Kane v. Pacap Aviation Fin.
| Docket Number | Civ. 19-00574 JAO-RT,20-00246 JAO-RT[1] |
| Decision Date | 25 August 2023 |
| Parties | ELIZABETH A. KANE, BANKRUPTCY TRUSTEE; AIR LINE PILOTS ASSOCIATION, INTERNATIONAL; HAWAII TEAMSTERS AND ALLIED WORKERS, LOCAL 996, Plaintiffs, v. PACAP AVIATION FINANCE, LLC; PACIFICCAP INVESTMENT MANAGEMENT, LLC; MALAMA INVESTMENTS, LLC; SNOWBIZ VENTURES, LLC; PACAP MANAGEMENT SOLUTIONS, LLC; PACAP ADVISORS, LLC; JEFFREY AU; JACK TSUI; JACK CHUCK SHE TSUI TRUST; LAWRENCE INVESTMENTS, LLC; LAWRENCE J. ELLISON REVOCABLE TRUST; OHANA AIRLINE HOLDINGS, LLC; CARBONVIEW LIMITED, LLC; PAUL MARINELLI; LAWRENCE J. ELLISON; CATHERINE YANNONE; CHRISTOPHER GOSSERT, Defendants. |
| Court | U.S. District Court — District of Hawaii |
Before the Court are a Joint Status Report, see ECF No 175, briefs, see ECF Nos. 179 & 180, and memorandum of law, see ECF No. 185, in response to the Court's July 6, 2023 order to confer regarding equitable claims and whether to have a jury provide advisory findings as to the equitable claims. ECF No. 168. The parties agree that in Case No. 19-00574 JAO-RT (“90027 Action”), Counts 1 2, 4-11 are to be tried by jury and that Counts 12 and 13 are equitable and so should be tried by the Court. ECF No. 175. They disagree as to whether the Count 3 claim under the Worker Adjustment and Retraining Notification Act of 1988 (“WARN Act”), 29 U.S.C §§ 2101-2109, and the piercing-the-corporate-veil (“PCV”) allegations in the Complaint are to be tried by a jury or by the Court. ECF No. 175. There is no disagreement as to equitable issues in Case No. 2000246 JAO-RT (“90049 Action”): the parties agree that the Court should try Counts 1-2, and Counts 3-75 are to be tried by jury, except for the claims against PaCap Aviation Finance, LLC (“PaCap”) and Carbonview Limited LLC (“Carbonview”), which are to be tried by the Court. ECF No. 175.
Plaintiffs Elizabeth A. Kane, the Chapter 7 trustee (“Trustee”) in the underlying bankruptcy case commenced by Debtor Hawaii Island Air, Inc. (“Island Air” or the “Debtor”); Air Line Pilots Association, International; and Hawaii Teamsters and Allied Workers, Local 996 (collectively with the Trustee “Plaintiffs”) argue that the Count 3 WARN Act claim and the PCV allegations are legal issues for which the Seventh Amendment entitles them to a jury trial. ECF No. 180.
Defendants Ohana Airline Holdings, LLC; Lawrence J. Ellison; the Lawrence J. Ellison Revocable Trust; Lawrence Investments, LLC; Carbonview Limited, LLC; and Paul Marinelli (collectively, the “Ohana Defendants”) and Defendants PaCap Aviation Finance, LLC; PaCap Management Holdings, LLC; PacifiCap Investment Management, LLC; Malama Investments, LLC; SnowBiz Ventures, LLC; PaCap Management Solutions, LLC; PaCap Advisors, LLC; PacifiCap Management, Inc.; Jeffrey Au; Jack Cheuk She Tsui Revocable Living Trust; and Jack Tsui (collectively, the “Malama Defendants,” and with the Ohana Defendants, “Defendants”) argue that the Count 3 WARN Act claim and the PCV allegations are equitable issues for which no jury right exists. ECF Nos. 179 & 180. Both Plaintiffs and Defendants prefer not to submit any equitable claims to an advisory jury. ECF No. 175.
For the following reasons, the Court concludes that the Count 3 WARN Act claim and the PCV allegations are equitable issues for which no jury right exists. But the Court advises both Plaintiffs and Defendants that it is inclined to exercise its discretion pursuant to Federal Rule of Civil Procedure 39(c)(1) to try the Count 3 WARN Act claim, the PCV allegations, and the equitable subordination claim to an advisory jury. The Court otherwise accepts the characterization of the remaining claims as laid out in the Joint Status Report. ECF No. 175.
This is a complex case involving multiple parties and claims, for which the Complaint runs over 100 pages, and which commenced in Bankruptcy Court nearly four years ago. ECF No. 1-2. Because Plaintiffs, Defendants, and the Court are familiar with the underlying facts and allegations, the Court provides only a brief and simplified background relevant to this order.
The dispute stems from the shutdown and bankruptcy of the now-defunct Island Air, a Delaware corporation. See id. The Trustee and other Plaintiffs allege that “the self-interested acts of [Island Air's] owners” resulted in Island Air's bankruptcy and that had the owners properly exercised their fiduciary duties to Island Air, the bankruptcy “would not have occurred when it did (if it occurred at all), the outstanding debts would not have been as substantial as they are, and there would be additional assets to satisfy those debts.” Id. at 9. In short, the Trustee claims that Defendants violated their fiduciary duties to Island Air by keeping it on life support for personal or other improper motives-thereby depleting its assets- rather than shutting it down in accordance with applicable laws. See id. at 9-12; see also id. at 88-103 ().
Island Air filed for Chapter 11 bankruptcy on October 16, 2017 and ceased operations on November 10, 2017. See id. at 75-76. It was only on November 9, 2017 that Island Air's employees were told that the following day would be the company's last. See id. at 78. From this, Plaintiffs asserted violations of the WARN Act, 29 U.S.C. § 2101, see id. at 81-94, and alleged that the corporate veil should be pierced to remedy that and a number of other causes of action, see id. at 79-100 (advocating for piercing the corporate veil in Counts 1-10 of the Complaint). Plaintiffs also sought to equitably subordinate PaCap Aviation's and Carbonview's claims, see id. at 101-02, or alternatively to recharacterize many of the Ohana Defendants' and Malama Defendants' claims as unsecured equity contributions, see id. at 103-04.
On July 6, 2023, the Court ordered the “[p]arties to meet and confer regarding equitable claims, and whether to have the jury provide advisory findings as to the equitable claims.” ECF No. 168. The Court ordered the parties to file a Joint Status Report outlining any disagreement by July 24, 2023, ECF No. 168, which was filed on that date. ECF No. 175. The Court also ordered the parties to file simultaneous briefing regarding any such disagreement by July 31, 2023, see ECF No. 168, which Plaintiffs, the Ohana Defendants and Malama Defendants timely filed. See ECF Nos. 179 (Ohana Defendants' Brief), 180 (Plaintiffs' Brief), 185 (Malama Defendants' Memorandum of Law).
The Seventh Amendment provides, “In Suits at common law . . . the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law.” U.S. Const. amend. VII. That Seventh Amendment right encompasses “enforcing statutory rights, and requires a jury trial upon demand, if the [relevant] statute creates legal rights and remedies, enforceable in an action for damages in the ordinary courts of law”-in other words, claims that sound in contract or tort. Curtis v. Loether, 415 U.S. 189, 194, 195 (1974).
To determine whether the statute does so, the Supreme Court has established a two-part test. “First, [the court] compare[s] the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity.” Chauffeurs, Teamsters & Helpers, Loc. No. 391 v. Terry, 494 U.S. 558, 565 (1990) (quotations omitted). Second, and more important, “[the court] examine[s] the remedy sought and determine[s] whether it is legal or equitable in nature.” Id. (quotations omitted). Thus, the Seventh Amendment “secures the right to a jury trial for ‘suits in which legal rights [are] to be ascertained and determined, in contradistinction to those where equitable rights alone [are] recognized, and equitable remedies [are] administered.'” Teutscher v. Woodson, 835 F.3d 936, 943 (9th Cir. 2016) (alterations in original) (quoting Terry, 494 U.S. at 564).
Courts may try cases with legal and equitable issues together, but “in cases in which legal and equitable claims turn on common issues of fact, any legal issues for which a trial by jury [is appropriate] must be submitted to a jury, and the jury's determination of the legal claims must occur prior to any final court determination of the equitable claims.” Teutscher, 835 F.3d at 944 (internal quotations omitted). And “[b]ecause the Seventh Amendment's second clause ‘prohibit[s] . . . the courts of the United States to re-examine any facts tried by a jury' except as permitted under the narrow [‘rules of the] common law,' the court then must abide by the jury's findings of fact in making any subsequent rulings.” Id. (internal citations omitted). Therefore, “it follows that ‘in a case where legal claims are tried by a jury and equitable claims are tried by a judge, and those claims are based on the same facts,' the trial judge must ‘follow the jury's implicit or explicit factual determinations' ‘in deciding the equitable claims.'” Id. (quoting Los Angeles Police Protective League v. Gates, 995 F.2d 1469, 1473 (9th Cir. 1993)). In this way, the trial judge avoids impairing the jury right for legal claims when adjudicating the equitable claims in cases with intertwined factual underpinnings.
Here, the Court must apply this framework to the disagreement over the Count 3 WARN Act claim, the PCV allegations, and (as discussed below) the equitable subordination claim.
As explained above, the jury's implicit and explicit factual findings in deciding...
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