Field v. DeCoite (In re Maui Indus. Loan & Fin. Co.)

In re Maui Industrial Loan & Finance Co., Inc., Debtor.DANE S. FIELD, Plaintiff/Appellee/Cross-Appellant,

v.THOMAS N. DECOITE, Defendant/Appellant/Cross-Appellee.

CIVIL NO. 13-00091 JMS/BMK

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII

Dated: June 13, 2013

ORDER AFFIRMING

BANKRUPTCY COURT'S

JANUARY 24, 2013

MEMORANDUM OF DECISION

ON PLAINTIFF'S MOTION FOR

PARTIAL SUMMARY JUDGMENT

ON COUNTS 2, 3, AND 4

ORDER AFFIRMING BANKRUPTCY COURT'S JANUARY 24, 2013

MEMORANDUM OF DECISION ON PLAINTIFF'S MOTION FOR

PARTIAL SUMMARY JUDGMENT ON COUNTS 2, 3, AND 4

I. INTRODUCTION

For many years, Lloyd Kimura ("Kimura") ran Debtor Maui Industrial Loan & Finance Co. ("MFC") as a Ponzi scheme, and had MFC make multiple transfers to Appellant Thomas DeCoite ("DeCoite"), who had entrusted Kimura to manage his finances. MFC subsequently declared bankruptcy, and Kimura entered into a plea agreement admitting that he operated MFC as a Ponzi scheme. SeeBankr. Adv. No. 10-90137 (Bankr. D. Haw.), Doc. No. 77-1.

Trustee Dane S. Field ("Trustee") filed this adverse action against DeCoite seeking to avoid the transfers he received from MFC pursuant to 11 U.S.C. § 544 and Hawaii Revised Statutes ("HRS") § 651C-4. On January 24, 2013, the bankruptcy court granted Trustee's Motion for Summary Judgment, determining that Kimura's transfers were made with actual intent to defraud creditors of MFC in light of Kimura's admissions in his plea agreement, and that DeCoite was not entitled to a good faith defense because Kimura was DeCoite's agent. A February 11, 2013 Judgment awarded Trustee $1,646,945.20, plus prejudgment interest accruing from the date of each transfer in the amount of $1,723,453.10.

In this appeal, DeCoite argues that the bankruptcy court made several evidentiary and legal errors. Based on the following, the court AFFIRMS the January 24, 2013 Decision as to Trustee's Motion for Summary Judgment,¹ and the February 11, 2013 Judgment.

II. BACKGROUND

The basic facts underlying this dispute are as follows:²

DeCoite and Kimura, the principal of MFC, have known each other since the 1970s. Over the years, DeCoite entered into several business transactions with MFC and Kimura, and Kimura also acted as DeCoite's accountant, bookkeeper, and manager of financial affairs. For example, in the 1990s, DeCoite gave significant financial control to Kimura, including authorizing Kimura to sign checks on DeCoite's checking account and to deposit checks payable to DeCoite, without his endorsement, into one of MFC's checking accounts.

On January 28, 2010, MFC filed a voluntary petition for Chapter 7relief under the Bankruptcy Code. Field was subsequently appointed Trustee and commenced this adversary proceeding against DeCoite on October 18, 2010, asserting that transfers to DeCoite totaling $1,226,646.82 were fraudulent in violation of 11 U.S.C. §§ 544, 548, and 550, and HRS § 651C-4. See Doc. No. 12-17, DeCoite Appendix ("DA") Ex. Q. In the meantime, on January 5, 2011, Kimura pleaded guilty to numerous federal felonies pursuant to a plea agreement and admitted that he ran MFC as a Ponzi scheme.

In the plea agreement, Kimura admitted that starting in the late 1980s, he devised a scheme whereby he solicited individuals (usually his clients from his accounting business) to invest money with MFC. See Bankr. Adv. No. 10-90137 (Bankr. D. Haw.), Doc. No. 77-1 at ¶ 8d. Kimura represented that MFC was a bank or savings and loan business which loaned funds to individuals at a high interest rate, and that the loans were secured with collateral or liens on property. Id. Kimura took the funds he received and instead of investing them, he used them for his personal and business endeavors or to pay older investors principal and interest payments. Id. ¶ 8(e).

In January 2012, the parties stipulated to the filing of a First Amended Complaint ("FAC") alleging an additional claim for breach of contract. See Doc. No. 12-16, DA Ex. P. In total, the FAC asserts six claims, titled:(1) Fraudulent Transfer (Count 1); (2) Transferee Liability (Count 2); (3) Fraudulent Transfer (HRS § 651C-4) (Count 3); (4) Strong Arm Powers (11 U.S.C. § 544) (Count 4); (5) Unjust Enrichment/Constructive Trust (Count 5); and (6) Breach of Contract (Count 6). As to the fraudulent transfer counts, the FAC alleges that DeCoite received transfers from MFC totaling $540,390.40, which constitute proceeds of the Ponzi scheme.

On October 19, 2012, Trustee filed its Motion for Summary Judgment on Counts 2, 3, and 4 of the FAC, seeking a determination that MFC fraudulently transferred a total of $1,646,946.20 to DeCoite, which includes (1) direct cash transfers totaling $532,359.81; (2) loans in the total amount of $1,035,294.01; and (3) a release from an obligation for DeCoite to pay $79,291.30 in partial satisfaction of a debt which Kimura (as opposed to MFC) owed to DeCoite.

In its January 24, 2013 Decision, the bankruptcy court granted Trustee's Motion for Summary Judgment. The February 11, 2013 Judgment followed, finding DeCoite liable for transfers totaling $1,646,945.20, plus prejudgment interest at the Hawaii state rate (totalling $1,723,453.10), and post-judgment interest.

DeCoite filed his Notice of Appeal on February 22, 2013, and filed his Opening Brief on April 23, 2013. Doc. No. 11. Trustee filed an Answering Briefon May 10, 2013, Doc. No. 14, and DeCoite filed his Reply on May 28, 2013. Doc. No. 18. A hearing was held on June 10, 2013.

III. STANDARD OF REVIEW

The court must review de novo the bankruptcy court's decision on summary judgment. In re Sabban, 600 F.3d 1219, 1221-22 (9th Cir. 2010); In re AFI Holding, Inc., 525 F.3d 700, 702 (9th Cir. 2008). "Summary judgment is to be granted if the pleadings and supporting documents, viewed in the light most favorable to the non-moving party, show that there is no genuine issue as to a material fact and the moving party is entitled to judgment as a matter of law." AFI Holding, 525 F.3d at 702 (citing Fed. R. Civ. P. 56(c)); In re SNTL Corp., 571 F.3d 826, 834 (9th Cir. 2009).

"Evidentiary rulings made in the context of summary judgment motions are reviewed for abuse of discretion and can only be reversed if [they were] both 'manifestly erroneous and prejudicial.'" Bias v. Moynihan, 508 F.3d 1212, 1224 (9th Cir. 2007) (quoting Ballen v. City of Redmond, 466 F.3d 736, 745 (9th Cir. 2006)); see also Wagner v. Cnty. of Maricopa, 706 F.3d 942, 949 (9th Cir. 2013).

An award of prejudgment interest is reviewed for abuse of discretion.³ See In re Slatkin, 525 F.3d 805, 820 (9th Cir. 2008); In re Agricultural Research & Tech. Grp., 916 F.2d 528, 541-42 (9th Cir. 1990).

IV. DISCUSSION

DeCoite argues that the bankruptcy court committed several evidentiary and legal errors in granting Trustee's Motion for Summary Judgment and entering Judgment against DeCoite in the amount of $1,646,945.20, plus prejudgment interest at the applicable Hawaii state law rate. The court addresses each of DeCoite's arguments in turn.

A. Objections to Trustee's Exhibits

In opposition to Trustee's Motion for Summary Judgment, DeCoite argued that Trustee's exhibits were not properly authenticated and contained hearsay.⁴ Trustee addressed this objection by filing a Supplemental Authentication of Exhibits, Doc. No. 12-11, DA Ex. K, and the parties also submitted supplemental briefing. See Doc. Nos. 11-6, -7, DA Exs. F, G. The January 24, 2013 Decision overruled each of DeCoite's objections, and DeCoite now renewshis objections on appeal. Based on the following, the court finds no abuse of discretion by the bankruptcy court in overruling these objections.

1. Trustee Exhibits N, O, P, and Q

Trustee's Exhibits N, O, P, and Q include checks, promissory notes, a "Funds Transfer Request," and spreadsheets (prepared for litigation) summarizing this information. See Doc. No. 15, TA at 20-193. Before the bankruptcy court, Trustee argued that these exhibits are self-authenticating under Federal Rule of Evidence 902(9) as "commercial paper . . . and related documents," and in response, DeCoite focused largely on the fact that the spreadsheets are not commercial paper. See Doc. No. 12-7, DA Ex. G at 3-4. The bankruptcy court overruled DeCoite's objection, finding that the spreadsheets are demonstrative exhibits and/or admissible as summaries under Federal Rule of Evidence 1006.

On appeal, DeCoite argues that the bankruptcy court erred by failing to address his objection that these exhibits were unauthenticated. Doc. No. 11, DeCoite Mot. at 28-29. The court rejects this argument.

As an initial matter, DeCoite did not clearly raise the authentication objection before the bankruptcy court, instead focusing on the admissibility of the spreadsheets.⁵ See Doc. No. 12-7, DA Ex. G at 3-4. As a result, DeCoite appearsto have waived this objection on appeal. See Pfingston v. Ronan Eng'g Co., 284 F.3d 999, 1003-04 (9th Cir. 2002) (explaining that a party must object in the district court to preserve an evidentiary challenge in summary judgment proceedings). Further, even if the court considers the objection, it is without merit. As provided in Federal Rule of Evidence 902(9), "[c]ommercial paper, a signature on it, and related documents, to the extent allowed by general commercial law," are self-authenticating and require no extrinsic evidence of authenticity. The checks, promissory notes, and funds transfer request fall squarely within Rule 902(9). See, e.g., United States v. Pang, 362 F.3d 1187, 1192 (9th Cir. 2004) ("As a negotiable instrument, a check is a species of commercial paper, and therefore self-authenticating."); United States v. Varner, 13 F.3d 1503, 1509 (11th Cir. 1994) ("Mere production of a note establishes prima facie authenticity and is sufficient to make a promissory note admissible.").

2. Documents Produced by DeCoite in Discovery (Exhibits Q, U, JJ, KK)

Trustee submitted documents DeCoite produced during discovery including Exhibits Q, U, JJ, and KK, and in response, DeCoite...