United States v. Sandwich Isles Commc'ns, Inc.
Decision Date | 22 July 2019 |
Docket Number | Civ. No. 18-00145 JMS-RT |
Citation | 398 F.Supp.3d 757 |
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 |
Lloyd H. Randolph, Shane Huang, U.S. Department of Justice, Washington, DC, Rachel S. Moriyama, Office of the United States Attorney, Honolulu, HI, for Plaintiff.
Lex R. Smith, Kobayashi Sugita & Goda, William C. McCorriston, McCorriston Miller Mukai MacKinnon, Chuck C. Choi, Choi & Ito, Honolulu, HI, for Defendants.
Albert S.N. Hee, Kailua, HI, pro se.
ORDER (1) GRANTING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT, ECF NO. 48; (2) GRANTING PLAINTIFF'S MOTION TO DISMISS COUNTERCLAIM, ECF NO. 52; AND (3)GRANTING THIRD-PARTY DEFENDANTS' MOTION TO DISMISS INDIVIDUAL CAPACITY CLAIMS, ECF NO. 55
The court addresses three motions in this suit brought by Plaintiff United States of America ("Plaintiff" or "United States") arising from the alleged breach of certain promissory notes by Defendant Sandwich Isles Communications, Inc. ("Sandwich Isles" or "SIC").
First, the United States seeks summary judgment on Count One of its Complaint, arguing that it is undisputed that Sandwich Isles has breached loan contracts—owing the United States well over $129 million—by defaulting on loans made to Sandwich Isles by the Rural Telephone Bank ("RTB"), predecessor to the Rural Utilities Service ("RUS"), which is an agency of the U.S. Department of Agriculture ("USDA"). See ECF No. 48.1 The United States also moved for summary judgment on Count Two, seeking to foreclose immediately on the loans and to sell all property pledged as collateral, but it is no longer pursuing such relief at this stage of the proceedings.
Second, the United States—as counterclaim-Defendants the USDA; the Federal Communications Commission ("FCC"); Ajit Pai ("Pai"), Lisa Hone ("Hone"), Sharon Gillett ("Gillett"), and Carol Mattey ("Mattey") in their official capacities as current or former FCC officials; and Kenneth Johnson ("Johnson"), in his official capacity as head of the RUS (collectively, the "Official Capacity Counter-Defendants" or simply the "United States")—moves to dismiss the counterclaim brought against them by Sandwich Isles and "additional counterclaimants" Iini Patelesio and Kaleo Cullen. See ECF No. 52.
Third, Pai, Hone, Gillett, Mattey, and Johnson, in their individual capacities (collectively the "Individual Capacity Third-Party Defendants"), separately move to dismiss all third-party claims against them. See ECF No. 55.
Having considered the extensive written briefing, and oral arguments of counsel at the April 29, 2019 hearing, the court rules as follows:
Plaintiff's Motion for Partial Summary Judgment, ECF No. 48, is GRANTED in part. It is granted as to Count One because the record establishes that Sandwich Isles has breached the promissory notes at issue and is in default. It is denied without prejudice as to Count Two because of an existing bankruptcy stay and, in any event, procedural and substantive requirements remain before the sale of all collateral can occur (as conceded by Plaintiff).
The United States' Motion to Dismiss Counterclaim of Sandwich Isles, Patelesio and Cullen, ECF No. 52, is GRANTED with leave to amend. By August 19, 2019, Sandwich Isles may file an amended counterclaim—as to Count One of its Counterclaim only—that attempts to cure the defects identified in this Order.
Finally, the Individual Capacity Third-Party Defendants' Motion to Dismiss, ECF No. 55, is GRANTED with prejudice. The claims against Pai, Hone, Gillett, Mattey, and Johnson, in their individual capacities, fail to state viable causes-of-action under Bivens v. Six Unknown Agents of the Federal Bureau of Narcotics , 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971), and any such amendment would be futile under Ziglar v. Abbasi , ––– U.S. ––––, 137 S. Ct. 1843, 1857, 198 L.Ed.2d 290 (2017).
Sandwich Isles was formed in the mid-1990s to provide telecommunications services to native Hawaiians on Hawaiian home lands. ECF No. 26-1 ¶ 29 at PageID #590. See generally Nelson v. Hawaiian Homes Comm'n , 127 Haw. 185, 187-89, 277 P.3d 279, 281-83 (2012) ( ); Arakaki v. Lingle , 477 F.3d 1048, 1054-55 (9th Cir. 2007) ( ). Hawaiian home lands are primarily located in rural or more remote areas, and "[b]ecause of the remote and non-contiguous nature of the Home Lands, the cost to provide infrastructure to these areas is very high." ECF No. 26-1 ¶ 20 at PageID #587.
According to the Complaint, "at times relevant," Defendant Albert S.N. Hee ("Hee") has been Sandwich Isles' president and secretary, and one of its directors. ECF No. 1 ¶ 16 at PageID #5. Hee was president "until a date in 2013 after August 30, 2013." Id. ¶ 19. He remained secretary "until a date in 2013," and a director until July 13, 2015. Id. ¶¶ 19, 20. Sandwich Isles' current president and secretary is Defendant Janeen-Ann Olds ("Olds"), having become president "on a date in 2013 after August 30, 2013." Id. ¶¶ 13, 14 at PageID #4, 5.
Sandwich Isles is a wholly-owned subsidiary of Defendant Waimana Enterprises, Inc. ("Waimana"), which is a Hawaii corporation. Id. ¶¶ 33, 107 at PageID #7, 17. Before December 2012, Hee was the sole owner of Waimana. Id. ¶ 111 at PageID #17. After December 2012, Hee owned 10% of Waimana, with the other 90% owned by trusts benefitting Hee's children. Id. ¶ 112 at PageID #18. The directors of Waimana "at various times relevant" to this case, have been Hee, his wife, and their children. Id. ¶ 108 at PageID #17. In addition to Sandwich Isles, Waimana wholly owns as subsidiaries Defendants ClearCom, Inc. and Ho'opa'a Insurance Corp. Id. ¶¶ 113, 114 at PageID #18. Defendants Paniolo Cable Company, LLC and Pa Makani LLC are owned indirectly by trusts benefitting Hee's children. Id. ¶¶ 115, 116.
When the Complaint was filed on April 20, 2018, Hee was incarcerated at a Federal Correctional Institution located in Terre Haute, Indiana. Id. ¶ 18 at PageID #5. As set forth in a Judgment entered on January 7, 2016, Hee was convicted and sentenced to 46 months imprisonment on various tax-related charges, stemming from a grand jury indictment first returned on September 17, 2014. See United States v. Albert S.N. Hee , Crim. No. 14-00826 SOM (D. Haw.) (ECF Nos. 1, 242).2 His conviction was affirmed on March 14, 2017. See United States v. Hee , 681 F. App'x 650 (9th Cir. 2017) (mem.).
To partially finance construction and operation of Sandwich Isles' telecommunications services on Hawaiian home lands, Sandwich Isles and the United States entered into a series of loan agreements and corresponding promissory notes from September 1997 to April 2001. ECF No. 1 ¶ 57 at PageID #10. The three loans, totaling over $165 million, were made by the RTB pursuant to the Rural Electrification Act of 1936, as amended, 7 U.S.C. § 901 et seq. See Kenneth Kuchno Decl. ¶¶ 5-6, ECF No. 50 at PageID #939.3 RTB was an agency of the USDA, but was dissolved in 2006, and was succeeded by the RUS, which is also an agency of the USDA. Id. ¶ 19 at PageID #940. As of January 1, 2013, Sandwich Isles was required to make monthly installment payments to the RUS of $1,086,758.01. Id. ¶ 35 at PageID #942.
Meanwhile, Sandwich Isles was receiving subsidies from the FCC as part of the FCC's Universal Service Fund ("USF"). Indeed, to qualify for certain loan advances, the RUS required Sandwich Isles to provide "evidence that [it] has received approval to participate in the Universal Service Fund" so that the RUS could "determine that the revenues derived by [Sandwich Isles] from said Fund, along with the revenues derived by [Sandwich Isles] from all other sources, will be sufficient to enable [Sandwich Isles] to maintain" a certain level of financial health. ECF No. 1-1 ¶ 5 at Page ID #76.
The USF is a funding stream the [FCC] uses to subsidize telecommunications and information services in rural and high-cost areas, as well as for schools, libraries, and low-income households. 47 U.S.C. § 254(b)(3), (h)(1)(B). The USF receives its funding from businesses in...
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