Ellis, Matter of

Decision Date19 April 1982
Docket Number81-4213 and 81-4318,Nos. 81-4081,s. 81-4081
Citation674 F.2d 1238
PartiesIn the Matter of: William S. ELLIS, Jr., Debtor. William S. ELLIS, Jr., Silversword Trust, etc., by Robert P. Shaw and Pauline L. Shaw, its Trustees, Upland Investments, Ltd., etc., and the Sword, Inc., etc., Plaintiffs-Appellees, v. Lillian H. COREY, Defendant-Appellant, v. Herbert H. K. LOUI and Alberta Loui, Defendants-Appellees, v. KULALANI, LTD., etc., Additional Counterclaimant, Defendant-Appellant. Helen B. RYAN, Trustee in Bankruptcy for the Estate of William S. Ellis, Jr., Debtor; Silversword Trust, etc., by Robert P. Shaw and Pauline L. Shaw, et al., Plaintiffs-Appellants, v. Lillian H. COREY, Defendant-Appellant, v. Herbert H. K. LOUI and Alberta K. A. Loui, Defendants-Appellees, v. KULALANI, LTD., etc., Additional Counterclaimant, Defendant-Appellant. Lei-Anne E. GROUARD, Florence A. Ellis, Howard L. Holmes and Pamela S. Holmes, Plaintiffs-Appellants, v. James PROPOTNICK, U. S. Marshal for the District of Hawaii, Defendant-Appellee, and Herbert H. K. Loui and Alberta Loui, Interveners/Defendants-Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

Scott R. Nakagawa, Honolulu, Hawaii, for Kulalani, Silversword, Upland & Sword.

Phillip Deaver, Honolulu, Hawaii, argued, for defendants-appellees; Deborah Ching, Honolulu, Hawaii, on brief.

Appeals from the United States District Court for the District of Hawaii.

Before ALARCON, POOLE and FERGUSON, Circuit Judges.

FERGUSON, Circuit Judge:

These three consolidated appeals arise out of a complicated series of transactions, in and out of court, over the last decade. William Ellis and parties roughly aligned with him in interest, in various combinations, appeal from three dispositions adverse to their claims to an improved parcel of land in Hawaii known as the Silversword Inn. The first judgment, entered by District Judge King in consolidated adversary proceedings Nos. 72-391(3) and 72-391(4) in a Chapter XII proceeding filed by Ellis in 1972, summarily declared that the defendants-appellees, Herbert and Alberta Loui, are the owners of the subject property and that the other parties to Bankruptcy Nos. 72-391(3) and 72-391(4) have no interest in it. Appeal No. 81-4081. For the reasons stated below, we reverse the judgment and remand the case for further proceedings. The second judgment, a writ of assistance issued by Judge King, directed the marshal to put the Louis in possession of the Silversword Inn as against "all and every person and entity holding possession of said premises." Appeal No. 81-4213. Since we reverse the judgment on which this writ depends, it must be vacated. The third was the oral denial by District Judge Heen of a preliminary injunction sought by three persons not party to the bankruptcy proceedings, and not claiming title through William Ellis, but apparently aligned with him in interest, and apparently in possession of the property. These parties had filed a separate action in the district court seeking a declaration that the judgments issued by Judge King in the bankruptcy proceeding were of no effect as to their interest in and

possession of the property. Although that action is still pending, the plaintiffs appeal from the oral denial of their request for a preliminary injunction against the U.S. Marshal. Appeal No. 81-4318. In view of our disposition of the first two appeals, this third one is moot, and we therefore dismiss it.

FACTS

In March 1971, William Ellis (Ellis) conveyed the Silversword Inn to Bessie Hagopian, the sister of Lillian Corey (Lillian). Lillian acted as Hagopian's agent in this transaction. The conveyance was subject to a lease and included an option to repurchase which, with extensions, expired unexercised on December 31, 1976. In 1972, Ellis filed a Chapter XII proceeding in the bankruptcy court in Hawaii. Despite the 1971 conveyance, one of the items listed in the bankruptcy estate was the Silversword Inn.

In July 1973, Hagopian conveyed her interest in the property to Lillian. In January 1977, Herbert and Alberta Loui (Louis) and Lillian executed a standard form Deposit Receipt, Offer and Acceptance (DROA) for the sale of the Silversword Inn for $575,000. In accordance with the DROA, the Louis placed $175,000 in escrow. Lillian refused to proceed with the sale on August 1, 1977, the scheduled closing date.

On August 12, 1977, the Louis filed a complaint against Lillian in Hawaii state court for specific performance and damages for breach of contract (Hawaii Civil No. 52308). Among Lillian's contentions in defense were that Ellis's transaction with Hagopian was not a sale of the property, but a mortgage transaction in the form of a sale. Thus, Lillian was only a mortgagee and could not convey the property to the Louis. Lillian further argued that the DROA was merely a "try" and that because she could not convey the property, the Louis could not obtain specific performance.

The state court rejected this conclusion, found that Lillian had breached her contract of sale with the Louis, and directed specific performance. In its partial judgment entered on August 7, 1979, the court ordered Lillian to execute an Agreement of Sale in a form which the court specified. The court added that if Lillian failed to perform within ten days, the clerk was ordered and authorized to execute the Agreement of Sale attached to the judgment.

When Lillian failed to perform, the clerk executed the Agreement of Sale and delivered it to the Louis, who signed it, delivered it to escrow, and recorded it. According to the Louis and uncontroverted by Lillian, Ellis paid some or all of Lillian's attorneys' fees in the state action and consulted with Lillian and her attorneys throughout the trial.

Lillian appealed the partial judgment to the state supreme court, but did not obtain a stay of the judgment at that time. On November 9, 1979, the Louis obtained from the state court a writ of assistance to obtain possession of the property. However, the writ was eventually returned unexecuted. Ellis had warned the sheriff that he or any deputy sheriff entering the property would be liable for trespass if entry was made under color of the writ. Ellis stated that he was the lessee, the Sword, Inc., was his sublessee, the Silversword Trust was the lessor, and that none of them held by, under, or through Lillian Corey, the only defendant in the state action.

The Sword, Inc. brought a separate action in the state court claiming to be in possession of the property and requesting an injunction against execution of the writ of assistance. The complaint was signed by Florence Ellis, Ellis's wife and president of The Sword, Inc. This action was later dismissed voluntarily. In the meantime, on December 3, 1979, Lillian filed in state court her own suit against the Louis. She requested declaratory and injunctive relief, claiming that the writ of assistance was improper because The Sword, Inc., which was in possession of the property, was not a named party in the Louis' state court action and had no relationship to her. Lillian's complaint was sua sponte dismissed with prejudice.

On October 24, 1979, Ellis filed in his bankruptcy proceeding a Complaint to Determine Lien against Lillian. Bankruptcy No. 72-391(3). The complaint sought relief on the "mortgage theory" previously raised by Lillian in defense of the Louis' state court specific performance action. Lillian appeared and admitted all allegations in Ellis's complaint and did not oppose the subsequent motion for judgment on the pleadings. At least from this point on, Judge King, a federal district judge, sat by designation as the bankruptcy judge in the Ellis matter. Judgment on the pleadings was filed on December 7, 1979 and was recorded the same day with the State Bureau of Conveyances.

The Louis were unaware of Ellis's complaint and judgment until February 25, 1980, when Ellis, Lillian, and entities controlled by Ellis and claiming interest in the property through Ellis (e.g., Silversword Trust) filed in Ellis's bankruptcy proceeding a complaint against the Louis to Determine Liens and Other Interests in Property. Bankruptcy No. 72-391(4). The bankruptcy court granted the Louis leave to intervene in Bankruptcy No. 72-391(3) and vacated the December 7, 1979 judgment on the pleadings. Bankruptcy Nos. 72-391(3) and 72-391(4) were consolidated. Ellis's consolidated amended complaint included all claims from the separate complaints in Bankruptcy Nos. 72-391(3) and 72-391(4) and named Lillian and the Louis as defendants. Lillian filed an answer admitting all allegations, but later added a cross-claim against the Louis, incorporating six counts of Ellis's consolidated amended complaint. The Louis answered Ellis's consolidated amended complaint and filed a counterclaim and cross-claim seeking to determine their rights as against the other parties to the proceeding.

On September 12, 1980, the bankruptcy court issued a ruling that the March 1971 conveyance by Ellis to Bessie Hagopian was a transfer of fee simple title and not a mortgage transaction. An implied corollary of that ruling was that Lillian was owner of the Silversword Inn and that none of the plaintiffs, including the bankrupt, had any interest in the property.

While the above matters were pending in the bankruptcy court, on September 4, 1980, Lillian, in connection with her appeal of the state court judgment obtained against her by the Louis, filed in the Hawaii Supreme Court an Application for Ex Parte Order Granting Leave to Deposit Cash in Lieu of Supersedeas Bond. The application was opposed by the Louis. However, on October 2, 1980, the Hawaii Supreme Court granted Lillian's motion with the proviso that if the Louis prevailed on appeal, "any legal damages suffered by Appellees as a result of the stay of execution...

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