Hilo Crane Service, Inc. v. Ho
| Decision Date | 21 December 1984 |
| Docket Number | No. 9454,9454 |
| Citation | 5 Haw.App. 360,693 P.2d 412 |
| Parties | HILO CRANE SERVICE, INC., Plaintiff, v. James G.Y. HO, dba Polynesian Construction Co.; Florence J. Ho; and State of Hawaii, Defendants; and James G.Y. HO, dba Polynesian Construction Co.; and Florence J. Ho, Third- Party Plaintiffs, v. Daniel R. MATSUKAGE; Real Estate Finance Corporation; and Clifford N. Gamble, Third-Party Defendants; and Pacific Standard Life Insurance Company, Third-Party Defendant-Appellant and Cross-Appellee. RODRIGUES PLUMBING, INC., Plaintiff, v. James G.Y. HO; Florence Judith Ho; Midpac Lumber Co., Ltd.; Granger-Pacific, Inc.; Bank of Hawaii; Shield-Pacific, Ltd.; Hilo Crane Service, Inc.; Weacco, Inc.; Harold T. Kurisu; Ken Johnston; State of Hawaii; and United States of America, Defendants; Pacific Standard Life Insurance Company, Defendant-Appellant and Cross- Appellee; and Pacific Standard Investment & Loan, Inc., Defendant-Appellee and Cross- Appellant; MIDPAC LUMBER CO., LTD., Third-Party Plaintiff, v. Noriyoshi MATSUMURA, Third-Party Defendant; and James G.Y. HO and Florence Judith Ho, Third-Party Plaintiffs, v. Daniel R. MATSUKAGE; Real Estate Finance Corporation; and Clifford N. Gamble, Third-Party Defendants. TOM OKANO ELECTRIC, INC., a Hawaii corporation, Plaintiff, v. James G.Y. HO, dba Polynesian Construction Company; James G.Y. Ho, General Contractor; James G.Y. Ho and Florence Judith Ho, husband and wife, Lessees; State of Hawaii, by the Department of Land and Natural Resources, Owner of Fee; Midpac Lumber Company, Ltd., a Hawaii corporation, Surety; State of Hawaii, by its Department of Taxation; State of Hawaii, by its Department of Labor and Industrial Relations; Real Estate Finance Corporation, a Hawaii corporation; United States of America, by its United States Attorney For the District of Hawaii; Ken Johnston; Weacco, Inc., a California corporation; Hilo Crane Service, Inc., a Hawaii corporation; and Rodrigues Plumbing, Inc., a Hawaii corporation, Defendants; Pacific Standard Life Insurance Company, an Arizona corporati |
| Court | Hawaii Court of Appeals |
Syllabus by the Court
1. An appellate court may freely review conclusions of law and the applicable standard of review is the right/wrong test.
2. The doctrine of equitable subordination permits a bankruptcy court to subordinate a creditor's claim to other claims or classes toward which the creditor has behaved unfairly.
3. It is doubtful whether the doctrine of equitable subordination is applicable in a non-bankruptcy foreclosure case where (1) all of the debtor's assets are not involved in the litigation and all of the debtor's creditors are not in court, (2) the purported inequitable acts or omissions of the first mortgagee were directed at or inflicted upon the junior mortgagee and not the mortgagor, and (3) there is no trustee or receiver seeking equitable subordination.
4. The trial court's refusal to make findings requested by a party is regarded on appeal as findings that the party failed to meet its burden of proof on those issues.
5. Where two nominees of the parent company of the first mortgagee served as directors of the junior mortgagee at the times the junior mortgage loans were made, but the trial court refused to find as requested by the junior mortgagee that (1) those loans were made "through the exercises of the control position" of the parent company, (2) those loans would not have been made by a reasonable prudent lender in the industrial loan industry, and (3) the parent company and its agents breached various fiduciary duties owed to the junior mortgagee, the trial court had no basis to equitably subordinate the first mortgage lien.
6. The general rule is that the judgment debtor is ordinarily the person entitled to the modification or vacation of a judgment and that a third person has no standing to modify or vacate a judgment unless it purports to bind him under the doctrine of res judicata or he has an interest affected by the judgment.
7. Where upon application of the first mortgagee the trial court amended a judgment in favor of a junior mortgagee and against the mortgagor because the judgment would adversely affect the first mortgagee since the first mortgage was being equitably subordinated, the reversal of the equitable subordination judgment requires the trial court to vacate the amended judgment and reinstate the original judgment.
John Jubinsky, Honolulu (Paul S. Aoki and Trudy K. Senda, Honolulu, with him on the briefs; Ashford & Wriston, Honolulu, of counsel), for defendant-appellant and cross-appellee.
Glenn S. Hara, Hilo (Roy Y. Yempuku, Honolulu, with him on the briefs), for defendant-appellee and cross-appellant.
Before BURNS, C.J., TANAKA, J., and DONALD K. TSUKIYAMA, Circuit Judge, in Place of HEEN, J., Excused.
In a foreclosure case, defendant Pacific Standard Life Insurance Company (PSLIC) appeals from the judgment subordinating its first mortgage lien to the second and third mortgage liens of Pacific Standard Investment & Loan, Inc., now known as Pacific Loan, Inc. (Pac Loan). Pac Loan cross-appeals from the amended judgment reducing the judgment amount in its favor against defendants James G.Y. Ho (James Ho) and Florence J. Ho (collectively the Hos). As to both appeals, we reverse.
The identification of the various corporate entities and individuals and their relationship are important in the analysis and discussion of this case.
Pacific Standard Life Company (Parent Company) is a Delaware corporation.
PSLIC is an Arizona corporation engaged in the insurance business. It is a wholly owned subsidiary of Parent Company.
Pac Loan, a Hawaii corporation, was incorporated in 1971 and is a licensed industrial loan company under Hawaii Revised Statutes (HRS) chapter 408. From the date of its incorporation until September 29, 1975, Pac Loan was a wholly owned subsidiary of Parent Company.
Real Estate Finance Corporation (REFC), incorporated in 1964, is a Hawaii corporation and a mortgage banking company. From 1969 until September 29, 1975, REFC was a wholly owned subsidiary of Parent Company.
PSL Associates, Inc. (PSLA), a Hawaii corporation, is engaged in the general insurance agency and insurance brokerage business. Until September 29, 1975, PSLA was a wholly owned subsidiary of Parent Company.
Since its incorporation in 1970, Aloha Development Corporation (Aloha Development) has been a wholly owned subsidiary of Parent Company.
By agreement dated September 29, 1975, Parent Company sold, and Daniel R. Matsukage (Matsukage) and his wife Nobuko Matsukage (collectively the Matsukages) purchased, all of the issued and outstanding shares of capital stock of Pac Loan, REFC, and PSLA for $1,024,577.30, payable $102,457.73 down and $922,119.57 by way of a promissory note. The agreement required the Matsukages, inter alia, to elect two nominees of Parent Company to the boards of directors of Pac Loan, REFC, and PSLA so long as the promissory note remained outstanding.
As nominees of Parent Company, Clifford N. Gamble (Gamble) and Edgar L. Fickle (Fickle) were elected to Pac Loan's 4-member board of directors 1 on September 30, 1975. Gamble and Fickle were reelected and continued to serve as directors until July 19, 1978. 2
Gamble was a shareholder, chairman of the board, chief executive officer, and director of Parent Company from 1967 and during all relevant times. He also was the chairman of the board of PSLIC during the same period of time and served as PSLIC's president and chief executive officer from 1967 to December 1978. During 1976 and 1977, he was a director and officer of Aloha Development. As indicated above, Gamble served as director of Pac Loan from September 30, 1975 to July 19, 1978.
Fickle served as a director of Pac Loan from 1971 until July 19, 1978. He also served as Pac Loan's vice president from March 9, 1973 to September 30, 1975. He was PSLIC's executive vice president and director from 1967 and during all relevant times. During all relevant times in the case, Fickle served as executive vice-president, treasurer, and director of Parent Company, and a director of Aloha Development. He was a director of REFC from 1969 to 1975.
Matsukage served as a director of Parent Company from 1969 to 1975. He served as an officer and director of Pac Loan and REFC even while they were subsidiaries of Parent Company. He was Pac Loan's president and director from 1971 to sometime in June, 1981. He also served as president and director of REFC from 1964 and during all relevant times. From 1973 through 1976, Matsukage was a director and an officer of Aloha Development.
In 1981, Pac Loan was in financial straits and in violation of certain industrial loan laws. The state bank examiner offered Matsukage the alternative of either turning over all shares of Pac Loan's capital stock to Thrift Guaranty Corporation of Hawaii 3 (Thrift Guaranty) or having Pac Loan placed under receivership. The Matsukages agreed to the former alternative and Thrift Guaranty became the sole shareholder of Pac Loan in June 1981. Thereafter, Pac Loan changed its name from Pacific Standard Investment & Loan, Inc. to Pacific Loan, Inc.
The first of the three mortgages in question had its genesis in 1974. In December 1974, the Hos were the owners of a leasehold property located on Banyan Drive, Hilo, Hawaii (Banyan Property).
On December 27, 1974, the Hos borrowed $1,900,000 from REFC for the construction of a...
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