1250 Oceanside, LLC v. Buckles (In re 1250 Oceanside Partners)

• Decision Date: 25 May 2017
• Docket Number: Civ. No. 16–00585 JMS–KSC
• Citation: 260 F.Supp.3d 1300
• Parties: IN RE 1250 OCEANSIDE PARTNERS, Debtor. 1250 Oceanside, LLC, Plaintiff, v. 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.
• Court: U.S. District Court — District of Hawaii

260 F.Supp.3d 1300

IN RE 1250 OCEANSIDE PARTNERS, Debtor.

1250 Oceanside, LLC, Plaintiff,

v.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.

Civ. No. 16–00585 JMS–KSC

United States District Court, D. Hawai‘i.

Signed May 25, 2017

Alika L. Piper, Nicole Denise Stucki, Simon Klevansky, Klevansky Piper, LLP, Honolulu, HI, for Plaintiff.

Jerrold K. Guben, Jeffery Steven Flores, O'Connor Playdon Guben & Inouye, LLP, Honolulu, HI, for Defendants.

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

J. Michael Seabright, Chief United States District Judge

On May 11, 2017, the court issued an "Order Adopting Amended Proposed Findings of Fact and Conclusions of Law on Motions to Dismiss and for Summary Judgment" ("May 11, 2017 Order"). ECF No. 23. On May 23, 2017, Defendants Roger Arnold Buckles and Cindy Kiyono Buckles, individually, and in their capacities as trustees of the Roger Arnold Buckles and Cindy Kiyono Buckles Revocable Family Trust (collectively, "Defendants" or "the Buckles"), submitted pursuant to Hawaii Rule of Professional Conduct 3.3 a "Statement Re: Supreme Court Decisions on Standing in Foreclosure Actions" ("Statement"). ECF No. 24. The court construes this Statement as a Motion for Reconsideration and/or Clarification under Local Rule 60.1 of the May 11, 2017 Order.

The Statement "submits for consideration a series of recently decided Hawaii State court cases, beginning with Bank of America, N.A. v. Reyes–Toledo , 139 Haw. 361, 390 P.3d 1248 (2017) [.]" ECF No. 24 at 2. Reyes–Toledo reasoned that "a foreclosing plaintiff must establish entitlement to enforce the note at the time the action was commenced," 139 Haw. at 368, 390 P.3d at 1255, and is relevant towards the court's discussion of standing in its May 11, 2017 Order. Accordingly, although Reyes–Toledo does not change the result, the court issues this Amended Order that replaces and supersedes the May 11, 2017 Order.

I. INTRODUCTION

Defendants 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).

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 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. 1–1 at 2. This Order refers to the March 28, 2000 promissory note as "the Buckles' 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 "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['] 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).

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 ...