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Auld-Susott v. Galindo

United States District Court, D. Hawaii

June 27, 2018



          Leslie E. Kobayashi United States District Judge

         On January 31, 2018, Defendant Lauryn Galindo (“Defendant”) filed her Motion for Summary Judgment (“Defendant's Motion”). [Dkt. no. 80.] On April 2, 2018, Plaintiffs Evan Auld-Susott (“E. Auld-Susott”), as Trustee for (1) Irrevocable Life Insurance Trust of John L. Susott and Kathryn C. Susott UAD 8/17/1988 as Restated, Exempt Trust FBO Daniel C. Susott, and (2) Irrevocable Life Insurance Trust of John L. Susott and Kathryn C. Susott UAD 8/17/1988 as Restated, Non-Exempt Trust FBO Daniel C. Susott (“the Trusts”); and John L. Susott (“J. Susott” and collectively “Plaintiffs”) filed their memorandum in opposition, and Defendant filed her reply on April 19, 2018. [Dkt. nos. 85, 95.] Also on January 31, 2018, Plaintiffs filed their Motion for Partial Summary Judgment (“Plaintiffs' Motion”). [Dkt. no. 78.] Defendant filed her memorandum in opposition on April 12, 2018, and Plaintiffs filed their reply on April 19, 2018. [Dkt. nos. 92, 94.] These matters came on for hearing on May 21, 2018. On June 12, 2018, an entering order was issued ruling on Plaintiffs' Motion and Defendant's Motion (collectively “Motions”). [Dkt. no. 103.] The instant Order supersedes that ruling. Plaintiffs' Motion is hereby granted and Defendant's Motion is hereby denied for the reasons set forth below.


         Plaintiffs filed their Complaint on August 10, 2016, asserting diversity jurisdiction. [Dkt. no. 1 at ¶ 5.] Plaintiffs allege: they are creditors of non-party Daniel C. Susott (“D. Susott”); D. Susott conveyed certain real property in Princeville, Hawai`i (“Property”) to Defendant for no consideration; and the purpose of the conveyance was to prevent Plaintiffs from recovering the Property to satisfy debts D. Susott owes to Plaintiffs. [Id. at ¶¶ 8, 15-18.] Plaintiffs assert three claims: fraudulent conveyance pursuant to Haw. Rev. Stat. § 651C-4(a)(1) (“Count I”); Unjust Enrichment (“Count II”); and Constructive Trust (“Count III”). In the instant Motions, the parties seek partial summary judgment as to whether Plaintiffs are creditors of D. Susott, and therefore have standing to pursue their Count I claim against Defendant.

         The following background facts, set forth by Plaintiffs, are deemed admitted because they are uncontroverted by Defendant's concise statement.[1] See Local Rule LR56.1(g). E. Auld-Susott is suing only in his capacity as trustee of the Trusts. The Trusts were funded by E. Auld-Susott's grandparents, non-parties Kathryn C. Susott and John L. Susott, Sr. [Pltfs.' CSOF at ¶ 2.] J. Susott, who is suing only in his individual capacity, is E. Auld-Susott's father. D. Susott is J. Susott's brother and E. Auld-Susott's uncle. [Id. at ¶ 6.] D. Susott is the income beneficiary of the Trusts, and E. Auld-Susott is the remainder beneficiary. [Id. at ¶ 7.] In August 2009, D. Susott became the trustee of the Trusts, and by November 2009, he had withdrawn almost all the trust's principal, approximately $1, 000, 000. [Id. at ¶ 10.] Litigation ensued.

         On November 13, 2012, the Superior Court of Monterey County, California (“California state court”) issued an order: removing D. Susott as trustee; appointing E. Auld-Susott as successor trustee; surcharging D. Susott $1, 500, 917 for breach of trust and fiduciary duties; and authorizing E. Auld-Susott, as successor trustee, to take collection actions against D. Susott (“Surcharge Order”).[2] [Id. at 13.] In partial satisfaction of the Surcharge Order, the Trusts levied against $48, 680.52 in D. Susott's brokerage account on April 4, 2013, and levied against D. Susott's interest in the Susott Family Limited Partnership (“SFLP”) on March 22, 2013. [E. Auld-Susott Decl., Exh. 2 (E. Auld-Susott's Surcharge Order satisfaction ledger).]

         On April 17, 2013, E. Auld-Susott filed a Trustee Status Report with the California state court regarding D. Susott's balance owing on the Surcharge Order (“Trustee Report”). [Pltfs.' CSOF, Decl. of Peter Knapman, Esq. (“Knapman Decl.”), Exh. A (Decl. of E. Auld-Susott), Exh. A1 (Trustee Report).] The Trusts applied a thirty percent discount to the value of the SFLP units to reflect their illiquidity, based on the reasoning of the Internal Revenue Service's (“IRS”) Revenue Ruling 93-12. [Id. at 2-3.] D. Susott received credit for the discounted value of the SFLP units, i.e., seventy percent of their full value. [Id. at 3.] On May 15, 2013, also in MP20193, the California state court questioned the propriety of crediting D. Susott with only the discounted value of the SFLP units, but issued no ruling on that issue. [Def.'s Responsive CSOF, Decl. of Wayson W. S. Wong (“Wong Responsive Decl.”), Exh. 11 (trans. of 5/15/13 hearing) at 2, 5.]

         On April 17, 2013, in Susott v. Susott, No. M115348 (“M115348”), the California state court issued J. Susott a judgment against D. Susott in the amount of $1, 624, 125.07, which J. Susott filed in Hawai`i state court on October 24, 2015.[3] [E. Auld-Susott Decl., Exh. 3 (Exemplified Foreign Judgment (“J. Susott's Judgment”)).] The document names J. Susott, and no other person or entity, as the holder of the judgment. [Id.] In M115348, according to the Summary of Case for Default Prove-up Against Defendant Daniel C. Susott, filed December 9, 2011, in California state court, D. Susott had committed financial elder abuse against his mother. [Wong Responsive Decl., Exh. 10.] The plaintiffs were J. Susott personally, J. Susott in his capacity as executor of his mother's estate, and J. Susott in his capacity as trustee of two marital trusts. [Id.]

         On August 1, 2016, Plaintiffs, D. Susott, and other persons, not including Defendant, executed a Settlement Agreement and Mutual Release of Claims (“Settlement Agreement”), which covered both MP20193 and M115348. [Wong Responsive Decl., Exh. 5.] The other parties to the Settlement Agreement were J. Susott in his capacity as executor of his mother's estate; J. Susott in his capacity as trustee of certain trusts;[4] J. Susott in his capacity as limited partner in the SFLP; and other parties not relevant to the instant Motions. [Id. at pg. 1.] Under the Settlement Agreement, D. Susott promised to end litigation challenging the Surcharge Order and J. Susott's Judgment, and to disclaim any right to any Susott Family Trusts or Partnerships, including the Trusts and the SFLP. [Id. at ¶ 2.] E. Auld-Susott and J. Susott promised that they would not execute the Surcharge Order or J. Susott's Judgment against D. Susott's residence at 3645 Woodlawn Terrace Place. (“D. Susott's Residence”) for the duration of D. Susott's natural life. Further, the Trusts promised to pay D. Susott $30, 000 annually, beginning August 15, 2016. [Id. at ¶ 3.] The parties generally released each other from all other claims. [Id. at ¶ 7.] The Settlement Agreement excludes from the general release the then-contemplated action to recover the Property, and further provides that any such action will not seek affirmative relief or judgment against D. Susott, and that any recovery will be credited to the Surcharge Order. [Id. at ¶ 12.] In addition, D. Susott promised not to challenge Plaintiffs' liens on D. Susott's Residence, and agreed that those liens are not part of any partial satisfaction of judgment until D. Susott's Residence is foreclosed upon. [Id. at ¶ 13.]

         In deposition testimony taken October 31, 2017, J. Susott stated D. Susott does not owe J. Susott, personally, any money; the money is owed to other entities. [Def.'s Concise Statement of Facts for her Motion (“Def.'s CSOF”), filed 1/31/18 (dkt. no. 81), Decl. of Wayson W. S. Wong, Exh. 2 (excerpt of trans. of 8/31/17 deposition of J. Susott (“J. Susott Depo.”)) at 189.] On December 7, 2017, that testimony was corrected so that J. Susott stated: D. Susott “owes money to me as I am entitled to money from those entities.”[5] [Separate and Concise Statement of Material Facts in Supp.t of Pltfs.' Opp. to Def.'s Concise Statement and Motion (“Pltfs.' Responsive CSOF”), filed 4/2/18 (dkt. no. 86), (Decl. of Peter Knapman, Esq. (“Knapman Responsive Decl.”), Exh. A (Witness Correction Sheet) at 2-3).]


         Pursuant to Federal Rule of Civil Procedure 56(a), a party is entitled to summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” In determining whether there is a genuine issue of material fact, a court must view the record in the light most favorable to the non-moving parties. Crowley v. Bannister, 734 F.3d 967, 976 (9th Cir. 2013). This district court has stated:

Summary judgment must be granted against a party that fails to demonstrate facts to establish what will be an essential element at trial. See Celotex [Corp. v. Catrett], 477 U.S. [317, ] 323 [(1986)]. A moving party has both the initial burden of production and the ultimate burden of persuasion on a motion for summary judgment. Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000). The burden initially falls on the moving party to identify for the court “those portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp., 477 U.S. at 323). “A fact is material if it could affect the outcome of the suit under the governing substantive law.” Miller [v. Glenn Miller Prods., Inc.], 454 F.3d [975, ] 987 [(9th Cir. 2006)].
When the moving party fails to carry its initial burden of production, “the nonmoving party has no obligation to produce anything.” In such a case, the nonmoving party may defeat the motion for summary judgment without producing anything. Nissan Fire, 210 F.3d at 1102-03. On the other hand, when the moving party meets its initial burden on a summary judgment motion, the “burden then shifts to the nonmoving party to establish, beyond the pleadings, that there is a genuine issue for trial.” Miller, 454 F.3d at 987. This means that the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (footnote omitted). The nonmoving party may not rely on the mere allegations in the pleadings and instead “must set forth specific facts showing that there is a genuine issue for trial.” Porter v. Cal. Dep't of Corr., 419 F.3d 885, 891 (9th Cir. 2005) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986)). “A genuine dispute arises if the evidence is such that a reasonable jury could return a verdict for the ...

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