Kukui Gardens Corp. v. Holco Capital Group, Inc.

Page 1103

664 F.Supp.2d 1103

KUKUI GARDENS CORPORATION, Plaintiff, v. HOLCO CAPITAL GROUP, INC., HC Mortgage Company, Inc., and Kevin C. Horton, individually, Defendants.

Civ. No. 08-00049 ACK-KSC.

United States District Court, D. Hawai`i.

December 19, 2008.

Bert T. Kobayashi, Jr., Brendan S. Bailey, Bruce A. Nakamura, Jason M. Minami, Jesse W. Schiel, Jonathan Strother Moore, Kobayashi Sugita & Goda, Honolulu, HI, for Plaintiff.

Jack F. Schweigert, Honolulu, HI, Mark A. Kaiser, Painesville, OH, for Defendants.

ORDER DENYING DEFENDANT HORTON'S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION; DENYING DEFENDANT HORTON'S MOTION TO DISMISS FOR INSUFFICIENT SERVICE OF PROCESS; AND DENYING DEFENDANTS' MOTION TO DISMISS FOR IMPROPER VENUE, OR IN THE ALTERNATIVE, TRANSFER

ALAN C. KAY, Senior District Judge.

PROCEDURAL BACKGROUND

On May 25, 2008, Plaintiff Kukui Gardens Corporation ("Plaintiff") filed in this Court a First Amended Complaint ("Complaint") against Holco Capital Group, Inc. ("Defendant Holco" or "Holco"), HC Mortgage Company, Inc. ("Defendant HC Mortgage" or "HC Mortgage"), and Kevin C. Horton individually ("Defendant Horton") (collectively, "Defendants"). The Complaint alleges a failure to meet the statutory requirements for release of mortgage, pursuant to Hawaii Revised Statutes ("H.R.S.") § 506-8 ("Count I"), wrongful conversion of Plaintiff's property ("Count II"), fraud ("Count III"), breach of fiduciary duties ("Count IV"), violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. ("Count V"), malicious, wanton, and intentional actions ("Count VI"), and offset of monies due and owing ("Count VII"). See Complaint at ¶¶ 68-112.

On May 27, 2008, Plaintiff filed an Ex Parte Motion for Service by Publication On Defendants Horton, HC Mortgage, and Holco. On May 29, 2008, Magistrate Judge Kevin S.C. Chang granted the ex parte motion and ordered that service of process on Defendants be made by publication of the Summons in the Honolulu Advertiser and the South Bend Tribune once a week for four weeks.¹ See Order Granting Plaintiff Kukui Gardens Corporation's Ex Parte Motion for Service by Publication, Civ. No. 08-00049 (May 29, 2008); Opposition Exh. O. On July 1, 2008, Plaintiff filed an Affidavit of Publication of Summons, confirming that service of the summons was properly published in the South Bend Tribune on June 8, 15, 22, and 26, 2008. On July 2, 2008, Plaintiff filed an Affidavit of Publication of Summons, confirming that service of the summons was properly published in the Honolulu Advertiser on June 6, 13, 20, and 26, 2008.

On August 8, 2008, Defendants filed the instant Motion to Dismiss ("Motion"), seeking dismissal for lack of personal jurisdiction as to Defendant Horton, insufficient service of process as to Defendant Horton, and improper venue as to Defendants Holco, HC Mortgage, and Kevin C. Horton, or in the alternative, transfer to the Northern District of Indiana. Defendants attached to the Motion the affidavit of Kevin C. Horton (Horton Aff.).

On October 30, 2008, Plaintiff filed a Memorandum in Opposition to Defendants' Motion ("Opposition"). Plaintiff attached the declaration of its counsel, Bruce Nakamura (Nakamura Decl.), authenticating Exhibits A-0 as true and correct copies of the original documents.

On November 6, 2008, Defendants filed a Reply to Plaintiff Kukui Gardens Corporation's Memorandum in Opposition to Defendants' Motion ("Reply").

The Court held a hearing on the Motion on December 12, 2008.²

FACTUAL BACKGROUND³

Plaintiff alleges, and Defendants do not dispute, that Plaintiff is, and was at all relevant times, a Hawaii non-profit corporation with its principal place of business in Honolulu, Hawaii. Complaint at 112. The parties agree that Defendant Holco is, and was at all relevant times, an Indiana corporation with its principal place of business in Indiana. Complaint at ¶ 3; Horton Aff. at 118. The parties agree that Defendant HC Mortgage was, at all relevant times, an Indiana corporation with its principal place of business in Indiana.⁴ Complaint at ¶ 4; Horton Aff. at 118. The parties agree that Defendant Horton is, and was at all relevant times, a citizen of the state of Indiana. Complaint at ¶ 6; Horton Aff. at ¶ 1.

Defendant Horton is, and was at all relevant times, the President of both Holco and HC Mortgage. Complaint at ¶ 7; Horton Aff. at ¶ 8. Defendant Horton contends that he has never conducted any personal business in Hawaii (outside of any action taken on behalf of Defendants HC Mortgage and Holco in this case). Horton Aff. at ¶ 3. Defendant Horton further contends that none of the Defendants have owned property, held bank accounts, or owned any assets in Hawaii. Id. at 1110.

In 1970, Plaintiff built an 857—unit apartment complex (the "Property") in Honolulu, Hawaii, for tenants of low and moderate income. Opposition at 6. The project was financed by a $16 million loan from the United States Department of Housing and Urban Development ("HUD"). Id. Plaintiff executed a note in the principal amount of the loan, and the note was secured by a mortgage executed by Plaintiff on February 11, 1969 (the "Mortgage"). Id. at 7. The Mortgage was filed in both the State of Hawaii Bureau of Conveyances ("Bureau of Conveyances") and the Land Court of the State of Hawaii ("Land Court") on February 12, 1969. Opposition Exh. D.

In obtaining the loan, Plaintiff became subject to a regulatory agreement requiring Plaintiff to establish an account, in the mortgagee's control, for the payments on the loan. Opposition at 9; Opposition Exh. F. Plaintiff was also required to establish a second account, under the control of HUD, for any residual funds. Opposition at 9. To carry out its responsibilities under the regulatory agreement and manage the Property, Plaintiff employed Hawaiian Properties ("Hawaiian Properties"), a Hawaii corporation. Opposition at 9-10.

In 1986, Defendant HC Mortgage purchased the Mortgage through a HUD auction. Opposition at 7; Reply at 3. At some point prior to the dissolution of HC Mortgage, the Mortgage was transferred to Defendant Holco. Opposition at 8; Reply at 3.

Each month, Holco would provide Hawaiian Properties with a report of the accounts created under the regulatory agreement (the "Accounts"). Opposition at 10. At the beginning of each month, Hawaiian Properties would transfer the rent payments from the Property to Holco to be applied to the Accounts. Id.

In 2007, Plaintiff entered into a purchase and sale agreement for the sale of the Property. Opposition at 11. However, in order to prepay the remaining amount on the note, Plaintiff was required to get the authorization of HUD. Opposition Exh. C. Therefore, on September 29, 2006, Plaintiff submitted a Notice of Request for Prepayment to Defendant Holco as the mortgagee on the Property. Opposition at 11-12; Reply at 5. Defendant Holco then submitted the early termination request to HUD on October 9, 2006.⁵ Opposition at 12; Opposition Exh E. On December 7, 2007, HUD informed Plaintiff of its consent to prepayment of the loan. Opposition at 12.

In order to clear the title on the Property prior to closing, Plaintiff expected that Defendant Holco would release the Mortgage once HUD approval was obtained and upon payment of the Mortgage balance.⁶ Id. However, on December 12, 2007, Defendant Horton, on behalf of Defendant Holco, sent an e-mail to Plaintiffs attorney, requesting over $4 million for allegedly unpaid services and contractual obligations, in exchange for the release of the Mortgage.⁷ Opposition at 13, Opposition Exh. H. Plaintiff disagreed that any additional amount beyond the Mortgage balance was owed Defendant Holco, and sent a letter to Defendant Holco (addressed to Defendant Horton) demanding release of the Mortgage without any further payment so that the title could be cleared. Opposition Exh. I. Defendant Holco refused to release the Mortgage at that point. Opposition at 16.

Despite the inability to obtain a release of the Mortgage, the sale of the Property closed on December 18, 2007, when Plaintiff placed an amount of money in escrow that was more than the balance due under the note and Mortgage. Opposition at 17. Plaintiff also had to place a similar amount in escrow as indemnity for the title company.⁸ Opposition at 17.

On December 24, 2007, Plaintiff again sent a letter to Defendant Holco, requesting the immediate return of all funds and the release of the mortgage, and notifying Defendant Holco of the closing of the sale of the Property. Opposition at 18; Opposition Exh. J. On December 25, 2007, Defendant Horton responded (on behalf of Defendant Holco) by e-mail and again asserted that Defendant Holco was owed money and should be able to retain such amount before returning any remaining funds.⁹ Opposition at 19-20; Opposition Exh. K.

On January 19, 2008, Defendant Horton sent a letter to the title company, stating that Holco was retaining funds until a resolution could be met, but also noting that the Mortgage was paid in full. Opposition at 20; Opposition Exh. L; Reply at 6-7. The letter also included a document purportedly releasing the Mortgage. Opposition at 21; Opposition Exh. L. However, the release was apparently insufficient because Holco was not the record holder of the Mortgage. Opposition at 21. This lawsuit is a result of the parties' inability to come to a resolution on the funds left in the Accounts and the release of the Mortgage.

Plaintiff contends that Defendants have no legal or equitable right to retain any remaining funds. Complaint at 35-36. Plaintiff requests this Court to order: (1) that Defendants immediately release all funds owed to Plaintiff; (2) that Defendant Holco provide a proper release of the Mortgage; and (3) that Defendants pay money damages. Id. at 36-37.

DISCUSSION

I. Motion to Dismiss for Lack of Personal Jurisdiction

A. Standard

"Where a defendant moves...