Unpublished Disposition, 931 F.2d 61 (9th Cir. 1989)

MEMORANDUM^** 

This action originated in bankruptcy court. It is a consolidation of three different appeals by Chapter 11 debtor Wai Ha Sun. The bankruptcy court dismissed Sun's adversary proceedings against Nihonkai Lease Company concluding that Sun failed to state a claim upon which relief could be granted. The district court affirmed the bankruptcy court orders on appeal. We affirm.

The bankruptcy court jurisdiction derives from 28 U.S.C. § 157. The district court had jurisdiction pursuant to 28 U.S.C. § 158(a), and we have jurisdiction under 28 U.S.C. § 158(d).

FACTS AND PROCEEDINGS BELOW

This action centers on a dispute regarding ownership of a parcel of land in Waikiki, Honolulu, Hawaii. Hawaii requires all conveyances of interests in land to be registered with the Land Court if the conveyance is to bind the lanD. Haw. REV.STAT. 501-101. Prior to November, 1986, George and Ellen Young owned the property. On October 10, 1967, the Youngs entered into a lease with Jesse Hotchkiss (the Hotchkiss lease). The lease was registered with the registrar of the Hawaii Land Court. After several intermediary assignments, the lease was assigned to K & H Enterprises Ltd. on January 13, 1981. This assignment was registered. Another party had obtained a judgment against K & H. That party obtained a writ of execution and levied upon K & H's interest in the lease. The writ of execution was registered. According to Sun's complaint, in August, 1982, Sun purchased all of K & H's right, title and interest in the lease at a sheriff's execution sale. Sun failed to register this purchase of the interest in the lease.

The lease is significant in that it apparently had an option to buy provision. Sun claims to have exercised that option on September 21, 1982. However, the letter purporting to exercise that option was never registered with the Land Court.

On October, 1982, Young filed a petition in the Land Court to cancel the Hotchkiss lease. Shortly after this time Sun claims that she, the Youngs and K & H entered into an oral settlement. The terms of the oral settlement were transcribed and the parties entered into a written agreement on March 31, 1983, granting Sun an interest in the property. However, neither the oral settlement nor the written agreement was registered with the Land Court.

In September, 1984, the Land Court issued an order cancelling the Hotchkiss lease, the oral settlement and written agreement. The Land Court decision was registered. The Land Court decision was appealed to the Circuit Court. The Circuit Court affirmed the Land Court decision. The Circuit Court judgment was registered, resulting in the deletion of all encumbrances caused by the Hotchkiss lease. The Circuit Court decision was appealed, but notice of the pendency of the appeal was not registered with the Land Court.

During this time Sun filed for bankruptcy. She did not record her bankruptcy petition with the Land Court nor register a lis pendens she had obtained on the parcel of land.

On November 20, 1986, Wholesale Motors, Inc., purchased the property from the Youngs. Wholesale Motors sought and obtained a transfer certificate of title (TCT) which did not reflect any registered claim by Sun.

On December 1, 1986, the Hawaii Supreme Court issued a memorandum opinion reversing the decision of the Circuit Court on the basis that the Land Court lacked jurisdiction. The Hawaii Supreme Court filed an amended judgment remanding the case to the Land Court for dismissal on April 24, 1987. The Supreme Court's amended judgment was not registered with the Land Court until December 22, 1988, after the first hearing on Nihonkai's motion.

On November 30, 1987, Wholesale Motors transferred the property to T.G. Exchange. The TCT obtained by T.G. Exchange did not reflect any of Sun's claims. On the same day Nihonkai purchased the property from T.G. Exchange, and obtained a TCT which did not show any claims by Sun. As stated, Sun filed a Chapter 11 petition on December 12, 1984. On January 22, 1985, Sun filed this adversary proceeding against the Youngs. On June 16, 1988, Sun amended her complaint to include Nihonkai. Nihonkai moved to dismiss Sun's claim against it and the property asserting the fact that Sun failed to register with the Land Court any of the documents purporting to create a real property interest in her favor. As proof, Nihonkai requested the court to take judicial notice of TCT No. 305,600, the transfer certificate of title received by Nihonkai when it purchased the property. The Youngs joined in Nihonkai's motion to dismiss.

On January 18, 1989, the bankruptcy court entered an order dismissing the Nihonkai Lease Co., Ltd., with prejudice. Nihonkai sought and obtained a writ of assistance to recover possession of the property. Sun appealed the order dismissing Nihonkai and the grant of the writ of assistance. While the appeals were pending, Sun moved for reconsideration of the order claiming to have "new evidence." The bankruptcy court denied Sun's motion for reconsideration finding that there was no new evidence. Sun appealed from this determination. The district court upheld each bankruptcy court decision on appeal.

Sun appeals arguing that her complaint stated a claim under Hawaii law. Sun also claims that her complaint stated a claim under the Bankruptcy Code Secs. 549 or 362. She maintains the court erred when it refused to allow her discovery on the issue of Nihonkai's knowledge of her claims against the property. Sun further claims that the district court improperly issued a writ of assistance to restore possession of the property to Nihonkai and that the court erred in refusing to grant her motion for reconsideration.

DISCUSSION

The bankruptcy court dismissed this action for failure to state a claim. Bankruptcy Rule 7012 requires that the bankruptcy court apply Federal Rule of Civil Procedure 12(b)-(h) in adversary proceedings. When ruling on a motion to dismiss for failure to state a claim, the court assumes the factual allegations of the complaint to be true. The court does not assume the truth of legal conclusions merely because they are cast in the form of factual allegations. Western Mining Council v. Watt, 643 F.2d 618 (9th Cir.), cert. denied, 454 U.S. 1031 (1981).

A dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b) (6) is a ruling on a question of law and is reviewed de novo. Emrich v. Touche Ross & Co., 846 F.2d 1190, 1198 (9th Cir. 1988). The district court's interpretation of the law in the state in which it sits is also reviewed de novo. Id., citing In re McLinn, 739 F.2d 1395, 1397 (9th Cir. 1984) (en banc). When passing on a motion attacking the legal efficacy of the plaintiff's statement of his claim, the court may properly look beyond the complaint only to items in the record of the case or to matters of general public record. Id.; 5A C. WRIGHT & A. MILLER, FEDERAL PRACTICE AND PROCEDURE, Sec. 1357 at 299 (2d ed 1990). We note that when examining this case, the bankruptcy judge took notice of documents and memorandum issued by the Hawaii state courts, previous dispositions in its court and the TCTs. We conclude that such was not error as these were matters of public record.

Sun argues that she properly stated a claim under Hawaii law. Specifically, Sun sought to recover land from Nihonkai even though she had previously failed to register any document asserting an interest in the property. The validity of Sun's asserted interest in the property located in Hawaii and the judicial relief available to enforce those interests are governed by applicable Hawaii statutes and Hawaii case law. Butner v. United States, 440 U.S. 48, 55 (1979). Hawaii law mandates that any voluntary instrument purporting to convey or affect land registered in the Land Court system shall not take effect as a conveyance or bind the land unless the instrument is properly registered with the office of the Assistant Registrar. The statute states that:

No deed, mortgage, or other voluntary instrument, except the will and a lease for a term not exceeding one year, purporting to convey or affect registered land, shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties, and as evidence of authority to the registrar or assistant registrar to make registration. The act of registration shall be the operative act to convey or affect the land ...

HAW.REV.STAT. 501-101 (emphasis added). See Packaging Products Co., Ltd. v. Teruya Bros., Ltd., 58 Haw. 580, 574 P.2d 524 (1978); City and County of Honolulu v. A.S. Clarke, Inc., 60 Haw. 40, 587 P.2d 294 (1978). The ordinary effect of a failure to register an interest in Land Court property is that every subsequent good faith purchaser who takes the certificate of title for value holds the registered property free from unregistered interest. City and County of Honolulu v. A.S. Clarke, Inc., 60 Haw. at 44, 587 P.2d at 297. The net result of this policy is that a TCT is conclusive and unimpeachable. HAW.REV.STAT. Sec. 501-82. In re Land Title, Bishop Trust, 35 Haw. 816 (1941).

The TCT held by Nihonkai when it purchased the property shows no interest in favor of Sun recorded prior to the conveyance to Nihonkai. The bankruptcy court properly held that this conclusively disposed of the matter before the court.

Sun argues that the reason that Nihonkai's TCT showed no encumbrances on the property in favor of Sun was because the Land Court improperly and without jurisdiction expunged the encumbrances from the record. Since the Hawaii Supreme Court ruled that the Land Court lacked jurisdiction to make such a ruling, Sun maintains the notations on the TCT were expunged in error and therefore it should not have any conclusive effect, relying on HAW.REV.STAT. Sec. 501-82(7). This statute states in relevant part:

Every applicant receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land who takes a certificate of title for value and in good faith, hold the same free from all encumbrances except those noted on a certificate in the order of priority of recordation, and any of the following encumbrances which may be subsisting, namely:

* * *

* * *

(7) The possibility of reversal or vacation of the decree of the registration upon appeal.

However, as the bankruptcy court pointed out, there was no appeal of a "decree of registration" in the state court proceedings. Had Sun noted the pendency of an appeal to the Supreme Court on the TCT, she could have protected her interest. HAW.REV.STAT. Sec. 501-151.

Moreover, the record indicates Sun's repeated failures over the years to record any alleged interest she may have had in the land. Sun left unrecorded the sheriff's assignment of the lease dated August 13, 1982; she left unrecorded the letter dated December 21, 1982, purporting to exercise her options under the lease; she left unrecorded any oral settlement she alleges to have entered into with the Youngs; and she left unrecorded the written agreement purporting to require that the lease be executed and recorded. If the Hawaii Supreme Court decision did have the effect of reinstating the encumbrances expunged by the Land Court, it would merely have the effect of returning Sun to the position she was in before the Land Court acted; namely, Sun would be left holding a bag of unregistered claims. Sun's failure to record these documents resulted in mere contractual claims against the parties and do not bind the lanD. Haw. REV.STAT. Sec. 501-101.

Sun also argues she has claims under sections 549 and 362 of the Bankruptcy Code. 11 U.S.C. §§ 362, 549. As a prerequisite for a claim under section 549, there must be a transfer of "property of the estate." As is concluded above, there was no property of the estate in the land since no conveyance of interest in land may be accomplished without registration. Section 362 provides for an automatic stay in order to prevent acts of creditors or third parties from adversely affecting property of the estate after the petition is filed. Once again, since there was no registration the disputed property was not property of the estate.

We have considered Sun's remaining contentions on appeal and have determined that they have no merit. AFFIRMED.