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

Decision Date22 July 2019
Docket NumberCiv. No. 18-00145 JMS-RT
Citation398 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.
CourtU.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

J. Michael Seabright, Chief United States District Judge

I. INTRODUCTION

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).

II. BACKGROUND
A. Factual Background
1. Sandwich Isles

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) (explaining basic history of the Hawaiian Homes Commission Act); Arakaki v. Lingle , 477 F.3d 1048, 1054-55 (9th Cir. 2007) (also setting forth history, and explaining that the State of Hawaii Department of Hawaii Home Lands administers Hawaiian home lands for the benefit of "native Hawaiians," defined by the Hawaiian Homes Commission Act as "any descendant of not less than one-half part of the blood of the races inhabiting the Hawaiian Islands previous to 1778"). 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.).

"The evidence at trial established that Hee had characterized millions of dollars in personal expenses as business expenses incurred by [Waimana]." Hee v. United States , 2018 WL 4609932, at *1 (D. Haw. Sept. 25, 2018) (denying § 2255 petition). Specifically,

Trial evidence established that, between 2002 and 2012, Hee used Waimana to pay millions of dollars in personal expenses, including personal massages, college tuition for his children, living expenses for his children, and credit card charges such as those for family vacations to France, Switzerland, Tahiti, Disney World, and the Mauna Lani resort. Hee also had Waimana pay salaries and benefits to his wife and children, even while his children were full-time students doing no work for the company. And although Hee claimed that he purchased the Santa Clara house as an investment by Waimana, Hee's son and daughter lived in the house while attending college and rented out rooms to classmates without submitting the rent proceeds to Waimana. Waimana wrongfully deducted the expenses on corporate tax returns, and Hee failed to report the receipt of any rental income on his personal tax returns. After an eleven-day trial, the jury returned a verdict of guilty beyond a reasonable doubt on all counts.

Id.

2. Loans from the RTB and Funding from the FCC's USF Program

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
...

To continue reading

Request your trial
7 cases
  • Sandwich Isles Commc'ns, Inc. v. United States
    • United States
    • U.S. Court of Appeals — Federal Circuit
    • 1 Abril 2021
    ...This was a significant reduction from the $14,000 per line per year that SIC had been receiving. United States v. Sandwich Isles Commc'ns, Inc. , 398 F. Supp. 3d 757, 766 (D. Hawaii 2019).The FCC, recognizing that its reforms could impact particular recipients differently, established a wai......
  • United States v. Sandwich Isles Commc'ns
    • United States
    • U.S. District Court — District of Hawaii
    • 31 Agosto 2023
    ...Corp. Defendants Paniolo Cable Company, LLC and Pa Makani LLC are owned indirectly by trusts benefitting Hee's children. Sandwich Isles I, 398 F.Supp.3d at 763-64. Some those details in Sandwich Isles I regarding Hee's interests in Sandwich Isles, and the relationships between Sandwich Isle......
  • United States v. Sandwich Isles Commc'ns, Inc.
    • United States
    • U.S. District Court — District of Hawaii
    • 3 Febrero 2020
    ...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 amen......
  • McClintock v. United States, Case No. 3:18-cv-01937-SB
    • United States
    • U.S. District Court — District of Oregon
    • 18 Marzo 2020
    ...has never been the subject of a Bivens claim related to racial discrimination.'") (citation omitted); United States v. Sandwich Isles Commc'ns,398 F. Supp. 3d 757, 784 (D. Haw. 2019) (noting that courts have not recognized Bivens claims against individual federal officials for race discrimi......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT