Barnes v. Henry

• Decision Date: 13 January 2020
• Docket Number: Case No. 19-cv-00210-DKW-RT,Bankr. No. 14-01475,Bankr. No. 14-01520,Case No. 19-cv-00216-DKW-RT
• Parties: CHAD BARRY BARNES, Appellant, v. KRISTIN KIMO HENRY, Appellee. CHAD BARRY BARNES, Appellant, v. SEA HAWAII RAFTING, LLC, Appellee.
• Court: U.S. District Court — District of Hawaii

CHAD BARRY BARNES, Appellant, v. KRISTIN KIMO HENRY, Appellee.

CHAD BARRY BARNES, Appellant, v. SEA HAWAII RAFTING, LLC, Appellee.

Case No. 19-cv-00210-DKW-RT

Bankr. No. 14-01475

Case No. 19-cv-00216-DKW-RT

Bankr. No. 14-01520

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAI'I

January 13, 2020

ORDER AFFIRMING IN PART AND REVERSING IN PART ORDER OF THE BANKRUPTCY COURT

In these consolidated appeals, Appellant Chad Barry Barnes challenges an order of the U.S. Bankruptcy Court for the District of Hawai'i, which, in pertinent part, determined that the automatic stay (and subsequent discharge injunction) barred Barnes from prosecuting unsecured, in personam claims against Appellee Kristin Kimo Henry and his bankruptcy estate.¹ While Barnes' briefing on this matter is largely unhelpful, upon de novo review, the Court finds that the Bankruptcy Court erred with respect to one of the claims that Barnes seeks to bring against Henry - his claim for maintenance and cure. In doing so, the Bankruptcy Court characterized that claim as entirely unsecured. However, if Barnes is successful in showing that Henry should be held liable for the obligations of an alleged alter ego, Henry (like the alter ego) would be liable in rem to the extent the claim is secured by the value of the vessel in whose service Barnes was injured. As a result, this Court AFFIRMS IN PART AND REVERSES IN PART to the extent set forth and further explained below.

I. Procedural Background²

The order at issue in these consolidated appeals originated not with the Bankruptcy Court, but from an admiralty court presiding over an admiralty case in this district. In that admiralty case, the court issued a "Directive" to the Bankruptcy Court requesting "clarification" of a decision by the Bankruptcy Court with respect to "whether, at this time, the automatic stay still bars Plaintiff Barnesfrom prosecuting unsecured in personam claims against Defendant Henry." Case No. 13-cv-00002-ACK-WRP, Dkt. No. 540 at 2 ("Directive").

In response to the Directive, the Bankruptcy Court issued the order at issue in these consolidated appeals.³ Therein, the Bankruptcy Court determined that the automatic stay, and, when entered, the discharge injunction, barred Barnes from prosecuting unsecured, in personam claims against Henry and his bankruptcy estate. Dkt. No. 1-2 at 11. Among other things, the Bankruptcy Court found that Barnes had no maritime lien claims against Henry, and Barnes' claim for maintenance and cure was a prepetition claim pursuant to precedent from the Ninth Circuit Court of Appeals. Id. at 8-10.

On April 24, 2019, Barnes filed a notice of appeal of the foregoing order entered in Henry's bankruptcy proceeding ("the Henry Bankruptcy Appeal"). On the same day, Barnes filed a notice of appeal, appealing the identical order of the Bankruptcy Court filed in the bankruptcy proceeding of Sea Hawaii Rafting, LLC (SHR and, with Henry, "Appellees") ("the SHR Bankruptcy Appeal" and, with the Henry Bankruptcy Appeal, "the Bankruptcy Appeals"). Because the orders being appealed in the Bankruptcy Appeals involve common questions of law and fact,and because consolidation would produce savings in time and effort, while causing no inconvenience, delay, or expense, the Court consolidated the Bankruptcy Appeals. See Dkt. No. 5. In the Court's order of consolidation, Barnes was instructed to clearly identify the issue or issues being appealed, clearly explain how the Bankruptcy Court purportedly erred with respect to the issue, and provide legal support for the Bankruptcy Court's purported error.

On August 16, 2019, Barnes filed his opening brief. Dkt. No. 10. Thereafter, Appellee SHR filed a response brief. Dkt. No. 11. Appellee Henry has filed no brief in these Bankruptcy Appeals. Finally, while Barnes had until November 4, 2019, to file a reply brief, Dkt. No. 9, no such brief was (or has been) filed.

II. Legal Standard

This Court reviews a bankruptcy court's factual findings for clear error and its conclusions of law and determinations on mixed questions of law and fact de novo. In re Salazar, 430 F.3d 992, 994 (9th Cir. 2005); In re Hamada, 291 F.3d 645, 649 (9th Cir. 2002).

III. Discussion

The essence of these Bankruptcy Appeals is whether Barnes may pursue any claims against Henry or his bankruptcy estate, including claims that Barnes hasbrought in his admiralty case. In his opening brief, although Barnes is represented by counsel, little effort is made to explain why the Bankruptcy Court erred in finding that Barnes could not pursue any claims against Henry. Instead, Barnes simply states that the Bankruptcy Court erred in one fashion or another. No attempt is made to explain why the purported ruling from the Bankruptcy Court was erroneous. This, of course, is far from helpful for this Court on appeal.

Nonetheless, the Court has conducted a de novo review of the order being appealed. Having done so, and as more fully explained below, this Court finds that, based upon the manner in which Barnes intends to hold Henry responsible for maintenance and cure-specifically, by piercing the corporate veil-if Barnes is successful in that endeavor, then Barnes would have a maritime lien claim against Henry. As a result, the Court finds that Barnes' claims are not necessarily entirely unsecured, in personam claims, as the Bankruptcy Court characterized them. Further, neither the automatic stay nor the discharge injunction would prohibit Barnes from prosecuting such a maritime lien claim against Henry should Barnes succeed in piercing the corporate veil.

The Court begins with the Directive's description of the claims that Barnes wishes to prosecute against Henry: "The Court notes that Plaintiff Barnes seeks to pierce the corporate veil and hold Defendant Henry personally liable for DefendantSHR's maintenance and cure obligations, as well as pursue other tort claims against Defendant Henry." Directive at 2-3 (footnote omitted). In other words, Barnes wishes to prosecute claims for (1) maintenance and cure and (2) tort damages. Because Barnes' opening brief appears to focus entirely upon the claim for maintenance and cure, see Dkt. No. 10 at 9-12, this Court does likewise.⁴ In addition, in that regard, the Directive states that Barnes seeks to hold Henry liable for maintenance and cure by piercing the corporate veil of SHR. This Court, thus, briefly sets forth pertinent law related to (1) maintenance and cure, and (2) piercing the corporate veil.

First, maintenance and cure. "The ancient duty of the vessel and the shipowner to provide the sick and injured seaman with maintenance and cure arises from the contract of employment and the peculiar relationship existing between the seaman and the vessel." 2 Robert Force & Martin J. Norris, The Law of Seamen § 26:8 (5th ed. 2003). "It is an obligation imposed by the general maritime law on the shipowner and the vessel[,]" with maintenance and cure actions having "uniformly been brought against vessel owners because the cause of action wasinitially implied from the employment contract between the shipowner and the seaman." Id. & n.2 (quotation omitted). Further, "[m]aintenance and cure is a means of giving a seaman relief by way of affording him medical care and treatment and reimbursing him for the cost of maintaining himself during the convalescent period. It is not an award of compensation for damages for the disability which he suffered." Id. § 26:14. "The rule is well settled that the seaman's right to maintenance and cure extends beyond the end of the voyage until the point where the maximum possible cure has been attained. The determination of the point or date where the maximum cure possible has been reached depends upon the facts of each particular case." Id. § 26:37. In addition, "a condition diagnosed as incurable may subsequently become curable as new medical techniques and scientific knowledge emerge. In such cases, the seaman is entitled to reassert his claim for cure to take advantage of these developments." Id. Further, "[a] seaman's right to maintenance and cure creates a maritime lien of high priority[,]" 1B Benedict on Admiralty § 42 (7th ed. rev. 2019) (footnotes omitted), with the lien being enforceable in rem against the vessel aboard which the seaman performed duties, see 8 Benedict on Admiralty §§ 7.01(A), 7.01(B), 7.01(C)(1)(d)(ii). "The amount of a judgment in rem is limited, however, to thevalue of the vessel, or its proceeds, if sold, and its freight. To obtain a larger judgment, the vessel owner must be joined in personam." Id. § 7.01(A).

Second, piercing the corporate veil. In Hawai'i, "[w]hen a corporation is the mere instrumentality or business conduit of another corporation or person, the corporate form may be disregarded[,]" so as "to hold shareholders or other controlling individuals liable for corporate obligations." Robert's Haw. Sch. Bus, Inc. v. Laupahoehoe Transp. Co., Inc., 982 P.2d 853, 870 (Haw. 1999), superseded by statute on other grounds as stated in Davis v. Four Seasons Hotel Ltd., 228 P.3d 303, 307 n.9 (Haw. 2010) (quotation omitted). Further, "[a] finding of fact of alter ego, standing alone, creates no cause of action. It merely furnishes a means for a complainant to reach a second corporation or individual upon a cause of action that otherwise would have existed against the first corporation. An attempt to pierce the corporate veil is a means of imposing liability on an underlying cause of action, such as a tort or breach of contract." Id. (quotation omitted). Put simply, "[i]f a natural person abuses the corporate form, it is well accepted that the court may place that ... natural person in the corporation's shoes and hold that person liable as the corporation." NML Capital Ltd. v. Republic of Argentina, 2014 WL 3898021, *11 (D. Nev. Aug. 11, 2014).

With the foregoing in mind, the Court turns to whether Barnes may assert any part of his maintenance and cure claim against Henry. The Court finds...