; CINDY KIYONO BUCKLES, individually and as Trustee of the Roger Arnold Buckles and Cindy Kiyono Buckles Revocable Family Trust dated October 29, 1991, Defendants. 1250 OCEANSIDE, LLC, Plaintiff,
ORDER ADOPTING AMENDED PROPOSED FINDINGS OF FACT AND
CONCLUSIONS OF LAW ON MOTIONS TO DISMISS AND FOR SUMMARY
Michael Seabright;Chief United States District Judge.
Roger Arnold Buckles and Cindy Kiyono Buckles, individually,
and in their capacities as trustees of the Roger Arnold
Buckles and Cindy Kiyono Buckles Revocable Family Trust
(collectively, “Defendants” or “the
Buckles”), object under 28 U.S.C. §157(c)(1) to
the September 29, 2016 Amended Proposed Findings of Fact and
Conclusions of Law on Motions to Dismiss and for Summary
Judgment (the “Amended Findings”) issued by the
U.S. Bankruptcy Court for the District of Hawaii. ECF No. 3.
Similarly, Plaintiff 1250 Oceanside, LLC
(“Plaintiff”) has filed “limited
objections” to the Amended Findings. ECF No. 6.
Plaintiff was formerly known as 1250 Oceanside Partners
on the following, the court OVERRULES both sets of
objections, and ADOPTS the Amended Findings. As recommended
by the Bankruptcy Court, a Decree of Foreclosure in favor of
Plaintiff shall issue.
Standard of Review
bankruptcy court submits proposed findings of fact and
conclusions of law under § 157(c), the district court
“review[s] de novo those matters to which any party has
timely and specifically objected.” 28 U.S.C.
§157(c)(1). “The district judge shall make a de
novo review upon the record or, after additional evidence, of
any portion of the bankruptcy judge's findings of fact or
conclusions of law to which specific written objection has
been made in accordance with this rule.” Fed.R.Bankr.P.
specific objections, the court reviews proposed factual
findings for clear error and legal conclusions de novo.
See, e.g., In re Preston, 516 B.R. 606, 609
(C.D. Cal. 2014). That is, “[t]he district judge may
accept the portions of the findings and recommendation to
which the parties have not objected as long as it is
satisfied that there is no clear error on the face of the
record.” Naehu v. Read, 2017 WL 1162180, at *3
(D. Haw. Mar. 28, 2017) (citations omitted). “The
district judge may accept, reject, or modify the proposed
findings of fact or conclusions of law, receive further
evidence, or recommit the matter to the bankruptcy judge with
instructions.” Fed.R.Bankr.P. 9033(d).
court thus focuses on the specific objections of the parties.
And because the court -- having carefully reviewed the record
-- accepts and adopts the other (non-objected-to) findings,
the court relies on the Amended Findings for much of the
background. In this Order adopting those Findings, the court
reiterates many of the facts as found by the Bankruptcy
Court, and explains the procedural history as necessary to
put the issues into context. The parties are familiar with
the extensive history of this case (with an underlying
bankruptcy proceeding consisting of over 1, 400 docket
entries, and excerpts of record in this court of over 3, 000
pages), which the court need not otherwise set forth in this
Debtor was the developer of Hokuli<a, a planned
residential subdivision on the Big Island, County of Hawaii.
ECF No. 4-1 at 5. On March 6, 2013, the Debtor filed for
bankruptcy under Chapter 11 of the United States Bankruptcy
Code, and filed the present adversary proceeding in that
bankruptcy action. Amended Findings at 5. Among other relief,
the adversary proceeding seeks to enforce a promissory note
and foreclose a mortgage made by the Buckles. Id. at
1, 5; see also ECF No. 4-1. The proceeding arises
out of a February/March 2000 transaction in which the Debtor
financed and sold a lot in Hokuli<a to the Buckles. ECF
No. 4-1 at 2-3, 5-6.
document the [February/March 2000] transaction, the parties
executed four documents at or about the same time: a Purchase
Contract, dated February 18, 2000; a warranty deed, dated
February 16, 2000; a promissory note by [the] Buckles in
favor of [the Debtor], dated March 28, 2000; and a mortgage,
dated February 16, 2000.” Amended Findings at 2
(citations omitted); ECF No. 1-1 at 2. This Order refers to
the March 28, 2000 promissory note as “the Buckles'
note, ” or simply as “the note.” The
Buckles borrowed $680, 000 from the Debtor in this
transaction. ECF No. 4-1 at 5. “The Purchase Contract
incorporated the note, mortgage, and warranty deed as
essential parts of the agreement. The Purchase Contract
obligated [the Debtor] to make a number of improvements on
the lot and in and around the development.” Amended
Findings at 2 (citations omitted).
17.a of the Purchase Contract requires mediation and
arbitration of all disputes relating to the Purchase
Agreement, the sale of the lot, or ‘any other aspect of
the relationship' between [the Debtor] and [the
Buckles].” Amended Findings 2-3 (citation omitted).
“Paragraph 17.b, however, provides that, if [the]
Buckles default under the note or mortgage, [the Debtor] is
not required to arbitrate, but instead ‘has the
absolute right' to ‘seek to foreclose on the
property covered by the Mortgage by a foreclosure action
filed in the Circuit Court of the Third Circuit, State of
Hawaii, ' or ‘seek to foreclose on the property
covered by the Mortgage by a non-judicial
foreclosure[.]” Id. at 3 (citations
deed includes dispute resolution provisions that are almost
identical to the Purchase contract.” Id. And
“[t]he mortgage [also] gives [the Debtor] the right to
pursue judicial or nonjudicial foreclosure.”
2006, Oceanside granted a security interest in [the]
Buckles' note and mortgage (along with others') to
Textron Financial Corporation (‘Textron') to secure
[the Debtor's] obligations under a revolving line of
credit.” Id. at 4 (citation omitted).
“The security agreement permits [the Debtor] to enforce
the Buckles['] note and use the proceeds to pay its debt
to Textron (unless [the Debtor] defaulted in its obligations
to Textron, in which event Textron could take collection
action against [the] Buckles directly).” Id.
Debtor] also indorsed [the] Buckles' note and assigned
[the] Buckles' mortgage to Textron.” Id.
(citation omitted). “Although the endorsement and
assignment are absolute on their face, the Textron loan
agreement makes it clear that the transfers were intended for
security purposes only.” Id. “Later,
Textron assigned its interest in the notes and mortgages to
Sun Kona Finance II (‘SKF II').” Id.
(citation omitted). “SKF II is in possession of the
Buckles' note.” Id. (citation omitted).
Debtor “failed to complete the Hokuli<a development
as promised.” Id. at 5. Presumably because of
this failure, the Buckles “ceased payment on the note
in 2009.” Id. (citation omitted). “On
April 1, 2012, [the] Buckles signed a release, which
discharged their claims against [the Debtor].”
Id. (citation omitted). “After signing the
release, [the] Buckles did not resume payments on the
note.” Id. (citation omitted).
the Debtor filed for bankruptcy, it “sent [the] Buckles
a demand letter declaring default and requiring [the] Buckles
to cure its arrears.” Id. Further, “[the
Debtor] and SKF II entered into a stipulation, in which SKF
II assigned its interest in the note and mortgage ‘to
the extent necessary to allow [the Debtor] to commence and
litigate to completion foreclosure actions against
non-performing borrowers.'” Id. (citation
Debtor then filed this adversary proceeding, seeking to
enforce the note, and to foreclose. Id. It filed
similar actions against other non-performing mortgagors,
based on similar contractual agreements. See, e.g.,
1250 Oceanside Partners v. Maryl Grp., Inc., et al.,
Civ. No. 13-00613 LEK-KSC (D. Haw. filed Nov. 13, 2013)
(reviewing Adversary Proceeding No. 13-90049 in the
Debtor's chapter 11 action) (“Maryl
end, on September 26, 2013, the Debtor filed a Motion for
Summary Judgment in the Bankruptcy Court, seeking a finding
that the Buckles were in default, and an interlocutory decree
of foreclosure. ECF No. 4-4. In response, the Buckles filed a
Motion to Dismiss, contending (among other arguments) that
contractual language required the foreclosure proceedings to
take place in the Third Circuit Court for the State of Hawaii
(“State Court”), not in the Bankruptcy Court. ECF
on the Cross-Motions, the Bankruptcy Court issued Proposed
Findings of Fact and Conclusions of Law on December 19, 2013
(“December 19, 2013 Findings”). ECF No. 4-18.
Among other rulings, the Bankruptcy Court indeed found the
Buckles in default and recommended entry of an interlocutory
decree of foreclosure. Id. at 2. It also concluded
that it had jurisdiction over the matter under 28 U.S.C.
§ 1334(b), as a proceeding “related to cases under
title 11.” Id. at 6. The Bankruptcy Court
rejected the Buckles' argument that the foreclosure
proceedings must occur in State Court, concluding that the
Debtor “may seek judicial foreclosure in any court with
jurisdiction to preside over a mortgage foreclosure of the
subject property.” Id. at 11. It had ruled
identically in a Report and Recommendation of November 13,
2013 in Maryl Group, ECF No. 19-1, and a challenge
to that Report and Recommendation was pending at that time
before another judge in this District. See Maryl
Group (ECF No. 1-1 at 11, in Civ. No. 13-00613 LEK-KSC).
January 13, 2014, that District Judge rejected the Report and
Recommendation in Maryl Group, and dismissed that
adversary proceeding without reaching the merits. ECF No.
20-1. That Judge determined -- contrary to the Bankruptcy
Court's view expressed in Maryl Group, and in
the December 19, 2013 Findings in the Buckles' adversary
proceeding -- that the plain language of the relevant
documents required foreclosure proceedings to be held in
State Court. Id. at 10. The Debtor appealed that
decision to the Ninth Circuit Court of Appeals. See Maryl
Group (ECF No. 11 in Civ. No. 13-00613 LEK-KSC). Given
the pendency of that appeal in Maryl Group, the
Bankruptcy Court stayed the Buckles' adversary proceeding
on February 14, 2014 (upon stipulation between the Debtor and
the Buckles) to allow the Ninth Circuit to decide the common
question regarding venue for the Debtor's foreclosure
actions. See ECF No. 1-6 at 6 (Stipulation and Order
Staying Proceedings Pending Appeal).
the Bankruptcy Court continued to adjudicate the Debtor's
chapter 11 action, and on June 2, 2014, confirmed the
Debtor's plan of reorganization. ECF Nos. 19-2 & 19-3
(“the Plan”). The 83-page Plan (exclusive of
exhibits) included a provision stating that “[a]s of
the Effective Date . . . [the Debtor] shall be converted from
a Hawaii limited partnership to a Delaware member-managed
limited liability company. The name of the reorganized
[Debtor] shall be 1250 Oceanside, LLC.” Plan at 46, ECF
19-3 at 4. The Plan also contained a “Retention of
Jurisdiction” provision, stating in part:
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. . . . Without limiting the
generality of the foregoing, the Bankruptcy Court shall
retain jurisdiction for the following purposes: . . . .
(e) decide or resolve any motions, adversary proceedings,
contested or litigated matters and any other matters and
grant or deny any applications involving the Debtor that may
be pending before the Effective Date or that may be commenced
Plan at 66-67, ECF No. 19-3 at 24-25.
March 21, 2015, the Bankruptcy Court issued an Order
Approving Final Accounting of Unsecured Creditors' Fund.
See In re 1250 Oceanside Partners, (Bankr. D. Haw.),
Case No. 13-00353 at ECF No. 1455-1. And on June 22, 2015,
the Bankruptcy Court issued a Final Decree, closing the
chapter 11 case. Id. at ECF No. 1464.
a year later, on June 21, 2016, the Ninth Circuit issued a
memorandum disposition in Maryl Group that reversed
the district court, reasoning that the contractual documents
“lack[ed] language clearly designating [the State
Court] as the exclusive forum for [the Debtor's]
foreclosure.” 1250 Oceanside Partners v. Maryl
Grp., Inc., et al. (In re: 1250 Oceanside Partners), 652
F. App'x 588, 589 (9th Cir. June 21, 2016). The Ninth
Circuit agreed with the Bankruptcy Court's original
position, holding that the district court erred in preventing
the Debtor from bringing a foreclosure action in the
Bankruptcy Court. Id.
Maryl Group, the Bankruptcy Court lifted the stay in
the Buckles' adversary proceeding and revised its
December 19, 2013 Findings. Specifically, on September 29,
2016, it issued the Amended Findings, which are substantively
identical to the December 19, 2013 Findings, but with
appropriate revisions reflecting the subsequent proceedings
in Maryl Group. Amended Findings at 9 (“[The]
Buckles argue that the Third Circuit Court is the only proper
forum for this ...