Court Opinion

ID: 9955172
Source: CourtListenerOpinion
Date Created: 2024-03-27 19:04:15.164411+00
Date Added: 2024-06-11T08:15:18.662845
License: Public Domain

NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER

                                             Electronically Filed
                                             Intermediate Court of Appeals
                                             CAAP-XX-XXXXXXX
                                             27-MAR-2024
                                             08:00 AM
                                             Dkt. 161 SO

                        NO. CAAP-XX-XXXXXXX

               IN THE INTERMEDIATE COURT OF APPEALS
                      OF THE STATE OF HAWAI#I

                         PROSPECT CO., LTD.
          Plaintiff/Counterclaim Defendant-Appellee, v.
         SCD ML II, LLC; STANFORD CARR DEVELOPMENT, LLC,
                Defendants/Counterclaim Plaintiffs/
             Counterclaim Defendants-Appellants, and
          P L DEVELOPMENT, LLC, Counterclaim Defendant/
               Counterclaim Plaintiff-Appellee, and
       STANFORD CARR, Counterclaim Defendant-Appellee, and
     JOHN DOES 1-50; JANE DOES 1-50; DOE CORPORATIONS 1-50;
    DOE PARTNERSHIPS 1-50; and DOE ENTITIES 1-50, Defendants

       APPEAL FROM THE CIRCUIT COURT OF THE THIRD CIRCUIT
                    (CIVIL NO. 3CC17100250K)

                    SUMMARY DISPOSITION ORDER
   (By: Leonard, Acting Chief Judge, McCullen and Guidry, JJ.)

          This appeal concerns a foreclosure on two construction

loans for a residential development project (Project).        Project

developers Defendant-Appellant/Counterclaim-Plaintiff/Third-Party

Plaintiff SCD ML II, LLC (SCD ML II) and Defendant-Appellant/

Counterclaim-Plaintiff/Third-Party Plaintiff/Counterclaim-

Defendant Stanford Carr Development, LLC (Stanford Carr)

(collectively, Appellants) appeal from the following orders

entered by the Circuit Court of the Third Circuit (Circuit
  NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER

Court):1   (1) March 21, 2018 Order Granting [Plaintiff-Appellee/

Counterclaim-Defendant/Third-Party Plaintiff/Fourth-Party

Plaintiff/Counterclaim-Plaintiff] Prospect Co., Ltd. [(Prospect)]

and [Third-Party Defendant-Appellee/Fourth-Party Plaintiff] PL

Development LLC's [(PL's)] Motion to Dismiss First Amended

Counterclaim (Dismissal Order); (2) April 6, 2018 Order Granting

[Prospect's] Motion for Partial Summary Judgment, and/or Default

Judgment, and for Interlocutory Decree of Foreclosure

(Foreclosure Decree);2 and (3) April 25, 2018 Order Denying [SCD

ML II] and [Stanford Carr's] Motion for Reconsideration of [the

Foreclosure Decree] (Order Denying Reconsideration).

            Appellants raise three points of error on appeal,

contending that the Circuit Court erred when it entered:             (1) the

Dismissal Order; (2) the Foreclosure Decree; and (3) the Order

Denying Reconsideration.

            Upon careful review of the record and the briefs

submitted by the parties, and having given due consideration to

the arguments advanced and the issues raised by the parties, we

resolve Appellants' points of error as follows:

            We review an award of summary judgment de novo, which

is "appropriate where there is no genuine issue as to the

material fact and the moving party is entitled to judgment as a

matter of law."     U.S. Bank, N.A. v. Mattos, 140 Hawai#i 26, 30,

398 P.3d 615, 619 (2017) (citation omitted).           In granting or

      1
            The Honorable Robert D.S. Kim presided.
      2
            On February 26, 2024, upon temporary remand from this court, the
Circuit Court entered a judgment on the Foreclosure Decree ( Foreclosure
Judgment) under Hawai#i Rules of Civil Procedure (HRCP) Rules 54(b) and 58.

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denying summary judgment, the court views all the evidence and

inferences in the light most favorable to the non-moving party.

Bank of Am., N.A. v. Reyes-Toledo, 139 Hawai#i 361, 367 n.9, 390

P.3d 1248, 1254 n.9 (2017).       We review the denial of a motion for

reconsideration for abuse of discretion, which occurs when the

trial court "clearly exceeded the bounds of reason or disregarded

rules or principles of law or practice to the substantial

detriment of a party litigant."           Tagupa v. Tagupa, 108 Hawai#i

459, 465, 121 P.3d 924, 930 (App. 2005) (citation omitted).
            (1)   Appellants challenge the Dismissal Order.          We

begin by recognizing that an appeal from a foreclosure judgment

brings up for review all interlocutory orders not appealable

directly as of right which deal with issues in the case[,] which

may include the prior dismissal of a counterclaim that concerned

issues involving the foreclosure.           Reyes-Toledo, 139 Hawai#i at

372, 390 P.3d at 1259.      Here, in the Dismissal Order, the Circuit

Court dismissed the First Amended Counterclaim (FACC)3 with leave

to amend.    Appellants then re-raised the same seven counts in a

Second Amended Counterclaim, albeit supported by additional

factual allegations, along with one count for unjust enrichment.

"[A]n amended petition supercedes the original petition and

renders the original petition of no legal effect."            Beneficial

Haw., Inc. v. Casey, 98 Hawai#i 159, 167, 45 P.3d 359, 367

(2002); e.g., Jou v. Siu, CAAP-XX-XXXXXXX, 2013 WL 1187559, *2

(Haw. App. Mar. 22, 2013) (mem. op.) (holding that a motion to

      3
            The FACC is actually a first amended counterclaim against Prospect
and first amended third-party claim against PL. See HRCP Rule 14.

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dismiss the original complaint became moot once the plaintiff

filed an amended complaint).    As the Dismissal Order did not

conclusively decide any claims, it is not properly before this

court on appeal from the Foreclosure Judgment.

          (2)   Appellants contend that Prospect is not entitled

to foreclose on the subject mortgage debt because it failed to

disprove the affirmative defense of "unclean hands."      See Ocwen

Fed. Bank, FSB v. Russell, 99 Hawai#i 173, 183, 53 P.3d 312, 322

(App. 2002) ("If the defense produces material in support of an
affirmative defense, the plaintiff is then obligated to disprove

an affirmative defense in moving for summary judgment[.]")

(citation and quotation marks omitted); Shinn v. Edwin Yee, Ltd.,

57 Haw. 215, 231, 553 P.2d 733, 744 (1976) (under the defense of

unclean hands, a party may not profit by his or her own

misconduct).    Specifically, Appellants contend SCD ML II expended

funds and completed much of the Project's construction in

reliance on Prospect's "commitments" to facilitate further

Project funding by, inter alia, softening and extending the terms

of its own construction loans and subordinating them to any new

construction loan SCD ML II obtained.     Prospect later sought to

impose additional conditions related to its granting of such

financial assistance—giving it control over the disbursement of

funds—to which SCD ML II took exception.     After SCD ML II

defaulted on the Prospect loans, the parties continued to

negotiate, but they failed to reach an agreement, and Prospect

filed suit.    Prospect and PL counter that Appellants failed to

produce evidence supporting the unclean hands defense, as

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Prospect's so-called "commitments" were merely preliminary

negotiations between sophisticated parties, and they have no

effect on Prospect's entitlement to foreclose.

           "Mortgage foreclosure is a proceeding equitable in

nature and is thus governed by the rules of equity."      Beneficial

Haw., Inc. v. Kida, 96 Hawai#i 289, 312, 30 P.3d 895, 918 (2001)

(citations omitted).   Appellants' arguments nonetheless fail.

Appellants rely primarily on Bank of Am., N.A. v. Yeh, CAAP-16-

0000128, 2017 WL 2829276 *1 (Haw. App. June 29, 2017) (SDO).
There, the borrower pointed to evidence in the record that the

foreclosing lender induced him to stop making payments in order

to qualify for loan modification, even though the lender's own

records revealed that the borrower did not qualify for one, which

ultimately caused him to default on the loan.     Id. at *3.    This

court held that the evidence of the inducement to stop making

payments revealed a genuine issue of material fact as to whether

the lender acted in good faith, which precluded granting summary

judgment on the foreclosure claim.     Id.

           However, the circumstances of this case are perhaps

more akin to Bank of Am., N.A. v. Corporex Realty & Inv. Corp.,

661 F. App'x 305 (6th Cir. 2016).     The lender therein, Bank of

America, directed the borrower, Corporex, to "'hold off' on

alternative funding, maintaining that [it] could offer a 'better

deal.'"   Id. at 307-08.   Subsequently, Bank of America sent

Corporex a notice of default, after which, the parties continued

to negotiate.   Id. at 308.   Bank of America suggested a loan

extension, and the parties agreed to "basic extension terms," but

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Corporex objected to certain "new terms."     Id.   Following an

impasse, Bank of America filed for foreclosure and prevailed on

summary judgment.    Id. at 309.   On appeal, the Sixth Circuit

Court rejected Corporex's fraudulent inducement defense.      Id. at

313-14.   It indicated that the evidence "reveals unsuccessful

negotiations between two sophisticated parties, not a secret plot

by [Bank of America] to feign negotiations in an attempt to drag

the loans into default," and that Bank of America merely

"negotiated from a position of strength and refused to extend the
loan on less-than-favorable terms."     Id. at 313.

           Here, the borrowers are sophisticated developers, and

Appellants produced no evidence indicating that Prospect either

induced SCD ML II to cease making loan payments under false

pretenses, or feigned its prior willingness to facilitate

additional funding in order to lure SCD ML II into default,

either of which might tend to establish the affirmative defense

of unclean hands, shifting the burden of proof back to Prospect.

On the record before us, we conclude that the Circuit Court did

not err in granting summary judgment on Prospect's foreclosure

claim.

           (3)   Finally, Appellants challenge the Order Denying

Reconsideration, but failed to raise any issues or arguments that

were not presented earlier.    We conclude that the Circuit Court

did not abuse its discretion in denying reconsideration.

           For these reasons, the Circuit Court's February 26,

2024 Foreclosure Judgment, April 6, 2018 Foreclosure Decree, and

April 25, 2018 Order Denying Reconsideration are affirmed.

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  NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER

Appellants' appeal from the March 21, 2018 Dismissal Order is

dismissed without prejudice.

           DATED: Honolulu, Hawai#i, March 27, 2024.

On the briefs:                        /s/ Katherine G. Leonard
                                      Acting Chief Judge
William Meheula,
Natasha L.N. Baldauf,                 /s/ Sonja M.P. McCullen
(Sullivan Meheula Lee, LLLP),         Associate Judge
for SCD ML II, LLC and STANFORD
  CARR DEVELOPMENT, LLC,              /s/ Kimberly T. Guidry
  Defendants/Counterclaim             Associate Judge
  Plaintiffs/Counterclaim
  Defendants-Appellants.
Simon Klevansky,
Alika L. Piper,
Elaine T. Chow,
(Klevansky Piper, LLP),

     and

Francis L. Jung,
Carol Monahan Jung,
(Jung & Vassar, P.C.),
for PROSPECT CO. LTD.,
  Plaintiff/Counterclaim
  Defendant-Appellee and
  P L DEVELOPMENT LLC,
  Counterclaim Defendant/
  Counterclaim Plaintiff/Appellee.

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