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.

In re Naturescape Holding Group Int'l Inc.

United States District Court, D. Hawaii

January 31, 2018

In re NATURESCAPE HOLDING GROUP INT'L INC., [Alleged] Debtor.
v.
GEMCAP LENDING I, LLC; KAREN FAZZIO; HAGADONE HAWAII INC.' THOMAS SPRUANCE; MARIO HOOPER; and GEORGE VAN BUREN, Appellees. NATURESCAPE HOLDING GROUP INT'L INC., Appellant, In re NATURESCAPE HOLDING GROUP INT'L INC., Debtor. LISA J. BATEMAN and BROOKE DECKER, Appellants,
v.
GEMCAP LENDING I, LLC; KAREN FAZZIO; HAGADONE HAWAII INC.; THOMAS SPRUANCE; MARIO HOOPER; and GEORGE BAN BUREN, Appellees.

          ORDER AFFIRMING THE BANKRUPTCY COURT'S ORDERS

          Leslie E. Kobayashi United States District Judge

         On December 19, 2016, in In re Naturescape Holding Group International, Inc., Bankruptcy Case No. 16-00982 (“Involuntary Proceeding” or “Bankruptcy No. 16-982”), the bankruptcy court issued the Order Granting Petitioning Creditors' Motions for (1) Summary Judgment For Relief Under 11 U.S.C. § 303 and (2) Appointment of a Trustee and (3) Denying Naturescape Holding Group Int'l Inc's Motion for Summary Judgment and for Dismissal of Petition Pursuant to 11 U.S.C. § 303 (“Summary Judgment Order”). On December 20, 2016, the bankruptcy court issued the Order for Relief in an Involuntary Case (“Relief Order”). [Bankr. No. 16-982, dkt. nos. 149, 150.[1] Alleged Debtor/Appellant Naturescape Holding Group International Inc. (“Naturescape”) appealed the Summary Judgment Order and the Relief Order in Naturescape Holding Group International Inc. v. GemCap Lending 1, LLC, CV 17-00015 LEK-RLP (“CV 17-015”), and Interested Parties/Appellants Lisa J. Bateman and Brooke Decker (“Decker”) appealed the same orders in Bateman, et al. v. GemCap Lending 1, LLC, CV 17-00017 LEK-RLP (“CV 17-017”).[2] [CV 17-015, Notice of Transfer of Appeal to District Court, filed 1/12/17 (dkt. no. 1); CV 17-017, Notice of Transfer of Appeal to District Court, filed 1/12/17 (dkt. no. 1).]

         Naturescape filed its Opening Brief (“Naturescape Brief”) on March 14, 2017. [CV 17-015, dkt. no. 8.] On April 13, 2017: Interested Party Elizabeth A. Kane, Trustee of the Estate of Naturescape Holding Group International Inc. (“the Trustee”), filed her brief (“Trustee Brief”); Petitioning Creditor/Appellee GemCap Lending 1, LLC (“GemCap”) filed its Answering Brief (“GemCap CV 17-015 Brief”); and Petitioning Creditors/Appellees Karen R. Fazzio (“Fazzio”), Hagadone Hawaii Inc. - doing business as This Week Publications (“Hagadone”), and Thomas Spruance (“Spruance, ” collectively “Petitioning Creditors”) filed an answering brief and joinder in the GemCap CV 17-015 Brief (“Petitioning Creditors CV 17-015 Brief”). [Id., dkt. nos. 15, 16, 17.] On April 27, 2017, Naturescape filed a Notice of No Reply Brief, and Request for Oral Argument. [Id., dkt. no. 19.]

         The Owners filed their opening brief (“Owners Brief”) on March 20, 2017. [CV 17-017, dkt. no. 8.] On April 19, 2017: GemCap filed its Answering Brief (“GemCap CV 17-017 Brief”); and the Petitioning Creditors filed an answering brief and joinder in the GemCap CV 17-017 Brief (“Petitioning Creditors CV 17-017 Brief”). [Id., dkt. nos. 9, 10.]

         The Court finds these matters suitable for disposition without a hearing pursuant to Rule LR7.2(d) of the Local Rules of Practice of the United States District Court for the District of Hawai`i (“Local Rules”). The Summary Judgment Order and the Relief Order are hereby affirmed, and Naturescape's appeal in CV 17-015 and the Owners' appeal in CV 17-017 are hereby denied.

         BACKGROUND

         On September 16, 2016, Fazzio, Mario Hooper (“Hooper”), and GemCap filed an Involuntary Petition Against a Non-Individual against Naturescape, pursuant to Chapter 11 of the Bankruptcy Code (“Involuntary Petition”). [Bankr. No. 16-982, dkt. no. 1.] Later that day, they filed an amended version of the Involuntary Petition (“Amended Involuntary Petition”). [Id., dkt. no. 4.] The Amended Involuntary Petition also noted a bankruptcy case was filed on September 16, 2016 as to Debtor Mountain Thunder Coffee Plantation International Inc. (“Mountain Thunder Inc.”), an affiliate of Naturescape. [Amended Involuntary Petition at 2.[3] According to the Amended Involuntary Petition, Naturescape owed “at least [$]107, 438.75, ” consisting of: “at least $15, 325.00” to GemCap for an “[u]ndersecured secured claim”; $87, 850.00 to Fazzio for “[n]onpayment for Coffee broker fees”; and $4, 263.75 to Hooper for “[n]onpayment for product-coffee cherry.” [Id. at 3.] On November 14, 2016, Hagadone filed a joinder in the Amended Involuntary Petition for a $6, 707.37 claim, and Spruance filed his joinder on November 18, 2016 for a $940.10 claim. [Bankr. No. 16-982, dkt. nos. 74, 83.]

         The related proceeding cited in the Amended Involuntary Petition is In re Mountain Thunder Coffee Plantation International Inc., Bankruptcy Case No. 16-00984 (“Bankruptcy No. 16-984”). The Involuntary Petition Against a Non-Individual (“Mountain Thunder Inc. Involuntary Petition”) alleged Mountain Thunder Inc. owed $41, 635.17, consisting of: $6, 864.97 to Hagadone for an “[n]onpayment for advertising fees”; $1, 833.20 to Spruance for “[n]onpayment for product-coffee cherry”; $6, 554.60 to Joseph Hing (“Hing”) for “[n]onpayment for product-coffee cherry”; and $26, 382.80 to Russell Komo (“Komo”) for “[n]onpayment for product-coffee cherry.” [Bankr. No. 16-984, Mountain Thunder Inc. Involuntary Petition, filed 9/16/16 (dkt. no. 1), at 3-4.[4] On September 23, 2016, Gutterman Kona Incorporated (“Gutterman”) filed a joinder in the Mountain Thunder Inc. Involuntary Petition for a $1, 531.27 claim. [Id., dkt. no. 21.] An Order for Relief in an Involuntary Case was entered on October 21, 2016. [Id., dkt. no. 45.]

         On October 11, 2016, in the Naturescape Involuntary Proceeding, Fazzio and Hooper filed a Motion for Summary Judgment for Relief Under 11 U.S.C. § 303 (“Fazzio/Hooper Motion”). [Bankr. No. 16-982, dkt. no. 37.] On November 18, 2016, the bankruptcy court issued an order denying the Fazzio/Hooper Motion (“Fazzio/Hooper Summary Judgment Order”). [Id., dkt. no. 89.]

         On November 18, 2016, Naturescape filed a Motion for Summary Judgment and for Dismissal of Petition Pursuant to 11 U.S.C. § 303 (“Naturescape's Motion”). [Id., dkt. no. 85.] On November 30, 2016, the Petitioning Creditors and Hooper filed a Counter Motion for Summary Judgment for Relief Under to 11 U.S.C. § 303 (“Petitioning Creditors' Motion”). [Id., dkt. no. 106.] The bankruptcy court held a hearing on Naturescape's Motion and the Petitioning Creditor's Motion on December 14, 2016. [Id., Minutes (dkt. no. 139).] The Summary Judgment Order is the bankruptcy court's ruling on Naturescape's Motion, the Petitioning Creditors' Motion, and GemCap's “Emergency Motion (A) to Limit Use of Cash Collateral, (B) for Appointment of Interim Trustee, (C) for Immediate Turnover of Property and an Accounting” (“GemCap's Motion”).[5] In the Summary Judgment Order, the bankruptcy court found, in pertinent part:

(d) Petitioning Creditors' Motion for Summary Judgment is GRANTED as there is no bona fide dispute as to the claims of creditors Mario Hooper, Hagadone Hawai`i Inc. dba This Week Publications, Thomas Spruance and GemCap Lending I, LLC; (e) Naturescape's Motion for Summary Judgment is denied; [and] (f) an Order for Relief shall be entered . . . .

         [Summary Judgment Order at 3.] The bankruptcy court ruled that there was a bona fide dispute about Fazzio's claim. [Bankr. No. 16-982, Trans. of 12/14/16 motions hearing (“12/14/16 Hrg.Trans.”), filed 1/11/17 (dkt. no. 234), at 18.[6]

         The bankruptcy court also granted GemCap's Motion as to the request for the appointment of a Chapter 11 trustee. [Summary Judgment Order at 3.] The December 20, 2016 Relief Order granted Chapter 11 relief. Also on December 20, the United States Trustee appointed Elizabeth Kane as the Trustee, subject to the bankruptcy court's approval, [Bankr. No. 16-982, dkt. no. 152, ] and the bankruptcy court approved the appointment on December 21, 2016. [Id., dkt. no. 161.]

         On January 10, 2017, Hooper's counsel filed a motion to withdraw, and the bankruptcy court issued an order granting the motion on March 15, 2017. [Bankr. No. 16-982, dkt. nos. 226, 356.] Thereafter, the bankruptcy court docket listed Hooper as proceeding pro se, but he did not submit any further filings after his counsel's withdrawal. In CV 17-015 and CV 17-017, counsel for the Petitioning Creditors does not represent Hooper.

         In the instant appeals, Naturescape and the Owners (collectively “Appellants”) argue that the bankruptcy court erred in granting summary judgment and entering the Relief Order because the Amended Involuntary Petition was not supported by three petitioning creditors whose claims were not subject to bona fide disputes.[7] Appellants assert that: Naturescape's liability to GemCap was disputed and, even if it was liable, the amount of the liability was disputed; Hagadone's and Spruance's claims were precluded by the collateral estoppel doctrine; and the bankruptcy court found that there was a bona fide dispute as to Fazzio's claim. Appellants concede that Hooper was a qualified petitioning creditor.

         STANDARD

         This Court has stated:

This court reviews a bankruptcy court's findings of fact for clear error and its conclusions of law de novo. See In re Kimura (United States v. Battley), 969 F.2d 806, 810 (9th Cir. 1992) (“The Court reviews the bankruptcy court's findings of fact under the clearly erroneous standard and its conclusions of law de novo.”). The court “must accept the Bankruptcy Court's findings of fact, unless the court is left with the definite and firm conviction that a mistake has been committed. Mixed questions of law and fact are reviewed de novo.” In re JTS Corp., 617 F.3d 1102, 1109 (9th Cir. 2010) (quotation marks and citations omitted).

In re Lee, CIVIL NO. 15-00278 SOM/RLP, 2015 WL 7274035, at *1 (D. Hawai`i Nov. 17, 2015). The United States Supreme Court has stated:

[a] finding is ‘clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. This standard plainly does not entitle a reviewing court to reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently. The reviewing court oversteps the bounds of its duty under Fed.R.Civ.P. 52(a) if it undertakes to duplicate the role of the lower court. In applying the clearly erroneous standard . . ., [reviewing] courts must constantly have in mind that their function is not to decided factual issues de novo. If the [lower] court's account of the evidence is plausible in light of the record viewed in its entirety, the [reviewing court] may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.
Anderson v. City of Bessemer, 470 U.S. 564, 573-74 (1985) (some alterations in Anderson) (citations and some internal quotation marks omitted). The standards described in Anderson apply when a district court reviews the factual findings of a bankruptcy court. See, e.g., Ingram v. Burchard, 482 B.R. 313, 322 (N.D. Cal. 2012); In re Daewoo Motor Am., Inc., 471 B.R. 721, 732 (C.D. Cal. 2012), aff'd, 554 Fed.Appx. 638 (9th Cir. 2014); In re Folsom, Civil No. 10CV2440 L(NLS), 2011 WL 3489681, at *1 (S.D. Cal Aug. 8, 2011), aff'd sub nom., Folsom v. Davis, 513 Fed.Appx. 651 (9th Cir. 2013).

In re Woods, CIVIL 15-00233 LEK-BMK, 2016 WL 8710426, at *4-5 (D. Hawai`i Jan. 29, 2016) (alterations in Woods).

         DISCUSSION

         Insofar as no party appealed either the bankruptcy court's ruling that Fazzio is not a qualified petitioning creditor or its ruling that Hooper is one, the issues in these appeals are: 1) whether the bankruptcy court committed reversible error by ruling GemCap, Hagadone, and Spruance (collectively “Disputed Creditors”) were qualified petitioning creditors; and 2) if two or more of the Disputed Creditors are qualified petitioning creditors, whether the total of their claims - together with Hooper's $4, 263.75 claim - met the threshold amount. If the bankruptcy court erred as to only one of Disputed Creditors, the bankruptcy court's orders must be affirmed because only three qualifying petitioning creditors (including Hooper) were required. 11 U.S.C. § 303(b) states, in pertinent part:

An involuntary case against a person is commenced by the filing with the bankruptcy court of a petition under chapter 7 or 11 of this title-
(1) by three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount, or an indenture trustee representing such a holder, if such noncontingent, undisputed claims aggregate at least $15, 775 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims[.]

(Emphasis added) (footnote omitted).[8] The amount is “adjusted by the Judicial Conference of the United States.” § 303(b)(1) n.1 (citing “Adjustment of Dollar Amounts notes set out under this section and 11 U.S.C.A. § 104”). The bankruptcy court stated the issue in the Involuntary Proceeding was whether all of the petitioning creditors' claims exceeded an “aggregate amount of $15, 325.” [12/14/16 Hrg. Trans. at 20.] None of the parties in these appeals contest the bankruptcy court's ruling as to the threshold amount.

         In an involuntary bankruptcy proceeding, the petitioning creditors have the burden of proving that there are no bona fide disputes as to their claims. In re Vortex Fishing Sys., Inc., 277 F.3d 1057, 1064 (9th Cir. 2002). Whether there is a bona fide dispute as to a creditor's claim is an issue of fact, and therefore the clearly erroneous standard of review applies on appeal. Id.

         The Bankruptcy Code does not contain a definition of a “bona fide dispute.” In re Marciano, 708 F.3d 1123, 1126 (9th Cir. 2013). The Ninth Circuit has adopted the Seventh Circuit's “test for disputes regarding liability or amount” of a claim, which “requires the bankruptcy court to ‘determine whether there is an objective basis for either a factual or a legal dispute as to the validity of the debt.'” Vortex Fishing, 277 F.3d at 1064-65 (quoting In re Busick, 831 F.2d 745, 750 (7th Cir. 1987)). This “‘objective test'” was “first set out in In re Lough, 57 B.R. 993, 996-97 (Bkrtcy. E.D. Mich. 1986), ” in which the bankruptcy court stated: “‘[I]f there is either a genuine issue of material fact that bears upon the debtor's liability, or a meritorious contention as to the application of law to undisputed facts, then the petition must be dismissed.'” Id. at 1064 (alteration in Vortex Fishing) (quoting Lough, 57 B.R. at 996-97).

In 2005, Congress amended section 303 by adding the phrase “as to liability or amount” after the phrase “bona fide dispute.” Therefore, the dispute can relate to liability on the claim or the amount of the claim, and not just the validity of the debt. This overrules prior decisions holding that the dispute about the amount of a claim disqualifies the petitioning creditor only if the undisputed portion of the claim is less than the statutory minimum amount.

In re Honolulu Affordable Hous. Partners, LLC, Case No.: 15-00146, 2015 WL 2203473, at *2 (Bankr. D. Hawai`i May 7, 2015) (footnotes and citations omitted).

         I. GemCap's Claim

         According to the Amended Involuntary Petition, Naturescape owed GemCap at least $15, 325.00 on a secured claim that was under-secured. [Bankr. No. 16-982, Amended Involuntary Petition at 3.] The bankruptcy court noted GemCap's claims arose from two term loans and a revolving loan. [12/14/16 Hrg. Trans. at 7.] GemCap submitted evidence that Naturescape; Mountain Thunder Inc.; Trent A. Bateman and Lisa J. Bateman, individually and as co-trustees of their trusts; and Brooke Decker, their adult daughter, executed:

(1) a Secured Term Loan Note in the principal sum of $440, 000.00 with a first amendment of $328, 970.08 and a second amendment in the principal amount of $244, ...

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.