United States v. Sandwich Isles Commc'ns

• Docket Number: Civ. 18-00145 JMS-RT
• Decision Date: 31 August 2023
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. SANDWICH ISLES COMMUNICATIONS, INC.; ALBERT S.N. HEE; ET AL., Defendants.
• Court: U.S. District Court — District of Hawaii

1

UNITED STATES OF AMERICA, Plaintiff,
v.
SANDWICH ISLES COMMUNICATIONS, INC.; ALBERT S.N. HEE; ET AL., Defendants.

Civ. No. 18-00145 JMS-RT

United States District Court, D. Hawaii

August 31, 2023

FINDINGS OF FACT AND CONCLUSIONS OF LAW AS TO CLAIMS AGAINST ALBERT S.N. HEE

J. Michael Seabright, United States District Judge

I. INTRODUCTION

Pursuant to Federal Rule of Civil Procedure 52(a), the court issues these Findings of Fact and Conclusions of Law (“FOFCOLs” or “Findings and Conclusions”), deciding remaining claims made by Plaintiff United States of America (“United States” or “the government”) in a non-jury trial against pro se Defendant Albert S.N. Hee (“Defendant” or “Hee”).

In these FOFCOLs, the court departs from the more traditional format usually consisting only of sections labeled “Findings of Fact” and “Conclusions of Law” with numbered Findings and Conclusions (although the court has reviewed

2

the proposed FOFCOLs from the parties in that format). The resolution of this trial lends itself to a format more typically used for a dispositive order. Nevertheless, the Findings and Conclusions will be apparent, and the court's resolution of relevant contested issues is controlling whether or not statements are labelled Findings or Conclusions. See, e.g., In re Bubble Up Del., Inc., 684 F.2d 1259, 1262 (9th Cir. 1982) (“The fact that a court labels determinations ‘Findings of Fact' does not make them so if they are in reality conclusions of law.”) (citation omitted).^[1]

For the reasons explained to follow, the court finds and concludes that the United States has not met its burden of proof as to an essential element- “insolvency”-of its claims under the Federal Priority Statute and the Federal Debt Collection Practices Act. At the threshold, the United States tried its case utilizing an inappropriate test of “insolvency,” proffering an expert witness who likewise opined as to the wrong legal standard. And its claim under Hawaii law for breach of fiduciary duty under the Trust Fund Doctrine fails as a matter of law. After the

3

court resolves a remaining matter regarding foreclosure as to Count Two against Defendant Sandwich Isles Communications, Inc. (“Sandwich Isles”), judgment will issue in favor of Defendant Hee.

II. BACKGROUND

These Findings and Conclusions resolve almost all remaining aspects of this case, which originally encompassed several other related issues and claims. The United States filed this civil action on April 20, 2018, for breach of contract against Defendant Sandwich Isles, along with other claims against co-Defendants affiliated with or related to Sandwich Isles-Defendants Hee; Randall Y.C. Ho; Janeen-Ann Olds (“Olds”); ClearCom, Inc. (“ClearCom”); Ho‘opa‘a Insurance Corp. (“Ho‘opa‘a”); Paniolo Cable Company, LLC (“Paniolo”); and Waimana Enterprises, Inc. (“Waimana”). See ECF No. 1 at PageID.2.^[2] Aside from very limited aspects of a foreclosure claim against Sandwich Isles, the only remaining claims are against Hee.^[3] See ECF No. 446 (court minutes stating that the United

4

States and Sandwich Isles agreed to bifurcate Counts Two and Seven regarding foreclosure and costs, from claims against Hee); ECF No. 451 at PageID.7397 (stipulation).

For the remaining claims, the court held a non-jury trial from October 13, 2022, to October 21, 2022, on the following counts asserted by the United States against Hee in the April 20, 2018 Complaint:

• Count Three-violations of the Federal Priority Statute, 31 U.S.C. § 3713, “for approving payment of claims of others before causing the claims of the United States to be paid”

• Count Four-violations of the Federal Debt Collection Practices Act (“FDCPA”), 28 U.S.C. § 3304(a)(2), for “transfers made [to insiders] while [Sandwich Isles] was insolvent”;

• Count Five-violations of the FDCPA, 28 U.S.C. § 3304(a)(1), for “[Sandwich Isles'] transfers or obligations for which [Sandwich Isles] did not receive reasonably equivalent value”; and

• Count Six (breach of fiduciary duty under Hawaii law based on the “Trust Fund Doctrine”).

After the October 2022 trial, Hee submitted additional deposition designations, ECF No. 481, to which the United States responded with no

5

additional designations, ECF No. 485. The parties then submitted proposed FOFCOLs in February 2023. ECF Nos. 491and 492.

To understand the basic context for the remaining claims against Hee, the court begins by reiterating much of the background of Sandwich Isles (and Hee's role in it) as set forth in United States v. Sandwich Isles Communications, Inc., 398 F.Supp.3d 757 (D. Haw. 2019) (“Sandwich Isles I”), which is the court's July 22, 2019 order granting summary judgment in favor of the government on Count One of the Complaint against Sandwich Isles. See also ECF No. 161. The court later certified a partial judgment as final under Federal Rule of Civil Procedure 54(b), and the Ninth Circuit affirmed that partial judgment in 2021. See United States ex rel. Rural Utilities Serv. v. Sandwich Isles Commc'ns, Inc., 833 Fed.Appx. 718, 720 (9th Cir. 2021) (mem.). The court quotes directly from that prior order (with internal citations to the record omitted), supplemented with factual details as established at trial.

A. Sandwich Isles and Related Companies

Sandwich Isles was formed in the mid-1990s to provide telecommunications services to native Hawaiians on Hawaiian home lands. 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[an] Home Lands administers Hawaiian home

6

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.”

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. Hee was president “until a date in 2013 after August 30, 2013.” He remained secretary “until a date in 2013,” and a director until July 13, 2015. Sandwich Isles' current president and secretary is Defendant Janeen-Ann Olds (“Olds”), having become president “on a date in 2013 after August 30, 2013.”

Sandwich Isles is a wholly-owned subsidiary of Defendant Waimana Enterprises, Inc. (“Waimana”), which is a Hawaii corporation. Before December 2012, Hee was the sole owner of Waimana. After December 2012, Hee owned 10% of Waimana, with the other 90% owned by trusts benefitting Hee's children. The directors of Waimana “at various times relevant” to this case, have been Hee, his wife, and their children. In addition to Sandwich Isles, Waimana wholly owns as subsidiaries Defendants ClearCom, Inc. and Ho'opa'a Insurance 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 of those details in Sandwich Isles I regarding Hee's interests in Sandwich Isles, and the relationships between Sandwich Isles and the related

7

Defendants (e.g., Waimana, ClearCom, and Paniolo) were drawn directly from the allegations of the Complaint. As part of the trial proceedings, however, the parties stipulated to the following facts, which the court adopts and are controlling to the extent they are inconsistent with any details set forth in Sandwich Isles I:

Hee was President of Sandwich Isles from before 2013 through August 31, 2013. ECF No. 447 at PageID.7376 ¶ 6. Hee was a Director of Sandwich Isles from before 2013 through August 31, 2015. Id. ¶ 7. Hee was President of Waimana from before 2013 through June 30, 2016. Id. ¶ 8. Hee was a Director of Waimana from before 2013 through June 30, 2016. Id. ¶ 9. Wendy Hee, Adrianne Hee, Breanne Hee-Kahalewai, and Charlton Hee became directors of Waimana in 2014, and remained directors through the filing of the Complaint in this case on April 20, 2018.^[4] ECF No. 447 at PageID.7376-77 ¶ 10.

Hee was President of ClearCom from before 2013 through June 30, 2016. ECF No. 447 at PageID.7377 ¶ 11. Hee was a Director of ClearCom from before 2013 through June 30, 2016. Id. ¶ 12. Wendy Hee was President and Treasurer of ClearCom from June 30, 2016, through the filing of the Complaint in this case on April 20, 2018. Id. ¶ 13. Waimana has owned all outstanding stock of Sandwich Isles and ClearCom at all times between January 1, 2013, and the filing

8

of the Complaint in this case on April 20, 2018. Id. ¶ 14. Most, but not all accounting services for each of Sandwich Isles, Waimana, and ClearCom were performed by the same accounting department through agreements between Sandwich Isles, Waimana, and ClearCom, at all times between January 1, 2013, and April 20, 2018. Waimana and ClearCom also employed other accounting services. Id. ¶ 15.

B. Sandwich Isles' Loans from the Rural Telephone Bank (“RTB”) and Funding from the Federal Communications Commission's (“FCC”) Universal Service Fund (“USF”)

As the court established in Sandwich Isles I,

[t]o 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. The three loans, totaling over $165 million, were made by the RTB pursuant to the Rural

...