NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER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entered by the Circuit Court of the Third Circuit (Circuit NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER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.
2 NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
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.
3 NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
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
4 NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
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
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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.
2 NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
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.
3 NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
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
4 NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
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
5 NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
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.
6 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.