Opinion ID: 2630997
Heading Depth: 2
Heading Rank: 2

Heading: Hawaii Ventures' Contentions Regarding Receiver Park's Final Report

Text: In appeal Nos. 25344 and 26820, Hawaii Ventures maintains that the circuit court erred in approving Receiver Park's final report. Specifically, Hawaii Ventures argues that the circuit court: (1) should not have allowed pre-receivership obligations to be paid out of the Estate monies; and (2) should have permitted Hawaii Ventures to have access to the Hotel's accounting books and records in order to conduct an independent review prior to the circuit court's approval of the final report.
On August 9, 2000, Hawaii Ventures filed a complaint against, inter alia, the Otaka Defendants to foreclose a mortgage upon the Hotel. The next day, August 10, 2000, Hawaii Ventures moved for the appointment of receiver. On August 24, 2000, the circuit court appointed Park as the receiver to manage, protect, care for, preserve, and maintain the Hotel pending the foreclosure sale. Consequently, Otaka turned over possession and control of the Hotel to Receiver Park on or about August 24, 2000. Receiver Park operated the Hotel for approximately ten months before it was sold at a public auction on May 16, 2001. She, however, remained in possession of the Hotel until June 30, 2001, when title was transferred to the foreclosure purchaser. On August 14, 2001, Receiver Park filed her final report. Therein, the Receiver indicated that: At the commencement of her administration almost twelve months ago, the Receiver found the Hotel to be marginal both operationally and financially, for a number of reasons. The Hotel's physical plant suffered from deferred maintenance, particularly, with the poor condition of the rooms ( i.e., furniture, carpets, drapes, antiquated bathrooms with seedy-looking tiles), hallway carpeting, restaurant facilities, pool bar and other hotel common areas; room rates had been reduced substantially below market for a beachfront hotel; finally, the Hotel had to rely heavily (for its guest base) on a handful of Japanese tour operators and wholesalers specializing in the budget conscious Japanese visitor market to help fill the Hotel. In addition, although [HWB] had managed the Hotel, it was a captive of the owner; it did not manage the Hotel independently of the owner's interests in other hotels, such as the Hawaiian Regent [Hotel] and [the] Kona Surf [Resort Hotel]. There were, therefore, less-than-arms-length transactions involving the owner and its affiliates. (Footnote omitted.) Receiver Park explained that one of her first decisions concerned her management team: [Hawaii Ventures'] New York counsel suggested that the Receiver consider the use of a brand manager. The Receiver decided against it because (1) it was impractical to undertake such a contract given the then uncertainty about the length of the receivership, and the possibility that the Hotel might have to close relatively quickly, (2) the costs was a consideration in view of the shaky finances and (3) a brand manager would have replaced all existing management personnel and possibly the [u]nion, which was contrary to the goal of maintaining stability. Instead, the Receiver decided to allow [HWB]'s existing management employees to remain in place[.] Although [HWB] did lose some management personnel . . ., the rest of [HWB]'s core management team remained and contributed significantly to the success of the receivership. The Receiver also retained, as part of her own independent oversight and support services, two key individuals  Ronald Tom, President of Ron Tom Realty, LLC, and Ernest Watari, Chairman and CEO of PKF Hawaii, LLP. Mr. Tom has substantial experience in foreclosures and receiverships, has developed and built hotels for Dillingham Land Corporation (including the Ala Moana Hotel), and is a consultant in the development of condominiums, land acquisitions and commercial and industrial properties. Mr. Watari is a [certified public accountant] and [c]ertified [m]anagement [c]onsultant and is a recognized expert in Hawaii's hospitality industry. Mr. Tom primarily focused upon the Hotel's maintenance, cash management and collections, and Mr. Watari focused upon [a]ccounting, [s]ales and [m]arketing, [f]ood and [b]everage and [f]ront [d]esk/[r]ooms [m]anagement. Their efforts produced a marked difference in the Hotel's physical appearance, employee morale, customer satisfaction, sales, and cash flow during the receivership. By retaining existing management employees, as opposed to a brand manager, Receiver Park believed that the Hotel saved, conservatively, in the range of $400,000 to $900,000. Among the various actions taken by Receiver Park during the receivership and as discussed in more detail below, she asserted that she improved communications with, and the morale of, the employees. As a result, only twenty-eight employees-out of a work force of 270 employees (which included bargaining and non-bargaining full time, part time and on call employees)  resigned between August 24, 2000 and June 30, 2001. Consequently, the Receiver acknowledged that, [b]ecause of the efforts of the management team and the workforce, which unified and collectively put their best foot forward under straitened conditions, the Receiver was able to sustain an average monthly occupancy rate of 72.19% for the period from September 2000 through June 30, 2001. This rate represents an improvement from the 69.95% average from the previous year (September 1999 through June 2000), and is very much in line with other comparable Waikiki hotels (such as the Waikiki Beach Marriott, Waikiki Circle Hotel, Pacific Beach Hotel, Prince Kuhio Hotel and others) which averaged a 75.06% monthly occupancy rate. In other words, despite the negative perceptions, uncertainties and obstacles, the Receiver was able to keep the Hotel's occupancy rate in line with the market. To keep rooms rented and revenues coming in, management exerted all of its skill, emphasizing established relationships with tour operators, wholesalers and travel agents. Cash in hand as of the date of appointment was about $406,000. As of the end of July 2001, it was $3.77 million. Specifically, the Receiver: (1) increased cash in bank by $3,900,000 (from $406,000 as of August 24, 2000, to $4,300,000 as of June 30, 2001, the date title was transferred and the Hotel turned over to the new owner's manager); (2) reduced accounts receivables by $1,525,000 (from $3,508,000 as of August 24, 2000, to $1,983,000 as of June 30, 2001); and (3) generated operating profits of $2,724,000 in ten months, before depreciation ($1,027,000 after depreciation of $1,697,000). At the conclusion of her report, Receiver Park proposed a number of recommendations for the resolution of outstanding claims, including the payment of $310,713.58 to union and non-union Hotel employees for severance and vacation pay (calculated on ten months of service), and the final discharge of her duties and responsibilities. On August 29, 2001, Hawaii Ventures filed its objections to the final report, disputing numerous portions of the report. Hawaii Ventures generally maintained that the report was inadequate to understand what payments were made by the Receiver and how they were justified, and, thus, an independent accounting was necessary. The Otaka Defendants and ILWU also responded to the final report, opposing the discharge of the Receiver as premature inasmuch as there were pending matters requiring Receiver Park's participation  such as, the unfair labor practice charges before the NLRB and several union grievances. In light of the parties' objections and at the request of Receiver Park, the circuit court, on September 21, 2001, appointed the Special Master to review the final report. Thereafter, the Special Master filed his report on March 19, 2002 and an addendum to his report on May 24, 2002, generally supporting the final report (with some recommended modifications). As discussed more fully infra, the Special Master's report provided detailed explanations as to his recommendation that $964,826.00 should be approved as necessary for the maintenance and preservation of the Estate and that $394,787.00 should be shown as a receivable from Otaka and HWB and assigned to Hawaii Ventures. On April 8, 2002, the Receiver filed her response to the Special Master's report. Specifically, Receiver Park asserted that her appointment order show[ed] that the Receiver not only had broad powers but was also expected to use them. It had to be so, because it was creating an operating receivership, not a passive or a custodial one. It was not the purpose of the [appointment order] to make the [c]ourt itself do the receivership work through constant motions. Through the ten months of operations, daily and immediate decisions had to be made, without the luxury of constant consultations with, and returning to, the [c]ourt. At the same time, the Receiver was bound by the principle of prudence, which did not permit her to take risks which might jeopardize Hotel operations. (Footnotes omitted.) Receiver Park believed that the Special Master's disagreement with some of her decisions reflected a reasonable difference of opinion in business judgment. Nonetheless, Receiver Park indicated that she was gratified that, after conducting his thorough and extensive review, the Special Master ha[d] validated the vast majority of [her] decisions. On July 11, 2002, the circuit court approved the Special Master's report and adopted his recommendations. Consequently, the Receiver filed a supplemental final report on June 21, 2002 and a supplement to the supplemental final report on July 15, 2002. Receiver Park's August 14, 2001 final report, as amended by the Special Master's report, and the June 21, 2002 supplemental final report, as amended, were approved by the circuit court on August 22, 2002 [as previously stated, hereinafter, reference to the approval of the final report includes the approval of the supplemental report].
Hawaii Ventures argues that: The circuit court erred in retroactively blessing the use of Estate's assets to pay Otaka['s] debts. The Receiver could not properly use the collateral to pay Otaka['s] liabilities unless there is a finding, based on an adequate record, of necessity for the preservation of the Estate. . . . . . . [T]he Receiver was required to respect [the] Lender's first lien rights in the collateral and could not choose to pay other and junior creditors. . . . Here, the circuit court erroneously approved a wide variety of payments and erroneously permitted distributions to junior creditors prior to any determination of priority. (Citations omitted.) Hawaii Ventures also asserts that: The Special Master appears to have concluded that in excess of $1.3 million of Estate assets were expended to discharge liabilities of the borrower that arose prereceivership. These were in some cases payments for goods, services and labor provided to Otaka for Hotel operations prior to appointment of the Receiver. Other payments were compensation or expense account reimbursement of Otaka executives, tax withholding obligations of Otaka, entertainment bills run up at other Otaka properties, and long overdue vendor bills and contracts entered into by Otaka. These are expenses incurred by Otaka and owed by Otaka. Nothing in the record shows that the expenditures were necessary to keep the Hotel open, i.e., necessary to preserve the Estate. None were claimed by the creditors in the foreclosure proceeding to give rise to interests senior to [the] Lender. . . . There is no basis for using proceeds of collateral or revenues collected by the Receiver during the receivership period to pay these old bills. (Citations omitted.) Hawaii Ventures identifies several specific payments that it believes should not have been paid by Receiver Park from the Estate's funds, which, for purposes of discussion, are categorized as (1) pre-receivership employees' wages and benefits and (2) Otaka's other pre-receivership debts. Keeping in mind the general principles of receivership and the parameters of the appointment order previously discussed, we examine Hawaii Ventures' arguments regarding the aforementioned specific payments made by the Receiver.
Focusing solely on pre-receivership wages, vacation pay or employment taxes paid during the receivership period, Hawaii Ventures specifically argues that: The circuit court erroneously and retroactively approved payment of Otaka debts to Otaka employees for services rendered to Otaka prior to the receivership of approximately $156,220 in wages, $60,122 in payroll taxes withholding, and $99,486 in vacation benefits[, totaling $316,188.00]. . . . There is no record to support that payment for, or use of, benefits such as vacation accrued during the pre-receivership period was a reasonable or necessary expense during the [r]eceivership period[.] (Emphases added.) The contested payments represent (1) wages earned the week immediately preceding the circuit court's appointment of the receiver and (2) vacation benefits taken during the receivership that were drawn in part from unused vacation credits accrued pre-receivership. In response, Receiver Park maintains that the appointment order gave [her] the authority, power, and discretion to pay wages and other obligations that may have had their inception before her appointment, but which arose during the receivership. To prohibit her from maintaining the Hotel's work force, by funding essential perquisites of employment, would contradict her ultimate duty to care for, preserve, and maintain the property. (Emphasis added.) ILWU similarly argues that, [b]ecause the circuit court's order appointing the Receiver gave her the necessary authority, the Receiver acted properly in paying the disputed employee benefits from [the Estate's] assets. ILWU also contends that the payments were appropriately approved by the circuit court as administrative expenses chargeable to the Estate because, inter alia, [t]he Receiver paid wages and vacation in question knowing that continued labor throughout the receivership period was essential to protecting the operation of the [H]otel and making it profitable. Generally, the costs and expenses of a receivership incurred in preserving its assets are administrative expenses, chargeable to the assets of the receivership. Miller v. Leadership Hous. Sys., Inc., 57 Haw. 321, 327, 555 P.2d 864, 869 (1976) (citations omitted) (emphasis added). This court, however, has warned against construing the word preserve too literally. Id. at 328, 555 P.2d at 869. In Miller, this court held that expenses for improvements to a property in receivership may be paid from the receivership assets if they are necessary to preserve the property in the hands of the receiver. Id. at 327-28, 555 P.2d at 869 (citations omitted). The Miller court explained that improvements to the property in the receiver's hands can result in the property being figuratively `preserved' in its intended final condition and a greater sum realized for distribution to creditors, general and special, than if the receiver were forced to leave it in its incomplete less salable condition. Id. at 328-29, 555 P.2d at 869-70 (internal quotation marks and citation omitted). With respect to the specific pre-receivership payments at issue here, other courts have recognized that it may be proper for receivers to pay wages and vacation benefits earned by employees prior to the imposition of a receivership. For example, in United States v. Wisconsin Valley Trust Co., 233 F.Supp. 73 (W.D.Wis.1964), the United States sued Receiver Wisconsin Valley Trust Company in federal court, arguing that the receiver should not have paid pre-receivership wages and vacation in a previous state court corporation receivership and that such sums should have instead been paid towards federal taxes. Id. at 74. The federal court, in dismissing the United States' lawsuit, held, inter alia, that the payments were necessary and explained: Here is a Receiver that was confronted with the duty of running a business [ i.e., a trucking company ] and the record shows that he was dealing with some 250 to 300 employees belonging to approximately 12 or 15 [l]abor [o]rganizations. It was his duty to keep the business running and he could not do so unless he had truck drivers and maintenance men. This [c]ourt takes notice of the facts of business life in that these employees would not continue working had they not been paid the wages due them. Id. at 79. The court further explained that the business could not have been sold so lucratively had it not been for the receiver's decisions that kept it operational. Id. Accordingly, the court held that these payments[, i.e., wages and vacation pay,] to the employees had to be made to preserve the business. It is the [c]ourt's opinion that the Receiver would have been derelict in his duty had he not pursued the course he had for the purpose of preserving the assets which eventually were sold as a going business. Id. at 81 (emphases added). In reaching its conclusion, the court recognized, one, that [w]ages earned prior to the appointment of a receiver have likewise been held to be a first charge upon net earnings during the receivership, upon grounds which would entitle them to a preference out of the corpus, namely, that there has been, prior to the receivership, a diversion of the current earnings out of which such wages should have been paid, or that payment was necessary in order to retain the services of employees needed by the receiver, or that the mortgagees have received a benefit from the continuance of the business as a going concern for which they are bound in equity to pay[,] id. at 80 (format altered) (some internal quotation marks, citations, and ellipses omitted), and, two, that [i]t cannot be affirmed that no items which accrued before the appointment of a receiver can be allowed in any case. Many circumstances may exist which may make it necessary and indispensable to the business . . . and the preservation of the property, for the receiver to pay pre-existing debts of certain classes, out of the earnings of the receivership, or even the corpus of the property . . . . Yet the discretion to do so should be exercised with very great care. Id. (emphasis added) (format altered) (quoting Miltenberger v. Logansport, C. & S.W.R. Co., 106 U.S. 286, 311, 1 S.Ct. 140, 27 L.Ed. 117 (1882)). [13] Here, the appointment order expressly authorized the Receiver to use [her] best efforts to manage, protect, care for, preserve, and maintain the Estate, to pay for such expenses as are necessary or appropriate for the care, preservation and maintenance of the Estate, and to undertake to expend revenues for maintenance or enhancement of the ability of the [m]ortgaged [p]roperty to operate, including marketing and refurbishing expenditures. The circuit court also granted the Receiver the broad authority to take such other actions as is reasonable to effectuate [her enumerated] powers and duties. These provisions empowered Receiver Park to pay any expenses, including payroll, that were appropriate to maintain or enhance the value of the Hotel during the receivership. In fact, the appointment order specifically permitted Receiver Park to pay expenses that were incurred or arose during the receivership and that were necessary and appropriate for the preservation of the Estate. Receiver Park's decisions to pay to the Hotel employees wages earned the week before her appointment and allow the employees to use vacation benefits earned prior to her receivership were clearly necessary [and] appropriate for the care, preservation and maintenance of the Estate. Had she not done so, the Hotel may not have been an asset, but a liability. Receiver Park took over the Hotel with $406,000.00 in the operating account; by the time of the foreclosure sale, she had increased the Hotel's cash-on-hand over tenfold to $4,300,000.00 as of June 30, 2001. Nevertheless, it would not be unreasonable to expect that the Receiver's refusal to pay the pre-receivership wages and benefits could have resulted in a loss of employees or a refusal to work. Moreover, the ILWU could have called for a strike, set up picket lines, and filed charges of unfair labor practices. From her perspective as the manager of an ongoing business and the discretionary authority granted to her in the appointment order, Receiver Park's decision to pay employee expenses to prevent any potential breakdown in the Hotel's labor relations that might have impaired the property's value was reasonable. See Coy v. Title Guarantee & Trust Co., 198 F. 275, 280 (D.Or.1912) (a receiver exercises, in matters of management and manner of disposition of the estate, a large discretion, which he . . . must do, as the court cannot attend to details of administration.). As demonstrated in her final report, Receiver Park commended the efforts of the management team and the workforce in maintaining an average monthly occupancy rate of 72.19% for the period from September 2000 through June 30, 2001, which rate represent[ed] an improvement from the 69.95% average from the previous year (September 1999 through June 2000), and is very much in line with other comparable Waikiki hotels[.] Receiver Park also indicated that, [o]ut of a work force of 270 employees (which included bargaining and non-bargaining, full-time, part-time and on call employees), from August 24, 2000 to June 30, 2001, only 28 resigned (with 11 of them resigning in June 2001). [14] Accordingly, we hold that the circuit court did not abuse its discretion in approving Receiver Park's payment of employees' wages and benefits earned pre-receivership when such payment was clearly appropriate to maintain and enhance the value of the Estate. [15]
Hawaii Ventures contends that Receiver Park paid and discharged certain pre-receivership obligations without any indication that the payments for services and/or expenses were beneficial to the Estate. Specifically, Hawaii Ventures identifies, as examples, payments for the following: travel agents including an Otaka officer ($9,492), vendors of food and beverages ($48,438), maintenance services ($13,782), supplies ($23,271), advertising ($32,906), equipment ($1,105), public relations services ($462), cleaning supplies ($2,420), miscellaneous ($2,460), uniforms ($456), unsecured lease payments ($4,075), office supplies ($1,312), travel/entertainment by Otaka officers ($7,110), sundry ($3,247), and obligations under Otaka equipment leases ($48,862). These categories represent a total of $199,398. (Citations to the record omitted.) The above payments for services and/or expenses challenged by Hawaii Ventures were the exact amounts that the Special Master deemed justified. The Special Master expressly indicated that, [w]here the non-payment of a pre-receivership liability threatens the [Estate], or the corresponding goods and/or services creating the liability directly benefitted the Hotel during the [r]eceivership period, the Receiver may be justified in satisfying that liability. In finding these payments justified for the most part, the Special Master provided the following explanations for each category of payments, which are quoted verbatim from his report: (1) Travel agent commissions of $9,492 ( Justified ) Travel agents were vital to preserving and maintaining the existing guest revenues of the Hotel. Payment of the outstanding commissions was necessary to assure that agents would continue to refer their clients to the Hotel during the [r]eceivership period. (2) Food & Beverages of $60,304 ( $48,438 Justified and $11,866 Estate Receivable ) The Receiver's position is that the Estate rightfully paid the $60,304 in food and beverage costs since the items purchased were used during the [r]eceivership period. The food and beverage inventory on hand [on] August 24, 2000 . . . amount[ed to] $48,438 [and] appears to be a justifiable payment by the Estate[;] the remaining $11,866 should be treated as a receivable of the Estate. (3) Maintenance of $37,290 ( $13,782 Justified and $23,508 Estate Receivable ) The amount of $13,782 were for parts and supplies acquired in August and used to maintain and repair Hotel furniture, fixtures and equipments, or subsequently reimbursed to the Hotel. The remaining $23,508 was attributable to maintenance service contracts, which were replaceable if these service providers required the Receiver to assume the pre-receivership liability along with the contracts. Accordingly, the $23,508 maintenance service contract payments should be classified as a receivable of the Estate. (4) Supplies of $23,271 ( Justified ) These purchases consist of bulk operating supplies such as copy paper, pens, rubbish liners, napkins, toilet tissue, Kleenex, shower caps[,] and toiletries that were purchased in August 2000 and subsequently used by [the] Estate. (5) Advertising of $32,906 ( Justified ) These costs were for print and advertising material, including services that were used [for] or benefitted the Hotel after the Receiver took possession. (6) Equipment of $1,105 ( Justified ) The[se] payments were for the purchase of kitchenware supplies and shower curtains in August for use in the operations of the Estate. (7) Public relations of $462 ( Justified ) The payment was for public relations services for the Hotel. (8) Cleaning supplies of $2,420 ( Justified ) The[se] payments were for the purchase of cleaning supplies in August 2000, which were used by the Estate. . . . . (10) Miscellaneous of $2,460 ( Justified ) These payments were for miscellaneous supplies and services benefitting the Estate, including rent of offsite records storage space. (11) Uniforms of $456 ( Justified ) Uniforms purchased were available for use during the [r]eceivership period, and the payments therefore benefitted the [E]state. . . . . (14) Lease of $10,367 ( $4,075 Justified and $6,292 Estate Receivable ) The [payment] of $4,075 of the pre-receivership liability . . . had no impact on the Estate since it was a one time payment to HWB[,] which account was in the Receiver's possession (essentially an intra-account transfer). The remaining $6,292 should be reclassified as an Estate receivable since these payments were made in connection with the Hotel's telephone system, fax machine[,] and copier equipment leases for which the Receiver had the authority to assume and pay obligations arising during the [r]eceivership, but [did not have the authority to] pay the related pre-receivership payable unless she was able to demonstrate that the non-payment would have threatened the Estate. . . . . (16) Office supplies of $1,312 ( Justified ) Office supplies were in inventory and used in part by the Hotel after the Receiver took possession. (17) Travel/Entertainment of $12,738 ( $7,110 Justified and $5,628 Estate Receivable ) The payments amounting to $7,110 were for travel and entertainment expense reimbursements to the Hotel marketing and sales executives, which provided future benefits to the Hotel. The remaining payments amounting to $5,628 should be treated as an Estate receivable since they were for services rendered by an entertainer prior to the [r]eceivership and other unidentified expenditures . . . . (19) Sundry of $3,247 ( Justified ) The purchases related to Hotel logo items (polo shirts, golf caps) that were either sold or given to Hotel guests after the Receiver was appointed, and therefore[,] benefitted the Estate during the [r]eceivership period. . . . . (28) Obligations Under Capital Lease of $48,862 ( Justified ) The $48,862 consists of a $44,760 telephone system lease contract and $4,102 trash compactor lease contract, which were assumed by the Estate. The assumption of these contracts and payments of lease contract obligations during the [r]eceivership period were appropriate since the telephone system and trash compactor were used by the Estate and essential to the operation of the Hotel. (Emphases in original.) Hawaii Ventures, nonetheless, asserts that the circuit court's approval of these payments for pre-receivership obligations should be reversed[.] Although a receiver need not have prior court approval for every single detail of receivership, a receiver has some duty  given [her] very limited powers  to apply to the court for advice and directions. 65 Am.Jur.2d Receivers § 131 at 748 (footnotes omitted); see, e.g., Interlake Co. v. Von Hake, 697 P.2d 238, 240 (Utah 1985) (The receiver has only very limited powers and should apply to the court for advice and directions. If [she] acts without court authority, [she] assumes the risk of liability for costs and expenses incurred. (Citations omitted.)). Where [her] judgment is likely to be questioned by creditors, prudence will dictate recourse to the court for a decree authorizing particular action which will afford protection against later claim that the action was disadvantageous to the estate or beyond [her] authority. However, it is not to be expected that a receiver authorized to operate a business will apply to the court for specific approval of [her] decision on every business problem which comes before [her]. Fauci v. Mulready, 337 Mass. 532, 150 N.E.2d 286, 290 (1958). In matters of management and manner of disposition of the estate, a receiver exercises a large discretion, which [she] . . . must do, as the court cannot attend to details of administration. The court will act, and the receiver will exercise [her] discretion, at all times to best subserve the estate and those concerned in its due administration. Coy, 198 F. at 280. Moreover, where a receiver is appointed to perform a specific function such as preserving value by running a hotel business, as in this case, she must have freedom of action to do those acts most beneficial to [the] estate which are authorized by the court. Within such sphere[, she] may affirm or reject the rights and obligations of the interest [she] is caretaking[.] Riker v. Browne, 204 N.Y.S.2d 60, 62 (N.Y.Sup.Ct.1960) (citations omitted). Consistent with the foregoing, the appointment order explicitly granted Receiver Park the authority and discretion to, inter alia, (1) pay for such expenses as are necessary or appropriate for the care, preservation and maintenance of the Estate[;] (2) with a priority to be determined in the Receiver's sole discretion, pay any expenses (including for example, rent, utilities, taxes, payroll and debts to vendors) which arise during the period of the [r]eceivership; and (3) assume and perform under any contract relating to the [m]ortgaged [p]roperty. Aside from these expressed powers, the appointment order conferred a broad residual power on Receiver Park to take such other actions as is reasonable to effectuate the[] powers and duties defined in the appointment order. Accordingly, it was well within Receiver Park's discretion, pursuant to the express terms of the appointment order, to pay the necessary business expenses of the Hotel (although they may have been incurred earlier) from the revenues of the Hotel. See Hancock-Nelson Mercantile Co. v. Weisman, 340 N.W.2d 866, 869 (Minn.Ct.App.1983) (A receiver's powers are defined by the orders of the court and include authority as may reasonably or necessarily be implied for such orders. (Citation omitted.)). However, Hawaii Ventures contends that there [was] no evidence of any evaluation of the necessity and the costs before payment, no substantive explanations from the Receiver, and no evidence that the Receiver's conclusions were credible. According to Hawaii Ventures, [n]othing in the record shows that the Receiver or the Special Master considered whether any expenditure on Otaka['s] liabilities was necessary to keep the Hotel open, i.e., necessary to preserve the Estate. There is no evidence that the Receiver or her advisers even recognized that any limitation on their payments existed, and there is no evidence that they consulted with the Lender, or sought direction from the court. We disagree. In the Receiver's final report, in her response to the objections to her report, and in her response to the Special Master's report, Receiver Park pointed to the discretionary provisions contained in the appointment order as the guiding authority for her to pay certain expenses as she did. Attached to the final report were (1) a balance sheet as of the closing date including backup reconciliations and schedules ( e.g., bank reconciliations, inventory counts, fixed asset details, account receivable listings, accounts payable listings, and accrued vacation schedule), (2) a statement of income from August 24, 2000 to closing date, and (3) a post-closing cash balance report, listing the cash balances as of closing and details of the post-closing payments made on outstanding liabilities. Also, in her reply to objections to the final report, Receiver Park addressed each of Hawaii Ventures' concerns and enclosed numerous documents to further support her final report. Moreover, as discussed infra, the Special Master's report provided additional documentation of Receiver Park's payments. The Receiver's payment of the above challenged amounts for services and/or expenses was clearly consistent with her duty to preserve and maintain the Estate; it kept the Hotel operating and resulted in her delivery of a multi-million dollar profit to Hawaii Ventures. Inasmuch as Hawaii Ventures has failed to demonstrate that the circuit court abused its discretion in approving payment of Otaka's other pre-receivership debts, we hold it did not. [16]
As previously stated, Hawaii Ventures asserts that the circuit court erred in approving the Receiver's final report without permitting Hawaii Ventures to have access to the Hotel's books and records. Hawaii Ventures' first request for access to books and records was made in its May 9, 2001 motion for instructions to the Receiver requiring compliance with the receivership orders. Hawaii Ventures specifically urged the circuit court to, inter alia: 2. Requir[e] the Receiver to immediately identity [sic] and/or provide to [Hawaii Ventures] the following information[:] a. a statement of all [p]re-[r]eceivership [o]bligations and all [Otaka] Defendant [o]bligations paid from assets in the hands of the Receiver from and after August 24, 2000[;] b. a statement, whether in the form of a ledger record or an annotated balance sheet, showing assets and liabilities accrued during the period of the [r]eceivership, including such detail as is necessary to identify which of the accrued liabilities have been discharged, which accrued assets are in fact pre-paid expenses, and which accrued liabilities remain unpaid[;] and c. a statement of the sources and uses of cash flow during the term of the [r]eceivership showing the current cash balances. 3. Permit[ ] access to the Receiver's financial and operational information to allow independent accountants designated by [Hawaii Ventures] to undertake an immediate review and/or audit of the [Hotel's] books and records[.] Hawaii Ventures believed that the information should be readily available in the accounts of the Receiver and should be available to [Hawaii Ventures] upon request. [Hawaii Ventures] claims a first mortgage lien on the Estate far in excess of the value of the Estate. This information directly relates to the amount of collateral remaining in the Estate to be sold in foreclosure and to be available to repay at least a part of [Hawaii Ventures'] first mortgage lien. Further, Hawaii Ventures argued that an audit is appropriate to ascertain the propriety of payments, to ascertain the extent of and responsibility for improper payments, and to avoid any further deterioration of the Estate[.] On May 25, 2001, Receiver Park filed a memorandum in opposition to Hawaii Ventures' motion for instructions, wherein Receiver Park contended that she offered to give Hawaii Ventures, from the very beginning, every type of report generated by the Hotel, and placed no limits on anything [Hawaii Ventures] wished to see. It did want to, and did, meet with financial officers, on August 29, 2000, immediately upon the Receiver's appointment. It has had countless communications and meetings with the Receiver. [Hawaii Ventures], until very recently, has had regular lengthy telephone conferences with the Receiver, with unlimited email and phone access at all other times. Now, as always, [Hawaii Ventures] is welcome to visit and review financial records, with reasonably short notice of what it desires to see. (Citations omitted.) In support of her contention, Receiver Park attached her own declaration as well as the declaration of her accounting advisor, Ronald Tom. Moreover, Receiver Park maintained that Hawaii Ventures' requests would be impractical and enormously expensive and does not benefit the [r]eceivership's assets. Receiver Park also stated that: [I]t is the usual accounting practice to prepare a statement of assets and liabilities only as of a point in time. [The] Receiver is already planning to prepare such a report as of the closing date. . . . [Hawaii Ventures] also requests a statement of the sources and uses of cash flow during the [r]eceivership term. [The] Receiver is already planning to prepare such a statement, and this will be provided with the balance sheet which will be prepared as of the closing date. (Citations omitted.) On July 26, 2001, the circuit court, among other things, granted Hawaii Ventures' motion for instructions insofar as the Receiver shall provide a statement of payments made during the [r]eceivership period of any obligation or liabilities which did not accrue during the [r]eceivership period, including payments for vacation, wages and sick leave. The circuit court, however, denied Hawaii Ventures' other requests relating to access to information and an independent audit. Hawaii Ventures again requested access to the Hotel's books and records in its August 29, 2001 memorandum in opposition to Receiver Park's final report, wherein it alleged that the essential task of accounting for the receivership has been mishandled at a very basic level, and appears never to have been performed properly at either the beginning or ending of the receivership. The cost to the Estate of the accountants has been very substantial, but they seem to have done nothing more than keep Otaka's books. The errors are so basic, and the job so badly done, that the accounts can now only be resolved by independent accountants under adequate supervision. The Receiver's persistent refusal to cooperate in admitting qualified accountants, while claiming to have given full access and having been responsive to [Hawaii Ventures], is additionally troubling. Consequently, Hawaii Ventures contended that, without access to the Hotel's books and records for an independent accounting, it was unable to evaluate the final report further. In response, Receiver Park attached  as exhibits  numerous correspondence between her and her professionals and Hawaii Ventures' counsel concerning various requests for documents and site visitations. On September 21, 2001, the circuit court appointed the Special Master to review and address Hawaii Ventures' and other parties' concerns regarding the final report. Finally, Hawaii Ventures' third request for access was made in its February 12, 2003 motion for deficiency judgment. Therein, Hawaii Ventures requested, inter alia, the delivery of all records, assets, and other property relating to the Estate to its assignee, that is, HWB Kalakaua. The circuit court awarded Hawaii Ventures a deficiency judgment against the Otaka Defendants and additionally ruled that, [i]nasmuch as the copies of records, filing cabinets and computer equipment are no longer in controversy because they are ready to be picked up by the foreclosure purchaser, the only asset which remains in the custody of the Receiver is the monetary amount held in reserve. (Emphases added.) On appeal, Hawaii Ventures argues that it tried and was denied every avenue to discovery and an accounting. The required listing of payments came as part of the purported [f]inal [r]eport and admitted that $767,276.06 was paid for Otaka. [The] Lender emphasized to the circuit court the necessity for access to the [Hotel's] books and records in order to evaluate the new disclosures and matters set forth in the [f]inal [r]eport. [Consequently, d]enial of information has tainted this entire [r]eceivership process. Approval of an accounting cannot be sustained where there is no record to support the findings. Hawaii Ventures also argues that it made repeated requests for information from Receiver Park, but the Receiver refused access to books and records. In response, Receiver Park maintains that: [Hawaii Ventures] had full access to the Receiver's information and records, was formally permitted by the Receiver to have more access, failed to take advantage of that permission, and demanded a unilateral audit in May and August of 2001, without ever any showing of necessity or reliance on legal authority. The court appointed [the Special] Master to investigate and review all the issues about which [Hawaii Ventures] wanted information. In this, as in all other issues below, [Hawaii Ventures] fails to meet the standard of review  that the [circuit] court's decision to approve the [final] report and deny [Hawaii Ventures'] requests for its own audit was an abuse of discretion, such that the [circuit] court based its rulings on an erroneous view of the law or on a clearly erroneous assessment of the evidence or that it clearly exceeded the bounds of reason or disregarded rules or principles of law or practice. (Citation omitted.) As previously quoted, the appointment order  drafted by Hawaii Ventures  specifically authorized that [t]he Receiver may grant access for inspection of the [Estate] or books or records relating thereto to any party with such right. (Emphasis added.) Also, HRCP Rule 26(b) (2007) provides in relevant part that: Unless otherwise limited by order of the court in accordance with these rules, the scope of discovery is as follows: (1) IN GENERAL. Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. . . . (Emphasis and capitalization in original.) Thus, [t]he extent to which discovery is permitted under HRCP Rule 26 . . . is subject to considerable latitude and discretion of the [circuit] court. The exercise of such discretion will not be disturbed in the absence of a clear abuse of discretion that results in substantial prejudice to a party. Acoba v. Gen. Tire, Inc., 92 Hawai`i 1, 9, 986 P.2d 288, 296 (1999) (citations omitted); Wakabayashi v. Hertz Corp., 66 Haw. 265, 275, 660 P.2d 1309, 1315-16 (1983) (observing that the exercise of the trial court's discretion regarding discovery matters will not be disturbed in the absence of a clear abuse of discretion that results in substantial prejudice to a party). Based on our review of the record, it is unclear upon what factual basis Hawaii Ventures claims that it sought, and was denied, access to reports or information from the Receiver. In fact, Receiver Park indicated in her final report that she sent Hawaii Ventures the following regular reports, which Hawaii Ventures did not deny receiving: 1. Monthly comparative financial report, showing a balance sheet and detailed statements of income with comparisons to budget and prior periods for both the Hotel and [HWB;] 2. Weekly occupancy reports, showing hotel statistics[;] 3. Daily cash flow reports[;] 4. Daily flash reports which estimated daily revenues[; and] 5. Various other information requested by [Hawaii Ventures, including, for example, accounts receivable aging summaries, balance sheets and statements of operations]. (Footnote omitted.) Additionally, although the circuit court did not grant all of the requests for discovery in Hawaii Ventures' motion for instructions, the court did require Receiver Park to provide a statement concerning payments made during the receivership period  which was a concern to Hawaii Ventures inasmuch as it sought access to books and records to confirm and assure that all payments made by the Receiver were appropriately made. And, although Hawaii Ventures had indicated that an independent audit was necessary, it did not formally file a motion requesting such an audit. Nonetheless, the circuit court appointed the Special Master, who essentially conducted an independent accounting and audit of the final report. See section III.C., infra. Lastly, nowhere in Hawaii Ventures' briefs nor in the record on appeal does Hawaii Ventures dispute the basis for the circuit court's denial of its request for books and records  that is, that the copies of records, filing cabinets and computer equipment are no longer in controversy because they are ready to be picked up by the foreclosure purchaser. In light of the foregoing, we conclude that Hawaii Ventures has not sustained its burden on appeal to show the requisite abuse of discretion. Accordingly, we believe the circuit court did not abuse its discretion in denying Hawaii Ventures' requests for access to the Hotel's books and records and for an independent audit prior to approving the Receiver's final report. [17]