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Y &aS ei :13 -c v-00205 -B M K -N O N E Document 1 Filed 04/29/13 P age 1 of 74 P agelD #: 1

GARY VICTOR DUBIN 3181JOHN D. W AIHEE III 1864ANDREW GOFF 9451RICHAR D T. FORRESTER 9750Dubin Law OfficesHarbo r Court, Suite 310055 M erchant StreetHonolulu, Hawaii 96813

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Telephone: (808) 537-2300Facsimile: (808) 523-7733Email: [email protected]: [email protected]: [email protected]: [email protected] Attorneys fo r Plaintiffs

IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF H AW AII

JERRY AGBANN AOAG, M ERLITAAGBANNAOAG, SEVERINOAGBANNAOAG, CONCHITAAGBANNA OAG, and COSMEDINTASANI; and KE KAILANIDEVELOPMENT LLC, a Hawaiilimited liability com pany, an dMICH AEL J. FUC HS, all on behalf ofthemselves, and on behalf of all otherssimilarly situated, requesting non-monetary relief,

Plaintiffs,vs.(1) THE HONOR ABLE JUDGES OFTHE CIRCUIT COURT OF THE

CI(Class Action)

COMPLAINT FOR DECLARATO RYAND INJUNCTIVE R ELIEF;SUMM ONS IN A CIVIL ACTION

(CAPTION CONTINUED ON NEX T PAGE)

ORIGINAL
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

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Case 1:13-cv-00205-BMK-NONE Document 1 ' F iled 04/29/13 P age64of 74 P ageID #: 64

FIRST CIRCUIT OF THE STATE OFHAW AII, AS INDIVIDUAL S AC TINGIN THEIR OFFICIAL CAPACITIES:

KAR EN S.S. AHN; STEVEN S. ALM;BERT I. AYAB E; PATRICK W.BORDER; JEANNETTECASTAGNETTI; DERRICK H.M.CHAN; GARY W.B. CHANG;VIRGINIA L. CRANDALL; DEXTERD. DEL ROSA RIO; COLETTE Y.GARIBALD I; GLENN J. KIM;EDWA RD H. KUBO JR.; RANDALIC.O. LEE; ED W IN C. NAC INO;KAREN T. NAKASON E; RHONDA A.NISHIMURA; DEANE. OCHIAI;RICHA RD K. PERKINS; KARL K.SAKAMOTO; FA'AUUGA L.TO'OTO'O; ROM A. TRADER;MICHAEL D. W ILSON,(2) THE HONOR ABLE JUDGES OFTHE CIRCUIT COURT OF THESECOND C IRCUIT OF THE STATEOF HAWA II, ACTING ASINDIVIDUALS IN THEIR OFFICIALCAPACITIES:RICHA RD T. BISSEN JR.; PETER T.CAHILL; JOSEPH E. CARD OZA;RHOND A I .L. LOO,(3) THE HONORABLE JUDGES OFTHE CIRCUIT COURT OF THETHIRD C IRCUIT OF THE STATE OFHAWAII, ACTING AS INDIVIDUALSIN THEIR OFFICIAL CAPACITIES:GLENN S. HARA; RON ALDIBARRA; GREG K. NAKAM URA; (CAPTION CONTINUED O N NEXT PAGE)

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ELIZABETH A. STRANCE,(4) THE HONO RABLE JUDGES OFTHE CIRCUIT COU RT OF THEFIFTH CIRCUIT OF THE STATE OFHAW AII, ACTING AS INDIVIDUALSIN THEIR OFFICIAL CAPACITIES:RANDAL G.B. VALENCIANO;KATHLEEN N.A. WATANABE,

Judicial Defen dants.

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEFCOME NOW Plaintiffs Jerry Agbannaoag, Merlita Agbannaoag, Severino

Agbannaoag, Conchita Agbannaoag, and Cosmedin Tasani ("Agbannaoag ClassRepresentatives"), and Ke Kailani Development LLC and Michael J. Fuchs (KeKailani Class Representatives"), each and all on behalf of themselves and onbehalf of all others similarly situated, by and through their undersigned attorneys,and hereby seek declaratory and injunctive relief against post-confirmationforeclosure deficiency judgm ents entered and being entered in the Circuit Courts ofthe State of Hawaii, calculated using the ancient judge-made procedureschallenged he rein as in violation o f Federal Due Process of Law.

A. Introduction1. This is a Class Action Complaint brought on an emergency basis on

behalf of every past, present and futu re borrower and guarantor of every residential

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and com mercial m ortgage loan on real property situated in the State of Hawaii w hohas been, is being, or will be subject to a determination and/or enforcement of a

foreclosure monetary deficiency judgment in this District and in Hawaii StateCourts.

2. This Class Action Complaint presents a constitutional question of firstimpression in this District and throughout the United States, challenging for thefirst time on Federal Due Process Grounds the ancient common law judge-madearithmetic method for determining the amount of foreclosure deficiency judgmentsfollowing confirmations of sale which merely subtracts the net proceeds of salefrom the face value of the amoun t owing on m ortgage loans.

3. This Class Action Complaint, on the other hand, does not condone oraddress the fairness or otherwise of the procedures utilized in Hawaii or elsewherefor determining the sufficiency of foreclosure auction prices upon confirmationsale, which is outside the scope of this Class Action Complaint, concentratinginstead solely on the constitutionality of the de ficiency judgm ent calculus beingutilized in the State of Haw aii and in this District in the application of Haw aii law.

4. The Fifth and Fourteenth Amendments to the United States Constitutiondirectly invest and directly entrust this United States District Court with subjectmatter jurisdiction and pursuant to Section 1331 of Title 28 of the United StatesCode to enforce Federal Due Process of Law prohibiting, inter alia, any State to

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deprive any person of property rights without due process of law, whichdepravation heretofore has resulted in the unconstitutional confiscatory andpunitive loss of hundreds of millions of dollars of mortgagor wealth andcorresponding windfall unju st enrichment for foreclosing m ortgagees.

5. This United States District Court, venue properly in this District pursuantto Section 1391(b) of Title 28 of the United States Code, is therefore beingrequested, pursuant to Section 2201 of Title 28 of the United States Code, in thisClass Action Complaint, there being an actual case and controversy, to declare theexisting Hawaii ancient common law judge-made method of determining theamount of foreclosure monetary deficiency judgments in this District to beunconstitutional and to enjoin their awarding and the enforcement thereof untilsuch procedu res are constitutionally rem edied.

6. The Circuit Judges of the First, Second, Third, and Fifth Circuits of theState of Hawaii are proper Judicial Defendants in this Class Action, who in theirofficial capacities through assignment or reassignment are determining, awardingand enforcing such unconstitutional foreclosure deficiency judgments in the Stateof Hawaii and who unless enjoined will and are continuing to do so in violation ofFederal Due Process of Law.

7. Said Judicial Defe ndan ts are nam ed individually, since complaints maybe brought in United States District Courts to enjoin state officials from acting

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unconstitutionally pursuant to the "stripping do ctrine" of Ex P arte Young, 209 U .S.123 (1908), which held that state officials, lacking authority to act contrary to the

United States Constitution, in so doing as individuals are nevertheless classified asstate actors for Fourteenth Amendment purposes while remaining private citizensfor sovereign imm unity pu rposes.

8. Declaratory and ancillary injunctive relief and no monetary damages,pursuant to Edelman v. Jordan, 415 U.S. 651 (1974), are being sought against saidJudicial Defend ants acting wro ngfully within their official capacities.

9. Plaintiffs bring this Class Action Complaint pursuant to Rule 23(b)(2) ofthe Federal Rules of Civil Procedure, satisfying all requirements thereunder, asexplained herein below.

B. Historical Background10. During the Great Depression, Hawaii Courts like courts in other

jurisdictions grappled with the perceived unfairness of forcing a foreclosureauction sale in a down economy. Ultimately, a common law practice was adoptedwh ereby an upset sale price was set at a judicially determined value and thebidding at auction began at that price.

11. The Hawaii Supreme Court in 1933 in Wodehouse v. Hawaiian TrustCo., 32 Haw. 835, 852-853 (1933), however, announced what were thought to be

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approved procedures for selling properties at a foreclosure sale and subsequentlyratification at confirmation, as follows:

In determining what an upset price, if any, should be, or,at a later stage of the case, whether a sale should beconfirmed, it is the value at the time of foreclosure andnot the value at the time of the execu tion of the mortgagewhich is to be ascertained; and by value is meant whatthe property will bring at public auction or private sale(as may be authorized or required by the terms of themo rtgage itself) after due publication of notice and after areasonable time sufficient to permit efforts to interest allreasonably available prospective bidders.12. Haw aii appellate courts since 1933 have interpreted W odehouse to mean

that "[t]he lower court's authority to confirm a judicial sale is a matter of equitablediscretion" and "[i]f the highest bid is so grossly inadequate as to shock theconscience, the court should refuse to confirm." Hoge v. Kane, 4 Haw. App. 533,

540, 670 P.2d 36, 40(1 98 3).13. The reasoning behind this rule is based partly on ensuring that neither

party gets a wind fall, and partly upon upho lding the stability of judicial sales. SeeHoge v. Kane, 4 Haw. App. 533, 540, 670 P.2d 36, 40 (1983). The fair or truevalue of a property for the completely separate purpose of awarding a deficiencyjudg m ent after confirmation of sale is a completely differen t issue how ever.

14. Hawaii Courts matter-of-factly merely assume routinely whendetermining and enforcing foreclosure deficiency judgments that the confirmedsale price minus the net proceeds of sale controls and mathematically determines

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by subtraction the monetary deficiency amount despite taking or considering anyevidence of higher property valuations or subsequent higher sales ("flipping" byforeclosing mortgages or their related parties), unless the earlier auction price issaid to "shock the conscience of the C ourt."

15. This procedure completely ignores reality ~ that due especially to thepresent housing market co llapse, mortgagees ha ve the ability to credit bid for muchmore than the property is usually worth, thus scarring away and effectivelydepressing competition and thus in effect "rigging" auction sales, enablingforeclosing mortgagees to recover property at less than fair market value, while atthe same time using that artificial auction sales price to secure a windfall profitover and above what is actually owed, even double recoveries, by adding onto itsbelow-marlcet purchase a sizeable deficiency judg m ent.

16. Thus, by flipping the property, the foreclosing mortgagee can make,even relatively immediately, more than what it was actually owed, and more thanwhat it had even loaned or paid for a loan assignm ent, som etimes b eing assigned toit during the foreclosure process itself. The result is frequently that borrowers arepenalized beyond what their foreclosing mortgagee actually lost and subject toconfiscatory judgments without a hearing to determine actual loss and thus actualliability.

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17. Ironically, the very unfairness that Hawaii Courts have sought toeliminate has become the standard consequence of judicial foreclosure actions in

Hawaii. Competitive bidders are, for instance, discouraged from bidding at anauction, knowing that the foreclosing mortgagee can often "credit bid" well overthe true value of most p roperties.

18. What for foreclosing mortgagees has become a mere mechanicalcalculator exercise, greedily maximizing their profits at the expense of theirborrowers and guarantors, that heretofore unexamined judicial procedure haswaged upon borrowers, individuals and businesses alike being foreclosed upon inHawaii a harsh and unfair punishment, harming Hawaii's overall economy as wellby depressing the local real estate market through the automatic lowering ofcom parable sales based up on artificial sale prices rather than true v aluations.

19. At first, State Courts nationally appear to have blindly allowedforeclosing mortgagees windfall profits often through bloated deficiencyjudgments, concluding that otherwise it would be an unconstitutional impairmentof capital and interference with the right to contract under Article I, Section 10,Clause 1 of the United States Constitution, viewing money exclusively, and notproperty, to be wh at lenders had bargained for in the event of default.

20. In 1941, the U.S. Supreme Court in Gelfert v, National City Bank ofNew York, 313 U.S. 221 (1941), finally gave authoritative approval to the

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Case 1:13-cv-00205-B MK -NONE Document 1 ' F iled 04/29/13 P age 64 of 74 P ageID #: 64

constitutionality of States preventing "sacrificial prices" by their regulating theamou nt of deficiency judgm ents either by statute or by the exercise of their equity

jurisdiction.20. Today, many State Legislatures have passed anti-deficiency statutes,

requiring that after a foreclosure auction their State Courts must hold a separateevidentiary hearing to determine the "fair value" of the foreclosed property whichis not necessarily the "auction price " even if the "a uction price" does not shock theconscience of the court, a distinction com pletely ov erlooked by Haw aii Courts.

21. And more recently, many State Courts have not waited for their StateLegislatures to pass anti-deficiency statutes protecting borrowers from what theyhave concluded is gross unfairness and confiscatory procedures, but have acted ontheir own to correct obvious injustices; e.g.:

22. In Pearman v. West Point National Bank, 887 S.W.2d 366, 368 (Ky. Ct.App. 1994), the Kentucky Court of Appeals on its own refused to allow amo rtgagee to recover any deficiency judg me nt wh atsoever wh ere as foreclosingmortgagee it had purchased the property at two-thirds of its actual value, wasawarded a large deficiency judgment, and then contracted to sell the property forslightly more than the amount of money it had in the property while seekingnevertheless to enforce its deficiency award, concluding that the foreclosingmortgagee breached the covenant of good faith and fair dealing implied within

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every mortgage contract, the breach resulting in non-enforcement of thedeficiency; see also the same result in First National Bank of Southeast Denver v.

Blanding, 885 P.2d 324 (Colo. Ct. App. 1994) (lack of good faith bid by amo rtgage holder requires full adjustment of the deficiency amoun t).

23. In Wansley v. First National Bank of Vicksburg, 566 So.2d 1218, 1224(Miss. 1990), the Mississippi Supreme Court held that a foreclosing mortgageemust show more than just a difference between the net sale proceeds and theamount of the indebtedness to be entitled to a deficiency judgment, but mustaffirmatively show the property's true value was insufficient to satisfy what themortgagee had in the property, which requires both a prior determination ofadequacy of auction price after confirmation, as well as true value of the propertyfor deficiency purposes after confirmation.

24. Whereas, while an inadequate winning bid price may not be enough todefeat an auction sale, it is considered nevertheless grounds for denying even in itsentirety a request for a subsequent deficiency judgment; see, e.g.: In re Slizyk,2006 WL 2506489 (Bankr. M.D. Fla.) ("the amount for which mortgaged propertysells at during a properly conducted sale is neither conclusive as to the value of theproperty nor the right to a deficiency judgment"); see also, Barnard v. FirstNational Bank of Okaloosa County, 482 So.2d 534 (Fla. 1986); Savers FederalSavings & Loan Association v. Sandcastle Beach Joint Venture. 498 So.2d 519

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(Fla. 1986); see also for a Hawaii-based historical analysis, Georgina W. Kwan,Mortgagor Protection Laws: A Proposal for Mortgage Foreclosure Reform inH a w a ii 24 U. Haw. L. Rev. 245, 261 (2001).

25. Yet Hawaii Courts have never once addressed such fundamentalunfairness issues despite their equitable responsibilites to enforce the impliedcovenant of good faith and fair dealing, otherwise well recognized in HawaiiCourts, The Best Place, Inc. v. Penn America Insurance Co., 82 Haw. 120, 124,920 P.2d 33 4 (1996), while other State Courts in denying deficiency judgm ents inexcess of fair value recoveries in exercise of their equity jurisdiction have appliedthat very equitable requirement that every promise made contains an impliedcovenan t of good faith and fair dealing.

26. Foreclosure deficiency practices in Hawaii Courts have fostered andshielded from view an unregulated and heretofore unexamined low visibility mu lti-million dollar thieves market where foreclosing mortgagees are in effect officiallyencouraged to steal money from otherwise defenseless and highly vulnerableborrowers in many heretofore unseen ways, extracting double recoveries whileforcing others into otherwise unne cessary ban kruptcy filings.

27. The resulting additional unfair financial pressure and confiscatoryprocedures are especially disruptive for homeowners in Hawaii, for Hawaii Courtshav e long recognized the special importance to the we lfare of society of protecting

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a family's "single most important asset," its residence, not only from an economicpoint of view, but also for its inherent social values, as its location often

determines wh ere children go to schoo l, where fam ilies worship, whe re fam ily andfriends reside, and w here the elderly spend their remaining years, in the absence ofwhich, especially as a result of unfair foreclosure deficiency judgm ents, borrowersmay become dependent on public housing and welfare, if available, and parentalcontrol may be lost and marriages may break up as a result; see Sawada v. Endo,57 Haw . 608, 616, 561 P.2d 1291 (1977).

28. Yet surprisingly, despite a large number of State Legislatures and StateCourts rejecting the Hawaii State Court's mechanical foreclosure deficiencyjudgment approach (unthinkingly being rubber-stamped in Hawaii Courts),awarding deficiency judgments without a hearing to determine a foreclosingmortgagee's actual loss, as "grossly unfair" and as "confiscatory" and as "abusive"and as an "unconscionable windfall" and as "unjust enrichment," no one, researchdiscloses, has ever challenged that practice in a State Court or in a Federal Courtuntil now as being an unconstitutional deprivation of Federal Due Process of Law,despite ample applicable supp orting federal case law preceden ts.

29. In Fuentes v. Shevin. 407 U.S. 67, 81 (1972), for example, the UnitedStates Supreme Court held that one paramount purpose of the Due Process Clauseand the requirement of an adequate hearing is "to protect [a person's] use and

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possession of property from arbitrary encroachment ~ to minimize substantivelyunfa ir or mistaken deprivations of property."

30. The U.S. Supreme Court, moreover, recognized that there may beprocedures set up to return wrongfully taken property, or provide damages for thetaking, but "no later hearing and no damage award can undo the fact that thearbitrary taking that was subject to the right of procedu ral due process has alreadyoccurred." Id . at 82.

31. A timely hearing before property is taken from an individual is afundamental principle of Federal Due Process of Law; see, e.g., Mathews v.Eldridge, 424 U.S. 319 (1976). The well known test announced in Eldridgedetermines the adequacy of a pre-deprivation process by balancing "[f]irst, theprivate interest that will be affected by the official action; second, the risk of anerroneous deprivation of such interest through the procedures used, and theprobable value, if any, of additional or substitute procedural safeguards; andfinally, the Government's interest, including the function involved and the fiscaland ad ministrative burde ns that the additional or substitute procedural requirementwould entail. Id . at 335.

32. The Haw aii Cou rts' deficiency judg m ent determination proceduresclearly are deficient on all of three of those grounds. When this framework isapplied to the Hawaii Courts' procedures for determining deficiency amounts upon

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confirmation of sale, it is obvious that Federal Due Process has been and is beingextensively violated without conducting a separate actual loss and fair valuehearing.

33. The private interest that is affected is an individual's money, the mostliteral and unassailable of all the definitions of "property" grafted onto the dueprocess clause.

34. M oreove r, as described above, there is no procedure prov ided or allowedto challenge, at a subsequent evidentiary hearing after confirmation of sale, thevalue of property received by a foreclosing mo rtgagee bidding at its own auction orthe foreclosing mortgagee's actual loss, especially where it bought the loan fromthe original mortgagee in the middle of the foreclosure process. This opens thedoor to the type of multifaceted fraudulent abuses that have become standardindustry practice in Hawaii, with Haw aii Co urts blindly looking the other way.

35. A foreclosing mo rtgagee can easily sell the rights to foreclose to a thirdparty which then low balls its bidding at the auction, thereby obtaining property ata steep discount. The same third party can then obtain a deficiency judgment basedon the original debt, rather than the amount paid to acquire the debt or the truevalue of the property transferred to it or to a related party of it.

36. The way this process is applied clearly deprives individuals of theirmoney with no hearing at all to determine the fairness of the amount taken, and no

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Case 1:13-cv-00205-BMK -NONE Document 1 ' F iled 04/29/13 P age 64 of 74 P ageID #: 64

procedure to rectify that unfairness, rendering H awaii C ourts in this area of the lawlittle more than collection agencies for crooks.

37. The risk of deprivations of Federal Due Process of Law through suchHawaii Court procedures enforced by the Judicial Defendants is therefore great.Similarly, there is obvious value in a hearing to determine the fairness of thedeficiency amou nt based upo n at least the fair value of property received versus theactual loss of the foreclosing mortgagee, whereas the government's often statedconcern regarding sanctity of judicial sales would not be affected by this type ofevidentiary hearing, not involving re-opening of auctions. And adding a fairvalue/actual loss hearing determination would not amount to setting an upset priceat a foreclosure auction, which the W odeho use Court was apparently wary of.

38. The resulting violation o f Federal Due Process is not only proce dural,but substantive as well. "Although a literal reading of the Clause might suggestthat it governs only the procedures by which a State may deprive persons ofliberty, for at least 105 years . . . the Clause has been understood to contain asubstantive component as well, one 'barring certain government actions regardlessof the fairness of the procedures used to imp lement the m .'" Planned Parenthood ofSe. Pennsylvania v. Casey, 505 U.S. 833 (1992) (citing Daniels v. Williams, 474U.S. 327,331 (1986)).

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39. The application of substantive due process has been the source of muchdebate in Federal Courts. Justice Scalia, while a judge for the Court of Appeals forthe Third Circuit, explained that there are two types of state action that may bechallenged under this theory, legislative and non-legislative acts. Nicholas v.Penn sylvania State University, 227 F.3d 133, 142 (3d Cir. 2000).

40. In Nicholas, the Third Circuit Court of App eals held:To summ arize: when a plaintiff challenges the validity ofa legislative act, substantive due process typicallydemands that the act be rationally related to somelegitimate government purpose. In contrast, when aplaintiff challenges a non-legislative state action (such asan adverse employment decision), we must look, as athreshold matter, to whether the property interest beingdeprived is "fun dam ental" under the C onstitution. If it is,then substantive due process protects the plaintiff fromarbitrary or irrational deprivation, regardless of theadequacy of procedures used.

The Nicholas Court also emphasized that a legislative act "that burden[s] certain'fundamental' rights may be subject to stricter scrutiny." (citing Alexander v.Whitman, 114F.3d 1392, 1403 (3d Cir. 1997)).

41. In the mortgage foreclosure context, the United States Supreme Courthas recognized that allowing a foreclosing entity to collect a double recovery isconstitutionally impermissible, stating "[mortgagees are constitutionally entitledto no m ore than payment in full." Ge lfert, 313 U.S. at 233.

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42. Add ressing deficiency judgm ents, the United States Supreme C ourt inGelfert noted that "[t]he 'fair and reasonable market value' of the property has an

obvious and direct relevancy to a determination of the amount of the mortgagee'sprospective loss," id . at 234. Concerning the process of determining a deficiencyjudgment, especially during times of economic depression, the United StatesSupreme Court concluded, while the question here was not before it, id . at 232-233:

And so far as mortgage foreclosures are concernednumerous devices have been employed to safeguardmortgagors from sales which will or may result inmortgagees collecting more than their due . . . .Underlying that change has been the realization that theprice which property commands at a forced sale may behardly even a rough measure of its value. The paralysisof real estate markets during periods of depression, thewide discrepancy between the money value of propertyto the mortgagee and the cash price which that propertywould receive at a forced sale, the fact that the pricerealized at such a sale may be a far cry from the price atwhich the property would be sold to a willing buyer by awilling seller reflect the considerations which havemotivated departures from the theory that competitivebidding in this field amply protects the debtor.43. It is constitutionally unfair and a violation of Federal Due Process of

Law for a mortgagee to be able to suppress auction sale prices and then recovermore than it should in the form of a deficiency judgment. A mortgagee should notrecover more than it is owed by taking advantage of outdated procedures,originally intended ironically to protect borrowers and not to punish them .

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44. The disparity between market value and a forced sale price has beenrecognized in numerous cases over the years, but has nothing to do with how adeficiency judgment should be determined after a confirmed sale. Even in 1994,when the real estate market was not nearly as depressed as it now is, the UnitedStates Suprem e C ourt held:

[MJarket value, as it is commonly understood, has noapplicability in the forced-sale context; indeed, it is thevery antithesis of forced-sale value. "The market value of... a piece of property is the price which it might beexpected to bring if offered for sale in a fair market; notthe price which might be obtained on a sale at publicauction or a sale forced by the necessities of the owner,but such a price as would be fixed by negotiation andmutual agreement, after ample time to find a purchaser,as between a vendor who is willing (but not compelled)to sell and a purchaser who desires to buy but is notcompelled to take the particular . . . piece of property."Black's L aw Dictionary 97 1 (6th ed. 1990). In short, "fairmarket value" presumes market conditions that, bydefinition, simply do not obtain in the con text of a forcedsale.

BFP v. Resolution Trust Corp., 511 U.S. 531, 537-38 (1994).45. Various States have addressed the distinction where the issue is not the

auction price, but the am ount of any deficiency judgm ent w hen confronted with theinherent unfairness of a situation in which a mortgagee b ids less than the fair valueof a property, obtains a deficiency judgment from the borrower, and then turnsaround and sells the property for instance, garnering more than what the borrower

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Hawaii 96793, Tax Map Key No. (2) 3-5-025-005, which they had purchased inDecember 2005 for $455,000 and in which they had previously invested over

$350,000 of their savings, beginning con struction in 2006.48. Around August 2008, they were approached by Wes Higuchi of Finance

Factors about extending the maturity date for their loan for an additional threemonths, rendering all unpaid balances of interest and principal due November 1,2008.

49. Mr. Higuchi prepared the documents for them to sign and suggested thatM erlita's parents, Eusebio (now deceased) and Cosmedin Tasani, "co-sign." M r.Higuchi told them that requiring "co-signers" was a formality at Finance Factors,and neve r said anything ab out possible liability upo n foreclosure of the m ortgage.

50. Eusebio and Cosmedin Tasani were never provided with a copy of theoriginal promissory note and could not speak or read English, but trusted Mr.Higuchi and signed.

51. Around Novem ber 2008, they were again approached by M r. Higuchi toextend the maturity date of their loan for one additional year, rendering all unpaidbalances of interest and principal due Nove mb er 1, 2009.

52. M r. Higuchi prepared the docum ents for them to sign and then suggestedthat Jerry 's parents, Severino and Conch ita Agb annao ag, "co-sign." M r. Higuch iagain told them that having additional "co-signers" was customary, a formality at

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Finance Factors, and never said anything about possible liability upon foreclosureof the mo rtgage.

53. Severino and Conchita Agbannaoag, like Merlita's parents, were neverprovided with a copy of the original promissory note and could not speak or readEnglish, but trusted M r. Higuchi and signed.

54. Around November 2009, they were again approached by Mr. Higuchi toextend the maturity date of their loan for one additional year, rendering all unpaidbalances of interest and principal due Novem ber 1, 2011.

55. On April 13, 2010, after they disputed a charge for forced placeinsurance Finance Factors sued for foreclosure in Civil No. 10-1-0244 in theSecond Circuit Court, having at that time an appraisal of their property at over$1,200,000, w ell in excess of their loan balance.

56. On May 10, 2010, they sent Finance Factors a check for $5,625.61;Finance Factors took their money and acknowledged receipt, but claimed theyowed attorneys' fees and wanted an additional $21,488.12 to bring the loancurrent.

57. They then sent Finance Factors a check for $5,125.62 on September 15,2010, and again Finance Factors took their money and acknowledged receipt, butthen claimed they owed an additional $25,155.34 in fe es to bring the loan current.

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58. Despite their attempts to work with Finance Factors towards reinstatingour loan, the Second Circuit Court granted Finance Factors' motion for summary

judgment and on November 23, 2010 entered the Findings of Fact, Conclusions ofLaw, Order Granting Plaintiffs Motion for Summary Judgment and InterlocutoryDecree of Foreclosure, and Judgment.

59. The State Court appointed a Foreclosure Commissioner with no realestate marketing ability whatsoever, who proceeded to place an advertisement insmall print in the classified section of the Maui News for publication once everythree consecutive weeks.

60. On June 1, 2011, the Foreclosure Commissioner held an auction andFinance Factors w as the only bidder at $618 ,600, although it had a recent appraisalfor over $1,200,000, and was claiming only $731,735 owed.

61. The sale to Finance Factors was confirmed, and a deficiency judgmententered although they had no opportunity to contest the amount of the deficiencyjudgment following confirmation of sale.

62. The procedure utilized the State Court was to simply subtract the netproceeds of the forced-sale auction price from the total amount owed, includingattorney s' fee s, com missione r's fees, and late fees.

63. A Commissioner's Deed granting Finance Factors title to the propertywas executed on Novem ber 30, 2011.

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64. Very shortly thereafter, on January 24, 2012, Finance Factors closed thesale of their property to a business associate of Finance Factors, Roger M.

Madariaga, for $714,000, according to the County of Maui Real Property TaxDivision Records.

65. Then, on February 1, 2012, over two full months after Finance Factorssecured title to their property, and one mo nth a fter Finance Fa ctors' b ack-door saleto its business associate, the State Co urt granted Finance Factors' mo tion to reducetheir bid by $82,552 and raise the attorneys fees awarded by $10,318.44 thusincreasing the deficiency judgment by $92,870.44 plus miscellaneous fees.

66. On March 22, 2012, Finance Factors recorded a copy of the deficiencyjudgment in the Bureau of Conveyances of the State of Hawaii as Doc. No. A-44641123, entitled Deficiency Judgment In Favor Of Plaintiff Finance Factors,Limited Aga inst Defendan ts Merlita Tasani Agban naoag , Eusebio Tasani,Cosmedin Tasani, Severino Agbannaoag And Conchita Agbannaoag.

67. Despite the fact that Finance Fa ctors had already received approximatelyits money back by selling the property than that owed on the loan, on June 13,2012 , Mr. and M rs. Tasani, received a letter from the law offices of Cades Schuttenotifying them that pursuant to the deficiency judgm ent no w worth $308,086 andgrowing, a lien had been placed on their individual property located at 1592 WiliPlace, Wailuku, Hawaii 96793.

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68. On June 13, 2012, Finance Factors filed an Ex Parte Motion of Plaintifffor Issuance of Garnishee Summ ons after Judgment to garnish wages, on July 16,

2012, Finance Factors filed an Ex Party Motion for Exam ination of the JudgmentDebtors requiring Severino and Conchita Agbannaoag to appear in court for anexamination regarding their "affairs or property," and on July 25, 2012, FinanceFactors filed an Ex Parte Motion for Exam ination of Judgm ent Debtor CosmedinTasani to appear in court for an exam ination regarding her "affairs or property."

69. Both all of the parents are elderly and in poor health and were excusedfrom appearing in State Court upon receipt of letters from their respectivephysicians d escribing their med ical cond itions and in two cases inability to w alk.

70. Meanwhile, hounded by Finance Factors, Merlita was forced to filebankruptcy, and as part of a settlement in the bankruptcy proce edings, her husbandJerry agreed to pay Finance Factors $25,000 in exchange for what they thoughtwas an agreem ent by Financ e Factors that it would cease e fforts to collect on thedeficiency judgm ent, especially from their respective parents.

71. Contrary to what was understood by them, Finance Factors hascontinued to harass their parents, requiring completion debtor's examinationquestionnaires.

72. As a result of the State Court's procedure which based Finance Factors'deficiency judgment on the net proceeds of an amended forced-sale auction price

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and not the true value of the property nor the amount that Finance Factorsimmediately flipped in for to a related friend, Finance Factors has been able to benow paid in full while still aggressively pursuing the entire Agbannaoags' familyhomes, assets, and incomes, their entire family financially devastated and nowbarely on speaking terms, blaming Merlita and Jerry for getting the parentsinvolved with Finance Factors.

D. The K e Kailani Class Representatives73. While vacationing in Hawaii more than a decade ago, Michael J. Fuchs,

the Founder of Home Box Office, understandably fell in love with the Big Island,decided to build a home there, eventually causing his company, renamed KeKailani Development ("KKD"), a Hawaii limited liability company, to investnearly $100,000,000 in a more than 65-acre South Kohala spectacular luxuryresidential subdivision called Ke Kailani within the Mauna Lani Resortdevelopment, wanting to make a major contribution to the beauty of the State ashis legacy.

74. KKD in 2005 and in 2006 accordingly proceeded to borrow a total ofmore than $70,000,000 in acquisition and construction funds for the developmentof the subdivision in the form of two short-term loans from three local banks, theBank of Hawaii ("BOH"), Central Pacific Bank, and Finance Factors, Limited.

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75. Fuchs, residing in N ew York, as a passive investor personally g uaranteedboth company loans, which appeared very safe investments, based on appraisalsprepared for BOH in 2005 and 2006, projecting market value well in excess of$100,000,000.

76. However, just as the subdivision was about completed and salesunderway, a growing worldwide recession prevented further subdivision sales,while at the same time both loans after brief maturity date modifications hadbecome due in mid-2009.

77. Upon maturity, the remaining aggregate principal balance owed on bothloans was approximately $26,000,000, whereas the market value of the unsold lotsand condominium interests by mid-2009 had been reduced to slightly less than$24,000,000 owed to the Consortium, according to a professional appraisalprepared for BO H.

78. The prospect of immediately repaying the Consortium brightened due toan offer received from Quintess, a non-equity membership destination clubcomposed of extremely wealthy members, seeking to acquire most of KKD'sremaining interest in Ke K ailani, which would have enabled KK D to have paid offthe Consortium, but one owner, Mary Morrison, objected, reading the AssociationDeclaration to prohibit mem bership club use.

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79. On March 11, 2009 Morrison filed suit in Third Circuit Court in Kona,Civil No. 09-1-078K, seeking injunctive relief, which was referred to AOAOarbitration by the Honorable Elizabeth A. Strance pursuant to Hawaiicondominium procedures, with the Honorable Thomas K. Kaulukukui, Jr. (Ret.)serving as Arbitrator, KKD represented by the Bays law firm who had representedKK D in loan extension negotiations earlier with the Consortium.

80. On July 13, 2009 the Arbitrator found in favor of Morrison, who thenmoved to con firm the arbitration award, S.P. No . 09-01-039 K, the hearing in whichwas held before Judge Strance on September 9, 2009, who confirmed thearbitration award on October 12, 2009, ending KKD's chance of repaying theConsortium and heading off foreclosure and cancelling Fuchs' liability under hisConsortium's guaranties.

81. KKD's attorneys, the Bays Law Firm, without Fuchs' knowledge, hadfiled a notice of "no opposition" and a notice of "non-appearance" in the specialproceeding , resulting in the confirmation order and final judgm ent being grantedwithout objection and recorded at the State Bureau of C onveyanc es on October 16,2009, as Doc. No . 2009-159577.

82. KK D, m eanwhile, was never informed by the Bay s Law Firm that K KDhad a right to timely appeal to the Circuit Court the arbitration award before itbecame final and non-appealable pursuant to HRS Section 514B-163. including

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Morrison's nearly six-figure attorneys' fee award, at which time KKD could haveignored the arbitration and fee award altogether and merely proceeded with a trialde novo on the merits before Judge Stance in Civil No. 09-1-078K, keeping aliveits intended membership club sale to Quintess.

83. Consequently, the Consortium declared an "event of default" andwithout any prior notice to Fuchs, withdrew all funds in a Fuchs' $3,000,000standby letter of credit pledged to secure an earlier payment extension, and theConsortium proceeded to file a foreclosure action in First Circuit Court, Civil No.09-1-2523-10, on October 27, 2009, although the property is located in Kona, thecase nonrandomly assigned by the Clerk's Office upon filing to the Honorable BertI. Ayabe wh o by assignmen t hears all foreclosure cases in H onolulu.

84. KKD and Fuchs, retaining new counsel, opposed foreclosure, filing anAnswer and Counterclaim alleging breach of contract, breach of fiduciary duty,interference with advantageous economic relations, unfair and deceptive bankingpractices, fraud and deceit, rescission, dissolution of partnership, discharge ofguaranties, declaratory and injunctive relief, abuse of process, wrongfulforeclosure, and punitive damages, and filed a Third-Party Complaint seeking toset aside the arbitration award as a result of inadequate notice to all condominiumowners and a Fourth-Party Complaint to sell the condominium interests, removingit from HRS Chap ters 514A and 514B to salvage the Qu intess transaction

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85. Meanwhile, the foreclosure case being stalled for almost a year as aresult of KKD's opposing claims and very extensive BOH settlement negotiations,

the Bays Law Firm approached the CEO of KKD, William L. Beaton, and Fuchs,informin g them it had had "for several years" the Hu nt C ompanies, as a client, nowinterested in purchasing Ke Kailani, seeking permission to waive anyconfidentiality with respect to the Bays Law Firm, to allow it to negotiate anacquisition by Hunt notwithstanding having KKD's confidential proprietaryinforma tion, and they all agreed on June 1, 2010.

86. The very next day Judge Ayabe orally granted summary judgment infavor of the Consortium, decreeing foreclosure, entering a foreclosure judgment,granting summary judgment against KKD/Fuchs' Counterclaim, and judgmentagainst the Counterclaim, dismissing the Fourth-Party Complaint and relatedJoinder.

87. KK D had complained B OH interfered with the sale and/or refinancing ofKe Kailani, and requested time to complete pending discovery to prove it, butJudge Ayabe refused to allow time for needed discovery, delayed by agreementdue to settlement discussions.

88. Instead, the BOH's attorneys argued to Judge Ayabe in their "ReplyMemorandum," pages 6-7, filed May 27, 2010, the issue of interference should bereserved for later, the issue of damages they argued had nothing to do with their

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motion, claiming the issue of "tortious interference and similar causes of action"was not part of their summary judgment motion and should be decided after anyauction sale as a separate issue of "da ma ges".

89. Judge Ayabe refused to allow KKD three weeks for its pendingdiscovery, yet inconsistently waited three full months, doing nothing, untilordering foreclosure, supra, on September 1, 2010, also inconsistently grantingsummary judgment on KKD's interference Counterclaim, despite the BOH'sattorneys' judicial admission that that was not a part of BOH's motion forsummary judgment, but for later determination of any provable damages,supposedly when determining the amount of any deficiency judgment.

90. Meanwhile, with a foreclosure gun pointed at their heads, KKD andFuchs, effective July 9, 2010, entered into an Acquisition Agreement negotiatedwith the Bays Law Firm representing a wholly-owned subsidiary of Hunt, HawaiiRenaissance Builders ("HRB"), agreeing in Paragraph 2.1 to sell Ke Kailani toHRB for no monetary consideration if HRB could purchase from the Consortiumand retire KKD's two promissory notes at whatever price to be paid by HRB thatcould be agreed to and HRB in turn agreed to cancel Fuchs' two guaranties, thepurpose of the Acquisition Agreement.

91. All parties understood that the two-part transaction - HRB purchasingthe promissory notes and cancelling the guaranties, an d K ^

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from KKD to HRB - was one inseparable transaction, divided into twosimultaneous stages so that HR B w ould have in effect a firm option to purchase KeKailani shou ld its negotiations with B OH be successful.

92. Those listed in the initial Paragraph of the Acquisition Agreement asagreeing to terms, and those also signing on the concluding signature page of theAcquisition Agreement as agreeing to terms, were KKD, HRB, and Fuchs, andwith respect to Fuchs it is recited before his signature that he has "AGREED withrespect to the provisions of Section 8.7 applicable to Guarantor," making him as aparty liable as well as having barga ined for and entitled to consideration from HRBunder Section 8.8, as follows:

8.7 EXISTING LOAN DOCUMENTS. . . . Owner andGuarantor undertake and agree that if, as a result ofdiscussions with Existing Lender, the Parties andExisting Lender agree that, if at Closing, the ExistingLoan Documents shall be amended and/or assigned toand assumed by HRB or a related entity, such that allfurther liability of Owner and Guarantor thereunder isterminated and the condition set forth in Section 8.8 issatisfied, then O wner and Guarantor shall be obligated toaccept such resolution and shall not be entitled to objectto Closing on such b asis.8.8 RELEASE AND INDEMNITY. It shall be acondition to HRB's delivery of a Notice to Proceed andright and obligation to proceed with Closing that HRBundertake and agree, from and after Closing, to releaseand indemnify Guarantor as guarantor of the ExistingLoan under the Existing Loan Documents in the eventHRB elects to assume or purchase the Existing Loan.

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93. It was agreed fo r HR B to o ffer $14,000,000 to buy out the C onsortium 'sloan position, an initial proposal made by Hunt's senior representative in Hawaii,

Steven W . Colon, to KK D by letter dated July 27, 2010. BO H agreed in writing onAugust 13, 2010 to entertain loan buyout proposals from HRB, but only if KKDand Fuchs would agree in writing to waive any claim of breach of confidentialityor tortious interference "relating to such communications between BoH and HRB;"and KK D, Fuc hs, and HR B signed evidencing their individually needed approval.

94. Consequentially, on August 13, 2010 HRB transmitted its next buyoutoffer to BOH, this time increasing its buyout price from $14,000,000 to$16,000,000, and again setting forth a summary of the terms of its AcquisitionAgreement.

95. However, this time HRB added to its initial offer the misrepresentationthat "KKD/Fuchs are making significant additional payments at closing towardoutstanding project claims and closing costs," deliberately intending to deceiveBOH into believing that Fuchs was paying part of the buyout price, apparentlyHRB believing that that would make it easier to get BOH to agree due to what itbelieved were somewhat bad feelings that had developed between BOH and Fuchsover his opposition to summary judgment.

96. KKD and Fuchs finally lost confidence in HRB and Colon and hired ontheir own and at their own expense a retired highly respected former Hawaii

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price, HRB refused, demanding that KKD and Fuchs' come up with the extra$1,500,000 plus "new added expenses."

99. Under obvious duress, KKD and Fuchs agreed, both required by HRB tosign a First Am endm ent to Acquisition Agreem ent, effective Nov embe r 1, 2010,agreeing to add $1,500,000 to HRB's $16,000,000 at closing.

100. Once again, the required signatures on the First Amendment toAcquisition Agreement were KKD, FIRB, and Fuchs, reaffirming therein what noone disputed that all three were principal parties to the Acquisition Agreement aswell as the First Amendment thereto ("A. Owner, HRB and Guarantor entered intothat certain Acquisition Agreement effective July 9, 2010" based upon "theirmutual promises"), all three again signing the First Amendment, reaffirming whatno one disputed, that all three w ere also parties to the Loan P SA (Paragraph 13):

13. Agreement/Loan PSA Intention. HRB, Owner andGuarantor acknowledge and agree that their mutualintent, in executing this amendment and the Loan PSA , isthat "Closing" as defined under both agreementsencompasses both the acquisition by HRB of the ExistingLender's Interests and the immediate conveyancethereafter of the Property by Owner to HRB in atransaction akin to a conveyance in lieu of foreclosure,all as set forth in these agreements and subject to allconditions preceden t thereto. (Emph asis added.)

101. The First Amendment to Acquisition Agreement recognized that bothclosings, separated only for HRB's strategic reasons to deceive BOH, had to closetogether or neither would close - about as joined toge ther as two parts of the same

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transaction could possibly ever be. The joint closings were then extended toNovember 30, 2010. The First Amendment to Acquisition Agreement containedthe following new term:

10. Owner/Guarantor Deposit. On or before 5:00 p.m.,Hawaii Standard Time, on the third (3 rd) day after theAmendment Effective Date, and as a condition ofpayment by HRB to Escrow Agent of the Loan PSA"Deposit", Owner shall deposit with Escrow Agent("Owner/Guarantor Deposit"), by letter of credit, wiretransfer or certified check or other form of immediatelyavailable funds, the amount of ONE MILLION SIXHUNDRED FIFTY THOUSAND DOLLARS ANDNO/lOO DOLLARS ($1,650,000.00). (Emphasis added.)

102. Immediately after the signing of the First Amendment to AcquisitionAgreement, the Loan PSA was signed on or about November 9, 2010 by BOH,CPB, FF, HRB, KKD, and Fuchs, the document itself clearly recognizing KKDand Fuchs to be indispensable participants exchanging consideration in the LoanPSA:

SECTION 22. Consent of Borrower and Guarantor. Asevidenced by their signatures below, the Borrower andthe Guarantor hereby assent to the execution, deliveryand performance of this Agreement by Seller andPurchaser and to the closing of the transactionscontemplated hereby. * * * *103. Moreover, "Exhibit C" to the executed Loan PSA, entitled "Mutual

Release Agreement," was a required document that specifically had to be signedbefore the Loan PSA would be effective, wherein K KD and Fuchs were listed as

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the "Borrower Parties" from start to finish ("This Mutual Agreement . . . enteredinto by and among: BA NK OF HAW AII . . . , CENTRA L PACIFIC BAN KFINANCE FACTORS . . . , KE KAILANI DEVELOPMENT . . . , MICHAEL J.FUCHS . . . AND HAWAII RENAISSANCE BUILDERS"), setting forth theirpromises and required performances throughout, with their signatures requiredwithin signature blocks spec ifically provided on the "signature page."

104. In furtherance of that part of the deal pertaining to the Fuchs'guaranties, it wa s specifically acknowledged b y all parties to the Loan PSA that asa part of the bargained for contractual performance, the Fuchs guaranties were tobe "released and cancelled":

SECTION 2 (c) Guaranties Excluded. The Loans and theLoan Documents shall not include any right, title orinterest of Seller under those certain guaranties (the"Guaranties") executed in favor of Seller in connectionwith the Loans by Michael J. Fuchs (the "Guarantor"),dated July 6, 2005, and July 31, 2006, respectively,which Guaranties shall be released and cancelled uponthe Closing by way of the Mutual Release Agreement inthe form of Exhibit C attached hereto and made a parthereof.

105. Escrows for both the Acquisition Agreement escrow and the Loan PSAescrow accordingly w ere opened at the same tim e fo r a joint closing at TitleGuaranty (TG).

106. And while Fuchs was making his promised cash deposit into a NewYork escrow company with irrevocable instructions to transfer funds to TG upon

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closing, the Bays L aw Firm representing HR B refuse d the tender, instead insistingon a cash deposit in Hono lulu.

107. The result was an exchange of emails and faxes from Nov emb er 11,2010 to No vem ber 18, 2010 between Fu chs' counsel, Gary Dubin, who was mostlytraveling in Japan at the time, and HRB's counsel from the Bays Law Firm, EdCase, who could not be convinced to allow Fuchs to perform by making anirrevocable cash deposit with a licensed New York escrow as "another form ofimmediately available funds," which understandably caused Fuchs to believe thatHRB was looking for a way to back out of the agreed joint transaction and jointclosing.

108. Fuchs had another reason for concern. Fuchs knew that BOH wasreceiving other inquiries from third parties also been contacting him, proposing tobuy the two loans from BOH for more than $17,000,000, and BOH could haveeasily ba cked out of the Fuchs, deal, having placed in its Loan PSA an inexpensiveexit clause:

SECTION 8 (b): Purchaser's Remedies. If Seller fails orrefuses to consumm ate the purchase of the Loans . . . onthe Closing Date . . . then Purchaser shall have the right,as its sole and exclusive remedy . . . for liquidateddamages in the amount of $100,000 . . . for the harm . . .caused by Seller's breach.

109. Vividly remembering how BOH without notice to him had alreadyearlier seized his $3,000,000 letter of credit, supra, upo n o riginally m erely abruptly

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and gingerly declaring an "event of default" while he w as in the middle of workou tdiscussions with its representatives, Fuchs was understandably not aboutprecipitously to place $1,650,000 in cash exposed in a Honolulu escrow, especiallysince BO H already had a recorded $26,114,861 foreclosure summary judgm entagainst KKD as borrower and Fuchs as guarantor.

110. However, while Fuchs and Colon were discussing a resolution of thedeposit impasse, Case on behalf of HRB on November 24, 2010, six days beforethe scheduled joint closings, suddenly without prior notice or any demand forassurance of performance notified Dubin on behalf of KKD and Fuchs that HRBwas unilaterally terminating the Acquisition Agreement and Loan PSA, seeking tocancel the Acqu isition Agreem ent and to hav e escrow release its escrow deposit.

111. In Case's cancellation letter, second paragraph, page 2, once again herecognized the obvious, that the Acquisition Agreement and the First Amendmentthereto and the Loan PSA were all inseparably interconnected, by theirinterlocking terms and intentions:

The First Amendment was also executed in connectionwith HRB's execution of the Loan PSA, under whichHRB undertook to purchase the referenced Loans for$17.5 million in reliance on KKD/Fuchs' commitment,set forth in the First Amendment, to pay $1.5 million ofthat amount.

112. Six days later, Case abruptly notified KKD and Fuchs through Dubinby letter dated November 30, 2010 that "effective today" the Consortium had

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assigned the KKD promissory notes and mortgages and the Fuchs' Guaranties toHRB by way of an "Omnibus Assignment and Assumption of Loan Documents,"the exact date that instead the two earlier opened escrows, supra, were supposed tohave closed.

113. HRB had therefore managed behind KKD's and Fuchs' backs to buyout the Consortium, which it had promised to do, yet negotiated for and secured atransfer of the two Fuchs guaranties for itself which it promised to release, andsimultaneously recorded implementing assignments.

114. Thereafter, Case on December 1, 2010 requested escrow cancel theAcquisition Agreement escrow and return HRB's $150,000 deposit; TG responded,requesting the principals of KKD (Beaton) and HRB (Colon) sign its standardescrow cancellation form, which Colon signed for HRB on December 7, 2010 andFuchs for KK D on December 10, 2010.

115. Fuchs had signed the escrow cancellation form for KKD, because HRB,anticipating a lawsuit, following further negotiations between Colon and Fuchs,Case and Dubin, initiated by Colon and Case almost immediately, had decided tooffer to reinstate the original deal if Fuchs would cancel the prior escrow anddeposit $1,550,000 into a new T G escrow.

116. HRB presented KKD and Fuchs on December 3, 2010 with a newAcq uisition Ag reeme nt, for instance, already dated December 1, 2010, whereby on

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Dec em ber 10, 2010, Fuchs believing HRB was attempting to mitigate its liabilityand he and KK D w ould have the same deal that had been promised them originally

by HRB and the Consortium, and in reliance thereon, Fuchs wired $1,550,000 toDubin's client's trust account and sent KKD's signed escrow cancellation form toTG as partial consideration for the new Acquisition Agreement so that a newescrow at TG could be opened.

117. However, negotiations conducted thereafter through December 17,2010 terminated w hen K KD and Fuchs concluded the new Acquisition Agreementwas merely a bad faith effort on the part of HRB to deflect its obvious breach ofcontract and would never close.

118. KKD and Fuchs came to that conclusion because (a) Van Buren, theForeclosure Commissioner, suddenly announced on December 2, 2010 he washolding a foreclosure auction sale on January 6, 2011, and began advertising, (b)the Consortium on December 6, 2010 meanwhile filed a nonhearing motion tosubstitute as the foreclosing Plaintiff Ke Kailani Partners ("KKP"), a Hunt whollyowned company of HRB formed as early as October 27, 2010, and (c) the newAcquisition Agreement contained performance terms that likely could not betimely met.

119. It further seemed too coincidental just as the December 30, 2010closing date approached for executing the new Acquisition Agreement, Judge

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Ayabe both denied reconsideration of his foreclosure decree, and granted theCo nsortium 's nonhearing m otion to substitute KKP as Plaintiff.

120. KKD and Fuchs immediately appealed to the Hawaii IntermediateCourt of Appeals ("ICA"), and KKD filed Chapter 11 on January 5, 2011 to seekto protect its property and to forestall the January 6, 2011 auction sale.

121. In order to remain in Chapter 11 while hunting for purchasers, KKDwas forced to stipulate to pay KK P several hundred thousand dollars and to dismissits foreclosure appeal, but unable to prepare a viable Chapter 11 Plan, KKDvoluntarily stipulated to dismissing its Chapter 11 on May 12, 2011 and KKP andFuchs found themselves back in Judge Ayabe's Foreclosure Court, this time withKKP as foreclosing m ortgagee.

122. The auction was held on June 21, 2011, with no bidders other thanKKP, whose maximum possible credit bid based on the amount owed wasadvertised as exceeding $26,000,000.

123. KKP's $10,000,000 bid was declared the winning bid by Van Buren, toawait confirmation at an August 4, 2011 hearing, whose corporate twin, HRB, hadpurchased the loans from the Consortium less than 10 months earlier for nearlytwice that am ount.

124. KKD and Fuchs found out only on September 20, 2011, however, whata year earlier had actually happen ed, w hen K K P's attorney, Sharon Lo ve joy,

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accidentally emailed Dubin, who had been requesting more information, a PDFcopy of a November 22, 2010 "Termination and Indemnity Agreement"

("Indemnity") between the Consortium and HRB and a copy of a companionNovember 23, 2010 "Mortgage Loan Purchase Agreement" ("New Loan PSA")executed by the Consortium and HRB.

125. It was only then that the truth was revealed that on Nov emb er 22, 2010,HRB secretly had terminated its Loan PSA with the Consortium, which hadincluded a release of KKD and Fuchs, by misrepresenting to the Consortium thatKK D and Fuchs had refused to close:

RECITALS:B. Purchaser has stated that it is unable to fulfill theterms of the Original MLPSA due to certain actions andconduct of Ke Kailani Development LLC and Michael J.Fuchs (collectively, the "Borrowers") and is thusapparently unable to perform thereunder, as aconsequence of which Seller has terminated the OriginalMLPSA.C. Purchaser has acknowledged such termination andrequested that Seller and Purchaser enter into a newMortgage Loan Purchase and Sale Agreement (the "NewMLPSA").3. Effective as of the termination date [November 22,2011], Purchaser hereby stipulates and agrees . . . toindemnify . . . against all loss or liability fro m any andall claims . . . by Borrowers . . . .

126. On November 23, 2010 HRB proceeded to sign a new PSA with theConsortium which provided no release of KKD and Fuchs, thereby aborting

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HRB's performance of its promised contractual obligations to KKD and to Fuchsunder their Acquisition Agreement which at the time was still active, no notice of

anticipatory breach having been delivered to KKD and Fuchs, requestingassurances of their performanc e as required by contract law.

127. HRB meanwhile waited until the next day, November 24, 2010, supra,to announce after the fact its unilateral cancellation of its Acquisition Agreementwith KKD and Fuchs, even though KKD and Fuchs still had until November 30,2010 to close.

128. Without knowing what had really occurred on November 22, 2010, ormore accurately what had really occurred before November 22, 2010 aspresumably it must have taken considerable time for HRB and the Consortium tocome to agreement aborting the joint closing and papering their new deal, KKDand Fuchs, with the hearing confirming sale set for August 4, 2011 and withpleadings closed in the foreclosure action, on July 27, 2011 filed a new, relatedComplaint in Civil No. 11-1-1577-07 against KKP, HRB, the Consortium, and theCommissioner, seeking specific performance, injunctive relief and damages, whichnew lawsuit was similarly assigned to Judge Ayabe.

129. KKD and Fuchs sought to consolidate the two actions, take discovery,deny KKP the right to continue the foreclosure action, and delay confirmation.Instead, Judge Ayabe granted confirmation over their objection, reserving the

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determination of the amou nt of the deficiency judg m ent, entered judgm entconfirming sale and issued a writ of possession, and denied consolidation, ignoring

the new case entirely.130. Judge Ayabe then denied discovery in the new action, and after an

October 5, 2011 hearing dismissed that Complaint, finding despite the above (a)that the escrow cancellation form signed by KKD released all claims against theDefendants and (b) that Fuchs was not a party to the Acquisition Agreement withHR B, and (c) that KK D and Fuchs were not even parties to the first Loan PSA withthe Co nsortium , lacking standing to claim breac h of c ontract.

131. B efore a dismissal order was entered by Judge Ay abe on Decem ber 19,2011, however, KKD and Fuchs had filed a First Amended Complaint in Civil No.11-1-1577-07 on November 4, 2011 based upon their learning of HRB's cover-upof its early misrepresentations to the Consortium that allowed HRB to run awaywith the loan without releasing the Fuchs' guaranties, although they had anuncontested right to amend their pleading as a matter of settled Hawaii case law,Ellis v. C rockett, 51 Haw. 45, 451 P.2d 814 (1969).

132. Yet Judge Ayabe went ahead nevertheless on December 19, 2011 anddismissed the new lawsuit, denying reconsideration on January 5, 2012, and whenhis many substantive and procedural errors were called to his attention, henevertheless ignored even clearly established Hawaii Supreme Court binding

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precedent to the contrary allowing amendments to complaints prior to the entry ofa written d ismissal o rder, ibid.

133. Filing a Verified First Amended Complaint, nevertheless, KKP andFuchs eliminated the Consortium as Defendants based upon learning the banks hadbeen tricked by HRB, and instead sued KKP, HRB, and Bays variously for Breachof Contract, Business Compulsion, Tortious Interference, Wrongful ContractRepudiation, Breach of Services Contract, Fraud, Deceit, Misrepresentation, LegalMalpractice, Indemnification, Specific Performance, Reformation of Contacts,Resc ission of Escrow Cancellation, and Rescission of Sale Agreements.

134. KKD and Fuchs on November 25, 2011 then proceeded to file timelymotions to disqualify Judge Ayabe in both cases before he had ruled on theirmotion for reconsideration of confirmation of sale in Civil No. 09-1-2523-10,before he had entered his written Order dismissing their First Amended Complaintin Civil No. 11-1-1577-97, and before he had determined the amount of anydeficiency , based on the follow ing facts that they h ad just learned:

a. Gail Ayabe, Judge A yab e's W ife, had been affiliated with the Mauna LaniReso rt Develop me nt as its attorney, although three of the Mauna La ni A ssociationswere named Defendants below, opposing KKD and Fuchs in virtually everymotion, yet that family affiliation had not been disclosed at any time during of the

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foreclosure case or that his Wife gave legal advice to some of those Defendants, arelationship freely admitted by the M auna L ani Resort A ssociation;

b. Two partners in the Defendant Bays Law Firm alleged in said FirstAmended Complaint to have ethically defrauded KKD and Fuchs were EdwardCase and Crystal Rose, both of whom previously undisclosed were good friends ofJudge Ayabe, contemporaries of his at the Hastings Law School, including H arveyLung and particularly Crystal Rose, who were believed to have been in the samestudy g roup w ith Judge Ayabe as law students together; and

c. When Case, running for political office, ran into well-publicizeddifficulties with the Hawaii Democratic Party, it was believed on excellentinforma tion and belief that Judge A yabe w as asked by C rystal Rose to intercede onCa se's beh alf and that Judge A yabe did make that attempt to personally assist Casein his political campaign, and also gave campaign contributions to Case, againundisclosed;

135. Were Judge A yabe, for instance, to continue to preside in both cases, hewo uld be m aking decisions that not only wou ld potentially inflict a $21,000,000 ormore deficiency judgment by indemnification/contribution on his good friends inthe Bays Law Firm, but he would be tasked with making credibility assessmentsconcerning his good friends also as material witnesses in both cases - thus creating

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139. On April 23, 2012, again without allowing KKD and Fuchs to conductdiscovery, Judge Ayabe had dismissed the First Amended Complaint as to KKPand HRB on the same grounds as he had dismissed the original complaint andentered judg m ent, no twithstanding num erous add itional Cou nts alleged therein, forinstance, for rescission and for frau d that w ere fact-intensive.

140. Also on April 23, 2012 Judge Ayabe granted KKP's motion for adeficiency judg m ent against KK P and Fuch s jointly and severally in the amount of$21,594,668.55 and entered judgment the same day.

141. Bays had also filed a motion to dismiss the claims against it onDecember 12, 2011 in Civil No. 11-1-1577-07, which had been denied by MinuteOrder on January 24, 2012, Judge Ayabe seemingly apologetically suggestingtherein it might instead file a motion for summary judgment, which it thenproceeded to do on March 9, 2012, giving KKD and Fuchs their first chance totake discovery in either case, and Ed Case's deposition was taken on March 7,2012, in which he contradicted virtually all of Judge Ayabe's prior rulings in bothcases, admitting:

a. BOH required KKD and Fuchs sign the Loan PSA or it would not haveclosed the buyout transaction and HRB would not have been able without theiragreement to purchase the notes and mortgages. In that way the two agreements

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were clearly directly linked {id., Deposition transcript pages 30-32), a pivotalmaterial fa ct tying the agreem ents together;

b. The date for the joint closings wa s extended to Novem ber 30, 2010 {id., p.34);

c. A cashier's check, Case admitted, would take a day or two to clear andthus a money wire from a back-to-back New York-to-Honolulu escrow wouldactually ha ve been a faster mea ns of payme nt than a ca shier's check that was statedin the First Am endm ent to the Acq uisition Ag reement to be a permitted alternativemethod of payment {id., pp. 40-42);

d. At least eight days before the closing scheduled for November 30, 2010and before KKD and Fuchs could perform, Case behind their back intentionallyparticipated with his clients going to BOH and telling BOH that HRB could notclose with the Consortium and instead negotiated and had HRB enter into a newbuyout agreement with the Consortium, but this time the New Loan PSA that Casenegotiated provided not for the cancellation of the Fuchs' guaranties, but for theirassignment to HR B;

e. Case did all of this according to his own sworn testimony, supposedlyassuming that KKD and Mr. Fuchs would not close on Novem ber 30, 2010, basedsolely upon the alleged, disputed content of a single conversation that Colon, theprincipal of HRB, purported to have had with Fuchs, yet Case never sent KKD or

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Fuchs a notice of anticipatory repudiation, giving them the requisite oppo rtunity toacknow ledge that they w ould perform as required by the law of anticipatory b reach{id., pp. 53-54);

f. Case further acknowledged he had planned back-to-back Honoluluescrows for the buyout and purchase transactions, but was unable to explain how aback-to-back escrow was acceptable for those transactions and not a back-to-backescrow for the $1,500,000 payment between the purchase escrow and anirrevocable New York escrow proposed by Fuchs intending to wire money toHonolulu that would have beaten any cashier's check clearance by at least one dayeven though payment by cashier's check was deemed acceptable in the writtenagreement between K KD and Fuchs and HRB {id., p. 57);

g. Case never told KKD or Fuchs of the agreements that were signed byITRB and the Consortium at least eight days before the scheduled November 30,2010 joint closing date; they only learned many months later those interferingdocuments had been signed at least eight days before the scheduled November 30,2010 joint closing date {id., pp. 58-60);

h. Case, who had earlier represented KKD and Fuchs, interpreted the"conflict waiver" he drafted, supra, to allow his law firm to do whatever his lawfirm wanted to do for HRB, which Hunt company his law firm had introduced to

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Fuchs to ironically help him avoid the guaranties, Case admitting nowhere in the"con flict wa iver" did it say that (id., pp. 63);

i. Case further admitted that the Acquisition Agreement he drafted wasinextricably linked to the original Loan PSA between HRB and the Consortium,which KKD and Fuchs were also required by HRB and the Consortium to sign;one could not close without the other, each being conditioned on the simultaneousclosing of the other (id., pp. 67-69);

j. BOH required an indemnification agreement so it would not be sued forclosing with HRB in violation of the promises the Consortium expressly made inwriting to KKD and Fuchs and for its assigning Fuchs' guaranties to HRB, againcontrary to the Consortium's written agreement to release and not assign the twoguaranties upon closing (id., p. 75);

lc. Case admitted that had he and HRB instead accepted Fuchs' offer of aback-to-back irrevocable New York-to-Honolulu escrow for the $1,500,000payment, the transactions scheduled for joint closing on November 30, 2010 wouldhave been concluded and there would not now be an escalating $21,600,000deficiency judgme nt (id., pp. 80, 82); and

1. HR B had completed its due diligence and w as co ntractually required toclose on November 30, 2010, but for the contrary agreements it signed with BOH,

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derailing the prior agreements between the parties without knowledge by KKD orFuchs {id., pp. 87-88, 90).

142. It is not the practice of Hawaii lawyers to investigate the stock holdingsof our Judges. Dubin preferred to resolve the matter informally after receivingadditional information from Internet media mon itoring the cases, that Judge A yabeduring both cases had held and continued to hold stock in BOH, the lead bank inthe Consortium, causing Dubin on May 11, 2012 immediately to write JudgeAyabe, inter alia, as follow s:

Late yesterday afternoon I was m ore than surprised for thefirst time to learn, upon receiving a copy of your April 25,2011 Supreme Court of Hawaii Certified FinancialDisclosure Statement, a copy of which is enclosed with thisletter, that Your Honor has presided over the above twolawsuits at the same time that you have owned between$25,000 and $50,000 worth of stock in the Bank of Hawaii,which has not only been a principal party to both actions,but its officers material witnesses to this day in both cases. ** * *

As a result of the above new circumstances, and given theprior disqualification history of these two cases questioningunsuccessfully your campaign contribution to Mr. Ed Caseand your familiarity with Members of the Bays Law Firm, Iam requesting on behalf of my clients that Your Honorimmediately su a sponte set aside all of your prior orders andjudgments in both cases, that you recuse yourself, and thatthese two cases be referred to the Chief Judge of thisCircuit, the Honorable Derrick H. M Chan, for hisreassignment to another First Circuit Court Judge.(Bracketed material added)

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143. Judge Ayabe responded on May 14, 2012, asking counsel to attend aconference on May 17, 2012; meanwhile, Dubin consulted with a banking expert,who concluded the outcome of the foreclosure case could have had a significantimpact on BO H stock, impacting the value of its shares.

144. At the May 17, 2012 conference, Judge Ayabe said he considered theallegations "serious" {id., Transcript of Proceedings, page 3), but explained thestock had been in a custodial account since 1995, purchased for $10,102.67,believed now to be 600 shares worth $29,334, with his Wife now the accountfiduciary {ibid.).

145. Nevertheless, Judge Ayabe refused to answer any questions {id., p. 5)or to disqualify himself {id., p. 5), making the following statements, then abruptlydeparting:

a. Judge Ayabe acknowledged that in the federal judicial system "if a judgeowns just one share of stock" a judge would be disqualified, but said that theethical rule in Hawaii is different: (i) "the federal statute does not apply to asituation whe re the stock belongs to a jud ge 's adult child," and (ii) Haw aii insteadhas "adopted a de minimis standard" {id., p. 4);

b. Judge Ayabe appeared to be relying upon the ethical advice of andclearance by the Hawaii Commission on Judicial Conduct, explaining that he "hadalready reported this matter to the Com mission on Judicial Conduc t" {id., p. 4);

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c. Judge Ayabe concluded that 600 shares of BOH stock "is a de minimisamount and does not unreasonably impair this Court's ability to remain impartial,"and "believes it has been fair and impartial throughout this case and feels that itcan rema in to do so througho ut the remainder of this case {id., pp. 4-5); and

d. Judge Ayabe applied a subjective test for appearances of impropriety,concluding that in his opinion he could decide fairly despite family ownership ofBOH stock {id., pp. 4-5).

146. Judge Ayabe's statements above gave the appearance that he had beenmisinformed by the wrong advice given to him by the Hawaii Commission onJudicial Conduct:

a. Since to the contrary federal law does not exempt the stock holdings of ajudge's immediate family members or their fiduciary holdings;

b. Since to the contrary States that have adopted the same Model Code ofJudicial Conduct as Hawaii have nevertheless held that the de minimis languagefound in Rule 2.11 is trumped by the appearance of impropriety standard underwhich it is subsumed as but one example; and

c. Since to the contrary the test is not subjective, whether a judge himself orherself believes that he can be impartial, but is controlled instead by the objectivestate of mind of a reasonable person app earing before him.

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151. Fuchs then learned that Judge Ayabe admitted that he went to lawschool with m emb ers of that law firm who h e considers his good friends.

152. Fuchs meanwhile was suing those good friends of Judge Ayabe forupwards of $21,600,000 for fraud and for indemnification and who are materialwitnesses in the cases before Judge Ay abe at the time.

153. Fuchs then learned that Judge Ayabe's Wife has been doing legal workfor three of this adversary pa rties in the foreclosure case.

154. Fuchs then learned that Judge Ayabe's family, while he was presidingover the foreclosure action against him and his action against BOH, had anundisclosed 600-share stock ownership in BOH despite the fact that he is the FirstCircuit Court Foreclosure Judge presiding over all foreclosure cases, includingothers brought by BO H ag ainst other borrowers to this day.

155. Fuchs further found it difficult to believe that a judge would or wouldnot be disqualified for the same appearance of impropriety depending upon onlywhich side of Punchbo wl Street he or she presided on.

156. To the contrary, for nearly one hu ndred years H awaii appellate case lawhas held that any stock ownership in a party automatically required recusal ordisqualification, Thomson v. McGonagle, 33 Haw. 565 (1935) ("it is settled that astockholder of a corporation has a 'pecuniary interest' in an action in which the

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corporation is interested in its individual capacity . . . and it follows that Mr.Justice Peters is disqualified to sit in this cause").

157. This is by no means an outdated concept, for as the United StatesSupreme Court held in Liljeberg v. Health Services Acquisition Corp., 486 U.S.847, 863, 865 (1988), wh ere a jurist holds an financial interest in a party beforehim " we mu st continually bear in mind that 'to perform its high function in the bestway "justice must satisfy the appearance of justice".' In re Murchison, 349 U.S.133, 136, 75 S.Ct. 623, 625, 99 L.Ed. 942 (1955) (citation omitted). * * * * topromote confidence in the judiciary by avoiding even the appearance ofimpropriety whenever possible."

158. Nor can a judge merely divest himself or herself of such stockownership, which Judge Ayabe never furthermore even considered, or sever partiesfrom the case and continue to preside in an action, Shell Oil Co. v. United States,672 F.3d 1283, 1291 (Fed. Cir. 2012) ("because the judge's wife owns shares inthe paren t company of Texaco and Union Oil . . . requires recusal" and "thejudge's decision to sua sponte sever Texaco and Union Oil did not satisfy thestatutory requirement of disqualifying himself from the entire proceeding").

159. State Courts, moreover, that have adopted the same Model Code ofJudicial Conduct as has Hawaii, with the same vague and ambiguous de minimislanguage and the same due process clauses in their state constitutions, have

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nevertheless held that the "appearance of impropriety" standard is much boarderand supersedes any such de minimis inquiry where stock ownership is the reason

for d isqualification.160. For instance, the Supreme Court of Arkansas rejected the de minimis

excuse in Huffman v. Arkansas Judicial Discipline and Disability Commission,344 Ark. 27 4, 281-282, 42 S.W.3d 386, 344 (2001) ("while there is little doubt thatthe action taken by Judge Huffman was unlikely to fundamentally affect the valueof his and his wife's stock, which comprises but a minuscule percentage of thetotal stock existing in Wal-Mart, this analysis on the de minimis value of aneconomic interest mentioned in Canon 3E(l)(c) ["more than de minimis interestthat could be substantially affected by the proceeding"] ignores the more basicissue of appearanc e of im propriety").

161. Similarly, the Court of Appeals of Georgia whose Code of JudicialConduct and due process guaranties written also into its state constitution are alsoidentical to that in Haw aii ("judges shall disqualify themselves in any proceeding inwhich their impartiality might reasonably be questioned, including but not limited toinstances where: . . . the judge . . . is known by the judge to have a more than deminimis interest that could be substantially affected by the proceed ing") rejected the deminimis excuse in White v. Suntrust Bank, 245 Ga. App. 828, 538 S.E.2d 889 (2000)

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base substantially reexamined, but the victim here was not Judge Ayabe. The victimshere were KKD and Fuchs.

166. Judge Ayabe knew of his family's stock ownership, but failed to discloseit, which is another, independent ground all by itself for his imm ediate disqualificationeven if considered de minimis, blocking parties and their counsel from offering theiropinions to the affected jurist.

167. As the Supreme Court of New Hampshire held in Blaisdell v. City ofRochester, 135 N.H. 598, 593-594, 609 A.2d 388 (1992), "it is the judg e'sresponsibility to disclose, su a sponte, all information of any potential conflict betweenhimself and the parties or their attorneys when h