Barnes v. Sea Hawaii Rafting, LLC et al

Filing 608

ORDER IMPOSING SANCTIONS ON DEFENDANT ALOHA OCEAN EXCURSIONS, LLC AND DEFENDANT KRISTIN KIMO HENRY - Signed by JUDGE ALAN C. KAY on 8/29/2019. "The Court hereby imposes monetary sanctions jointly and sev erally against Defendant Henry and Defendant AOE in the amount of $25,000, which shall be payable to Plaintiff Barnes. The Clerk of Court is directed to disburse the $18,000 plus interest currently held in the registry of the Court to Plai ntiff Barnes as partial payment of the sanction. Defendant Henry and Defendant AOE are directed to pay the remainder of the sanction to Plaintiff Barnes no later than September 30, 2019. The Court directs Defendant A OE and Defendant Henry to take appropriate steps to effectuate the successful transfer of the commercial use permit back to Defendant SHR. Defendant AOE and Defendant Henry are required to pay any fine or transfer fee assessed in the course of transf erring the permit back to Defendant SHR. The Court further rules that the $25,000 sanction shall be subject to significant enhancement should the permit not be reissued to Defendant SHR. This Order modifies and supersedes the Court's 07/17/ 2019 Order." (jo)COURT'S CERTIFICATE of Service - Non-Registered CM/ECF Participants have been served by First Class Mail to the addresses of record listed on the Notice of Electronic Filing (NEF)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAI`I

)
)
)
Plaintiff,
)
)
v.
)
)
SEA HAWAI`I RAFTING, LLC;
)
KRIS HENRY; ALOHA OCEAN
)
EXCURSIONS, LLC; JOHN
)
DOES 1-20; MARY DOES
)
1-20; DOE CORPORATIONS
)
1-20; DOE PARTNERSHIPS
)
1-20; DOE ASSOCIATES
)
1-20; DOE GOVERNMENTAL
)
AGENCIES 1-20; AND OTHER
)
ENTITIES 1-20, in personam;
)
AND M/V TEHANI, HA 1629-CP,
)
AND HER ENGINES, EQUIPMENT,
)
TACKLE, FARES, STORES,
)
PERMITS, FURNISHINGS, CARGO
)
AND FREIGHT; DOE VESSELS 1-20,)
in rem.
)
)
Defendants.
)
)
CHAD BARRY BARNES,

Civ. No. 13-00002 ACK-RLP

ORDER IMPOSING SANCTIONS ON DEFENDANT ALOHA OCEAN EXCURSIONS,
LLC AND DEFENDANT KRISTIN KIMO HENRY
For the reasons discussed below, the Court imposes
monetary sanctions in the amount of $25,000 jointly and
severally against Defendant Kristin Kimo Henry (“Defendant
Henry”) and Defendant Aloha Ocean Excursions, LLC (“Defendant
AOE”), subject to potential substantial enhancement as discussed
more fully herein.
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BACKGROUND
For purposes of this Order, the Court will not recount
this case’s lengthy procedural history beginning in 2013.

The

Court only discusses those facts and events of specific
relevance to the issue that this Order addresses.
On August 15, 2019, the Court issued a Minute Order
(the “08/15/2019 Order”), ECF No. 601, concerning the commercial
use permit and the matter of whether to sanction Defendant Henry
and Defendant AOE.

The Court stated the following:

In furtherance of its directive from the Ninth Circuit
to proceed with establishing the rights of Plaintiff
Barnes to maintenance and cure, the Court is
considering whether it should sanction Defendant Henry
and Defendant AOE for wrongfully transferring the
commercial use permit for the vessel M/V Tehani by
Defendant Henry’s misrepresentation to the
harbormaster that he was simply requesting a change in
name from Sea Hawaii Rafting, LLC to Aloha Ocean
Excursions, LLC.
08/15/2019 Order at 1.

Defendant AOE and Plaintiff Barnes filed

briefs on the sanctions matter on August 20, 2019.
and 604.

ECF Nos. 603

The Court held a hearing on the sanctions matter on

August 22, 2019.

ECF No. 606.
DISCUSSION

Based upon the authorities hereinafter discussed, the
Court imposes sanctions against Defendant Henry and Defendant
AOE for the reasons that follow.

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I.

Events Concerning the Permit
A review of the various events concerning the permit

is necessary in order to properly understand the Court’s
decision to sanction Defendant Henry and Defendant AOE.
Plaintiff Barnes was injured in July 2012 when the
vessel Tehani, on which he was working as a seaman, exploded as
it was being lowered into the water at the Honokohau Harbor in
Kailua-Kona, Hawai`i.

Plaintiff Barnes filed this lawsuit on

January 1, 2013, which includes a maritime lien claim for
failure to pay Plaintiff Barnes maintenance and cure.

This

Court has ruled that Plaintiff Barnes is entitled to recover for
maintenance and cure from Defendant Sea Hawaii Rafting, LLC
(“Defendant SHR”) as the owner of the Tehani.

At the time of

the accident, Defendant SHR operated the vessel Tehani under a
commercial use permit issued by the Division of Boating and
Ocean Recreation (“DOBOR”) as part of a maritime tourist
business.

The permit was issued to Defendant SHR, and the

Tehani was (and still is) the vessel named on the permit.
Defendant Henry is the sole member of Sea Hawaii Rafting, LLC
and Aloha Ocean Excursions, LLC.

The parties have always agreed

that the commercial use permit significantly affects the value
of the vessel.
The commercial use permit entitles the permittee to
launch the vessel named on the permit from the ramp at Honokohau
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Harbor.

Currently, 51 such permits exist; however, the number

of permits is limited to 35 and there is a permit waitlist with
six individuals or entities on it.

Transcript of February 28,

2019 Hearing (“Tr.”), ECF No. 539, at 8:8, 9:1–6 (testimony of
William Wynhoff, Deputy Attorney General and General Counsel for
the State of Hawai`i’s Department of Land and Natural Resources
(“DLNR”)).

This means that 16 individuals or entities must give

up their permits before an individual or entity on the waitlist
will be issued a permit.

Tr. at 9:7–12.

On November 3, 2014, Defendant Henry filed a voluntary
chapter 13 bankruptcy petition.

See In re Kristin Kimo Henry,

Case No. 14-01475 (Bankr. D. Haw. 2014) (the “Chapter 13 Case”).
On November 12, 2014, Defendant SHR filed a voluntary chapter 7
bankruptcy petition.

See In re Sea Hawaii Rafting, LLC, Case

No. 14-01520 (Bankr. D. Haw. 2014) (the “Chapter 7 Case”).
In a Minute Order dated July 17, 2015, the Court noted
that Defendant Henry represented to this Court that Defendant
SHR owned the Tehani; yet in the Chapter 13 Case, Defendant
Henry represented that he himself owned the Tehani.
at 2.

ECF No. 158

After the Court noted the inconsistency in Defendant

Henry’s representations, Defendant SHR amended its bankruptcy
schedules on August 4, 2015 to reflect the fact that it owned
the Tehani (although Defendant SHR did not disclose that it
owned the commercial use permit).

Chapter 7 Case, Dkt. No. 24.

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Defendant Henry formed Aloha Ocean Excursions, LLC on
August 11, 2015. 1/

Defendant Henry and Defendant AOE sought to

lease the Tehani and its trailer (but not the permit) from the
Chapter 7 Trustee, who then filed a motion on February 12, 2016
seeking the bankruptcy court’s approval of a lease agreement.
Chapter 7 Case, Dkt. No. 102.

On March 17, 2016, the bankruptcy

court issued an order granting the Chapter 7 Trustee’s motion.
Chapter 7 Case, Dkt. No. 142.
Shortly after the bankruptcy court approved the lease
arrangement, the Chapter 7 Trustee agreed to sell the vessel and
its trailer to Defendant AOE for $35,000.

On March 29, 2016,

the Chapter 7 Trustee filed a motion requesting the bankruptcy
court’s approval of the proposed sale.
151.

Chapter 7 Case, Dkt. No.

On May 9, 2016, the bankruptcy court issued an order

granting the Chapter 7 Trustee’s motion, and the Tehani was thus
sold to Defendant AOE.

Chapter 7 Case, Dkt. No. 185.

The sale

of the vessel did not include the commercial use permit, which
at the time of the sale was still in the name of Defendant SHR
and property of Defendant SHR’s Bankruptcy Estate.
On December 16, 2016, Defendant Henry wrote a letter
to Bill Taylor, the Harbor Master of Honokohau Harbor, which
1/

See Department of Commerce & Consumer Affairs, Business
Registration Division, Hawaii Business Express Website,
available at: hbe.ehawaii.gov/documents/business.html?
fileNumber=133504C5 (last visited Aug. 26, 2019).
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stated in its entirety:

“I would like to request a change in

name from Sea Hawaii Rafting, LLC to Aloha Ocean Excursions,
LLC.

There have been no changes in ownership or officers or any

other changes.
527-1.

Thank you for your consideration.”

See ECF No.

Some time thereafter, Mr. Taylor and/or DOBOR reissued

the permit in the name of Defendant AOE.
In 2018, the Court held a trial on Plaintiff Barnes’s
maintenance and cure claim, and on October 6, 2018, issued
Amended Findings of Fact and Conclusions of Law and entered
judgment against the Tehani in rem and Defendant SHR in personam
in the amount of $279,406.12 plus $206,281.00 in attorney’s fees
and $27,124.44 in costs for a total judgment of $512,811.56. 2/
See ECF Nos. 446, 447, and 517.
On December 6, 2018, the bankruptcy court issued an
order in which it approved the Chapter 7 Trustee’s Notice of
Proposed Abandonment of the Tehani’s commercial use permit.
Chapter 7 Case, Dkt.

No. 355.

It is unclear when the Chapter 7

Trustee became aware of the commercial use permit’s existence.

2/

Prior to trial, the bankruptcy court determined that based
upon the Ninth Circuit’s decision in Barnes v. Sea Hawaii
Rafting, LLC, et al., 889 F.3d 517 (9th Cir. 2018), the
automatic stay did not apply to Plaintiff Barnes’s in rem claims
against the Tehani. Chapter 7 Case, Dkt. No. 302 at 10–11. The
bankruptcy court lifted the stay as to Defendant SHR, thus
allowing Plaintiff Barnes to pursue his claims against Defendant
SHR in personam and his maritime lien on the Tehani. Id. at 12–
13.
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“Abandonment” in the bankruptcy context “is the formal
relinquishment of the property at issue from the bankruptcy
estate.

Upon abandonment, the debtor’s interest in the property

is restored nunc pro tunc as of the filing of the bankruptcy
petition.”
2002).

Catalano v. C.I.R., 279 F.3d 682, 685 (9th Cir.

Accordingly, when the bankruptcy court approved the

abandonment of the permit, the permit was abandoned to the
debtor—Defendant SHR.
On May 22, 2019, Judge Kobayashi issued an order
voiding the bankruptcy court’s sale of the Tehani to Defendant
AOE.

See Barnes v. Field, Civ. No. 16-00230 LEK-KSC (D. Haw.

2016), ECF No. 65.

This Court then ruled in a Minute Order

dated July 17, 2019 (the “07/17/2019 Order”), ECF No. 585, that
Judge Kobayashi’s ruling caused title to the Tehani to revert to
Defendant SHR.

07/17/2019 Order at 2.

Accordingly, Defendant SHR now owns the Tehani, and
the Tehani is the vessel named on the permit.

However,

Defendant Henry and Defendant AOE, by the December 16, 2016
letter, wrongfully caused the permit to be reissued in the name
of Defendant AOE.

With this background in mind, the Court turns

to the matter of sanctions.
II.

Sanctions
The Court finds it appropriate to impose monetary

sanctions on Defendant Henry and Defendant AOE, first because
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they deliberately, recklessly, and wrongfully caused the permit
to be transferred to Defendant AOE, and second because Defendant
Henry and Defendant AOE’s conduct has potentially jeopardized
the validity of the permit and put the permit at a risk of
cancellation.

At the same time, Defendant Henry and Defendant

AOE have deprived Defendant SHR of an extremely valuable asset,
and have therefore substantially limited Plaintiff Barnes’s
potential recovery of his maritime lien and judgment against
Defendant SHR and the vessel Tehani.
Defendant Henry put the permit at a risk of
cancellation when he moved the bankruptcy court to approve the
sale of the vessel.

Hawai`i Administrative Rules § 13-231-

62(b)(2) provides several scenarios where a permit “shall
automatically expire[]. . . [i]f the vessel . . . operated under
the commercial use permit . . . [is] sold or otherwise
transferred and not replaced” according to another provision of
the Hawai`i Administrative Rules.
62(b)(2)(B).

Haw. Admin. R. § 13-231-

Apparently, the bankruptcy court and the Chapter 7

Trustee were unaware of the permit’s existence at the time the
Chapter 7 Trustee and Defendant AOE agreed on the terms of the
sale, and when the bankruptcy court subsequently approved the

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sale. 3/

Because the vessel named on the permit was transferred,

the permit could have automatically expired.
Therefore, the Court finds that Defendant Henry and
Defendant AOE acted deliberately, recklessly, and wrongfully by
causing the vessel to be sold and putting the validity of the
permit at risk.
Defendant Henry also put the permit at risk when he
wrote the December 16, 2016 letter to Mr. Taylor requesting a
change in name from Sea Hawaii Rafting, LLC to Aloha Ocean
Excursions, LLC.

Although Mr. Taylor and/or DOBOR agreed to the

request, Mr. Wynhoff confirmed that “there’s an issue” when
asked whether he had any reason to believe that the existing
permit held by Defendant AOE was valid or invalid.
12.

Tr. at 15:9–

Mr. Wynhoff also testified, having read the letter into the

record, “it’s my belief having looked at it, that this letter is
not accurate.”

Tr. at 14:9–10.

Mr. Wynhoff explained that the

letter is inaccurate because “Sea Hawaii Rafting, LLC was a
corporation. . . .

And then Aloha Ocean Excursions, LLC was a

brand new different corporation.

Both of which were controlled

by Mr. Henry as far as I can tell, but the statement in here
that it’s just a name change does not appear to me to be

3/

It does not appear that Defendant SHR ever included the
commercial use permit on its bankruptcy schedules. See Chapter
7 Case, Dkt. Nos. 11 and 24.
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accurate[.]”

Tr. at 14:13–18.

Mr. Wynhoff’s testimony

unequivocally confirms that Defendant Henry’s actions put the
validity of the permit at risk.
Moreover, the bankruptcy court has ruled that
Defendant Henry’s conduct violated the automatic stay.

See

Chapter 13 Case, Dkt. No. 260 at 7 (“There is no doubt that Mr.
Henry’s conduct was unauthorized and wrongful.

The automatic

stay bars any act to obtain possession of property of the estate
or of property from the estate or to exercise control over
property of the estate.”).

The Court further notes that while

the bankruptcy code would have permitted the Chapter 7 Trustee
to recover the permit, the Chapter 7 Trustee (and all other
parties involved except for Defendant Henry and Defendant AOE)
only became aware of the permit’s wrongful transfer after Mr.
Wynhoff disclosed the matter of the improper letter seeking
transfer of the permit at the aforesaid February 28, 2019
hearing.

By that time, the Chapter 7 Trustee had abandoned the

permit, which means that Defendant SHR (rather than Defendant
SHR’s Bankruptcy Estate) is the proper owner of the permit
initially issued to Defendant SHR (whatever its status might
be).

See Catalano, 279 F.3d at 685.
Accordingly, the Court finds that Defendant Henry and

Defendant AOE acted deliberately, recklessly, and wrongfully
because they again put the permit at a risk of cancellation by
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causing it to be improperly transferred from Defendant SHR to
Defendant AOE on the basis of a misrepresentation.
Defendant Henry and Defendant AOE’s wrongful transfer
of the permit also significantly harmed the interests of
Plaintiff Barnes.

Defendant Henry and Defendant AOE benefitted

from the use of the permit for a period of approximately two
years after the permit was improperly transferred from Defendant
SHR to Defendant AOE.

Moreover, this improper maneuver by

Defendant Henry (the sole member of Defendant SHR) has furthered
Defendant Henry’s efforts to avoid paying maintenance and cure
to Plaintiff Barnes (to date, Defendant Henry has paid less than
$2,000 in maintenance to Plaintiff Barnes and has been credited
$10,000 which was rent paid for the period Defendant AOE leased
the Tehani from the Chapter 7 Trustee).

Plaintiff Barnes, who

now has a substantial judgment of $512,811.56 against Defendant
SHR and maritime lien on the Tehani, has been is severely
limited in enforcing that judgment and maritime lien against
solely the Tehani—because the permit, which should be one of
Defendant SHR’s only two valuable assets (the second being the
Tehani), is improperly in the name of Defendant AOE; and without
the permit the Tehani cannot operate and be productive and thus
is of minimal value.
Moreover, at the time the improper transfer occurred,
Plaintiff Barnes had a maritime lien on the Tehani for the
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payment of maintenance and cure, and there was a question at the
time whether Plaintiff Barnes’s maritime lien extended to the
permit.

Although the Court has since determined that the permit

is not an appurtenance of the vessel, and therefore Plaintiff
Barnes’s maritime lien does not extend to the permit, title to
the Tehani has reverted to Defendant SHR, and the Tehani is the
vessel named on the permit. 4/

Without the highly valuable

permit, Plaintiff Barnes’s recovery of his maritime lien and
judgment against Defendant SHR and the vessel Tehani is
substantially limited.

And by exposing the permit to a risk of

cancellation, Defendant AOE and Defendant Henry have potentially
limited Plaintiff Barnes’s recovery to the value of the vessel
alone.

This is particularly so given that 51 permits for the

ramp at Honokohau Harbor have been issued (16 permits over the
allotted 35), and there are six individuals or entities on the
permit waitlist.

Tr. at 9:1–12.

When asked how long it would

take to get a ramp permit at Honokohau Harbor, Mr. Wynhoff
testified “probably never, but certainly years.”

Tr. at 9:15.

Therefore, the Court finds that the transfer of the
permit was deliberate, reckless, and wrongful, and that it was
done for an improper purpose because it potentially

4/

The U.S. Marshals have since arrested the vessel pursuant to
this Court’s order. ECF No. 534.
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substantially limits Plaintiff Barnes’s recovery of his maritime
lien and judgment against Defendant SHR and the vessel Tehani.
Based upon the foregoing, the Court finds it
appropriate to impose monetary sanctions against Defendant Henry
and Defendant AOE.

Defendant Henry and Defendant AOE acted

deliberately, recklessly, and wrongfully by putting the permit
at a risk of cancellation on at least two occasions—first by
asking the bankruptcy court to sell the vessel without the
permit; and second by causing the permit to be reissued in the
name of Defendant AOE on the basis of a misrepresentation.
Defendant Henry and Defendant AOE also acted wrongfully because
the improper transfer of the permit has potentially
significantly limited Plaintiff Barnes’s recovery of his
maritime lien and judgment against Defendant SHR and the vessel
Tehani.
Accordingly, the Court will impose monetary sanctions
against Defendant Henry and Defendant AOE because these
defendants have acted deliberately, recklessly, wrongfully, and
with an improper purpose, and the Court finds that this conduct
“was tantamount to bad faith and therefore sanctionable” under
the Court’s inherent power to issue sanctions.

B.K.B. v. Maui

Police Dept., 276 F.3d 1091, 1108 (9th Cir. 2002) (quoting Fink
v. Gomez, 239 F.3d 989, 994 (9th Cir. 2001).

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Under the facts of this case, the Court concludes that
the permit is improperly in the name of Defendant AOE and
justice requires that the permit should be reissued in the name
of Defendant SHR; however, any such determination regarding the
reissuance of the permit is properly left to DOBOR.
APPLICABLE LAW
“Three primary sources of authority enable courts to
sanction parties or their lawyers for improper conduct: (1)
Federal Rule of Civil Procedure 11, which applies to signed
writings filed with the court, (2) 28 U.S.C. § 1927, which is
aimed at penalizing conduct that unreasonably and vexatiously
multiplies the proceedings, and (3) the court’s inherent power.”
Fink, 239 F.3d at 991.
The Court is imposing sanctions against Defendant
Henry and Defendant AOE based upon the Court’s inherent power to
sanction.
In the Ninth Circuit, Courts have inherent power to
levy sanctions for “willful disobedience of a court order . . .
or when the losing party has acted in bad faith, vexatiously,
wantonly, or for oppressive reasons. . . .”

Id. (citing Roadway

Express, Inc. v. Piper, 447 U.S. 752, 766 (1980)).

Courts’

inherent power to sanction “extends to a full range of
litigation abuses.”

Id. (citing Chambers v. NASCO, Inc., 501

U.S. 32, 46–47 (1991)).
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Courts have the “inherent authority to impose
sanctions for bad faith, which includes a broad range of
improper conduct.”

Fink, 239 F.3d at 992.

It is well-settled

that “sanctions are available if the court specifically finds
bad faith or conduct tantamount to bad faith.”

Id. at 994.

But

sanctions are also available “for a variety of types of willful
actions, including recklessness when combined with an additional
factor such as frivolousness, harassment, or an improper
purpose.”

Id. (emphasis added); see also Maui Police Dept., 276

F.3d at 1108 (“[R]egardless of whether defense counsel’s
behavior constituted bad faith per se, we readily find that
counsel’s reckless and knowing conduct . . . was tantamount to
bad faith and therefore sanctionable under the court’s inherent
power.”). 5/

The Ninth Circuit has specifically held that

sanctions are appropriate when a party acts “recklessly if there

5/

Defendant AOE argues that, based upon the United States
Supreme Court’s decision in Chambers v. NASCO, Inc., 501 U.S.
32, 49–50 (1991), a finding that Defendant Henry and Defendant
AOE acted in bad faith is required before the Court can impose
sanctions. See Defendant AOE’s Sanctions Memorandum at 4. A
careful reading of Chambers reveals that the bad faith
limitation on courts’ inherent authority to impose sanctions
only applies to the particular sanction of attorney’s fees. 501
U.S. at 50 (“There is . . . nothing in the other sanctioning
mechanisms or prior cases interpreting them that warrants a
conclusion that a federal court may not, as a matter of law,
resort to its inherent power to impose attorney’s fees as a
sanction for bad-faith conduct.”) (emphasis added). The Court
is not contemplating imposing attorney’s fees as a sanction.
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is something more—such as an improper purpose.”

Fink, 239 F.3d

at 993.
The Court is mindful that its inherent power to
sanction must be exercised with “restraint and discretion.”
Maui Police Dept., 267 F.3d at 1108 (quoting Chambers, 501 U.S.
at 44).
CONCLUSION
The Court hereby imposes monetary sanctions jointly
and severally against Defendant Henry and Defendant AOE in the
amount of $25,000, which shall be payable to Plaintiff Barnes.
The Clerk of Court is directed to disburse the $18,000 plus
interest currently held in the registry of the Court to
Plaintiff Barnes as partial payment of the sanction. 6/

Defendant

Henry and Defendant AOE are directed to pay the remainder of the
sanction to Plaintiff Barnes no later than September 30, 2019.
The Court directs Defendant AOE and Defendant Henry to
take appropriate steps to effectuate the successful transfer of
the commercial use permit back to Defendant SHR.

Defendant AOE

and Defendant Henry are required to pay any fine or transfer fee
assessed in the course of transferring the permit back to

6/

Because the $18,000 plus interest will be disbursed to
Plaintiff Barnes, it would appear that Plaintiff Barnes’s appeal
of the Court’s 07/17/2019 Order is now moot. That appeal is
docketed as Barnes v. Aloha Ocean Excursions, LLC, et al., Case
No. 19-16484 (9th Cir. July 29, 2019).
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Defendant SHR.

The Court further rules that the $25,000

sanction shall be subject to significant enhancement should the
permit not be reissued to Defendant SHR.

This Order modifies

and supersedes the Court’s 07/17/2019 Order.

IT IS SO ORDERED.
DATED:

Honolulu, Hawai`i, August 29, 2019.

________________________________
Alan C. Kay
Sr. United States District Judge
Barnes v. Sea Hawaii Rafting, LLC, Kris Henry, M/V Tehani, et al., Civ. No.
13-00002 ACK-RLP, Order Imposing Sanctions on Defendant Aloha Ocean
Excursions, LLC and Defendant Kristin Kimo Henry.

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