Field v. Hinahara (In re Maui Indus. Loan & Fin. Co.)
| Decision Date | 11 July 2014 |
| Docket Number | Adv. Pro. No. 12-90009,Case No.: 10-000235 |
| Court | U.S. Bankruptcy Court — District of Hawaii |
| Parties | In re MAUI INDUSTRIAL LOAN & FINANCE COMPANY, INC., Debtor. DANE S. FIELD, Plaintiff, v. DENNIS I. HINAHARA and MYRA S. HINAHARA, Defendants. |
SO ORDERED.
__________
Robert J. Paris
United States Bankruptcy Judge
In this adversary proceeding, the bankruptcy trustee of a company that operated a Ponzi scheme seeks to avoid and recover certain transfers to the defendants.
I granted partial summary judgment in favor of the defendants, ruling that the trustee may not recover transfers made more than two years before the bankruptcyfiling under Bankruptcy Code § 548 ().1
I granted partial summary judgment in favor of the trustee on the trustee's case in chief on Counts One, Two, and Three of the complaint. Specifically, I ruled that (i) the transfers to the defendants were made with actual intent to hinder, delay, or defraud creditors under Hawaii Rev. Stat. § 651C-4(a), (ii) the defendants are "initial transferees" under Bankruptcy Code § 550(a)(1), and (iii), if the trustee prevails, the trustee will be entitled to prejudgment interest at the state statutory rate from the date of each transfer to the date of judgment.2
A trial was held on the defendants' affirmative defense of good faith and value. At the trial, Bradley Tamm and Lissa Shults represented the trustee, and Dana Lyons and Ryan Hamaguchi represented defendants Dennis and Myra Hinahara.
I recommend that the district court adopt the following proposed findings of fact and conclusions and enter judgment in favor of the trustee in the amount of $52,729.75 plus pre-judgment interest from March 10, 2014 to the entry of judgment.
In summary, the defendants took the transfers in good faith. They did not know that the debtor made transfers to them with the intent to hinder, delay, or defraud its creditors. A reasonable creditor in the defendants' position would not have suspected the debtor's fraudulent intent until February 2009. A creditor who attempted to investigate those suspicions would have learned nothing.
Further, the defendants gave value to the debtor in an amount equal to theirdeposits with the debtor.
Therefore, the trustee is entitled to recover the transfers to the defendants minus the amount of their deposits, plus prejudgment interest.
1. Plaintiff Dane Field is the duly appointed, qualified, and acting trustee in bankruptcy of Maui Industrial Loan & Finance, Inc., debtor. Maui Industrial Loan & Finance, Inc., sometimes did business as Maui Finance Co. and will be referred to herein as "MFC."
2. MFC was licensed under Hawaii law as a "nondepository financial services loan company."3 It engaged in the business of making loans. Hawaii law forbids nondepository financial services loan companies from accepting deposits from the public.4 MFC ignored this prohibition5 and accepted millions of dollars of deposits from dozens of depositors.6
3. Beginning in 1985, Lloyd Kimura was the principal owner and the person in control of MFC. Kimura was also a certified public accountant practicing in Maui. Lloyd Kimura is married to Jenny Kimura.
4. Defendants Dennis and Myra Hinahara are husband and wife andresidents of Maui.7 Mr. Hinahara is an experienced and sophisticated business person and real estate investor.8 He has had a long and successful career in the real estate escrow business.9 Mrs. Hinahara was a high school social studies teacher until she retired in 2004.10 She has little experience with business or investments.11 Until her retirement, she relied almost entirely on her husband to manage the family finances. After her retirement, her involvement in the finances increased, but she still relied primarily on her husband.12 Her reliance on her husband was reasonable.
5. The Hinaharas met Lloyd Kimura in the early 1980s.13 A while later, the two couples became social friends and the Hinaharas retained Kimura's accounting firm to prepare their tax returns.14
6. Lloyd Kimura was (at least until late 2009) a well-respected business person, accountant, and member of the Maui community.15 Many people on Maui trusted him, did business with him, and lent funds to MFC. Lloyd Kimura's reputation encouraged the Hinaharas, and would have encouraged a reasonableperson in the Hinaharas' position, to trust Kimura and to believe that he and MFC were solvent and operating properly.
7. Unbeknownst to the Hinaharas, beginning in the late 1980's, Kimura began to operate a Ponzi scheme. He induced individuals (many of them his accounting clients) to invest money with him or MFC. He often represented that MFC was a bank or savings and loan business that made loans at high interest rates, usually 18% to 24%, and that were secured by collateral. He promised the investors interest at rates usually ranging fron 8% to 12%. He collected millions of dollars from many investors in this fashion. Contrary to his promises, he usually did not use the investors' funds to make loans, but instead used them to finance his personal businesses and investments, to maintain his personal lifestyle, and (in order to maintain the perceived legitimacy of his business) to pay earlier investors their promised principal and interest. He also generated false monthly statements and tax returns to convince investors that he was using their funds as promised. In order to generate some of the cash needed to keep the Ponzi scheme afloat, he fraudulently obtained bank loans and looted his accounting firm's retirement plan accounts.16
8. The Hinaharas (sometimes Mr. Hinahara alone, and sometimes with his wife) transferred cash to MFC as follows:17
Date
Amount
9/24/1990
$100,000.00
11/17/1997
$40,000.00
12/26/1997
$90,000.00
12/18/1998
$50,000.00
1/4/1999
$40,000.00
6/21/2000
$28,900.00
4/15/2002
$64,000.00
6/15/2005
$35,000.00
10/11/2005
$65,000.00
1/4/2006
$123,250.00
6/26/2007
$300,000.00
TOTAL
9. MFC referred to the deposits from the Hinaharas and other victims of the Ponzi scheme as "Notes Payable."18 Each of these transfers was received in the usual course of MFC's business, and (with the possible exception of the coordinated loans described below) MFC gave credit to the Hinaharas for each of them against the equivalent of a savings account.19 Mr. Hinahara thought of them as "deposits" in a savings account.20
10. The Hinaharas contend that they made additional deposits with MFC. The evidence does not support this contention. (The Hinaharas made other transfersto Kimura, but those transfers are irrelevant for the reasons explained in the conclusions of law.)
11. When the Hinaharas made each of these deposits, they acted in good faith. They did not know, and a reasonable person in their position would not have known, that MFC could not legally accept their deposits,21 that Kimura or MFC was insolvent or were operating a Ponzi scheme, or that Kimura or MFC were making transfers with the intent to hinder, delay, or defraud their creditors.22
12. MFC regularly paid the interest due to the Hinaharas on the deposits. On some occasions, the interest payments were a few days late.23
13. Over the years, the Hinaharas made many investments with the Kimuras. These investments took several forms.
14. Beginning in 1988, the Kimuras and the Hinaharas jointly purchased interests in numerous parcels of real estate. Some of the properties were acquired by Kimura and Mr. Hinahara; some investments included one or both of their wives; and some included other unrelated people.24
15. Each of these joint investments in real estate was an association of two or more persons to carry on as co-owners a business for profit.25
16. Beginning in 1989, the Hinaharas and the Kimuras formed, owned, and served as the officers, directors, or managers of several corporations and limited liability companies. Mrs. Kimura and Mrs. Hinahara were involved in some but not all of these companies. Third parties were also involved in some of them.26 Almost all of these entities were formed to invest in real estate. None of them were in the money lending business (although some of them did make deposits with MFC).27
17. Most of the joint investments and companies of the Hinaharas and the Kimuras were successful and profitable.28
18. The Hinaharas and their fellow investors agreed that Lloyd Kimura would manage the day-to-day affairs of each of these joint investments and companies. He kept the books, dealt with the tenants, collected the rents and other income, paid the expenses, and arranged for the routine upkeep of the properties. He did not have authority to make major decisions, such as the sale or purchase of property, without the consent of the other investors.29
19. The Hinaharas' returns on the joint investments and companies were distributed to them by checks made payable to one or both of the Hinaharas. As a convenience to the Hinaharas, Kimura took the Hinaharas' checks directly to the bank and deposited them in the Hinaharas' account. The Hinaharas agreed with thisprocedure and gave Kimura some deposit slips on their accounts.30
20. The Hinaharas were generally satisfied with Kimura's handling of his management responsibilities. Two incidents raised some concern:
a. From time to time, Mr. Hinahara received telephone calls or notes from banks stating that the bank accounts for the Hinaharas' business ventures with Kimura were overdrawn. The overdrafts were small and Kimura quickly covered them.31
b. During 2005, Mrs. Hinahara became concerned about the amount of money the Hinaharas were paying toward a property they co-owned with the Kimuras (the Kahekili property).32 Mrs. Hinahara wondered whether the expenses were inflated and whether Kimura was paying his share. Kimura...
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