Opinion ID: 2630997
Heading Depth: 3
Heading Rank: 2

Heading: Surcharge Against Receiver Park

Text: Hawaii Ventures attempts to impose personal liability on Receiver Park, arguing that the circuit court erred in denying its request for a surcharge of approximately $1.3 million, i.e., the total pre-receivership amount paid by Receiver Park. Although recognizing that the Special Master found only $394,787.00 to be a receivable, Hawaii Ventures nonetheless maintains that the entire sum ($394,787.00 receivable and $964,826.00 justifiable) discharged Otaka of its obligations to third parties and the Receiver had both the obligation and power under principals [sic] of subrogation to undertake to recover those sums from Otaka for the Estate. Failure to do so renders her subject to surcharge. In response, Receiver Park contends that the appointment order set the standard for the Receiver's personal liability and that the Special Master and the circuit court properly rejected allegations to impose such liability. She argues that Hawaii Ventures had the burden and obligation of showing to the [circuit] court and [the] Special Master in what particular manner the Receiver's actions constitute bad faith or fraud.  [Hawaii Ventures] did not supply a scintilla of such showing, did not relate any of its facts to the bad faith or fraud standard, in any way commensurate with the seriousness of the charges[.] (Emphasis in original.) As previously stated, the appointment order specifically contained a provision, entitled Receiver's Non-Liability, which read as follows: The Receiver is an officer of the [c]ourt and, as such, Receiver shall not be liable, in Receiver's individual capacity, for any claims or demands for loss or damage, arising out of or in connection with this lawsuit and [o]rder, including any acts or omissions in connection with the management and operation of the property of the Estate, whether such claims or demands arise during the pendency of or after the completion of this lawsuit, except in the event that Receiver's acts or omissions constitute bad faith or fraud. (Emphases added.) Hawaii Ventures, however, first argues that the exculpatory language of the appointment order cannot protect the Receiver from scrutiny in light of her misconduct. Specifically, Hawaii Ventures argues that the Receiver never provided the detailed accounting information required in the first instances of a Receiver, and sought by [the] Lender. The circuit court did not have such information in approving the Receiver's reports. The Special Master did not have such information in reviewing the Receiver's activities. The circuit court did not have such information in reviewing the Special Master's report. Hawaii Ventures' bald assertion is without merit. As discussed supra, Hawaii Ventures has not sustained its burden on appeal to show that the circuit court abused its discretion in denying Hawaii Ventures' requests for access to the Hotel's books and records. See supra section III.B.3. We also concluded that, in providing a detailed explanation of his recommendations, the Special Master had sufficient information to properly review the Receiver's final report. See supra section III.C.2.a. And, finally, we held that the Special Master did not, as Hawaii Ventures contends, fail to address issues concerning Receiver Park's misconduct when he specifically determined that Receiver Park's actions did not amount to bad faith or fraud. See supra section III.C.2.b. Thus, we concluded that, without providing any reason for the circuit court to disregard the Special Master's conclusion, the circuit court did not err in approving the Special Master's report. See supra section III.C.2.b. Consequently, we do not believe the circuit court abused its discretion in declining to surcharge Receiver Park. Nevertheless, in apparent recognition that this court may agree with the circuit court's decision, Hawaii Ventures next contends that the existence of bad faith or fraud is not required in order to find a receiver liable for negligently administering an estate. Specifically, Hawaii Ventures explains: [The] Lender sought a surcharge here because the Receiver did not, even with professional accounting advice, exercise proper stewardship in preserving Estate assets. Although the Receiver may have not profited directly in paying Otaka['s] debts, she was at the least negligent in, e.g., . . . paying more than a million dollars for those [debts], . . . failing to disclose and detail these payments in the face of demands and . . . comprehensively failing to pursue reimbursement to the Estate. (Emphasis added.) Thus, the issue before this court is whether  regardless of the directive contained in the appointment order  Receiver Park can be held personally liable for negligent violations of duties imposed upon her by law. We conclude she cannot. This court has held that: There is no doubt of the inherent power of a circuit [court] sitting in equity or in probate to call to [its] aid special masters, auditors, examiners or even translators for the purpose of assisting the court, in other words, the inherent power to provide [itself] with the appropriate instruments required for the performance of [its] duties. . . . [Thus,] a circuit court may designate a person to aid it in the performance of specific judicial duties as they arise in the progress of the cause, to clarify issues and make tentative findings when occasion arises[.] In re the Estate of Lee Chuck, 33 Haw. 220, 223 (1934). In this case, the circuit court appointed Park as the receiver to assist the court in managing the Estate during the pendency of the foreclosure action, and, thus, Park became an officer of the court. Booth, 58 U.S. at 331; see also HRCP Rule 66 (2007) (The practice in the administration of estates by receivers or by other similar officers appointed by the court shall be in accordance with the practice heretofore followed. (Emphasis added.)); Hawai`i Nat'l Bank v. Cook, 99 Hawai`i 334, 347, 55 P.3d 827, 840 (App.2000) (holding that a commissioner is a neutral party appointed by the court and acts as an arm of the court) (internal quotation marks and citation omitted), rev'd on other grounds, 100 Hawai`i 2, 58 P.3d 60 (2002). Although this court has yet to declare a receiver's entitlement to absolute judicial immunity based on her status as an officer of the court, we have held that court-appointed psychiatrists are entitled to such immunity, even if negligent. Seibel v. Kemble, 63 Haw. 516, 631 P.2d 173 (1981). In Seibel, this court acknowledged the overriding public policy reason for the immunity, i.e., that judges should be at liberty to exercise their functions with independence and without fear of consequences[,] id. (internal quotation marks and citations omitted), and concluded that such policy should apply equally to court-appointed officials. Id. As such, this court extended the immunity afforded to judges to court-appointed psychiatrists acting in their official capacity. Id. at 524, 631 P.2d at 178. In so holding, the Seibel court relied on a line of cases from other jurisdictions for the proposition that court-appointed officials acting as arms of the court and performing functions integral to the judicial process are entitled to absolute immunity. Id. at 523-27, 631 P.2d at 178-80. Of particular relevance is Kermit Constr. Corp. v. Banco Credito Y Ahorro Ponceno, 547 F.2d 1 (1st Cir.1976), of which we stated: In that case, the [First Circuit] held that court-appointed receivers were entitled to absolute immunity. In reaching this conclusion, the [First Circuit] stated[:] At the least, a receiver who faithfully and carefully carries out the orders of his appointing judge must share the judge's absolute immunity. To deny him this immunity would seriously encroach on the judicial immunity already recognized by the Supreme Court. It would make the receiver a lightning rod for harassing litigation aimed at judicial orders. In addition to the unfairness of sparing the judge who gives an order while punishing the receiver who obeys it, a fear of bringing down litigation on the receiver might color a court's judgment in some cases, and if the court ignores the danger of harassing suits, tensions between the receiver and judge seem inevitable. Seibel, 63 Haw. at 527, 631 P.2d at 180 (quoting Kermit Constr. Corp., 547 F.2d at 3). For the same reason, this court recognized that failure to extend absolute immunity to court-appointed psychiatrists would produce a chilling effect upon acceptances of future court appointments because [c]ourt appointees would not want to be exposed to litigation and be forced to spend time and money defending themselves in court. Id.; see also Hulsman v. Hemmeter Dev. Corp., 65 Haw. 58, 64, 647 P.2d 713, 719 (1982) (holding, inter alia, that a probation officer, as a functionary of the court, was absolutely immune, pursuant to the doctrine of judicial immunity, from liability for negligence in the preparation, investigation[,] and presentation of a pre-sentence report). The rationale underlying our decision in Seibel is, therefore, equally applicable in the instant case to court-appointed Receiver Park. [23] Accordingly, Hawaii Ventures' argument that Receiver Park should be held personally accountable for the $1.3 million that it claims she had negligently expended in her management of the Hotel is unavailing. Consequently, we hold that the circuit court did not abuse its discretion in denying Hawaii Ventures' request to surcharge Receiver Park. [24]