United States v. Sandwich Isles Commc'ns, Inc.

• Decision Date: 03 February 2020
• Docket Number: Civ. No. 18-00145 JMS-RT
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. SANDWICH ISLES COMMUNICATIONS, INC., ET AL., Defendants. AND RELATED COUNTERCLAIMS AND THIRD-PARTY CLAIMS.
• Court: U.S. District Court — District of Hawaii

UNITED STATES OF AMERICA, Plaintiff, v. SANDWICH ISLES COMMUNICATIONS, INC., ET AL., Defendants.AND RELATED COUNTERCLAIMS AND THIRD-PARTY CLAIMS.

Civ. No. 18-00145 JMS-RT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII

February 3, 2020

ORDER (1) GRANTING MOTION TO DISMISS FIRST AMENDED COUNTERCLAIM OF SANDWICH ISLES COMMUNICATIONS, INC., ECF NO. 176; AND (2) GRANTING MOTION FOR ENTRY OF FINAL JUDGMENT ON COUNT ONE OF THE COMPLAINT, ECF NO. 179

I. INTRODUCTION

On July 22, 2019, this court issued an order that, among other rulings, (1) granted Plaintiff United States of America's ("Plaintiff" or the "United States") motion for partial summary judgment on Count One of the complaint for breach of contract against Defendant Sandwich Isles Communications, Inc. ("Sandwich Isles"), and (2) dismissed without prejudice a counterclaim asserted by Sandwich Isles against the United States alleging a violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq. ("ECOA"). See United States v. Sandwich Isles Common's, Inc., 398 F. Supp. 3d 757 (D. Haw. 2019) ("Sandwich Isles" or "the July 22, 2019 Order").

As the July 22, 2019 Order allowed, Sandwich Isles amended its counterclaim by asserting two counts of alleged violations of the ECOA. See ECF No. 172. The United States now moves to dismiss those amended ECOA counterclaims with prejudice, ECF No. 176. Separately, it also moves for a final judgment under Federal Rule of Civil Procedure 54(b) on its successful breach of contract claim as decided in the July 22, 2019 Order. See ECF No. 179.

Based on the following, the court GRANTS both motions. The court DISMISSES with prejudice the two ECOA counterclaims against the United States, and orders entry of a Rule 54(b) judgment against Sandwich Isles as to Count One of the complaint for breach of contract.

II. BACKGROUND

Because these motions begin where the July 22, 2019 order ended, the court relies on and incorporates the July 22, 2019 Order for this action's background and history. See Sandwich Isles, 398 F. Supp. 3d at 763-67. The court reiterates only the facts necessary to understand the context for the two motions.

The July 22, 2019 Order determined as a matter of law based on undisputed facts that Sandwich Isles had breached loan contracts and promissory notes exceeding $129 million (with interest continuing to accrue). Id. at 769, 773. It was (and remains) undisputed that (1) Sandwich Isles has not made full installment payments on loans since before April 2013, (2) Sandwich Isles' failure to make full payments was an "event of default," and (3) the United States accelerated the remaining balance on the loans, effective August 27, 2013. Id. at 769. The July 22, 2019 Order also rejected Sandwich Isles' argument that it was not in breach of contract because its obligation to make full payments had purportedly ended for failure of a "basic assumption" of the contracts. Id. at 770-73.

Next, the July 22, 2019 Order determined that Sandwich Isles' counterclaim against the United States under the ECOA was time-barred to the extent it asserted claims occurring prior to August 3, 2013—five years before the counterclaim was filed—given a five-year limitations period under 15 U.S.C. § 1691e(f). Id. at 777.¹ Although all of the alleged violations in the original counterclaim appeared to have occurred before August 3, 2013, the court dismissedthe ECOA counterclaim without prejudice, in case Sandwich Isles could allege in good faith that actionable ECOA violations occurred within the limitations period. Id. at 778.

Importantly, the court also indicated that any alleged violations of the ECOA occurring after Sandwich Isles was no longer qualified for credit would not be actionable. Id. (citing Mays v. Buckeye Rural Elec. Co-op, Inc., 277 F.3d 873, 877 (6th Cir. 2002) (reiterating that an element of an ECOA claim is that "Plaintiff was qualified for the credit") and Lynch v. Fed. Nat'l Mortg. Ass'n, 2016 WL 6776283, at *7-8 (D. Haw. Nov. 15, 2016) (stating elements of an ECOA claim, including being "qualified for credit," and dismissing claim because plaintiff "fail[ed] to allege she was qualified to receive a modification or to allege any facts from which the Court could infer she was qualified to receive any modification")).

On August 19, 2019, Sandwich Isles filed its First Amended Counterclaim against the United States, alleging racial discrimination in violation of the ECOA, 15 U.S.C. § 1691(a)(1) (Count One) and a failure to provide notice of adverse actions in violation of the ECOA, 15 U.S.C. § 1691(d)(1) & (2) (Count Two). The amended counterclaim alleges that, in three ways, the United States treated Sandwich Isles—which is alleged to be "majority-owned by beneficiaries" of the Hawaiian Homes Commission Act, i.e., native Hawaiians, ECF No. 172 at PageID #2454—differently than it treated "Caucasian-owned" rural utilitycompanies: the United States' "refusal to reach a loan workout agreement with [Sandwich Isles], its refusal to fund the full amount of [Sandwich Isles'] loan, and its filing a foreclosure action against [Sandwich Isles]." Id. at PageID #2465.

As for the timing of allegedly wrongful action within the limitations period, the First Amended Counterclaim alleges:

39. In 2015, after years of ongoing negotiations . . . the UNITED STATES and [Sandwich Isles] reached an agreement as to the terms of a workout.

40. As the UNITED STATES has done with Caucasian-owned [rural utility companies], the UNITED STATES continued to negotiate a restructured loan despite the fact that the UNITED STATES had given a notice of accelration (sic), with the UNITED STATES as the creditor (as defined in ECOA) and [Sandwich Isles] as the applicant (as defined in ECOA).

41. In 2015, in reliance on representations made by the UNITED STATES, a document was prepared memorializing the terms of the agreement that [Sandwich Isles] and the UNITED STATES had both represented they accepted. Inexplicably, the [Rural Utilities Service] has never signed this agreement, despite the UNITED STATES' representations that they had accepted all the terms.

42. The UNITED STATES's failure to sign the loan workout in 2015 was an "adverse action" within the meaning of ECOA in that it constituted a revocation of credit (i.e. a revocation of the agreed-to terms of a loan workout) or a denial of credit (i.e. a denial of [Sandwich Isles'] application for a credit in the form of a loan workout).

43. The UNITED STATES failed to give proper notice of any of the adverse actions described above as required by ECOA, including without limitation: (1) the UNITED STATES's 2013 denial of [Sandwich Isles'] application for an extension of credit (in the form of a loan modification[)]; (2) the UNITED STATES's refusal to fully fund the loan; and (3) the UNITED STATES's 2015 revocation of credit or, in the alternative, denial of credit when it refused to sign a document containing the loan workout terms agreed to by the parties.

Id. at PageID #2464-65.

On September 3, 2019, the United States filed its Motion to Dismiss the First Amended Counterclaim. ECF No. 176. On September 11, 2019, the United States filed its Motion for Entry of Judgment under Rule 54(b) (the "Rule 54(b) motion") as to Count One of its Complaint. ECF No. 179. Sandwich Isles filed its Oppositions to the two motions on September 30, 2019, ECF Nos. 186, 189. Co-Defendant Janeen-Ann Olds, and co-Defendants ClearCom, Inc., Hoopaa Insurance Corp., Pa Makani LLC, and Waimana Enterprises, Inc. (collectively, the "Waimana Defendants"), also filed Oppositions to the Rule 54(b) motion on September 30, 2019.² See ECF Nos. 191, 192. The United States filed Replies on October 7, 2019. See ECF Nos. 195, 196.

The court heard the motions on October 21, 2019, ECF No. 200. At the hearing, the court directed the parties to meet and confer regarding Count Two of the complaint (regarding foreclosure) in an attempt to resolve an issue regarding the United States' requested entry of judgment under Rule 54(b). On November 1, 2019, the parties filed letters indicating that the parties were unable to resolve that issue, ECF Nos. 206, 207, and subsequent settlement efforts were unsuccessful. See ECF No. 219 (January 28, 2020 settlement conference).

III. STANDARDS OF REVIEW

A. Motion to Dismiss

Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss for "failure to state a claim upon which relief can be granted." A Rule 12(b)(6) dismissal is proper when there is either a "lack of a cognizable legal theory or the absence of sufficient facts alleged." UMG Recordings, Inc. v. Shelter Capital Partners, LLC, 718 F.3d 1006, 1014 (9th Cir. 2013) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990)).

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Weber v. Dep't of Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir. 2008). This tenet—that the court must accept as trueall of the allegations contained in the complaint—"is inapplicable to legal conclusions," and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). Rather, "[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). Factual allegations that only permit the court to infer "the mere possibility of misconduct" do not show that the pleader is entitled to relief. Id. at 679.

B. Partial Judgment Under Rule 54(b)

Rule 54(b) regarding "Judgment on Multiple Claims or Involving Multiple Parties" provides, in part:

When an action presents

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