Hawaii Central Federal Credit Union v. Kealoha, et al.

Filing 41

ORDER Granting Defendant United States of America's Motion To Stay Civil Proceedings re 32 .On the basis of the foregoing, the United States of America's Motion to Stay Civil Proceedings, filed on June 8, 2018, is HEREBY GRANTE D and the matter is STAYED until the earlier of: 1) the conclusion of the interlocutory sale pursuant to the Order Granting the United States Motion for Interlocutory Sale of Real Property Subject to Criminal Forfeiture, filed September 27, 2018 in C R 18-00068; or 2) the conclusion of CR 18- 00068. The Government is ORDERED to submit a letter informing the Court of the conclusion of either of the foregoing events within ten days of its occurrence. Signed by JUDGE LESLIE E. KOBAYASHI on 10/29/2018. (cib, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
HAWAII CENTRAL FEDERAL CREDIT )
UNION,
)
)
Plaintiff,
)
)
vs.
)
)
LOUIS MAHINA KEALOHA, ET AL., )
)
)
Defendants.
_____________________________ )

CIVIL 18-00108 LEK-KJM

ORDER GRANTING DEFENDANT UNITED STATES
OF AMERICA’S MOTION TO STAY CIVIL PROCEEDINGS
Before the Court is Defendant the United States of
America’s (“the Government”) Motion to Stay Civil Proceedings
(“Motion”), filed on June 8, 2018.

[Dkt. no. 32.]

Plaintiff

Hawaii Central Federal Credit Union (“Plaintiff”) and Defendant
Sumida Au & Wong, LLLC (“SAW”) each filed a position statement on
September 10, 2018 (respectively, “Plaintiff Position Statement”
and “SAW Position Statement”).

[Dkt. nos. 37, 39.]

Defendant

Mariner’s Cove Association (“MCA”) filed its Statement of No
Opposition on September 10, 2018 (“MCA No Opposition”).
[Dkt. no. 36.]

The Court finds this matter suitable for

disposition without a hearing pursuant to Rule LR7.2(d) of the
Local Rules of Practice of the United States District Court for
the District of Hawai`i (“Local Rules”).

The Government’s Motion

is hereby granted for the reasons set forth below.

BACKGROUND
Plaintiff originally filed this action in the State of
Hawai`i Circuit Court of the First Circuit on February 28, 2018.
[Notice of Removal of Civil Action (“Notice of Removal”), filed
3/20/18 (dkt. no. 1), Exh. A at pgs. 4-13 (Complaint).1]
Plaintiff named as Defendants: Louis Mahina Kealoha
(“L. Kealoha”) and Katherine Elizabeth Kealoha (“K. Kealoha,”
collectively the “Kealohas”); the Government; MCA; SAW; Hawaii
Kai Marina Community Association (“HKMCA”); and Luna-Kai Marina
Park Association (“LKMPA,” all collectively “Defendants”).
[Complaint at ¶¶ 2-7.]
On March 20, 2018, the Government removed the action to
this district court based on federal question jurisdiction.
[Notice of Removal at ¶¶ 3-4.]

The Complaint alleges the

Kealohas obtained a loan from Plaintiff in the amount of
$1,040,000.00 on September 6, 2016 to purchase that certain real
property on Niumalu Loop, Honolulu, Hawai`i (the “Property”).
[Complaint at ¶¶ 8-9.]

The loan was evidenced by that certain

Note dated September 6, 2016, which was made, executed, and
delivered to Plaintiff by the Kealohas (the “Note”).
¶ 8.]

[Id. at

As security for the Note, the Kealohas executed a Mortgage

1

Exhibit A consists of multiple documents that are not
consecutively paginated. All citations to Exhibit A refer to the
page numbers assigned by the district court’s electronic case
filing system.
2

dated September 6, 2016, granting Plaintiff a security interest
in their real and personal property, including the subject
Property.

[Id. at ¶ 9.]

The Mortgage was recorded with the

Bureau of Conveyances of the State of Hawai`i (“BOC”) as Document
No. A-61010206, as amended in that certain Amendment to Mortgage
dated January 16, 2015, and recorded with the BOC as Document
No. A-55110470 (the “Mortgage”).

[Id.]

Plaintiff alleges the Kealohas have defaulted on the
Note and Mortgage; therefore, the total sum of $1,037,837.60 is
immediately due.2

[Id. at ¶¶ 10, 12, 13.]

Plaintiff asserts it

is the holder of the Note and Mortgage and has a first mortgage
lien and security interest in the Property.

[Id. at ¶¶ 9-14.]

Plaintiff further alleges MCA, LKMPA, and HKMCA may have an
interest in the Property or the proceeds of the foreclosure sale
by virtue of any unpaid maintenance fees or other assessments.
[Id. at ¶¶ 15-17.]

SAW may also have an interest in the Property

by virtue of the Mortgage, Security Agreement and Financing
Statement dated June 14, 2017, recorded on June 20, 2017 in the
BOC as Document No. A-63800431 and recorded on July 10, 2017 in
the BOC as Document A-64000646.

[Id. at ¶ 18.]

Finally, the

Government may have an interest in the Property by virtue of the

2

This amount is exclusive of interest, late charges, and
attorney’s fees, which Plaintiff alleges continues to accrue.
[Complaint at ¶ 14.]
3

Notice of Pendency of Action, dated October 24, 2017 and filed in
the BOC as Document No. A-65159597.

[Id. at ¶ 19.]

Plaintiff seeks an order from the Court determining
Plaintiff’s priority interest over all Defendants in the
Property, and appointing a Commissioner to: (1) conduct a sale of
the Property; and (2) apply the proceeds to Plaintiff (after
payment of all reasonable and necessary expenses of the sale), or
permitting Plaintiff to purchase the Property at sale without a
down payment.

[Id., Prayer for Relief at ¶ A.]

Alternatively,

Plaintiff seeks a deficiency judgment if a money judgment is not
entered in Plaintiff’s favor, or if the sale proceeds do not
satisfy the outstanding amounts owed to Plaintiff.

[Id.]

Upon

confirmation of any foreclosure sale, Plaintiff seeks a writ of
possession for the Property; [id.;] and any other appropriate
relief, [id. at ¶ B].
On May 21, 2018, default was entered as to LKMPA and
HKMCA for failure to answer or otherwise respond to the
Complaint.

[Dkt. no. 25.]

On May 22, 2018, the magistrate judge

instructed Plaintiff to seek default judgment as to LKMPA and
HKMCA by no later than June 21, 2018.
no. 26).]

[EO, filed 5/22/18 (dkt.

On July 20, 2018, this Court approved the stipulation

for dismissal without prejudice of Plaintiff’s Complaint as to
Defendant LKMPA.

[Dkt. no. 35.]

Plaintiff has not filed a

motion for default judgment as to HKMCA.
4

The Kealohas have been charged with, inter alia,
multiple counts of bank fraud in United States of America v.
Louis M. Kealoha, et al., CR 18-00068 JMS-RLP (“CR 18-00068”),
which may subject the Property to forfeiture pursuant to
18 U.S.C. § 982(a)(2)(A).

[CR 18-00068, Second Superseding

Indictment, filed 5/30/18 (dkt. no. 1), at ¶ 66.]

On July 10,

2018, the Government filed a motion to conduct an interlocutory
sale of the Property.

[CR 18-00068, dkt. no. 13.]

The

magistrate judge granted the motion and directed Plaintiff to
sell the Property with the assistance of the United States
Marshals Service (“USMS”).

[CR 18-00068, Order Granting the

United States’ Motion for Interlocutory Sale of Real Property
Subject to Criminal Proceedings, filed 9/27/18 (dkt. no. 79)
(“Interlocutory Sale Order”).]

The Interlocutory Sale Order

directs the proceeds of the sale to be applied first to any
outstanding taxes and expenses of the custody and sale incurred
by the USMS, and then to Plaintiff.

[Id. at ¶ 17.]

The

Interlocutory Sale Order also determined that Plaintiff either
has a prior vested or superior interest in the Property or is a
bona fide purchaser for value of the right, title, or interest in
the Property, and at the time of purchase was reasonably without
cause to believe that the Property was subject to forfeiture
pursuant to 18 U.S.C. § 982(a)(2)(A).

Accordingly, the

magistrate judge directed Plaintiff to receive payment of the
5

proceeds of the sale of the Property, once the reasonable costs
of the sale and the USMS were satisfactorily paid.

[Id. at

¶ 18.]
In the instant Motion, the Government seeks to stay the
proceedings pending either the completion of the interlocutory
sale of the Property or the conclusion of CR 18-00068, whichever
occurs first.

[Motion at ¶ 9.]

In support of its Motion, the

Government argues the continued prosecution of the instant case
will impair the rights of the Kealohas and potentially conflict
with the prosecution of CR 18-00068.

The Government also

represents that it has reached an agreement with Plaintiff to
perform the interlocutory sale of the Property in CR 18-00068.
The Government argues a stay pending the conclusion of the
interlocutory sale or resolution of CR 18-00068 would avoid an
unnecessary waste of time and resources.

[Id. at ¶¶ 7-9.]

DISCUSSION
In the absence of substantial prejudice to the rights
of the parties involved, the Constitution does not ordinarily
require a stay of civil proceedings pending the outcome of
criminal proceedings.

See Keating v. Office of Thrift

Supervision, 45 F.3d 322, 324 (9th Cir. 1995).

Still, a court

has the discretion to stay civil proceedings pending the
conclusion of parallel criminal proceedings when the interests of
justice so require.

See id.

In determining whether a stay is
6

appropriate, the court should weigh the “particular circumstances
and competing interests involved in the case.”

Fed. Sav. & Loan

Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989).

This

analysis generally includes:
(1) the extent to which the defendant’s Fifth
Amendment rights are implicated, (2) the interest
of the plaintiffs in proceeding expeditiously,
(3) the burden the proceedings may impose on the
defendants, (4) the convenience of the court and
the efficient use of judicial resources, (5) the
interests of persons not parties to the civil
litigation, and (6) the interest of the public in
the pending civil and criminal litigation.
Sec. & Exch. Comm’n v. Glob. Express Capital Real Estate Inv.
Fund, I, LLC, 289 F. App’x 183, 191 (9th Cir. 2008) (citing
Keating,45 F.3d at 324-25).
The Government argues the Kealohas risk forfeiting
their Fifth Amendment right against compulsory self-incrimination
if they are called to testify or are forced to respond to
discovery requests in the instant case.

None of the parties

identify the extent to which the civil matter and the criminal
matter overlap to suggest the Kealohas’ Fifth Amendment rights
will be implicated, other than the Property being potentially
subject to criminal forfeiture in CR 18-00068.

See, e.g.,

Ka`aina v. Kaua`i Island Util. Co-op., Civ. No. 10-00169 ACK-LEK,
2010 WL 3834999, at *6 (D. Hawai`i Sept. 24, 2010) (“[W]here both
actions arise from the same nucleus of fact, the Fifth Amendment
is likely implicated and this factor will favor a stay.” (citing
7

McCormick v. Rexroth, Civ. No. 09-4188 JF, 2010 WL 934242, *2
(N.D. Cal. Mar. 15, 2010))).

Without more, this Court concludes

this factor does not favor a stay.
However, in considering the other relevant factors, the
Court finds that a stay would serve the interests of justice and
will not prejudice or frustrate the efforts of the parties.

No

party has objected to the Government’s Motion;3 therefore, the
Court concludes that neither Plaintiff nor Defendants will suffer
if the proceedings are temporarily delayed.

Further, the

Interlocutory Sale Order has sufficiently narrowed the issues
before the Court in this matter, which is a more efficient use of
judicial resources.

Finally, the Court finds the fifth and sixth

factors to be neutral where there is no evidence that delay would
frustrate third parties, see Molinaro, 889 F.2d at 903, and any
public interest in the swift conclusion of a civil trial is
balanced by the countervailing public interest in law enforcement
and the proper prosecution of the accused.

See, e.g, Williams v.

United States, Civ. No. 08-00437 ACK-BMK, 2012 WL 406904, at *8
(D. Hawai`i Feb. 8, 2012) (“On the other hand, the public also
has a strong interest in law enforcement and the proper
prosecution of [the defendant in the criminal matter].” (some

3

The Kealohas did not file any response to the Motion.
8

citations omitted) (citing Richardson v. United States, 468 U.S.
317, 325, 104 S. Ct. 3081, 82 L. Ed. 2d 242 (1984))).
Having weighed all of the relevant factors and in light
of the Motion being unopposed, this Court finds that a stay of
the instant case is appropriate until the conclusion of the
interlocutory sale of the Property, or the conclusion of CR 1800068, whichever occurs first.
CONCLUSION
On the basis of the foregoing, the United States of
America’s Motion to Stay Civil Proceedings, filed on June 8,
2018, is HEREBY GRANTED and the matter is STAYED until the
earlier of: 1) the conclusion of the interlocutory sale pursuant
to the Order Granting the United States’ Motion for Interlocutory
Sale of Real Property Subject to Criminal Forfeiture, filed
September 27, 2018 in CR 18-00068; or 2) the conclusion of CR 1800068.
The Government is ORDERED to submit a letter informing
the Court of the conclusion of either of the foregoing events
within ten days of its occurrence.
IT IS SO ORDERED.

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DATED AT HONOLULU, HAWAII, October 29, 2018.

/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge

HAWAII CENTRAL FEDERAL CREDIT UNION VS. LOUIS MAHINA KEALOHA, ET
AL; CV 18-00108 LEK-KJM; ORDER GRANTING DEFENDANT UNITED STATES
OF AMERICA’S MOTION TO STAY CIVIL PROCEEDINGS

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