Hawaii Ventures, LLC v. Otaka, Inc.

• Decision Date: 09 May 2007
• Docket Number: No. 25344.,No. 26820.,25344.,26820.
• Citation: 164 P.3d 696
• Parties: HAWAII VENTURES, LLC, Plaintiff-Appellant/Cross-Appellee, v. OTAKA, INC.; Takao Building Co., Ltd., formerly known as Takao Building Development Co., Ltd.; K.K. Kaini Seven, Yukio Takahashi; Hawaiian Waikiki Beach, Inc.; Alaka`i Mechanical Corporation; Hewlett-Packard Company; Hawaii Energy Management Co., LLC., Defendants-Appellees/Cross-Appellants, and Business Management Group, Inc.; Beach Snack Express, Inc.; John Does 1-50; Jane Does 1-50; Doe Partnerships 1-50; Doe Corporations 2-50; Doe Entities 1-50; and Doe Governmental Units 1-50, Defendants, and ILWU Local 142 AFL-CIO, and Theodore H. Smyth, Trustee, Smyth Family Trusts, Intervenor Defendants-Appellees/Cross-Appellants, and Argonaut Insurance Company, Intervenor Defendant-Appellee/Cross-Appellee, and Otaka, Inc. and Hawaiian Waikiki Beach, Inc., Counterclaimants-Appellees/Cross-Appellants, v. Leucadia National Corporation, Additional Counterclaim Defendant. Patricia Kim Park, Receiver-Appellee/Cross-Appellee. Hawaii Ventures, LLC, Plaintiff-Appellant/Cross-Appellee, v. Otaka, Inc.; Takao Building Co., Ltd., formerly known as Takao Building Development Co., Ltd.; K.K. Kaini Seven, Yukio Takahashi; Hawaiian Waikiki Beach, Inc., Defendants-Appellees/Cross-Appellees/Cross-Appellants, and Alaka`i Mechanical Corporation; Hewlett-Packard Company; Business Management Group, Inc.; Beach Snack Express, Inc.; and Hawaii Energy Management Co., LLC., Defendants-Appellees/Cross-Appellees, and John Does 1-50; Jane Does 1-50; Doe Partnerships 1-50; Doe Corporations 2-50; Doe Entities 1-50; and Doe Governmental Units 1-50, Defendants, and Theodore H. Smyth, Trustee, Smyth Family Trusts, Intervenor Defendants-Appellees/Cross-Appellants/Cross-Appellees, and ILWU Local 142 AFL-CIO and Argonaut Insurance Company, Intervenor Defendants-Appellees/Cross-Appellees/Cross-Appellant, and Otaka, Inc. and Hawaiian Waikiki Beach, Inc., Counterclaimants-Appellees/Cross-Appellees, v. Leucadia National Corporation, Additional Counterclaim Defendant-Appellee/Cross-Appellee. Patricia Kim Park, Receiver-Appellee/Cross-Appellee. Former Employees of Hawaiian Waikiki Beach Hotel, Party In Interest-Appellee/Cross-Appellee/Cross-Appellant.
• Court: Hawaii Supreme Court

164 P.3d 696

HAWAII VENTURES, LLC, Plaintiff-Appellant/Cross-Appellee, v. OTAKA, INC.; Takao Building Co., Ltd., formerly known as Takao Building Development Co., Ltd.; K.K. Kaini Seven, Yukio Takahashi; Hawaiian Waikiki Beach, Inc.; Alaka`i Mechanical Corporation; Hewlett-Packard Company; Hawaii Energy Management Co., LLC., Defendants-Appellees/Cross-Appellants, and Business Management Group, Inc.; Beach Snack Express, Inc.; John Does 1-50; Jane Does 1-50; Doe Partnerships 1-50; Doe Corporations 2-50; Doe Entities 1-50; and Doe Governmental Units 1-50, Defendants, and ILWU Local 142 AFL-CIO, and Theodore H. Smyth, Trustee, Smyth Family Trusts, Intervenor Defendants-Appellees/Cross-Appellants, and Argonaut Insurance Company, Intervenor Defendant-Appellee/Cross-Appellee, and Otaka, Inc. and Hawaiian Waikiki Beach, Inc., Counterclaimants-Appellees/Cross-Appellants, v. Leucadia National Corporation, Additional Counterclaim Defendant.

Patricia Kim Park, Receiver-Appellee/Cross-Appellee.

Hawaii Ventures, LLC, Plaintiff-Appellant/Cross-Appellee, v. Otaka, Inc.; Takao Building Co., Ltd., formerly known as Takao Building Development Co., Ltd.; K.K. Kaini Seven, Yukio Takahashi; Hawaiian Waikiki Beach, Inc., Defendants-Appellees/Cross-Appellees/Cross-Appellants, and Alaka`i Mechanical Corporation; Hewlett-Packard Company; Business Management Group, Inc.; Beach Snack Express, Inc.; and Hawaii Energy Management Co., LLC., Defendants-Appellees/Cross-Appellees, and John Does 1-50; Jane Does 1-50; Doe Partnerships 1-50; Doe Corporations 2-50; Doe Entities 1-50; and Doe Governmental Units 1-50, Defendants, and Theodore H. Smyth, Trustee, Smyth Family Trusts, Intervenor Defendants-Appellees/Cross-Appellants/Cross-Appellees, and ILWU Local 142 AFL-CIO and Argonaut Insurance Company, Intervenor Defendants-Appellees/Cross-Appellees/Cross-Appellant, and Otaka, Inc. and Hawaiian Waikiki Beach, Inc., Counterclaimants-Appellees/Cross-Appellees, v. Leucadia National Corporation, Additional Counterclaim Defendant-Appellee/Cross-Appellee.

Patricia Kim Park, Receiver-Appellee/Cross-Appellee.

Former Employees of Hawaiian Waikiki Beach Hotel, Party In Interest-Appellee/Cross-Appellee/Cross-Appellant.

No. 25344.

No. 26820.

Supreme Court of Hawaii.

May 9, 2007.

Reconsideration Denied June 5, 2007.

Stephen K.C. Mau, Susan Tius, J. Stephen Street (of Rush Moore, LLP), Honolulu, for Hawaii Ventures, LLC.

Sheryl L. Nicholson and Pamela W. Bunn (of Paul Johnson Park & Niles), Honolulu, for Otaka, Inc., Hawaiian Waikiki Beach, Inc., Takao Building Co., Ltd., K.K. Daini Seven, and Yukio Takahashi.

Herbert R. Takahashi, Stanford H. Masui, Danny J. Vasconcellos, and Rebecca L. Covert, Honolulu, for ILWU Local 142, AFL-CIO.

Francis P. Hogan and Mi Yung C. Park (of Ashford & Wriston), Honolulu, for Theodore H. Smyth, Trustee of the Smyth Family Trusts, and Karl V. Willig, Special Litigation Trustee of the Smyth Family Trust.

Robert F. Miller, Honolulu, for Former Employees of Hawaiian Waikiki Beach Hotel.

Ke-Ching Ning and Jill D. Raznov (of Ning, Lilly & Jones) Honolulu, and Jeffrey S. Harris (of Torkildson Katz Fonseca Jaffee Moore & Hetherington), Honolulu, for Receiver Patricia Kim Park.

MOON, C.J., LEVINSON, NAKAYAMA, ACOBA, and DUFFY, JJ.

Opinion of the Court by MOON, C.J.

Inasmuch as appeal Nos. 25344 and 26820 arise from the same action and present identical relevant facts and similar legal issues, we consolidated these appeals for purposes of disposition, pursuant to Hawai`i Rules of Appellate Procedure (HRAP) Rule 3(b) (2007).<sup>1</sup> Both appeals arise out of the circuit court's administration of the foreclosure proceedings of a certain real property, formerly known as the Hawaiian Waikiki Beach Hotel, located at 2570 Kalakaua Avenue, Honolulu, Hawai`i [hereinafter, the Hotel or the Estate].

The parties to appeal No. 25344 are: (1) plaintiff-appellant/cross-appellee Hawaii Ventures, LLC [hereinafter, Hawaii Ventures or the Lender]; (2) intervenor defendant-appellee/cross-appellee/cross-appellant International Longshore and Warehouse Union, Local 142, AFL-CIO (ILWU); (3) defendants-appellees/cross-appellees/cross-appellants/counterclaimants-appellees Otaka, Inc. (Otaka) and Hawaiian Waikiki Beach, Inc. (HWB); and (4) defendants-appellees/cross-appellees/cross-appellants Takao Building Co., Ltd., formerly known as Takao Building Development Co., Ltd. (Takao Building), K.K. Daini Seven (K.K. Daini), and Yukio Takahashi [hereinafter, the parties named in (3) and (4) above are collectively referred to as the Otaka Defendants]. In No. 25344, Hawaii Ventures appeals from the Circuit Court of the First Circuit's² August 22, 2002 interlocutory order that approved a court-appointed receiver's final report, as well as three other related interlocutory orders. ILWU and the Otaka Defendants cross appeal from the same orders.

During the pendency of appeal No. 25344, the circuit court declined ILWU's requests to stay further proceedings pending the disposition of appeal No. 25344 and resolved all issues in the underlying foreclosure action, resulting in the entry of a final judgment. Thus, in appeal No. 26820, the same parties appeal and cross appeal from the August 24, 2004 second amended final judgment, awarding, inter alia, a deficiency on the claim for foreclosure. The parties generally reassert arguments made in appeal No. 25344 and raise additional challenges as a result of rulings made by the circuit court after the filing of the interlocutory appeal in No. 25344. Further, appeal No. 26820 involves two additional sets of parties, who also cross appeal: (1) intervenor defendant-appellee/cross-appellant/cross-appellee Theodore H. Smyth of the Smyth Family Trusts, which own a substantial portion of land on which the Hotel sits and whose cross appeal was dismissed on June 30, 2005, [hereinafter, Trustee Smyth]; and (2) party in interest-appellee/cross-appellee/cross-appellant Former Employees of the Hawaiian Waikiki Beach Hotel (the Former Employees).³

Briefly stated, Hawaii Ventures filed an action against the Otaka Defendants, seeking to foreclose on the mortgaged property, i.e., the Hotel. Eventually, the circuit court appointed receiver-appellee/cross-appellee Patricia Kim Park (Receiver Park or the Receiver) "to manage, protect, care for, preserve, and maintain" the Hotel, pending the foreclosure sale. Approximately ten months later, the Hotel was sold at the foreclosure auction to Hawaii Ventures—the successful bidder, and Receiver Park filed her final report. In light of objections registered by Hawaii Ventures, ILWU (which had intervened on behalf of its 220 Hotel employees during the receivership), and others, the circuit court appointed a special master to review the Receiver's final report. Ultimately, the circuit court approved the final report, as amended by Receiver Park and supplemented in part by the findings of the special master. Thereafter, the circuit court granted a deficiency judgment in favor of Hawaii Ventures and against the Otaka Defendants, directed distribution of the Estate's proceeds granted the Receiver's and the special master's fees to be paid from the Estate, and discharged Receiver Park.

Both appeals essentially involve the parties' various challenges to actions taken by the circuit court, Receiver Park, and/or the special master. The various contentions are discussed in detail as they pertain to the specific issues raised herein.

For the reasons discussed infra, we affirm in part and vacate in part the August 24, 2004 second amended final judgment.

I. BACKGROUND

A. Factual Background

In February 1985, Otaka purchased the Hotel from Holiday Inns, Inc. (Holiday Inns). The Hotel consisted of two buildings, a nine-story fee simple mauka tower and a twenty-four-story leasehold main tower. The main tower was subject to a ground lease from the fee owners, i.e., the Smyth Family Trusts (the Trusts). Thus, with the consent of the Trusts,⁴ Holiday Inns-by instrument dated February 4, 1985 — assigned its interest as lessee under the lease to Otaka as part of the sales transaction.⁵ Otaka, thereafter, began operating the Hotel, which consisted of 715 rooms⁶ with a monthly budget of over $1 million and approximately 270 bargaining, non-bargaining, full-time, part-time, and on-call employees employed by HWB — a separate management company, which was also an affiliate of Otaka.

On November 30, 1987, Otaka executed a loan agreement and a promissory note in the principal sum of $60 million in favor of Mitsui Trust and Banking Co., Ltd., Los Angeles Agency and Mitsui Leasing (U.S.A.), Inc. [hereinafter, collectively, Mitsui]. To secure the loan, Otaka granted Mitsui a first mortgage lien and security interest in the Hotel. Takao Building, K.K. Daini, Takahashi,⁷ and HWB also executed a guaranty in favor of Mitsui, guaranteeing the performance of the obligations under the loan documents. Subsequently, on June 30, 2000, Mitsui assigned its interest in the loan documents to Hawaii Ventures, a Delaware limited liability company.

On July 18, 2000, Hawaii Ventures notified the Otaka Defendants in writing that the loan was in default and that the amount owing, including accrued interest and default interest, under the loan documents was $85,497,463.37, as of May 30, 2000. Thereafter, on August 9, 2000, Hawaii Ventures filed a complaint to foreclose the Hotel against, inter alia, the Otaka Defendants.

B. Procedural History

For present purposes, we summarize the chronology of material events in this complex foreclosure case in the table below (with emphases placed upon certain proceedings significant to the instant consolidated appeal). A more extended recitation of these proceedings is set forth in the discussion section of this opinion as it becomes necessary to the resolution of the issues raised herein.

                DATE PROCEEDINGS

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