In re Daily
| Citation | 107 BR 996 |
| Decision Date | 11 October 1989 |
| Docket Number | Adv. No. 89-0005.,Civ. No. 89-00316 MP,Bankruptcy No. 85-00061 |
| Parties | In re Sammy George DAILY, Debtor. The ESTATE OF Sammy G. DAILY, Plaintiff, v. LILIPUNA ASSOCIATES, a Hawaii limited partnership; Lilipuna Venture, Inc., a Hawaii corporation; Lilipuna Development Corporation, a Hawaii corporation; and Title Guaranty Escrow Service, Inc., a Hawaii corporation, Defendants. |
| Court | U.S. District Court — District of Hawaii |
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Jerrold K. Guben, Honolulu, Hawaii, for plaintiff.
Roy L. Anderson, Honolulu, Hawaii, for Lilipuna Venture and Lilipuna Development Corp.
Thomas Yamachika, Stewart J. Martin, Honolulu, Hawaii, for Lilipuna Associates.
ORDER AFFIRMING THE BANKRUPTCY COURT'S FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
This is an appeal from the decision of the Bankruptcy Court in Adv. No. 89-0005; Bk. No. 85-00061. Sammy G. Daily filed his petition for reorganization on January 31, 1985 and on September 23, 1986, Edward J. Stanley was appointed the Trustee of the Estate of Sammy G. Daily. On November 22, 1988, Sammy G. Daily's Chapter 11 case was converted to a Chapter 7 case, and on or about January 6, 1989, Richard Kennedy was appointed the Chapter 7 Trustee of the Estate of Sammy G. Daily. On January 18, 1989, the Trustee in the bankruptcy filed an adversary complaint against Lilipuna Associates ("LA"), a Hawaii limited partnership, Lilipuna Ventures, Inc. ("LVI"), a Hawaii corporation, Lilipuna Development Corporation ("LDC"), a Hawaii corporation, and Title Guaranty Escrow Service, Inc., a Hawaii corporation, seeking a ruling from the Bankruptcy Court that proceeds of the sale of certain lands in which LVI and LDC held an ownership interest be turned over to the Trustee. The Trustee alleged that LVI and LDC were "alter egos" of Sammy Daily, the debtor, and that therefore, any monies, funds and proceeds which might be attributable to LVI and LDC were the property of the estate of Sammy Daily and as such, properly under the control of the Trustee.
As part of the proceedings, the Trustee filed a Motion in Limine. At the hearing on the Motion in Limine, the Trustee argued that based on the repeated failure of the Lilipuna "entities" and the debtor's son Michael to produce subpoenaed corporate and business records of LVI and LDC, the Bankruptcy Court should grant the Trustee's Motion in Limine and prohibit introduction of any evidence or documents which contradicted the assertions made in the adversary complaint. In response to this motion, the Bankruptcy Court ruled that the defendants LVI, LDC and the debtor's son, Michael Daily, who was an officer in both of these corporations, were now precluded from introducing documents and materials which were the subject of subpoenas issued in 1987, 1988, and 1989, and which had been ignored repeatedly by Michael and the defendant corporations. The Court found that Michael, as custodian of the records of the Lilipuna "entities", had failed to produce the court-ordered documents for over 2 years, and that any attempt to introduce them at this point would be denied, and the allegations contained in the Trustee's complaint would be deemed established as facts for the purposes of the case. FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER RE: PERMANENT INJUNCTION, Dated January 31, 1988, pp. 14-16.
As part of its Conclusions of Law, the Bankruptcy Court held that LVI and LDC were `alter egos' of Sammy G. Daily and any monies, funds and proceeds allocated to LVI and/or LDC as their shares as a general and limited partner of Lilipuna Associates from the sale of the Bayview Ridge property were to be paid over to the Trustee. FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER at p. 3, ¶ 7. Furthermore, the Court held that "Sammy G. Daily is not just a manager and a trustee of LVI, LDC and/or LHI, but the actual owner of said entities and that Sammy G. Daily, through his control of the family entities, is the beneficial owner of the interest of his family in LVI, LDC and LHI." FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER, p. 16, ¶ 13. The Court went on to invoke its equitable powers to "pierce the veil of the various Lilipuna-related entities and declare that LVI, LDC, and LHI are `alter egos' of their true owner, Sammy G. Daily," FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER at p. 17, ¶ 16, and as a result order that Lilipuna Associates be directed to pay over all of the monies, funds and proceeds from the sale of the Bayview Ridge Estate which may be attributable to the general partners' sic interest of LVI and the limited partners' sic interest of LDC to the Trustee of the Estate of Sammy G. Daily." FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER at p. 18. It is from these conclusions and this order that the Appellants' present appeal is taken.
On January 18, 1989, the Bankruptcy Court granted the FDIC's motion for authority to institute adversary proceedings on behalf of the Chapter 7 Trustee of the Est. of Sammy G. Daily (converted from Chapter 11 on November 22, 1988), against LDC, LVI, LA and Title Guaranty Escrow Service. The proceedings concerned disposition of a fund composed of proceeds of the sale of real property in which LDC and LVI had an interest and the disposition of that fund, which was being held in escrow by Title Guaranty. The fund in question resulted from a complex series of business transactions. Lilipuna Associates was formed as a Hawaii limited partnership, comprised of two general partners and about 12 limited partners. For approximately the past 6 years, Lilipuna Ventures, Inc. has been one of the two general partners (LVI was substituted for Sammy G. Daily about 7 months after the partnership was formed) and Lilipuna Development Corporation has been one of the limited partners, both with a percentage interest therein. LA has recently closed a sale of its property (Bayview Ridge, located in Kaneohe) for a price in excess of $1 million, and was scheduled to make disbursements to all of its partners, including dispursements to LVI and LDC in the amount of approximately $275,000. This fund is now segregated in an escrow account held by Title Guaranty, pending the completion of an audit.
Judge Chinen's Order details the interrelationship between the debtor, the debtor's son, Michael C. Daily, and LVI and LDC. It discusses the failure of Michael, as custodian of records of various companies in which both he and his father were officers/directors, to produce various business and family-related records pursuant to various subpoena duces tecum, and also discusses two hearings which were held on the FDIC's motion for contempt.
Judge Chinen's Order states that following those hearings the Bankruptcy Court found: (1) that Sammy and Michael Daily were involved as officers or directors of the very same corporate and partnership entities during the relevant period; (2) that Michael Daily permitted Sammy Daily to take certain documents (including the Lilipuna companies' books and records) to Kansas even though the documents were under subpeona and Michael did not make copies of them; (3) Michael Daily personally threw away/disposed of documents specifically requested under those subpeonas; (4) Michael Daily lied as to whether certain documents were stored at the "Menehune Closet"; and, (5) Michael Daily gave contradictory testimony regarding documents which he did not produce because he "lost" them.
With regard to Sammy Daily's control over the Lilipuna-related entities, the Bankruptcy Court found as follows: (1) when Michael Daily was asked about LDC at the November 21, 1988 contempt hearing, he admitted to being the president of LDC, but was not sure what the corporation did; (2) Michael testified at his April 14, 1988 deposition that he and his father "flipped a coin" to determine who was going to be president of LVI; (3) Michael testified with respect to LDC that he "never questioned anything that he Sammy Daily did; (4) that Michael C. Daily, a putative officer, director and shareholder of LVI, LDC, and LHI "did not know many of the most fundamental things concerning the operation and ownership of the Lilipuna entities;" and, (5) that none of the other shareholders or stockholders of the Lilipuna entities, including Margaret P. Daily (Sammy Daily's wife) and Terry Lynn Daily (Sammy Daily's daughter) ever appeared in court and did not intervene or participate in the proceedings which ostensibly affected their purported ownership interests in LVI, LDC and LHI. FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER at pp. 10-13, 16-17.
Pursuant to the Trustee's Motion in Limine to exclude certain evidence, documents and opinions which were not produced pursuant to the Bankruptcy Court's Order to Compel of May 27, 1987, and the Order Re Contempt of December 16, 1988, the Bankruptcy Court deemed "as established fact the assertions and allegations contained in the Trustee's Complaint for Declaratory and Equitable Relief." FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER, p. 16, ¶ 12 (citing cases).
The Bankruptcy Court found that:
As to the ownership of LVI, LDC and LHI, the Court, based on the record, submitted as part of the FDIC\'s Motion to Compel and the November 21, 1988 hearing, concludes that Sammy G. Daily is not just a manager and a trustee of LVI, LDC and/or LHI, but the actual owner of said entities and that Sammy G. Daily, through his control of family entities, is the beneficial owner of the interest of his family in LVI, LDC and LHI.
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER at 16, ¶ 13.
The Bankruptcy Court further found that, "it is a Court of Equity and the court will pierce the veil of the various Lilipuna-related entities and declare that LVI, LDC, and LHI are `alter egos' of their true owner, Sammy G. Daily," FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER at p. 17, ¶ 16, ruling that a corporate entity would be...
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