United States District Court, D. Hawaii
ORDER CONFIRMING SALE, APPROVING COMMISSIONER'S
REPORT, AND DETERMINING PRIORITY OF FUTURE
C. Kay Sr. United States District Judge.
reasons discussed below, the Court GRANTS Plaintiff's
Motion for an Order Confirming Sale, Approving
Commissioner's Report and Distributing Proceeds as
1) The sale is confirmed;
2) The Commissioner's Report is approved; and
3) The proposed order of priority for future disbursements is
the distribution of sale proceeds, the Court will reserve
consideration of that issue pending a final determination of:
(a) the reasonable amount of attorneys' fees and costs to
which Defendant Capstead Mortgage Corporation is entitled;
and (b) the amount of interest and penalties, as part of
Defendant Ronald Staton's federal tax liabilities, to
which Plaintiff is entitled. The Court will rule on the
ultimate amount of sale proceeds to be distributed to each
party, and order distribution, following a separate hearing.
about August 19, 1987, Defendants Ronald Staton (“Mr.
Staton”) and Brenda Staton (“Mrs. Staton, ”
and together with Mr. Staton, the “Statons”)
entered into an Agreement of Sale to purchase a property (the
“Residence”) located at 233 Kalalau Street,
Honolulu, Hawaii 96825, and identified by Tax Map Key No.
(1)3-9-023-039. ECF Nos. 109-2, 109-4. The Statons were
granted the Deed to the Residence on or about July 30, 1990.
ECF Nos. 109-2, 109-5. The Agreement of Sale and Deed
indicate that the Statons purchased and own the Residence as
tenants by the entirety. ECF Nos. 109-2, 109-4, 109-5.
Statons failed to pay federal income taxes from 2000 through
2007. Tax and related assessments were made against Ronald
Staton individually for the 2001 through 2007 income tax
years. Despite the Plaintiff United States'
(the “Government”) notice and demand for payment,
Mr. Staton did not pay the full assessment amounts. ECF No.
1. Mr. Staton's total liability reduced to judgment is
$355, 526.74, without considering accrued interest or
applicable payments and credits.
Government filed notices of its federal tax liens
(“NFTL's”) related to its tax and related
assessments made against Mr. Staton. It also filed the
NFTL's with the State of Hawaii Bureau of Conveyances on
April 3, 2006, December 5, 2006, July 10, 2007, April 7,
2009, and May 12, 2009. ECF Nos. 109-2, 109-3. The Government
also filed a notice of lis regarding this action with the
State of Hawaii Bureau of Conveyances on June 15, 2012. ECF
Nos. 109-2, 109-5.
parties with an interest in the Residence are Defendants
Capstead Mortgage Corporation (“Capstead”), Navy
Federal Credit Union (“NFCU, ” and together with
Capstead, the “Lender Defendants”), and the State
of Hawaii. Capstead represents that the amount owed to it is
$423, 254.65 (consisting of $289, 949.89 in principal, $4,
357.59 in interest as of March 1, 2018, and $128, 947.19 in
attorneys' fees and costs). ECF No. 282. The Court
entered a minute order on March 15, 2018, referring to
Magistrate Judge Kevin Chang the determination of the
attorneys' fees and costs to which the Lender Defendants
are entitled. ECF No. 295. Accordingly, an amount sufficient
to cover the attorneys' fees and costs the Lender
Defendants have requested will be withheld from the initial
disbursement of the foreclosure sale proceeds. Id.
State of Hawaii, meanwhile, represents that the amount
Defendant Ronald Staton owes it for unpaid taxes is $156,
098.14,  but it also “acknowledges that the
Defendants' [Residence owned as tenants by the entirety]
is not subject to [its claims] because the state tax liens
are solely against Defendant Ronald Staton.” ECF No.
281 at 5. Thus, the State of Hawaii “does not seek to
collect from the sale proceeds of the Defendant's
[Residence][.]” Id. at 7.
4, 2012, the Government filed its Complaint against the
Statons, the Lender Defendants, and the State of Hawaii. The
Complaint sought to reduce to judgment the federal tax
assessments against the Statons filing jointly (Count I) and
Ronald Staton filing individually (Count II). It also sought
to foreclose the Government's federal tax liens on the
Residence (Count III). ECF No. 1.
27, 2014, the Government filed a motion for partial summary
judgment on Counts I and II of the Complaint. ECF No. 89 (the
“First MSJ”). The First MSJ indicated that Count
I “should be dismissed, ” because the
Statons' joint tax assessments, related solely to their
filing for the 2000 tax year, were paid in full. ECF No.
89-1. But it sought entry of judgment against Ronald Staton
on Count II for the tax and related assessments made against
him for his 2001 through 2007 income tax years. Id.
September 30, 2014, pursuant to a stipulation the Government
and Ronald Staton filed, the Court entered judgment against
Mr. Staton with respect to his 2001, 2002, 2003, and 2005
income tax liabilities. ECF No. 104. The amount of that
judgment is $273, 715.67, plus interest accruing after July
1, 2014 and less any payments made or credits applied after
that date. Id. at 2. On November 25, 2014, pursuant
to another stipulation the Government and Ronald Staton
filed, the Court entered judgment against Mr. Staton with
respect to his remaining 2004, 2006, and 2007 income tax
liabilities at issue. ECF No. 108. The amount of that
judgment is $81, 811.07, plus interest accruing after October
31, 2014 and less any payments made or credits applied after
that date. Id. at 2. Thus, as the Government
asserts, Mr. Staton's total outstanding liability reduced
to judgment is $355, 526.74, which the Government represents
increases to an aggregate amount of $412, 166.31 when accrued
interest and penalties calculated through March 30, 2018 are
added. ECF No. 271 at 2.
December 29, 2014, the Government filed a Motion for Summary
Judgment on the Third Claim in the Complaint. ECF No. 109
(the “Second MSJ”). The Second MSJ requested that
the Government's federal tax liens and judgments be
foreclosed and that the Residence be sold free and clear of
all liens pursuant to the terms of Plaintiff's Proposed
Order of Foreclosure and Judicial Sale. Id.; see
also ECF No. 109-1. It further requested that the
proceeds of the foreclosure sale first be applied to the
costs of sale and any outstanding property taxes on the
Residence, and thereafter be distributed among the parties
through a stipulation or order of the Court. ECF No. 109.
Court issued an order granting the Second MSJ on August 31,
2015, ECF No. 157, which thoroughly set forth why the
inclusion of the foreclosure of Lender Defendants'
mortgage was proper, id. at 16-23. That same day,
the Court issued an Order of Foreclosure and Judicial Sale
(“Foreclosure Order”) of the Residence, ordering
that the Residence be sold free and clear of all liens,
including Lender Defendants' mortgage. ECF No. 158.
September 1, 2015, however, Mr. Staton filed a petition for
relief under 11 U.S.C. § 301 in the United States
Bankruptcy Court for the District of Hawaii. ECF No. 160-1.
In view of Mr. Staton's bankruptcy petition, the Court
stayed this case. ECF No. 161. The Court reinstated the
Foreclosure Order on December 7, 2015, in response to the
Bankruptcy Court's Order Granting United States'
Motion for Relief from Automatic Stay. ECF No. 168.
November 16, 2016, Mr. Staton filed a second petition for
relief under 11 U.S.C. § 301 in the United States
Bankruptcy Court for the District of Hawaii. ECF No. 208.
Again, in view of Mr. Staton's bankruptcy petition, the
Court stayed this case. ECF No. 209. Mr. Staton's second
petition for relief under 11 U.S.C. § 301 was dismissed,
however, and on April 24, 2017, the Court reinstated its
Foreclosure Order and directed the parties to proceed in
accordance therewith. ECF No. 212.
before the scheduled foreclosure sale auction, on June 20,
2017, Mrs. Staton filed a petition for relief under 11 U.S.C.
§ 301 in the United States Bankruptcy Court for the
District of Hawaii. ECF No. 214. Based on Mrs. Staton's
bankruptcy petition, the Court stayed this case. ECF No. 215.
following month, on August 7, 2017, the Government filed a
Motion for Relief from Automatic Stay in the Bankruptcy
Court. The Bankruptcy Court entered an order on October 6,
2017, granting the Government's Motion for Relief from
Automatic Stay. Accordingly, the Court unstayed this case and
reinstated its Foreclosure Order, directing the parties to
proceed in accordance therewith. ECF No. 219.
foreclosure sale of the Residence was set for December 20,
2017. ECF No. 230. But on December 8, 2017, Mr. Staton filed
an Emergency Motion to Strike Notice of Lis Pendens (NOPA),
ECF No. 226, along with a Supplement to the Emergency Motion,
ECF No. 227. Mr. Staton represented that he obtained
financing in the amount of $1, 032, 000-sufficient to satisfy
all liens on the property-with a closing date set for
December 8, 2017. ECF No. 226. The Court held a hearing on
this matter on December 11, 2017 and ordered the parties to
have a settlement conference with Magistrate Judge Chang. ECF
December 18, 2017, Magistrate Judge Chang held the settlement
conference, which he ended when the Statons could not produce
a loan commitment from the lender for the above-described
financing. ECF No. 244. The Statons filed an Emergency Motion
Regarding Foreclosure and Request for a Hearing and Stay
Pending Hearing later that day. ECF No. 241. And- still on
December 18, 2017-the Court held a hearing on the
Statons' motion, concluding that once again the Statons
failed to obtain a loan commitment which would pay off all
the liens on the Residence and that the foreclosure of the
Residence would proceed on December 20, 2017. ECF No. 243.
before the foreclosure sale, on December 19, 2017, the
Statons filed a Notice Re: Conditional Loan Approval Letter
and requested a stay of the foreclosure sale. ECF No. 245. The
Court held a hearing the morning of December 20, 2017
regarding the Statons' Notice,  at which the Court denied
the Statons' request for a stay and ordered the
foreclosure sale to proceed. ECF No. 251.
foreclosure sale occurred on December 20, 2017 around 12:00
p.m. on the steps of the United States District Court for the
District of Hawaii. Following the foreclosure sale, on
December 21, 2017, the Commissioner filed a Notice of Sale,
informing the Court that the Residence was sold one day
earlier for $1, 135, 000.00, subject to confirmation by the
Court. ECF No. 254.
December 21, 2017, however, the Government filed a Notice of
Defendant Ronald Staton's Bankruptcy Case, which stated
that: (1) Mr. Staton filed a new bankruptcy case on December
20, 2017 and (2) the Government intended to seek relief from
the stay in that case so that the Commissioner's sale
could be confirmed. ECF No. 253.
December 22, 2017, Mrs. Staton filed a notice of lis pendens,
asserting that she was contesting the validity of the
foreclosure sale as having been filed in violation of Mr.
Staton's bankruptcy, which she contended was filed at
11:54 a.m. before the foreclosure sale. ECF No. 255. She also
asserted that the foreclosure sale failed “to protect
defendant interests in the property.” ECF No. 255 at 2.
The Court entered a minute order on January 5, 2018, setting
a hearing on Mrs. Staton's claim for January 31, 2018 and
directing the parties to file briefs. ECF No. 258.
January 17, 2018, the Statons filed a Brief in Support of
Claim of Failure to Protect Defendant Interests in Real
Property. ECF No. 260. On January 23, 2018, the United States
filed a Memorandum in Response to the Statons' December
22, 2017 and January 17, 2018 briefs. ECF No. 261. On January
24, 2018, the Lender Defendants filed a Response to Brenda
Staton's Brief in Support of Claim of Failure to Protect
Defendant Interests in Real Property. ECF No. 262.
Bankruptcy Court granted the Government's Motion for
Relief from Automatic Stay on January 31, 2018, and applied
the lifting of the stay retroactively to December 20, 2017.
This Court continued the hearing on Mrs. Staton's claim
originally scheduled for January 31, 2018 until February 16,
2018 because the Government: (1) did not seek a waiver of the
14-day stay provided under Fed.R.Bankr.P. 4001(a)(3) in Mr.
Staton's bankruptcy case; and (2) failed to record the
Bankruptcy Court's Order in Mrs. Staton's prior
bankruptcy case granting relief from the stay, which provided
for “‘in rem' relief, i.e. this order is
binding with respect to the subject property for 240 days
after the date of the entry of this order in any other