Lee v. Mortgage Electronic Registration Systems, Inc. et al

Filing 78

ORDER (1) GRANTING DEFENDANT MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.S MOTION TO DISMISS SECOND AMENDED COMPLAINT, DOC. NO. 70; (2) GRANTING DEFENDANT COUNTRYWIDE BANK, FSB'S MOTION TO DISMISS SECOND AMENDED COMPLAINT, DOC. NO. 69; AND (3) GRANTING LIMITED LEAVE TO AMEND re 69 ; 70 - Signed by JUDGE J. MICHAEL SEABRIGHT on 12/26/12. " This Order limits Plaintiff to filing a Third Amended Complaint that attempts to cure the specific deficiencies identifie d in this Order. That is, this Order does not grant Plaintiff leave to amend to file a Third Amended Complaint that asserts any different theories or causes of action. If Plaintiff fails to file a Third Amended Complaint by January 11, 2013, this action will be dismissed and the case closed." (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

JUANITA FAYE PUALANI LEE,

)
)
Plaintiff,
)
)
vs.
)
)
MORTGAGE ELECTRONIC
)
REGISTRATION SYSTEMS, INC.;
)
COUNTRYWIDE BANK, FSB; and
)
DOES 1-10,
)
)
Defendants.
)
)
________________________________ )

CIVIL NO. 10-00687 JMS/BMK
ORDER (1) GRANTING
DEFENDANT MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC.’S MOTION TO
DISMISS SECOND AMENDED
COMPLAINT, DOC. NO. 70;
(2) GRANTING DEFENDANT
COUNTRYWIDE BANK, FSB’S
MOTION TO DISMISS SECOND
AMENDED COMPLAINT, DOC.
NO. 69; AND (3) GRANTING
LIMITED LEAVE TO AMEND

ORDER (1) GRANTING DEFENDANT MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.’S MOTION TO DISMISS SECOND
AMENDED COMPLAINT, DOC. NO. 70; (2) GRANTING DEFENDANT
COUNTRYWIDE BANK, FSB’S MOTION TO DISMISS SECOND
AMENDED COMPLAINT, DOC. NO. 69; AND (3) GRANTING LIMITED
LEAVE TO AMEND
I. INTRODUCTION
Although filed over two years ago, this action is still in the pleadings
phase. Plaintiff Juanita Faye Pualani Lee (“Plaintiff”) originally filed this action in
the First Circuit Court of the State of Hawaii alleging state law claims against
Defendants Mortgage Electronic Registration Systems, Inc. (“MERS”) and
Countrywide Bank, FSB (“Countrywide”) (collectively “Defendants”) stemming
from MERS’ non-judicial foreclosure of Plaintiff’s home located at 954 Alewa

Drive, Honolulu, Hawaii 96817 (the “subject property”). After MERS removed
the action to this court, the Judicial Panel on Multidistrict Litigation transferred the
lawsuit to the United States District Court for the District of Arizona (“MDL
Court”) for inclusion in the consolidated MERS proceedings pending there. On
October 3, 2011, the MDL Court remanded to this court a claim against
Countrywide for “common law contract damages,” and a claim against Defendants
seeking an “accounting.”
These two claims have been the subject of three rounds of motions to
dismiss -- Plaintiff filed her First Amended Complaint (“FAC”) clarifying these
claims after Defendants filed a first set of Motions to Dismiss. On June 27, 2012,
the court granted in part MERS’ Motion to Dismiss and granted Countrywide’s
Motion to Dismiss the FAC (the “June 27, 2012 Order”), which left Plaintiff’s
claim for breach of contract against MERS for failure to give notice of Plaintiff’s
default prior to seeking to foreclose, and granted Plaintiff leave to amend to assert
a claim for breach of contract based on violation of Hawaii Revised Statutes
(“HRS”) § 667-5.
On July 16, 2012, Plaintiff filed her “Second Amendment to
Complaint (1) Reasserting For Purposes of Appeal All Prior Remanded Counts
Whether Dismissed or Not, (2) Specifically Restating Count Two, and
2

(3) Specifically Concerning Issues Relating to HRS Section 667-5” (“SAC”).1
Currently before the court are Defendants’ Motion to Dismiss. Based on the
following, the court GRANTS the Motions to Dismiss, with leave for Plaintiff to
file a Third Amended Complaint asserting a breach of contract based on section 22
of the mortgage for failure to provide a notice of default.
II. BACKGROUND
A.

Factual Background
As alleged in the SAC, on or about July 25, 2007, Plaintiff entered

into a mortgage loan transaction with Aegis Wholesale Corporation (“Aegis”) for
$728,000 to purchase the subject property. Doc. No. 68, SAC ¶ 6.
The mortgage describes that MERS “is a separate corporation that is
acting solely as a nominee for Lender and Lender’s successors and assigns. MERS
is the mortgagee under this Security Instrument.” Doc. No. 1-1, Compl. Ex. 2 at
2;2 see also Doc. No. 68, SAC ¶ 7. The mortgage further provides:
1

Plaintiff refers to her pleading as a “second amendment to complaint” rather than a
“second amended complaint” because “what is being amended is that part of her complaint
which was remanded back to the District Court by the MDP.” Doc. No. 68, SAC ¶ 31. Plaintiff
also attaches to her pleading both her original Complaint and the FAC, apparently to “reassert[]
for purposes of appeal all prior remanded counts whether dismissed or not.” Id. (title). For ease
of reference, the court refers to the pleading as the SAC. The court also does not address
“reasserted” claims that were already dismissed without leave to amend.
2

Although Plaintiff did not attach the mortgage to the SAC, Plaintiff attached the
mortgage and other documents recorded in the Hawaii Bureau of Conveyances to her initial
(continued...)
3

Borrower does hereby mortgage, grant and convey to
MERS (solely as nominee for Lender and Lender’s
successors and assigns) and to the successors and assigns
of MERS, with power of sale [the subject property]. . . .
Borrower understands and agrees that MERS holds only
legal title to the interests granted by Borrower in this
Security Instrument, but, if necessary to comply with the
law or custom, MERS (as nominee for Lender and
Lender's successors and assigns) has the right: to exercise
any or all of those interests, including, but not limited to,
the right to foreclose and sell the Property; and to take
and action required of the Lender. . . .
Doc. No. 1-1, Compl. Ex. 2 at 3-4. Finally, the mortgage notifies Plaintiff that
“[t]he Note or a partial interest in the Note (together with this Security Instrument)
can be sold one or more times without prior notice to Borrower.” Id. at 12.
Aegis subsequently transferred the mortgage loan to Countrywide.
Doc. No. 68, SAC ¶¶ 23-25. Some time later, MERS noticed a nonjudicial
foreclosure to take place on February 6, 2009. Id. ¶ 8. Despite the fact that the
mortgage loan had been transferred to Countrywide, the Notice of Intention to
Foreclose Under Power of Sale (the “NOI”) asserts that MERS, as nominee for
Aegis (as opposed to Countrywide), will hold a public auction on February 6,

2

(...continued)
Complaint. The court takes judicial notice of these documents. See United States v. 14.02 Acres
of Land More or Less in Fresno Cnty., 547 F.3d 943, 955 (9th Cir. 2008) (explaining that the
court may take judicial notice of “matters of public record”); Lindsey v. Matayoshi, 2012 WL
1656931, at *4 (D. Haw. May 9, 2012) (explaining when the court may take judicial notice of
documents).
4

2009. See Doc. No. 1-1, at Ex. 3. At the nonjudicial foreclosure sale, Countrywide
was the high bidder with $495,000. Doc. No. 68, SAC ¶ 18.
Plaintiff asserts that MERS and Countrywide breached the terms of
the mortgage by conducting the nonjudicial foreclosure. Specifically, Plaintiff
asserts that MERS breached section 22 of the mortgage, which provides that:
Lender shall give notice to Borrower prior to acceleration
following Borrower’s breach of any covenant or
agreement in this Security Instrument . . . . The notice
shall specify: (a) the default; (b) the action required to
cure the default; (c) a date, not less than 30 days from the
date the notice is given to Borrower, by which date the
default must be cured; and (d) that failure to cure the
default on or before the date specified in the notice may
result in acceleration of the sums secured by this Security
Instrument and sale of the Property.
Id. ¶ 32.
The SAC further asserts that MERS and/or Countrywide breached the
mortgage by violating HRS § 667-5. Id. ¶ 36. Specifically, the SAC asserts that
MERS’ incorrect assertion in the NOI that Aegis, as opposed to Countrywide,
owned the mortgage loan raised a question as to who owned the mortgage loan and
that neither MERS nor Countrywide properly established that it was the mortgagee.
Id. ¶ 37. The SAC further asserts that because the mortgage loan was transferred
to Countrywide, MERS was no longer a “mortgagee” at the time of the foreclosure
and therefore could not conduct the auction. Id. ¶¶ 38-50.
5

The SAC asserts that as a result of these breaches of contract, Plaintiff
“was injured and has suffered extensive monetary damages and incurred extensive
attorneys’ fees and costs,” including that she was deprived of the subject property
where she purchased it for $728,000, it was sold to Countrywide at auction for
$495,000, and Countrywide subsequently liquidated and sold it for $560,000. Id. ¶
51.
B.

Procedural Background
On October 11, 2010, Plaintiff filed this class action in the First

Circuit Court of the State of Hawaii alleging six state law claims against
Defendants. On November 19, 2010, MERS removed the action to this court.
On January 3, 2011, the Judicial Panel on Multidistrict Litigation
transferred the action to the MDL Court for inclusion in the consolidated MERS
proceedings pending there. On October 3, 2011, the MDL Court remanded Count
II of the Complaint, titled “Common Law Contract Damages Against MERS,” and
part of Count VI, titled “Accounting by MERS and by Countrywide” (to the extent
unrelated to the formation and/or operation of the MERS system) to this court.
Defendants filed Motions to Dismiss the Complaint, and in the course
of briefing those motions (and in particular, the effect of Aegis’ bankruptcy on
MERS’ ability to foreclose), Defendants asserted that the mortgage loan was

6

transferred to Countrywide prior to Aegis’ bankruptcy. See Doc. No. 46. In light
of this assertion, the court (1) denied the Motions to Dismiss as moot and without
prejudice to refiling by agreement of the parties, and (2) granted Plaintiff leave to
file an amended complaint asserting claims within the scope of those remanded by
the MDL Court.
On March 19, 2012, Plaintiff filed her FAC, asserting a claim against
MERS titled “Contract Collection Damages Against MERS,” and a claim against
Defendants titled “Accounting by MERS and by Countrywide.” The June 27, 2012
Order subsequently granted in part MERS’ Motion to Dismiss and granted
Countrywide’s Motion to Dismiss the FAC. Specifically, the June 27, 2012 Order
granted Plaintiff leave to file a contract claim based on (1) violation of HRS
§ 667-5, and (2) failure to give notice of Plaintiff’s default prior to seeking to
foreclose.
On July 16, 2012, Plaintiff filed her SAC. Defendants filed Motions
to Dismiss on August 23, 2012, and Plaintiff filed an Opposition to MERS’ Motion
only on November 5, 2012 (Plaintiff did not file an Opposition to Countrywide’s
Motion). MERS filed a Reply on November 12, 2012. Pursuant to Local Rule
7.2(d), the court determines the Motions to Dismiss without a hearing.

7

III. STANDARDS OF REVIEW
A.

Rule 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss

a claim for “failure to state a claim upon which relief can be granted[.]”
“To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)); see also Weber v. Dep’t of Veterans Affairs,
521 F.3d 1061, 1065 (9th Cir. 2008). This tenet -- that the court must accept as
true all of the allegations contained in the complaint -- “is inapplicable to legal
conclusions.” Iqbal, 556 U.S. at 678. Accordingly, “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Id. (citing Twombly, 550 U.S. at 555); see also Starr v. Baca, 652 F.3d
1202, 1216 (9th Cir. 2011) (“[A]llegations in a complaint or counterclaim may not
simply recite the elements of a cause of action, but must contain sufficient
allegations of underlying facts to give fair notice and to enable the opposing party
to defend itself effectively.”).
Rather, “[a] claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the

8

defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 556). In other words, “the factual allegations that are taken
as true must plausibly suggest an entitlement to relief, such that it is not unfair to
require the opposing party to be subjected to the expense of discovery and
continued litigation.” Starr, 652 F.3d at 1216. Factual allegations that only permit
the court to infer “the mere possibility of misconduct” do not show that the pleader
is entitled to relief as required by Rule 8. Iqbal, 556 U.S. at 679.
B.

Rule 8
A complaint must also meet the requirements of Federal Rule of Civil

Procedure 8, mandating that a complaint include a “short and plain statement of the
claim,” Fed. R. Civ. P. 8(a)(2), and that “each allegation must be simple, concise,
and direct.” Fed. R. Civ. P. 8(d)(1). A complaint that is so confusing that its “true
substance, if any, is well disguised” may be dismissed sua sponte for failure to
satisfy Rule 8. Hearns v. San Bernardino Police Dep’t, 530 F.3d 1124, 1131 (9th
Cir. 2008) (quoting Gillibeau v. City of Richmond, 417 F.2d 426, 431 (9th Cir.
1969)); see also McHenry v. Renne, 84 F.3d 1172, 1180 (9th Cir. 1996)
(“Something labeled a complaint but written . . ., prolix in evidentiary detail, yet
without simplicity, conciseness and clarity as to whom plaintiffs are suing for what
wrongs, fails to perform the essential functions of a complaint.”).

9

Put differently, a district court may dismiss a complaint for failure to
comply with Rule 8 where the complaint fails to provide defendants with fair
notice of the wrongs they have allegedly committed. See McHenry, 84 F.3d at
1178-80 (affirming dismissal of complaint where “one cannot determine from the
complaint who is being sued, for what relief, and on what theory, with enough
detail to guide discovery”); cf. Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d
1097, 1105 n.4 (9th Cir. 2008) (finding dismissal under Rule 8 was in error where
“the complaint provide[d] fair notice of the wrongs allegedly committed by
defendants and [did] not qualify as overly verbose, confusing, or rambling”). Rule
8 requires more than “the-defendant-unlawfully-harmed-me accusation[s]” and “[a]
pleading that offers labels and conclusions or a formulaic recitation of the elements
of a cause of action will not do.” Iqbal, 129 S. Ct. at 1949 (citations and
quotations omitted).
IV. DISCUSSION
The only claim remaining in this action is a breach of contract claim
-- the MDL Court remanded Plaintiff’s claims for breach of contract and for an
“accounting,” and the June 27, 2012 Order dismissed the “accounting” claim
without leave to amend. In the SAC, Plaintiff bases her breach of contract claim
on two assertions -- (1) that MERS breached the terms of the mortgage by failing

10

to give notice of Plaintiff’s default before seeking foreclosure; and (2) that MERS
and/or Countywide breached the terms of the mortgage by failing to comply with
HRS § 667-5. Defendants argue that the SAC fails to state a cognizable claim for
breach of contract. Based on the following, the court agrees.
A.

Failure to Give Notice of Default
Section 22 of the mortgage requires the “Lender” to give notice of

default to Plaintiff prior to an acceleration of the sums secured by the mortgage
loan:
Lender shall give notice to Borrower prior to acceleration
following Borrower’s breach of any covenant or
agreement in this Security Instrument . . . . The notice
shall specify: (a) the default; (b) the action required to
cure the default; (c) a date, not less than 30 days from the
date the notice is given to Borrower, by which date the
default must be cured; and (d) that failure to cure the
default on or before the date specified in the notice may
result in acceleration of the sums secured by this Security
Instrument and sale of the Property.
Doc. No. 1-1, Compl. Ex. 3 at § 22. Without any elaboration, the SAC asserts that
MERS violated this provision. See Doc. No. 68, SAC ¶ 32.
This allegation is wholly conclusory and therefore fails to assert a
plausible claim that MERS breached section 22 of the mortgage. See Iqbal, 556
U.S. at 678 (stating that Rule 8 requires more than “the-defendant-unlawfully
-harmed-me accusation[s]” and “[a] pleading that offers labels and conclusions or a
11

formulaic recitation of the elements of a cause of action will not do”). Although
the SAC asserts that MERS allegedly violated section 22 of the mortgage, the SAC
fails to provide any explanation as to how MERS violated this provision and how
this breach caused Plaintiff damages. See Otani v. State Farm Fire & Cas. Co.,
927 F. Supp. 1330, 1335 (D. Haw. 1996) (“Generalized allegations of a contractual
breach are not sufficient.”). Without this information, both MERS and the court
are left guessing as to the basis of this claim -- is it Plaintiff’s contention that she
never received a notice of default, that the notice of default was not timely, or
something else? As to damages, is it Plaintiff’s contention that she would have
cured her default or taken some other action if notice was properly provided?
Given these unanswered questions, the SAC fails to raise a reasonable inference
that MERS is liable for the misconduct alleged. See Iqbal, 556 U.S. at 678. The
court therefore GRANTS MERS’ Motion to Dismiss Plaintiff’s breach of contract
claim based on a violation of section 22 of the mortgage.
Given the vagaries of this claim, combined with the fact that this is the
first time MERS has moved to dismiss this claim, the court finds that Plaintiff
should be granted leave to amend this claim one more time. In determining that
Plaintiff should be granted leave to amend, the court is aware that Section 22 of the
mortgage requires the “Lender” to provide notice of default, and MERS is

12

technically defined in the mortgage as the “nominee” of the “Lender.”3 The court
is also aware that MERS submitted evidence that Countrywide sent to Plaintiff the
notice of default required by section 22 of the mortgage. See Doc. No. 70-4,
MERS Mot. at Ex. B. This evidence suggests that Countrywide complied with the
requirements of section 22 of the mortgage such that a claim asserting that either
Countrywide or MERS failed to provide the notice would likely ultimately fail.
But as explained above, the SAC is so wholly conclusory that the court cannot
discern the basis of Plaintiff’s claim, and the court does not consider evidence
(specifically, the notice of default attached as Exhibit B to MERS’ Motion to
Dismiss) on a motion to dismiss.4 Given these issues, the court cannot say at this
time that granting leave to amend would be futile.
The court therefore grants Plaintiff leave to amend to assert a breach
3

MERS argues that in light of section 22’s requirement that the “Lender” provide the
notice, it had no obligation to provide the notice of default. Such argument does not address,
however, whether MERS agreed with Countrywide to undertake this obligation. If the basis of
Plaintiff’s claim is that she was provided no notice of default whatsoever, the court is unwilling
at this time to find Plaintiff cannot assert a claim against MERS where MERS sought
foreclosure.
4

MERS argues that the court may take judicial notice of the notice of default sent by
Countrywide because it was attached to the Mortgagee’s Affidavit of Sale Under Power of Sale
(“Affidavit of Sale”). See Doc. No. 70, MERS Mot. at 5 n.2, 16-17. Although an Affidavit of
Sale itself can be used “as evidence that the power of sale was duly executed,” see HRS § 667-8
(2010), it does not follow that the facts contained within the Affidavit (or attachments to the
Affidavit) are “generally known” or “capable of accurate and ready determination by resort to
sources whose accuracy cannot be reasonably questioned.” See Lindsey, 2012 WL 1656931, at
*4 (quoting Fed. R. Evid. 201(b)). The court therefore declines to take judicial notice of these
documents.
13

of contract claim against Defendants for failure to provide the notice of default, if
she so wishes. If Plaintiff chooses to file a Third Amended Complaint, she is
cautioned that a claim for breach of section 22 of the mortgage must be based in
fact. See Fed. R. Civ. P. 11(b)(3). That is, the court cautions Plaintiff that if in fact
she was provided a notice of default as suggested by Countrywide, neither MERS
nor Countrywide would appear to be in violation of section 22 of the mortgage.
B.

HRS § 667-5
The SAC asserts a breach of contract claim based on the assertion that

MERS and/or Countrywide violated HRS § 667-5, which outlines the procedure
for a nonjudicial foreclosure.5 Although the SAC provides no explanation as to
how a violation of § 667-5 constitutes a breach of contract, the SAC asserts various
5

Section 667-5(a) provides:
When a power of sale is contained in a mortgage, and where the
mortgagee, the mortgagee’s successor in interest, or any person
authorized by the power to act in the premises, desires to foreclose
under power of sale upon breach of a condition of the mortgage,
the mortgagee, successor, or person shall be represented by an
attorney who is licensed to practice law in the State and is
physically located in the State. The attorney shall:
(1) Give notice of the mortgagee’s, successor’s, or person’s
intention to foreclose the mortgage and of the sale of the
mortgaged property, by publication of the notice once in
each of three successive weeks (three publications), the last
publication to be not less than fourteen days before the day
of sale, in a newspaper having a general circulation in the
county in which the mortgaged property lies; and
(2) Give any notices and do all acts as are authorized or
required by the power contained in the mortgage.
14

violations of § 667-5, including that (1) Defendants did not establish that they had
possession of the promissory note; (2) MERS misstated in the NOI that it was
acting on behalf of Aegis instead of MERS; and (3) MERS did not have authority
to foreclose. Doc. No. 68, SAC ¶¶ 41-50. Plaintiff apparently crafted her claim as
a breach of contract claim as opposed to a stand-alone claim for violation of § 6675 given that the MDL Court remanded only Plaintiff’s claims for breach of contract
and for an accounting. Plaintiff’s attempt to assert a violation of § 667-5 as a
breach of contract fails for a variety of reasons.
As an initial matter, although the SAC outlines several theories as to
how Defendants allegedly violated § 667-5, the SAC fails to explain in any manner
whatsoever how a violation of § 667-5 constitutes a breach of contract. Although
the court presumes that the SAC bases this claim on a breach of the mortgage (as
opposed to some other contract), the SAC fails to even assert that a violation of
§ 667-5 is a violation of the mortgage, and fails to identify the particular provision
of the mortgage that Defendants allegedly violated. While at least one court has
found that a mortgage requires the Lender to comply with § 667-5, see In re
Kekauoha-Alisa, 674 F.3d 1083, 1090 (9th Cir. 2012) (reciting that the bankruptcy
court determined that the “parties’ mortgage agreement specified that Lenders
could foreclose only in compliance with the procedural requirements of HRS

15

§ 667-5,” and that the parties did not dispute this finding on appeal), that does not
absolve Plaintiff from meeting her pleading requirements. As the court explained
in Gaspar v. Bank of America, N.A., 2010 WL 4226466, at *3 (D. Haw. Oct. 18,
2010), “Defendants are not required to connect the dots through inference . . . to
determine what provision Plaintiff[] assert[s] is violated. Rather, the [SAC] itself
must contain sufficient allegations to show that relief is plausible.” Plaintiff’s
breach of contract claim fails on this basis alone.
Further, even assuming that a provision in the mortgage requires
Defendants to comply with § 667-5, Plaintiff’s claim still fails because none of
Defendants’ actions identified by Plaintiff constitutes a violation of § 667-5.
Indeed, this court has already rejected in numerous other cases claims
asserting violations of § 667-5 based on the allegations contained in the SAC. For
example, as to Plaintiff’s assertion that MERS could not foreclose without
possession of the promissory note, this court has rejected that HRS § 667-5 includes
any affirmative requirement that the mortgagee produce the note. See, e.g., Nottage
v. Bank of New York Mellon, 2012 WL 5305506, at *7 (D. Haw. Oct. 25, 2012);
Pascual v. Aurora Loan Servs., 2012 WL 3583530, at *3 (D. Haw. Aug. 20, 2012)
(“Pascual II”); Fed. Nat’l Mortg. Ass’n v. Kamakau, 2012 WL 622169, at *5 n.5
(D. Haw. Feb. 23, 2012); Lindsey v. Meridias Cap., Inc., 2012 WL 488282, at *8

16

(D. Haw. Feb. 14, 2012).
Pascual II rejected that HRS § 667-5 includes an affirmative
requirement that the mortgagee produce the note -- the plain language of § 667-5
includes no such requirement, and reading such requirement into § 667-5 would be
inconsistent with decisions in other jurisdictions that have refused to read a “show
me the note” requirement into nonjudicial foreclosure statutes that do not otherwise
explicitly include such a requirement. See 2012 WL 3583530, at *3 (collecting
cases). As a result, Pascual II concluded that the Hawaii Supreme Court would
reject that HRS § 667-5 includes a “show me the note” requirement. Id. at *4.
In opposition, Plaintiff raises the same arguments that the court
already rejected in Pascual II -- that the court should follow U.S. Bank National
Ass’n v. Kimball, 27 A.3d 1087 (Vt. 2011), and In re Veal, 450 B.R. 897 (B.A.P.
9th Cir. 2011). But as Pascual II explains, these cases are no help to Plaintiff -both cases addressed a mortgagee’s legal standing to foreclosure through a court
process (as opposed to here where the mortgagee is defending against an action
brought by the borrowers), and neither interpreted HRS § 667-5, much less even
addressed a nonjudicial foreclosure statute. Pascual II, 2012 WL 3583530, at *5.
Indeed, In re Veal actually recognized that nonjudicial foreclosure statutes may
change the common law rule requiring a mortgagee to hold the underlying note,

17

which appears to be exactly what the Hawaii legislature did in enacting § 667-5. Id.
And the court has also rejected in various other cases claims asserting
a violation of § 667-5 based on MERS’ alleged lack of authority to foreclose. See,
e.g., Nottage, 2012 WL 5305506, at *6; Benoist v. U.S. Bank Nat’l Ass’n, 2012
WL 3202180, at *4 (D. Haw. Aug. 3, 2012); Pascual v. Aurora Loan Servs., LLC,
2012 WL 2355531, at *4 (D. Haw. June 19, 2012) (“Pascual I”); Lindsey, 2012
WL 488282, at *3 n.6; Teaupa v. U.S. Nat’l Bank N.A., 836 F. Supp. 2d 1083,
1103 (D. Haw. 2011); Abubo v. Bank of New York Mellon, 2011 WL 6011787, at
*8 (D. Haw. Nov. 30, 2011).
Pascual I explains that Cervantes v. Countrywide Home Loans, 656
F.3d 1034 (9th Cir. 2011), held that claims attacking the MERS recording system
as a fraud fail, given that mortgages generally disclose MERS’ role as acting
“solely as nominee for Lender and Lender’s successors and assigns,” and that
MERS has the right to foreclose and sell the property. See Cervantes, 656 F.3d at
1042. And just like in Cervantes (and Pascual I), the mortgage in this action
expressly notifies Plaintiff of MERS’ role as the nominee for the “Lender and
Lender’s successors and assigns.”6 See Doc. No. 1-2, Compl. Ex. 2 at 3. As a
6

Plaintiff argues that Cervantes does not preclude her claim because it recognized that
“the legality of MERS’s role as a beneficiary may be at issue where MERS initiates foreclosure
in its own name, or where the plaintiffs allege a violation of state recording and foreclosure
(continued...)
18

result, the mortgage authorized MERS to take any action required of the Lender or
the Lender’s successors and assigns, which includes the right to foreclose.
The only new allegation in this action compared to these previous
cases is that MERS misidentified in the NOI that it was acting on behalf of Aegis
instead of Countrywide. This additional fact does not provide a basis to assert a
plausible violation of § 667-5. Plaintiff has not, and cannot, identify any
requirement in § 667-5 requiring a NOI to identify the name of the Lender and/or
noteholder. And where the plain language of § 667-5 outlines the particular steps
required for a nonjudicial foreclosure, the court will not read into § 667-5
additional requirements without statutory support. Cf. Gaspar, 2010 WL 4226466,
at *6 (rejecting claim that mortgagee’s reference to a Website for instructions on
the foreclosure auction violated § 667-5 because § 667-5 “provides no
requirements regarding the content of the notice”); see also T-Mobile USA, Inc. v.
Cnty. of Haw. Planning Comm’n, 106 Haw. 343, 352-53, 104 P.3d 930, 939-40
(Haw. 2005) (“It is a cardinal rule of statutory interpretation that, where the terms
of a statute are plain, unambiguous and explicit, we are not at liberty to look
beyond that language for a different meaning. Instead, our sole duty is to give
6

(...continued)
statutes based on the designation.” Doc. No. 75, Pl.’s Opp’n at 20 (quoting Cervantes, 656 F.3d
at 1044). But this is not a case where MERS initiated the foreclosure in its own name; rather,
MERS initiated foreclosure on behalf of the Lender.
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effect to the statute’s plain and obvious meaning.” (quotations omitted)). Further,
it remains without dispute that MERS had the right to institute the non-judicial
foreclosure under the mortgage for both Lender (Aegis) and “Lender’s successors
and assigns” (Countrywide). Doc. No. 1-1. Compl. Ex. 2 at 3. As a result, the
misstatement in the NOI does not suggest that MERS had no authority to foreclose,
much less caused Plaintiff any damages. Thus, the fact that MERS misidentified
the Lender in the NOI does not support a plausible violation of § 667-5.
In sum, Plaintiff has failed to state a claim for breach of the mortgage
based on a violation of HRS § 667-5. The court therefore GRANTS Defendants’
Motions to Dismiss Plaintiff’s breach of contract claim based on a violation of
HRS § 667-5.
As to whether this dismissal should be with leave to amend, the court
further finds that granting leave would be futile. Plaintiff has had multiple
opportunities to assert a breach of contract claim based on violation of HRS § 6675, and has failed to identify any cognizable basis for such violation. Rather,
Plaintiff argues that she can assert a claim for violation of § 667-5 based on the fact
that Aegis was in bankruptcy at the time of the foreclosure. See Doc. No. 75, Pl.’s
Opp’n at 19-20. Plaintiff ignores that she had included such claim in her FAC, and
the June 27, 2012 Order determined that it failed to state a cognizable claim.

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Plaintiff offers no new allegations that would correct the deficiencies of such claim
as outlined in the June 27, 2012 Order. Further, during briefing on the Motions to
Dismiss the FAC, Defendants presented evidence that Aegis transferred the
mortgage loan to Countrywide before declaring bankruptcy. Plaintiff accepted
these facts in her Opposition to the Motions to Dismiss the FAC and proposed new
theories of liability. See Doc. No. 61, Pl.’s Opp’n at 9. As a result, the June 27,
2012 Order dismissed the claim without leave to amend.7 In light of this
procedural history, any attempt by Plaintiff to revisit a claim based on Aegis’
bankruptcy would be futile.
In sum, the court GRANTS Defendants’ Motion to Dismiss Plaintiff’s
breach of contract claim based on a violation of HRS § 667-5, without leave to
amend.
V. CONCLUSION
Based on the above, the court GRANTS Defendants’ Motions to
Dismiss, with leave for Plaintiff to assert a breach of contract claim for failure to
comply with section 22 of the mortgage.
If Plaintiff so chooses, she may file a Third Amended Complaint,
7

Plaintiff suggests that the court forced Plaintiff to drop her breach of contract claim
asserting that Aegis improperly transferred the mortgage loan to Countrywide while Aegis was
in bankruptcy. See Doc. No. 68, SAC ¶¶ 52-53. Such suggestion does not stand scrutiny in light
of this procedural history.
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consistent with this Order by January 11, 2013. Plaintiff is further notified that a
Third Amended Complaint supersedes the Complaint, the FAC, and the SAC.
Ferdik v. Bonzelet, 963 F.2d 1258 (9th Cir. 1992); Hal Roach Studios v. Richard
Feiner & Co., 896 F.2d 1542, 1546 (9th Cir. 1990). After amendment, the court
will treat the Complaint, the FAC, and the SAC as nonexistent. Ferdik, 963 F.2d at
1262.
This Order limits Plaintiff to filing a Third Amended Complaint that
attempts to cure the specific deficiencies identified in this Order. That is, this
Order does not grant Plaintiff leave to amend to file a Third Amended Complaint
that asserts any different theories or causes of action. If Plaintiff fails to file a
Third Amended Complaint by January 11, 2013, this action will be dismissed and
the case closed.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, December 26, 2012.

/s/ J. Michael Seabright
_____________________________
J. Michael Seabright
United States District Judge

Lee v. Mortg. Electronic Registration Sys. et al., Civ. No. 10-00687 JMS/BMK, Order (1) Granting
Defendant Mortgage Electronic Registration Systems, Inc.’s Motion to Dismiss Second Amended
Complaint, Doc. No. 70; (2) Granting Defendant Countrywide Bank, FSB’s Motion to Dismiss
Second Amended Complaint, Doc. No. 69; and (3) Granting Limited Leave to Amend

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