Cavaco v. Mortgage Electronic Registration Systems, Inc. et al
Filing
44
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT 31 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 4/25/11. ("Except with respect to the TILA rescission claim asserted in Count 1, summary judgment is granted i n Defendant's favor. With respect to the TILA rescission claim asserted in Count 1, the court orders the parties to immediately meet and confer about how this count should proceed in light of Cavaco's ability or inability to unwind the tran saction.") (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
CARLA LOUISE CAVACO,
)
)
Plaintiff,
)
)
vs.
)
)
MORTGAGE ELECTRONIC
)
REGISTRATION SYSTEMS, INC.;
)
WILSHIRE CREDIT CORPORATION; )
and HSBC BANK USA, NATIONAL
)
ASSOCIATION AS TRUSTEE FOR
)
THE ELLINGTON TRUST SERIES
)
2007-1.
)
)
Defendants.
)
_____________________________ )
CIVIL NO. 09-00586 SOM/BMK
ORDER GRANTING IN PART AND
DENYING IN PART MOTION FOR
SUMMARY JUDGEMENT
ORDER GRANTING IN PART AND DENYING IN PART
MOTION FOR SUMMARY JUDGEMENT
I.
INTRODUCTION.
This case arises out of a mortgage refinancing.
Defendants have moved for summary judgment on Plaintiff Carla
Louise Cavaco’s First Amended Complaint.
As set forth below, the
motion is granted in part and denied in part, leaving for further
adjudication only the Truth in Lending Act rescission claim
asserted in Count 1 of the First Amended Complaint.
II.
FACTUAL BACKGROUND.
In January 2007, Cavaco obtained a $352,000 loan from
Fremont Investment & Loan.
This loan refinanced Cavaco’s
previous loan and provided Cavaco with just under $107,000 in
cash.
See Declaration of Justin Wilson ¶ 9, Feb. 23, 2011, ECF
No. 28; ECF No. 28-6.
As part of the loan, Cavaco executed and delivered a
$352,000 note dated January 19, 2007, to Fremont.
28-1.
See EFC No.
Though various assignments, the note has been assigned to
HSBC Bank USA, National Association as Trustee for the Ellington
Trust Series 2007-1.
The orginal note is being physically held
by HSBC’s third-party custodian, Wells Fargo Bank, N.A.
See
Declaration of Justin Wilson ¶ 3, Feb. 23, 2011, ECF No. 28.
To secure the note, Cavaco executed and delivered a
mortgage to Fremont on January 19, 2007.
The mortgage was
recorded in the State of Hawaii Bureau of Conveyances on January
25, 2007, as Document No. 2007-014335.
Under the terms of the
mortgage, Mortgage Electronic Registration Systems, Inc.
(“MERS”), was designated the nominee for Fremont.
The mortgage
states that MERS is the “mortgagee” for purposes of the mortgage.
See 28-2.
Cavaco says that, at closing, she was given no
opportunity to review any of the loan documents or ask questions
about the documents.
She says that she was told by Fremont’s
representative that the loan documents were in order and that she
had to sign right away.
See Aff. of Carla Louise Cavaco ¶¶ 13-
14, Mar. 21, 2011, ECF No. 35-1.
Cavaco says that Fremont’s
representative flipped the documents to wherever a signature or
initials were necessary and instructed her to sign or initial.
Id. ¶ 15.
2
On or about September 20, 2009, MERS assigned Cavaco’s
mortgage to HSBC.
This assignment of Cavaco’s mortgage was
recorded in the State of Hawaii Bureau of Conveyances on
September 30, 2009, as Document Number 2009-149718.
See
Corporate Assignment of Mortgage/Deed of Trust, ECF No. 28-3.
Cavaco says that she was not notified of this transfer.
See
Cavaco Aff. ¶ 3.
Defendants say that, on January 16, 2007, Fremont sent
Cavaco a certified letter containing various documents pertaining
to her loan, including two copies of the Truth in Lending
Disclosure Statement, a Good Faith Estimate of Settlement
Charges, a Real Estate Settlement Procedures Act Disclosure
Statement, Adjustable Rate Mortgage Disclosures, an Appraisal
Disclosure, a Choice of Insurance Notice, a Loan Transaction Fees
Notice, a Credit Score Notice, a Credit Score Disclosure, and a
USA Patriot Act Disclosure.
28-5.
See Wilson Decl. ¶¶ 8, 10; ECF No.
Cavaco admits receiving some of the unsigned mortgage
documents, but she says she did not receive those documents until
a week after she signed the note and mortgage.
See Cavaco Aff.
¶ 18.
Also on January 19, 2007, Cavaco signed a Notice of
Right to Cancel.
Immediately above her signature on that
document was an acknowledgment that she had “received Two (2)
copies of the Notice of Right to Cancel” on that date.
3
See ECF
No. 28-7.
On that same day, Cavaco signed an acknowledgment that
she had received a copy of the TILA Disclosure Statement.
ECF No. 28-8.
See
Cavaco, however, complains that she did not
receive signed copies of these documents.
See Cavaco Aff. ¶ 4.
It is unclear whether Cavaco received unsigned copies of these
documents.
See id. (stating that, about a week after she signed
the documents, she “received unsigned copies of some of the
mortgage and note documents in the mail”).
If Cavaco is
complaining that the documents she received failed to contain her
signature, she cites no legal authority requiring a lender to
provide copies signed by the borrower.
On or about March 9, 2009, the loan’s servicing agent,
Wilshire Credit Corporation, sent Cavaco a Notice of Default.
See ECF No. 28-10.
The notice told Cavaco that was $4,992.46 in
arrears and that, if the default was not timely cured, the
creditor might initiate foreclosure proceedings.
Id.
On September 23, 2009, three days after Cavaco’s loan
was assigned to HSBC, HSBC executed a Notice of Mortgagee’s
Intention to Foreclosure Under Power of Sale.
This document was
subsequently filed in the State of Hawaii Bureau of Conveyances
on October 7, 2009, as Document Number 2009-15374.
Decl. ¶ 16; ECF No. 28-11.
See Wilson
The notice set a public sale of
Cavaco’s mortgaged property for October 30, 2009.
4
Id.
On December 11, 2009, Cavaco filed the Complaint in
this matter.
See ECF No. 1.
On or about February 27, 2010, Bank of America Home
Loans notified Cavaco that, effective March 1, 2010, it would be
the servicing agent for her loan.
See ECF No. 28-9.
On April 22, 2010, Cavaco settled with Fremont and
stipulated to its dismissal with prejudice.
See Stipulation to
Dismiss With Prejudice Defendant Fremont Investment & Loan, Apr.
22, 2010, ECF No. 8.
On June 30, 2010, Cavaco filed the First Amended
Complaint in this matter.
See ECF No. 14.
The First Amended
Complaint names Defendants MERS, Wilshire, and HSBC, but does not
name Fremont as a Defendant.
III.
STANDARD.
Summary judgment shall be granted when “the pleadings,
the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material
fact and that the movant is entitled to judgment as a matter of
law.”
Fed. R. Civ. P. 56(c).
One of the principal purposes of
summary judgment is to identify and dispose of factually
unsupported claims and defenses.
U.S. 317, 323-24 (1986).
Celotex Corp. v. Catrett, 477
Accordingly, “[o]nly admissible
evidence may be considered in deciding a motion for summary
judgment.”
Miller v. Glenn Miller Prods., Inc., 454 F.3d 975,
5
988 (9th Cir. 2006).
Summary judgment must be granted against a
party that fails to demonstrate facts to establish what will be
an essential element at trial.
See Celotex, 477 U.S. at 323.
A
moving party has both the initial burden of production and the
ultimate burden of persuasion on a motion for summary judgment.
Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102
(9th Cir. 2000).
The burden initially falls on the moving party
to identify for the court “those portions of the materials on
file that it believes demonstrate the absence of any genuine
issue of material fact.”
T.W. Elec. Serv., Inc. v. Pac. Elec.
Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987) (citing
Celotex Corp., 477 U.S. at 323); accord Miller, 454 F.3d at 987.
“A fact is material if it could affect the outcome of the suit
under the governing substantive law.”
Miller, 454 F.3d at 987.
When the moving party fails to carry its initial burden
of production, “the nonmoving party has no obligation to produce
anything.”
In such a case, the nonmoving party may defeat the
motion for summary judgment without producing anything.
Fire, 210 F.3d at 1102-03.
Nissan
On the other hand, when the moving
party meets its initial burden on a summary judgment motion, the
“burden then shifts to the nonmoving party to establish, beyond
the pleadings, that there is a genuine issue for trial.”
454 F.3d at 987.
Miller,
This means that the nonmoving party “must do
more than simply show that there is some metaphysical doubt as to
6
the material facts.”
Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986) (footnote omitted).
The
nonmoving party may not rely on the mere allegations in the
pleadings and instead “must set forth specific facts showing that
there is a genuine issue for trial.”
Porter v. Cal. Dep’t of
Corr., 419 F.3d 885, 891 (9th Cir. 2005) (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 256 (1986)).
“A genuine
dispute arises if the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.”
California v.
Campbell, 319 F.3d 1161, 1166 (9th Cir. 2003); Addisu v. Fred
Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000) (“There must be
enough doubt for a ‘reasonable trier of fact’ to find for
plaintiffs in order to defeat the summary judgment motion.”).
On a summary judgment motion, “the nonmoving party’s
evidence is to be believed, and all justifiable inferences are to
be drawn in that party’s favor.”
Miller, 454 F.3d at 988
(quotations and brackets omitted).
IV.
ANALYSIS.
A.
Counts 1 and 11--TILA Rescission and Recoupment.
1.
Rescission Claim.
Based on Fremont’s alleged failure to provide full
disclosures of the loan documents, Count 1 of the First Amended
Complaint asserts a violation of the Truth in Lending Act, 15
7
U.S.C. § 1602, et seq..
Specifically, Count 1 seeks to rescind
the loan under 15 U.S.C. § 1635(a).
Under 15 U.S.C. § 1635(a), a borrower has a right to
rescind a consumer credit transaction that provides for a
security interest in any property used as the borrower’s
principal dwelling.
The borrower has “until midnight of the
third business day following consummation of the transaction or
the delivery of the information and rescission forms” to exercise
this right.
Id.
However, when a lender fails to tell a borrower
about the borrower’s right to rescind, or fails to provide
material disclosures, the duration of the borrower’s right to
rescind extends for three years from the date the transaction was
consummated.
12 C.F.R. § 226.23(a)(3); Jackson v. Grant, 890
F.2d 118, 120 (9th Cir. 1989).
Even a purely technical violation
of TILA’s disclosure provisions, including the failure to provide
a borrower with two copies of the notice that includes the
correct date the rescission period expires, extends the duration
of the right to rescind for three years.
See Semar v. Platte
Valley Fed. Sav. & Loan Ass’n, 791 F.2d 699, 703-05 (9th Cir.
1986).
TILA defines “material disclosures” as disclosures
of the annual percentage rate, the method of
determining the finance charge and the
balance upon which a finance charge will be
imposed, the amount of the finance charge,
the amount to be financed, the total of
payments, the number and amount of payments,
8
the due dates or periods of payments
scheduled to repay the indebtedness, and the
disclosures required by section 1639(a) of
this title.
15 U.S.C. § 1602(u).
To the extent Cavaco seeks in Count 11 of the First
Amended Complaint to toll § 1635(a)’s limitation period for
exercising TILA rescission rights, summary judgment is granted in
favor of Defendants.
Because the limitation period for
rescission claims under TILA is a statute of repose, equitable
tolling is inapplicable.
See Beach v. Ocwen Fed. Bank, 523 U.S.
410, 411–13 (1998); Uy v. Wells Fargo Bank, N.A., 2011 WL
1235590, *7 (D. Haw. Mar. 28, 2011) (“Equitable tolling does not
apply to rescission claims under TILA.”).
If Cavaco did indeed
receive the required disclosures, her TILA rescission claim may
be barred by the three-day limitation period.
For purposes of
this motion, however, because Cavaco raises a genuine issue of
fact as to whether she received the required disclosures, this
court applies the three-year limitation period.
Defendants seek summary judgment on the TILA rescission
claim asserted in Count 1, arguing that Cavaco’s signed
acknowledgment of receipt of two copies of the TILA disclosures
creates a “rebuttable presumption” that the disclosures were made
to her.
See 15 U.S.C. § 1635(c) (“Notwithstanding any rule of
evidence, written acknowledgment of receipt of any disclosures
required under this subchapter by a person to whom information,
9
forms, and a statement is required to be given pursuant to this
section does no more than create a rebuttable presumption of
delivery thereof.”).
Cavaco’s affidavit creates a genuine issue
of fact as to whether she received copies of the TILA
disclosures, as Cavaco denies receipt and describes her loan
closing procedure as having given her no time to read what she
was signing, implying that she did not know she was acknowledging
receipt of the TILA disclosures.
See Cavaco Aff. ¶¶ 4, 13-15;
Rodrigues v. Newport Lending Corp., 2010 WL 4960065, *6 (D. Haw.
Nov. 29, 2010) (holding that plaintiffs’ declaration denying
receipt of TILA disclosures was sufficient to create a genuine
issue of fact concerning such receipt despite the rebuttable
presumption of delivery based on plaintiffs’ signed
acknowledgment of receipt).
Accordingly, to the extent
Defendants seek summary judgment based on the rebuttable
presumption of receipt, summary judgment on Count 1 is denied.
As an additional ground for summary judgment on the
TILA rescission claim, Defendants argue that Cavaco has not pled
and does not have the ability to tender back the proceeds of the
loan.
To the extent Defendants seek summary judgment based on
the argument that the Complaint does not plead an ability to
tender the proceeds of the loan back to the banks, this court has
previously rejected that argument.
See Augustin v. PNC Financial
Servs. Group, 2010 WL 1507975, *8 (D. Haw., Apr. 15, 2010).
10
With
respect to the argument that summary judgment should be granted
on the TILA rescission claim because Cavaco cannot repay the loan
proceeds, the court recognizes that it may condition the
obligation to release the security interest for the loan on
Cavaco’s tender to the lender of the amount owed or property
equivalent to the debt.
TILA requires a creditor to return any
money or property to the borrower and terminate the security
interest within twenty days of receiving a notice of rescission
from a borrower.
See 15 U.S.C. § 1635(b).
Once that happens,
the borrower typically must tender the loan or the property.
Id.
However, a court has discretion to delay a lender’s actions until
the borrower tenders the amount owed or provides an equivalent
property to the lender. Whether a decree of rescission should be
conditional depends on “the equities present in a particular
case, as well as consideration of the legislative policy of full
disclosure that underlies the Truth in Lending Act and the
remedial-penal nature of the private enforcement provisions of
the Act.”
Yamamoto v. Bank of New York, 329 F.3d 1167, 1171 (9th
Cir. 2003) (citations omitted).
In Yamamoto, the Ninth Circuit said that, if a borrower
cannot comply with his or her rescission obligation, the court
may deny rescission.
Id. at 1173.
The next year, in 2004,
Official Staff Commentary to 12 C.F.R. § 226.23 was added to
clarify that, when a court modifies the rescission procedures,
11
the consumer’s right to rescind and to have the loan amount
adjusted are not affected.
See Official Staff Commentary on
Regulation Z for § 226.23(d)(4); Elizabeth Renuart and Kathleen
Keest, Truth in Lending § 6.7.2.3 (Nat'l Consumer Law Center, 6th
ed. 2007).
Cavaco presents no evidence that she has the ability to
tender an appropriate amount back to the lender.
Under these
circumstances, the court exercises its discretion and conditions
the lender’s obligation to release the security interest for the
loan on Cavaco’s tender to the lender of the adjusted amount she
owes.
See Beazie v. Amerifund Fin., Inc., 2011 WL 1437888, *7
(D. Haw. Apr. 14, 2011) (discussing the court’s discretion to
condition rescission on the unwinding of the loan, e.g.,
borrower’s tender of the loan proceeds back to the lender).
In
Beazie, the court granted summary judgment to the lender when the
borrower was unable to unwind the loan.
Id.
This court orders
Cavaco and HSBC to meet and confer about the TILA rescission
claim in keeping with the analysis in Beazie.
2.
Recoupment Claim.
Paragraph 45 of the First Amended Complaint seeks
recoupment under 15 U.S.C. § 1640(a) and (e) based on the alleged
TILA disclosure violations.
The Supreme Court has explained that
“recoupment” is a “defense arising out of some feature of the
transaction upon which plaintiff’s action is grounded.”
12
Beach v.
Ocwen Fed. Bank, 523 U.S. 410, 415 (1998).
This means that, even
if a borrower does not bring an affirmative claim for rescission
of a loan based on alleged TILA violations, if a bank tries to
foreclose on the borrower’s property, the borrower may seek
rescission of the loan based on TILA disclosure violations as a
“defense” to a foreclosure action.
Id.
Any such defense must be
asserted within § 1635(a)’s limitation period for rescinding
loans.
Id. at 419.
A borrower’s recoupment claim asserting
recoupment in the nature of damages, however, survives the TILA’s
one-year limitation for damages.
See Beach, 523 U.S. at 415.
Cavaco’s First Amended Complaint seeks recoupment in
the nature of damages, rather than recoupment in the nature of
rescission.
At the hearing on the motion, the court asked Cavaco
to identify the legal bases of the recoupment claim.
Cavaco
initially relied on § 1640(a) as justification for recoupment
damages.
However, § 1640(a) provides for damages for TILA
violations, not recoupment, and therefore does not support
Cavaco’s recoupment claim.
Cavaco also relied on § 1640(e) for recoupment in the
nature of damages.
That section provides in pertinent part:
This subsection does not bar a person from
asserting a violation of this subchapter in
an action to collect the debt which was
brought more than one year from the date of
the occurrence of the violation as a matter
of defense by recoupment or set-off in such
action, except as otherwise provided by State
law.
13
15 U.S.C. § 1640(e) (emphasis added).
A recoupment claim under
§ 1640(e) requires the plaintiff to show that “(1) the TILA
violation and the debt are products of the same transaction,
(2) the debtor asserts the claim as a defense, and (3) the main
action is timely.”
Augustin v. PNC Fin. Serv. Group, 707 F.
Supp. 2d 1080, 1088 n.2 (D. Haw. 2010) (quoting Moor v. Travelers
Ins. Co., 784 F.2d 632, 634 (5th Cir. 1986)).
This court has
held that recoupment of damages under § 1640(e) is unavailable
when, as here, a lender is using a nonjudicial foreclosure
process, reasoning that a nonjudicial foreclosure process does
not involve an “action” to collect a debt, which § 1640(e)
defines as a court proceeding.
See Araki v. One West Bank FSB,
2010 WL 5625969, *6 (D. Haw. Sept. 8, 2010).
This court agrees
that HSBC’s nonjudicial foreclosure proceeding against Cavaco’s
property does not amount to an “action” for purposes of
§ 1640(e).
Accordingly, recoupment of damages is unavailable
under § 1640(e).
Because Cavaco fails to identify any legal authority
supporting her TILA recoupment claim, summary judgment is granted
in favor of Defendants on that claim.
B.
Counts 2 and 11--TILA Damage Claim.
Count 2 seeks damages under TILA based on Defendants’
alleged failure to provide TILA disclosures.
Defendants seek
summary judgment on the TILA damage claim, arguing that this suit
14
was not brought within the one-year limitation period that began
when the loan was consummated.
This court agrees and grants
summary judgment against Cavaco on Count 2, as the limitation
period for such a claim is one year from the date of the
consummation of the loan.
See 15 U.S.C. § 1640(e); King v.
California, 784 F.2d 910, 915 (9th Cir. 1986) (when a TILA
violation is based on an insufficient disclosure, the limitation
period generally “starts at the consummation of the [loan]
transaction”); see also Hubbard v. Fidelity Fed. Bank, 91 F.3d
75, 79 (9th Cir. 1996) (holding that, when a lender fails to
comply with TILA’s initial disclosure requirements, a borrower
has one year from obtaining the loan to file suit).
Cavaco’s
loan was consummated in January 2007, and the Complaint was not
filed until December 2009.
In Count 11 of the First Amended
Complaint, Cavaco asserts that the limitation period should be
equitably tolled.
However, on this motion for summary judgment,
Cavaco makes no such argument and fails to introduce any evidence
supporting equitable tolling.
Summary judgment is therefore
granted in favor of Defendants on Count 2.
C.
Count 3--RESPA.
Count 3 of the First Amended Complaint asserts a
violation of the Real Estate Settlement Procedures Act (“RESPA”).
Specifically, Cavaco asserts that RESPA was violated when
Defendants failed to provide her with a signed and dated Good
15
Faith Estimate.
RESPA discusses good faith estimates at 12
U.S.C. § 2604(c) and its implementing regulation, 24 C.F.R.
§ 3500.7.
Cavaco specifically asserts violations of § 3500.7(b).
See First Amended Complaint ¶¶ 50-51.
Defendants argue that Cavaco received the good faith
estimate and did not plead actual pecuniary damages.
Defendants
are entitled to summary judgment on a more fundamental level,
however, as there is no private right of action under RESPA for
violations of 12 U.S.C. § 2604(c) or its implementing regulation,
24 C.F.R. § 3500.7.
Instead, TILA provides the private right of
action for a lender’s failure to timely provide those
disclosures.
See Collins v. FMHA-USDA, 105 F.3d 1366, 1368 (11th
Cir. 1997) (“there is no private civil action for a violation of
12 U.S.C. § 2604(c), or any regulations relating to it”); accord
Araki v. One West Bank, FSB, 2010 WL 5625969, *8 (D. Haw. Sept.
8, 2010) (Seabright, J.); Valdez v. Flexpoint Funding Corp., 2010
WL 3001922, *10 (D. Haw. July 30, 2010) (Kay, J.).
In light of
Cavaco’s indication that she did not need additional time to
brief the matter, summary judgment is granted in favor of
Defendants on the § 2604(c) RESPA claim asserted in Count 3
pursuant to Rule 56(f)(2) of the Federal Rules of Civil
Procedure.
Paragraph 52 of the First Amended Complaint asserts
that excessive closing costs were charged in violation of 12
16
U.S.C. § 2607.
Defendants argue that this RESPA claim is barred
by the one-year limitation period stated in § 2614.
Because
Cavaco did not file her Complaint within one year of the alleged
violation of § 2607, and because Cavaco fails to oppose dismissal
on this ground, the motion is granted with respect to the § 2607
RESPA claim asserted in Count 3.
D.
See 12 U.S.C. § 2614.
Count 4--Chapter 480 Violations.
Count 4 of the First Amended Complaint asserts
violations of section 480-2(a) of Hawaii Revised Statutes, which
prohibits “unfair and deceptive acts or practices in the conduct
of any trade or commerce.”1
Specifically, Paragraph 57 of the
First Amended Complaint alleges violations based on the
following:
1. Targeting financially unsophisticated and
otherwise vulnerable consumers for
inappropriate credit products.
2. Failing to adequately disclose the true
costs and risks of the subject loan and its
inappropriateness for Plaintiff.
3. Making a refinance loan that resulted in
little net economic benefit to Plaintiff with
the primary objective of generating fees and
economic benefits to said Defendants.
4. Making the loan based on the value of the
collateral, without regard to Plaintiff’s
ability to repay the loan.
1
Count 4 also asserts violations of section 481A-3, which is
inapplicable as it prohibits deceptive trade practices relating
to intellectual property.
17
5. Failing to provide Plaintiff with a timely
Good Faith Estimate “GFE”.
6. Attempting to deprive Plaintiff of her
legal right to cancel the loan.
To the extent Count 4 seeks damages under section 48013 of the Hawaii Revised Statutes, Defendants are entitled to
summary judgment.
Cavaco asserts that Fremont committed the bad
acts forming the grounds for her unfair and deceptive trade
practice claims.
However, Cavaco settled with Fremont, the
original lender and alleged wrongdoer, and is now seeking to hold
others liable for Fremont’s actions.
Chapter 480 does not
support Cavaco’s damage claim against persons or companies that
did not commit the allegedly wrongful acts.
A section 480-13
damage claim based on violations of section 480-2 may only be
asserted against the wrongdoer.
See Araki v. One West Bank, 2010
WL 5625969, *8 (D. Haw. Sept. 8, 2010) (holding that an assignee
of a loan is not liable for the original lender’s alleged
violations of section 480-2).
To the extent Cavaco seeks rescission of her loan
pursuant to section 480-12 of the Hawaii Revised Statutes,
summary judgment is also granted in favor of Defendants.
To the
extent the chapter 480 claims are based on violations of TILA
(grounds 2 and 5: failure to provide disclosures; and ground 6:
not honoring rescission request), summary judgment is granted on
TILA preemption grounds.
See Williams v. Rickard, 2011 WL
18
578798, *8 (D. Haw. Feb. 9, 2011) (ruling that, to the extent
plaintiff’s chapter 480 claims are premised on TILA violations,
they are preempted by TILA).
With respect to the remaining section 480-12 rescission
claims based on the targeting of unsophisticated consumers
(ground 1), making a loan with little economic benefit to Cavaco
(ground 3), and making a loan based on the value of collateral
instead of on Cavaco’s ability to pay (ground 4), Defendants
argue that no facts support these claims.
At the hearing, the
court asked Cavaco to identify evidence in the record supporting
these claims.
The only evidence supporting these claims
identified by Cavaco was the original lender’s alleged
overstatement of her income on her loan application and
concealment of what she was signing during the closing of the
loan.
These facts are unrelated to the stated bases of her
chapter 480 rescission claims.
Accordingly, because Cavaco fails
to provide any evidence supporting any of these claims,
Defendants are entitled to summary judgment on them.
E.
Count 5--Fraud.
The First Amended Complaint alleges that the remaining
Defendants are liable for the fraud committed by Fremont.
Cavaco
alleges that Fremont allegedly falsely represented 1) the costs
of the loan, 2) Cavaco’s income on her loan application, and
3) the nature of the documents she was signing at the closing of
19
her loan.
The Supreme Court of Hawaii has stated that “the
elements of fraud are: 1) false representations made by the
defendant, 2) with knowledge of their falsity (or without
knowledge of their truth or falsity), 3) in contemplation of
plaintiff's reliance upon them, and 4) plaintiff’s detrimental
reliance.”
Fisher v. Grove Farm Co., 123 Haw. 82, 103, 230 P.3d
382, 403 (2009).
The fraud claims asserted against the remaining
Defendants fail because there is no dispute that the alleged
fraudulent conduct was committed by Fremont as the original
lender, not by the remaining Defendants who are subsequent
assignees or servicers of Cavaco’s loan.
Cavaco cites no valid
authority supporting her contention that persons and companies
that did not actually commit the alleged fraud can be held liable
for the fraud.
The court is not persuaded by Cavaco’s argument
that TILA’s provision for assignee liability, 15 U.S.C.
§ 1641(e), extends that liability to causes of action beyond
TILA.
F.
Counts 6 and 7--Civil Conspiracy and Aiding &
Abetting.
Counts 6 and 7 assert civil conspiracy and aiding and
abetting.
Summary judgment is granted in favor of Defendants on
these claims.
Civil conspiracy does not on its own constitute a
claim for relief.
See Weinberg v. Mauch, 78 Haw. 40, 49, 890
P.2d 277, 286 (1995); accord O’Phelan v. Lee Loy, 2011 WL 719053
20
(D. Haw. Feb. 18, 2011); Sarmiento v. Bank of New York Mellon,
2011 WL 884457, *5 (D. Haw. Mar. 10, 2011) (holding that a cause
of action for “civil conspiracy” is a theory of potential
liability that is derivative of other wrongs; dismissing civil
conspiracy claim when other claims are dismissed); Gamiao v. Bank
of Am., 2011 WL 839757 (D. Haw. Mar. 4, 2011) (same); Rodenhurst
v. Bank of Am., 2011 WL 768674 (D. Haw. Feb. 23, 2011) (same).
Claims of aiding and abetting similarly involve derivative
claims.
See Chung v. McCabe Hamilton & Renny Co., 109 Haw. 520,
531, 128 P.3d 833, 844 (2006).
Because Cavaco’s civil conspiracy
and aiding and abetting claims are based on her fraud claim, and
because her fraud claims fail, the civil conspiracy and aiding
and abetting claims also fail.
G.
Count 8--Injunctive Relief.
Count 8 seeks to enjoin Defendants from conducting a
foreclosure sale of Cavaco’s property.
Cavaco asserts that HSBC
is not entitled to foreclose on Cavaco’s property because HSBC
does not hold Cavaco’s note.
See First Amended Complaint ¶ 87.
A claim for “injunctive relief” standing alone is not a valid
cause of action.
See Phillips v. Bank of Am., 2011 WL 240813, *4
(D. Haw. Jan. 21, 2011).
Even if a claim for “injunctive relief”
existed, the claim would fail.
HSBC has submitted admissible
evidence that Cavaco’s orginal note is in the possession of
HSBC’s third-party custodian, Wells Fargo Bank, N.A.
21
See
Declaration of Justin Wilson ¶ 3, Feb. 23, 2011, ECF No. 28.
Because Cavaco fails to raise a genuine issue of fact as to
whether HSBC actually holds her note, Defendants would be
entitled to summary judgment on this “claim.”
H.
Count 9--Restrictions on the Mortgage.
Count 9 alleges that the HSBC has a “pooling agreement”
that imposes rules and restrictions on Cavaco not present in the
note and mortgage.
Arguing that she did not agree to the
“pooling agreement,” Cavaco claims that the restrictions render
the note and mortgage unenforceable.
Defendants seek summary judgment on this claim, noting
that any “pooling agreement,” as a matter of law, does not and
cannot modify Cavaco’s rights under the terms of her note and
mortgage.
Cavaco does not oppose this argument or provide
evidence raising a genuine issue of fact as to whether a “pooling
agreement” modifies the terms of her note and mortgage.
Accordingly, summary judgment is granted in favor of Defendants
on this claim.
I.
Count 10--Wrongful Conversion of Loan.
Count 10 of the First Amended Complaint asserts that
the lenders have wrongfully converted the loan through
“securitization,” rendering it void and unenforceable.
“Conversion is the wrongful exercise of dominion over the
property of another.”
Mindys Cosmetics, Inc. v. Dakar, 611 F.3d
22
590, 601 (9th Cir. 2010) (interpreting California law).
This
court has ruled that, under Hawaii law, the elements of
conversion are: “(1) [a] taking from the owner without his
consent; (2) an unwarranted assumption of ownership; (3) an
illegal use or abuse of the chattel; and (4) a wrongful detention
after demand.”
BlueEarth BioFuels, LLC v. Hawaiian Elec. Co.,
2011 WL 563766, *15 (D. Haw. Feb. 8, 2001) (quoting Tsuru v.
Bayer, 25 Haw. 693, 1920 WL 830, *2 (Haw. Terr. Dec. 18, 1920)).
Count 10 alleges a wrongful conversion based on the
sale of the loan to HSBC and HSBC’s agreement with its servicing
agent concerning the loan.
Cavaco’s conversion claim fails
because it simply does not involve a taking from Cavaco without
her consent.
Accordingly, summary judgement is granted in favor
of Defendants on Count 10.
J.
Count 11--Tolling of TILA’s limitation period.
Count 11 asserts that Defendants fraudulently concealed
and misrepresented the terms of Cavaco’s note and mortgage such
that TILA’s limitation period should be tolled.
Amended Complaint ¶¶ 110-11.
See First
As discussed above with respect to
Counts 1 and 2, Cavaco has not demonstrated that equitable
tolling applies.
Accordingly, for the reasons set forth above,
summary judgment is granted in favor of Defendants on Count 11.
23
V.
CONCLUSION.
Except with respect to the TILA rescission claim
asserted in Count 1, summary judgment is granted in Defendant’s
favor.
With respect to the TILA rescission claim asserted in
Count 1, the court orders the parties to immediately meet and
confer about how this count should proceed in light of Cavaco’s
ability or inability to unwind the transaction.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, April 25, 2011.
/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge
Cavaco v. Mortgage Electronic Registration Systems, Inc., Civil No. 09-00586 SOM/BMK;
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGEMENT
24
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