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

Heading: Access to Books and Records

Text: 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]