Private Capital Group, Inc. v. Coco Palms Hui, LLC

NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER

Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
28-JUN-2024
08:00 AM
Dkt. 160 SO

NOS. CAAP-XX-XXXXXXX and CAAP-XX-XXXXXXX

IN THE INTERMEDIATE COURT OF APPEALS

OF THE STATE OF HAWAI#I

CAAP-XX-XXXXXXX
PRIVATE CAPITAL GROUP, INC., a Utah Corporation,
Plaintiff-Appellee, v. COCO PALMS HUI, LLC, a Delaware Limited
Liability Company; TYLER SCOTT GREENE, Defendants-Appellees,
and
CHAD WATERS, Defendant-Appellant,
and
PAUL M. HONKAVAARA dba Chartered Financial Group,
Defendant-Appellee,
and
DOE DEFENDANTS 1-50, Defendants
(CASE NO. 5CC191000086)

and
CAAP-XX-XXXXXXX
PRIVATE CAPITAL GROUP, INC., a Utah Corporation,
Plaintiff-Appellee, v. COCO PALMS HUI, LLC, a Delaware Limited
Liability Company; TYLER SCOTT GREENE, Defendants-Appellees,
and
CHAD WATERS, Defendant-Appellee,
and
PAUL M. HONKAVAARA dba Chartered Financial Group,
Defendant-Appellant,
and
DOE DEFENDANTS 1-50, Defendants
(CASE NO. 5CC191000086)

APPEAL FROM THE CIRCUIT COURT OF THE FIFTH CIRCUIT
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER

SUMMARY DISPOSITION ORDER
(By: Hiraoka, Presiding Judge, Wadsworth and Nakasone, JJ.)

Paul M. Honkavaara, doing business as Chartered
Financial Group, appeals from the Amended Final Judgment for
Private Capital Group, Inc. (PCG) entered by the Circuit Court of
the Fifth Circuit on September 20, 2021.1 We vacate and remand.
PCG filed a foreclosure complaint against Coco Palms
Hui LLC, Tyler Scott Greene, Chad Waters, and Honkavaara. The
complaint alleged that PCG serviced a Mortgage on real Property
owned by Coco Palms Hui. The Mortgage secured a Note made by
Coco Palms Hui. The Note was payable to a group of lenders, for
whom PCG claimed to act. Coco Palms Hui defaulted on the Note.
Greene and Waters had guaranteed Coco Palms Hui's obligation
under the Note. Honkavaara claimed an interest in the Property
as a judgment creditor of Coco Palms Hui.2
PCG moved for summary judgment and a decree of
foreclosure on November 5, 2019. Honkavaara and Waters opposed
the motion. The circuit court entered an order granting partial
summary judgment and a decree of foreclosure on June 17, 2020.
Waters filed a notice of appeal on June 25, 2020, creating CAAP-
XX-XXXXXXX. A "Final Judgment" was entered on August 10, 2020.
Honkavaara filed a notice of appeal on August 25, 2020, creating
CAAP-XX-XXXXXXX. We consolidated the appeals and temporarily
remanded the case for entry of a judgment that complied with
Hawai#i Rules of Civil Procedure Rule 54(b) and Jenkins v. Cades
Schutte Fleming & Wright, 76 Hawai#i 115, 119, 869 P.2d 1334,
1338 (1994). The Amended Final Judgment was entered on
September 20, 2021. We approved the parties' stipulation to
dismiss Waters' appeal on March 6, 2024. Only Honkavaara's
appeal remains before us.

1
The Honorable Randal G.B. Valenciano presided.
2
Honkavaara's answer admitted that his judgment lien was junior and
subordinate to the lien of the Mortgage.

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

Honkavaara contends the circuit court erred by granting
summary judgment because PCG: (1) lacked standing to enforce the
Note; (2) did not prove it suffered an injury-in-fact; and
(3) had unclean hands. We review a grant of summary judgment de
novo. Bank of Am., N.A. v. Reyes-Toledo, 139 Hawai#i 361, 367
n.9, 390 P.3d 1248, 1254 n.9 (2017).
(1) A copy of the Note was attached to PCG's motion
for summary judgment. As the foreclosing plaintiff moving for
summary judgment, PCG had to prove it was entitled to enforce the
Note. Reyes-Toledo, 139 Hawai#i at 367, 390 P.3d at 1254 (citing
HRS § 490:3-301). It had to show it was either (a) the holder of
the Note, or (b) a nonholder in possession of the Note with the
rights of a holder. HRS § 490:3-301 (2008).3
(a) PCG vice president Benjamin C. Schramm submitted a
declaration stating that PCG had possession of the Note since it
was executed. Under the Hawai#i Uniform Commercial Code, a
holder of a note is a person in possession of a note that is
payable to the bearer, or to "an identified person that is the
person in possession[.]" HRS § 490:1-201 (2008). The Note was
payable to WCMF Inc., Coco Lenders Partnership, Blue Glacier
Fund, L.P., Crestline AK Opportunistic Fund, L.P., and PCG Credit
Partners LLC, "or their successors and assigns[.]" A declaration
by PCG's custodian of records stated that WCMF Inc. assigned its
interest in the Note to Robert Conte, who assigned it to WSNT
LLC. Neither assignment appears in the record.
The Note was not specially indorsed to PCG. HRS
§ 490:3-205(a) (2008). The Note was not indorsed in blank. HRS
§ 490:3-205(b) (2008). PCG did not show it was the holder of the
Note.
(b) PCG argues it was a nonholder in possession of the
Note with rights of a holder because it was the "disclosed agent"
of the payees named in the Note (and presumably their assignees).

3
The HRS § 490:3-301 provisions about lost, stolen, or destroyed
notes, or instruments paid or accepted by mistake, do not apply here.

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Schramm's declaration stated that PCG had serviced Coco Palms
Hui's loan since its origination, maintained all of the loan
servicing records, and had possession of the Note. That agency
relationship does not prove PCG had the rights of a holder.
HRS § 490:3-203 (2008) provides, in relevant part:

(a) An instrument is transferred when it is delivered by a
person other than its issuer for the purpose of giving to
the person receiving delivery the right to enforce the
instrument.

(Emphasis added.)
Uniform Commercial Code § 3-203 official comment 2.
states: "Because the transferee's rights are derivative of the
transferor's rights, those rights must be proved. . . . The
instrument, by its terms, is not payable to the transferee and
the transferee must account for possession of the unindorsed
instrument by proving the transaction through which the
transferee acquired it." (Emphasis added.) As the supreme court
of one Uniform Commercial Code state noted, "because [a
transferee] seeking to enforce the note cannot 'prove' its right
to enforce through the use of a valid endorsement [sic], the
party must 'prove' by some other means that it was given
possession of the note for the purpose of enforcing it." Leyva
v. Nat'l Default Servicing Corp., 255 P.3d 1275, 1281 (Nev. 2011)
(emphasis added) (footnote omitted).
Schramm's declaration showed only that PCG serviced the
loan. It did not establish that WCMF Inc., Coco Lenders
Partnership, Blue Glacier Fund, L.P., Crestline AK Opportunistic
Fund, L.P., PCG Credit Partners LLC, Robert Conte, or WSNT LLC
authorized PCG to file suit to enforce the Note. PCG did not
submit a loan servicing agreement or other evidence "of such
authority to demonstrate that the principals unequivocally
manifested their intention to authorize the loan servicer to
exercise those rights [to foreclose a mortgage.]" J.E. Robert
Co. v. Signature Props., LLC, 71 A.3d 492, 504 n.19 (Conn. 2013)

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(cleaned up). PCG did not show it was a nonholder in possession
of the Note with rights of a holder.
(2) A plaintiff must have suffered an injury-in-fact
to establish standing to "justify exercise of the court's
remedial powers" on their behalf. Wells Fargo Bank, N.A. v.
Behrendt, 142 Hawai#i 37, 41, 414 P.3d 89, 93 (2018) (citation
omitted). In a foreclosure case, "the injury-in-fact is the
mortgagor's failure to satisfy its obligation to pay the debt
obligation to the note holder." Id. (cleaned up). The Note did
not obligate Coco Palms Hui to pay PCG. PCG did not establish it
suffered an injury-in-fact giving it standing to prosecute the
foreclosure action.
(3) We need not address unclean hands because we are
vacating the order granting partial summary judgment on other
grounds, and remanding this case for further proceedings.
For these reasons, the circuit court's June 17, 2020
Findings of Fact and Conclusions of Law and Order Granting
Plaintiff's Motion for Partial Summary Judgment and Interlocutory
Decree of Foreclosure and September 20, 2021 Amended Final
Judgment are vacated, and this case is remanded for further
proceedings consistent with this summary disposition order.
DATED: Honolulu, Hawai#i, June 28, 2024.

On the briefs:
/s/ Keith K. Hiraoka
Porter Devries, Presiding Judge
for Defendant-Appellant
and Defendant-Appellee /s/ Clyde J. Wadsworth
Chad Waters. Associate Judge

Keith M. Kiuchi, /s/ Karen T. Nakasone
for Defendant-Appellee Associate Judge
and Defendant-Appellant
Paul M. Honkavaara dba
Chartered Financial Group.

Bradley R. Pulice,
Scott I. Batterman,
for Plaintiff-Appellee
Private Capital Group, Inc.

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