Higashi v. Takazawa
ORDER AFFIRMING THE BANKRUPTCY COURT'S FINDINGS OF FACT AND CONCLUSIONS OF LAW AND THE JUDGMENT re 1 Bankruptcy Appeal filed by Sterling G. Higashi. Signed by JUDGE LESLIE E. KOBAYASHI on 07/19/2017. Appell ant Sterling G. Higashi's Notice of Appeal and Statement of Election, filed July 5, 2016, are HEREBY DENIED and the FOF/COL, issued on June 7, 2016, and the Judgment, issued on June 21, 2016, in Adversary Proceeding Number 15-90033, is HEREBY AF FIRMED. There being no remaining claims in this matter, the Court DIRECTS the Clerk's Office to enter final judgment and close the case on August 9, 2017, unless Appellant files a motion for reconsideration of this Order by August 7, 2017. (eps, )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).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
STERLING G. HIGASHI,
CIVIL 16-00368 LEK-RLP
ORDER AFFIRMING THE BANKRUPTCY COURT’S FINDINGS
OF FACT AND CONCLUSIONS OF LAW AND THE JUDGMENT
On July 5, 2016, Appellant Sterling G. Higashi
(“Appellant”) appealed from the bankruptcy court’s Findings of
Fact and Conclusions of Law (“FOF/COL”), issued on June 7, 2016,
and the Judgment, issued on June 21, 2016, in Adversary
Proceeding Number 15-90033 (“Adversary Proceeding”).
bankruptcy court filed the Certificate of Readiness on August 29,
[Dkt. no. 3.]
On October 28, 2016, Appellant filed his
opening brief, and on October 31, 2016, Appellant filed an errata
to his opening brief (collectively “Appellant’s Brief”).
nos. 13, 15.]
On November 16, 2016, Appellee Hale Takazawa
(“Appellee”) filed his responsive brief (“Appellee’s Brief”).1
On November 30, 2016, Appellant filed an Appendix to
Opening Brief Filed October 28, 2016 (“Appellant’s Appendix”).
[Dkt. no. 19.] Appellant’s Appendix was filed in response to
Appellee’s Brief, wherein Appellee noted that Appellant’s counsel
violated numerous Local Rules and Fed. R. of Bankr. P. See
Appellee’s Brief at 8-9. In the future, Appellant’s counsel
would be well-served by reviewing the relevant rules prior to
[Dkt. no. 17.]
Appellant filed his reply brief on November 30,
[Dkt. no. 21.]
The Court finds this matter suitable for
disposition without a hearing pursuant to Local Rule 7.2(d) of
the Local Rules of Practice of the United States District Court
for the District of Hawai`i (“Local Rules”).
In an Entering
Order filed on March 30, 2017 (“3/30/17 EO”), the Court denied
the appeal and affirmed the decisions and judgment of the
the 3/30/17 EO.
[Dkt. no. 27.]
The instant Order supersedes
The bankruptcy court’s FOF/COL and Judgment are
affirmed for the reasons set forth below.
The following facts are undisputed.
proceeding took place on May 24 to 26, 2016.
[FOF/COL at 1.2]
In January 2010, Halawa Pacific sold a commercial property in
Aiea, Hawai`i (“the Property”) to Active Sportswear, Inc.
[Id. at 2.]
Appellant had leased space at the
Property since 2006 for his company, Electric Vehicle
Technologies, LLC (“EVT”).
When Active purchased the Property,
EVT was $90,000 behind on rent.
In March 2010, Active informed
filing any document with the Court.
The Notice of Appeal and Statement of Election (“Notice of
Appeal”), [filed 7/5/16 (dkt. no. 1),] includes a copy of the
Judgment [dkt. no. 1-1 at pgs. 1-2]. A copy of the FOF/COL is
included as Appendix 5 to Appellee’s Appendix to Responsive Brief
(“Appellee’s Appendix”). [Filed 11/16/16 (dkt. no. 17).]
EVT that, if EVT did not become current on its rent, Active would
terminate the lease.
On March 31, 2010, Appellant met
with Active, and he:
“agreed that EVT would immediately pay the
rent for February, March, and April 2010, pay its current rent
for subsequent months in a timely manner, and pay off the
delinquent rent for months prior to February 2010 in 24 monthly
installments of $4,000 each, beginning on September 15, 2015.”
[Id. at 2-3.]
In addition, Appellant agreed that he and his
wife, Victoria Higashi, would sign a promissory note for
$95,269.60, “evidencing the agreement.”3
Active “insisted that
Mrs. Higashi sign the note because she held title to the
residence in which Mr. and Mrs. Higashi lived.”
[Id. at 3.]
Appellant delivered the signed Promissory Note to
Active on April 8, 2010.
However, Mrs. Higashi never signed the
In the Adversary Proceeding, the bankruptcy
The signature was undoubtedly forged, and
[Appellant] is the only remotely plausible
suspect. He, and only he, had the motive to do
so. Unless he produced his wife’s signature on
the promissory note, EVT would have been evicted
and he would have been out of business. He also
had the opportunity to do so; he had access to
numerous examples of his wife’s signature which he
could have copied. Further, the numerous
contradictions in his sworn testimony and
discovery responses make it difficult to give full
credence to his trial testimony.
The promissory note was effective as of April 7, 2010
(“Promissory Note”). See Appellee’s Appendix, App. 8.
[Id. at 4.]
EVT failed to pay the May 2010 rent;
Active terminated EVT’s lease and took possession of the rental
space on May 25, 2010; Active assigned the Promissory Note to
Appellee;4 and, on June 28, 2011, Appellee demanded payment on
the Promissory Note.
[Id. at 6.]
In response to Appellee’s
payment demand, Mrs. Higashi informed Appellee’s attorney that
she did not sign the Promissory Note.
Appellee sought relief in
state court, where the judge found that Mrs. Higashi had not
signed the Promissory Note.
Appellant and Appellee were
able to reach a settlement agreement in the state court
proceeding, which, inter alia, dismissed the complaint against
Mrs. Higashi with prejudice and included a “stipulated judgment
against [Appellant] and EVT on the promissory note” (“State Court
[Id. at 6-7.]
The bankruptcy court concluded that the debt Appellant
owed on the Promissory Note was not dischargeable, pursuant to 11
Active assigned the Promissory Note because Appellee was
the head of Halawa Pacific when most of the debt accrued.
[FOF/COL at 6.]
The State Court Settlement is Appendix 10 to Appellee’s
Appendix. In addition, Appellee submitted the Stipulated Final
Judgment Against Sterling G. Higashi and Electric Vehicle
Technologies LLC (“State Court Judgment”), which entered judgment
for $179,987.69, plus interest, in favor of Appellee and against
Mr. Higashi and EVT, based upon the Promissory Note. [Appellee’s
App., App. 11.]
U.S.C. § 523(a)(2)(A).
[Id. at 7-11.]
In addition, the
bankruptcy court rejected Appellant’s duress argument and his
contention that the debt owed was misstated in the Promissory
[Id. at 11-12.]
Finally, the bankruptcy court concluded
that the State Court Settlement did not bar Appellee from seeking
to prevent discharge of the debt owed on the Promissory Note.
[Id. at 12-13.]
This Court has stated:
This court reviews a bankruptcy
court’s findings of fact for clear error
and its conclusions of law de novo. See
In re Kimura (United States v. Battley),
969 F.2d 806, 810 (9th Cir. 1992) (“The
Court reviews the bankruptcy court’s
findings of fact under the clearly
erroneous standard and its conclusions
of law de novo.”). The court “must
accept the Bankruptcy Court’s findings
of fact, unless the court is left with
the definite and firm conviction that a
mistake has been committed. Mixed
questions of law and fact are reviewed
de novo.” In re JTS Corp., 617 F.3d
1102, 1109 (9th Cir. 2010) (quotation
marks and citations omitted).
In re Lee, CIVIL NO. 15-00278 SOM/RLP, 2015 WL
7274035, at *1 (D. Hawai`i Nov. 17, 2015). The
United States Supreme Court has stated:
[a] finding is ‘clearly erroneous’ when
although there is evidence to support
it, the reviewing court on the entire
evidence is left with the definite and
firm conviction that a mistake has been
committed. This standard plainly does
not entitle a reviewing court to reverse
the finding of the trier of fact simply
because it is convinced that it would
have decided the case differently. The
reviewing court oversteps the bounds of
its duty under Fed. R. Civ. P. 52(a) if
it undertakes to duplicate the role of
the lower court. In applying the
clearly erroneous standard . . . ,
[reviewing] courts must constantly have
in mind that their function is not to
decided factual issues de novo. If the
[lower] court’s account of the evidence
is plausible in light of the record
viewed in its entirety, the [reviewing
court] may not reverse it even though
convinced that had it been sitting as
the trier of fact, it would have weighed
the evidence differently. Where there
are two permissible views of the
evidence, the factfinder’s choice
between them cannot be clearly
Anderson v. City of Bessemer, 470 U.S. 564, 573-74
(1985) (some alterations in Anderson) (citations
and some internal quotation marks omitted). The
standards described in Anderson apply when a
district court reviews the factual findings of a
bankruptcy court. See, e.g., Ingram v. Burchard,
482 B.R. 313, 322 (N.D. Cal. 2012); In re Daewoo
Motor Am., Inc., 471 B.R. 721, 732 (C.D. Cal.
2012), aff’d, 554 Fed. Appx. 638 (9th Cir. 2014);
In re Folsom, Civil No. 10CV2440 L(NLS), 2011 WL
3489681, at *1 (S.D. Cal Aug. 8, 2011), aff’d sub
nom., Folsom v. Davis, 513 Fed. Appx. 651 (9th
Sebetich v. Woods (In re Woods), CIVIL 15-00233 LEK-BMK, 2016 WL
8710426, at *4-5 (D. Hawai`i Jan. 29, 2016) (alterations in In re
Issues on Appeal
The Notice of Appeal purports to challenge the:
(1) Judgment entered pursuant to the FOF/COL; (2) Order Denying
Defendant’s Motion to Dismiss Complaint; (3) Memorandum of
Decision on Defendant’s Motion for Summary Judgment; (4) Order
Denying Motion to Disqualify Plaintiff’s Attorney; (5) Order
Granting Plaintiff’s Motion for Summary Judgment on the
Counterclaim; and (6) Order Granting Plaintiff’s Motion for
Partial Summary Judgment as to Specified Defenses.6
of Appeal at 1.
While Appellant’s Brief mentions these rulings,
see Appellant’s Brief at 4-9, it only presents argument on the
FOF/COL, see, e.g., id. at 15 (“Plaintiff failed to prove by a
preponderance of the evidence the 4th and 5th elements of the
proof required under § 523(a)(2) of the Bankruptcy Code in order
to hold a debt ‘non-dischargeable’”).
Pursuant to Fed. R. Bankr.
P. 8014(a), an appellant’s brief must contain, inter alia,
(5) a statement of the issues presented and, for
each one, a concise statement of the applicable
standard of appellate review;
(6) a concise statement of the case setting out
the facts relevant to the issues submitted for
Appellant appears to argue about a bill of costs filed
after the Judgment was entered by the bankruptcy court. See
Appellant’s Brief at 7-9. This issue is being addressed by a
separate case before this Court. See Higashi v. Takazawa, CV 1600479 LEK-RLP. Accordingly, the Court will not consider any
issues related to a bill of costs in this case.
review, describing the relevant procedural
history, and identifying the rulings presented for
review, with appropriate references to the record;
(7) a summary of the argument, which must contain
a succinct, clear, and accurate statement of the
arguments made in the body of the brief, and which
must not merely repeat the argument headings;
(8) the argument, which must contain appellant’s
contentions and the reasons for them, with
citations to the authorities and parts of the
record on which the appellant relies[.]
See also Lumetta v. Arborlake Homeowners Ass’n, Case No.:
16cv1817-AJB (JLB), 2017 WL 1967327, at *5 (S.D. Cal. May 12,
2017) (stating that, because many of the appellant’s arguments in
the opening brief did not comply with Rule 8014(a), the district
court deemed them waived); In re Sedwick, 560 B.R. 786, 791-92
(C.D. Cal. 2016) (“Appellant identifies six issues for
consideration in this Appeal.
Nevertheless, many of the issues
overlap significantly, and Appellant has not directly addressed
all of the issues in his Opening or Reply briefs.
the Court will not individually discuss all six issues.”
(citation and footnote omitted)); Viola v. Kirsch, Case No. 16cv-02006-EMC, 2016 WL 4011314, at *4 (N.D. Cal. July 27, 2016)
(finding an appellant’s challenge to the bankruptcy court’s
orders frivolous because, in part, the appellant’s “opening brief
does not contain any substantive argument as to why the
bankruptcy court’s orders were improper”).
Court will only consider Appellant’s challenge to the FOF/COL,
and any other appeal of a bankruptcy court order is deemed
Appellant’s Challenge to the FOF/COL
Section 523(a)(2) states that an individual may not
for money, property, services, or an extension,
renewal, or refinancing of credit, to the extent
(A) false pretenses, a false representation,
or actual fraud, other than a statement
respecting the debtor’s or an insider’s
(B) use of a statement in writing–
(i) that is materially false;
(ii) respecting the debtor’s or an
insider’s financial condition;
(iii) on which the creditor to whom the
debtor is liable for such money,
property, services, or credit reasonably
(iv) that the debtor caused to be made
or published with intent to deceive[.]
The Ninth Circuit has explained that “[a] finding of whether a
requisite element of a section 523(a)(2)(A) claim is present is a
factual determination reviewed for clear error.”
Anastas v. Am.
Sav. Bank (In re Anastas), 94 F.3d 1280, 1283 (9th Cir. 1996)
(citing Runnion v. Pedrazzini (In re Pedrazzini), 644 F.2d 756,
757 (9th Cir. 1981)).
Both parties agree that, in order to
prevail under § 523(a)(2)(A), Appellee must show:
(1) misrepresentation, fraudulent omission or
deceptive conduct by the debtor; (2) knowledge of
the falsity or deceptiveness of his statement or
conduct; (3) an intent to deceive; (4) justifiable
reliance by the creditor on the debtor’s statement
or conduct; and (5) damage to the creditor
proximately caused by its reliance on the debtor’s
statement or conduct.
See Oney v. Weinberg (In re Weinberg), 410 B.R. 19, 35 (B.A.P.
9th Cir. 2009) (citation and internal quotation marks omitted).
Appellant only challenges the bankruptcy court’s findings as to
numbers four and five, and does not challenge the bankruptcy
court’s finding that Mr. Higashi forged his wife’s signature.
See Appellant’s Brief at 15.
Any argument on the other elements
of dischargeability under § 523(a)(2)(A) is therefore waived.
See, e.g., Nauman v. Kotoshirodo (In re Nauman), Civil No. 1000414 JMS/KSC, 2011 WL 240804, at *4 (D. Hawai`i Jan. 21, 2011)
(“This court is sitting as an appeals court reviewing the
bankruptcy court’s determination.
‘The decision of the
bankruptcy judge is reviewable by an Article III judge only by an
appeal governed by the same rules applicable to appeals taken to
the courts of appeals from the district courts.’” (quoting In re
Mankin, 823 F.2d 1296, 1305 (9th Cir. 1987)));7 see
also Greenwood v. FAA, 28 F.3d 971, 977 (9th Cir. 1994) (“We will
In re Mankin was overruled on other grounds by Executive
Benefits Insurance Agency v. Arkison (In re Bellingham Insurance
Agency, Inc.), 702 F.3d 553 (9th Cir. 2012).
not manufacture arguments for an appellant, and a bare assertion
does not preserve a claim, particularly when, as here, a host of
other issues are presented for review.” (citation omitted)).
Appellant makes a number of arguments about the fourth
element – justifiable reliance – many of which are very
convoluted and difficult to understand.
First, Appellant argues
that the bankruptcy court’s finding that, “if Mrs. Higashi had
signed the promissory note, Mr. Takazawa probably could have
recovered his entire claim,” [FOF/COL at 7,] is clear error
because at the time the Promissory Note was signed Mrs. Higashi
only owned one property, not all three of the properties
mentioned in the Adversary Proceeding.
[Appellant’s Brief at 21-
Appellant also asserts that “it cannot be said that the
Plaintiff ‘justifiably relied’ on [Mrs. Higashi’s] signature
because she had ownership interest in only the Lakeview
condominium at the time the Promissory Note was executed and no
other real property.”
[Id. at 22.]
Appellant evinces a fundamental misunderstanding of the
The bankruptcy court found that, if Mrs. Higashi had
signed the Promissory Note, she would have been a proper party to
the Promissory Note.8
As such, when Mr. Higashi and EVT failed
The Promissory Note states, in relevant part:
to make payments on the Promissory Note, Appellee could have
enforced the Promissory Note against both Mr. and Mrs. Higashi,
and reached any assets of which she was the sole owner.
how these assets were acquired is not relevant.
Next, while not entirely clear, Appellant’s argument
that Active could not have justifiably relied on the Promissory
Note is inapposite.
To support his position, Appellant cites,
inter alia, Field v. Mans, 516 U.S. 59 (1995), see Appellant’s
Brief at 24, where the Supreme Court held that justifiable
reliance as stated in § 523(a)(2)(A) “adopt[ed] a common-law
understanding of the term” and explained:
The Restatement expounds upon justifiable
reliance by explaining that a person is justified
in relying on a representation of fact “although
he might have ascertained the falsity of the
This Note is made by Maker in partial payment of
the delinquent rent owed to Landlord pursuant to
the August 11, 2006 Lease, as amended by the
April 1, 2008 First Amendment to Lease (as
amended, the “Lease”), between the predecessor of
Landlord and Electric Vehicle Technologies, LLC,
for the Bay 5 and Bay 6 premises at 99-1374 Koaha
Place, Aiea Hawaii (the “Premises”). Maker
Sterling G. Higashi is the principal of Electric
Vehicle Technologies, LLC and is the guarantor of
the obligations of tenant under the Lease. Maker
Victoria X.L. Higashi is the spouse of Sterling G.
Higashi and holds title to their residence at 801
Ala Nioi Way, PH #5, Aiea, Hawaii.
[Promissory Note at 1.] No one disputes that, at the time the
Promissory Note was created, Mrs. Higashi owned the Aiea property
mentioned therein. Appellant sometimes refers to the Aiea
property as the “Lakeview property.” See supra.
representation had he made an investigation.”
[Restatement (Second) of Torts (1976)], § 540.
Significantly for our purposes, the illustration
is given of a seller of land who says it is free
of encumbrances; according to the Restatement, a
buyer’s reliance on this factual representation is
justifiable, even if he could have “walke[ed]
across the street to the office of the register of
deeds in the courthouse” and easily have learned
of an unsatisfied mortgage. Id., § 540,
Illustration 1. The point is otherwise made in a
later section noting that contributory negligence
is no bar to recovery because fraudulent
misrepresentation is an intentional tort. Here a
contrast between a justifiable and reasonable
reliance is clear: “Although the plaintiff’s
reliance on the misrepresentation must be
justifiable . . . this does not mean that his
conduct must conform to the standard of the
reasonable man. Justification is a matter of the
qualities and characteristics of the particular
plaintiff, and the circumstances of the particular
case, rather than of the application of a
community standard of conduct to all cases.” Id.,
§ 545A, Comment b. Justifiability is not without
some limits, however. As a comment to § 541
explains, a person is
“required to use his senses, and cannot
recover if he blindly relies upon a
misrepresentation the falsity of which would
be patent to him if he had utilized his
opportunity to make a cursory examination or
investigation. Thus, if one induces another
to buy a horse by representing it to be
sound, the purchaser cannot recover even
thought the horse had but one eye, if the
horse is shown to the purchaser before he
buys it and the slightest inspection would
have disclosed the defect. On the other
hand, the rule stated in this Section applies
only when the recipient of the
misrepresentation is capable of appreciating
its falsity at the time by the use of his
senses. Thus a defect that any experienced
horseman would at once recognize at first
glance may not be patent to a person who has
had no experience with horse.” Id., § 541,
Field, 516 U.S. at 70-71 (alterations in Field).
provided no evidence that anything in the Promissory Note
provided a clear indication of a defect.
In short, nothing in
the Promissory Note revealed any false misrepresentation, there
was no duty to investigate the veracity of the Promissory Note,
and Appellee and his predecessor in interest justifiably relied
on the Promissory Note.9
The bankruptcy court’s finding was not
Appellant repeatedly cites Eugene Parks Law Corp. Defined
Benefit Pension Plan v. Kirsh (In re Kirsh), 973 F.2d 1454 (9th
Cir. 1992). See Appellant’s Brief at 24-25; Reply at 6-7. In
that case, the debtors borrowed money from their attorney Eugene
Parks’s (“Parks”) pension plan, secured the loan with a deed of
trust to a property that they owned, and represented that there
was only one encumbrance senior to the new debt. In re Kirsh,
973 F.2d at 1456. In reality, there were additional
encumbrances, the condominium was foreclosed upon, and the
pension plan did not receive any payment on the loan. Id. In a
subsequent bankruptcy proceeding, the debtors sought to discharge
the debt from the pension fund, and the Ninth Circuit held that:
Parks was no ordinary person. In fact, he was not
even an ordinary attorney. He had been practicing
for twenty years and concentrated on business law.
He was well aware of the fact that standard
practice in California was for lenders to obtain
title reports. Lenders do not merely rely upon
the representations of borrowers. That is
especially true when the lender knows that the
borrower is having financial difficulties and does
not always pay his bills in a timely fashion. We
recognize that Parks and Kirsh were very close
friends, but that does not excuse Parks’ throwing
of all caution to the winds and relying on the
Kirshes’ word alone. Obtaining a title report is
a simple and not overly expensive proposition. A
person with Parks’ knowledge, experience and
competence should have ordered one. . . .
Next, Appellant appears to argue that, because the
Promissory Note was not secured by one of the properties,
Appellees could not justifiably rely on it.
Appellant cites a number of cases about debts secured by
In short, given the facts of this case the
bankruptcy court did not err when it found that
Parks did not rely upon the Kirshes’
representation within the meaning of section
Id. at 1461. This case is easily distinguishable from the
instant proceeding. The fraudulent act was not a representation
about the debt itself or anything concerning the content of the
Promissory Note – it was a forged signature. Further, there was
no reason for Active to believe that Appellant forged his wife’s
signature. Moreover, Appellant did not provide a deed of trust
to any property that he or his wife owned, nor was he asked to do
Appellant states that “the testimony of [Appellee] at the
trial conclusively showed he was not present at the time the
[Appellant] handed the Promissory Note to his attorney,
Mr. Sakimura. Accordingly, there could not be a ‘direct’
reliance on the part of the [Appellee] that Victoria sign[ed] the
Promissory Note.” [Appellant’s Brief at 30.] It is undisputed
that Active assigned its rights under the Promissory Note to
Appellee. Insofar as Appellant challenges the assignment of the
Promissory Note, he does not have standing to do so. See, e.g.,
Velasco v. Security Nat’l Mortg. Co., 823 F. Supp. 2d 1061, 1067
(D. Hawai`i 2011) (stating that, where the plaintiffs have not
shown that they are a party to the assignment nor intended
beneficiaries of the assignment contract, they are “strangers to
the [a]ssignment” and “may not dispute the validity of the
[a]ssignment.” (citation omitted)); see also Fireman’s Fund Ins.
Co. v. AIG Haw. Ins. Co., 109 Hawai`i 343, 349, 126 P.3d 386, 392
(2006) (“In general, an assignment operates to place the assignee
in the shoes of the assignor, and provides the assignee with the
same legal rights as the assignor had before assignment.”
(emphases, alteration, citations, and internal quotation marks
See, e.g., Appellant’s Brief at 32-34 (citing
United States v. Fullard-Leo, 156 F.2d 756 (9th Cir. 1946); City
& Cty. of Honolulu v. A.S. Clarke, Inc., 60 Haw. 40, 587 P.2d 294
(1978); Honolulu Mem’l v. City & Cty. of Honolulu, 50 Haw. 189,
436 P.2d 207 (1967)).
While there is a legal distinction between
a secured and an unsecured Promissory Note, Appellant cites no
authority to support the proposition that an unsecured promissory
note is not enforceable.
Under Hawaii law, “[t]he essential elements of a
suit on a promissory note are: (1) the defendant
is the maker of the note (e.g., signed the note);
(2) the plaintiff is the owner and holder of the
note (e.g., it is made payable to or has been
endorsed to the plaintiff[)]; (3) the note is in
default; and (4) the defendant owes a certain
sum.” Bank of Honolulu v. Anderson, 654 P.2d
1371, 1375 (Haw. App. 1982) (stating those
elements for commercial paper).
Diamond Resort Haw. Corp. v. Bay West Kailua Bay, LLC, Cv. No.
10-00117 DAE-LEK, 2011 WL 776106, at *4 (D. Hawai`i Feb. 25,
2011) (some alterations in Diamond Resort).
In short, Appellee
did not claim a secured interest in Mrs. Higashi’s property –
Appellee sought payment on the valid Promissory Note.
Consequently, Appellants argument regarding the need to secure
the Promissory Note is irrelevant to whether or not the debt on
the Promissory Note was dischargeable.11
Appellant’s argument regarding “lost equity” fails for
the same reason. See Appellant’s Brief at 35-37.
Appellant contends that any mention of Mrs. Higashi is
barred by claim preclusion or issue preclusion.
Appellant’s Brief at 39 (“‘claim preclusion’ arguably still
applies to [Mrs. Higashi] in the Adversary case as she is not the
debtor against whom the Plaintiff is seeking to void the
Defendant’s debt as dischargeable”); id. at 41 (“If the claim
preclusion defense is not viable, the ‘issue preclusion’ defense
Again, Appellant misses the mark.
The bankruptcy court
was well aware that Mrs. Higashi was dismissed from the state
court action, and that she was not part of the judgment issued
against Mr. Higashi.
The issue in the Adversary Proceeding was
whether or not the State Court Judgment could be discharged under
federal bankruptcy law.
Because Mr. Higashi forged his wife’s
signature, the bankruptcy court found that the debt could not be
At no time did any party to the Adversary Proceeding
argue that Mrs. Higashi was still a part of the proceeding or
that the Promissory Note could be enforced against her.12
argument that Appellant makes to the contrary in an effort to
Appellant’s assertions regarding the indemnification
provision of the State Court Settlement fail for the same reason.
See Appellant’s Brief at 37-38.
show clear error is simply not supported by the record.13
Further, as Appellee explains:
[A]s a matter of law, the [s]tate [c]ourt
[l]awsuit did not have any claim preclusive effect
(res judicata) on the claim for nondischargeability under Section 523(a)(2) of the
Bankruptcy Code. Moreover, as a matter of fact,
the [s]tate [c]ourt [l]awsuit did not have any
issue preclusive effect (collateral estoppel) on
the issues of forgery, false pretense, false
representation and fraud. It is undisputed that
those issues were not adjudicated in the [s]tate
[Appellee’s Brief at 54 (emphases omitted).]
The Court agrees.
Further, the Supreme Court has explained that a settlement does
not rob a party of the ability to argue that a debt is not
dischargeable in the debtor’s bankruptcy proceeding if “the
settlement debt arose out of false pretenses, a false
representation, or actual fraud.”
Archer v. Warner, 538 U.S.
314, 323 (2003) (citation and internal quotation marks omitted);
see also Brown v. Felsen, 442 U.S. 127, 138-39 (1979) (“[W]e hold
that the bankruptcy court is not confined to a review of the
judgment and record in the prior state-court proceedings when
considering the dischargeability of respondent’s debt.”).
Appellant appears to connect this argument to his
position that “the alleged damage is illusory and non-compensable
under the law.” [Appellant’s Brief at 35.] This argument fails
for the same reasons the Court has already noted. See supra
Next, Appellant asserts that enforcement of the
Promissory Note is unconscionable.
[Appellant’s Brief at 43-46.]
First, it is not clear from the record whether or not Appellant
raised this issue during the Adversary Proceeding, and it is
therefore unclear whether or not the Court may consider this
See, e.g., In re Nauman, 2011 WL 240804, at *4.
addition, as Appellee points out, Appellant cannot cite to any
authority that applies a defense of unconscionability to a
dischargeability determination under § 523.
See Appellee’s Brief
Even if the Court were to consider this argument, it
would not reverse the FOF/COL and Judgment.
Unconscionability is a form of redress
available when one party abuses a strong
bargaining position to take advantage of the other
party’s weakness, ignorance, or distress. To find
a contract voidable on the grounds of
unconscionability, most courts, including those in
Hawaii, require a showing of both a procedural and
a substantive element of unconscionability. Brown
v. KFC Nat’l Mgmt. Co., 82 Hawai`i 226, 921 P.2d
146, 167 (1996) (“[A] contract . . . is
unenforceable if two conditions are present:
(1) the contract is the result of coercive
bargaining between parties of unequal bargaining
strength; and (2) the contract unfairly limits the
obligations and liabilities of, or otherwise
unfairly advantages, the stronger party.”). See
also City and County of Honolulu v. Midkiff, 62
Haw. 411, 616 P.2d 213, 218 (1980); Earl M.
Jorgensen Co. v. Mark Constr., Inc., 56 Haw. 466,
540 P.2d 978, 984 (1975). Thus, inequality in
bargaining power alone will not render an
arbitration agreement unconscionable. Gilmer v.
Interstate/Johnson Corp., 500 U.S. 20, 33, 111 S.
Ct. 1647, 114 L. Ed. 2d 26 (1991).
Branco v. Norwest Bank of Minn., N.A., 381 F. Supp. 2d 1274, 1280
(D. Hawai`i 2005) (alterations in Branco).
Appellant cites to
what he believes evinces unequal bargaining power, but even if
this were true, he does not challenge the terms of the Promissory
See Appellant’s Brie at 43-46.
if such a defense were available in this action, Appellant fails
to show that the Promissory Note was unconscionable.
Finally, Appellant argues that the Court may reverse
the bankruptcy court’s FOF/COL pursuant to its equitable powers.
See Appellant’s Brief at 46-49.
11 U.S.C. § 105(a) provides
[t]he court may issue any order, process, or
judgment that is necessary or appropriate to carry
out the provisions of this title. No provision of
this title providing for the raising of an issue
by a party in interest shall be construed to
preclude the court from, sua sponte, taking any
action or making any determination necessary or
appropriate to enforce or implement court orders
or rules, or to prevent an abuse of process.
The Supreme Court, however, has “long held that ‘whatever
equitable powers remain in the bankruptcy courts must and can
only be exercised within the confines of’ the Bankruptcy Code.”
Law v. Siegel, 134 S. Ct. 1188, 1194-95 (2014) (some citations
omitted) (quoting Norwest Bank Worthington v. Ahlers, 485 U.S.
197, 206, 108 S. Ct. 963, 99 L. Ed. 2d 169 (1988)).
523(a)(2) specifically states that certain debts, like the one at
issue here, are non-dischargeable.
Further, Appellant is not entitled to equitable relief.
The bankruptcy court found that Appellant forged his wife’s
signature on the Promissory Note, and Active had no way of
knowing about the forged signature until Mrs. Higashi told it as
Appellant does not dispute this finding.
is simply inapplicable here.
In sum, Appellant has not shown clear error, and the
Court therefore affirms the FOF/COL and the Judgment.
On the basis of the foregoing, Appellant Sterling G.
Higashi’s Notice of Appeal and Statement of Election, filed
July 5, 2016, are HEREBY DENIED and the FOF/COL, issued on
June 7, 2016, and the Judgment, issued on June 21, 2016, in
Adversary Proceeding Number 15-90033, is HEREBY AFFIRMED.
being no remaining claims in this matter, the Court DIRECTS the
Clerk’s Office to enter final judgment and close the case on
August 9, 2017, unless Appellant files a motion for
reconsideration of this Order by August 7, 2017.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, July 19, 2017.
/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
STERLING G. HIGASHI VS. HALE TAKAZAWA; CIVIL 16-00368 LEK-RLP;
ORDER AFFIRMING THE BANKRUPTCY COURT’S FINDINGS OF FACT AND
CONCLUSIONS OF LAW AND THE JUDGMENT
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