Haw. Cent. Fed. Credit Union v. Kealoha

HAWAII CENTRAL FEDERAL CREDIT UNION, Plaintiff, v. LOUIS MAHINA KEALOHA, KATHERINE ELIZABETH KEALOHA,MARINER'S COVE ASSOCIATION, A HAWAII NONPROFIT CORPORATION;LUNA-KAI MARINA PARK ASSOCIATION, A HAWAII NONPROFIT CORPORATION;HAWAII KAI MARINA COMMUNITY ASSOCIATION, A HAWAII NONPROFIT CORPORATION;SUMIDA AU & WONG LLC, A HAWAII LIMITED LIABILITY COMPANY;UNITED STATES OF AMERICA, JOHN DOES 1-10, JANE DOES 1-10,DOE PARTNERSHIPS 1-10, DOE CORPORATIONS 1-10,DOE ENTITIES 1-10, DOE GOVERNMENTAL UNITS 1-10, Defendants.

CIV. NO. 18-00108 LEK-KJM

UNITED STATES DISTRICT COURT DISTRICT OF HAWAII

July 31, 2019

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT THE UNITED STATES OF AMERICA'S MOTION TO DISMISS AND GRANTING PLAINTIFF'S MOTION FOR REMAND

Before the Court is: Defendant the United States of America's ("the Government") Motion to Dismiss, filed on May 9, 2019, and Plaintiff Hawaii Central Federal Credit Union's ("Plaintiff") Motion for Remand, filed on May 24, 2019. [Dkt. nos. 55, 60.] On May 22, 2019, Defendant Mariner's Cove Association ("MCA") filed its statement of no position to the Motion to Dismiss, and on May 24, 2019, Plaintiff filed its memorandum in opposition to the Motion to Dismiss ("Plaintiff Dismiss Opposition"). [Dkt. nos. 58, 59.] On June 6, 2019, the Government filed its reply ("Government Reply"), and also filed its memorandum in opposition to the Motion for Remand ("Government Remand Opposition"). [Dkt. nos. 62, 63.] On June 12, 2019, MCA filed a statement of no position to the Motion for Remand, and Defendant Sumida Au & Wong, LLLC ("SAW") filed its memorandum in opposition to the Motion to Remand ("SAW Remand Opposition"). [Dkt. nos. 68, 69.] On June 25, 2019, Plaintiff filed its reply in support of the Motion for Remand. [Dkt. no. 70.]

The Court finds the Motion to Dismiss and the Motion for Remand ("the Motions") suitable for disposition without a hearing pursuant to Rule LR7.2(d) of the Local Rules of Practice for the United States District Court for the District of Hawaii ("Local Rules"). The Government's Motion to Dismiss is granted in part and denied in part, and Plaintiff's Motion for Remand is granted for the reasons set forth below.

BACKGROUND

The factual and procedural background of this matter is set forth in the Court's Order Granting Defendant United States of America's Motion to Stay Civil Proceeding, filed onOctober 29, 2018 ("Stay Order"), and only relevant facts will be repeated here. [Dkt. no. 41.¹]

On February 28, 2018, Plaintiff filed the instant case against Defendants Louis Mahina Kealoha and Katherine Elizabeth Kealoha ("the Kealohas"); the Government; MCA; SAW; Hawaii Kai Marina Community Association ("HKMCA"); and Luna-Kai Marina Park Association ("LKMPA," all collectively "Defendants").² [Notice of Removal of Civil Action ("Notice of Removal"), filed 3/20/18 (dkt. no. 1), Exh. A at pgs. 4-13 (Complaint) at ¶¶ 2-7.³] In the Complaint, Plaintiff alleges the Kealohas obtained a loan from Plaintiff to purchase the real property on Niumali Loop, Honolulu, Hawai`i ("the Property"), as evidenced by the Note dated September 6, 2016 ("Note"). [Complaint at ¶¶ 8-9.] As security for the Note, the Kealohas executed a Mortgage dated September 6, 2016, granting Plaintiff a security interest in their real and personal property, including the subjectProperty.⁴ [Id. at ¶ 9.] Plaintiff alleges the Kealohas have defaulted on the Note and Mortgage, therefore Plaintiff is entitled to foreclose upon the Property, and is entitled to reimbursement of its costs and reasonable attorneys' fees incurred in connection with this matter. [Id. at ¶¶ 10, 14.] In the alternative, Plaintiff seeks a deficiency judgment if a money judgment is not entered in Plaintiff's favor, or if the sale proceeds from the Property do not satisfy the outstanding amounts owed to Plaintiff. [Id., Prayer for Relief at ¶ A.]

On October 29, 2018, this Court issued the Stay Order to temporarily stay the case until either the completion of the interlocutory sale of the Property in the criminal matter known as United States of America v. Louis M. Kealoha, et al., CR 18-00068 JMS-WRP ("CR 18-00068"), or the conclusion of CR 18-00068. Stay Order, 2018 WL 5499530, at *3.

On September 27, 2018, the magistrate judge issued the Order Granting the United States' Motion for Interlocutory Sale of Real Property Subject to Criminal Proceedings ("Interlocutory Order"), directing, inter alia, the Government and Plaintiff to work together to sell the Property and apply the proceeds firstto any outstanding taxes, as well as expenses incurred by the United States Marshals Service ("USMS") related to the sale of the Property, then to Plaintiff. [CR 18-00068, dkt. no. 79.] The Property was sold pursuant to the Interlocutory Order, and on March 18, 2019, the district court confirmed the sale of the Property. [Id., Order Granting Interested Party Hawaii Central Federal Credit Union's Motion for Confirmation of Interlocutory Sale of Real Property, ECF No. 139 ("Preliminary Order") (dkt. no. 153).] On March 29, 2019, the district court issued its Final Order Granting Interested Party Hawaii Central Federal Credit Union's Motion for Confirmation of Interlocutory Sale of Real Property, ECF No. 139 ("Final Order"). [Id., dkt. no. 156.] The Final Order approved the sale of the Property for $1,305,000.00, and ordered these funds to be disbursed in accordance with the terms outlined in the Final Order. [Id., Final Order at 4-6, ¶¶ 1-2.] After calculating the "outstanding real property taxes and the expenses of custody and sale incurred by the USMS," this district court ordered the sum of $1,099,096.60 to be paid to Plaintiff in satisfaction of the balance owed under the Note and Mortgage, calculated as of March 29, 2019. [Id. at 4, 6, ¶ 2.m.⁵] If the sale proceedswere "insufficient to pay all amounts due on the Note and Mortgage including attorneys' fees and costs," this district court permitted Plaintiff to seek a deficiency judgment against the Kealohas, jointly and severally. [Id. at 6, ¶ 3.] The district court ordered the remaining net proceeds from the sale of the Property to be substituted for the Property ("Substitute Res"), and to be paid to the Clerk of Court for the United States District Court for the District of Hawai`i, to be deposited in an interest-bearing account pending a final judgment in CR 18-00068. [Id. at 6, ¶ 4.] Finally, the district court ordered:

All other right, title, claim, liens, and interest of any and all persons or parties whatsoever existing or asserted in said Real Property shall be made upon the substitute res. The validity and priority of any such right, title, claims, liens, and interest will be determined at an ancillary proceeding pursuant to Title 21, United States Code, Section 853(n), contingent upon and following a judgment in the criminal case and the Court's entry of a final order of forfeiture to the United States. If Defendants Katherine P. Kealoha and Louis M. Kealoha are found not guilty of the charges contained in Counts 1 through 8 of the Second Superseding Indictment, the Court will retain jurisdiction of the substitute res pending further proceedings.

[Id. at 6-7, ¶ 5.]

On April 18, 2019, this Court issued an entering order lifting the stay for the limited purpose of permitting the Government to file its Motion to Dismiss ("4/18/19 EO"). [Dkt.no. 48.] The Government's Motion to Dismiss, and Plaintiff's Motion to Remand followed. The Government argues dismissal is proper based on Fed. R. Civ. P. 12(b)(1) and (6), and 21 U.S.C. § 853(k), which bars any proceeding against the Government for adjudicating a third-party interest in forfeitable property, outside of the procedure provided in 21 U.S.C. § 853(n). Plaintiff seeks an order remanding its foreclosure claim to the state court because the Substitute Res is in the possession of the district court pending the conclusion of CR 18-00068, therefore the Government is no longer a necessary party to this action and should be dismissed. Once the Government is dismissed, Plaintiff argues this Court would lack subject matter jurisdiction over Plaintiff's state-law foreclosure claims, and remand is mandatory under 28 U.S.C. § 1447(c).

DISCUSSION

I. Preliminary Matters

The Court notes Plaintiff's Motion for Remand was not expressly permitted under the 4/18/19 EO, which lifted the stay "for the limited purposed of: 1) permitting the Government - if it chooses - to file an optional motion based on the arguments set forth in the Government's letter brief; and 2) permitting the parties to file their respective responses to the Government's optional motion." [4/18/19 EO at 2.] Plaintiff filed both a response to the Motion to Dismiss, and a separateMotion for Remand. Nevertheless, because this Court has an independent duty to address jurisdictional issues at any time before final judgment, and the Motion for Remand addresses this Court's subject matter jurisdiction, it will consider the motion. See Williams v. United Airlines, Inc., 500 F.3d 1019, 1021 (9th Cir. 2007) ("[W]e are 'obliged to raise questions of the district court's subject-matter jurisdiction sua sponte.'" (some citations omitted) (quoting Hart v. United States, 817 F.2d 78, 80 (9th Cir. 1987))); United Inv'rs Life Ins. v. Waddell & Reed Inc., 360 F.3d 960, 967 (9th Cir. 2004) ("the district court had a duty to establish subject matter jurisdiction over the removed action sua sponte, whether the parties raised the issue or not" (citation omitted)). The Court cautions the parties that any future failure to comply with an express order from this Court may result in sanctions, under the right conditions. See, e.g., Reno Air Racing Ass'n v. McCord, 452 F.3d 1126, 1130 (9th Cir. 2006) (discussing conditions for applying civil contempt sanctions when a party disobeys a "specific and definite court order"); B.K.B. v. Maui Police Dep't, 276 F.3d 1091, 1107-09 (9th Cir. 2002) (discussing the court's inherent...