Barnes v. Sea Haw. Rafting, LLC
| Decision Date | 09 November 2020 |
| Docket Number | Civ. No. 13-00002 ACK-WRP |
| Parties | CHAD BARRY BARNES, Plaintiff, v. SEA HAWAI`I RAFTING, LLC; et al. Defendants. |
| Court | U.S. District Court — District of Hawaii |
ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT TO PIERCE THE CORPORATE VEIL (ECF NO. 703)
Before the Court is Plaintiff Chad Barry Barnes's Motion for [Partial] Summary Judgment to Pierce the Corporate Veil, ECF No. 703 (the "Motion") in which Plaintiff Barnes seeks to hold Defendant Kris Henry personally liable for the corporate debts of Defendant Aloha Ocean Excursions ("AOE") and Defendant Sea Hawaii Rafting ("SHR"). For the reasons set forth below, the Court DENIES Plaintiff Barnes's Motion. Specifically, the Court holds that (1) there is no reason to pierce Defendant AOE's corporate veil because Defendant Henry is already personally liable for the relevant sanctions, and (2) genuine issues of material fact exist as to whether Plaintiff Barnes is entitled to pierce Defendant SHR's corporate veil.
BACKGROUND
For purposes of this Order, the Court will not recount this case's lengthy procedural history. The Court only discusses those facts and events of specific relevance to the issues that this Order addresses.
Plaintiff Barnes is a seaman who was injured in 2012 when the boat on which he was working, the M/V Tehani, exploded. Seeking the maritime remedy of maintenance and cure, among other relief, Plaintiff Barnes sued the vessel Tehani in rem and Defendant SHR (the owner of the vessel) and Defendant Henry (the sole owner and manager of Defendant SHR) in personam, to enforce his maritime lien against the vessel.
Shortly after the lawsuit was filed, Defendant Henry and Defendant SHR both filed for bankruptcy. See In re Kristin Kimo Henry, Case No. 14-01475 (Bankr. D. Haw.); In re Sea Hawaii Rafting, LLC, Case No. 14-01520 (Bankr. D. Haw.); see also Pl.'s Concise Statement of Facts ("CSF"), ECF No. 704, ¶¶ 6-7; Defs.' CSF, ECF No. 754, ¶¶ 6-7 (admitting). The bankruptcies complicated this otherwise simple maritime case and led to years of litigation while the bankruptcy court and the Ninth Circuit clarified several novel legal questions at the intersection of bankruptcy and admiralty law.
The bankruptcy court in 2018 ultimately allowed Plaintiff Barnes to pursue his in rem claims against the vessel as well as his in personam claims against Defendant SHR, but not against Defendant Henry. The Court conducted a three-day bench trial to determine the amount of maintenance and cure, and awarded Plaintiff Barnes a judgment in the amount of $279,406.12,1 jointly and severally against Defendant SHR in personam and the vessel Tehani in rem.2 See ECF Nos. 446 & 447.
Plaintiff Barnes has been largely unsuccessful in collecting on his judgment. His collection efforts have been hindered by the bankruptcies and other procedural complications, as well as by Defendant SHR's insolvency. Plaintiff Barnes has also been unable to pursue what was virtually the only asset of Defendant SHR (aside from the vessel Tehani), a valuable commercial-use boating permit. See ECF Nos. 608 & 657. At the time of the accident, lawsuit, and bankruptcy filings, the permit had been associated with the vessel Tehani and in Defendant SHR's name. Id.; see also ECF No. 528.
At a hearing on February 28, 2019, it was revealed that two years earlier Defendant Henry had written a letter to theharbor master at Honokohau Harbor—where the vessel Tehani was located—requesting that the Division of Boating and Ocean Recreation ("DOBOR") reissue the commercial-use permit from Defendant SHR to Defendant AOE. ECF No. 585. Defendant AOE is another single-member LLC formed by Defendant Henry less than one year after he and Defendant SHR filed bankruptcy. Id.; see also Ex. B to Decl. of Jay Friedheim ("Friedheim Decl."), ECF No. 703-4; Pl.'s CSF ¶¶ 9-10; Defs.' CSF ¶¶ 9-10 (admitting). Defendant Henry's letter represented that the transfer would only reflect a "change in name," ECF No. 527-1, when in fact Defendant SHR and Defendant AOE were entirely separate entities, ECF No. 585. Based on Defendant Henry's misrepresentation in that letter, DOBOR reissued the commercial-use permit from Defendant SHR to Defendant AOE, where it remains today.3 ECF Nos. 585, 608, & 657; see also Ex. C to Friedheim Decl., ECF No. 703-5.
The permit transfer ultimately led the Court to impose sanctions on Defendant Henry and Defendant AOE. See ECF Nos. 608 (imposing "initial" sanctions) & 657 (imposing "enhanced" sanctions). After holding hearings and considering evidence, the Court made findings that Defendant Henry's request for reissuance of the commercial-use permit from Defendant SHR to Defendant AOE was a "misrepresentation" in that the "name change" was in fact atransfer between two separate and distinct entities. ECF No. 608 at 10-11. The Court found that Defendant's transfer of the permit deprived Plaintiff Barnes of the opportunity to pursue the valuable asset of Defendant SHR, against whom Plaintiff Barnes held a judgment. See id. at 7-8. The Court had previously ruled that the permit was not appurtenant to the vessel Tehani. ECF No. 528 at 1.4 The Court found that the vessel and the commercial-use permit were virtually the only assets held by Defendant SHR against which Plaintiff Barnes might have enforced his maritime lien and judgment. See ECF No. 608 at 8. The Court thus reasoned that the transfer of the permit to a different LLC prevented the operation of the vessel out of Honokohau Harbor and thus significantly diminished the value of the vessel, thereby severely and negatively impacting Plaintiff Barnes's ability to collect. See id. Based on those findings, the Court imposed the initial sanctions in the amount of $25,000, designed to partially compensate Plaintiff Barnes for the resulting loss.5 Id. at 16-17. The Court also directed Defendant Henry and Defendant AOE to take steps to have the permit reissued to Defendant SHR or else the sanctions would be substantially enhanced. Id. at 17.
When Defendants then ignored the Court's directive in the initial sanctions order to take meaningful steps to have the permit reissued to Defendant SHR, the Court imposed "enhanced" sanctions.6 ECF No. 657. The Court held that Defendants had acted "recklessly, wrongfully, and with an improper purpose," and that their "conduct 'was tantamount to bad faith and therefore sanctionable' pursuant to the Court's inherent power." Id. at 28 (quoting B.K.B. v. Maui Police Dept., 276 F.3d 1091, 1108 (9th Cir. 2002)). Based on those findings, the Court assessed enhanced sanctions to compensate Plaintiff Barnes for the loss of the value of the commercial-use permit, as well as for related attorney's fees and costs. Id. at 31-35.
Plaintiff Barnes now seeks to hold Defendant Henry personally liable for the judgment against Defendant SHR and the vessel Tehani. Whether Plaintiff Barnes can do that depends on two questions: (1) is he entitled to pierce the corporate veil of Defendant SHR and (2) assuming he is, would he be able to recover from Defendant Henry personally, even though Defendant Henry is protected by a Chapter 13 bankruptcy discharge?
The bankruptcy court answered "no" to the second question. ECF No. 553. On appeal in the district court, JudgeWatson reversed, concluding that Plaintiff Barnes could recover his judgment against Defendant Henry personally if the corporate veil is pierced, but the recovery would be limited to the value of the debt secured by the maritime lien (in other words, the value of the vessel Tehani):
[I]f Barnes is successful in piercing the corporate veil, SHR's liability to pay maintenance and cure as the shipowner of the vessel will, in effect, become Henry's liability. As a result, . . . if the corporate veil is pierced, Henry will be treated as if he had owned the vessel because he will stand in the shoes of SHR. Just like SHR, therefore, Henry would be liable in rem for satisfying the maintenance and cure claim to the extent it is secured by the relevant vessel.
Barnes v. Henry, No. 19-cv-00210-DKW-RT, 2020 WL 201457, at *3 (D. Haw. Jan. 13, 2020).7
While that issue plays out on appeal, Plaintiff Barnes seeks to answer the first question: Is he entitled to pierce the corporate veil? In his pending Motion, Plaintiff Barnes seeks to pierce the corporate veils of both Defendant SHR and Defendant AOE to hold Defendant Henry personally liable for both entities' debts. See Mot. at 3-4. He asserts that "[Defendant] Henryshould be held personally liable for the Maintenance payments which SHR owes to Barnes" and for the "original and enhanced sanctions owed by AOE and Henry" in connection with the wrongful transfer of the commercial-use permit. Id.
Plaintiff Barnes filed his Motion for partial summary judgment and CSF on July 1, 2020. See ECF Nos. 703 (Motion) & 704 (CSF). Two weeks later, the Court administratively withdrew the Motion, finding that it was in the parties' interests and in the economy of justice to defer proceeding with the Motion.8 ECF No. 717. Plaintiff Barnes then asked the Court to reconsider that decision. ECF No. 724. On August 13, the Court granted the motion for reconsideration, reinstated the Motion, and set a hearing. ECF No. 739. Defendant Henry and Defendant AOE filed their Opposition and CSF in opposition on September 23. ECF Nos. 753 (Opposition) & 754 (CSF). Plaintiff Barnes did not file any reply. A telephonic hearing on the Motion was held on October 14.
STANDARD
Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). Federal Rule of Civil Procedure ("Rule") 56(a) mandates summary judgment "against a party who fails to make a showing sufficient...
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