Mohr v. MLB SUB I

Filing 204

ORDER granting Counterclaimant MLB Sub I, LLC's Motion for Order Confirming Foreclosure Sale and Entry of Final Judgment, re 193 - Signed by JUDGE ALAN C. KAY on 2/28/2022. For the foregoing reasons, the Court GRANTS MLB's Motion for Order Confirming Foreclosure Sale and Entry of Final Judgment (ECF No. 193). Pursuant to Federal Rule of Civil Procedure 54(b), this Order shall be entered as a final judgment as there is no just reason for delay.(jni)

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAI`I
___________________________________
)
SANFORD A. MOHR and TINA A.
)
MOHR, Individually and as
)
Co-Trustees of their October 15,
)
1996 unrecorded revocable trust,
)
)
Plaintiffs,
)
)
vs.
) Civ. No. 16-00493 ACK-WRP
)
MLB SUB I, LLC; JOHN DOES 1-20;
)
JANE DOES 1-20; DOE PARTNERSHIPS
)
1-20; DOE CORPORATIONS 1-20; and
)
DOE ENTITIES 1-20,
)
)
Defendants.
)
___________________________________)
ORDER GRANTING COUNTERCLAIMANT MLB SUB I, LLC’S MOTION FOR ORDER
CONFIRMING FORECLOSURE SALE AND ENTRY OF FINAL JUDGMENT (ECF No.
193)
For the reasons set forth below, the Court GRANTS
Counterclaimant MLB Sub I (“MLB”), LLC’s Motion for Order
Confirming Foreclosure Sale and Entry of Final Judgment (ECF No.
193).

Specifically, the Court (1) approves the sale of the

subject property (“Subject Property”) as described in MLB’s
mortgage (dated April 16, 2004); (2) directs the Commissioner to
convey title of the Subject Property to Sunshine Holdings LLC;
(3) finds that the sale of the Subject Property to Sunshine
Holdings LLC for the sum of $652,050.00 is fair and equitable
under the circumstances; (4) authorizes the Commissioner to pay
any delinquent and accrued real property taxes with respect to
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the Subject Property from the foreclosure sale proceeds; (5)
approves the Commissioner’s reasonable expenses; (6) discharges
the Commissioner upon conveyance and closing of the sale; (7)
orders the closing and recording of the sale to occur within 35
days from the date of this Order; and (8) deems the right to
seek a deficiency judgment as waived.

BACKGROUND
Rather than reciting the long and complex history of
this case, the Court focuses on those events relevant to the
Motion before it now. 1/
The Mohrs filed their initial complaint in Hawai`i
state court in 2005 seeking rescission of a note and mortgage on
their home.

See ECF No. 38-4.

On April 13, 2020, after several

years of litigation in federal court, two bankruptcies, the
dismissal of several claims against different defendants, and
appeals, this Court ultimately granted summary judgment to MLB
and issued a decree of foreclosure authorizing MLB to foreclose
on the mortgage against Plaintiffs’ interest in the Subject
Property.

See ECF No. 150 (the “Foreclosure Order”). 2/

The

The Court’s prior summary judgment orders contain more detailed
factual and procedural history. See ECF No. 94 at 2-7; ECF No. 150 at 2-10.
2/
In light of the Foreclosure Order being issued in the midst of the
ongoing COVID-19 pandemic, the Court directed the appointed commissioner to
hold off on commencing any actions to foreclose on the Subject Property until
further order of the Court. The Court subsequently authorized proceeding
with the foreclosure.
1/

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Court reserved the question of the precise amount of the secured
debt to be determined after the confirmation of sale.
37.

Id. at

Notably, MLB did not purport to seek a deficiency judgment

to collect any debt exceeding the net foreclosure sale proceeds
of the Subject Property, and counsel for MLB confirmed as much
at the summary judgment hearing.

See Foreclosure Order at 36

n.25.
On May 7, 2020, the Mohrs filed a notice of appeal,
ECF No. 155, and one week later they filed a Motion to Stay.

In

their Motion, the Mohrs asked the Court to (1) stay the
foreclosure proceedings pending the Ninth Circuit’s decision on
the merits of the appeal and (2) allow the Subject Property to
act as collateral in lieu of a supersedeas bond.
at 5-6.

Mot. to Stay

MLB opposed the Motion to Stay and requested that the

Court require the Mohrs to—at a minimum—post a supersedeas bond
valued at two years of rental income on the property.

See Opp.,

ECF No. 163.
The Court held a hearing on the Motion to Stay on June
26, 2020.

Counsel represented that the Mohrs were dealing with

debilitating health and financial issues, which make posting a
bond impossible.

The Mohrs maintained that they continued to

face financial hardship resulting from their ongoing health
problems, as well as added health and economic difficulties
resulting from the COVID-19 pandemic.
3

ECF No. 166.

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On July 7, 2020, the Court issued an Order Granting
Plaintiffs’ Motion to Stay Judgment & Decree of Foreclosure
Pending Appeal (“the “Stay Order”).

ECF No. 167.

Among other

conditions, the Stay Order required the Mohrs to continue to
comply with the Foreclosure Order's requirements for preserving
the property in its current condition, and required the Mohrs
to, inter alia, maintain adequate insurance and pay property
taxes.

The Stay Order also allowed the Subject Property to

serve as security during the pendency of the appeal, without any
other bond requirements, pursuant to Federal Rule of Civil
Procedure 62(b).
After the Ninth Circuit affirmed the Foreclosure Order
in July of 2021, ECF No. 174, 3/ counsel for MLB requested that
the Court authorize proceeding with the foreclosure as the Ninth
Circuit had filed its mandate and the Hawaii Third Circuit Court
had allowed public sale of property to proceed notwithstanding
the ongoing COVID-19 pandemic.

ECF No. 176.

In response, the Mohrs informed the Court that they
would be filing a petition for a writ of certiorari to the
United States Supreme Court and therefore requested the Court to
stay any further action until they received a ruling by the

The Ninth Circuit panel subsequently voted to deny the Mohrs’
petition for rehearing en banc. ECF No. 175.
3/

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Supreme Court. 4/

Id.

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The Mohrs further requested that their

mortgaged house continue to be the only required security, as
the Court permitted during the stay of the foreclosure pending
the appeal before the Ninth Circuit.

ECF No. 185.

The Court ruled that it had no jurisdiction to stay
the mandate, as the decision appealed to the Supreme Court was
not the Foreclosure Order by this Court but rather the Ninth
Circuit’s affirmance of that decision through its mandate. 5/

Id.

The Court also agreed with MLB that equitable concerns justify
allowing the foreclosure to proceed.

As a result, the Court

directed MLB to prepare a stipulation setting forth that the
parties agree that the foreclosure sale would be conducted under
conditions similar to those contained in the First Amended
Emergency Order of the Circuit Court of the Third Circuit.

Id.

After the stipulation was filed on October 1, 2021, ECF No. 188,
the foreclosure proceeded.
On December 2, 2021, Commissioner Rebecca H. Colvin
filed a Commissioner's Report noting, inter alia, that the
foreclosure sale of the Subject Property took place on November
12, 2021.

4/

8, 2021.
No. 189.

ECF No. 190.

On December 29, 2021, MLB filed a

The Mohrs filed their petition for a writ of certiorari on September
ECF No. 183. Their petition was denied on November 15, 2021. ECF

On September 17, 2021, the Ninth Circuit denied the Mohrs’ emergency
motion to stay district court and/or appellate proceedings pending resolution
of the petition for certiorari. ECF No. 186.
5/

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Motion for Order Confirming Foreclosure Sale and Entry of Final
Judgment.

ECF No. 193.

February 1, 2022.

The Mohrs’ Opposition was filed on

February 10, 2022.

ECF No. 198.

MLB’s Reply was filed on

ECF No. 199.

A hearing on the Motion was

held on February 24, 2022.

STANDARD
Under Hawaii law, a “court’s authority to confirm a
judicial sale is a matter of equitable discretion.”

Sugarman v.

Kapu, 104 Haw. 119, 124, 85 P.3d 644, 649 (Haw. 2004) (quoting
Brent v. Staveris, 7 Haw. App. 40, 45, 741 P.2d 722, 726 (Haw.
Ct. App. 1987) (citation omitted))).

Thus, “absent arbitrary

action, the court has broad discretion regarding confirmation of
judicial sales.”

Id. (citation omitted).

In exercising its

discretion, the “court should act in the interest of fairness
and prudence, and with a just regard to the rights of all
concerned and the stability of judicial sales.”

Brent, 7 Haw.

App. at 45, 741 P.2d at 726 (quoting Hoge v. Kane II, 4 Haw.
App. 533, 540, 670 P.2d 36, 40 (Haw. Ct. App. 1983)).
In addition, a court should generally confirm the sale
unless the price obtained shocks its conscience.
Haw. at 127, 85 P.3d at 652.

Sugarman, 104

A bid price may shock the court’s

conscience, for example, where it is grossly inadequate when
compared to the value of the property sold.
6

Id.

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DISCUSSION
The Mohrs raised in their Opposition to MLB’s Motion
for Order Confirming Foreclosure Sale and Entry of Final
Judgment (ECF No. 198) the issue of whether MLB maintained its
existence throughout this litigation.

MLB argues that, although

it filed a certificate of cancellation with the Delaware
Secretary of State on February 22, 2021, it did not violate its
obligation to maintain its existence as a limited liability
company.

Because MLB never completed the winding up process,

its erroneous certificate of cancellation had no legal effect.
Further, by operation of Delaware law, MLB’s mistaken filing of
the certificate of cancellation was nullified by the filing of
its certificate of correction, with retroactive effect since the
Mohrs have not shown that they were substantially and adversely
affected by the correction.
I.

Applicable Delaware Law
Under Delaware law, a limited liability company is formed

at the time of the filing of an initial certificate of formation
in the office of the Secretary of State.
6 § 18-201(b).

Del. Code Ann., Title

The existence of the limited liability company

continues “until cancellation of the limited liability company’s
certificate of formation.”

Id.

“A Delaware limited liability company's dissolution may
be characterized as the beginning of the end of its legal
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existence.

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Dissolution necessitates winding up, which commences

upon dissolution.

Winding up is the process by which the

dissolved limited liability company settles and closes its
business, disposes of and conveys its property, discharges or
provides for its liabilities, and distributes any remaining
assets to its members and other constituents.

The cancellation

of the company's certificate of formation is effected at the
completion of winding up.

This marks the end of the entity's

legal existences as a limited liability company.”

Symonds &

O'Toole, Symonds and O'Toole on Delaware Limited Liability
Companies, Section 16.01 (2009 Suppl.).
To accomplish the cancellation of a limited liability
company's certificate of formation, a certificate of
cancellation must be filed in the office of Secretary of State
upon the dissolution and the completion of winding up of the
limited liability company.

Del. Code Ann., Title 6 § 18–203(a).

A certificate of cancellation that is filed prior to the
dissolution or the completion of winding up of a limited
liability company may be corrected as an erroneously executed
certificate of cancellation by filing a certificate of
correction, pursuant to Del. Code Ann., Title 6 § 18–211, with
the Secretary of State.

Del. Code Ann., Title 6 § 18–203(b).

“The certificate of correction shall be effective as of the date
the original certificate was filed, except as to those persons
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who are substantially and adversely affected by the correction,
and as to those persons the certificate of correction shall be
effective from the filing date.”

Del. Code Ann., Title 6 § 18–

211.
II.

MLB’s Filings
MLB’s Vice President-April Smith-signed a certificate of

cancellation on February 22, 2021 and filed it with the Delaware
Secretary of State.

Smith Decl. ¶ 4; see Mohr Ex. 2.

According

to Smith, she failed to recall that MLB was to remain active
until the completion of this litigation.

Smith Decl. ¶ 6.

After realizing her mistake, a second Delaware LLC was formed on
November 29, 2021 with the same name as MLB in an attempt to
address the premature cancellation.
3.

Id. ¶¶ 10, 11; see Mohr Ex.

After consulting with its attorneys, MLB then filed in

February of 2022 two certificates of correction:

(1) the first

to nullify the earlier erroneous certificate of cancellation,
and (2) the second to nullify the earlier erroneous certificate
of formation.

Smith Decl. ¶ 12.

Both certificates of

correction stated, “[d]ue to a clerical error, this filing was
submitted erroneously.”

See MLB Exs. 1 & 2.

III. Analysis
As an initial matter, the 2021 certificate of
cancellation has no effect as MLB did not complete the process
of winding up.

The Mohrs cite Beaudry v. Harding, 104 A.3d 134
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(ME 2014) for the proposition that an administratively dissolved
LLC cannot prosecute an action.

As explained by the Maine

statute cited in Beaudry, “[a]dministratively dissolved LLCs are
those that the Secretary of State dissolves because the LLC
fails to follow the procedures imposed by the Act, such as
paying mandatory fees and penalties or filing annual reports.”
Id. at 136.

There is no claim here that MLB was

administratively dissolved.

MLB, on the other hand, correctly

cites precedent reiterating the Delaware statute permitting a
certificate of cancellation only “upon the dissolution and
winding up of the company.”

Trusa v. Nepo, No. CV 12071-VCMR,

2017 WL 1379594, at *7 (Del. Ch. Apr. 13, 2017).

Here, as in

Trusa, MLB has not completed the prerequisite winding up process
and thus remained in existence.

See Smith Decl. ¶ 15.

Even if MLB’s erroneous certificate of cancellation had
effect, MLB’s subsequent certificate of correction would remedy
the issue as the Mohrs have not claimed that the correction in
any way affected them, let alone “substantially and adversely”
affected them.

See Del. Code Ann., Title 6 § 18–211(a);

Flatiron Acquisition Vehicle, LLC v. CSE Mort. LLC, No. 1:17-CV8987-GHW, 2019 WL 1244294, at *12 (S.D.N.Y. Mar. 18, 2019) (“[A]
company may file a certificate of correction that nullifies a
previously-filed certificate of cancellation so long as the LLC
has not finished the winding up process.”).
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As a result of these erroneous filings and MLB’s failure
to communicate, the Mohrs also claim fraud on the court.

See

Opp. at 3 (“[W]hen asked by Plaintiff’s counsel via email to
prove that MLB existed, Mr. Daniel Kikawa advised Plaintiff’s
counsel that ‘MLB exists as a Delaware LLC’” but withheld that
MLB “was re-created as a new LLC . . . .”).

However, the Court

finds that the 2021 certificate of cancellation has no effect as
MLB had not completed the process of winding up and consequently
remained in existence; and therefore, no fraud upon the court
was committed.

In any event, the standard for fraud on the

court is extremely high.

Non-disclosure by itself generally

does not constitute fraud on the court.
Doyle, 281 F.2d 304, 310 (9th Cir. 1960).

See England v.
Similarly, perjury by

a party or witness, by itself, is not typically fraud on the
court.

In re Levander, 180 F.3d 1114, 1119 (9th Cir. 1999). 6/

MLB’s actions were certainly sloppy, but the behavior does not
rise to the level of fraud on the court.
IV.

Conclusion
In sum, because MLB never completed its winding up

process, its erroneous certificate of cancellation had no legal
The Mohrs cite Cvitanovich-Dubie v. Dubie, 125 Haw. 128, 144-46, 254
P.3d 439, 455-57 (2011) for further support on this issue. But Dubie is a
family law case, and the motion is made under Hawaii Family Court Rule
60(b)(6), rather than Hawaii Rules of Civil Procedure, as the Mohrs say. In
any event, Dubie echoes other cases in emphasizing that fraud on the court
“only applies to very unusual cases involving ‘far more than an injury to a
single litigant[,]’ but rather, a ‘corruption of the judicial process
itself.’” Id. at 144, 455 (internal citation omitted).
6/

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effect.

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Further, by operation of Delaware law, MLB’s mistaken

filing of a certificate of cancellation was nullified by the
filing of its certificate of correction which has retroactive
effect because the Mohrs have not shown that they were
substantially and adversely affected by the correction.

FINDINGS OF FACT 7/
1.

This is a civil action regarding the foreclosure

sale of the Subject Property identified as 73-4787 Halolani
Street, Kailua-Kona, HI 96740 (TMK: (3) 7-3-047-016), and
encumbered by mortgage dated April 16, 2004 held by MLB.
2.

Jurisdiction over this action is based on 28

U.S.C. § 1331, § 1332(a)(1), and § 1367(a).
3.

On April 13, 2020, this Court issued its Order

Granting Defendant MLB’s Motion for Summary Judgment and Issuing
Decree of Foreclosure.
4.

ECF No. 150.

The Court finds the Mohrs total indebtedness

under MLB’s mortgage is in the amount of $1,223,617.33 as of
January 19, 2022.

ECF No. 197 (Supplemental Declaration of

April Smith).
5.

On December 2, 2021, Commissioner Rebecca H.

Colvin filed her report detailing the foreclosure sale of the

Where appropriate, findings of fact shall operate as conclusions of
law and likewise conclusions of law shall operate as findings of fact.
7/

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Subject Property and the winning bid by MLB of $621,000.00 at
the November 12, 2021 auction.
6.

ECF No. 190.

At the February 24, 2022 hearing on the Motion

for Order Confirming Foreclosure Sale and Entry of Final
Judgment, bidding was reopened and Sunshine Holdings LLC was the
successful bidder with a bid of $652,050.00.

The Court finds

that the winning bid of $652,050.00 by Sunshine Holdings LLC is
a proper, fair, reasonable, and equitable bid for the Subject
Property and is the best price attainable under the
circumstances in light of the fact that, by agreement of the
parties, no open houses were conducted and considering that the
county’s real property tax assessed fair market value of the
property for 2021 is $621,000.00.
¶ 13.

See Commissioner Report at 3

Accordingly, the Court approves the sale because the

price is fair and equitable under the circumstances.
7.

The Commissioner submitted a request for

reimbursement of actual and necessary expenses incurred in the
sum of $867.02, payment of Commissioner’s reasonable fees in the
sum of $2,915.00 (approximately 0.4% of the purchase price), and
general excise tax in the amount of $137.35, altogether totaling
$3,919.37.

See Commissioner’s Report at 4 ¶ 3.

The Court finds

the same are reasonable and approves them.
8.

At the February 24, 2022 hearing, MLB waived any

right to a deficiency judgment under its mortgage, any right to
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reimbursement for advanced real property taxes, and any right to
attorney’s fees and costs.

CONCLUSIONS OF LAW 8/
Based on the foregoing findings of fact, the Court
concludes as follows:
1.

The Commissioner’s Report filed on December 2,

2021 (ECF No. 190) is approved.
2.

In accordance with the Order Granting Defendant

MLB’s Motion for Summary Judgment and Issuing Decree of
Foreclosure, the sale of the Subject Property to Sunshine
Holdings LLC for $652,050.00 is approved and confirmed.

The

Court concludes that the sale price of $652,050.00 is proper,
fair, reasonable, and equitable under the circumstances and the
best price attainable under the circumstances.
3.

The Commissioner is authorized and directed to

pay out of the foreclosure sale’s proceeds all delinquent and
accrued real property taxes, if any, with respect to the Subject
Property, prorated as of the date of closing.
4.

The Commissioner is authorized and directed to

execute a Commissioner’s “As Is” Quitclaim Deed of the Subject

Where appropriate, conclusions of law shall operate as findings of
fact and likewise findings of fact shall operate as conclusions of law.
8/

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Property in favor of Sunshine Holdings LLC, free and clear of
all interests and claims of all parties to this proceeding.
5.

Sunshine Holdings LLC as purchaser is directed to

pay all costs of conveying the Subject Property, including
preparation of conveyance documents, conveyance tax, and
securing possession of the property, as well as the cost of any
escrow services, and recording of the conveyance.
6.

Any persons still occupying the Subject Property

shall leave and vacate the Subject Property permanently within
twenty (20) days after the filing of this Order, each taking
with them their personal property (but leaving all improvements,
buildings, and appurtenances to the Subject Property).

If any

person fails or refuses to leave and vacate the Subject Property
by the time specified in this Order, the Commissioner is
authorized and directed to take all actions that are reasonably
necessary to bring about the ejectment of those persons,
including obtaining a writ of possession.

If any person fails

or refuses to remove his or her personal property from the
premises by the time specified herein, any personal property
remaining on the Subject Property thereafter is deemed forfeited
and abandoned, and the Commissioner is authorized to remove it
and dispose of it in any manner the Commissioner sees fit,
including sale.

The sale proceeds are to be applied first to

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the expenses of sale and the balance to be paid into the Court
for further distribution.
7.

The Court reserves jurisdiction to enter such

further orders as may be necessary or appropriate to assist
Sunshine Holdings LLC to gain possession of the Subject
Property.
8.

The Mohrs and all parties and persons claiming

by, through, or under the Mohrs shall be forever barred from any
and all right, title, interest, and claims at law or in equity
to the Subject Property, except for any liens for real property
taxes and assessments lawfully imposed by governmental
authorities against the Subject Property.
9.

The Commissioner is authorized and directed to

pay out of the foreclosure sale’s proceeds the Commissioner’s
fees and expenses (totaling $3,919.37).
10.

Upon the filing of receipts for all disbursements

made, the Commissioner is discharged from all further
responsibilities and obligations relating to the Subject
Property.

I

11.

Closing and recording of the sale shall occur

within 35 days of this Order.
12.
waived.

The right to seek a deficiency judgment is deemed

MLB did not purport to seek a deficiency judgment to

collect any debt exceeding the value of the Subject Property,
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and counsel for MLB confirmed as much at the summary judgment
hearing.

See Foreclosure Order at 36 n.25; see also MLB’s

Motion for Order Confirming Foreclosure Sale and Entry of Final
Judgment (ECF No. 193) at 4 ¶ 8.

At the hearing on February 24,

2022, MLB also waived any right to reimbursement for advanced
real property taxes, and any right for attorney’s fees and
costs.

CONCLUSION
For the foregoing reasons, the Court GRANTS MLB’s
Motion for Order Confirming Foreclosure Sale and Entry of Final
Judgment (ECF No. 193).
Pursuant to Federal Rule of Civil Procedure 54(b),
this Order shall be entered as a final judgment as there is no
just reason for delay.

IT IS SO ORDERED.
DATED: Honolulu, Hawai`i, February 28, 2022.

________________________________
Alan C. Kay
Sr. United States District Judge

Mohr v. MLB SUB I, LLC, et al., Civ. No. 16-00493-ACK-WRP, Order Granting
Counterclaimant MLB Sub I, LLC’s Motion for Order Confirming Foreclosure Sale
and Entry of Final Judgment (ECF No. 193).

17