Dagupion v. Green Tree Servicing, LLC et al

Filing 79

ORDER GRANTING DEFENDANT PNC BANK, NATIONAL ASSOCIATION'S MOTION FOR RULE 11 SANCTIONS 44 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 12/7/11. ("By December 29, 2011, PNC must document its fees and costs or submit the reque sted declaration.") (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
)
)
Plaintiff,
)
)
vs.
)
)
)
GREEN TREE SERVICING, LLC;
NATIONAL CITY MORTGAGE CO., a )
)
subsidiary of NATIONAL CITY
BANK now known as PNC BANK,
)
)
NATIONAL ASSOCIATION; LOAN
NETWORK LLC; JOHN DOES 1-10; )
)
JANE DOES 1-10; DOE
CORPORATIONS, PARTNERSHIPS OR )
)
OTHER ENTITIES 1-10,
)
)
Defendants.
_____________________________ )
)
MARC DAGUPION,

CIVIL NO. 11-00120 SOM/KSC
ORDER GRANTING DEFENDANT PNC
BANK, NATIONAL ASSOCIATION’S
MOTION FOR RULE 11 SANCTIONS

ORDER GRANTING DEFENDANT PNC BANK,
NATIONAL ASSOCIATION’S MOTION FOR RULE 11 SANCTIONS
I.

INTRODUCTION.
Before the court is a motion by Defendant PNC Bank,

National Association (“PNC”) to sanction Plaintiff Marc Dagupion
(“Dagupion”) and his attorney pursuant to Rule 11 of the Federal
Rules of Civil Procedure.

Dagupion filed this lawsuit alleging

that Defendants, including PNC, violated state and federal
statutes in handling his residential mortgage loans.

PNC moves

for sanctions alleging numerous deficiencies in Dagupion’s First
Amended Complaint (“FAC”).

Dagupion’s attorney has been warned

multiple times by this judge and other judges in this district
that the continued filing of complaints with the specific
deficiencies found in Dagupion’s FAC will likely result in

sanctions.

As Dagupion’s attorney repeats his oft-criticized

practices, the court grants PNC’s motion.
II.

LEGAL STANDARD.
Rule 11(b) of the Federal Rules of Civil Procedure

requires that parties present arguments that are warranted by law
and nonfrivolous.

All parties must “certif[y] that to the best

of the person's knowledge, information, and belief, formed after
an inquiry reasonable under the circumstances”:
(2) the claims, defenses, and other legal
contentions are warranted by existing law or
by a nonfrivolous argument for extending,
modifying, or reversing existing law or for
establishing new law; [and]
(3) the factual contentions have evidentiary
support or, if specifically so identified,
will likely have evidentiary support after a
reasonable opportunity for further
investigation or discovery . . . .
Fed. R. Civ. P. 11(b).

Rule 11 applies to all pleadings and

written motions filed with the court, including complaints.
R. Civ. P. 11(a).

Fed.

If the court determines that Rule 11(b) has

been violated, “the court may impose an appropriate sanction on
any attorney, law firm, or party that violated the rule or is
responsible for the violation.”

Fed. R. Civ. P. 11(c).

“Rule 11 imposes a duty on attorneys to certify that
they have conducted a reasonable inquiry and have determined that
any papers filed with the court are well grounded in fact
. . . .”

Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393
2

(1990).

Thus, before filing a complaint, a party has an

“affirmative duty” to conduct a reasonable inquiry into the facts
and law of the case.
Cir. 1989).

See Lloyd v. Schlag, 884 F.2d 409, 412 (9th

The conduct of the signing party is “one of

objective reasonableness under the circumstances.”

Hudson v.

Moore Bus. Forms, Inc., 836 F.2d 1156, 1159 (9th Cir. 1987).
A showing of subjective bad faith is not required.

See Smith v.

Ricks, 31 F.3d 1478, 1488 (9th Cir. 1986).
When a complaint is the focus of Rule 11 proceedings,
the Ninth Circuit instructs district courts to “conduct a
two-prong inquiry to determine (1) whether the complaint is
legally or factually baseless from an objective perspective, and
(2) if the attorney has conducted a reasonable and competent
inquiry before signing and filing it.”

Holgate v. Baldwin, 425

F.3d 671, 676 (9th Cir. 2005) (quoting Christian v. Mattel, Inc.,
286 F.3d 1118, 1127 (9th Cir. 2002)).

The Ninth Circuit uses the

word “frivolous” as shorthand to denote that a filing is “both
baseless and made without a reasonable and competent inquiry.”
Id. (quotation marks omitted).
III.

FACTUAL AND PROCEDURAL BACKGROUND.
A.

Factual Background.

The FAC sets forth the following factual background.
First Amended Complaint, July 14, 2011, ECF No. 36.

On April 12,

2007, Dagupion purchased property in Wailuku, Hawaii, on the

3

island of Maui.

Id. ¶ 18.

National City Mortgage, through

Defendant Loan Network, LLC (“Loan Network”), provided Dagupion
with two loans.
predecessor.

Id. ¶ 20.

National City Mortgage was PNC’s

Loan Network allegedly committed various wrongful

acts in completing the loan application.

For example, Loan

Network allegedly failed to provide Dagupion with a completed
copy of the loan application, id. ¶ 23; overstated Dagupion’s
income to “increase his chances of qualifying for a loan he
ordinarily would not” qualify for, id. ¶ 26; failed to provide
federally and state mandated disclosures; and concealed material
terms of the loan, id. ¶ 43.
Dagupion’s loan was transferred to Defendant Green Tree
Servicing, LLC, in 2009.

Id. ¶ 50.

Also in 2009, Dagupion

requested a modification of his loan, but his request was denied.
Id. ¶ 48.

Green Tree informed Dagupion that the “investor/owner

of the loan was unwilling to modify.”

Id. ¶ 51.

Green Tree

allegedly failed to respond to Dagupion’s request for
identification of the owner of the loan and for a copy of the
original note and mortgage.

Id. ¶¶ 53, 55.

On April 6, 2011,

Fannie Mae filed for ejectment in state court.
B.

Id. ¶ 57.

Procedural History.

On February 24, 2011, Dagupion filed the original
complaint in this case, naming the same Defendants now named in
the FAC, and alleging that Defendants had violated state and

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federal statutes in connection with Dagupion’s mortgage loans.
Complaint, Feb. 24, 2011, ECF No. 1.

Green Tree and PNC filed

separate motions to dismiss the complaint.

Green Tree Servicing,

LLC’s Motion to Dismiss Plaintiff’s Complaint, April 4, 2011, ECF
No. 12; Defendant PNC Bank, National Association, Successor by
Merger to National City Mortgage, A Division of National City
Bank, Incorrectly Named in the Complaint as National City
Mortgage Co.’s Motion to Dismiss Complaint, April 20, 2011, ECF
No. 16.
On June 23, 2011, this court granted the motions and
dismissed the complaint without prejudice because it lacked
sufficient factual detail to support its claims.

Order

Dismissing Complaint, June 23, 2011, ECF No. 35.

The court

explained that the complaint was virtually identical to other
complaints submitted by Dagupion’s attorney in other cases and
dismissed by this court.

The court said, “[Counsel] has known

for at least three months that this boilerplate Complaint was
rejected by this court and yet never filed an Amended Complaint.”
Id. at 6.

The court gave Dagupion leave to amend, but cautioned

counsel to comply with his Rule 11 obligations.

Id. at 9.

Dagupion filed an amended complaint, the FAC in issue,
on July 14, 2011.

Green Tree moved to dismiss.

Defendant Green

Tree Servicing LLC’s Motion to Dismiss Plaintiff’s First Amended
Complaint Filed July 14, 2011, July 28, 2011, ECF No. 37.

5

On

September 14, 2011, the court granted Green Tree’s motion as
unopposed, noting that rather than substantively opposing the
motion, Dagupion’s attorney had stated that he was too busy to
address every case, motion, and pleading, and that Dagupion
needed to file a motion to amend the complaint further.

Order

Dismissing First Amended Complaint with Respect to Defendant
Green Tree Servicing, LLC (“Order Dismissing FAC”) at 2, Sept. 9,
2011, ECF No. 41.

The court gave Dagupion until September 29,

2011, to seek leave to file a Second Amended Complaint, again
instructing counsel to ensure that no unwarranted claims were
asserted.

Order Dismissing FAC at 3.

On September 29, 2011,

Dagupion moved for leave to file a Second Amended Complaint.
Plaintiff Marc Dagupion’s Motion for Leave to File Second Amended
Complaint, Sept. 9, 2011, ECF No. 42.

Magistrate Judge Chang

denied Dagupion’s motion to file a Second Amended Complaint on
November 10, 2011.

Order 1) Denying Plaintiff’s Motion For Leave

to File Second Amended Complaint and 2) Denying Defendant Green
Tree Servicing, LLC’s Motion for Leave to File Surreply, Nov. 15,
2011, ECF No. 69.
On September 30, 2011, PNC filed the present motion
seeking Rule 11 sanctions against Dagupion and his attorney.

In

compliance with Rule 11, on September 7, 2011, PNC served
Dagupion’s attorney with a proposed Motion for Sanctions and a
Rule 11 letter requesting that Dagupion withdraw the FAC.

6

Defendant PNC Bank, National Association's Motion for Rule 11
Sanctions ("Motion") Ex. A, ECF No. 44-2.

When PNC subsequently

filed its motion with the court, Dagupion informed the court that
he planned to dismiss the FAC and asked PNC to withdraw the
motion.

Plaintiff Marc Dagupion's Position Statement, Oct. 31,

2011, ECF No. 59.

Dagupion did not withdraw the FAC.

Magistrate

Judge Chang later granted Dagupion leave to file a late
opposition.
IV.

ECF No. 66.

ANALYSIS.
At the outset, the court emphasizes that Dagupion’s

attorney has been warned before that asserting unwarranted claims
is a violation of his Rule 11 obligations.

See Order Dismissing

Complaint at 9; Order Dismissing FAC at 3; Rey v. Countrywide
Home Loans, Inc., Civil No. 11-00142 JMS/KSC, 2011 WL 2160679,
at *3 (D. Haw. June 1, 2011).

A judge in this district has

recently sanctioned Dagupion’s attorney in a case similar to this
one for violating Rule 11.

Rey v. Countrywide Home Loans, Inc.,

Civil No. 11-00142 JMS/KSC, 2011 WL 4103704 (D. Haw. Sept. 13,
2011).

In that case, the attorney submitted an amended complaint

that asserted dismissed claims without making any substantive
changes to them.

Id. at *3.

This district, like many others, has recently seen a
marked increase in suits against lenders involved in
foreclosures.

Id.

Many complaints may be filed by the same

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attorney in nearly identical form, and judges in this district
have entered numerous orders outlining the pleading requirements
for the various commonly pled claims.

Dagupion’s attorney has

represented plaintiff borrowers in several dozen of these cases.
Often, he files a “form complaint” similar to the original
complaint in this action, asserting claims that courts have
repeatedly dismissed for failure to state a cognizable claim.
See, e.g., Rey, 2011 WL 2160679; Casino v. Bank of Am., 2011 WL
1704100 (D. Haw. May 4, 2011); Letvin v. Amera Mortg. Corp., 2011
WL 1603635 (D. Haw. Apr. 27, 2011); Rymal v. Bank of Am., 2011 WL
1361441 (D. Haw. Apr. 11, 2011); Enriquez v. Aurora Loan
Services, LLC, 2011 WL 1103809 (D. Haw. Mar. 22, 2011); Kapahu v.
Bac Home Loans Servicing, LP, 2010 WL 2734774 (D. Haw. July 8,
2010).
In dismissing the original complaint in this action,
this court “caution[ed] [counsel] to comply with his Rule 11
obligations in all future filings with this court.”
Dismissing Complaint at 9.

Order

This court further stated that “[a]ny

future filing that fails to comply with those obligations may
result in serious repercussions, including but not limited to
substantial financial sanctions.”

Id.

In particular, the court

instructed counsel that any amended complaint should not include
any unwarranted claims, such as claims barred by the relevant
statute of limitations, and that he must have a good faith basis

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for bringing specific claims to avoid possible sanctions.
at 11.

Furthermore, the court stated:

Id.

“because the claims

asserted in various ‘form complaints’ filed by [counsel] on
behalf of his clients have been rejected numerous times, Dagupion
should consider whether it is appropriate to assert them in this
action at all.”

Id. at 12.

Dagupion’s attorney has disregarded the court’s
warning.

He does not say that this disregard flows from his

conclusion that this court will be reversed when he appeals.

He

simply appears not to put in the time to address the court’s
concerns.

Dagupion’s FAC asserts nineteen causes of action,

including all eleven of the claims asserted in the original
complaint.

PNC argues that all nineteen of the causes of actions

as pled in the FAC are deficient and states how each cause of
action warrants Rule 11 sanctions.
Dagupion’s opposition does not address PNC’s arguments.
Instead, it mostly attacks the entire mortgage lending industry
without even mentioning PNC.

Where it does respond to the

present motion, it appears to assert that (1) PNC has not
provided Dagupion with sufficient time to respond because the
Rule 11 motion did not provide proper notice by specifically
identifying the alleged deficiencies; (2) counsel is aware of
alleged lender abuse across the nation in the mortgage market
that forms the legal and factual bases for the FAC; (3) the

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similarity of the FAC to other complaints counsel has filed does
not render the FAC frivolous; (4) the volume of his cases and the
rapidly developing law have prevented counsel from having
“sufficient time to go back and address the alleged
deficiencies”; and (5) even though the FAC was “inarticulately”
drafted due to “concealment by lenders and their predecessors and
successors,” a good faith effort has been made and “enough
information has been pled that would enable a party to answer and
participate in discovery.”

Plaintiff Marc Dagupion’s Memorandum

in Opposition to Defendant PNC Bank, National Association’s
Motion for Rule 11 Sanctions (“Opposition”) at 4-14, Nov. 11,
2011, ECF No. 67.
These arguments are unavailing.

As PNC’s reply states,

“The Opposition offers nothing in the way of meritorious argument
or evidentiary support.”

Defendant PNC Bank, National

Association’s Reply to Plaintiff’s Memorandum in Opposition,
Nov. 16, 2011, ECF No. 70.

The opposition does not respond to

any of the substantive deficiencies identified by PNC.

Most

astoundingly, counsel states that “[i]n a perfect world, we can
learn about how the court views certain claims and we can go back
and fix claims raised in other cases.”

Opposition at 12.

Counsel ignores the rulings he has received in many of his cases
addressing many of the claims asserted in Dagupion’s FAC.

He has

had more than ample opportunity to learn how this district views

10

the claims he has brought, and he has had opportunities to modify
those claims based on the rulings he has received.

He should be

intimately familiar with the requirements for pleading the claims
in Dagupion’s FAC.
The court thus agrees that sanctions are warranted, but
based on only some of Dagupion’s causes of action.

See Holgate

v. Baldwin, 425 F.3d 671, 677 (9th Cir. 2005) (“[T]he mere
existence of one non-frivolous claim in a complaint does not
immunize it from Rule 11 sanctions.” (quotation marks omitted))
(quoting Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1364
(9th Cir. 1990)).
A.

Counts in the Original Complaint.

The court first addresses the eleven claims that
Dagupion asserted in the original complaint and has reasserted in
the FAC: Count II--“Violations of the Real Estate Settlement
Procedures Act” (“RESPA”); Count III--“Violations of Federal
Truth-in-Lending Act” (“TILA”); Count IV--“Violation of Fair
Credit Reporting Act” (“FCRA”); Count V–-“Fraudulent
Misrepresentation”; Count VI–-“Breach of Fiduciary Duty”; Count
VII–-“Unjust Enrichment”; Count XII–-“Mistake”; Count XIII–“Unconscionability”; Count XIV–-“Unfair and Deceptive Acts or
Practices” (“UDAP”); Count XV–-“Failure to Act in Good Faith”;
and Count XVIII–-“Negligent and/or Intentional Infliction of
Emotional Distress.”

PNC argues that Dagupion has “done almost

11

nothing to attempt to cure the defects of these claims
(1) despite the arguments presented in PNC’s Motion to Dismiss,
and (2) the Court’s reasoning and direction presented in the June
23, 2011 Order.”

Motion at 20.

Six of these eleven claims are

indeed frivolous under Rule 11.
1.

Counts II, III, IV, VI, XIII, and XV Are
Frivolous Under Rule 11 and Warrant
Sanctions.
a.

Count II–-RESPA.

Count II asserts that PNC violated RESPA,
12 U.S.C. § 2607, by accepting “charges for the rendering of real
estate services which were in fact charges for other than
services actually performed.”

FAC ¶ 86.

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.
Section 2614 of the United States Code provides:
Any action pursuant to the provisions of
section 2605, 2607, or 2608 of this title may
be brought in the United States district
court or in any other court of competent
jurisdiction, for the district in which the
property involved is located, or where the
violation is alleged to have occurred, within
3 years in the case of a violation of section
2605 of this title and 1 year in the case of
a violation of section 2607 or 2608 of this
title from the date of the occurrence of the
violation . . . .
12 U.S.C. § 2614.

As Dagupion took out his mortgage loans on

April 10, 2007, Dagupion should have asserted this claim by April

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10, 2008, to file within the statute of limitations.

The

original complaint was not filed until 2011, beyond the one-year
statute of limitations.

In the order dismissing the original

complaint, the court specifically instructed Dagupion’s attorney
to pay attention to the statue of limitations when filing an
amended complaint.

Order Dismissing Complaint at 11.

Furthermore, counsel has had ample notice of the applicable
statute of limitations, as his RESPA claim has been dismissed in
other cases he has filed based in part on the statue of
limitations.

See, e.g., Rey, 2011 WL 2160679, at *7; Letvin,

2011 WL 1603635, at *6.
Count II also alleges that Loan Network did not provide
the “borrowers” with a special information booklet.

FAC ¶ 94.

As this court ruled in one of counsel’s previous cases, RESPA
does not create a private right of action for failure to provide
a special information booklet.

Casino, WL 1704100, at *10

(citing Santiago v. Bismark Mortg. Co., LLC, Civil No. 10-00467
SOM/KSC, 2011 WL 839762, at *5–*6 (D. Haw. March, 4, 2011)).
Given the court’s previous rulings, Dagupion’s RESPA claim is
frivolous; it is legally baseless and the court cannot conclude
that counsel conducted a reasonable and competent inquiry before
filing the FAC as to this cause of action.
The opposition is conspicuously silent as to what error
the previous orders have contained with respect to this claim.

13

It therefore cannot be said that counsel is only preserving the
record for appeal in reasserting this claim.
b.

Count III–-TILA.

Count III asserts that Dagupion has a right to rescind
the loan transaction and to recover damages under TILA.

FAC at

¶¶ 99, 102.

Dagupion’s TILA damages and rescission claims are

time-barred.

Any claim for damages under TILA must be brought

“within one year from the date of the occurrence of the
violation.”

15 U.S.C. § 1640(e).

Furthermore, TILA provides a

right to rescind a loan transaction “until midnight of the third
business day following the consummation of the transaction or the
delivery of the information and rescission forms required under
this section together with a statement containing” the required
material disclosures.

15 U.S.C. § 1635(a).

If the required

disclosures are not provided, however, the right to rescission
expires “three years after the date of consummation of the
transaction or upon the sale of the property, whichever occurs
first.”

15 U.S.C. § 1635(f).

Because Dagupion alleges that he

consummated his loans in April 2007, the respective TILA statute
of limitations ran long before the original complaint was filed
on February 24, 2011.

Counsel knew or should have known of the

applicable statute of limitations, as it has been a ground on
which courts have dismissed his clients’ TILA claims in previous
cases.

See, e.g., Rey, 2011 WL 2160679, at *7; Letvin, 2011 WL

14

1603635, at *4; Santiago, 2011 WL 839762, at *7-8.

The TILA

claims asserted in the FAC are thus frivolous and warrant Rule 11
sanctions.
c.

Count IV–-FCRA.

Count IV asserts that Dagupion is entitled to recover
from the Defendants for their negligent and willful noncompliance with FCRA.

FAC ¶ 106.

The FAC alleges that

“Defendants qualified as a provider of information to the credit
reporting agencies . . . [and] wrongfully, improperly, and
illegally reported negative information as to [Dagupion] to the
credit reporting agencies.”

FAC ¶ 105.

distinguish among Defendants.

This claim fails to

In its June 23 order, this court

specifically told counsel that failing to distinguish among
Defendants and to recognize the separate role of each party may
have amounted to a violation of Rule 11(b)(2) and (3).
Dismissing Complaint at 9.

Order

The court further instructed that an

amended complaint should explain “what each Defendant did and how
those specific facts create a plausible claim for relief.”
at 11.

Id.

In light of the June 23 order, counsel knew or should

have known that this claim, which continued to fail to
differentiate the Defendants, was legally and factually baseless.
In addition, Dagupion does not have a private right of
action under FCRA based on the alleged facts.

This court has

held that although 15 U.S.C. § 1681s-2(a) imposes a duty on

15

furnishers of credit information to provide accurate information,
only federal and state agencies may enforce that duty.

Diana I

Am v. National City Mortg. Co., Civil. No. 09-00060 SOM/KSC, 2010
WL 571936, at *10 (D. Haw. Feb. 17, 2010) (citing Gorman v.
Wolpoff & Abramson, LLP, 584 F.3d 1147, 1154 (9th Cir. 2009);
Nelson v. Chase Manhattan Mortg. Corp., 282 F.3d 1057, 1059–60
(9th Cir. 2002); 15 U.S.C. § 1681s–2(d) (noting that duties
created under § 1681s–2(a) are enforced exclusively by federal
agencies and officials and state officials)).

An individual may

bring a private cause of action only when the furnisher is given
notice from a credit reporting agency of a dispute and fails to
investigate within specified time limits.

Id.

See also Rey,

2011 WL 2160679, at *8 (dismissing the same claim pled by
Dagupion’s attorney).
d.

Count IV is frivolous.
Count VI-–Breach of Fiduciary Duty.

Count VI alleges that Loan Network and National City
acted as “fiduciaries” and breached their fiduciary duty to
Dagupion by “fraudulently inducing [Dagupion] to enter into a
mortgage transaction which was contrary to [Dagupion’s] stated
intentions; contrary to [Dagupion’s] interests; and contrary to
[Dagupion’s] preservation of his home.”

FAC ¶ 118.

A

borrower-lender relationship, however, is not fiduciary in
nature:
Lenders generally owe no fiduciary duties to
their borrowers. See, e.g., Spencer v. DHI
16

Mortg. Co., 642 F. Supp. 2d 1153, 1161 (E.D.
Cal. 2009) (“Absent ‘special circumstances’ a
loan transaction ‘is at arms-length and there
is no fiduciary relationship between the
borrower and lender.’”) (quoting Oaks Mgmt.
Corp. v. Super. Ct., 51 Cal. Rptr. 3d 561
(Cal. App. 2006)); Ellipso, Inc. v. Mann, 541
F. Supp. 2d 365, 373 (D.D.C. 2008) (“[T]he
relationship between a debtor and a creditor
is ordinarily a contractual relationship
. . . and is not fiduciary in nature.”)
(citation omitted); Nymark v. Heart Fed. Sav.
& Loan Ass’n, 283 Cal. Rptr. 53, 54 n.1 (Cal.
App. 1991) (“The relationship between a
lending institution and its borrower-client
is not fiduciary in nature.”).
McCarty v. GCP Management, LLC, Civil No. 10-00133 JMS/KSC, 2010
WL 4812763, at *5 (D. Haw. Nov. 17, 2010).

Count VI is baseless,

as counsel was told in an order in one of his earlier cases.

See

Casino, 2011 WL 1704100, at *13 (holding that, the Casinos,
represented by the same attorney who represents Dagupion, failed
to state a claim when they alleged breach of fiduciary duty by
their lender); Rey, 2011 WL 2160679, at *10-11 (same).
e.

Count XIII–-Unconscionability.

Count XIII asserts that the terms and conditions of the
note and mortgage are unconscionable because Dagupion “did not
understand the loan transaction, or the true terms of the note
and mortgage and was not fully and timely informed of the same by
Defendants or its predecessors and/or its employees and agents,
who held superior bargaining power over [Dagupion].”
¶¶ 165-66.

17

FAC

“Unconscionability” is generally a defense to the
enforcement of a contract, not a proper claim for affirmative
relief.

See, e.g., Casino, 2011 WL 1704100, at *14 (citing

Gaitan v. Mortg. Elec. Registration Sys., 2009 WL 3244729, at *13
(C.D. Cal. Oct. 5, 2009) (“Unconscionability may be raised as a
defense in a contract claim, or as a legal argument in support of
some other claim, but it does not constitute a claim on its
own.”), and Barnard v. Home Depot U.S.A., Inc., 2006 WL 3063430,
at *3 n.3 (W.D. Tex. Oct. 27, 2006) (citing numerous cases for
the proposition that neither the common law nor the Uniform
Commercial Code allows affirmative relief for
unconscionability)).

To the extent unconscionability can be

addressed affirmatively as part of a different or independent
cause of action, such a claim “is asserted to prevent the
enforcement of a contract whose terms are unconscionable.”
Skaggs v. HSBC Bank USA, N.A., 2010 WL 5390127, at *3 (D. Haw.
Dec. 22, 2010) (emphasis in original).1

1

Skaggs dismissed a

In Skaggs, the court noted in dicta that “at least one
Hawaii court has addressed unconscionability when raised as a
claim seeking rescission.” 2010 WL 5390127, at *3 n.2 (citing
Thompson v. AIG Haw. Ins. Co., 111 Haw. 413, 142 P.3d 277
(2006)). This was not an indication that one could raise an
affirmative claim for “unconscionability.” Indeed, in Thompson,
the complaint did not assert a separate count for rescission or
unconscionability. See Thompson, 111 Haw. at 417, 142 P.3d at
281 (indicating that the specific counts were for negligence,
fraud, breach of duty, and unfair and deceptive trade practices
under Haw. Rev. Stat. § 480-2). In Thompson, the remedy of
rescission was based on an independent claim. Similarly, a
remedy for an unconscionable contract may be possible; a
18

“claim” for unconscionability because it challenged only conduct
such as “obtaining mortgages under false pretenses and by
charging Plaintiff inflated and unnecessary charges,” and
“failing to give Plaintiff required documents in a timely
manner,” but not the breach of any specific contractual term.
Id.

Count XIII similarly fails to identify or challenge any

particular contract term as unconscionable.

Counsel has

previously asserted this claim, which was dismissed on the
grounds stated above.

Casino, 2011 WL 1704100, at *14; see also

Rey, 2011 WL 2160679, at *9.
f.

Count XIII is frivolous.

Count XV–-Failure to Act in Good Faith.

Count XV alleges that “Defendants or its predecessors
and/or its employees and agent” owed Dagupion a duty to deal with
him fairly and in good faith.

FAC ¶ 186.

Dagupion alleges that

they violated that duty by:
making various misrepresentations of material
fact and/or omissions of material fact, not
making the mandatory federal law disclosures,
failing to disclose that [Dagupion] was not
financially qualified for the loan, and/or
the likelihood of the value of the Property
falling, that [Dagupion] was likely to
default, and would not qualify for
refinancing.
Id. at 187.
faith.”

This claim in essence asserts the tort of “bad

See Best Place v. Penn Am. Ins. Co., 82 Haw. 120, 128,

stand-alone claim asserting only “unconscionability,” however, is
improper. See, e.g., Gaitan, 2009 WL 3244729, at *13.
19

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).

This very claim, asserted by counsel in

Casino, was dismissed.

2011 WL 1704100.

In Casino, this very

judge held:
Although bad faith is an accepted tort when a
plaintiff is a party to an insurance
contract, the tort has not been recognized in
Hawaii based on a mortgage loan contract.
Moreover, although commercial
contracts for sale of goods also require 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). 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)). The Casinos thus do
not properly plead an independent claim of
bad faith.
Importantly, even assuming a bad
faith tort exists outside the insurance
context, “[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., 119 Haw. 403, 427, 198
20

P.3d 666, 690 (2008) (indicating that the
covenant of good faith does not extend to
activities occurring before consummation of
an insurance contract).
All of [the allegations in Casino’s
complaint regarding the covenant of good
faith and fair dealing] concern precontract
activities (failing to disclose terms,
failing to conduct proper underwriting, and
making an improper loan). Defendants cannot
be liable for breaching a contract covenant
when no contract existed. 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.”).
Id. at *6; accord, e.g., Rodenhurst v. Bank of America, Civil No.
10-00167 LEK-BMK, 2011 WL 4625696, at *10 (D. Haw. Sept. 30,
2011) (dismissing the same claim pled by Dagupion’s attorney);
Cootey v. Countrywide Home Loans, Inc., Civil No. 11-00152
JMS/KSC, 2011 WL 2441707 (D. Haw. June 14, 2011) (same).

Count

XV is thus frivolous.
2.

Counts V, VII, XII, XIV, and XVIII Do Not
Give Rise to Rule 11 Sanctions.
a.

Counts V, XII, XIV, and XVIII Allegedly
Fail to Plead Sufficient Facts But Do
Not Warrant Rule 11 Sanctions.

PNC argues that Count V--Fraudulent Misrepresentations,
Count XII--Mistake, Count XIV--Unfair and Deceptive Acts, and
Count XVIII–Negligent and/or Intentional Infliction of Emotional
Distress are deficient because the FAC does not plead sufficient
21

facts to support those claims.

Motion at 27, 31, 33, 36.

However, a failure to plead sufficient facts is not by itself
sanctionable conduct under Rule 11.

Cf. Holgate, 425 F.3d at 676

(finding a claim frivolous when the plaintiffs could not satisfy
one of the elements of the cause of action–-that they belonged to
a suspect class–-in addition to failing to plead sufficient
facts).

As discussed above, a complaint violates Rule 11 when it

is factually or legally baseless and has been made without a
reasonable and competent inquiry.
at 676.

See, e.g., id., 425 F.3d

A failure to plead sufficient facts or elements of a

cause of action does not necessarily mean that the cause of
action is baseless.

To the extent Dagupion asserts claims that

fail to plead sufficient facts, that does not warrant Rule 11
sanctions.

Of course, pleading defects may result in dismissal,

but that is by no means the same thing as Rule 11 sanctions.
b.

Count VII–-Unjust Enrichment.

Count VII asserts that “Defendants have been unjustly
enriched at the expense of [Dagupion],” and demands restitution.
FAC ¶¶ 125-27.

“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.”
Caraang v. PNC Mortgage, ---F. Supp.2d---, 2011 WL 2470637,
at *18 (D. Haw. June 20, 2011) (citations omitted).

Caraang

stated, “As a general rule, an action for unjust enrichment

22

cannot lie in the face of an express contract."
omitted).

Id. (citation

In Caraang, both the note and the mortgage were

express agreements that the plaintiffs had executed in connection
with their loan, and the judge in that case concluded that the
plaintiffs could not pursue an unjust enrichment claim.

Id.

However, it is not clear that all judges in this
district are taking the position taken in Caraang.

Dagupion’s

attorney has had his unjust enrichment claims in other cases
dismissed on a different ground, i.e., his failure to plead
sufficient facts.

See, e.g., Cootey, 2011 WL 2441707, at *12;

Rymal, 2011 WL 1361441, at *10.

Thus, the district judges of

this district, who do not bind each other, have taken different
approaches, and counsel was entitled to explore what position
each judge was taking on unjust enrichment.

This judge therefore

declines to rule that Count VII is legally and factually
baseless, as opposed to being possibly insufficiently pled.
Count VII does not warrant Rule 11 sanctions.
B.

Counts Asserted For the First Time in the FAC.

The FAC asserts eight new claims: Count I–-“Violations
of Home Ownership Equity Protection Act” (“HOEPA”); Count VIII–“Civil Conspiracy and Aiding and Abetting”; Count IX–-“Complaint
to Quiet Title”; “Count X–-“Usury and Fraud”; Count XI–“Violation of Hawaii Bureau of Conveyance Regulations”;
Count XIX–-“Violation of Gramm-Leach-Bliley Act” (“GLBA”);

23

Count XX--“Violation of the Hawaii Constitutional Right to
Privacy”; and Count XXI–-“Violation of Hawaii Revised Statutes
Chapter 667.”
PNC first argues that these counts violate Rule 11
because they were improperly added to the complaint.

PNC

contends that this court granted Dagupion leave to amend the
complaint only to cure deficiencies in the existing counts, but
not to include additional causes of action.
such limitation.

The court imposed no

In granting Dagupion leave to file an amended

complaint, the court stated:

“Dagupion may, through his counsel,

reassert the claims asserted in the original Complaint.”
Dismissing Complaint at 11.

Order

The court did not forbid the

assertion of new claims.
PNC argues in the alternative that all of the new
counts lack an “identifiable basis in fact and/or are not
supported by existing law.”

Motion at 11.

Two of the new causes

of action are indeed baseless and would have been revealed as
such if counsel had conducted a reasonable inquiry.

Those counts

provide further grounds for Rule 11 sanctions against counsel.
1.

New Counts that are Grounds for Rule 11
Sanctions.
a.

Count I–-HOEPA.

Count I asserts that Loan Network and National City
violated HOEPA, 15 U.S.C. § 1639, by “failing to make the
[required] disclosure in a conspicuous fashion” and “engaging in
24

a pattern and practice of extending credit to plaintiff without
regard to his ability to repay.”

FAC ¶¶ 77(a)-(b).

Dagupion’s

attorney knew or should have known any HOEPA claim by Dagupion
was time-barred.

Counsel was told in a previous case decided by

Judge Leslie Kobayashi that HOEPA claims are subject to the same
statute of limitations as TILA claims:
HOEPA is an amendment to TILA and is
therefore subject to the same statute of
limitations. Herschelman v. New Century
Mortg. Corp., Cv. No. 09-00461 DAE-KSC, 2010
WL 4448224, at *4 n. 3 (D. Haw. Oct.29, 2010)
(citation omitted). TILA claims seeking
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. 15
U.S.C. § 1640(e); Cannon v. U.S. Bank, NA,
Civ. No. 11-00079 HG-BMK, 2011 WL 1637415, at
*5 (D. Haw. 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. 15 U.S.C. § 1635(f);
Cannon v. U.S. Bank, 2011 WL 1637415, at *6
(some citations omitted) (citing Miguel v.
Country Funding Corp., 309 F.3d 1161, 1164
9th Cir. 2002)).
Enriquez v. Countrywide Home Loans, FSB, Civil No. 10-00405 LEKRLP, 2011 WL 3861402, at *3 (D. Haw. Aug. 31, 2011).

Over one

year before Dagupion filed his original complaint, this very
judge similarly held (in a case not involving Dagupion’s counsel)
that claims are subject to a one-year statute of limitations.

25

Diana I Am, 2010 WL 571936, at *8.

As stated above, Dagupion

cannot meet the TILA statue of limitations because he executed
his loans on April 17, 2007.

Although the Enriquez order was

issued after Dagupion’s counsel prepared the FAC, it was issued
before PNC served counsel with its proposed Rule 11 motion and
before counsel responded to the motion.

In addition, this court

specifically instructed counsel to be mindful of the statute of
limitations in any amended complaint.

A reasonable inquiry would

have revealed that a HOEPA claim is time-barred.

Count I thus

violates Rule 11.
b.

Count XI--Violation of the Hawaii Bureau
of Conveyance Regulations.

Count XI attempts to assert a claim against an entity
that is not a party in this case.

It states that “MERS should

have filed a SMRF [special mortgage recording fee] and an
assignment of mortgage for each assignment of sale.”

FAC ¶ 154.

It further states that “failure to file these assignments
prohibits MERS from exercising any judicial procedures against
the borrower.”
in the FAC.

Id. ¶ 159.

MERS is not mentioned anywhere else

MERS has, however, appeared as a defendant in many

of Dagupion’s attorney’s previous cases.

See, e.g., Casino, 2011

WL 1704100; Uy v. Wells Fargo Bank, N.A., Civil No. 10-00204 ACKRLP, 2011 WL 1539832 (D. Haw. Apr., 20, 2011).

It appears that

counsel may have carelessly borrowed this language from another
complaint and pasted it into the FAC without adapting it to the
26

present case.

As stated above, this court has warned counsel

about using form complaints.

Cutting and pasting causes of

actions from previous complaints in other cases can lead to the
filing of totally inapplicable claims.

While an error of that

nature might be excused in another context, here counsel did not
correct his error and withdraw Count XI when served with the
proposed Rule 11 motion.
cannot be excused.

Under those conditions, the error

As pled in the FAC, Count XI violates

Rule 11.
2.

New Counts That Do Not Violate Rule 11.
a.

Counts VIII, IX, X and XX Allegedly Fail
to Plead Sufficient Facts But Do Not
Warrant Rule 11 Sanctions.

PNC argues that Counts VIII IX, X, and XX do not plead
sufficient facts or fail to include elements of the claims.
does not argue that the claims are legally baseless.

PNC

As

discussed above, insufficient facts alone do not justify
sanctions under Rule 11(b)(2).

Not all causes of action that

lack sufficient factual allegations are baseless.

Similarly, the

omission of an element of a cause of action does not mean that a
claim is baseless for Rule 11 sanction purposes.
b.

Count XIX–-GLBA.

Count XIX asserts that “the mandatory notices [required
by the GLBA] were not provided by Defendants to Plaintiff.”
¶ 197.

FAC

However, there is no private right of action under the

27

Gramm-Leach-Bliley Act.

See, e.g., Liu v. Wells Fargo Home Mort.

Inc., Civil No. 10-00324 JMS/KSC, 2011 WL 1362101, at *6 (D. Haw.
Apr. 8, 2011) (“[E]ven if Defendants violated the GLBA, there is
no private cause of action to enforce its terms.”) (citations
omitted).
At the time counsel filed the FAC, this district had
addressed the GLBA in only one case, Liu, brought against a
lender involved in a foreclosure.

A single ruling two months

before counsel filed the FAC might not have appeared definitive
to an attorney conducting a reasonable inquiry.

Liu was decided

by a different judge and is not binding in this action.

Rule 11

sanctions are thus not warranted for Count XIX.
c.

Count XXI–-Hawaii Revised Statutes
Ch. 667.

Finally, PNC argues that Count XXI violates Rule 11
because its factual allegations are incorrect.
evidence contradicting the facts in the FAC.

PNC offers

Resolving factual

disputes is inappropriate at this stage of the proceedings.
Count XXI is thus not a ground for Rule 11 sanctions.
C.

Appropriate Sanctions.

PNC requests that the court impose sanctions on both
Dagupion and his attorney, and that sanctions include reasonable
attorneys’ fees and costs incurred in defending itself against
Dagupion’s frivolous claims.

Motion at 38.

28

The court has

discretion to determine sanctions, keeping these principles in
mind:
A sanction imposed under this rule must be
limited to what suffices to deter repetition
of the conduct or comparable conduct by
others similarly situated. The sanction may
include nonmonetary directives; an order to
pay a penalty into court; or, if imposed on
motion and warranted for effective
deterrence, an order directing payment to the
movant of part or all of the reasonable
attorney's fees and other expenses directly
resulting from the violation.
Fed. R. Civ. P. 11(c)(4). “[T]he court must not impose a monetary
sanction . . . against a represented party for violating Rule
11(b)(2).”

Fed. R. Civ. P. 11(c)(5)(A).
Weighing the extent of the Rule 11 violation as well as

the need to deter repetition of similar conduct in both this
action and in other actions, the court finds that sanctions
against only counsel, not Dagupion, are warranted.

As discussed

above, counsel was recently sanctioned $750 under Rule 11 by
another judge in this district for submitting an amended
complaint that reasserted dismissed claims without changing them.
Rey, 2011 WL 4103704, at *3.

This court has also previously

warned counsel about Rule 11 obligations.

A monetary sanction

award payable to PNC is appropriate as a means of deterring
future misconduct by counsel in this and other actions.

The

amount of the sanction shall be determined after PNC either
(i) documents its fees and costs in compliance with Local Rule
29

54.3(d)(1), (2), and (3), or (ii) submits a declaration stating
that its fees and costs incurred in connection with preparing and
arguing the present motion significantly exceed $2500.

In the

event PNC selects option (ii), the court intends to award
sanctions of no more than $2500.

Option (i) would likely require

PNC to expend more time with no guarantee of a greater sanction
award or of a collectible award, but the court might or might not
in that event limit itself to $2500.

PNC’s deadline for

documenting its selection is December 29, 2011.
IV.

CONCLUSION.
For the foregoing reasons, the court SANCTIONS

Dagupion’s attorney for violating Federal Rule of Civil
Procedure 11.

By December 29, 2011, PNC must document its fees

and costs or submit the requested declaration.

IT IS SO ORDERED.
DATED: Honolulu, Hawaii, December 7, 2011.

/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge

Dagupion v. Green Tree, LLC, Civil No. 11-00120 SOM-KSC; ORDER GRANTING DEFENDANT
PNC BANK, NATIONAL ASSOCIATION’S MOTION FOR RULE 11 SANCTIONS

30