Opinion ID: 2630997
Heading Depth: 3
Heading Rank: 1

Heading: Judgment Against the Otaka Defendants

Text: In appeal No. 25344, Hawaii Ventures contends that the circuit court erred by failing to enter judgment against the Otaka Defendants and in favor of Hawaii Ventures  not only for the $394,787.00 found by the Special Master to be a receivable, but also for the $964,826.00 deemed justified by the Special Master, totaling over $1.3 million. Hawaii Ventures asserts that, [i]f the asset of the Estate was used to pay a liability, that asset either paid the Estate's own liability or that of another. If an asset of the Estate was used to pay a liability not its own, that payment  even if permitted by the [a]ppoint[ment o]rder for the preservation of the Estate  created rights in the Estate. At a minimum, the Estate is entitled to recover against the person whose liability was discharged. The circuit court should have awarded full subrogation rights and judgment in favor of [the] Lender and against the Otaka [Defendants] for discharge obligations. Hawaii Ventures further states that: There is no basis for assets of the Estate to be used to pay Otaka['s] obligations without a corresponding asset of the Estate being created. Thus, the conclusion that $1.3 million of Estate assets was used to pay Otaka['s] liabilities requires a finding that the Estate is owed $1.3 million. If said $944,205.00 [sic] and $394,787.00 had not been paid to discharge debts using assets of, or due to, . . . Estate, [p]urchaser HWB 2507 Kalakaua LLC would have received those proceeds. (Emphasis in original.) Moreover, Hawaii Ventures asserts that rights of subrogation and equitable principles of quantum meruit and unjust enrichment dictate its entitlement to the aforementioned amount, chargeable to the Otaka Defendants. [22] We first turn to the issue whether Hawaii Ventures was entitled to a judgment in the amount that the Special Master deemed a receivable for the Estate, i.e., $394,787.00.
Hawaii Ventures believes that, because Receiver Park should not have paid $394,787.00 in pre-receivership obligations as the Special Master concluded, the circuit court erred in failing to enter judgment in that sum in favor of Hawaii Ventures. The Otaka Defendants, however, urge this court not to consider Hawaii Ventures' argument made for the first time on appeal because Hawaii Ventures did not request judgment against the Otaka [Defendants] (or any of them) on the receivable or any other pre-receivership expenses prior to raising the issue on appeal. Further, the Otaka Defendants argue that the $394,787.00 receivable, even if it is affirmed on appeal, gives Hawaii Ventures nothing more than the basis for a potential claim against Otaka and HWB. Until that claim and the defenses thereto are actually pled and litigated, no judgment can enter. (Emphasis in original.) Hawaii Ventures retorts that it expressly raised the issue with the circuit court via its response to the Special Master's report: [The] Lender objected to aspects of th[e Special Master's] report, including . . . the limited designation of $394,787.00 as a receivable. At the May 28, 2002 hearing on the Special Master's [r]eport, the circuit court adopted the Special Master's recommendations, as amended, reserving only specified matters for determination at the hearing on the Receiver's [f]inal [r]eport. The issue of the receivable was not one of the matters reserved. Thus, [the] Lender only had a single memorandum opportunity to respond to the Special Master's [r]eport recommending that a receivable be granted. In responding, [the] Lender sought reimbursement from Otaka, including a discussion at length in its Response to the Special Master's [r]eport captioned Who is Liable?. Under the section captioned Who is Liable[,] Hawaii Ventures argued, inter alia, that: The Special Master concludes that[,] if the discharge of an Otaka liability by the Receiver is deemed justified, then there is no recourse for the Estate, even from Otaka or [HWB]. There is no basis in law for the Estate to be further stripped of its assets in this manner. The discharge of the debt of another carried with it inherent rights of subrogation and recovery of unjust enrichment, at the very least. (Citation omitted.) Hawaii Ventures essentially concluded that, at a minimum, the Estate is entitled to recover against the person whose liability was discharged [by Receiver Park's pre-receivership payments]. There is no basis in law or the [o]rder for assets of the Estate to be used to pay non-receivership obligations without a corresponding receivable of the Estate being created. Hawaii Ventures suggested that Otaka and [HWB] should be ordered to reimburse the Estate for the full amount of pre-receivership liabilities of any type paid by the Receiver[.] Significantly, in approving the Special Master's report on July 11, 2002, the circuit court specifically stated that: As to the pre-receivership liabilities which are determined receivables on June 30, 2001, from [Otaka and HWB to Hawaii Ventures, i.e., $394,787.00,] the [c]ourt's adoption of the Special Master's recommendation in this regard does not preclude the Plaintiff[, i.e., Hawaii Ventures,] from pursuing a claim against other defendants for these receivables to the extent that [Hawaii Ventures] is able to demonstrate its entitlement to prevail on these claims against other defendants. (Emphasis added.) On February 12, 2003, Hawaii Ventures filed a motion for deficiency judgment, wherein it sought a deficiency judgment against the Otaka Defendants in the amount of $13,144,020.18. In addition, Hawaii Ventures requested, inter alia, an order declaring HWB Kalakaua as the assignee of all right, title and interest in the $394,787.00 designated as a receivable arising during the receivership due to `Plaintiff' in the Special Master's report filed on March 19, 2000, and for a judgment in favor of [HWB Kalakaua] and against [Otaka] in that regard. On May 12, 2003, the circuit court granted Hawaii Ventures' motion for deficiency judgment in the amount of $13,144,020.18. The circuit court reserved certain issues, none of which are relevant here, to be addressed in connection with the Receiver's final motion for instructions and denied the motion in all other respects. In other words, Hawaii Ventures' request for a judgment against the Otaka Defendants regarding the receivable was denied. Based on the foregoing, the Otaka Defendants' contention regarding Hawaii Ventures' failure to raise the argument before the circuit court is without merit. Moreover, Black's Law Dictionary defines the term receivable in the context of this case as [a]n amount owed[.] Black's Law Dictionary 1296 (8th ed.2004). It is undisputed that the circuit court adopted the Special Master' recommendation that $394,787.00 in pre-receivership payments be deemed a receivable, i.e., an amount owed to Hawaii Ventures from Otaka and HWB. In other words, because Receiver Park had used $394,787.00 from the Estate to pay liabilities of Otaka (and not those of the Estate), those payments created rights in the Estate, entitling it to recover against the person whose liability was discharged. In turn, that amount would become an asset of the Estate to be distributed to Hawaii Ventures, as the lender. Consequently, Hawaii Ventures' request for a judgment in the amount of $394,787.00 against Otaka and HWB should have been granted. We, therefore, hold that the circuit court erred in failing to do so. Accordingly, we vacate that portion of the May 12, 2003 order granting in part Hawaii Ventures' motion for deficiency judgment and denying in part its request regarding the $394,787.00. We also vacate the May 14, 2003 deficiency judgment. We remand with instructions that the circuit court amend the May 12, 2003 order to include a grant of Hawaii Ventures' aforementioned request and for entry of an amended deficiency judgment that includes the amount of $394,787.00 in favor of Hawaii Ventures as against Otaka and HWB.
Hawaii Ventures also argues that the circuit court erred in failing to issue a similar judgment for the remaining pre-receivership payments of $964,826.00. Hawaii Ventures believes that, if said amount had not been paid to discharge Otaka's debts using Estate monies, it would have received the proceeds. The Otaka Defendants, however, argue that [t]here is no basis, and certainly no equitable basis, for judgment against any of the Otaka [Defendants] with respect to the $964,826 in trade receivables that the Receiver was determined to have justifiably paid for the benefit of the Estate. We agree with the Otaka Defendants. As discussed in section III.B.2., Hawaii Ventures challenged several specific payments it believed should not have been paid by Receiver Park with Estate monies. Those payments represent $515,226.00 of the $964,826.00 deemed justified by the Special Master and approved by the circuit court, which we have upheld. See supra section III.B.2.a (regarding $316,188.00 for wages and vacation pay) and section III.B.2.b. (regarding $199,398.00 for Otaka's pre-receivership debts). Hawaii Ventures, however, does not provide any argument disputing the remaining $449,600.00 that was (1) paid out of the Estate by Receiver Park, (2) deemed justified by the Special Master, and (3) approved by the circuit court. Accordingly, we decline to determine the propriety of the remaining $449,600.00 that was paid out of the Estate. See, e.g., Norton, 80 Hawai`i at 200, 908 P.2d at 548 (disregarding an appellant's contention where he failed to provide any discernible argument). Nevertheless, Hawaii Ventures argues that it is entitled to the entire $1.3 million of pre-receivership payments based upon its rights of subrogation and equitable principles of quantum meruit and unjust enrichment. This court has defined subrogation as the substitution of another person in the place of a creditor, so that the person in whose favor it is exercised succeeds to the rights of the creditor in relation to the debt. Peters v. Weatherwax, 69 Haw. 21, 27, 731 P.2d 157, 161 (1987) (internal quotation marks omitted) (quoting Kapena v. Kaleleonalani, 6 Haw. 579, 583 (1885)). When subrogation occurs, the substitute is put in all respects in the place of the party to whose rights he is subrogated. In effect, he `steps into the shoes' of the party. Peters, 69 Haw. at 27, 731 P.2d at 161 (citations, internal quotation marks, and brackets omitted); see also Beneficial Hawai`i, Inc. v. Kida, 96 Hawai`i 289, 313-14, 30 P.3d 895, 919-20 (2001). Subrogation is broad enough to include every instance in which one party pays a debt for which another is primarily answerable, and which, in equity and good conscience, should have been discharged by the latter. Peters, 69 Haw. at 27, 731 P.2d at 161 (internal quotation marks, citation and brackets omitted). With respect to the principles of quantum meruit and unjust enrichment, this court has stated that: The basis of recovery on quantum meruit is that a party has received a benefit from another which it is unjust for him to retain without paying therefor. In Bouterie v. Carre, 6 So.2d 218, 220 (La.App.1942), it is stated that if a party derives any benefit from services rendered by another, the law reasonably implies a promise to pay on the part of the one who has received such benefit, such amount as it is reasonably worth. Maui Aggregates, Inc. v. Reeder, 50 Haw. 608, 610, 446 P.2d 174, 176 (1968). As such, a court may give restitution and prevent the unjust enrichment of the defendant, where the plaintiff's property has been used in discharging an obligation owed by the defendant. Grain Dealers Mut. Ins. Co. v. Pac. Ins. Co., 70 Haw. 211, 217, 768 P.2d 226, 229 (1989) (citation, internal quotation marks, and brackets omitted). As discussed supra, we held that the circuit court erred in denying Hawaii Ventures' request for a judgment in the amount of $394,787.00 that the Special Master deemed a receivable in favor of Hawaii Ventures. See section III.D.1 (regarding judgment of pre-receivership payments against the Otaka Defendants). Therefore, as to that amount of pre-receivership payments, we obviously need not determine whether subrogation or equitable principles warrants reimbursement of said amount to Hawaii Ventures. Nevertheless, as to the remaining $964,826.00 of pre-receivership payments, Hawaii Ventures fails to explain how the aforementioned equitable doctrines apply to the circumstances of this case, thereby entitling Hawaii Ventures to such sum. For example, Hawaii Ventures merely sets forth the law of subrogation and unjust enrichment without providing any corresponding analysis. Norton, 80 Hawai`i at 200, 908 P.2d at 548 (disregarding an appellant's contention where he failed to present discernible arguments). Hawaii Ventures, however, did provide this court with a two sentence argument in support of its quantum meruit argument, to wit: The[se pre-receivership payments] were for services rendered for and utilized by Otaka while it still possessed the [H]otel property. It would be unjust to allow Otaka to receive those benefits without paying for them. We previously concluded that the challenged $515,226.00 of the $964,826.00 pre-receivership payments were justifiably paid out of the Estate. In other words, the benefits from the payments of goods and services inured to the operation of the Hotel to generate revenues and accounts receivables. The Otaka Defendants, thus, did not receive any benefit from such payments of services and expenses that could be considered unjust for [them] to retain without paying therefor. Maui Aggregates, 50 Haw. at 610, 446 P.2d at 176. Additionally, we earlier declined to address the remaining $449,600.00 because of Hawaii Ventures' failure to specifically challenge it. For the same reason, we believe that Hawaii Ventures has not established that it is entitled to reimbursement of the pre-receivership payments based upon rights of subrogation and equitable principles of quantum meruit and unjust enrichment.