Caraang et al v. PNC Mortgage et al
Filing
39
ORDER GRANTING IN PART AND DENYING IN PART PNC DEFENDANTS' MOTION TO DISMISS COMPLAINT 11 ~ Plaintiffs have until July 1, 2011 to file an amended complaint. Signed by JUDGE LESLIE E. KOBAYASHI on 6/20/2011. [Order follows hearing held 5/23/2011 on Motion to Dimiss, docket entry no. 11 . Minutes of hearing: docket entry no. 36 ] (afc) 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
EDWIN PASCUA CARAANG and EDNA )
GOROSPE CARAANG,
)
)
Plaintiffs,
)
)
vs.
)
)
PNC MORTGAGE, ETC., ET AL.,
)
)
)
Defendants.
_____________________________ )
CIVIL NO. 10-00594 LEK-BMK
ORDER GRANTING IN PART AND DENYING IN PART
PNC DEFENDANTS’ MOTION TO DISMISS COMPLAINT
Defendants PNC Mortgage, a division of PNC Bank,
National Association; PNC Bank, National Association in its
individual capacity and as successor by merger to National City
Mortgage Inc., and National City Bank; and PNC Financial Services
Group, Inc. (collectively “PNC Defendants”), filed the instant
Motion to Dismiss Complaint (“Motion”) on February 25, 2011.
Plaintiffs Edwin Pascua Caraang and Edna Gorospe Caraang
(collectively “Plaintiffs”) filed their Opposition to the Motion
(“Memorandum in Opposition”) on April 12, 2011, and the PNC
Defendants filed their reply on April 19, 2011.
on for hearing on May 23, 2011.
This matter came
Appearing on behalf of the PNC
Defendants was David Rosen, Esq., and appearing on behalf of
Plaintiffs was James Fosbinder, Esq.
Later that day, the PNC
Defendants filed their Submission of Supplemental Authority in
support of the Motion (“Supplement”).
After careful
consideration of the Motion, supporting and opposing documents,
and the arguments of counsel, the PNC Defendants’ Motion is
HEREBY GRANTED IN PART AND DENIED IN PART for the reasons set
forth below.
BACKGROUND
Plaintiffs filed the instant action on October 12, 2010
against Defendants PNC Mortgage, PNC Bank, N.A., PNC Financial
Services Group, Inc., National City Mortgage, National City Bank,
and E*Trade Bank (collectively “Defendants”).
The Complaint alleges that, on or about May 27, 2007,
Plaintiffs entered into a loan transaction to refinance their
property located at 255 Aliiolani Street, Makawao, Hawaii 96768
(“the Property”).
[Complaint at ¶¶ 1, 17.]
Plaintiffs executed
a promissory note in the principal amount of $1,400,000 (“the
Note”), secured by a mortgage on the Property (“the Mortgage”).
Plaintiffs also executed a second promissory note and mortgage.
Although it is not entirely clear from the Complaint, it appears
that Plaintiffs’ allegations in this case relate to the
$1,400,000 loan and not the second loan.
[Id. at ¶ 17.]
Plaintiffs state that they followed all directions and submitted
all documents that Defendants National City Mortgage and National
City Bank, N.A. (collectively “National City”) requested.
Plaintiffs claim that, because Defendants, and/or their
predecessors in interest, failed to provide Plaintiffs with the
2
necessary documents and failed to make the required disclosures,
Plaintiffs could not make a fully informed decision and were
lured into a loan which resulted in a financial benefit to
National City, and/or its successors in interest, and a financial
detriment to Plaintiffs and which substantially increased
Plaintiffs’ likelihood of default.
[Id. at ¶¶ 19-20.]
Plaintiffs allege that: they were not provided with a
signed and dated copy of their loan application; they were not
provided with an initial truth-in-lending statement or a good
faith estimate within three days of their application; they were
not timely provided with other legally required notices, such as
a final truth-in-lending disclosure, a HUD settlement statement,
or a notification of their consumer rights; National City did not
inform them that it was treating Plaintiffs’ application as a
subprime loan, did not inform them about what assets and income
National City was qualifying them based upon, and did not inform
them that this was inconsistent with underwriting guidelines and
would increase Plaintiffs’ likelihood of default; and Defendants’
predecessors in interest did not disclose the true terms of the
loan.
Plaintiffs claim that they did not understand the terms of
the proposed loan because of Defendants’ failure to make these
disclosures, and they were not able to compare the terms of the
proposed loan with the terms of loans that other lenders offered.
[Id. at ¶¶ 21-25.]
3
Plaintiffs argue that Defendants targeted persons who
were not financially sophisticated, or were otherwise vulnerable
to abusive practices, and offered them unduly expensive credit.
Plaintiffs allege that National City approved their loan based on
a no-income, no-asset product based on the value of the Property,
and National City did not consider Plaintiffs’ ability to make
payments on the loan.
[Id. at ¶¶ 27-28.]
Plaintiffs also argue
that Defendants: 1) failed to inform them that Defendants
intended to securitize and sell all or parts of their Note and/or
Mortgage to other lenders and loan servicers; 2) failed to inform
them that Defendants would disclose confidential information to
other lenders or investors who sought to purchase bundled loans;
and 3) failed to provide Plaintiffs with the required opt-out
notice.
[Id. at ¶¶ 35-36.]
Plaintiffs allege that Defendants
knew or should have known about National City’s acts and
omissions and therefore National City’s acts and omissions are
imputed to all Defendants.
[Id. at ¶ 37.]
After Plaintiffs experienced “loan distress”, they
sought to modify and/or refinance their loan.
[Id. at ¶ 39.]
Defendants refused and allegedly did not deal with Plaintiffs in
good faith.
[Id. at ¶ 40.]
Plaintiffs claim that, during the life of the loan,
Defendants, and/or their predecessors in interest, sold and/or
transferred the Note and Mortgage without proper endorsements or
4
assignments, causing a break in the chain of title, and without
disclosing to Plaintiffs all business affiliations.
Plaintiffs
therefore allege that Defendants, and/or their predecessors in
interest, did not have the right to foreclose upon the Property.
[Id. at ¶¶ 44, 48.]
Further, Defendants, and/or their
predecessors in interest, failed to provide Plaintiffs with
timely notice of the foreclosure, rendering the foreclosure and
sale void.
[Id. at ¶ 46.]
Plaintiffs also allege that
Defendants PNC Mortgage and/or PNC Bank, N.A. (“PNC Bank”) had no
authority to enforce the Mortgage and Note against Plaintiffs
because they were not in possession of the original Note.
[Id.
at ¶ 49.]
Plaintiffs claim that, because of the foregoing
violations of federal and state law, Defendants cannot file or
conduct ejectment proceedings against them.
In the alternative,
Plaintiffs allege that their defenses, claims, and various rights
of action preclude Defendants from filing or conducting ejectment
proceedings against them.
[Id. at ¶¶ 50-51.]
Plaintiffs assert the following claims: Count I violation of the Home Ownership Equity Protection Act (“HOEPA”),
15 U.S.C. § 1639 et seq.; Count II - violation of the Real Estate
Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2601 et seq.;
Count III - violation of the Truth in Lending Act (“TILA”),
15 U.S.C. § 1605 et seq., and Regulation Z, § 226.4; Count IV -
5
fraudulent misrepresentation; Count V - breach of fiduciary duty;
Count VI - unjust enrichment; Count VII - civil conspiracy; Count
VIII - complaint to quiet title; Count IX - violation of Hawaii
Bureau of Conveyances (“BOC”) regulations; Count X - mistake;
Count XI - unconscionability; Count XII - unfair and deceptive
acts or practices (“UDAP”), in violation of Haw. Rev. Stat. §
480-2 and § 481A-3; Count XIII - failure to act in good faith;
Count XIV - recoupment; Count XV - negligent and/or intentional
infliction of emotional distress; Count XVI - violation of
Hawai`i foreclosure law, Haw. Rev. Stat. Chapter 667; Count XVII
- violation of the Fair Debt Collection Practices Act (“FDCPA”),
15 U.S.C. §§ 1692-1692p, as amended; Count XVIII - violation of
the Sherman Antitrust Act, 15 U.S.C. § 2; and Count IXX1 violation of Hawai`i antitrust/antimonopoly acts.
Plaintiffs seek the following: a judgment of
rescission; statutory damages; actual damages; treble damages;
punitive damages; a temporary restraining order or injunctive
relief; a judgment of recoupment, reimbursement and/or
indemnification; and any other appropriate relief.
I.
Motion
In the instant Motion, the PNC Defendants first note
that Plaintiffs do not deny that they defaulted on their loan
obligations, and Plaintiffs did not provide basic information
1
Although nineteen is XIX, Plaintiffs use “IXX”.
6
about the loan or attach the relevant documents.
The PNC
Defendants argue that the Court should consider the documents
which are crucial to the Complaint, and the PNC Defendants argue
that this would not convert the Motion to a motion for summary
judgment.
[Mem. in Supp. of Motion at 3 (citations omitted)).]
The PNC Defendants therefore filed a Request for
Judicial Notice (“RJN”) on February 25, 2011.
The PNC Defendants
ask the Court to take judicial notice of the following documents:
•Exh. A - the May 16, 2007 Note referred to supra, which
Plaintiffs executed in favor of National City Mortgage
(“NCM”), a division of National City Bank (“NCB”);
•Exh. B - the May 16, 2007 Mortgage referred to supra, which
Plaintiffs executed in favor of NCM, and which was recorded
with the Land Court on May 24, 2007, as Document No. 3606310
on Cert. 708,801;
•Exh. C - the Land Court Petition for Order Re: Change of
Name/Merger reflecting that NCM was merged with and into NCB
on October 1, 2008 (“NCM Land Court Petition”), recorded
with the Land Court on February 9, 2009, as LCO 177781;
•Exh. D - the Land Court Petition for Order Re: Change of Name
reflecting that NCB was merged with and into PNC Bank on
November 6, 2009 (“PNC Land Court Petition”), recorded with
the Land Court on December 23, 2009, as LCO 181315;
•Exh. E - the PNC Bank Certificate dated November 6, 2009, as
further evidence of the merger of NCB with and into PNC;
•Exh. F - PNC Bank’s Notice of Mortgagee’s Intention to Foreclose
Under Power of Sale (“NOI”), recorded in the BOC on April
19, 2010 as 2010-052781;
•Exh. G - PNC Bank’s Mortgagee’s Affidavit of Foreclosure Under
Power of Sale (“Affidavit of Sale”), reflecting that the
Property was sold at public auction on June 21, 2010,
recorded with the Land Court on July 2, 2010, as Document
No. 3976237 on Cert. 708,801; and
•Exh. H - the Mortgagee’s Quitclaim Deed Pursuant to Power of
Sale (“Deed”), reflecting that the current owner of the
Property is PNC Bank, National Association, recorded with
the Land Court on August 11, 2010, as Document No. 3988114
on Cert. 708,801. The Deed resulted in the issuance of a
new certificate of title - TCT 992,051.
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The PNC Defendants ask the Court to take judicial notice of
Exhibits B-D and F-H pursuant to Fed. R. Evid. 201 because those
documents are public records.
The PNC Defendants ask the Court
to take judicial notice and/or to consider Exhibit A, the Note,
because it is central to the allegations in the Complaint and the
authenticity of the document is not in dispute.
A.
Counts I (HOEPA), II (RESPA) & III (TILA)
The PNC Defendants argue that Counts I, II, and III
fail to state a claim under HOEPA, TILA, or RESPA because
Plaintiffs signed the Note and Mortgage on May 16, 2007,
rendering those claims time-barred.
In the alternative, the PNC
Defendants argue that Plaintiffs’ right of rescission expired on
the sale of the Property.
Even if Plaintiffs’ claims were not
time-barred and did not expire with the sale of the Property,
Plaintiffs no longer have the right to challenge the completed
non-judicial foreclosure because the Property is registered with
the Land Court and the new certificate of title has been issued.
Plaintiffs’ RESPA claim, alleging violation of 12
U.S.C. § 2607, is also subject to a one year statute of
limitations.
Plaintiffs failed to bring their claim within one-
year of completing their loan.
The PNC Defendants urge the Court
to dismiss these claims with prejudice.
B.
Count IV - Fraudulent Misrepresentation
The PNC Defendants note that Fed. R. Civ. P. 9(b)
8
requires a party pleading fraud to state the circumstances
constituting fraud with particularity as to each defendant.
Plaintiffs list the alleged fraudulent conduct in paragraph 80 of
the Complaint, but Plaintiffs fail to specify which defendants
allegedly participated in which fraudulent actions.
Plaintiffs
do not even allege the time, place, or specific content of the
allegedly fraudulent misrepresentations, and Plaintiffs do not
attribute any fraudulent actions specifically to the PNC
Defendants.
Plaintiffs merely state the elements of a fraud
claim and make conclusory allegations.
The PNC Defendants argue
that these are legal conclusions that are not entitled to a
presumption of truth in a motion to dismiss.
The PNC Defendants
therefore urge the Court to dismiss Count IV.
C.
Count V - Breach of Fiduciary Duty
The PNC Defendants argue that Plaintiffs have failed to
state a claim for breach of fiduciary duty because, as a general
rule, a borrower-lender relationship is not a fiduciary
relationship absent special circumstances.
Plaintiffs’
allegation that they were unsophisticated parties who placed
their trust and confidence in the PNC Defendants is not enough to
overcome that general rule.
D.
Count VI - Unjust Enrichment
The PNC Defendants first assert that the express
contracts between Plaintiffs and the PNC Defendants, the Note and
9
Mortgage, preclude an unjust enrichment claim.
Plaintiffs do not
dispute the validity of those contracts, and they have not
alleged that another implied contract exists.
Moreover, they do
not allege what benefits the PNC Defendants allegedly received
from the implied contract.
The PNC Defendants therefore urge the
Court to dismiss Count VI.
E.
Count VII - Civil Conspiracy
The PNC Defendants emphasize that a civil conspiracy
claim must have an underlying tort as its basis.
If there is no
underlying tort, the court must dismiss the conspiracy claim.
Insofar as the PNC Defendants argue that none of Plaintiffs’ tort
claims should survive dismissal, the PNC Defendants argue that
the civil conspiracy claim also fails to state a claim.
F.
Count VIII - Quiet Title
The PNC Defendants argue that this claim is simply a
request for injunctive relief, not a separate cause of action.
Plaintiffs have not alleged any claim that would entitle them to
have title to the Property vested in them.
Plaintiffs’ TILA
rescission claim is time-barred; Plaintiffs have not tendered the
amount of the loan, which is required for rescission; Plaintiffs
have not shown that they can tender the amount; and PNC Bank now
owns the Property pursuant to a new certificate of title.
Plaintiffs’ claim for injunctive relief fails because it is not
an independent claim and there is no other claim that would
10
render Plaintiffs entitled to the relief they seek.
G.
Count IX - Violation of BOC Regulations
The PNC Defendants first assert that there is no legal
authority supporting a private right of action in connection with
these regulations.
The PNC Defendants argue that, if Plaintiffs
suggest that PNC Bank was required to file an assignment with
respect to every mortgage that NCM held before the merger, such a
claim is unreasonable.
The NCM Land Court Petition recorded the
merger of NCM to NCB, and the PNC Land Court Petition recorded
the merger of NCB to PNC Bank.
Neither of these transactions
constituted a sale of Plaintiffs’ Note and Mortgage.
The PNC
Defendants therefore urge the Court to dismiss Count IX.
H.
Count X - Mistake
Count X seeks rescission of the Note based on a theory
of mistake.
Plaintiffs do not allege any facts supporting a
mistake as to the PNC Defendants, and Plaintiffs did not even
allege the elements of a mistake claim.
Plaintiffs’ conclusory
allegation that the parties entered into the loan based upon
mutual mistake, [Complaint at ¶ 119,] is not sufficient to
survive a motion to dismiss.
Plaintiffs have therefore failed to
state a claim based on mistake and, as discussed supra, any claim
for rescission is time-barred and/or expired because of the sale
of the Property.
The PNC Defendants therefore urge the Court to
dismiss Count X.
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I.
Count XI - Unconscionability
The PNC Defendants argue that this claim fails because
unconscionability is a defense to a contract claim; it is not an
affirmative claim for relief.
Even if Plaintiffs could bring a
claim for unconscionability, they have failed to allege any facts
to support such a claim against the PNC Defendants.
Plaintiffs
merely make general, conclusory statements that Defendants held
superior bargaining power over them and that Plaintiffs did not
understand the terms of the loan.
The PNC Defendants argue that
this is not enough to survive a motion to dismiss.
J.
Count XII - UDAP
Plaintiffs list the acts that allegedly violated Haw.
Rev. Stat. §§ 480-2(a) and/or 481A-3 in paragraph 129 of the
Complaint.
Plaintiffs also allege that the PNC Defendants’ TILA
violations constitute UDAP violations under § 480-2(a) and/or
§ 481A-3.
[Complaint at ¶ 130.]
Plaintiffs have not alleged any
specific acts that the PNC Defendants committed in violation of
those statutes.
In addition, insofar as Plaintiffs’ UDAP claim
is based upon their TILA allegations, the PNC Defendants contend
that the UDAP claim fails for the reasons discussed above, and
because federal law preempts a state law claim based on a TILA
violation.
The PNC Defendants therefore urge the Court to
dismiss Plaintiffs’ UDAP claim.
12
K.
Count XIII - Failure to Act in Good Faith
The PNC Defendants argue that Count XIII fails to state
a claim because, under Hawai`i law, breach of the implied
covenant of good faith and fair dealing is not an independent
cause of action.
Further, even if Plaintiffs could bring such a
claim, the PNC Defendants argue that it fails because Plaintiffs
are merely trying to allege a fraudulent misrepresentation claim
masked as a breach of contract claim.
The PNC Defendants
reiterate that Plaintiffs have failed to plead fraudulent
misrepresentation with the required particularity.
L.
Count XIV - Recoupment
The PNC Defendants argue that recoupment is not an
affirmative claim; it is a defense that can be raised to reduce,
diminish, or defeat a plaintiff’s claims.
Similarly, TILA also
permits recoupment as a defense, but a court should dismiss a
recoupment claim where there is no evidence that the defendants
initiated a proceeding against the plaintiff.
Even if Plaintiffs
could bring a recoupment claim, Plaintiffs have failed to allege
any basis that would entitle them to relief.
The PNC Defendants
therefore urge the Court to dismiss Count XIV.
M.
Count XV - Intentional and/or Negligent
Infliction of Emotional Distress
The PNC Defendants argue that Plaintiffs’ negligent
infliction of emotional distress (“NIED”) claim fails because
13
Plaintiffs cannot establish a negligence claim against the PNC
Defendants.
Plaintiffs have failed to allege that the PNC
Defendants owed them a duty and that the PNC Defendants breached
that duty.
Even assuming, arguendo, that Plaintiffs have
suffered injuries, they have not alleged how the PNC Defendants
caused those injuries.
Further, the statute of limitations for
tort claims is two years, pursuant to Haw. Rev. Stat. § 657-7.
Plaintiffs failed to bring this action within two years after
they entered into the loan, which is when the alleged injuries
occurred.
The PNC Defendants therefore argue that Plaintiffs’
NIED claim is time-barred.
As to Plaintiffs’ intentional infliction of emotional
distress (“IIED”) claim, the PNC Defendants argue that Plaintiffs
have not alleged any extreme and outrageous conduct by the PNC
Defendants.
Even if Plaintiffs have suffered emotional distress,
they have not alleged how the PNC Defendants caused that
distress.
N.
Further, the IIED claim is also time-barred.
Count XVI - Haw. Rev. Stat. Chapter 667
Count XVI alleges that the foreclosure on the Property
was invalid because the PNC Defendants committed various
violations of Haw. Rev. Stat. Chapter 667.
152-53.]
[Complaint at ¶¶
The PNC Defendants argue that they had the right to
foreclose on the Property because the merger of NCM into PNC Bank
rendered PNC Bank the party in interest under the Note and
14
Mortgage with the right to foreclose on the Property.
Further,
the NOI establishes that PNC Bank was represented by Derek Wong,
Esq., a Hawai`i attorney, in the foreclosure.
The affidavit in
the NOI establishes that PNC Bank: properly notified Plaintiffs
about the foreclosure; posted notice on the Property; and
published the NOI in the Honolulu Star Advertiser.
Supp. of Motion at 30-32.]
[Mem. in
Plaintiffs also make a conclusory
allegation that the NOI was illegal and required conditions
beyond those established by law.
The PNC Defendants argue that
this allegation is conclusory and is not supported by any facts.
Finally, because the Property is registered in the Land Court and
a new certificate of title has been issued, any defenses that
Plaintiffs may have had to the non-judicial foreclosure sale are
time-barred.
The PNC Defendants therefore urge the Court to
dismiss Count XVI.
O.
Count XVII - FDCPA
The PNC Defendants argue that Count XVII fails because
the FDCPA only applies to “debt collectors” and creditors and
loan servicers are not included in that class.
Plaintiffs have
not alleged that the PNC Defendants are seeking to collect a debt
or that it used any improper or abusive methods to collect that
debt.
Further, this district court has ruled that a lender
pursuing a non-judicial foreclosure is not attempting to collect
a debt for purposes of the FDCPA.
15
The PNC Defendants therefore
urge the Court to dismiss Count XVII.
P.
Count XVIII and IXX - Antitrust Claims
The PNC Defendants argue that Plaintiffs’ federal and
state antitrust claims cannot survive a motion to dismiss.
Plaintiffs make conclusory and unsupported allegations that the
PNC Defendants engaged in predatory conduct or anticompetitive
conduct in an attempt to monopolize the mortgage lending and
servicing market.
Plaintiffs allege that this created the
collapse of the subprime mortgage market, leading to economic
collapse.
The alleged wrongful conduct in the course of the PNC
Defendants’ dealings with Plaintiffs provides only the weakest
support for these antitrust claims.
The PNC Defendants therefore
urge the Court to dismiss Counts XVIII and IXX.
In conclusion, the PNC Defendants argue that the Court
should dismiss all of Plaintiffs’ claims with prejudice.
II.
Memorandum in Opposition2
In their Memorandum in Opposition, Plaintiffs state
that they purchased the Property as a vacant lot in 2001 and
built their “family dream home” on it, completing work in
2
Plaintiffs filed a First Amended Complaint on April 1,
2011. This Court struck the amended complaint because Plaintiffs
failed to comply with Fed. R. Civ. P. 15(a) and informed
Plaintiffs that the Court would not construe the attempt to amend
the Complaint as their opposition to the Motion. The Court
continued the hearing on the Motion and gave Plaintiffs
additional time to respond to the Motion. [Order Regarding
Pltfs.’ First Amended Complaint & Defs.’ Motion to Dismiss
Complaint, filed 4/5/11 (dkt. no. 25).]
16
approximately 2005.
[Mem. in Opp. at 5.]
In May 2007, the
Property was appraised at $2,550,000, and Plaintiffs had existing
mortgages of “slightly in excess of $1 million” and therefore had
approximately $1.5 million in equity when they sought a
refinancing loan from NCM.3
[Id. at 5-6, Exh. 1 (appraisal
report dated May 9, 2007).]
Plaintiffs agree that the Court may
consider extrinsic documents that are central to their claims, if
the authenticity of the documents is not challenged.
[Mem. in
Opp. at 6 n.1 (citing cases).]
NCM allegedly assigned the Note and Mortgage to
Defendant E*Trade Bank (“E*Trade”) by an Assignment of Mortgage
dated December 31, 2008, recorded with the Land Court on
January 15, 2009 as document number 3819282 on certificate of
title number 708,801.
[Mem. in Opp., Exh. 3.]
Plaintiffs state
that the only notice that they received about the transfer of the
servicing rights for the Note and Mortgage was an October 1, 2009
letter stating that, as of November 11, 2009, the servicing would
be transferred from NCM, a division of NCB, to PNC Mortgage, a
division of PNC Bank.
[Mem. in Opp. at 7-8.]
E*Trade allegedly
assigned the Note and Mortgage to PNC Bank on March 10, 2010.
3
An
Simultaneous with the Note and Mortgage at issue in this
case, Plaintiffs also executed a second promissory note regarding
a $350,000 home equity line of credit, which was secured by a
second mortgage. NCM, a division of NCB, was also the lender on
that loan. That mortgage was recorded with the Land Court on May
24, 2007 as document number 3606311 on certificate of title
number 708,801. [Mem. in Opp. at 7.]
17
Assignment of Mortgage was recorded with the Land Court on
April 19, 2010 as document number 3956475 on certificate of title
number 708,801.
[Mem. in Opp., Exh. 4.]
Plaintiffs state that,
when PNC Bank acquired the Note and Mortgage, Plaintiffs were
already in default.
[Mem. in Opp. at 8.]
In 2009, Plaintiff Edwin Caraang’s (“Mr. Caraang”)
business experienced economic distress, and he became unable to
draw a paycheck from his business.
Through an entity called
Nationwide Home Savers, Mr. Caraang attempted to apply for a loan
modification for both mortgages on the Property with NCM.
Plaintiffs state that, at this time, they were unaware of the
assignment to E*Trade.
After counsel for Nationwide Home Savers
submitted Plaintiffs’ information, Plaintiffs began receiving
conflicting correspondence from NCM.
Plaintiffs allege that
Defendants intentionally delayed and confused the process so that
Plaintiffs would not be able to rescind the mortgage contract or
take other legal action on a timely basis to prevent the
foreclosure auction of the Property.
Further, now that
Plaintiffs have become aware of the assignment to E*Trade,
Plaintiffs believe that neither NCM nor the PNC Defendants had
the authority to negotiate a loan modification with Plaintiffs
because E*Trade purportedly owned the Note and Mortgage from
December 31, 2008 to March 10, 2010.
[Id. at 8-10.]
PNC representatives made various statements to
18
Plaintiffs about their loan modification application which led
them to believe they were on track to receive a loan
modification.
Plaintiffs state that the PNC Defendants lost or
misfiled documents throughout the process, requiring Plaintiffs
to resubmit them numerous times.
According to Plaintiffs, the
PNC negotiator assigned to their application went on vacation,
but did not leave instructions to postpone the foreclosure
auction.
The auction went forward on June 21, 2010, and the PNC
Defendants acquired the Property for $695,000.
Plaintiffs state
that the assessed value of the Property according to 2010-2011
Maui County Property Tax Department assessments was $1,875,000.
[Id. at 11 (citing Exh. 5, Exh. 6 at 3(d)).]
Plaintiffs argue
that the PNC Defendants failed to properly advertise the auction
because the PNC Defendants only advertised it in the Honolulu
Star Advertiser, instead of in a Maui newspaper.
Plaintiffs also
claim that Defendants concealed the date of the auction from them
by leading them to believe that the auction would be postponed in
light of the loan modification process, which was nearly
complete.
Plaintiffs also assert that Defendants have not
established that the PNC Defendants obtained the Note and
Mortgage through a valid assignment.
Plaintiffs contend that the
copy of the Note which the PNC Defendants submitted with the
Motion is not properly endorsed and Defendants have not produced
19
a properly endorsed version to Plaintiffs.
Plaintiffs therefore
argue that the PNC Defendants did not have the proper authority
to foreclose, and they ask for leave to include such allegations
in an amended complaint.
Plaintiffs state that, as to Counts I-V, VII-XI, XIV,
and XVI, they submit those claims on the pleadings.
Plaintiffs
acknowledge that the Court may be inclined to dismiss those
claims based on the amount of time that has passed since the
alleged acts occurred.
Plaintiffs, however, feel that the claims
are valid and that the Court should either deny the Motion as to
those claims or allow amendment of those claims.
[Id. at 24-25.]
Plaintiffs argue that Counts VI, XII, XIII, XV, XVII,
XVIII, and IXX are interrelated and adequately supported in the
Complaint.
They state that they are prepared to file an amended
complaint with additional information to support these claims.
[Id. at 12, Exh. 7 (proposed First Amended Complaint).]
A.
Counts VI, XII, and XIII
Plaintiffs discuss Count XII, alleging UDAP violations,
together with Count VI, unjust enrichment.
Plaintiffs contend
that the PNC Defendants were unjustly enriched when they acquired
the Property.
According to Plaintiffs, National City and the PNC
Defendants intentionally delayed, and ultimately discontinued,
the loan modification process.
National City and the PNC
Defendants knew that Plaintiffs were able to pay the arrearage on
20
the loan through a family loan or otherwise, but National City
and the PNC Defendants went forward with the foreclosure auction,
even though the modification process was almost complete.
Plaintiffs also claim that National City and the PNC Defendants
misrepresented the amount of time that the loan modification
process would take and falsely represented to Plaintiffs that the
auction would not occur as long as the loan modification
application was under review.
The PNC Defendants did not inform
Plaintiffs that their application had been denied until after the
auction had taken place.
Plaintiffs emphasize that they complied
with all loan modification requirements in good faith, even
though it now appears that National City and the PNC Defendants
did not have the authority to negotiate a modification of
Plaintiffs’ loan at that time.
Plaintiffs also allege that the
PNC Defendants did not properly advertise the auction.
Plaintiffs therefore contend that the auction has wrongfully
resulted in “a windfall of equity in the Property that rightfully
belongs to the Plaintiffs[.]”
[Id. at 18-19.]
Plaintiffs assert
that National City’s and the PNC Defendants’ unfair and deceptive
practices have caused Plaintiffs considerable hardship and have
offended public policy concerns.
Plaintiffs do not specifically address Count XIII,
failure to act in good faith, but it appears that the same legal
arguments that Plaintiffs raised in defense of Counts VI and XII
21
also apply to Plaintiffs’ position regarding Count XIII.
B.
Count XV
As to Count XV, NIED and/or IIED, Plaintiffs argue that
courts have found that debt collection can give rise to emotional
distress claims if the debt collectors used outrageous methods.
Plaintiffs assert that Defendants’ false representations, failure
to act in good faith, and violations of the UDAP and FDCPA
statutes support an IIED or NIED claim.
Defendants knew or
should have known that their conduct would cause Plaintiffs to
lose their home and become homeless, resulting in Plaintiffs’
severe emotional distress.
Plaintiffs therefore argue that
Defendants’ actions were extreme and outrageous.
Plaintiffs
state that they have suffered depression, anxiety, and bouts of
crying.
Plaintiffs assert that their Complaint satisfies most of
the elements of the IIED/NIED claim and that the Court should
allow them to correct any deficiencies through amendment.
C.
Count XVII
As to Count XVII, Plaintiffs allege that Defendants,
and/or their predecessors in interest, violated the FDCPA by
failing to give Plaintiffs the required notices in collecting the
debt and failed to inform Plaintiffs of their right to contest or
request verification of the debt.
Plaintiffs assert that the
violations of the FDCPA invalidate the auction.
D.
Counts XVIII and IXX
22
As to Counts XVIII and IXX, violations of federal and
state antitrust laws, Plaintiffs first note that the substantive
provisions of the Sherman, Clayton, and Federal Trade Commission
Acts are incorporated verbatim into Hawai`i antitrust law, and
therefore the federal and state claims may be addressed together.
Plaintiffs contend that Defendants are “merchants” for purposes
of antitrust laws and that Plaintiffs’ claims are in the public’s
interest.
Plaintiffs allege that Defendants have a monopoly on,
or have attempted to monopolize, the mortgage and/or mortgage
servicing industry.
III. PNC Defendants’ Reply
In its reply, the PNC Defendants first note that
Plaintiffs have failed to address the deficiencies in Counts I-V,
VII-XI, XIV, and XVI.
Plaintiffs have only raised new
allegations about the subject loan and the foreclosure sale of
the Property.
The PNC Defendants argue that none of the new
allegations can remedy the deficiencies in Counts I-V, VII-XI,
XIV, and XVI.
The PNC Defendants therefore argue that the Court
should dismiss those claims with prejudice.
The PNC Defendants next argue that the Court should
dismiss Counts VI, XII, and XIII with prejudice for the reasons
identified in the Motion because Plaintiffs’ new factual
allegations do not address the deficiencies in these claims.
Specifically, Plaintiffs still fail to allege who made the
23
alleged misrepresentations and when the alleged
misrepresentations were made.
The PNC Defendants also point out
that, even if the Court accepts Plaintiffs’ argument that
advertising the auction in the Honolulu Star Advertiser and not
in the Maui News was improper, this does not cure the
deficiencies in Counts VI, XII, and XIII.
As to Plaintiffs’ UDAP claim, the PNC Defendants argue
that Plaintiffs appear to concede that there was no UDAP
violation until they sought loan modification.
Moreover,
Plaintiffs have still failed to identify the specific allegations
necessary to assert a fraud claim.
As to Plaintiffs’ FDCPA claim, the Memorandum in
Opposition does not contest the fact that the FDCPA only applies
to debt collectors, and the PNC Defendants are not debt
collectors, nor does the Memorandum in Opposition contest the
fact that lenders pursuing non-judicial foreclosures are not
attempting to collect debts for purposes of the FDCPA.
The PNC
Defendants therefore urge the Court to dismiss Count XVII with
prejudice.
As to Plaintiffs’ antitrust claims, Plaintiffs have
still failed to make a single factual allegation that the PNC
Defendants engaged in anticompetitive behavior.
The PNC
Defendants therefore urge the Court to dismiss Counts XVIII and
IXX with prejudice.
24
The PNC Defendants reiterate their arguments as to
Plaintiffs’ NIED and IIED claim.
Further, they note that default
and foreclosure proceedings and the denial of loan modification
generally do not rise to the level of extreme and outrageous
conduct supporting an IIED claim.
The PNC Defendants therefore
urge the Court to dismiss Count XV with prejudice.
Finally, the PNC Defendants oppose Plaintiffs’ request
for leave to amend the Complaint.
Plaintiffs have disregarded
the Federal Rules of Civil Procedure by failing to file a motion
for leave to amend and, to the extent that the Memorandum in
Opposition seeks leave to amend, it only contains conclusory
discussions of whether leave to amend is warranted.
The PNC
Defendants note that the original, nineteen-count Complaint was
thirty-six pages long, but the proposed amended complaint, which
only contains five counts, is forty-eight pages long.
Plaintiffs
do not explain what additional facts have been added or changed.
The PNC Defendants also emphasize that the Property has been sold
and therefore all challenges to the non-judicial foreclosure sale
are time-barred because of the filing of the new certificate of
tile.
The PNC Defendants further argue that the Court should not
give Plaintiffs leave to amend because Plaintiffs did not seek
leave to amend until six months after filing the original
Complaint, and Plaintiffs offer no explanation for the delay in
properly alleging their claims.
If the Court is inclined to
25
grant Plaintiffs leave to amend, the PNC Defendants assert that
the Court should award the PNC Defendants their attorneys’ fees
and costs incurred to date as a sanction for filing the Complaint
and forcing the PNC Defendants to expend a considerable amount of
time and resources on the meritless Complaint.
At the hearing on the Motion, counsel for Defendants
reiterated the request for sanctions, arguing that Plaintiffs’
counsel did not comply with his obligations under Federal Rule of
Civil Procedure 11 before filing the instant action.
Defense
counsel emphasized that, in other cases, Plaintiffs’ counsel
filed similar complaints that were also meritless.
STANDARD
I.
Federal Rule of Civil Procedure 12(b)(6)
Fed. R. Civ. P. 12(b)(6) permits a motion to dismiss a
claim for “failure to state a claim upon which relief can be
granted[.]”
Under Rule 12(b)(6), review is generally
limited to the contents of the complaint.
Sprewell v. Golden State Warriors, 266 F.3d 979,
988 (9th Cir. 2001). If matters outside the
pleadings are considered, the Rule 12(b)(6) motion
is treated as one for summary judgment. See Keams
v. Tempe Tech. Inst., Inc., 110 F.3d 44, 46 (9th
Cir. 1997); Anderson v. Angelone, 86 F.3d 932, 934
(9th Cir. 1996). However, courts may “consider
certain materials-documents attached to the
complaint, documents incorporated by reference in
the complaint, or matters of judicial
notice-without converting the motion to dismiss
into a motion for summary judgment.” United
States v. Ritchie, 342 F.3d 903, 908 (9th Cir.
2003).
26
On a Rule 12(b)(6) motion to dismiss, all
allegations of material fact are taken as true and
construed in the light most favorable to the
nonmoving party. Fed’n of African Am. Contractors
v. City of Oakland, 96 F.3d 1204, 1207 (9th Cir.
1996). To survive a motion to dismiss, a
complaint must contain sufficient factual matter
to “state a claim to relief that is plausible on
its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929
(2007). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the
court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, --- U.S. ----, 129 S. Ct. 1937,
1949, 173 L. Ed. 2d 868 (2009). “Threadbare
recitals of the elements of a cause of action,
supported by mere conclusory statements, do not
suffice.” Id. (citing Twombly, 550 U.S. at 554,
127 S. Ct. 1955).
Hawaii Motorsports Inv., Inc. v. Clayton Group Servs., Inc., 693
F. Supp. 2d 1192, 1195-96 (D. Hawai`i 2010).
This Court, however, notes that the tenet that the
court must accept as true all of the allegations contained in the
complaint – “is inapplicable to legal conclusions.”
S. Ct. at 1949.
Iqbal, 129
Factual allegations that only permit the court
to infer “the mere possibility of misconduct” do not show that
the pleader is entitled to relief.
Id. at 1950.
“Dismissal without leave to amend is improper unless it
is clear that the complaint could not be saved by any amendment.”
Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir. 2009)
(citation and quotation marks omitted).
II.
Federal Rule of Civil Procedure 9(b)
Fed. R. Civ. P. 9(b) requires that “[i]n alleging fraud
27
or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.”
Rule 9(b) requires
that a party make particularized allegations of the circumstances
constituting fraud.
See Sanford v. MemberWorks, Inc., 625 F.3d
550, 557-58 (9th Cir. 2010).
In order to sufficiently plead a fraud claim, the
plaintiffs “must allege the time, place, and content of the
fraudulent representation; conclusory allegations do not
suffice.”
Shroyer v. New Cingular Wireless Servs., Inc., 622
F.3d 1035, 1042 (9th Cir. 2010) (citation omitted).
“Malice,
intent, knowledge, and other conditions of a person’s mind may be
alleged generally.”
Fed. R. Civ. P. 9(b); see also Odom v.
Microsoft Corp., 486 F.3d 541, 554 (9th Cir. 2007) (en banc)
(“[T]he state of mind - or scienter - of the defendants may be
alleged generally.” (citation omitted)); Walling v. Beverly
Enters., 476 F.2d 393, 397 (9th Cir. 1973) (stating that Rule
9(b) “only requires the identification of the circumstances
constituting fraud so that the defendant can prepare an adequate
answer from the allegations” (citations omitted)).
A motion to dismiss for failure to plead with
particularity is “the functional equivalent of a motion to
dismiss under Rule 12(b)(6)[.]”
Vess v. Ciba-Geigy Corp. USA,
317 F.3d 1097, 1107 (9th Cir. 2003).
In considering a motion to
dismiss, the court is not deciding whether a claimant will
28
ultimately prevail but rather whether the claimant is entitled to
offer evidence to support the claims asserted.
Twombly, 550 U.S.
at 563 n.8 (citation omitted).
DISCUSSION
I.
Judicial Notice
This Court may take judicial notice of any fact “not
subject to reasonable dispute in that it is . . . capable of
accurate and ready determination by resort to sources whose
accuracy cannot reasonably be questioned.”
Fed. R. Evid. 201(b).
This Court may take judicial notice at any stage of a case, and
the Court must take judicial notice when a party makes a request
and supplies the necessary information.
(f).
Fed. R. Evid. 201(d),
The contents of the documents that the PNC Defendants have
presented can be readily determined through public records, the
accuracy of which cannot reasonably be questioned.
For example,
mortgage agreements are public records and therefore may be the
subject of judicial notice.
See, e.g., Duarte v. Bank of Am.,
Civil No. 10-00372 JMS/BMK, 2011 WL 1399127, at *1 n.1 (D.
Hawai`i Apr. 12, 2011) (citation omitted).
Defendants’ Request
for Judicial Notice is therefore GRANTED.
II.
Counts I-V, VIII-XI, XIV, and XVI
Plaintiffs “elect[ed] to submit on the pleadings” as to
Counts I, II, III, IV, V, VII, VIII, IX, X, XI, XIV, and XVI.
[Mem. in Opp. at 24-25.]
Plaintiffs’ Memorandum in Opposition
29
did not raise any arguments to rebut the PNC Defendants’ position
that these claims fail as a matter of law.
Plaintiffs have
therefore essentially conceded these claims because the legal
arguments conveyed in the Complaint do not carry the presumption
of truth that the factual allegations of the Complaint are
entitled to for purposes of a motion to dismiss.
S. Ct. at 1949.
See Iqbal, 129
The Court therefore will only briefly address
these claims.
A.
Count I (HOEPA) and Count III (TILA)
HOEPA is an amendment to TILA and is therefore subject
to the same statute of limitations.
See Herschelman v. New
Century Mortg. Corp., Cv. No. 09-00461 DAE-KSC, 2010 WL 4448224,
at *4 n.3 (D. Hawai`i Oct. 29, 2010) (citation omitted).
TILA
claims seeing damages are subject to a one-year statute of
limitations that begins to run from the date the loan is
consummated, but the doctrine of equitable tolling may extend
that period.
See 15 U.S.C. § 1640(e); Cannon v. US Bank, NA,
Civ. No. 11–00079 HG–BMK, 2011 WL 1637415, at *5 (D. Hawai`i Apr.
29, 2011) (citing King v. California, 784 F.2d 910, 915 (9th Cir.
1986)).
Where the borrower allegedly did not receive the
required TILA disclosures, the borrower must bring his rescission
claim within three years after the loan consummation.
The three-
year period is a statute of repose, which is not subject to
equitable tolling.
See 15 U.S.C. § 1635(f); Cannon, 2011 WL
30
1637415, at *6 (citing Miguel v. Country Funding Corp., 309 F.3d
1161, 1164 (9th Cir. 2002) (some citations omitted)).
Plaintiffs entered into the subject loan on May 27,
2007, but did not file the instant action until October 12, 2010.
Plaintiffs’ HOEPA and TILA claims seeking damages based on the
alleged failure to make the required disclosures associated with
the closing of the loan transaction are time-barred because
Plaintiffs failed to bring the claims within one year of
consummating the loan and the factual allegations in the
Complaint do not establish a basis for equitable tolling.
Further, no amendment can cure the defects in these claims.
Count I also alleges a HOEPA claim for rescission, but
this claim is also time barred because Plaintiffs failed to bring
the claim within three years of consummating the loan.4
Further,
no amendment can cure the defect in this claim.
In light of these findings, the Court need not address
the remainder of PNC’s arguments regarding Count I and Count III.
The Court GRANTS the PNC Defendants’ Motion as to Count I and
Count III, and DISMISSES those claims WITH PREJUDICE.
4
The Court notes that, where the borrower timely notified
the lender that he was exercising his right to rescind but did
not file his civil action within the three-year statute of
repose, there may be an independent TILA claim for damages based
on the attempt to rescind the loan. Peyton v. Option One Mortg.
Corp., Civil No. 10–00186 SOM/KSC, 2011 WL 1327028, at *5 (D.
Hawai`i Mar. 31, 2011). Plaintiffs’ Complaint, however, does not
allege such a claim, and the Court does not express an opinion as
to whether Plaintiffs could allege such a claim.
31
B.
Count II (RESPA)
Plaintiffs allege that Defendants violated 12 U.S.C. §
2607 by accepting charges for real estate services that were
actually charges for other services rendered and by failing to
provide a special information booklet at the time of the loan
application, as required by 24 C.F.R. § 3500.6.
[Complaint at ¶¶
67-70.]
“The statute of limitations for a RESPA claim is either
one or three years from the date of the violation, depending on
the type of violation.”
Cannon, 2011 WL 1637415, at *7.
Alleged
violations of § 2607 are subject to a one-year statute of
limitations, 12 U.S.C. § 2614, and alleged violations of § 3500.6
are subject to a three-year statute of limitations, Badua v.
Fremont Inv. & Loan, CV. No. 10–00580 DAE–BMK, 2011 WL 1526813,
at *7 (D. Hawai`i Apr. 20, 2011).
Plaintiffs failed to bring
their RESPA claims within the applicable limitations periods.
Although equitable tolling may apply to RESPA claims, Phillips v.
Bank of Am., Civil No. 10-00551 JMS-KSC, 2011 WL 240813, at *9
(D. Hawai`i Jan. 21, 2011) (citation omitted), Plaintiffs have
not alleged any facts that would warrant equitable tolling.
Further, no amendment can cure the defect in Plaintiffs’ RESPA
claims.
The PNC Defendants’ Motion is therefore GRANTED as to
Count II, which is DISMISSED WITH PREJUDICE.
32
C.
Count IV (Fraudulent Misrepresentation)
Plaintiffs generally allege that Defendants, and/or
their predecessors in interest, intentionally concealed material
information and made false representations prior to, and at the
time of, closing.
Plaintiffs list various omissions and
misrepresentations, such as misrepresenting or concealing the
terms of the loan and the declining property values, but
Plaintiffs do not identify each defendant who allegedly made each
omission or misrepresentation.
[Complaint at ¶¶ 78-80.]
Plaintiffs’ Complaint does not allege their fraudulent
misrepresentation claim with the specificity required by Fed. R.
Civ. P. 9(b) and the applicable case law.
See, e.g., Shroyer v.
New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1042 (9th Cir.
2010) (stating that plaintiffs “must allege the time, place, and
content of the fraudulent representation; conclusory allegations
do not suffice” (citation omitted)); Swartz v. KPMG LLP, 476 F.3d
756, 765 (9th Cir. 2007) (“In the context of a fraud suit
involving multiple defendants, a plaintiff must, at a minimum,
identif[y] the role of [each] defendant[] in the alleged
fraudulent scheme.” (alterations in original) (citation
omitted)).
It is arguably possible for Plaintiffs to cure the
defects in this claim by amendment, if they can plead fraudulent
misrepresentation by the PNC Defendants with the required
specificity.
33
The PNC Defendants’ Motion is therefore GRANTED IN PART
AND DENIED IN PART as to Count IV, which is DISMISSED WITHOUT
PREJUDICE.
D.
Count V (Breach of Fiduciary Duty)
Plaintiffs’ claims against the PNC Defendants for
breach of fiduciary duty fail as a matter of law because, as a
general rule, “[l]enders generally owe no fiduciary duties to
their borrowers.”
McCarty v. GCP Mgmt., LLC, Civil No. 10-00133
JMS/KSC, 2010 WL 4812763, at *5 (D. Hawai`i Nov. 17, 2010)
(citations omitted).
This district court, however, has
recognized that fiduciary duties may exist were there is a
special relationship between the borrower and the lender.
Such a
relationship “might arise where there is inequality of bargaining
power.”
Id. (citing Miller v. U.S. Bank of Wash., N.A., 865 P.2d
536, 543 (Wash. App. 1994) (“A quasi-fiduciary relationship may
exist where the lender has superior knowledge and information,
the borrower lacks such knowledge or business experience, the
borrower relies on the lender’ (sic) advice, and the lender knew
the borrower was relying on the advice.”)).
Thus, it is arguably
possible for Plaintiffs to cure the defects in this claim by
amendment.
The PNC Defendants’ Motion is therefore GRANTED IN PART
AND DENIED IN PART as to Count V, which is DISMISSED WITHOUT
PREJUDICE.
34
E.
Count IX (Violation of BOC Regulations)
The Complaint alleges that Defendants, and/or their
predecessors in interest, were required to file a special
mortgage recording fee (“SMRF”) for each amendment to the
Mortgage which increased the principal amount of the secured
debt.
Plaintiffs’ Mortgage is an adjustable rate mortgage, and
Plaintiffs assert that Defendants, and/or their predecessors in
interest, were required to file a SMRF and an assignment of
mortgage each time that the Mortgage was assigned.
Plaintiffs
apparently allege that, because Defendants failed to do so,
Defendants did not have the requisite title in the Property at
the time of the foreclosure auction.
[Complaint at ¶¶ 110-16.]
Plaintiffs rely on Chapter 178 of the Hawai`i
Administrative Rules, the Administrative Special Mortgage
Recording Fee Guidelines.
[Id. at ¶ 110.]
This district court
has recently rejected an identical claim in another case.
As for Chapter 16–178 of the Hawaii Administrative
Rules, it has not been in effect since July 1,
2001. See 2001 Haw. Sess. Laws 153 § 4 (“The
special mortgage recording fee established under
section 431P–16 Hawaii Revised Statutes, shall be
suspended as of July 1, 2001, and shall remain
suspended until reactivated by the Hawaii
hurricane relief fund’s board of directors.”)
Further, this administrative rule contains no
private right of action no (sic) does it suggest
that any right was intended. Indeed its
underlying enabling statutes, Haw. Rev. Stat. §§
431P–5, 431P–16 state that the Hawaii Hurricane
Relief Fund has the power to enforce the
regulation through fines and lawsuits. Thus, even
if applicable, Plaintiff could not sue to enforce
35
it. See Reliable Collection Agency, Ltd. v. Cole,
584 P.2d 107, 109–112 (Haw. 1978) (finding no
private right of action to enforce a statute when
statute provided for enforcement by government
agency and contained no suggestion that private
citizens could sue to enforce the statute); see
also Whitey’s Boat Cruises, Inc. v. Napalm–Kauai
Boat Charters, Inc., 132 P.3d 1213, 1224 (Haw.
2006) (finding no private right of action to sue
competitor for violation of regulatory infractions
because the “regulations were not promulgated with
the objective of protecting business interests or
competition”).
Franco v. Fed. Nat’l Mortg. Ass’n, CV. No. 10–00735 DAE–KSC, 2011
WL 1842970, at *7 (D. Hawai`i May 13, 2011).
For the same
reasons, Plaintiffs’ Count IX fails as a matter of law and cannot
be saved by any amendment.
The PNC Defendants’ Motion is therefore GRANTED as to
Count IX, which is DISMISSED WITH PREJUDICE.
F.
Count X - Mistake
Count X alleges that, if the actions of Defendants
and/or their predecessors in interest were not fraudulent
misrepresentations or omissions, “then the underlying transaction
was entered into based upon mutual mistake . . . .”
at ¶ 119.]
[Complaint
The Hawai`i Supreme Court has adopted § 152 of the
Restatement (Second) of Contracts as the proper test to determine
whether rescission of a contract is warranted based on mutual
mistake.
Thompson v. AIG Hawaii Ins. Co., Inc., 111 Hawai`i 413,
424, 142 P.3d 277, 288 (2006) (citing AIG Hawai`i Ins. Co. v.
Bateman, 82 Hawai`i 453, 457–58, 923 P.2d 395, 399-400 (1996)).
36
Plaintiffs have failed to sufficiently plead a claim for
rescission based on mutual mistake pursuant to § 152.
It would,
however, arguably be possible for Plaintiffs to cure the defects
in this claim by amendment.
The PNC Defendants’ Motion is therefore GRANTED IN PART
AND DENIED IN PART as to Count X, which is DISMISSED WITHOUT
PREJUDICE.
G.
Count XI - Unconscionability
Count XI alleges that the terms and conditions of the
Note and Mortgage were unconscionable because Plaintiffs “placed
their trust and confidence in Defendants and/or their
predecessors in interest to make proper and timely disclosures,
and properly qualify them for the loan, provide loan terms that
were in accord with economic conditions existing at the time,
among other things.”
[Complaint at ¶ 121.]
In addition,
Plaintiffs allege that they did not understand the terms of loan
and that Defendants, who had superior bargaining power over
Plaintiffs, did not inform them of the true terms of the loan.
[Id. at ¶ 122.]
Unconscionability is generally a defense in a contract
action, not an affirmative claim for relief.
240813, at *12 (citations omitted).
Phillips, 2011 WL
“To the extent
unconscionability can be addressed affirmatively as part of a
different-that is, independent-cause of action, such a claim is
37
asserted to prevent the enforcement of a contract whose terms are
unconscionable.”
Id. (emphasis in original) (citation and
internal quotation marks omitted).
Dismissal of an
unconscionability “claim” is proper where the claim only
challenges the defendant’s general conduct and does not identify
any specific contractual term as unconscionable.
Id.
In the present case, Plaintiffs have not alleged that
any specific term of the Note or Mortgage was unconscionable, and
they have therefore failed to allege a plausible claim for
unconscionability.
It would, however, arguably be possible for
Plaintiffs to cure the defects in this claim by amendment.
The PNC Defendants’ Motion is therefore GRANTED IN PART
AND DENIED IN PART as to Count XI which is DISMISSED WITHOUT
PREJUDICE.
H.
Count XIV - Recoupment
Count XIV simply states that Plaintiffs are entitled to
“equitable recoupment” because of the wrongful acts and/or
omissions by Defendants and/or their predecessors in interest.
[Complaint at ¶ 144.]
To the extent that Count XIV is based on
TILA, recoupment is only available under TILA as a “defense” in
“an action to collect a debt”, 15 U.S.C. § 1640(e), and a nonjudicial foreclosure is not “an action to collect a debt”.
Rey v. Countrywide Home Loans, Inc., Civil No. 11–00142 JMS/KSC,
2011 WL 2160679, at *13 (D. Hawai`i June 1, 2011).
38
To the extent
that Count XIV is based on equitable recoupment, that is a
defense, not an affirmative claim for relief.
Id. (citing City
of Saint Paul, Alaska v. Evans, 344 F.3d 1029, 1034 (9th Cir.
2003) (“[E]quitable recoupment has been allowed by state courts
as well, but it has always been recognized as a defense, not a
claim.”)).
Thus, no amendment can cure the defect in Plaintiffs’
recoupment “claim”.
The PNC Defendants’ Motion is therefore GRANTED as to
Count XIV, which is DISMISSED WITH PREJUDICE.
I.
Count XVI - Violation of Chapter 667
Count XVI alleges that the foreclosure on the Property
was invalid because the PNC Defendants committed various
violations of Haw. Rev. Stat. Chapter 667, including that they
were not represented in the foreclosure by an attorney licensed
to practice, and physically located, in Hawai`i.
¶¶ 151-53.]
[Complaint at
Haw Rev. Stat. § 667-5 sets forth procedural and
notice requirements for foreclosure under power of sale.
The
Property, however, is registered in the Land Court and a new
certificate of title has already been issued following the
foreclosure sale.
Thus, even assuming, arguendo, that Plaintiffs
had valid defenses to the propriety of the non-judicial
foreclosure sale, the defenses are time-barred because Plaintiffs
failed to raise them before the new certificate of title was
issued.
See 143 Nenue Holdings, LLC v. Bonds, No. 28505, 2010 WL
39
2126481, at *2 (Hawai`i Ct. App. May 27, 2010) (citing Haw. Rev.
Stat. § 501-118; Aames Funding Corp. v. Mores, 107 Hawai`i 95,
110 P.3d 1042 (2005)), cert. rejected by, 2010 WL 4227723
(Hawai`i Oct 26, 2010), cert. denied by, 2011 WL 289986 (U.S.
May 2, 2011).
No amendment can cure the defect in this claim.
The PNC Defendants’ Motion is therefore GRANTED as to
Count XVI, which is DISMISSED WITH PREJUDICE.
III. Counts VI, XII, XIII, XV, XVII, XVIII, and IXX
The Court now turns to the claims for which Plaintiffs
have raised substantive arguments in opposition to the Motion.
A.
Count VI - Unjust Enrichment
Count VI alleges that:
Defendants and/or their predecessors in interest
have an implied contract with Plaintiffs to ensure
that the Plaintiffs understood all fees which
would be paid to the defendants to obtain credit
on Plaintiffs’ behalf, and to not charge any fees
which are not related to the settlement of the
loan and without full disclosure to Plaintiffs.
[Complaint at ¶ 91.]
Plaintiffs allege that Defendants and/or
their predecessors and interest were unjustly enriched by
“charging a higher interest rate, fees, rebates, kickbacks,
profits and gains from any resale of mortgages and notes using
Plaintiffs (sic) identities, credit scores and reputation without
consent, right, justification or excuse as part of an illegal
enterprise scheme.”
[Id. at ¶ 92.]
Plaintiffs also allege that
Defendants and/or their predecessors and interest were unjustly
40
enriched by payments from various third parties “including but
not limited to investors, insurers, other borrowers, the United
States Department of the Treasury, United States federal reserve,
and others.”
[Id. at ¶ 94.]
This district court has recently recognized:
To prevail on an unjust enrichment claim, a
plaintiff must show that: 1) it has conferred a
benefit upon the defendant, and 2) that the
retention of the benefit was unjust. Wadsworth v.
KSL Grant (sic) Wailea Resort, Inc., ––– F. Supp.
2d ––––, No. 08–00527, 2010 WL 5146521, at *11 (D.
Haw. December 10, 2010).
As a general rule, “[a]n action for unjust
enrichment cannot lie in the face of an express
contract.” Porter v. Hu, 169 P.3d 994 (Haw. App.
2007); see also Goodwin v. Executive Trustee
Servs., LLC, 680 F. Supp. 2d 1244, 1255 (D. Nev.
2010) (“An action ‘based on a theory of unjust
enrichment is not available when there is an
express, written contract, because no agreement
can be implied when there is an express
agreement.’” (quoting Leasepartners Corp. v.
Robert L. Brooks Trust Dated November 12, 1975,
942 P.2d 182, 187 (Nev. 1997))); MacDonald v.
Hayner, 715 P.2d 519, 522 (Wash. App. 1986) (“A
party to a valid express contract is bound by the
provisions of that contract, and may not disregard
the same and bring an action on an implied
contract relating to the same matter, in
contravention of the express contract.”) Here
both the Note and the Mortgage were express
agreements that Plaintiffs executed in connection
with their loan which govern the parties (sic)
rights and obligations. Plaintiffs cannot,
therefore, pursue an unjust enrichment claim.
Velasco v. Sec. Nat’l Mortg. Co., CV. No. 10–00239 DAE–KSC, 2011
WL 2117008, at *11 (D. Hawai`i May 24, 2011) (alterations in
original) (footnote omitted).
Similarly, in the present case, Plaintiffs’ Note and
41
Mortgage are express contracts that preclude an unjust enrichment
claim.
Plaintiffs have therefore failed to allege a plausible
unjust enrichment claim, and no amendment can cure the defects in
this claim.
The PNC Defendants’ Motion is GRANTED as to Count
VI, which is DISMISSED WITH PREJUDICE.
B.
Count XII - UDAP
Plaintiffs allege that they are consumers as defined in
Haw. Rev. Stat. § 480-1 and that Defendants engaged in various
acts or practices that violated Haw. Rev. Stat. §§ 480-2(a)
and/or 481A-3.
Plaintiffs’ allegations focus primarily on their
claim that Defendants induced them to accept a loan Defendants
knew they could not afford.
Further, Plaintiffs allege that
Defendants’ TILA violations also constitute UDAP violations.
[Complaint at ¶¶ 125, 129-30.]
First, the Court notes that, while TILA does not
preempt § 480-2 claims in general, TILA does preempt UDAP claims
that are based on alleged TILA violations.
Kajitani v. Downey
Sav. & Loan Ass’n, F.A., 647 F. Supp. 2d 1208, 1220 (D. Hawai`i
2008).
Thus, the portion of Plaintiffs’ UDAP claim based on
alleged TILA violations fails to state a plausible UDAP claim,
and Plaintiffs cannot cure this defect through amendment.
portion of Count XII must be DISMISSED WITH PREJUDICE.
This
The Court
now turns to the remaining portion of Plaintiffs’ UDAP claim.
Section 480-2(a) states: “Unfair methods of competition
42
and unfair or deceptive acts or practices in the conduct of any
trade or commerce are unlawful.”
Section 481A-3(a) sets forth
various forms of deceptive trade practices.
This district court,
however, has recognized that
“lenders generally owe no duty to a borrower ‘not
to place borrowers in a loan even where there was
a foreseeable risk borrowers would be unable to
repay.’” McCarty v. GCP Mgmt., LLC, 2010 WL
4812763, at *6 (D. Haw. Nov. 17, 2010) (quoting
Champlaie v. BAC Home Loans Servicing, LP, 706 F.
Supp. 2d 1029, 1061 (E.D. Cal. 2009)). See also
Sheets v. DHI Mortg. Co., 2009 WL 2171085, at *4
(E.D. Cal. July 20, 2009) (reasoning that no duty
exists “for a lender ‘to determine the borrower’s
ability to repay the loan. . . . The lender’s
efforts to determine the creditworthiness and
ability to repay by a borrower are for the
lender’s protection, not the borrower’s.’”
(quoting Renteria v. United States, 452 F. Supp.
2d 910, 922–23 (D. Ariz. 2006)).
“[A]s a general rule, a financial institution
owes no duty of care to a borrower when the
institution’s involvement in the loan transaction
does not exceed the scope of its conventional role
as a mere lender of money.” Nymark v. Heart Fed.
Sav. & Loan Ass’n, 283 Cal. Rptr. 53, 56 (Cal. Ct.
App. 1991). Nothing in the Complaint indicates
that any Defendant “exceed[ed] the scope of [a]
conventional role as a mere lender of money.” The
claims fail on that basis alone. The court,
however, cannot conclude at this time that further
amendment is futile and allows the Casinos an
opportunity to amend Count VII to attempt to state
a section 480–2 claim.
Casino v. Bank of Am., Civil No. 10–00728 SOM/BMK, 2011 WL
1704100, at *12-13 (D. Hawai`i May 4, 2011) (alterations in
original).
For the same reasons, this Court CONCLUDES that
Plaintiffs have not alleged a plausible UDAP claim against the
43
PNC Defendants.
It would, however, arguably be possible for
Plaintiffs to cure the defects in this claim by amendment,
provided that, to the extent Plaintiffs’ UDAP claim is premised
upon alleged fraud, Plaintiffs satisfy the pleading requirements
of Fed. R. Civ. P. 9(b).
The PNC Defendants’ Motion is therefore
GRANTED IN PART AND DENIED IN PART as to Count XII.
The portion
of Count XII based on alleged TILA violations is DISMISSED WITH
PREJUDICE, and the remainder of Count XII is DISMISSED WITHOUT
PREJUDICE.
C.
Count XIII - Failure to Act in Good Faith
Count XIII alleges that “Defendants and/or their
predecessors in interest failed to deal with Plaintiffs in good
faith and in a fair manner by making various misrepresentations
of material fact and/or omissions of material fact, not making
the mandatory federal law disclosures, not providing loan relief
and/or modification of loan terms . . . .”
[Complaint at ¶ 139.]
This district court has characterized similar claims as
attempts to allege claims for the tort of bad faith.
See, e.g.,
Phillips v. Bank of Am., Civil No. 10-00551 JMS-KSC, 2011 WL
240813, at *5 (D. Hawai`i Jan. 21, 2011) (citing Best Place v.
Penn Am. Ins. Co., 82 Haw. 120, 128, 920 P.2d 334, 342 (1996)
(adopting tort of bad faith for breach of implied covenant of
good faith and fair dealing in an insurance contract)).
“In Best Place, the Hawaii Supreme Court
noted that although Hawaii law imposes a duty of
44
good faith and fair dealing in all contracts,
whether a breach of this duty will give rise to a
bad faith tort cause of action depends on the
duties inherent in a particular type of contract.”
Jou v. Nat’l Interstate Ins. Co. of Haw., 114 Haw.
122, 129, 157 P.3d 561, 568 (Haw. App. 2007)
(citing Best Place, 82 Haw. at 129, 920 P.2d at
334). “The court concluded that special
characteristics distinguished insurance contracts
from other contracts and justified the recognition
of a bad faith tort cause of action for the
insured in the context of first- and third-party
insurance contracts.” Id. (citing Best Place, 82
Haw. at 131-32, 920 P.2d at 345-46). Indeed, “the
Hawaii Supreme Court emphasized that the tort of
bad faith, as adopted in Best Place, requires a
contractual relationship between an insurer and an
insured.” Id. (citing Simmons v. Puu, 105 Haw.
112, 120, 94 P.3d 667, 675 (2004)).
Moreover, although commercial contracts for
“sale of goods” also contain an obligation of good
faith in their performance and enforcement, this
obligation does not create an independent cause of
action. See Stoebner Motors, Inc. v. Automobili
Lamborghini S.P.A., 459 F. Supp. 2d 1028, 1037-38
(D. Haw. 2006). And Hawaii courts have noted that
“[o]ther jurisdictions recognizing the tort of bad
faith . . . limit such claims to the insurance
context or situations involving special
relationships characterized by elements of
fiduciary responsibility, public interest, and
adhesion.” Id. at 1037 (quoting Francis v. Lee
Enters., 89 Haw. 234, 238, 971 P.2d 707, 711
(1999)). It is thus unlikely that Plaintiffs
could recover for bad faith as alleged in Count
III.
Importantly, even assuming a bad faith tort
exists outside the insurance context, it is
well-settled that “[a] party cannot breach the
covenant of good faith and fair dealing before a
contract is formed.” Contreras v. Master Fin.,
Inc., 2011 WL 32513, at *3 (D. Nev. Jan. 4, 2011)
(citing Indep. Order of Foresters v. Donald,
Lufkin & Jenrette, Inc., 157 F.3d 933, 941 (2d
Cir. 1998) (“[A]n implied covenant relates only to
the performance under an extant contract, and not
to any pre-contract conduct.”)). Hawaii follows
this distinction. See Young v. Allstate Ins. Co.,
45
119 Haw. 403, 427, 198 P.3d 666, 690 (2008)
(indicating the covenant of good faith does not
extend to activities occurring before consummation
of an insurance contract).
Thus, because all of Count III’s allegations
concern pre-contract activities (failing to
disclosure terms, failing to conduct proper
underwriting, making an improper loan to
Plaintiffs), Defendants cannot be liable for bad
faith. See id.; see also Larson v. Homecomings
Fin., LLC, 680 F. Supp. 2d 1230, 1237 (D. Nev.
2009) (“Because Plaintiffs’ claim revolves
entirely around alleged misrepresentations made
before the [mortgage loan] contract was entered
into, [the bad faith claim] fails as a matter of
law.”).
And, even if Plaintiffs are attempting to
assert bad faith in the performance of a
contractual right to foreclose, “a court should
not conclude that a foreclosure conducted in
accordance with the terms of a deed of trust
constitutes a breach of the implied covenant of
good faith and fair dealing.” Davenport v. Litton
Loan Servicing, LP, 725 F. Supp. 2d 862, 884 (N.D.
Cal. 2010) (citation omitted). “The covenant [of
good faith] does not ‘impose any affirmative duty
of moderation in the enforcement of legal
rights.’” Id. (quoting Price v. Wells Fargo Bank,
213 Cal. App. 3d 465, 479-80, 261 Cal. Rptr. 735,
742 (1989)).
Id. at *5-6 (alterations in original).
In the present case, Plaintiffs’ allegations relate to
pre-contract activities and the denial of loan modification in
connection with the exercise of the contractual right to
foreclosure.
[Complaint at ¶ 139.]
Thus, for the same reasons
set forth in Phillips, this Court CONCLUDES that Plaintiffs have
not, and cannot by any amendment, allege a plausible claim
against the PNC Defendants for failure to act in good faith.
PNC Defendants’ Motion is therefore GRANTED as to Count XIII,
46
The
which is DISMISSED WITH PREJUDICE.
D.
Count XV - IIED/NIED
Count XV alleges that Defendants’ actions, including,
inter alia, misleading Plaintiffs, providing Plaintiffs a loan
they could not afford, and leading Plaintiffs to believe that
they would qualify for refinancing or loan modification,
constituted IIED and/or NIED.
[Complaint at ¶¶ 146-48.]
At the outset, the Court must address the PNC
Defendants’ argument that Plaintiffs’ IIED and NIED claims are
barred by the statute of limitations in Haw. Rev. Stat. § 657-7,
which states, in pertinent part, that: “Actions for the recovery
of compensation for damage or injury to persons or property shall
be instituted within two years after the cause of action accrued,
and not after . . . .”
Plaintiffs’ IIED and NIED claims are based upon both
the loan origination and the denial of loan modification.
First,
Plaintiffs filed this action on October 12, 2010, and Plaintiffs’
attempts to modify their loan occurred within two years prior to
that date.
Second, although Plaintiffs’ entered into the loan in
May 2007, more than two years prior to the filing of the
Complaint, the “discovery rule” applies to the statute of
limitations for IIED and NIED claims.
United States E.E.O.C. v.
NCL Am., 535 F. Supp. 2d 1149, 1169-70 (D. Hawai`i 2008).
that case, the district court stated:
47
In
[U]nder the discovery rule, a cause of action
accrues when the plaintiff knew or should have
known of the causal connection between the
defendant’s action and the damage done. While it
is clear that [the defendant’s] action in
terminating the policy was known by [the
p]laintffs (sic) in 1992, it is still unclear when
[the p]laintiffs actually suffered emotional
distress, and when they connected their distress
with [the defendant’s] actions.
Id. at 1170 (alterations in original) (citation omitted).
Similarly, in the present case, it is unclear when Plaintiffs
suffered their emotional distress and when they connected it with
the PNC Defendants’ actions.
Thus, at this time, the Court
cannot find that Plaintiffs’ IIED and NIED claims are timebarred.
The Court now turns to whether Plaintiffs have asserted
plausible IIED and NIED claims.
1.
IIED
Under Hawai`i law, there are four elements of an IIED
claim.
First, the plaintiff must prove that the conduct was
either intentional or reckless.
must have been “outrageous.”
Second, the conduct in question
Next, the plaintiff must establish
causation, and finally, there must be evidence that the plaintiff
suffered extreme emotional distress.
See Young v. Allstate Ins.
Co., 119 Hawai`i 403, 425, 198 P.3d 666, 688 (2008).
A
determination of “outrageous” conduct is fact specific.
Hawai`i
courts have defined outrageous conduct as conduct “‘without just
cause or excuse and beyond all bounds of decency.’”
Chin v.
Carpenter-Asui, No. 28654, 2010 WL 2543613, at *4 (Hawai`i Ct.
48
App. June 24, 2010) (quoting Lee v. Aiu, 85 Hawai`i 19, 34 n.12,
936 P.2d 655, 670 n.12 (1997) (some citations omitted)).
If a
plaintiff fails to prove that the alleged conduct rose to the
level of “outrageous,” dismissal is proper.
See Farmer ex rel.
Keomalu v. Hickam Fed. Credit Union, No. 27868, 2010 WL 466007,
at *14 (Hawai`i Ct. App. Feb. 2, 2010) (citing Shoppe v. Gucci
America Inc., 94 Hawai`i 368, 387, 14 P.3d 1049, 1068 (2000)),
cert. denied, 2010 WL 2625261 (Hawai`i June 29, 2010).
“Default and foreclosure proceedings generally do
not rise to the level of extreme and outrageous
conduct. Denying a loan modification which might
result in foreclosure is no more ‘outrageous in
character’ than actually foreclosing.” Erickson
v. Long Beach Mortg. Co., No. 10–1423 MJP, 2011 WL
830727, at *7 (W.D. Wash. Mar. 2, 2011) (citation
omitted) (dismissing IIED claim on summary
judgment). But cf. Bass v. Ameriquest Mortg. Co.,
Civ. No. 09–00476 JMS–BMK, 2010 WL 3025167, at
*10–11 (D. Haw. Aug. 3, 2010) (denying summary
judgment as to an IIED claim where the plaintiff
asserted that the defendant “forged her signature
on the 2006 loans, refused to honor [her] right of
cancellation of the loans when she discovered the
forgeries, and commenced foreclosure proceedings
against [her] when she failed to make her loan
payments”).
Uy v. Wells Fargo Bank, N.A., Civ. No. 10–00204 ACK–RLP, 2011 WL
1235590, at *14 (D. Hawai`i Mar. 28, 2011) (alterations in
original).
This Court CONCLUDES that Count XV fails to allege a
plausible claim for IIED because Plaintiffs have not alleged any
actions or omissions by the PNC Defendants that rose to the level
of outrageous conduct necessary for an IIED claim.
49
It would,
however, arguably be possible for Plaintiffs to cure the defects
in this claim by amendment.
The PNC Defendants’ Motion is
therefore GRANTED IN PART AND DENIED IN PART as to Count XV,
insofar as Plaintiffs’ IIED claim is DISMISSED WITHOUT PREJUDICE.
2.
NIED
The elements of a claim for negligent infliction
of emotional distress (“NIED”) are: (1) that the
defendant engaged in negligent conduct; (2) that
the plaintiff suffered serious emotional distress;
and (3) that such negligent conduct of the
defendant was a legal cause of the serious
emotional distress. Tran v. State Farm Mut.
Automobile Ins. Co., 999 F. Supp. 1369, 1375 (D.
Haw. 1998). A cognizable claim for NIED under
Hawaii law also “requires physical injury to
either a person or property,” see Calleon v.
Miyagi, 76 Haw. 310, 320, 876 F.2d 1278 (1994), or
a mental illness, see Haw. Rev. Stat. § 663-8.9.
Dowkin v. Honolulu Police Dep’t, Civ. No. 10-00087 SOM-LEK, 2010
WL 4961135, at *9 (D. Hawai`i Nov. 30, 2010).
Duty and breach of
duty are essential elements of a negligence claim under Hawai`i
law.
See Cho v. Hawai`i, 115 Hawai`i 373, 379 n.11, 168 P.3d 17,
23 n.11 (2007) (“It is well-established that, in order for a
plaintiff to prevail on a negligence claim, the plaintiff is
required to prove all four of the necessary elements of
negligence: (1) duty; (2) breach of duty; (3) causation; and (4)
damages.”).
Courts generally hold that lenders do not owe their
borrowers a duty of care sounding in negligence.
McCarty v. GCP
Mgmt., LLC, 2010 WL 4812763, at *6 (D. Haw. Nov. 17, 2010)
50
(citing Champlaie v. BAC Home Loans Servicing, LP, 706 F. Supp.
2d 1029, 1061 (E.D. Cal. 2009) (“[A]s a matter of law, [a] lender
[does] not owe a duty in negligence not to place borrowers in a
loan even where there was a foreseeable risk borrowers would be
unable to repay.”) (some citations omitted)).
Plaintiffs only
dealt with the PNC Defendants in a borrower and lender capacity.
This Court therefore FINDS that Plaintiffs have not, and cannot,
allege that the PNC Defendants owed them a duty of care sounding
in negligence.
Plaintiffs’ Complaint fails to allege a plausible
NIED claim, and they cannot cure the defects in that claim by any
amendment.
The PNC Defendants’ Motion is therefore GRANTED as to
Count XV insofar as Plaintiffs’ NIED claim is DISMISSED WITH
PREJUDICE.
E.
Count XVII - FDCPA
Plaintiffs allege that Defendants and/or their
predecessors in interest violated the FDCPA by failing to give
the notices required by the FDCPA in connection with collecting a
debt.
Plaintiffs assert that this invalidates the foreclosure
action.
[Complaint at ¶¶ 156-57.]
In a related context of a FDCPA claim against a
mortgage broker, this district court has stated:
The FDCPA prohibits various collection
practices by “debt collectors” to, among other
things, “eliminate abusive debt collection
practices.” See 15 U.S.C. § 1692(e) (describing
the purpose of the FDCPA). The FDCPA defines a
“debt collector” as:
51
any person who uses any instrumentality of
interstate commerce or the mails in any
business the principal purpose of which is
the collection of any debts, or who regularly
collects or attempts to collect, directly or
indirectly, debts owed or due or asserted to
be owed or due another. Notwithstanding the
exclusion provided by clause (F) of the last
sentence of this paragraph, the term includes
any creditor who, in the process of
collecting his own debts, uses any name other
than his own which would indicate that a
third person is collecting or attempting to
collect such debts. For the purpose of
section 1692f(6) of this title, such term
also includes any person who uses any
instrumentality of interstate commerce or the
mails in any business the principal purpose
of which is the enforcement of security
interests. . . .
15 U.S.C. § 1692a(6). To be liable for a
violation of the FDCPA, the defendant must, as a
threshold requirement, be a “debt collector”
within the meaning of the FDCPA. Heintz v.
Jenkins, 514 U.S. 291, 294 (1995).
. . . A mortgage broker does not fall within
the FDCPA’s definition of “debt collector.” See
Walker v. Equity 1 Lenders, 2010 WL 234942, at *5
(S.D. Cal. Jan. 12, 2010) (citing Perry v. Stewart
Title Co., 756 F.2d 1197, 1208 (5th Cir. 1985)
(“The legislative history of section 1692a(6)
indicates conclusively that a debt collector does
not include the consumer’s creditors, a mortgage
servicing company, or an assignee of a debt, as
long as the debt was not in default at the time it
was assigned.”); Maguire v. Citicorp. Retail
Svcs., 147 F.3d 232, 236 (2d Cir. 1998) (stating
that the FDCPA does not apply to creditors)); see
also Green v. Alliance Title, 2010 WL 3505072, at
*18 (E.D. Cal. Sept. 2, 2010) (“The definition [of
debt collector] explicitly excludes creditors as
well as loan originators or assignees who obtained
the right to collect on loan when it was not in
default.”).
Sakugawa v. IndyMac Bank, F.S.B., Civil No. 10-00504 JMS/LEK,
2010 WL 4909574, *4-5 (D. Hawai`i Nov. 24, 2010) (some
52
alterations in original) (footnote omitted).
The PNC Defendants have pointed to documents showing
that they are Plaintiffs’ creditors because they acquired
Plaintiffs’ Note and Mortgage by merging with NCB, not through
assignment.
[RJN, Exhs. C-E.]
Further, there is no indication
that the PNC Defendants used misleading names in trying to
collect debts associated with Plaintiffs’ Note and Mortgage.
Although not stated in Count XVII, Plaintiffs’ Memorandum in
Opposition asserts that the PNC Defendants acquired the Note and
Mortgage by assignment from E*Trade after the Mortgage was
already in default.
[Mem. in Opp. at 8 (citing Exh. 4).]
The
Court therefore finds that the Complaint as written fails to
allege a plausible FDCPA claim against the PNC Defendants, but
that it is possible for Plaintiffs to cure the defects in this
claim by amendment.
The PNC Defendants’ Motion is therefore GRANTED IN PART
AND DENIED IN PART as to Count XVII which is DISMISSED WITHOUT
PREJUDICE.
F.
Count XVIII - Violations of the Sherman Antitrust Act
Count XVIII alleges that “Defendant”, without
specifying which one, violated the Sherman Antitrust Act,
15 U.S.C. § 2.
[Complaint at ¶ 160.]
Plaintiffs make general
allegations that Defendant/Defendants engaged in anticompetitive
conduct and attempted to monopolize the mortgage lending and
53
servicing market.
[Id. at ¶ 164.]
This district court has recently stated that:
“To establish a Sherman Act § 2 violation for
attempted monopolization, a private plaintiff
seeking damages must demonstrate four elements:
(1) specific intent to control prices or destroy
competition; (2) predatory or anticompetitive
conduct directed at accomplishing that purpose;
(3) a dangerous probability of achieving ‘monopoly
power;’ and (4) causal antitrust injury.” Rebel
Oil Co., Inc. v. Atl. Richfield Co., 51 F.3d 1421,
1432–33 (9th Cir. 1995) (citation omitted).
“In adopting the federal antitrust laws,
Congress allowed private parties to bring suit”
with Section 4 of the Clayton Act, 15 U.S.C. § 15.
Pool Water Prods. v. Olin Corp., 258 F.3d 1024,
1034 (9th Cir. 2001). But, “in addition to the
traditional limitations upon standing imposed by
the Constitution, Congress imposed additional
limitations upon those who can recover damages
under the antitrust laws.” Id. (citations
omitted). “These limitations are sometimes
referred to as the antitrust standing
requirements.” Id.
The factors relevant to antitrust standing
are summarized as follows: “(1) the nature of the
plaintiff’s alleged injury; that is, whether it
was the type the antitrust laws were intended to
forestall; (2) the directness of the injury; (3)
the speculative measure of the harm; (4) the risk
of duplicative recovery; and (5) the complexity in
apportioning damages.” Knevelbaard Dairies v.
Kraft Foods, Inc., 232 F.3d 979, 987 (9th Cir.
2000) (quoting Am. Ad Mgmt., Inc. v. Gen. Tel. Co.
of Cal., 190 F.3d 1051, 1054–55 (9th Cir. 1999)).
“The most important limitation is that the private
party must prove the existence of ‘antitrust
injury.’” Pool Water Prods., 258 F.3d at 1034
(citations and internal quotations omitted)
(emphasis in original).
To show antitrust injury, a plaintiff must
prove that his loss flows from an
anticompetitive aspect or effect of the
defendant’s behavior, since it is inimical to
the antitrust laws to award damages for
losses stemming from acts that do not hurt
54
competition. If the injury flows from
aspects of the defendant’s conduct that are
beneficial or neutral to competition, there
is no antitrust injury, even if the
defendant’s conduct is illegal per se.
Id. (quoting Rebel Oil, 51 F.3d at 1433) (emphasis
in original). Another requirement is that “the
injured party be a participant in the same market
as the alleged malefactors,” i.e., “the party
alleging the injury must be either a consumer of
the alleged violator’s goods or services or a
competitor of the alleged violator in the
restrained market.” Glen Holly Entm’t, Inc. v.
Tektronix Inc., 343 F.3d 1000, 1008 (9th Cir.
2003) (citation and quotation signals omitted).
Phillips v. Bank of Am., N.A., Civil No. 10–00551 JMS–KSC, 2011
WL 2160583, at *5-6 (D. Hawai`i June 1, 2011).
Plaintiffs allege that “Defendants intended . . . to
control mortgage lending prices and practices and/or to destroy
competition[,]” [Complaint at ¶ 161,] and that they “inflated the
real estate market in an effort to create and sell subprime
mortgages” by selling “over-leveraged, highly inflated loans” to
unsophisticated borrowers like Plaintiffs and by selling “these
fraudulent securities to investors and participat[ing] in a
ratings scheme to fraudulently rate these securities as safer
than they truly were.”
[Complaint at ¶ 162.]
Plaintiffs,
however, do not allege facts to support their allegation that
Defendants intended to control mortgage lending prices and/or to
destroy competition, nor have Plaintiffs alleged how the alleged
inflation of the real estate market, the alleged sale of inflated
loans, and the alleged over-rating of securities affected
55
Defendants’ competition with other lenders.
Thus, Plaintiffs
have failed to allege that they were injured by the
anticompetitive aspect of Defendants’ behavior.
The Court also
notes that Plaintiffs make no allegations identifying the PNC
Defendants’ alleged anticompetitive behavior.
As in Phillips,
Plaintiffs have failed to allege facts establishing that the PNC
Defendants’ conduct “affected competition, which is ‘the critical
question for determining whether there is antitrust injury.’”
2011 WL 2160583, at *6 (emphasis in Phillips) (quoting Pool Water
Prods., 258 F.3d at 1036).
Plaintiffs have therefore failed to
plead a plausible claim for violation of the Sherman Act.
It
would, however, arguably be possible for Plaintiffs to cure the
defects in this claim by amendment.
The PNC Defendants’ Motion is therefore GRANTED IN PART
AND DENIED IN PART as to Count XVIII, which is DISMISSED WITHOUT
PREJUDICE.
G.
Count IXX - Hawaii Antitrust/Antimonopoly Acts
Count IXX alleges that Defendants violated the Hawaii
Antitrust Act, Haw. Rev. Stat. § 480-13, and the Hawaii
Monopolization Act, Haw. Rev. Stat. § 480-9.
Plaintiffs make
general allegations that Defendant/Defendants engaged in
anticompetitive conduct and attempted to monopolize the mortgage
lending and servicing market.
[Complaint at ¶¶ 165-66.]
This district court has recently recognized that:
56
The close relationship between federal
antitrust law and Hawaii antitrust law has long
been established. See, e.g., Robert’s Hawaii Sch.
Bus v. Laupahoehoe Transp. Co., Inc., 982 P.2d
853, 881 n.29 (Haw. 1999) (noting the similarities
between Section 2 of the Sherman Antitrust Act and
Haw. Rev. Stat. § 480–9.) Indeed, the
“[l]egislative history of Hawaii’s antitrust law
clearly indicates that the state laws are to be
interpreted and construed in harmony with
analogous federal antitrust laws.” Island Tobacco
Co., Ltd. v. R.J. Reynolds Indus., Inc., 513 F.
Supp. 726, 738 (D. Haw. 1981). Similar to federal
law, therefore, Hawaii courts require plaintiffs
in antitrust proceedings to plead the “nature of
the competition” to “ensure that the injury
results from a competition-reducing aspect of the
defendant’s behavior.” Davis v. Four Seasons
Hotel Ltd., 228 P.3d 303, 325 (Haw. 2010) (citing
and relying on federal law).
Velasco v. Sec. Nat’l Mortg. Co., CV. No. 10–00239 DAE–KSC,
2011
WL 2117008, at *6 (D. Hawai`i May 24, 2011) (alterations in
original).
Thus, for the reasons set forth supra Section III.F.,
this Court also finds that Count IXX fails to state a claim
because Plaintiffs have not alleged any anticompetitive conduct.
It would, however, arguably be possible for Plaintiffs to cure
the defects in this claim by amendment.
The PNC Defendants’ Motion is therefore GRANTED IN PART
AND DENIED IN PART as to Count IXX, which is DISMISSED WITHOUT
PREJUDICE.
IV.
Derivative Claims
Finally, the Court turns to Plaintiffs’ claims that are
derivative of other substantive claims.
57
A.
Count VII - Civil Conspiracy
Plaintiffs allege that Defendants conspired to commit
one or more acts in a conspiracy to defraud Plaintiffs.
[Complaint at ¶ 97.]
Hawai`i does not recognize an independent
cause of action for “civil conspiracy”.
Such a theory of
potential liability is derivative of other wrongs.
See, e.g.,
Chung v. McCabe Hamilton & Renny Co., 109 Hawai`i 520, 530, 128
P.3d 833, 843 (2006); Weinberg v. Mauch, 78 Hawai`i 40, 49, 890
P.2d 277, 286 (1995).
Insofar as this Court has dismissed all of
Plaintiffs’ other claims, this Court must also dismiss the
derivative conspiracy claim.
It is, however, arguably possible
for Plaintiffs to cure the defects in this claim by amendment, if
Plaintiffs can allege plausible claims underlying the alleged
conspiracy.
The Court also notes that, to the extent the
conspiracy claim is premised on alleged fraud, Plaintiffs must
meet the heightened pleading requirements of Rule 9(b) in
alleging a conspiracy.
See Swartz v. KPMG LLP, 476 F.3d 756, 765
(9th Cir. 2007) (“Rule 9(b) imposes heightened pleading
requirements where the object of the conspiracy is fraudulent.”
(citation and internal quotation marks omitted)).
The PNC Defendants’ Motion is therefore GRANTED IN PART
AND DENIED IN PART as to Count VII, which is DISMISSED WITHOUT
PREJUDICE.
58
B.
Count VIII - Claim to Quiet Title
Count VIII asserts that Plaintiffs are still the
rightful title owners of the Property, and Count VIII seeks a
judgment requiring Defendants to transfer or release any interest
or encumbrance that they have on the Property to Plaintiffs.
[Complaint at ¶¶ 103-08.]
This district court has construed
similar allegations as attempts to assert a claim pursuant to
Haw. Rev. Stat. § 669-1(a).
at *13.
See, e.g., Phillips, 2011 WL 240813,
Section 669-1(a) states: “Action may be brought by any
person against another person who claims, or who may claim
adversely to the plaintiff, an estate or interest in real
property, for the purpose of determining the adverse claim.”
In order for mortgagors to quiet title against the
mortgagee, the mortgagors must establish that they are the
rightful owners of the property and they have paid, or are able
to pay, the amount of their indebtedness.
240813, at *13.
Phillips, 2011 WL
Plaintiffs have arguably alleged that they are
able to tender the amount of their indebtedness.
63.]
[Complaint at ¶
The Court, however, has dismissed all of the substantive
claims in which Plaintiffs seek to establish that they are the
rightful owners of the Property.
It is arguably possible for
Plaintiffs to plead a plausible quiet title claim upon amendment
of the Complaint.
For example, even where a new certificate of
title has been issued for a Land Court property, if the new
59
registered owner obtained the title by fraud, the prior owner may
pursue all of his remedies “against the parties to the fraud,
without prejudice however to the rights of any innocent holder
for value of a certificate of title[.]”5
§ 501-106(b).
Haw Rev. Stat.
If Plaintiffs can amend their fraud-based claims
against the PNC Defendants to state a plausible claim for fraud
in the foreclosure process, Plaintiffs may be able to plead a
basis for having their title to the Property restored.
The PNC Defendants’ Motion is therefore GRANTED IN PART
AND DENIED IN PART as to Count VIII, which is DISMISSED WITHOUT
PREJUDICE.
V.
PNC Defendants’ Request for Sanctions
In their reply and at the hearing on the Motion, the
PNC Defendants’ counsel requested that this Court condition
Plaintiffs’ filing of a First Amended Complaint upon the payment
of the PNC Defendants’ attorneys’ fees and costs incurred through
the instant Motion.
At the hearing, the PNC Defendants’ counsel
argued that Plaintiffs’ counsel did not comply with his
obligations under Fed. R. Civ. P. 11 prior to filing the
Complaint in the instant case.
The PNC Defendants’ counsel also
emphasized that the instant case is only one of several cases in
which Plaintiffs’ counsel has filed a complaint that was largely
5
The Court notes that PNC Bank became the title holder of
the Property. [RJN, Exh. H.]
60
meritless.
While the Court understands defense counsel’s
frustration with the extensive number of claims in this case
which were not plausible and with the filing of similar
complaints in several other cases, the Court is not inclined to
initiate the Rule 11 sanctions process on its own initiative.
See Fed. R. Civ. P. 11(c)(3).
If the PNC Defendants wish to
pursue Rule 11 sanctions against Plaintiffs’ counsel, the PNC
Defendants must file the appropriate motion pursuant to Rule
11(c)(2).
The Court, however, strongly advises Plaintiffs’
counsel to use surgical precision and specificity in detailing
facts in drafting the First Amended Complaint, giving careful
consideration to the standards set forth in this order.
This
Court’s findings that it was arguably possible to cure the
defects in certain claims upon amendment does not necessarily
mean that Plaintiffs must include all of those claims in the
First Amended Complaint.
In other words, while it may be
theoretically possible to save some claims by amendment, the
instant case may not have the facts necessary to support some of
those claims.
The Court notes that the proposed First Amended
Complaint that Plaintiffs attached to the Memorandum in
Opposition only contained five claims: UDAP, FDCPA violations,
violations of federal and state antitrust laws, unjust
61
enrichment, and IIED/NIED.
[Mem. in Opp., Exh. 7.]
The Court
reminds Plaintiffs and Plaintiffs’ counsel that they must present
plausible claims for relief and they should carefully consider
whether they are able to allege a plausible claim for relief
before including a count in the First Amended Complaint and
possibly running afoul of Rule 11.
The Court shares the PNC Defendants’ concern that the
proposed First Amended Complaint, which contains fourteen fewer
claims than the original Complaint did, is twelve pages longer
than the original Complaint.
[Reply at 15.]
The Court reminds
Plaintiffs and Plaintiffs’ counsel that a complaint must contain,
inter alia, “a short and plain statement of the claim showing
that the pleader is entitled to relief[.]”
Fed. R. Civ. P.
8(a)(2) (emphasis added).
Finally, insofar as Plaintiffs have requested leave to
add additional claims when they file their amended complaint,
Plaintiffs’ request is denied.
The Court only grants Plaintiffs
leave to amend their Complaint to address the defects in the
claims addressed in this Order.
If Plaintiffs wish to add
additional claims, Plaintiffs must comply with the requirements
of Fed. R. Civ. P. 15.
CONCLUSION
On the basis of the foregoing, the PNC Defendants’
Motion to Dismiss Complaint, filed February 25, 2011, is HEREBY
62
GRANTED IN PART AND DENIED IN PART.
Plaintiffs’ Complaint is
HEREBY DISMISSED WITH PREJUDICE as to: Count I (HOEPA); Count II
(RESPA); Count III (TILA); Count VI (unjust enrichment); Count IX
(violation of BOC regulations); the portion of Count XII (UDAP)
based on alleged TILA violations; Count XIII (failure to act in
good faith); Count XIV (recoupment); the portion of Count XV
alleging NIED; and Count XVI (violation of Haw. Rev. Stat.
Chapter 667).
Plaintiffs’ Complaint is HEREBY DISMISSED WITHOUT
PREJUDICE as to: Count IV (fraudulent misrepresentation); Count V
(breach of fiduciary duty); Count VII (civil conspiracy); Count
VIII (quiet title); Count X (mistake); Count XI
(unconscionability); all allegations in Count XII (UDAP) except
the portion based on alleged TILA violations; the portion of
Count XV alleging IIED; Count XVII (FDCPA); Count XVIII
(violation of the Sherman Antitrust Act); and Count IXX
(violations of the Hawaii Antitrust/Antimonopoly Acts).
Plaintiffs have until July 1, 2011 to file an amended
complaint in accordance with this order.
The Court CAUTIONS
Plaintiffs that, if they fail to file their amended complaint by
July 1, 2011, this Court will amend this order to dismiss all of
Plaintiffs’ claims with prejudice.
IT IS SO ORDERED.
63
DATED AT HONOLULU, HAWAII, June 20, 2011.
/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
EDWIN PASCUA CARAANG, ET AL. V. PNC MORTGAGE, ETC., ET AL; CIVIL
NO. 10-00594 LEK-BMK; ORDER GRANTING IN PART AND DENYING IN PART
PNC DEFENDANTS’ MOTION TO DISMISS COMPLAINT
64
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