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Barnes v. Field

United States District Court, D. Hawaii

May 22, 2019

CHAD BARRY BARNES, Appellant,
v.
DANE S. FIELD, TRUSTEE, Appellee.

         ORDER: ADOPTING IN PART AND REJECTING IN PART THE BANKRUPTCY COURT'S MEMORANDUM OF DECISION ON REMANDED ISSUES; GRANTING APPEAL OF THE BANKRUPTCY COURT'S MAY 9, 2016 ORDER GRANTING TRUSTEE'S MOTION FOR ORDER (I) AUTHORIZING SALE OF BOAT AND TRAILER UNDER BANKRUPTCY CODE § 363, AND (II) OTHERWISE GRANTING RELIEF, FILED ON MARCH 29, 2016; AND REVERSING THE MAY 9, 2016 ORDER

          Leslie E. Kobayashi, United States District Judge.

         The instant case is Appellant Chad Barry Barnes's (“Barnes”) appeal from the bankruptcy court's May 9, 2016 Order Granting Trustee's Motion for Order (I) Authorizing Sale of Boat and Trailer Under Bankruptcy Code § 363, and (II) Otherwise Granting Relief, Filed on March 29, 2016 (“5/9/16 Bankruptcy Order” and “Appeal”). [Notice of Transmittal to District Court, filed 5/11/16 (dkt. no. 1).[1] After remand from the Ninth Circuit, this Court remanded the case to the bankruptcy court to address the issues identified in the Ninth Circuit's order. [Ninth Circuit Order, filed 7/16/18 (dkt. no. 47);[2] Order remanding case to bankruptcy court, filed 7/23/18 (dkt. no. 49) (“7/23/18 Remand Order”).]

         Currently before the Court is the bankruptcy court's December 14, 2018 Memorandum of Decision on Remanded Issues (“12/14/18 Remand Decision”), which was transmitted to this district court on the same date. [Dkt. no. 51.[3] On February 15, 2019, Barnes filed his brief regarding the 12/14/18 Remand Decision (“Remand Brief”), [4] and Appellee Dane S. Field, Trustee for the bankruptcy estate of Sea Hawaii Rafting, LLC (“the Trustee”), filed a response to the Remand Brief on February 26, 2019. [Dkt. nos. 59, 60.] The Court finds Barnes's Appeal suitable for disposition without a hearing pursuant to Rule LR7.2(d) of the Local Rules of Practice for the United States District Court for the District of Hawaii (“Local Rules”). On April 5, 2019, this Court issued an entering order informing the parties of its rulings on: the issues on remand from the Ninth Circuit; and Barnes's Appeal. [Dkt. no. 64.] The instant Order supersedes that entering order. For the reasons set forth below, the 12/14/18 Remand Decision is hereby adopted in part and rejected in part, Barnes's Appeal is hereby granted, and the 5/9/16 Bankruptcy Order is hereby reversed.

         BACKGROUND

         Barnes worked for Sea Hawaii Rafting, LLC (“SHR”) for six years on the M/V Tehani, a twenty-five-foot inflatable boat (“the Tehani”). Barnes suffered serious injuries during an incident that occurred on July 3, 2012 while he and Kris Henry (“Henry”), the owner and manager of SHR, were launching the Tehani, using a trailer (“the Trailer”). Barnes v. Sea Haw. Rafting, LLC (“Admiralty Opinion”), 889 F.3d 517, 523-25 (9th Cir. 2018).

         I. Proceedings in the District Court and the Bankruptcy Court

         Barnes filed an admiralty action against Henry, SHR, and the Tehani, seeking to enforce his seaman's lien against the Tehani for the maritime remedy of maintenance and cure. [Barnes v. Sea Haw. Rafting, LLC, et al., CV 13-00002 ACK-WRP (“Admiralty Action”), Verified Complaint, filed 1/1/13 (dkt. no. 1).] In the admiralty action, Barnes's in rem claims against the Tehani were dismissed for lack of jurisdiction. [Id., Order Granting in Part and Denying in Part Pltf.'s Motion for Summary Judgment as to Unseaworthiness, Negligence Per Se, and Jones Act Negligence, and Dismissing Def. M/V Tehani for Lack of Jurisdiction, filed 12/22/15 (dkt. no. 197).]

         While the Admiralty Action was pending, Henry and SHR each initiated bankruptcy proceedings. [In re Henry, Bankr. No. 14-01475, Voluntary Petition (Chapter 13), filed 11/3/14 (dkt. no. 1); In re Sea Haw. Rafting, LLC, Bankr. No. 14-01520 (“SHR Bankruptcy”), Voluntary Petition (Chapter 7), filed 11/12/14 (dkt. no. 1).] In light of these proceedings, the Admiralty Action was stayed, pursuant to 11 U.S.C. § 362(a). [Admiralty Action, Minute Order, filed 11/13/14 (dkt. no. 152).] The stay was lifted on June 25, 2016. [Id., Minute Order, filed 6/25/16 (dkt .no. 156).]

         The instant Appeal arises from the SHR Bankruptcy. On March 29, 2016, the Trustee filed a Motion for Order (I) Authorizing Sale of Boat and Trailer under Bankruptcy Code § 363, and (II) Otherwise Granting Relief (“Sale Motion”), and Barnes filed a document that was both a motion to stay the sale of the Tehani and a memorandum in opposition to the Sale Motion (“Stay Motion”) on April 12, 2016. [SHR Bankr., dkt. nos. 151, 156.] In the Sales Motion, the Trustee sought approval to sell the Tehani for $32, 500.00 and the Trailer for $2, 500.00 to Aloha Ocean Excursions, LLC (“AOE” or “the Buyer”). [Id., 5/9/16 Bankruptcy Order (dkt. no. 185) at 2-3.]

         The bankruptcy court found that: the prices for the Tehani and the Trailer were “fair and reasonable”; the notice of the sale was proper; there was “[a] sound business purpose” for the sale; and “[t]he sale has been offered and accepted in good faith between the Buyer and the Trustee.” [Id. at 3.] The bankruptcy court thereafter: granted the Sale Motion; authorized the sale of the Tehani and the Trailer; stated that the sale was “free and clear of all liens and encumbrances, to the maximum extent permitted by the Bankruptcy Code”; noted that the Tehani and the Trailer were purchased “in good faith within the meaning of Bankruptcy Code § 363(m)”; and denied Barnes's Stay Motion, explaining that “Barnes is not a creditor and therefore [is] without standing to file such a motion.” [Id. at 4.] Barnes' Appeal was transmitted to this district court on May 11, 2016. [Dkt. no. 1.]

         On September 27, 2016, the Trustee filed a motion to dismiss the Appeal, which this Court granted in an order issued on March 14, 2017 (“3/14/17 Order”). [Dkt. nos. 14, 33.[5] The primary basis of the 3/14/17 Order was the fact that Barnes did not obtain a stay of the 5/9/16 Bankruptcy Order. See, e.g., 2017 WL 988655, at *3. On March 31, 2017, Barnes filed a motion for reconsideration of the 3/14/17 Order and an errata to the motion for reconsideration. [Dkt. nos. 34, 35.] On June 26, 2017, this Court issued an order denying Barnes's motion for reconsideration (“6/26/17 Order”), and the Clerk's Office entered the Judgment in a Civil Case. [Dkt. nos. 40, [6] 41.] Barnes filed a notice of appeal on June 30, 2017. [Dkt. no. 42.]

         II. Ninth Circuit Appeals and Remand

          While Barnes's appeal of the 3/14/17 Order and the 6/26/17 Order was pending, the Ninth Circuit issued the Admiralty Opinion. The Ninth Circuit reversed the district court's order in the Admiralty Action dismissing the Tehani for lack of jurisdiction. Admiralty Opinion, 889 F.3d at 543.

         In Barnes's appeal of the 3/14/17 Order and the 6/26/17 Order, the Ninth Circuit vacated the orders and remanded the case to this Court for reconsideration in light of the Admiralty Opinion. Ninth Circuit Order, 2018 WL 3943018. The Ninth Circuit directed this Court to “determine whether Barnes has prudential standing to pursue” the Appeal. Id. at *1. It also stated either this Court or the bankruptcy court “should determine whether the bankruptcy court lacked jurisdiction to authorize the sale, and whether the sale can and should be avoided.” Id. (citation omitted). The Mandate was issued on the same date as the Ninth Circuit Order. [Dkt. no. 48.] This Court thereafter remanded the case to the bankruptcy court to address the following issues: 1) whether Barnes had prudential standing to seek a stay of the sale of the Tehani; 2) if Barnes had prudential standing, whether the bankruptcy court lacked jurisdiction to authorize the sale; and 3) whether to avoid the sale. [7/23/18 Remand Order at 3.]

         In the 12/14/18 Remand Decision, the bankruptcy court concluded that: 1) Barnes had prudential standing to seek a stay of the sale of the Tehani; [12/14/18 Remand Decision at 6;] 2) the bankruptcy court did not have jurisdiction to authorize the sale of the Tehani free and clear of Barnes's maritime lien, but the bankruptcy court did have jurisdiction to authorize the sale subject to the lien; [id. at 8;] and 3) the 5/9/16 Bankruptcy Order should be set aside, and ...


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