1250 Oceanside Partners v. Buckles et al

Filing 23

ORDER ADOPTING AMENDED PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW ON MOTIONS TO DISMISS AND FOR SUMMARY JUDGMENT re: 1 . Signed by CHIEF JUDGE J. MICHAEL SEABRIGHT on 5/11/2017. Excerpt of conclusion:&q uot;The court OVERRULES objections from both parties, and ADOPTS the Amended Findings. As recommended by the Bankruptcy Court, a decree of foreclosure in favor of Plaintiff shall enter. Although the Bankruptcy Court recommended 'that the Dist rict Court enter judgment accordingly,' Amended Findings at 2, the court interprets the Bankruptcy Court's recommendation as contemplating further proceedings to implement such a decree of foreclosure, and to further address issues regardin g a deficiency judgment (and at least to address whether the arbitration provisions should not be enforced by virtue of bankruptcy law). [citation omitted]. In this regard, Plaintiff is directed to file a proposed form of a Foreclosure Decree by May 26, 2017. By June 2, 2017, Defendants may file objections, if any, to the proposed form of the Foreclosure Decree. After the Foreclosure Decree is entered, the Clerk of Court shall close the case file and the matter shall be remanded to the Bankr uptcy Court for further proceedings consistent with this Order." WRITTEN ORDER follows hearing held March 3, 2017. Minutes of hearing: ECF no. 21 . 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). All participants are registered to receive electronic notifications.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

In re 1250 OCEANSIDE PARTNERS,

Civ. No. 16-00585 JMS-KSC

Debtor.
_________________________________

ORDER ADOPTING AMENDED
PROPOSED FINDINGS OF FACT
AND CONCLUSIONS OF LAW ON
MOTIONS TO DISMISS AND FOR
SUMMARY JUDGMENT

1250 OCEANSIDE, LLC,
Plaintiff,
vs.
ROGER ARNOLD BUCKLES,
Individually and as Trustee of the Roger
Arnold Buckles and Cindy Kiyono
Buckles Revocable Family Trust dated
October 29, 1991; CINDY KIYONO
BUCKLES, individually and as Trustee
of the Roger Arnold Buckles and Cindy
Kiyono Buckles Revocable Family Trust
dated October 29, 1991,
Defendants.

ORDER ADOPTING AMENDED PROPOSED FINDINGS OF FACT AND
CONCLUSIONS OF LAW ON MOTIONS TO DISMISS AND FOR
SUMMARY JUDGMENT
I. INTRODUCTION
Defendants Roger Arnold Buckles and Cindy Kiyono Buckles,
individually, and in their capacities as trustees of the Roger Arnold Buckles and

1

Cindy Kiyono Buckles Revocable Family Trust (collectively, “Defendants” or “the
Buckles”), object under 28 U.S.C. §157(c)(1) to the September 29, 2016 Amended
Proposed Findings of Fact and Conclusions of Law on Motions to Dismiss and for
Summary Judgment (the “Amended Findings”) issued by the U.S. Bankruptcy
Court for the District of Hawaii. ECF No. 3. Similarly, Plaintiff 1250 Oceanside,
LLC (“Plaintiff”) has filed “limited objections” to the Amended Findings. ECF
No. 6. Plaintiff was formerly known as 1250 Oceanside Partners (“the Debtor”).
Based on the following, the court OVERRULES both sets of
objections, and ADOPTS the Amended Findings. As recommended by the
Bankruptcy Court, a Decree of Foreclosure in favor of Plaintiff shall issue.
II. BACKGROUND
A.

Standard of Review
If a bankruptcy court submits proposed findings of fact and

conclusions of law under § 157(c), the district court “review[s] de novo those
matters to which any party has timely and specifically objected.” 28 U.S.C.
§157(c)(1). “The district judge shall make a de novo review upon the record or,
after additional evidence, of any portion of the bankruptcy judge’s findings of fact
or conclusions of law to which specific written objection has been made in
accordance with this rule.” Fed. R. Bankr. P. 9033(d).

2

Absent specific objections, the court reviews proposed factual
findings for clear error and legal conclusions de novo. See, e.g., In re Preston, 516
B.R. 606, 609 (C.D. Cal. 2014). That is, “[t]he district judge may accept the
portions of the findings and recommendation to which the parties have not
objected as long as it is satisfied that there is no clear error on the face of the
record.” Naehu v. Read, 2017 WL 1162180, at *3 (D. Haw. Mar. 28, 2017)
(citations omitted).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).
The court thus focuses on the specific objections of the parties. And
because the court -- having carefully reviewed the record -- accepts and adopts the
other (non-objected-to) findings, the court relies on the Amended Findings for
much of the background. In this Order adopting those Findings, the court reiterates
many of the facts as found by the Bankruptcy Court, and explains the procedural
history as necessary to put the issues into context. The parties are familiar with the
1

Although Naehu evaluated Findings and Recommendations of a Magistrate Judge under
Federal Rule of Civil Procedure 72, Federal Rule of Bankruptcy Procedure 9033(d) “adopts the
de novo review provisions of Rule 72(b).” Fed. R. Bankr. P. 9033(d) Advisory Committee
Notes. See, e.g., Leonard v. Dorsey & Whitney LLP, 553 F.3d 609, 619-20 (8th Cir. 2009)
(“[T]he Supreme Court’s observation that [28 U.S.C.] section 636(b)(1) ‘provide[s] for de novo
review only when a party objected to the magistrate’s findings or recommendations,’ Peretz v.
United States, 501 U.S. 923, 939 [] (1991) (emphasis added), applies equally [to Bankruptcy
Rule 9033(d)].”).

3

extensive history of this case (with an underlying bankruptcy proceeding
consisting of over 1,400 docket entries, and excerpts of record in this court of over
3,000 pages), which the court need not otherwise set forth in this Order.
B.

Factual Background
The Debtor was the developer of Hokuli<a, a planned residential

subdivision on the Big Island, County of Hawaii. ECF No. 4-1 at 5. On March 6,
2013, the Debtor filed for bankruptcy under Chapter 11 of the United States
Bankruptcy Code, and filed the present adversary proceeding in that bankruptcy
action. Amended Findings at 5. Among other relief, the adversary proceeding
seeks to enforce a promissory note and foreclose a mortgage made by the Buckles.
Id. at 1, 5; see also ECF No. 4-1. The proceeding arises out of a February/March
2000 transaction in which the Debtor financed and sold a lot in Hokuli<a to the
Buckles. ECF No. 4-1 at 2-3, 5-6.
“To document the [February/March 2000] transaction, the parties
executed four documents at or about the same time: a Purchase Contract, dated
February 18, 2000; a warranty deed, dated February 16, 2000; a promissory note
by [the] Buckles in favor of [the Debtor], dated March 28, 2000; and a mortgage,
dated February 16, 2000.” Amended Findings at 2 (citations omitted); ECF No. 11 at 2. This Order refers to the March 28, 2000 promissory note as “the Buckles’

4

note,” or simply as “the note.” The Buckles borrowed $680,000 from the Debtor
in this transaction. ECF No. 4-1 at 5. “The Purchase Contract incorporated the
note, mortgage, and warranty deed as essential parts of the agreement. The
Purchase Contract obligated [the Debtor] to make a number of improvements on
the lot and in and around the development.” Amended Findings at 2 (citations
omitted).
“Paragraph 17.a of the Purchase Contract requires mediation and
arbitration of all disputes relating to the Purchase Agreement, the sale of the lot, or
‘any other aspect of the relationship’ between [the Debtor] and [the Buckles].”
Amended Findings 2-3 (citation omitted). “Paragraph 17.b, however, provides
that, if [the] Buckles default under the note or mortgage, [the Debtor] is not
required to arbitrate, but instead ‘has the absolute right’ to ‘seek to foreclose on the
property covered by the Mortgage by a foreclosure action filed in the Circuit Court
of the Third Circuit, State of Hawaii,’ or ‘seek to foreclose on the property covered
by the Mortgage by a non-judicial foreclosure[.]” Id. at 3 (citations omitted).2
2

In full, paragraph 17.b provides:
Notwithstanding anything else in this Paragraph 17 to the contrary,
in the event that Buyer defaults on Buyer’s obligations under the
Promissory Note or the Mortgage in favor of Seller, if any, Seller
shall have the absolute right to seek the following remedies with
regard to such default without first resorting to arbitration under
the provisions of this Paragraph 17:
(continued . . . )
5

“The deed includes dispute resolution provisions that are almost identical to the
Purchase contract.” Id. And “[t]he mortgage [also] gives [the Debtor] the right to
pursue judicial or nonjudicial foreclosure.” Id.
“In 2006, Oceanside granted a security interest in [the] Buckles’ note
and mortgage (along with others’) to Textron Financial Corporation (‘Textron’) to
secure [the Debtor’s] obligations under a revolving line of credit.” Id. at 4 (citation
omitted). “The security agreement permits [the Debtor] to enforce the Buckles[’]

(. . . continued)
(1)

Judicial Foreclosure. Seller may seek to foreclose on the
property covered by the Mortgage by a foreclosure action
filed in the Circuit Court of the Third Circuit, State of
Hawaii, under Chapter 667, Hawaii Revised Statutes, as
amended from time to time, and

(2)

Non-Judicial Foreclosure. Seller may seek to foreclose on
the property covered by the Mortgage by a non-judicial
foreclosure, power of sale foreclosure, power of sale, or
power of sale remedy under Chapter 667 Hawaii Revised
Statutes, as amended from time to time, and the terms of
the Mortgage.

Buyer hereby waives any right that Buyer might otherwise have to
stay either such remedy pending the resolution of any arbitrable
disputes under this Paragraph 17. Regardless of whether Seller is
awarded or denied either of the foregoing remedies, all issues
relating to monetary damages or costs of any type relating to
disputes that are subject to arbitration under this Paragraph shall
continue to be subject to arbitration as provided herein, and the
arbitrator(s) shall have sole and exclusive jurisdiction to decide all
such matters.
Purchase Contract at 7, ECF No. 4-6 at 114.

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note and use the proceeds to pay its debt to Textron (unless [the Debtor] defaulted
in its obligations to Textron, in which event Textron could take collection action
against [the] Buckles directly).” Id. (citation omitted).
“[The Debtor] also indorsed [the] Buckles’ note and assigned [the]
Buckles’ mortgage to Textron.” Id. (citation omitted). “Although the endorsement
and assignment are absolute on their face, the Textron loan agreement makes it
clear that the transfers were intended for security purposes only.” Id. “Later,
Textron assigned its interest in the notes and mortgages to Sun Kona Finance II
(‘SKF II’).” Id. (citation omitted). “SKF II is in possession of the Buckles’ note.”
Id. (citation omitted).
The Debtor “failed to complete the Hokuli<a development as
promised.” Id. at 5. Presumably because of this failure, the Buckles “ceased
payment on the note in 2009.” Id. (citation omitted). “On April 1, 2012, [the]
Buckles signed a release, which discharged their claims against [the Debtor].” Id.
(citation omitted). 3 “After signing the release, [the] Buckles did not resume
payments on the note.” Id. (citation omitted).

3

Although the April 1, 2012 release refers to a “Litigation Settlement Agreement,” ECF
No. 4-5 at 31, it is unclear what claims were released. In this regard, this Court agrees with the
Bankruptcy Court’s finding that it need not address the release at this stage. See Amended
Findings at 15 n.4 (“Based on my interpretation of the dispute resolution provisions of the
Purchase Contract, I need not decide this issue [regarding the effect of the release] now.”).

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C.

Procedural Background
After the Debtor filed for bankruptcy, it “sent [the] Buckles a demand

letter declaring default and requiring [the] Buckles to cure its arrears.” Id. Further,
“[the Debtor] and SKF II entered into a stipulation, in which SKF II assigned its
interest in the note and mortgage ‘to the extent necessary to allow [the Debtor] to
commence and litigate to completion foreclosure actions against non-performing
borrowers.’” Id. (citation omitted).
The Debtor then filed this adversary proceeding, seeking to enforce
the note, and to foreclose. Id. It filed similar actions against other non-performing
mortgagors, based on similar contractual agreements. See, e.g., 1250 Oceanside
Partners v. Maryl Grp., Inc., et al., Civ. No. 13-00613 LEK-KSC (D. Haw. filed
Nov. 13, 2013) (reviewing Adversary Proceeding No. 13-90049 in the Debtor’s
chapter 11 action) (“Maryl Group”).
To that end, on September 26, 2013, the Debtor filed a Motion for
Summary Judgment in the Bankruptcy Court, seeking a finding that the Buckles
were in default, and an interlocutory decree of foreclosure. ECF No. 4-4. In
response, the Buckles filed a Motion to Dismiss, contending (among other
arguments) that contractual language required the foreclosure proceedings to take

8

place in the Third Circuit Court for the State of Hawaii (“State Court”), not in the
Bankruptcy Court. ECF No. 4-3.
Ruling on the Cross-Motions, the Bankruptcy Court issued Proposed
Findings of Fact and Conclusions of Law on December 19, 2013 (“December 19,
2013 Findings”). ECF No. 4-18. Among other rulings, the Bankruptcy Court
indeed found the Buckles in default and recommended entry of an interlocutory
decree of foreclosure. Id. at 2. It also concluded that it had jurisdiction over the
matter under 28 U.S.C. § 1334(b), as a proceeding “related to cases under title 11.”
Id. at 6. The Bankruptcy Court rejected the Buckles’ argument that the foreclosure
proceedings must occur in State Court, concluding that the Debtor “may seek
judicial foreclosure in any court with jurisdiction to preside over a mortgage
foreclosure of the subject property.” Id. at 11. It had ruled identically in a Report
and Recommendation of November 13, 2013 in Maryl Group, ECF No. 19-1, and a
challenge to that Report and Recommendation was pending at that time before
another judge in this District. See Maryl Group (ECF No. 1-1 at 11, in Civ. No.
13-00613 LEK-KSC).
On January 13, 2014, that District Judge rejected the Report and
Recommendation in Maryl Group, and dismissed that adversary proceeding
without reaching the merits. ECF No. 20-1. That Judge determined -- contrary to

9

the Bankruptcy Court’s view expressed in Maryl Group, and in the December 19,
2013 Findings in the Buckles’ adversary proceeding -- that the plain language of
the relevant documents required foreclosure proceedings to be held in State Court.
Id. at 10. The Debtor appealed that decision to the Ninth Circuit Court of Appeals.
See Maryl Group (ECF No. 11 in Civ. No. 13-00613 LEK-KSC). Given the
pendency of that appeal in Maryl Group, the Bankruptcy Court stayed the Buckles’
adversary proceeding on February 14, 2014 (upon stipulation between the Debtor
and the Buckles) to allow the Ninth Circuit to decide the common question
regarding venue for the Debtor’s foreclosure actions. See ECF No. 1-6 at 6
(Stipulation and Order Staying Proceedings Pending Appeal).
Meanwhile, the Bankruptcy Court continued to adjudicate the
Debtor’s chapter 11 action, and on June 2, 2014, confirmed the Debtor’s plan of
reorganization. ECF Nos. 19-2 & 19-3 (“the Plan”). The 83-page Plan (exclusive
of exhibits) included a provision stating that “[a]s of the Effective Date . . . [the
Debtor] shall be converted from a Hawaii limited partnership to a Delaware
member-managed limited liability company. The name of the reorganized
[Debtor] shall be 1250 Oceanside, LLC.” Plan at 46, ECF 19-3 at 4. The Plan also
contained a “Retention of Jurisdiction” provision, stating in part:
Notwithstanding the entry of the Confirmation Order or
the occurrence of the Effective Date, the Bankruptcy
10

Court shall retain jurisdiction over the Chapter 11 Cases
and any of the proceedings related to the Chapter 11
Cases pursuant to section 1142 of the Bankruptcy Code
and 28 U.S.C. § 1334 to the fullest extent permitted by the
Bankruptcy Code and other applicable law, including,
without limitation, such jurisdiction as is necessary to
ensure that the purpose and intent of the Plan is carried
out. . . . Without limiting the generality of the foregoing,
the Bankruptcy Court shall retain jurisdiction for the
following purposes:
....
(e) decide or resolve any motions, adversary
proceedings, contested or litigated matters and any other
matters and grant or deny any applications involving the
Debtor that may be pending before the Effective Date or
that may be commenced thereafter[.]
Plan at 66-67, ECF No. 19-3 at 24-25.
On March 21, 2015, the Bankruptcy Court issued an Order Approving
Final Accounting of Unsecured Creditors’ Fund. See In re 1250 Oceanside
Partners, (Bankr. D. Haw.), Case No. 13-00353 at ECF No. 1455-1. And on June
22, 2015, the Bankruptcy Court issued a Final Decree, closing the chapter 11 case.
Id. at ECF No. 1464.
Nearly a year later, on June 21, 2016, the Ninth Circuit issued a
memorandum disposition in Maryl Group that reversed the district court, reasoning
that the contractual documents “lack[ed] language clearly designating [the State
Court] as the exclusive forum for [the Debtor’s] foreclosure.” 1250 Oceanside
Partners v. Maryl Grp., Inc., et al. (In re: 1250 Oceanside Partners), 652 F. App’x
11

588, 589 (9th Cir. June 21, 2016). The Ninth Circuit agreed with the Bankruptcy
Court’s original position, holding that the district court erred in preventing the
Debtor from bringing a foreclosure action in the Bankruptcy Court. Id.
Given Maryl Group, the Bankruptcy Court lifted the stay in the
Buckles’ adversary proceeding and revised its December 19, 2013 Findings.
Specifically, on September 29, 2016, it issued the Amended Findings, which are
substantively identical to the December 19, 2013 Findings, but with appropriate
revisions reflecting the subsequent proceedings in Maryl Group. Amended
Findings at 9 (“[The] Buckles argue that the Third Circuit Court is the only proper
forum for this foreclosure action. In a related adversary proceeding, the Ninth
Circuit has rejected this argument.”) (citing Maryl Group).
To summarize, the Amended Findings found and concluded as
follows:
(1)

federal jurisdiction over the foreclosure action is proper because it is
“related to” the Debtor’s chapter 11 action under 28 U.S.C. § 1334, id.
at 6;

(2)

the Debtor has standing to enforce the note and mortgage under
Hawaii Revised Statutes (“HRS”) § 490:3-301(ii), id. at 11-14;

12

(3)

the Debtor has proven all the elements necessary to foreclose on the
mortgage, and the Buckles’ purported defense against foreclosure
(based on the failure of the Defendant to complete the Hokuli<a
project) was precluded by the Purchase Contract, id. at 15; and

(4)

the Debtor’s claims for a deficiency judgment are subject to
arbitration, and -- given the particular language in the Purchase
Contract -- it was not necessary to determine at this stage of the
proceedings whether the Debtor is entitled to a deficiency judgment
or, if so, the amount. Id. at 2, 15, 17-18.
On October 12, 2016, the Buckles filed Objections in the Bankruptcy

Court to the Amended Findings. ECF No. 1-6 at 8 (docket sheet for Adversary
Proceeding 13-90054). Similarly, the Debtor filed its “Limited Objections” on
October 13, 2016. Id. The parties filed corresponding Responses in the
Bankruptcy Court on October 26, 2016. Id. Thereafter, on October 27, 2016, the
Bankruptcy Court transmitted the Amended Findings to this court under 28 U.S.C.
§157(c)(1). ECF No. 1. The parties filed their Objections, Responses, and
Excerpts of Record in this court on November 8 and 9, 2016. ECF Nos. 3, 4, 6-9.
On January 27, 2017, the court requested supplemental briefing on a
jurisdictional issue. ECF No. 14. The parties filed their supplemental briefs on

13

February 13, 2017. ECF Nos. 17, 19-20. A hearing was held on March 3, 2017.
ECF No. 21. On March 10, 2017, the parties stipulated to substitute 1250
Oceanside, LLC as the Plaintiff in place of the Debtor. ECF No. 22.
III. DISCUSSION
The Buckles raise three specific objections: (1) they object to the
Conclusion that federal jurisdiction is proper under § 1334(b); (2) they contend
that the Debtor lacks standing to foreclose, raising a related challenge to Findings
regarding possession of the note; and (3) they object to entry of a foreclosure
decree, arguing that they have a valid defense excusing their default, i.e., the
Debtor failed to perform on the Purchase Contract by not completing the Hokuli<a
project. ECF No. 3.
Plaintiff objects on limited grounds, arguing that (1) the amount of
any deficiency judgment is not subject to arbitration under the Purchase Contract,
and (2) the court should determine (at the current stage of the proceedings) the
specific amount of the debt, and that Plaintiff would be entitled to a deficiency
judgment. See Pl.’s Obj. 3-4, ECF No. 6-1 at 4-5 (“Plaintiff respectfully suggests
that it would be preferable to have the amount of debt determined prior to
foreclosure, where the mortgagee seeks to credit bid and where there appears to be
no dispute of material fact.”).

14

The court addresses each objection in turn.
A.

The Bankruptcy Court Had, and Properly Retained, Jurisdiction
In both the original December 19, 2013 Findings, and in the Amended

Findings, the Bankruptcy Court concluded that this adversary proceeding is
“related to” the Debtor’s chapter 11 case because collection of the Buckles’ debt
would reduce the Debtor’s liability to SKF II and thus “alter the debtor’s . . .
liabilities.” December 19, 2013 Findings at 7; Amended Findings at 6. The
Bankruptcy Court and the parties addressed federal “related-to” jurisdiction under
an expansive formulation reiterated in Montana v. Goldin (In re Pegasus Gold
Corp.), 394 F.3d 1189 (9th Cir. 2005) (hereinafter “Pegasus Gold”):
Under this formulation, the test is whether . . . the
outcome of the proceeding could conceivably have any
effect on the estate being administered in bankruptcy.
Thus, the proceeding need not necessarily be against the
debtor or against the debtor’s property. An action is
related to bankruptcy if the outcome could alter the
debtor’s rights, liabilities, options, or freedom of action
(either positively or negatively) and which in any way
impacts upon the handling and administration of the
bankrupt estate.
Id. at 1193 (quoting In re Fietz, 852 F.2d 455, 457 (9th Cir. 1988) (emphasis
omitted)) (adopting the “Pacor test” derived from Pacor, Inc. v. Higgins, 743 F.2d
984, 994 (3d Cir. 1984)).

15

Using Pegasus Gold, the Bankruptcy Court rejected the Buckles’
argument that the proceeding is not “related” where all the proceeds would benefit
SKF II, which is affiliated with the Debtor. The Bankruptcy Court reasoned that
the adversary proceeding would generate money to repay creditors (a primary
purpose of a bankruptcy case), and “[t]he fact that the proceeds will flow only to
certain creditors, because those creditors’ claims are secured or have priority over
other claims, is irrelevant.” December 19, 2013 Findings at 7; Amended Findings
at 7. Moreover, it noted that it was “also conceivable that the collections could
exceed SKF II’s claims and produce a surplus for other creditors.” Id. at 6;
Amended Findings at 7.
This court easily agrees with the Bankruptcy Court’s reasoning, at
least as to the December 19, 2013 Findings. Pegasus Gold enunciates an
extremely broad test (whether the outcome of the proceeding could conceivably
have any effect on the estate), and by any measure the collection of debts to pay
any legitimate creditor has an effect on the estate. And to the extent the Buckles
argue that the Bankruptcy Court erred by not specifically and separately
considering the adversary proceeding’s impact on the “handling and administration
of the bankrupt estate,” there was no error. Collecting debts and paying creditors
necessarily has at least some impact on the administration of the estate.

16

Put differently, recovery on foreclosure would have potentially
benefitted the Debtor at the time. Further, the Bankruptcy Court correctly
observed that collections could exceed SKF II’s claims and produce a surplus.
And even if SKF II alone could have benefitted from foreclosing on the Buckles’
note, the “the outcome of the proceeding” could still have “conceivably ha[d] any
effect on the estate being administered” and “impact[ed] upon the handling and
administration” of the estate. Pegasus Gold, 394 F.3d at 1193.
But the analysis arguably differs as to the Amended Findings, which
were not issued until over two years after the Plan was confirmed, and a year after
the chapter 11 action itself was closed. Generally, the test is “necessarily more
limited” in a post-confirmation context. Id. at 1194. For post-confirmation
“related-to” jurisdiction, Pegasus Gold limited the “Pacor test,” and adopted the
Third Circuit’s “close nexus” test that appears to focus on the confirmed plan, not
specifically on the estate. See id. (indicating that a “close nexus” to a confirmed
bankruptcy plan exists if a matter affects “the interpretation, implementation,
consummation, execution, or administration of the confirmed plan”) (quoting In re
Resorts Int’l, Inc., 372 F.3d 154, 167 (3d Cir. 2004)); see also, e.g., Battle Ground
Plaza, LLC v. Ray (In re Ray), 624 F.3d 1124, 1135 (9th Cir. 2010) (reasoning that
“related-to” jurisdiction did not exist over a “breach of contract action that could

17

have existed entirely apart from the bankruptcy proceeding and did not necessarily
depend upon resolution of a substantial question of bankruptcy law”) (citations
omitted)).
And in a true post-confirmation context, Pegasus Gold specifically
rejected the argument that “jurisdiction lies because the action could conceivably
increase the recovery to the creditors,” reasoning that “such a rationale could
endlessly stretch a bankruptcy court’s jurisdiction.” 394 F.3d at 1194 n.1 (citations
omitted); see also In re Boston Reg’l Med. Ctr., Inc., 410 F.3d 100, 107 n.3 (1st
Cir. 2005) (“[T]here is authority for the proposition that the prospect of increasing
the funds available to creditors, without more, is insufficient to establish related to
jurisdiction in a post-confirmation case[.]”) (citing In re Craig’s Stores of Tex.,
Inc., 266 F.3d 388, 391 (5th Cir. 2001)).
Nevertheless, as the Debtor points out in supplemental briefing,
“[j]urisdiction is determined as of the commencement of the action.” Linkway Inv.
Co. v. Olsen (In re Casamont Inv’rs, Ltd.), 196 B.R. 517, 521 (9th Cir. BAP 1996)
(citing In re Fietz, 852 F.2d at 457 n.2 (“Subject matter jurisdiction should be
determined as of the date that the complaint . . . was filed.”) (citations omitted)).
Moreover, in most contexts, subsequent events do not divest a federal court of
subject-matter jurisdiction. See, e.g., Grupo Dataflux v. Atlas Global Grp., L.P.,

18

541 U.S. 567, 569-70 (2004) (“[T]he general rule [is] that, for purposes of
determining the existence of diversity jurisdiction, the citizenship of the parties is
to be determined with reference to the facts as they existed at the time of filing.”)
(citation omitted). And here, as analyzed above, jurisdiction was proper under
§ 1334(b) when the adversary action was filed. In short, the “close nexus” test
does not apply here.4
But this does not end the inquiry. Because the Bankruptcy Court
confirmed the Plan in June 2014 and then closed the Debtor’s chapter 11
proceeding in June 2015 (well before the Amended Findings were issued in
October 2016) the court must examine retention of jurisdiction. “[T]he issue is not
whether the bankruptcy case properly invoked jurisdiction over the adversary
proceeding; it is clear that it did. The issue is whether the bankruptcy court

4

The “close nexus” formulation discussed in Pegasus Gold (indicating that a “close
nexus” to a confirmed bankruptcy plan exists if a matter affects “the interpretation,
implementation, consummation, execution, or administration of the confirmed plan,” 394 F.3d at
1194) applies if the action is initially filed after confirmation. See, e.g., In re Enron Corp. Sec.,
535 F.3d 325, 336 (5th Cir. 2008) (rejecting “the proposition that plan confirmation divests a
District Court of bankruptcy jurisdiction over pre-confirmation claims based on pre-confirmation
activities”); In re SemCrude, L.P., 428 B.R. 82, 97 (Bankr. D. Del. 2010) (“[C]ases limit
application of the ‘close nexus’ test to a ‘claim or cause of action filed post-confirmation.’”)
(quoting In re Seven Fields Dev. Corp., 505 F.3d 237, 265 (3d Cir. 2004)). Indeed, Pegasus
Gold itself involved an action filed after plan confirmation. 394 F.3d at 1192; see also, e.g., In
re Boston Regional Med. Ctr., 410 F.3d at 104 (analyzing action filed after confirmation); In re
Craig’s Stores, 266 F.3d at 389 (same).

19

properly retained such jurisdiction when the bankruptcy case was dismissed.” In
re Casamont Inv’rs, Ltd., 196 B.R. at 521.
Although courts refer to “a general rule [that] the dismissal or closing
of a bankruptcy case should result in the dismissal of related proceedings,” Matter
of Querner, 7 F.3d 1199, 1201 (5th Cir. 1993), “nothing in the statute governing
bankruptcy jurisdiction mandates automatic dismissal of related proceedings upon
termination of the underlying bankruptcy case.” Id. (citations omitted). Rather,
Carraher v. Morgan Electronics, Inc. (In re Carraher), 971 F.2d 327 (9th Cir.
1992), held that “[t]he bankruptcy court may retain the case, subject to the
considerations . . . [of] economy, convenience, fairness and comity.” Id. at 328.
In this regard, “the Ninth Circuit and several other circuits have
analogized [a bankruptcy court’s retention of jurisdiction] to cases concerning the
propriety of district courts retaining jurisdiction over pendent state law claims after
federal claims have been dismissed.” In re Casamont Inv’rs, Ltd., 196 B.R. at 522
(footnote omitted). See, e.g., Chapman v. Currie Motors, Inc., 65 F.3d 78, 81 (7th
Cir. 1995) (“[T]he same standards should apply to the question whether and in
what circumstances to retain the supplemental (here, the adversary) claim when the
main claim (here, the bankruptcy proceeding itself) is resolved.”); In re Smith, 866
F.3d 576, 582 (3d Cir. 1989) (holding that bankruptcy courts “may consider a

20

number of factors to determine whether jurisdiction [over a related case] should be
retained. These factors include: (1) judicial economy; (2) fairness and convenience
to the litigants; and (3) the degree of difficulty of the related legal issues
involved”) (citation omitted). The Bankruptcy Court’s decision whether to retain
jurisdiction is reviewed for abuse of discretion. See In re Casamont Inv’rs, Ltd.,
196 B.R. at 522-23; In re Smith, 866 F.2d at 580.
In this case, the Bankruptcy Court did not address these
considerations of “economy, convenience, fairness and comity.” In re Carraher,
971 F.2d at 328. Its Amended Findings simply re-entered the December 19, 2013
Findings, modifying the discussion regarding venue. But it would make little
sense to remand to the Bankruptcy Court now for it to articulate why it was
retaining jurisdiction -- this court may, on de novo review, perform that same
analysis and address whether jurisdiction was (and now should be) properly
retained.5 Indeed, “a federal court has a continuing obligation to consider the
appropriateness of retaining jurisdiction throughout the course of the proceeding.”
In re Casamont Inv’rs, Ltd., 196 B.R. at 525 (citing Carnegie-Mellon Univ. v.
Cohill, 484 U.S. 343, 350 (1988)).
5

And in fact, the parties agreed at the March 3, 2017 hearing that this court could
analyze the retention of jurisdiction question without remanding, and that it would further
judicial economy for this court to do so in this instance.

21

And given the procedural history of this case, the court readily
concludes when applying the In re Carraher factors that retention of jurisdiction
was and is proper. The underlying dispute between the Debtor and the Buckles
arose years before Plan confirmation. The foreclosure proceedings were
contemplated in formulation of the Plan. Although the Plan’s general retention-ofjurisdiction provisions would not extend indefinitely, the adversary proceeding
reasonably falls within those provisions. See Plan at 67, ECF No. 19-3 at 25
(retaining jurisdiction to “decide or resolve any motions, adversary proceedings,
contested or litigated matters and any other matters and grant or deny any
applications involving the Debtor that may be pending before the Effective Date or
that may be commenced thereafter[.]”).
The Bankruptcy Court stayed implementation of its December 19,
2013 Findings based on a stipulation between the parties, indicating that everyone
expected the Bankruptcy Court to re-enter the Findings on the merits after the
Ninth Circuit resolved the venue question in Maryl Group (even a year after
closure of the Debtor’s chapter 11 proceeding). And although a foreclosure
proceeding regarding Hawaii property is a matter of Hawaii law normally
conducted in a State forum, it would waste judicial resources (as well as the
parties’) to defer to a State Court and begin again now, especially where the

22

Bankruptcy Court has already -- twice -- made a preliminary decision regarding
key aspects of foreclosure. As In re Casamont Inv’rs, Ltd. reasoned, “[g]iven that
advanced state of litigation, it would be unfair to compel the parties to start over
again in state court.” 196 B.R. at 524. In short, it is proper to retain jurisdiction
over the adversary proceeding at this advanced stage -- almost four years after the
adversary proceeding was filed.
Accordingly, the court overrules the Buckles’ objection as to
jurisdiction. The Bankruptcy Court had “related to” jurisdiction under 28 U.S.C.
§ 1334(b), and it is proper to retain jurisdiction after confirmation of the Plan and
closure of the chapter 11 case.
B.

Plaintiff has Standing to Enforce the Note
The Buckles claim that the Debtor lacks standing, challenging certain

Findings relevant to whether the Debtor may enforce the note and bring this
foreclosure action. They argue that there is no proof that, as found by the
Bankruptcy Court, “SKF II is in possession of the Note” (a predicate to the Debtor
having standing). Defs.’ Obj. at 10, ECF No. 3 at 14 (referring to Amended
Findings at 4). And they contend -- although they apparently did not argue the
point to the Bankruptcy Court -- that “there is a distinct possibility of pre-petition
manipulation of the debt between the various Sun Kona entities and [the Debtor]

23

. . . for the purpose of giving [the Debtor] ‘standing’ to prosecute the enforcement
of the promissory notes.” Defs.’ Obj. at 10, ECF No. 3 at 14. These arguments
fail and, in any event, are moot because 1250 Oceanside, LLC has been substituted
as the Plaintiff as the real party in interest in place of the Debtor (in accordance
with terms of the Plan). And 1250 Oceanside, LLC has standing, even assuming
that the Debtor did not.
Standing to enforce the note is determined under HRS § 490:3-301,
which defines a “person entitled to enforce” an instrument as:
(i) the holder of the instrument,
(ii) a nonholder in possession of the instrument who has the rights of a
holder, or
(iii) a person not in possession of the instrument who is entitled to
enforce the instrument pursuant to section 490:3-309 or 490:3-418(d).
The Amended Findings determined that the Debtor had standing
under HRS § 490:3-301(ii). The Bankruptcy Court extensively examined each of
the section’s elements, finding that the Debtor (1) was a nonholder, (2) had the
rights of a holder, and (3) had “possession” of the note under an agency theory --

24

even though SKF II had physical possession, it was an agent of the Debtor.
Amended Findings at 11-14. 6
But on March 10, 2017, the parties stipulated (and the court ordered)
that 1250 Oceanside, LLC, be substituted as Plaintiff in place of the Debtor. ECF
No. 22 at 3. This substitution is based on the fact that, as part of the Plan, the
Debtor (1250 Oceanside Partners) was converted to 1250 Oceanside, LLC on June
18, 2014. See id. at 6-7. This substitution is important because the undisputed
record also establishes that on December 21, 2016, SKF II (among other entities)
was merged into 1250 Oceanside LLC. ECF No. 17-6 at 1-3 (certificates of
merger from State of Delaware). Thus, it follows that Plaintiff holds the note and

6

The undisputed record shows that the Debtor indorsed the note and assigned the
mortgage to Textron. See ECF No. 4-6, at 92 (Endorsement) & 93 (Allonge Endorsement).
Undisputed evidence also indicates that Textron later assigned its interest in the note and
mortgage to SKF II. See ECF No 4-15, at 82-88 (“Omnibus Assignment and Assumption”); id.
at 90-92 (“Assignment of Pledged Notes Receivable”). The record thus sufficiently establishes
that SKF II was in possession of the Buckles’ note, as the Bankruptcy Court found. Amended
Findings at 4, 13. And the Hawaii Intermediate Court of Appeals recently confirmed that, for
purposes of enforcement of a note under HRS § 490:3-301, possession under an agency theory is
sufficient. See Bank of Am., N.A. v. Anderson, 139 Haw. 293, 389 P.3d 130, 2017 WL 122998,
at *5 (Haw. Ct. App. Feb. 23, 2017) (mem.) (“[The Bank’s] assertion that it possesses the Note
‘directly or through an agent’ is sufficient to establish its right to enforce the Note.”).
Accordingly, even if the issue is not moot, the record adequately supports the Bankruptcy
Court’s conclusion that the Debtor had standing under HRS § 490:3-301(ii).

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has standing under HRS § 490:3-301(i) -- regardless of the Bankruptcy Court’s
finding that the Debtor had standing under § 490:3-301(ii).7
C.

The Bankruptcy Court Correctly Found the Buckles in Default; a
Foreclosure Decree Shall Enter
The Buckles object to the entry of a decree of foreclosure, raising as a

defense the Debtor’s failure to perform on the Purchase Contract. As the Amended
Findings determined, however, the Buckles’ position is contrary to the plain and
explicit language of the Purchase Contract, which precludes this argument. Under
the Purchase Contract, the parties chose separate tracks for these types of disputes.
In this regard, the court adopts the Amended Findings nearly wholesale as follows:
7

Ordinarily, “[s]tanding is determined by the facts that exist at the time the complaint is
filed.” Clark v. City of Lakewood, 259 F.3d 996, 1006 (9th Cir. 2001) (citing Lujan v. Defs. of
Wildlife, 504 U.S. 555, 569 n.4 (1992)). Moreover, Morongo Band of Mission Indians v. Cal.
State Bd. of Equalization, 858 F.2d 1376 (9th Cir. 1988), stated that “[i]f jurisdiction is lacking at
the outset, the district court has no power to do anything with the case except dismiss.” Id. at
1380 (internal quotation marks and citations omitted). Nevertheless,
it is now clear, if it was not then, that this rule is more nuanced
than the inflexibility suggested by [Morongo’s] language -- both as
it relates to curing jurisdictional defects through supplemental
pleadings, and other circumstances in which defects in subjectmatter jurisdiction were cured by the substitution, addition, or
elimination of a party.
Northstar Fin. Advisors, Inc. v. Schwab Invs., 779 F.3d 1036, 1046 (9th Cir. 2015) (citations
omitted); See also Cal. Credit Union League v. City of Anaheim, 190 F.3d 997, 1000 (9th Cir.
1999) (“[A]ppellate courts may join a party as a plaintiff to cure a jurisdictional defect when the
joinder will promote judicial economy and not prejudice the defendant.”). Further, “the assignee
of a claim has standing to assert the injury in fact suffered by the assignor.” Vt. Agency of Nat.
Res. v. U.S. ex rel. Stevens, 529 U.S. 765, 773 (2000). In any event, as noted above, the Debtor
had standing even before the substitution of 1250 Oceanside, LLC as Plaintiff.

26

Under Hawaii law, a foreclosing mortgagee must prove “‘(1) the
existence of the [loan] Agreement, (2) the terms of the Agreement, (3) default by
[the mortgagor] under the terms of the Agreement, and (4) the giving of the
cancellation notice and recordation of an affidavit to such effect.’” In re Metro.
Mortg. & Sec., Co., Inc., 448 B.R. 527, 533 (D. Haw. 2011) (citing IndyMac Bank
v. Miguel, 117 Haw. 506, 520, 184 P.3d 821, 835 (Haw. Ct. App. 2008)).
Plaintiff has proven all of these elements and the Buckles do not deny
any of them. Their defenses to the foreclosure are based entirely on the Debtor’s
failure to develop the Hokuli<a project as the Purchase Contract requires. But the
Purchase Contract precludes the Buckles from defending against a foreclosure on
that basis. Specifically, paragraph 17 of the Purchase Contract provides that the
Buckles’ claims against the Debtor would be decided separately from foreclosure
claims, and that the Buckles would not use their claims to stay a foreclosure:
[The Buckles] hereby waive[] any right that [they] might
otherwise have to stay either such [foreclosure] remedy
pending the resolution of any arbitrable disputes under
this Paragraph 17. Regardless of whether [the Debtor] is
awarded or denied either of the foregoing [foreclosure]
remedies, all issues relating to monetary damages or
costs of any type relating to disputes that are subject to
arbitration under this Paragraph shall continue to be
subject to arbitration as provided herein, and the
arbitrator(s) shall have sole and exclusive jurisdiction to
decide all such matters.

27

Purchase Contract at 7, ECF No. 4-6 at 114.
In short, allowing the Buckles to assert the Debtor’s alleged breaches
of the Purchase Contract as a defense to the Debtor’s foreclosure claim would
circumvent the parties’ agreement to decide their disputes on two separate tracks.
D.

Plaintiff’s Claims Regarding a Deficiency Judgment Are Premature
Finally, Plaintiff’s “limited objection” challenges the Bankruptcy

Court’s findings (1) that it is not necessary, at this stage, to determine the exact
amount of debt, claiming that “it would be preferable” to know that amount now
since it intends to “credit bid” in subsequent foreclosure proceedings, Pl.’s Obj. at
3; ECF No 6-1 at 4; (2) that the court “should refrain, for the time being, from
determining whether [Plaintiff] is entitled to a deficiency judgment,” Amended
Findings at 15; and (3) that the amount of any deficiency judgment is subject to
arbitration under the Purchase Contract. Id. This court, however, agrees with the
Bankruptcy Court.
As Bank of Honolulu, N.A. v. Anderson, 3 Haw. App. 545, 654 P.2d
1370 (1982), explains:
HRS § 667- 1 [(“Foreclosure by action”)] merely . . .
confer[s] “specific authority to render a deficiency
judgment, as an incident to the foreclosure” (emphasis
added). 2 Committee on Coordination of Rules and
Statutes, Report of Committee on Coordination of Rules
and Statutes (1971). Thus, HRS § 667-1 does not require
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the determination of a sum certain before foreclosure is
decreed since a deficiency judgment is rendered only
after the sale of the mortgaged property.
Id. at 549, 654 P.2d at 1374 (emphasis and footnote omitted). Under Hawaii law,
“[t]o be entitled to a decree of foreclosure, the [mortgagee is] required to prove
[mortgagor’s] default. It [is] not required to prove the exact amount owed . . . until
after the confirmation of the foreclosure sale.” Id. at 550, 654 P.2d at 1374. See
also, e.g., IndyMac Bank, 117 Haw. at 520, 184 P.3d at 835 (“The material inquiry
relevant to a foreclosure decree is whether a default occurred, not the amount
owed.”).
The Purchase Contract’s broad arbitration clause requires mediation
and arbitration of “any dispute by or between [the Debtor and the Buckles] . . .
arising out of or incident to . . . the sale of any Lot . . . or any other aspect of the
relationship between [them].” Purchase Contract at 7, ECF No. 4-6 at 114. The
narrow exception to arbitration is only for the Debtor to “seek to foreclose on the
property” through either a judicial or non-judicial foreclosure action. Id. Further,
it is undisputed that a non-judicial foreclosure would not include a right to a
deficiency judgment.
It follows that, under the particular contractual language at issue here,
the right to a deficiency judgment is not excluded from arbitration. This is so even

29

if liability for a deficiency judgment necessarily follows in a judicial foreclosure
action, and even if such a declaration may be included in a foreclosure decree.
See, e.g., Beneficial Haw., Inc. v. Casey, 98 Haw. 159, 165, 45 P.3d 359, 365
(2002) (distinguishing between “liability for the deficiency judgment” and “the
amount of the deficiency following subsequent entry of final orders in the
proceedings”). That is, the right to a deficiency judgment exists as a matter of law
in this action; it is, however, a matter to be decided in conjunction with
determining the amount of a deficiency judgment (if any), which is subject to
arbitration. And it is certainly premature to address the amount of a deficiency
judgment -- a sale has not occurred, the amount of sale remains hypothetical, and
whether the debt plus other expenses will exceed the sale amount is unknown
(even if it is likely). For those reasons, the court OVERRULES Plaintiff’s limited
objections.
Lastly, as to whether the Bankruptcy Court should actually enforce
the arbitration agreement, the court adopts the Bankruptcy Court’s conclusion that
it has “discretion to decline to enforce arbitration agreements in certain
circumstances.” Amended Findings at 18. See Cont’l Ins. Co. v. Thorpe
Insulation Co. (In re Thorpe Insulation Co.), 671 F.3d 1011, 1021 (9th Cir. 2012)
(holding that “a bankruptcy court has discretion to decline to enforce an otherwise

30

applicable arbitration provision only if arbitration would conflict with the
underlying purposes of the Bankruptcy Code”) (citations omitted). Because the
Bankruptcy Court “express[ed] no opinion on whether the arbitration agreement
should eventually be enforced,” Amended Findings at 18, this court agrees that:
It is sufficient for present purposes to say that
(1) [Plaintiff’s] claims for foreclosure are not subject to
arbitration, (2) [Plaintiff’s] claims for a deficiency
judgment are subject to arbitration unless the
[Bankruptcy] court decides not to enforce the arbitration
provision by virtue of bankruptcy law, and (3), in any
event, the two claims should be decided separately.
Id.
IV. CONCLUSION
The court OVERRULES objections from both parties, and ADOPTS
the Amended Findings. As recommended by the Bankruptcy Court, a decree of
foreclosure in favor of Plaintiff shall enter.
Although the Bankruptcy Court recommended “that the District Court
enter judgment accordingly,” Amended Findings at 2, the court interprets the
Bankruptcy Court’s recommendation as contemplating further proceedings to
implement such a decree of foreclosure, and to further address issues regarding a
deficiency judgment (and at least to address whether the arbitration provisions
should not be enforced by virtue of bankruptcy law). Id. at 15, 18.

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In this regard, Plaintiff is directed to file a proposed form of a
Foreclosure Decree by May 26, 2017. By June 2, 2017, Defendants may file
objections, if any, to the proposed form of the Foreclosure Decree. After the
Foreclosure Decree is entered, the Clerk of Court shall close the case file and the
matter shall be remanded to the Bankruptcy Court for further proceedings
consistent with this Order.
IT IS SO ORDERED.
DATED, Honolulu, Hawaii, May 11, 2017.

/s/ J. Michael Seabright
J. Michael Seabright
Chief United States District Judge

1250 Oceanside Partners v. Buckles et al., Civ. No. 16-00585 JMS-KSC, Order Adopting
Amended Proposed Findings Of Fact And Conclusions Of Law On Motions To Dismiss And For
Summary Judgment

32