In re Kealoha
| Decision Date | 11 January 1980 |
| Docket Number | Bankruptcy No. 77-00193(1),77-00194(1). |
| Citation | 2 BR 201 |
| Parties | In re James Kimo KEALOHA and Miulan Y. Kealoha, Debtors. FIRESIDE THRIFT OF HAWAII, INC., a Hawaii Corporation, Plaintiff, v. James Kimo KEALOHA and Miulan Y. Kealoha, Defendants. |
| Court | U.S. Bankruptcy Court — District of Hawaii |
COPYRIGHT MATERIAL OMITTED
Bernard J. Allard, San Jose, Cal., Rodney M. Fujiyama, Paul H. Sato, Honolulu, Hawaii, for Fireside Thrift of Hawaii, Inc.
Charles E. Pear, Jr., John R. Dwyer, Jr., Honolulu, Hawaii, for debtor.
Renton L.K. Nip, Honolulu, Hawaii, for Chuck & Pai Firm.
FINDINGS OF FACT CONCLUSIONS OF LAW AND ORDER
Fireside of Hawaii, Inc.'s, hereafter "Fireside", Motion for an Order Amending, Changing or Modifying the Order Modifying Stay and Directing Foreclosure Sale of Debtors' Waikiki Property, hereafter "Motion to Amend", came on for hearing on May 10, 1979, December 3, 1979, December 4, 1979 and December 5, 1979, before the undersigned Judge. Fireside was represented by Bernard J. Allard, Rodney M. Fujiyama (May 10, 1979 hearing) and Paul H. Sato (December 3-5, 1979 hearings), Debtors James K. Kealoha and Miulan Y. Kealoha, hereafter both referred to as "Debtors", were represented by John R. Dwyer and Charles E. Pear, Jr., and Walter Chuck and Associates, formerly known as Chuck & Pai, hereafter "Chuck Firm", were represented by Renton L.K. Nip. Based upon the evidence adduced, arguments of counsel and the memoranda and the records filed herein, the Court makes the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
1. On or about May 2, 1974, Fireside agreed to a reconsolidation of certain loans to Debtors. As such, Debtors executed a Promissory Note dated May 2, 1974 in favor of Fireside for the Principal sum of $885,982.33. To secure said note, Debtors gave a first mortgage to Fireside on four parcels of land situated in Waikiki, City and County of Honolulu, State of Hawaii, hereinafter called "Waikiki Property", and other parcels located in the County of Hawaii, State of Hawaii.
2. Subsequently, Debtors defaulted in the payments required under said Note and Mortgage.
3. Thereafter, Fireside commenced a foreclosure action (Civil No. 3746) against Debtors by way of a crossclaim in a foreclosure action commenced by the holder of a second mortgage against Debtors in the Third Circuit Court of the State of Hawaii, hereafter called "State Court".
4. On or about May 16, 1976, a foreclosure sale was ordered by the State Court of the properties subject to said Mortgage, and a foreclosure sale of the Waikiki Property was scheduled for May 18, 1977.
5. Under said Note and Mortgage, Debtors were responsible for any and all reasonable attorneys' fees and costs incurred by Fireside as a result of having to enforce its rights and remedies under said Note and Mortgage.
6. In addition, pursuant to Section 667-10, Hawaii Revised Statutes, Debtors were also responsible for all reasonable commissioner's fees and costs incurred in the foreclosure of the Waikiki Property.
7. On May 17, 1977, Debtors filed a Chapter XII Petition in this Bankruptcy Court, and pursuant to Rule 12-43 of the Rules of Bankruptcy Procedure, an automatic stay of the foreclosure sale was effected by the filing of said Petition. The foreclosure sale of the Waikiki Property scheduled for May 18, 1977 was thereby cancelled.
8. On May 27, 1977, Fireside filed a Complaint for Relief from Automatic Stay to allow the resumption of State Court foreclosure proceedings to sell all of the property subject to its mortgage.
9. On September 14 and 15, 1977, trial was held before the Honorable Samuel P. King, during which the Kealohas sought additional time in which to sell the Waikiki property without foreclosure.
10. On October 12, 1977, the Kealohas filed their plan of arrangement, which provided for a sale of the Waikiki property to Hasegawa Komuten (U.S.A.) Inc. The sale was to be accomplished by order of the Bankruptcy Court and without a foreclosure in the State Court. $1,076,000.00 was to be disbursed to Fireside and the balance of the proceeds were to be distributed to other secured creditors and the Debtor Estate.
11. On October 21, 1977, Joseph V. Marchese, an officer of Fireside, and Walter G. Chuck and Charles H. Brower as attorneys for Fireside, met with Monroe S. Townsend, an officer of Hasegawa, and Douglas E. Prior, Nicholas C. Dreher, and H. Miles Raskoff, attorneys for Hasegawa, in the conference room of Hasegawa's attorney, Cades, Schutte, Fleming & Wright. Subsequently, Charles E. Pear, Jr., attorney for Kealohas, was called and asked to attend a meeting to discuss a compromise and settlement proposal from Fireside.
12. Mr. Marchese of Fireside proposed that the sale of the Waikiki Property be concluded by allowing the State Court foreclosure sale to proceed rather than going through the adoption of the plan of arrangement. Mr. Marchese also proposed as part of the compromise that $84,000.00 of reimbursable expenses, which was to be retained by the Debtor Estate under the plan of arrangement, instead be paid over to Fireside in the foreclosure sale. Fireside would thus receive $1,160,646.00 under Fireside's settlement proposal rather than $1,076,000.00 contemplated by the plan of arrangement filed by the Kealohas.
13. Upon hearing the settlement proposal, Mr. Pear asked if Fireside would absorb its attorneys' fees and the fees of commissioners appointed by the State Court, if the Debtor Estate paid the remaining principal balance due Fireside.
14. Mr. Marchese then asked his attorneys the amount of Fireside's attorneys' fees. Mr. Chuck represented that his fees were between $13,000.00 to $14,000.00.
15. Mr. Pear then asked if that was all. There was no reply by Mr. Chuck, who referred Mr. Pear to Mr. Marchese.
16. Mr. Pear believed that the attorneys' fees quoted by Mr. Chuck represented the full amount of Fireside's attorneys' fees and costs.
17. The amount of the commissioner's fees were discussed next. Mr. Marchese estimated the commissioner's fees would be approximately $4,500.00, $1,500.00 to Donald Martin and $3,000.00 to Lowell Ing.
18. Mr. Marchese then stated that Fireside would be willing to absorb its own attorney's fees and the commissioner's fees if the remaining principal balance due Fireside was paid at the time the sale to Hasegawa closed or within a reasonable time thereafter.
19. At that time, Fireside and its counsel were aware that, to satisfy any deficiency remaining after the closing of the sale to Hasegawa, the Kealohas contemplated seeking a loan from the First Hawaiian Bank to be secured by a mortgage on the Kealoha's Hilo home, which was then encumbered by Fireside's mortgage.
20. Mr. Pear then indicated that he would recommend the settlement proposal to his client and, if his client approved, that he would join in recommending the proposed settlement to the Court.
21. Immediately after the settlement negotiations, Mr. Pear met with the Kealohas. After that, Mr. Pear met with the creditors committee.
22. A hearing on the confirmation of the proposed plan of arrangement was held that afternoon. All of the persons who attended the settlement negotiations that morning also attended the confirmation hearing, including Mr. Marchese. At the hearing, the adoption of the settlement proposal in place of the plan of arrangement was recommended by counsel for both Fireside as well as the Kealohas to the Bankruptcy Court. During the hearing, Mr. Chuck represented that:
Fireside has also agreed, your Honor, that if it is paid its interest in full, that it will not ask for its attorneys\' fees or commissioner\'s fees—it will absorb that.
23. At the hearing, no one mentioned a limitation of $20,000.00 on attorney's fees and commissioner's fees to be absorbed by Fireside.
24. Mr. Kealoha testified that his understanding of the settlement proposal was that all of Fireside's attorneys' legal fees and commissioner's fees would be paid by Fireside, but that he would have to forego the $84,000.00 of reimbursable expenses.
25. No objection to the settlement proposal presented was made by the creditors committee or the creditors present, so this Court approved the proposed settlement as submitted to the Court.
26. Immediately after the hearing, Messrs. Pear, Raskoff and Dreher attempted to draft a form of an Order for the Court's approval. However, Mr. Pear left Messrs. Dreher and Raskoff to draft his own order.
27. Mr. Pear prepared the initial draft of the Order relating to said Motion and forwarded a copy of the same to the Chuck Firm on October 26, 1977.
28. Mr. Brower of the Chuck Firm reviewed and revised said draft on October 26, 1977 and on October 27, 1977 including a one-hour meeting in Pear's office and4½ hours on the later date spent revising said draft.
29. Mr. Chuck also reviewed the draft of the order and on or about October 27, 1977, Mr. Chuck approved the form of said Order as attorney for Fireside, and signed it.
30. On October 27, 1977, this Court entered the Order Modifying Stay and Directing Foreclosure Sale, which had been approved by Mr. Chuck for Fireside and William H. Dodd for Charles Pankow & Associates. Said Order provided in pertinent part that:
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