Alan C. Kay, Sr. United States District Judge.
In a prior order issued on August 29, 2019, ECF No. 608 (the "First Sanctions Order"), the Court imposed sanctions jointly and severally on Defendant Aloha Ocean Excursions, LLC ("Defendant AOE") and Defendant Kristin Kimo Henry ("Defendant Henry") for their sanctionable conduct that the Court found was "tantamount to bad faith." Specifically, Defendant AOE and Defendant Henry were sanctioned based primarily on Defendant Henry's misrepresentations that led to the transfer in ownership of a commercial use permit for the vessel M/V Tehani from Defendant Sea Hawai'i Rafting, LLC ("Defendant SHR") to Defendant AOE. In the First Sanctions Order, the Court made clear that the sanctions would be "subject to significant enhancement" should the permit not be reissued to Defendant SHR. First Sanctions Order at 17. Contrary to the Court's clear direction, Defendant AOE and Defendant Henry prevailed on DOBOR to confirm and maintain the transfer of the permit to Defendant AOE. Thus, nearly six months later, the permit remains with Defendant AOE.
For that reason and those discussed below, the Court hereby imposes enhanced monetary sanctions on Defendant AOE and Defendant Henry, payable to Plaintiff Chad Barry Barnes ("Plaintiff Barnes"). The enhanced sanctions will be calculated and assessed to compensate Plaintiff Barnes for the measurable loss resulting from Defendant AOE's and Defendant Henry's sanctionable conduct. Specifically, the Court will calculate the sanctions in two parts: (1) the value of the permit, which represents the loss suffered by Barnes as a result of the permit being wrongfully transferred from Defendant SHR to Defendant AOE and then never reissued to Defendant SHR, and (2) attorney's fees and costs incurred by Plaintiff Barnes in responding to Defendant AOE's and Defendant Henry's sanctionable conduct.
This case has a long and complicated history, which the Court will not recount here. Instead, the Court discusses those facts and events specifically relevant to the issues implicated in this Order: (1) whether enhanced sanctions should be imposed against Defendant AOE and Defendant Henry for their ongoing failure to comply
It is helpful to begin in early 2019 with two hearings held in June and July addressing Plaintiff Barnes's Motion to Stay Dispersal of Funds (the "Motion to Stay"), ECF No. 565. In the Motion to Stay, Plaintiff Barnes had asked the Court to stay disbursement of the $35,000 in sale proceeds (from the sale of the vessel Tehani) then being held in the registry of the Court. Following the two hearings, the Court issued a minute order (the "July 17 Order"), ECF No. 585, (1) denying Plaintiff Barnes's motion to dismiss for lack of subject-matter jurisdiction and (2) denying Plaintiff Barnes's motion to stay the disbursement of the proceeds of the sale of the vessel. In the same order, the Court disbursed $17,000 plus interest to Plaintiff Barnes and directed that Defendant AOE's share be disbursed only after the vessel Tehani's commercial use permit was transferred back to Defendant SHR.
Plaintiff Barnes quickly appealed the July 17 Order, challenging "the Court's finding that the Court does have jurisdiction over a contract for the sale of a vessel." ECF No. 588. A few days later and still within the reconsideration period, Defendant AOE moved for reconsideration of the same July 17 Order, arguing that the Order functionally deprived Defendant AOE of property without due process of law. ECF No. 592.
While Defendant AOE's motion for reconsideration was pending, the Court advised the parties that it was considering sanctioning Defendant AOE and Defendant Henry for "wrongfully transferring the commercial use permit for the vessel M/V Tehani by Defendant Henry[']s misrepresentation to the harbormaster that he was simply requesting a change in name from Sea Hawaii Rafting, LLC to Aloha Ocean Excursions, LLC." ECF No. 601. The parties submitted briefing and the Court held a hearing on August 22, 2019, on whether to impose sanctions.
In the First Sanctions Order, the Court held that Defendant AOE and Defendant Henry had acted deliberately, recklessly, wrongfully, and with an improper purpose, and that their conduct was tantamount to bad faith and therefore sanctionable within the Court's inherent power. First Sanctions Order at 7-8, 13. Sanctions were imposed jointly and severally against Defendant AOE and Defendant Henry in the amount of $25,000, which was to be payable
The First Sanctions Order also specifically directed Defendant AOE and Defendant Henry to "take appropriate steps to effectuate the successful transfer of the commercial use permit back to Defendant SHR" and to "pay any fine or transfer fee assessed in the course of transferring the permit back to Defendant SHR."
On September 10, 2019, Defendant AOE sua sponte notified the Court that it had taken steps to comply with the First Sanctions Order. ECF No. 610 (the "Notice of Compliance"). Defendant AOE stated that it had "been in contact with DOBOR [Hawai'i's Division of Boating and Ocean Recreation] and that DOBOR has decided to let AOE keep the permit and pay the appropriate transfer fee." Notice of Compliance at 2-3. Notwithstanding its characterization of the filing as a "Notice of Compliance," the filing and an attached declaration of Defendant Henry confirmed that the commercial use permit in fact was not reissued to Defendant SHR. ECF No. 610-1. Instead, contrary to the Court's explicit instructions in the First Sanctions Order, the permit was being maintained by DOBOR in the name of Defendant AOE.
On September 27, 2019, in response to the Notice of Compliance, the Court issued an Order to Show Cause Why Enhanced Sanctions Should Not Be Imposed Pursuant to this Court's Inherent Power on Defendant Aloha Ocean Excursions, LLC and Defendant Kristin Kimo Henry (the "Show Cause Order"), ECF No. 619. The Show Cause Order directed Defendant AOE and Defendant Henry to show cause why they should not be subject to enhanced sanctions for their apparent violation of the First Sanctions Order and continued failure to take meaningful steps to effectuate the permit transfer.
On the same day the Show Cause Order was filed, Defendant AOE filed a notice of appeal, ECF No. 618, of the Reconsideration Order denying Defendant AOE's motion for reconsideration of the July 17 Order disbursing the sale proceeds conditional on the transfer of the permit back to Defendant SHR.
Defendant AOE and Defendant Henry filed their brief on October 17 (1) opposing the imposition of enhanced sanctions, (2) arguing that the Court lacks jurisdiction to impose enhanced sanctions in light of the Cross-Appeals, and (3) seeking a stay pending disposition of the Cross-Appeals. ECF No. 630 ("AOE Show Cause Br."). Plaintiff Barnes filed his response brief on November 11 arguing—among many other irrelevant things—that the Court has jurisdiction to and should impose enhanced sanctions upon Defendant AOE and Defendant Henry. ECF No. 637 ("Barnes Show Cause Br."). Defendant AOE and Defendant Henry filed a reply on November 15. ECF No. 640.
The Court held a hearing on December 20, 2019, at which it heard arguments and then advised the parties that the case would be continued for an evidentiary hearing to allow the parties to present evidence relevant to calculating enhanced sanctions.
The Court will begin by addressing the threshold matter of whether, given the pending Cross-Appeals, it has jurisdiction to consider imposing enhanced sanctions. As discussed in detail below, the Court concludes that it does. The Court next addresses the substantive issue of whether enhanced sanctions are appropriate in light of Defendant AOE's and Defendant Henry's continued failure to comply with this Court's many directives to ensure the transfer of the commercial use permit back to Defendant SHR. The Court holds that enhanced sanctions are indeed warranted. Because such sanctions are to compensate Plaintiff Barnes for his losses resulting from the sanctionable conduct, the Court concludes by describing the proper calculation of the monetary value of the enhanced sanctions, which includes appointing an independent appraisal to valuate the vessel and permit.
As a threshold matter, the Court concludes that the pending Cross-Appeals of the July 17 Order and the associated Reconsideration Order do not divest it of jurisdiction to impose enhanced sanctions for Defendant AOE's and Defendant Henry's failure to comply with those and later orders. Because Defendant AOE challenges the Court's authority in this regard and requests a stay pending appeal,
"As a general rule, `[t]he filing of a notice of appeal is an event of jurisdictional significance—it confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal.'"
At the same time, the Ninth Circuit has held that, "in the kinds of cases where the court supervises a continuing course of conduct and where as new facts develop additional supervisory action by the court is required, an appeal from the supervisory order does not divest the district court of jurisdiction to continue its supervision, even though in the course of that supervision the court acts upon or modifies the order from which the appeal is taken."
A district court also has the authority to enforce its past orders even while an appeal is pending.
While this case does not involve an injunction or an appeal of an order imposing injunctive relief, the Court concludes that it involves the type of facts contemplated by
Of course, the Cross-Appeals at issue here do not appeal the First Sanctions Order (in
For these reasons, the Court holds that it has jurisdiction to consider imposing enhanced sanctions and that the Cross-Appeals do not divest the Court of such jurisdiction.
Having established that the Court has jurisdiction to proceed, the Court now turns to Defendant AOE's request that "the sanctions issue and the directives set forth in [the Reconsideration Order] be stayed pending AOE's appeal of [the Reconsideration Order]." AOE Show Cause Br. 11. As discussed more fully below, the Court holds that a stay is not warranted in these circumstances.
The standard for evaluating a request for a stay pending appeal is similar to that for evaluating a request for preliminary injunction.
The Court must first consider the likelihood of success on appeal. On appeal, Defendant AOE argues primarily that the Court erred in not eliciting testimony about the circumstances surrounding the initial transfer of the permit from Defendant SHR to Defendant AOE and that, notwithstanding, any final determination about the reissuance of the permit would properly be left to DOBOR. With such testimony, Defendant AOE argues, "there is at least a reasonable chance that the Ninth Circuit could find in AOE's favor on the merits of the appeal." AOE Show Cause Br. 9.
Defendant AOE's choice of words here is telling. There is often at least a "reasonable chance" that a party may succeed on appeal. But that is not the appropriate standard. Here, the Court cannot say that Defendant AOE has made a "strong showing" that it is "likely to succeed on the merits." The permit was originally transferred to Defendant AOE based on Defendant Henry's misrepresentation to DOBOR that the transfer was merely a name change. So the Court's directives in the July 17 and Reconsideration Orders were its response to that misrepresentation. And Defendant AOE's and Defendant Henry's effort to preclude Barnes from enforcing his judgment and maritime lien by depriving him of access to the permit— one of two major assets of Defendant SHR (the other being the vessel Tehani)—was an obvious and calculated tactic. The Court gave the parties ample opportunity to present their positions surrounding the circumstances of the transfer—both in the form of soliciting briefs and allowing them to present oral arguments and witness testimony, both at the initial hearing and then at the hearing on the later motion for reconsideration. Thus, Defendant AOE's position that additional testimony and DOBOR's ultimate authority to decide whether the permit could remain with Defendant AOE does not present the "strong showing" needed to tilt this factor in favor of a stay.
For the reasons stated, this factor weighs against Defendant AOE and Defendant Henry.
The Court next considers whether Defendant AOE and Defendant Henry will be irreparably injured absent a stay. The Defendants argue that they will be irreparably harmed because "[o]nce the permit is transferred to SHR, AOE will never get it back."
This concern appears to have been obviated by the parties' apparent mutual understanding
Accordingly, this factor does not weigh in favor of granting a stay.
The Court next considers whether issuance of the stay will substantially injure other parties interested in the proceeding —most obviously, Plaintiff Barnes. Defendant AOE argues that even if the permit is transferred back to Defendant SHR, it would be of no use to Plaintiff Barnes unless and until he becomes the owner of SHR and SHR is no longer in bankruptcy. AOE Show Cause Br. 10. The Court is perplexed by this argument. It presupposes that the in personam judgment against Defendant SHR would be unenforceable, which is not exactly true. The bankruptcy court had lifted the stay against Defendant SHR—at least with respect to property outside of the bankruptcy estate, which would presumably have included the "abandoned" permit.
Regardless, Plaintiff Barnes will continue to suffer other injury or harm if a stay is put in place. In his response brief, Plaintiff Barnes describes the monetary loss caused by the improper transfer of the permit from Defendant SHR to Defendant AOE and the ongoing failure to reissue the permit to Defendant SHR: "The transfer has harmed Barnes and continues to harm him. It has delayed Barnes' ability to collect on his Judgment for maintenance and cure. It has cost Barnes in further arrest charges." Barnes Show Cause Br. 2.
Those ongoing harms and delays sustained by Plaintiff Barnes because of Defendant AOE's and Defendant Henry's shady transfer of the permit and subsequent refusal to seek DOBOR's approval to reissue it to Defendant SHR despite this Court's directives to do so weigh this factor in Plaintiff Barnes's favor. Accordingly,
Finally, the public interest factor is neutral. While Defendant AOE is correct that due process arguments present issues of public concern, equally important is the public's general faith in a litigant's ability to collect on a valid judgment—especially one involving an injured seaman's right to maintenance and cure—without a defendant dodging enforcement through perverse tactics. The Court's authority to supervise and monitor parties' compliance with Court orders in litigation is important to the public interest as well. Accordingly, this factor is neutral and does not weigh for or against imposing a stay.
All in all, the factors do not weigh in favor of granting a stay in these circumstances. Accordingly, Defendant AOE's and Defendant Henry's request for a stay pending appeal is hereby DENIED. The Court presses on to decide whether enhanced sanctions should be imposed pursuant to this Court's inherent power.
On August 29, 2019, the Court issued the First Sanctions Order assessing sanctions jointly and severally against Defendant AOE and Defendant Henry in the total amount of $25,000, payable to Plaintiff Barnes. The Clerk of Court disbursed $18,000 being held in the registry of the Court as partial payment of the sanction. One month later, Defendant AOE and Defendant Henry paid the remaining amount to Plaintiff Barnes. In the First Sanctions Order, the Court also directed "Defendant AOE and Defendant Henry to take appropriate steps to effectuate the successful transfer of the commercial use permit back to Defendant SHR" and required them to "pay any fine or transfer fee assessed in the course of transferring the permit back to Defendant SHR." First Sanctions Order 16-17. The Court cautioned the Defendants that "the $25,000 sanction shall be subject to significant enhancement should the permit not be reissued to Defendant SHR."
Despite these warnings and the explicit directives of the Court, the permit remains with Defendant AOE. Not only that, but Defendant AOE and Defendant Henry have failed to take any valid steps to cause the reissuance of the permit. Instead, they have done just the opposite. They deem themselves in compliance with the First Sanctions Order simply because they requested that DOBOR allow Defendant AOE to pay a fee and retain the permit in its name.
It is hard to overstate the Court's frustration at Defendant AOE's and Defendant Henry's tortured interpretation of this Court's prior directives, and their continued avoidance of the Court's instructions. The Court could not have been clearer when it issued the First Sanctions Order: "the $25,000 sanction shall be subject to significant enhancement should the permit not be reissued to Defendant SHR." First Sanctions Order 17. With that groundwork laid, the Court turns to explain its decision that enhanced sanctions are indeed warranted. Like with the original sanctions assessed, the Court now enhances those sanctions pursuant to its "inherent power."
"Three primary sources of authority enable courts to sanction parties or their lawyers for improper conduct: (1) Federal Rule of Civil Procedure 11, which applies to signed writings filed with the court, (2) 28 U.S.C. § 1927, which is aimed at penalizing conduct that unreasonably and vexatiously multiplies the proceedings,
In the Ninth Circuit, Courts have inherent power to levy sanctions for "willful disobedience of a court order ... or when the losing party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons...."
It is well settled that "sanctions are available if the court specifically finds bad faith or conduct tantamount to bad faith."
The Court is mindful that its inherent power to sanction must be exercised with "restraint and discretion."
For many of the reasons stated in the First Sanctions Order and alluded to throughout this Order, the Court finds it appropriate to enhance the monetary sanctions already imposed on Defendant AOE and Defendant Henry. Such enhancement is the result not only of the Defendants' past misrepresentations and failures to comply with the Court's directives,
As discussed in the First Sanctions Order, Defendant AOE and Defendant Henry "deliberately, recklessly, and wrongfully caused the permit to be transferred to Defendant AOE," and their improper conduct has "potentially jeopardized the validity of the permit and put the permit at a risk of cancellation." First Sanctions Order at 7-8. Enhanced sanctions are now appropriate because Defendant AOE's and Defendant Henry's subsequent conduct has further jeopardized the validity of the permit and deprived Plaintiff Barnes—who holds a maritime lien and judgment against Defendant SHR—of a valuable asset.
The parties were warned of these concerns in the First Sanctions Order. The Court explained that "by exposing the permit to a risk of cancellation, Defendant AOE and Defendant Henry have potentially limited Plaintiff Barnes's recovery to the value of the vessel alone." First Sanctions Order at 12. And the parties seem to agree that, without the permit, the value of the vessel alone is significantly diminished.
The Court now confronts the task of quantifying the enhanced sanctions. The purpose of the sanctions is to compensate Plaintiff Barnes for losses incurred as a result of wrongs committed by Defendant AOE and Defendant Henry.
With this framework in mind, the Court scheduled an evidentiary hearing and instructed the parties to submit evidence relevant to calculating the enhanced sanctions, assuming that the Court ultimately decided to impose such sanctions.
The Court determines that the following specific evidence is relevant to calculating the enhanced sanctions. As the Court sees it, the actual loss to Plaintiff Barnes caused by Defendant AOE's and Defendant Henry's sanctionable conduct can be divided into two components. The Court discusses each below.
First, the Court will assess sanctions for the loss of the value of the commercial use permit. Were it not for Defendant AOE's and Defendant Henry's wrongful transfer of the permit and their continued refusal to remedy the situation, Plaintiff Barnes could have moved forward with enforcing his judgment against Defendant SHR by going after its assets, including the vessel Tehani and (at the time) the permit.
The value of the permit is therefore linked to Defendant AOE's and Defendant Henry's sanctionable conduct in the sense that, but for the permit being transferred to and remaining in Defendant AOE's name, Plaintiff could have pursued enforcement of its judgment against Defendant SHR and recovered against its two assets, being the vessel and the permit.
Accordingly, the Court finds that Plaintiff Barnes is entitled to an award of enhanced sanctions derived from the monetary value of the commercial use permit, representing Plaintiff Barnes's actual loss arising from Defendant AOE's and Defendant Henry's wrongful conduct.
Mr. Oakley's appraisal should focus on two valuations. First, he should conduct an appraisal of the M/V Tehani, which is being held under seizure at Genrtys Kona Marina in Honokohau Harbor, Kailua-Kona. Second, he should conduct an appraisal of the M/V Tehani, together with the value of operating with the commercial use permit. Ultimately, the enhanced sanctions will be calculated based on the difference between the two—in other words, the value of the permit alone.
In addition to having the permit appraised, the Court will allow Plaintiff Barnes to conduct limited discovery to determine Defendant Henry's and Defendant AOE's use of the permit since it was transferred to Defendant AOE and the profits generated therefrom. Such discovery is limited to (1) the gross receipts reported to DOBOR in connection with the permit for the last four years and (2) Defendant AOE's records of operating income and expenses for the last four years. Any items not falling within one of these two categories remains solely under the magistrate judge's review in considering Plaintiff Barnes's recent motion to compel.
Plaintiff Barnes is also entitled to compensation for his attorney's fees and costs incurred in connection with the sanctionable conduct occurring after issuance of the First Sanctions Order. Plaintiff Barnes shall submit materials addressing whether and to what extent he is entitled to attorney's fees and/or costs in connection therewith. The materials should comply with the requirements listed in Local Rule 54.2(f)(1)-(5).
Upon receipt of these items, the Court will refer the matter to the magistrate judge to review and calculate the appropriate amount of fees and costs consistent with this Order.
For the reasons stated, the Court holds the following:
The Court appoints Mr. Robert Oakley of All Island Marine Survey to conduct an independent appraisal of the vessel Tehani
IT IS SO ORDERED.
To be clear, this is not what the Court directed the parties to do and Defendant AOE and Defendant Henry have offered no evidence that their communications with DOBOR reflect a meaningful attempt to ensure the permit be reissued to Defendant SHR. This flies in the face of the Court's warning in the First Sanctions Order. And Defendant AOE's and Defendant Henry's strained interpretation of the Court's directives and their blatant mischaracterization of the Court's language is yet another example of their deliberate and wrongful sanctionable conduct.