Duca v. Gratitude Group et al
Filing
6
ORDER ACCEPTING 1 THE BANKRUPTCY COURT'S PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW AND RECOMMENDED JUDGMENT GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND FOR DECREE OF FORECLOSURE. Signed by JUDGE LESLIE E. KOBAYASHI on July 31, 2012. (bbb, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
CIVIL NO. 12-00191 LEK-KSC
Case No. 10-03696
(Chapter 11)
)
)
)
)
In re ROBERT NORTON MORAN,
)
Debtor.
)
_____________________________ )
JAMES N. DUCA,
)
)
Plaintiff,
)
)
)
vs.
)
)
GRATITUDE GROUP, a Hawaii
limited partnership, et al., )
)
)
Defendants.
_____________________________ )
ORDER ACCEPTING THE BANKRUPTCY COURT’S PROPOSED
FINDINGS OF FACT AND CONCLUSIONS OF LAW AND
RECOMMENDED JUDGMENT GRANTING PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT AND FOR DECREE OF FORECLOSURE
On March 9, 2012, the bankruptcy court filed its
Proposed Findings of Fact and Conclusions of Law and Recommended
Judgment Granting Plaintiff’s Motion for Summary Judgment and for
Decree of Foreclosure (“F&R”).
Defendants Gratitude Group, a
Hawai`i limited partnership (“Gratitude”), and Bob & Elice
Company, LLC, a Hawai`i limited liability company (“BEC”, all
collectively “Defendants”), filed their objections to the F&R
(“Objections”) on March 23, 2012.
Plaintiff James N. Duca
(“Plaintiff”) filed his response to Defendants’ Objections
(“Response”) on April 4, 2012.
On April 11, 2012, the bankruptcy
court transmitted these documents to this district court with a
report and recommendation (“Report”), recommending that this
Court accept the F&R.1
On June 29, 2012, pursuant to this
Court’s order, Defendants filed a declaration of counsel with
copies of relevant documents from the Adversary Proceeding.
The Court finds this matter 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”).
Further, the Court finds that it is not
necessary to receive additional evidence beyond what the parties
presented in the Adversary Proceeding.
9033(d).
See Fed. R. Bankr. P.
After careful consideration of the F&R, the parties’
submissions, and the relevant legal authority, the Court HEREBY
ACCEPTS the bankruptcy court’s F&R for the reasons set forth
below.
BACKGROUND
Plaintiff filed his Motion for Summary Judgment
(“Motion”), with a supporting concise statement of material facts
(“Plaintiff’s CSOF”), in the Adversary Proceeding on November 22,
1
The transmittal also included the cover page of the
transcript for the bankruptcy court’s hearing on Plaintiff’s
Motion for Summary Judgment and the docket sheet for the
underlying adversary proceeding before the bankruptcy court (“the
Adversary Proceeding”).
2
2011.2
Defendants filed their Memorandum in Opposition, with
their supporting concise statement of material facts
(“Defendants’ CSOF”), on January 13, 2012.3
Plaintiff filed his
Reply, with a declaration by Robert Norton Moran (“Moran
Declaration”), on January 20, 2012.4
The bankruptcy court held a
hearing on the Motion on January 27, 2012.5
The bankruptcy court
entered the F&R pursuant to its “related to” jurisdiction because
the Adversary Proceeding is a non-core matter, and Defendants did
not consent to entry of final judgment by the bankruptcy court.
[F&R at 9 (citing 28 U.S.C. § 1334(b); 28 U.S.C. § 157).]
The parties do not contest the following relevant facts
set forth in the bankruptcy court’s F&R:
1.
Plaintiff . . . is a natural person and
a resident of the City and County of Honolulu,
State of Hawaii.
2.
Defendant Gratitude Group (“Defendant
Gratitude”) is a Hawaii limited partnership.
2
The Motion is Appendix 1 to the Declaration of Jerrold K.
Guben (“Guben Declaration”), [filed 6/29/12 (dkt. no. 4),] and
Plaintiff’s CSOF is Appendix 2 to the Guben Declaration.
Plaintiff’s errata to Plaintiff’s CSOF, filed in the Adversary
Proceeding on December 12, 2011, is Appendix 3 to the Guben
Declaration.
3
The Memorandum in Opposition and Defendants’ CSOF are
Appendix 4 and Appendix 5, respectively, to the Guben
Declaration.
4
The Reply and the Moran Declaration are Appendix 6 and
Appendix 7, respectively, to the Guben Declaration.
5
The hearing transcript is Appendix 8 to the Guben
Declaration.
3
3.
Defendant Bob & Elice Company, LLC
(“Defendant BEC”) is a Hawaii limited liability
company that is the general partner of Defendant
Gratitude.
4.
Robert Norton Moran (“Debtor”) is a
Debtor in a Chapter 11 case pending before the
United States Bankruptcy Court for the District of
Hawaii, namely, Case No. 10-03696.
5.
In 2007, Defendant Gratitude, Judith
Moran and Debtor Moran executed and delivered to
Plaintiff a Promissory Note dated August 15
(“Note”) to evidence a joint and several
indebtedness of $400,000.00 loaned by Plaintiff.
The money was deposited into a Hawaii escrow in
order to finance the acquisition by Defendant
Gratitude and Debtor of the Pine Meadows
Apartments in Abilene, Texas, and was to be repaid
in Honolulu, Hawaii.
6.
As a part of the same transaction,
Defendant Gratitude signed a Term Loan Agreement
(“Term Loan Agreement”), Assignment of Rights to
Payments and Distributions (“Assignment of
Payments”) and a Security Agreement (“Security
Agreement”), by which Defendant Gratitude granted
a security interest in the collateral named
therein to secure the repayment of the
indebtedness.
7.
Plaintiff filed a financing statement
with the Bureau of Conveyances of the State of
Hawaii to perfect his security interest in the
collateral furnished to Plaintiff on the Note by
Defendant Gratitude. That financing statement was
recorded as Document No. 2007-140381 (“Financing
Statement”).
8.
Defendant BEC is the general partner of
Defendant Gratitude.
. . . .
10. Defendant Gratitude is the owner of
Gratitude Group of Texas, LLC (“Gratitude Texas”),
which is in turn the co-owner or joint venturer
with Debtor in the Abilene apartment complexes
4
known as the Fairmont and Pine Meadows apartments.
The pleadings on file with this court reflect that
the relationship between Debtor and Gratitude
Texas has been contentious and litigious. If
Defendant Gratitude’s interest in Gratitude Texas
is foreclosed upon and acquired by Plaintiff or a
third party by way of a foreclosure sale, this can
alter Debtor’s ability to develop a consensual
reorganization plan.
11. Defendant Gratitude or Gratitude Texas
and the Debtor have asserted claims against each
other. If Defendant Gratitude pays the Debtor’s
obligation to Plaintiff, Debtor will no longer owe
it. If Debtor’s claims against Defendant
Gratitude or Gratitude Texas have merit and
provide rights of set off, Debtor may no longer
owe this indebtedness to anyone.
12. The Debtor’s rights and obligations will
be affected by a determination in Debtor’s pending
adversary proceeding whether the Debtor is a joint
venture partner with Defendant Gratitude or
Defendant Gratitude’s affiliated entities. It is
possible that this issue may also be determined in
this action.
13. On June 13, 2008 Plaintiff received and
applied approximately $240,000 of funds received
from Debtor to the balance due on the Note. The
effect of that payment was to reduce the principal
balance owing on the Note to $200,000[.]
14. Debtor made monthly payments of $2,000
on the Note from July 13, 2008 to and including
November 13, 2010.
15. No payments on the Note have been made
by anyone since December 13, 2010.
16. Defendants Gratitude and BEC have
failed, neglected and refused to pay the amounts
due to Plaintiff. Defendant Gratitude and BEC owe
the remaining balance of the Note, which includes
$200,000 in principal, interest, attorneys’ fees
and costs.
5
17. The repayment of the Note is secured by
collateral more particularly described in the Term
Loan Agreement, Assignment of Payments, Security
Agreement, and Financing Statement.
. . . .
19. Pursuant to the Security Agreement, the
collateral therein is defined as: ““Collateral.”
The Collateral shall consist of all right, title
and interest of Debtor now owned or hereafter
acquired with respect to (a) the limited liability
company members’ equity interest in Gratitude
Group of Texas, LLC, a Texas limited liability
company, and (b) all money or property due or
becoming due to Debtor [Defendant Gratitude] or
transferred to Debtor [Defendant Gratitude] from
that limited liability company, whether by way of
debt, repayment of debt, equity, return of
capital, profits, dividends, cash flow or
otherwise, and (c) any proceeds thereof.”
(collectively referred to as “Collateral”).
20. In addition, by virtue of Defendant
Gratitude’s default, the Plaintiff is entitled to
payment and distributions otherwise due or
becoming due to Defendant Gratitude by virtue of
the Assignment of Payments.
21. Plaintiff’s lien on the Collateral is a
perfected security interest and Plaintiff’s
assignment under the Assignment of Payments is
also a perfected security interest.
22. The amount due on the Note, as of
November 13, 2011 is $237,750.00, plus per diem
interest of $98.6301169863 for every day
thereafter, plus attorney’s fees and costs and
such other and further amounts and charges as may
be proper and allowed, until the closing of the
sale herein authorized. All such amounts are
secured by a perfected security interest on the
Collateral.
[Id. at 2-8.]
6
The bankruptcy court’s contested findings of fact are
as follows:
18. Since December 13, 2010, the Note, the
Term Loan Agreement, Assignment of Payments,
Security Agreement, and Financing Statement have
been in default for nonpayment and Plaintiff is
entitled to enforce its rights under Article 9 of
Chapter 490, Hawaii Revised Statutes.
. . . .
23. By reason of the default by Defendants
Gratitude and BEC to pay the indebtedness which
they owe to Plaintiff, payment of which is secured
by Plaintiff’s perfected security interest on the
Collateral described in the Security Agreement,
Plaintiff is entitled to enforce his rights under
the terms of the Term Loan Agreement, Assignment
of Payments, Security Agreement and Financing
Statement and to foreclose on his security
interest, to receive all assigned payments and to
obtain a deficiency judgment, if appropriate,
against the Defendants.
24. Debtor and Judith Moran are not
indispensable parties, even though they are
jointly and severally liable for the indebtedness.
The terms of the Note specifically authorize the
Plaintiff to sue Defendant Gratitude separately
from the other makers.
25. Whether or not the loan resulted in a
direct or indirect benefit to Defendant Gratitude,
the loan involved a benefit to the Debtor and a
detriment to the Plaintiff.
[Id. at 6, 8-9 (emphases added).6]
6
Defendants object to Proposed Findings of Fact 24 and 25
in their entirety. [Objections at 6, 10.] Defendants object to
the portions of Proposed Findings of Fact 18 and 23 in bold.
[Objections at 3-4.]
7
The bankruptcy court concluded that Gratitude and BEC,
as Gratitude’s general partner, are liable to Plaintiff under the
Note, Term Loan Agreement, Assignment of Payments, Security
Agreement, and Financing Statement (collectively “the Loan
Documents”).
The remainder of the bankruptcy court’s Proposed
Conclusions of Law are similar to Proposed Findings of Fact 18,
and 20 through 25.
[Id. at 9-11.]
In particular, based on its
finding that the Loan Documents involved a benefit to Debtor and
a detriment to Plaintiff, the bankruptcy court concluded that the
documents were supported by adequate consideration.
[Id. at 11
(citing In re: Hokulani Square, Inc., 413 B.R. 706, 713 (Bkrtcy.
D. Hawaii 2009)).]
The bankruptcy court therefore recommended
that this Court grant Plaintiff’s Motion and issue a decree of
forfeiture.
I.
Defendants’ Objections
Defendants first object to the previously identified
portions of Proposed Findings of Fact 18 and 23, and to similar
language in Proposed Conclusion of Law D,7 insofar as they state
7
Defendants object to the following portion of Proposed
Conclusion of Law D:
and Plaintiff is entitled to the remedies of a
secured party under Article 9 of Chapter 490,
Hawaii Revised Statutes, including, but not
limited to the enforcement of its rights described
in the Term Loan Agreement, Assignment of
Payments, Financing Statement and Security
Agreement by way of foreclosure or otherwise.
(continued...)
8
that Plaintiff is entitled to both an Interlocutory Decree of
Foreclosure (“IDF”) and the appointment of a foreclosure
commissioner.
[Objections at 3-4.]
Defendants contend that,
under Hawai`i law, the order of an IDF and the appointment of a
foreclosure commissioner constitute a final judgment that a
bankruptcy court is not authorized to enter.
According to
Defendants, after a federal district court adopts the appropriate
proposed findings and conclusions by the bankruptcy court, the
prevailing party must apply to the district court for the entry
of an IDF and the appointment of a foreclosure commissioner.
Defendants also object to Proposed Finding of Fact 24
and Proposed Conclusion of Law H, in their entirety.
[Id. at 6.]
Proposed Finding of Fact 24 and Proposed Conclusion of Law H
state that Debtor and Judith Moran are not indispensable parties.
Defendants argue that the bankruptcy court should have required
Plaintiff to name Debtor as an indispensable party under Fed.
Bankr. R. 7019.
Defendants that Plaintiff filed a proof of claim on
May 17, 2011, Claim No. 28, seeking $202,400.00 as the alleged
outstanding balance of the $400,000.00 loan to Debtor.
[Id.]
addition, according to Defendants, “Debtor has scheduled
Plaintiff’s unsecured undisputed claim in the amount of
7
(...continued)
[Objections at 4.]
9
In
$300,000.00.”
[Id. at 7.]
Defendants emphasize that the amount
Plaintiff seeks in the Adversary Proceeding is different from
both the amount in Claim No. 28 and the amount on Debtor’s
Amended Schedule F.
Defendants argue that, to reconcile the
inconsistent amounts, Plaintiff must name Debtor as a party in
the Adversary Proceeding.
[Id. at 7-8.]
Defendants argue that,
outside of a bankruptcy context, a plaintiff may be able to sue
some, but not all, joint and several obligors.
Defendants,
however, assert that such case law is inapplicable because
bankruptcy law has unique rules addressing contribution and
reimbursement claims.
509(a)).]
[Id. at 8-9 (quoting 11 U.S.C. §§ 502(e),
Defendants contend that, under these rules and
procedures, all of Gratitude’s joint and several obligors are
indispensable parties in the Adversary Proceeding.
Finally, Defendants deny that Gratitude is not liable
under the Promissory Note because it received no consideration
from Plaintiff’s loans to Debtor.
Thus, Defendants object to
Proposed Finding of Fact 25 and Proposed Conclusion of Law I, in
their entirety.
[Id. at 10.]
Defendants emphasize that the
purpose of the $400,000.00 loan was to complete the purchase of
Pine Meadows, and Debtor is the sole fee simple owner of Pine
Meadows.
Defendants therefore assert that they received neither
direct consideration nor indirect consideration from the loan.
Defendants argue that the bankruptcy court’s reliance on Hokulani
10
Square is misplaced.
Defendants acknowledge that Hokulani Square
“could support a finding of consideration where a party sustained
a ‘detriment’ in lieu of consideration,” but Defendants argue
that Hokulani Square does not apply to the instant case because
Debtor is not a party to the Adversary Proceeding.
12.]
[Id. at 11-
Defendants assert that the detriment which Plaintiff
sustained from the loan is insufficient to support the action
against Defendants.
Defendants therefore contend that the action
against them should be dismissed for lack of consideration.
In light of these objections, Defendants ask this Court
to strike: the contested portions of Proposed Findings of Fact 18
and 23; the contested portion of Proposed Conclusion of Law D;
Proposed Findings of Fact 24, and 25, in their entirety; and
Proposed Conclusions of Law H and I, in their entirety.
II.
Plaintiff’s Response
Plaintiff first argues that the bankruptcy court’s F&R
did not constitute a final judgment ordering an IDF and
appointing a foreclosure commissioner; the F&R merely recommends
that a federal district court order an IDF and appoint a
foreclosure commissioner.
Plaintiff therefore urges the Court to
deny Defendants’ first objection.
As to Defendants’ objection regarding compulsory
joinder, Plaintiff argues that Defendants seem to concede that,
“under the interpretation of Rule 19 of the Federal Rules of
11
Civil Procedure, and under Hawaii state law and other nonbankruptcy cases involving the enforcement of promissory notes,
. . . the joinder of the Debtor or his spouse as defendants in
the action would not have been required.”
[Response at 3.]
Further, Defendants cited no legal authority for their
proposition that courts must interpret Fed. Bankr. R. 7019, which
is virtually identical to Fed. R. Civ. P. 19, in a different
manner than Rule 19.
Defendants’ failure to implead Debtor and
his wife, Judith Moran (“the Morans”), also indicates that
Defendants believed joinder was unnecessary.
Moreover, Plaintiff
emphasizes that Defendants did not challenge the bankruptcy
court’s Proposed Finding of Fact stating that the Note itself
states that it does not require the joinder of all makers in one
action.
Plaintiff argues that Paragraph 10 of the Note
constitutes a waiver of any compulsory joinder requirement for
all makers.
As to Defendants’ third objection, Plaintiff argues
that, in the Adversary Proceeding, it presented evidence that the
loan benefitted Defendants “through synergies with a real estate
investment that they owned (with the Debtor) before the loan was
made.”
[Id. at 4.]
The bankruptcy court, however, did not
address Plaintiff’s position.
Plaintiff also argues that the
bankruptcy court properly relied on Hokulani Square, which is
very similar to the instant case.
12
Plaintiff asserts that nothing
in Hokulani Square, or the state court cases upon which it
relies, suggests that a debtor’s party-status in an adversary
bankruptcy proceeding is relevant to the issue whether there is
adequate consideration.
Plaintiff emphasizes that courts
determine whether there was adequate consideration based on the
circumstances that existed at the contract formulation, not the
circumstances that exist when a party sues to enforce the
contract.
STANDARD
A district court considering a bankruptcy court’s
proposed findings and conclusions must “review[] de novo those
matters to which any party has timely and specifically objected.”
28 U.S.C. § 157(c)(1).
“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).
DISCUSSION
I.
IDF and Appointment of a Foreclosure Commissioner
Defendants first object to the F&R because they contend
that the F&R constituted a judgment that Plaintiff is entitled to
an IDF and to the appointment of a foreclosure commissioner.
Defendants contend that the bankruptcy court lacked jurisdiction
to enter such a judgment.
13
Defendants are correct that a bankruptcy judge only has
jurisdiction to enter a final order and judgment in a non-core
proceeding if all parties consent and the district court refers
the proceeding to the bankruptcy judge.
§ 157(c).
Absent
consent and referral, the bankruptcy judge must submit proposed
findings of fact and conclusions of law to the district court,
and the district court must enter the final order or judgment.
§ 157(c)(1).
That is exactly what happened in the instant case.
The bankruptcy court did not enter a final order granting an IDF
and appointing a foreclosure commissioner.
The bankruptcy court
merely recommended, based on its proposed Findings of Fact and
proposed Conclusions of Law, that the district court enter an
order granting an IDF and that the district court appoint a
foreclosure commissioner.
This Court therefore DENIES
Defendants’ first objection.
II.
Joinder of Parties
Defendants’ second objection is that Debtor is an
indispensable party.
Fed. R. Bankr. P. 7019 governs the joinder
of parties necessary for the just determination of adversary
proceedings.
It states:
Rule 19 F. R. Civ. P. applies in adversary
proceedings, except that (1) if an entity joined
as a party raises the defense that the court lacks
jurisdiction over the subject matter and the
defense is sustained, the court shall dismiss such
entity from the adversary proceeding and (2) if an
entity joined as a party properly and timely
raises the defense of improper venue, the court
14
shall determine, as provided in 28 U.S.C. § 1412,
whether that part of the proceeding involving the
joined party shall be transferred to another
district, or whether the entire adversary
proceeding shall be transferred to another
district.
Neither of the exceptions set forth in Rule 7019 applies in the
instant case.
Thus, by the express terms of Rule 7019, Fed. R.
Civ. P. 19 applies to the Adversary Proceeding.
Rule 19 states, in pertinent part:
(a) Persons Required to Be Joined if Feasible.
(1) Required Party. A person who is subject
to service of process and whose joinder will not
deprive the court of subject-matter jurisdiction
must be joined as a party if:
(A) in that person’s absence, the court
cannot accord complete relief among existing
parties; or
(B) that person claims an interest
relating to the subject of the action and is
so situated that disposing of the action in
the person’s absence may:
(i) as a practical matter impair or
impede the person’s ability to protect
the interest; or
(ii) leave an existing party
subject to a substantial risk of
incurring double, multiple, or otherwise
inconsistent obligations because of the
interest.
(2) Joinder by Court Order. If a person has
not been joined as required, the court must order
that the person be made a party. A person who
refuses to join as a plaintiff may be made either
a defendant or, in a proper case, an involuntary
plaintiff.
15
The Note identifies the following persons and entities
as the borrowers under the Note: “Gratitude Group, a Hawaii
limited partnership, by Bob & Elice Company, LLC, its general
partner[;]” Debtor; and Judith Moran.
[Pltf.’s CSOF, Decl. of
James N. Duca in Supp. of Pltf.’s Motion for Summary Judgment as
to All Counts (“Duca Decl.”), Exh. A at 5.]
There is no dispute
that: the Morans are subject to service of process; the
bankruptcy court would still have jurisdiction over the Adversary
Proceeding if the Morans were joined as defendants; and the
Morans have an interest in the loan at issue in the Adversary
Proceeding.
Defendants’ position is that the Morans are
indispensable parties because the failure to join the Morans
would impair or impede the Morans’ ability to protect their
interest and expose Defendants to “a substantial risk of
incurring double, multiple, or otherwise inconsistent
obligations[.]”8
Regardless of the Adversary Proceeding’s final
determination of Defendants’ liability under the Loan Documents,
neither Defendants nor the Morans can be held liable for an
amount greater than the amount each of them expressly agreed to
assume.
8
Although Defendants appear only argue that Debtor is an
indispensable party, see, e.g., Objections at 9, this Court
concludes that the analysis of the issue whether Judith Moran is
an indispensable party is the same as the analysis of the issue
whether Debtor is an indispensable party.
16
Paragraph 10 of the Note states:
If more than one person signs this Note, each
of us is fully and personally obligated to pay the
full amount owed and to keep all of the promises
made in this Note. Any guarantor, surety, or
endorser of this Note is also obligated to do
these things. The Note Holder may enforce its
rights under this Note against each of us
individually or against all of us together. This
means that any one of us may be required to pay
all of the amounts owed under this Note. Any
person who takes over my rights or obligations
under this Note or the rights or obligations of a
guarantor or surety of this Note, must keep all of
the promises made in this Note. All obligations
of any person signing this Note under any of the
loan documents or agreements relating to this loan
are also joint ant several.
[Id. at 3-4 (emphasis added).]
Defendants and the Morans agreed that any one of the
borrowers could be liable for the entire amount of the loan.
Thus, a finding in the Adversary Proceeding that Defendants are
liable for the full amount of the outstanding loan would be
consistent with their agreement.
Similarly, a finding in the
Adversary Proceeding that Defendants had no liability for the
outstanding amount, which may mean that either Debtor or
Judith Moran is liable for the entire outstanding amount, would
still be consistent with their agreement.
This Court therefore
FINDS that the failure to join the Morans as parties would
neither impair or impede the Morans’ ability to protect their
interest nor subject Defendants “to a substantial risk of
incurring double, multiple, or otherwise inconsistent
17
obligations[.]”
See Fed. R. Bankr. P. 7019; Fed. R. Civ. P.
19(a)(1)(B).
The Court ACCEPTS the bankruptcy court’s proposed
Finding of Fact and proposed Conclusion of Law stating that
Debtor and Judith Moran are not indispensable parties, and the
Court DENIES Defendants’ second objection.
III. Consideration
Defendants’ final objection is that the Court cannot
hold Gratitude liable on the Note because the Note lacked
consideration as to Defendants.
The F&R includes the proposed
Conclusion of Law that there is adequate consideration to support
the Loan Documents, “whether or not the loan resulted in a direct
or indirect benefit to Defendant Gratitude, because those
documents involved a benefit to the Debtor and a detriment to the
Plaintiff.”
[F&R at 11 (citing In re: Hokulani Square, Inc., 413
B.R. 706, 713 (Bkrtcy. D. Hawaii 2009)).]
Defendants argue that
Hokulani Square is inapplicable because, unlike the instant case,
the debtor itself was a party in the adversary proceeding.
In Hokulani Square, the court described the following
principles of consideration under Hawai`i contract law:
“Consideration is defined as a bargained for
exchange whereby the promisor receives some
benefit or the promisee suffers a detriment.”
Shanghai Inv. Co. v. Alteka Co., 92 Hawai`i 482,
496, 993 P.2d 516, 530 (2000) . . . , overruled on
other grounds, Blair v. Ing, 96 Hawai`i 327, 31
P.3d 184 (2001). If the promisee incurs a
detriment, it does not matter that the promisor
18
receives no benefit. Trousseau v. Cartwright, 10
Haw. 138, 142 (1895). Similarly, consideration is
sufficient even if it flows to a third party. The
court does not need to consider what induced the
promisor to make the promise for the third party.
Metropolitan Casualty Ins. Co. v. Realty Dev. Co.,
32 Haw. 667, 675–77 (1933).
413 B.R. at 713 (emphasis omitted).
Although in Hokulani Square
the debtor was a party to the adversary proceeding, nothing in
Hokulani Square indicates that these principles of Hawai`i
contract law would be inapplicable if the debtor had not been a
party to the adversary proceeding.
Similar to the instant case,
the promisors, Walter and Sylvia Chang, secured a benefit for
another entity, Hokulani Square, Inc.
The benefit was a large
loan from the promisee, Investors Funding Corporation, which
suffered the detriment of lending the sums.
Id. at 709, 713.
The Court therefore ACCEPTS the bankruptcy court’s
proposed Finding of Fact and proposed Conclusion of Law regarding
the consideration issue, and the Court DENIES Defendants’ third
objection.
IV.
Plaintiff’s Motion
Insofar as this Court has denied Defendants’
Objections, the Court ACCEPTS the F&R and GRANTS Plaintiff’s
Motion.
The Court ORDERS the parties to meet and confer
regarding the selection of a foreclosure commissioner.
If the
parties agree upon a proposed foreclosure commissioner, the
parties shall submit a joint letter brief to this Court
19
identifying their selection, with the proposed commissioner’s
contact information.
If the parties cannot agree upon a
foreclosure commissioner, each party shall submit a letter brief
to this Court identifying the party’s recommendation for the
foreclosure commissioner, with the proposed commissioner’s
contact information and a brief statement of the reasons
supporting the party’s recommendation.
The parties shall submit
their letter briefs by August 15, 2012, and the letter briefs
shall not exceed five pages.
Once the parties have submitted
either their joint letter brief or their individual letter
briefs, the Court will issue the bankruptcy court’s proposed
Order Granting Plaintiff’s Motion for Summary Judgment Against
Defendants and for Decree of Foreclosure, with either the
parties’ agreed upon proposed foreclosure commissioner or the
Court’s selection from the parties’ respective recommendations.
CONCLUSION
On the basis of the foregoing, this Court HEREBY
ACCEPTS the bankruptcy court’s Proposed Findings of Fact and
Conclusions of Law and Recommended Judgment Granting Plaintiff’s
Motion for Summary Judgment and for Decree of Foreclosure, filed
in the bankruptcy court on March 9, 2012 and transmitted to this
district court on April 11, 2012.
The Court GRANTS Plaintiff’s Motion for Summary
Judgment, filed in the Adversary Proceeding on November 22, 2011,
20
and ORDERS the parties to meet and confer regarding their
recommendation for a foreclosure commissioner.
If the parties
agree upon a recommended foreclosure commissioner, the parties
shall submit a joint letter brief to this Court identifying their
selection.
If the parties cannot agree, each party shall submit
a letter brief to this Court identifying the party’s
recommendation for the foreclosure commissioner.
The parties
shall submit their letter briefs by August 15, 2012.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, July 31, 2012.
/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
JAMES N. DUCA V. GRATITUDE GROUP, ET AL; CIVIL NO. 12-00191 LEKKSC; ORDER ACCEPTING THE BANKRUPTCY COURT’S PROPOSED FINDINGS OF
FACT AND CONCLUSIONS OF LAW AND RECOMMEND JUDGMENT GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND FOR DECREE OF
FORECLOSURE
21
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