Barnes v. Sea Hawaii Rafting, LLC

Procedural entryThis page is a short order in Barnes v. Sea Hawaii Rafting, LLC. Read the opinion of the Court — 371 F. Supp. 3d 797
District Court, D. Hawaii·Decided August 13, 2020·No. 1:13-cv-00002·Unknown

Opinion

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAI`I

) CHAD BARRY BARNES, ) ) Plaintiff, ) ) v. ) ) SEA HAWAI`I RAFTING, LLC; ) et al. ) Civ. No. 13-00002 ACK-WRP ) Defendants. ) )

ORDER (1) GRANTING PLAINTIFF’S MOTION FOR RECONSIDERATION, ECF. NO. 724, (2) STAYING THE BOND AND INTERLOCUTORY SALE PROCESS, AND (3) IMPOSING PARTIAL ENHANCED COMPENSATORY SANCTIONS PURSUANT TO THE ENHANCED SANCTIONS ORDER, ECF NO. 657

For the reasons set forth below, the Court GRANTS Plaintiff Chad Barry Barnes’s Motion to Reconsider Minute Order [ECF No. 717] Administratively Withdrawing Barnes’ Motion for Summary Judgement to Pierce the Corporate Veil, ECF No. 724 (the “Motion to Reconsider”). The Court also STAYS, pending a decision on appeal, any action regarding an interlocutory sale and/or posting of a cash bond. Finally, the Court imposes partial enhanced compensatory sanctions against Defendant Kris Henry and Defendant Aloha Ocean Excursions, LLC (“AOE”) pursuant to the Court’s inherent power and based on the grounds set forth in the Court’s Order Imposing Enhanced Sanctions, ECF No. 657 (the “Enhanced Sanctions Order”). Such sanctions shall be calculated to compensate Plaintiff Barnes for the amount of the U.S. Marshals fees (including insurance) and storage costs (together, the “Custodial Costs”) incurred to maintain the vessel Tehani under arrest between August 29, 2019 (the date the Court issued the first Order Imposing Sanctions, ECF No. 608 (the “Initial Sanctions Order”)) and August, 13, 2020 (the date of issuance of this Order), and shall require Defendant Henry

and Defendant AOE to pay any currently-owing Custodial Costs and the ongoing Custodial Costs either until the vessel Tehani is released by bond or sale or upon an earlier Court order.

BACKGROUND This case has a long and complex procedural history, which the Court does not undertake to relay here. The Court instead describes only those facts relevant to the issues before it now. I. Sanctions Against Defendant Henry and Defendant AOE 1/ On August 29, 2019, the Court assessed sanctions on

Defendant AOE and Defendant Henry in the amount of $25,000, to be paid jointly and severally, for conduct that the Court found was “tantamount to bad faith.” ECF No. 608. Defendant AOE and Defendant Henry were sanctioned based on bad-faith misrepresentations Defendant Henry made in 2016 that ultimately

1/ The Enhanced Sanctions Order contains more details about the conduct that led to the Court to sanction Defendant AOE and Defendant Henry. led to the transfer in ownership of the commercial-use permit associated with the vessel M/V Tehani from Defendant Sea Hawai`i Rafting, LLC (“SHR”) to Defendant AOE. In imposing the first round of sanctions, the Court made clear that the sanctions would be “subject to significant enhancement” should the permit not be reissued to Defendant SHR.

After Defendant Henry and Defendant AOE paid the initial sanctions but failed to effectuate the reissuance of the permit back to Defendant SHR, the Court issued a second order imposing “enhanced sanctions” to compensate Plaintiff Barnes for “the measurable loss resulting from Defendant AOE’s and Defendant Henry’s sanctionable conduct,” which would be calculated in several 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.

Enhanced Sanctions Order at 2. To calculate the first part—the value of the permit— the Court appointed Robert Oakley to conduct an appraisal of the vessel and the permit. Id. at 32. The Court also stated that it may consider the prior appraisal submitted by Defendant AOE in early 2019, and gave the parties permission to submit their own appraisal reports, which neither chose to do.2/ See id. Finally, the Court allowed 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.” Id. at 33. To calculate the second part—attorney’s fees and costs—the Court provided that

Plaintiff Barnes could submit materials addressing his entitlement to such costs, which would then be reviewed by the Magistrate Judge. The Court stated: After Mr. Oakley’s appraisal report is filed and the Court has reviewed it, together with any appraisal reports submitted by the parties and the prior report submitted by Defendant AOE in early 2019, the Court will hold a hearing to allow the parties to express their positions and thereafter calculate the monetary amount of enhanced sanctions payable to compensate Plaintiff Barnes for his losses stemming from the Defendants’ sanctioned conduct, and issue an order imposing such enhanced sanctions accordingly.

Enhanced Sanctions Order at 34-35. Although the Enhanced Sanctions Order broadly described the basis for the enhanced sanctions and how they would be calculated, no enhanced sanctions have yet been calculated or paid.3/

2/ The parties had 30 days from the date the Enhanced Sanctions Order was issued to submit reports from any reputable marine surveyor. Enhanced Sanctions Order at 32. 3/ This is partially due to delays caused by the Covid-19 pandemic, (Continued . . . ) II. Attempts to Pierce the Corporate Veil Well before the sanctions matters arose, Plaintiff Barnes has been seeking to pierce the corporate veil of Defendant SHR in an attempt to hold Defendant Henry personally liable for maintenance and cure. See, e.g., ECF No. 157 (2015 motion seeking to pierce the corporate veil). Several

intervening issues related to Defendant SHR’s and Defendant Henry’s bankruptcies and the bad-faith transfer of the commercial-use permit caused the Court to postpone ruling on whether Plaintiff Barnes could successfully pierce the veil. See ECF No. 158. Several years later, in late 2019, the bankruptcy court ruled that Defendant Henry’s bankruptcy discharge prevented Plaintiff Barnes from recovering any maintenance and cure from Defendant Henry personally, whether or not the corporate veil could be pierced. On appeal in the district court, Judge Watson affirmed in part and reversed in part, clarifying that Plaintiff Barnes

could in fact pursue his maintenance and cure claim against Defendant Henry personally if the corporate veil was pierced, but only up to the value of the in rem claim against the Vessel

which prevented the Court-appointed appraiser from surveying the vessel to determine its and the commercial-use permit’s value. Only just recently was the inter-island quarantine lifted, allowing the appraiser to conduct the survey. The Court just received the appraiser report, which will now allow the Court to move forward with assigning a number to a portion of the enhanced sanctions. Tehani (which would include the value of the permit should the Ninth Circuit find it appurtenant). See Barnes v. Henry, Consolidated Case No. 1:19-cv-00210 (Doc. No. 12) (D. Haw. Jan. 13, 2020); Barnes v. Henry, Consolidated Case No. 1:19- cv-00211 (Doc. No. 12) (D. Haw. Jan. 13, 2020); see also In re Sea Hawaii Rafting, LLC, Bankr. No. 14-01520 (D. Haw. Bankr.). Simply put,

Judge Watson’s ruling would allow Plaintiff Barnes to recover against Defendant Henry only for the amount of the secured maritime lien, meaning the value of the vessel Tehani. Following Judge Watson’s rulings, and around the time the Enhanced Sanctions Order was issued, this Court sua sponte reinstated Plaintiff Barnes’s prior motion to pierce the corporate veil. See ECF No. 658. Meanwhile, Plaintiff Barnes appealed Judge Watson’s rulings to the Ninth Circuit.

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Barnes v. Sea Hawaii Rafting, LLC, (D. Haw. 2020).

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