Nottage v. The Bank Of New York Mellon et al

Filing 16

ORDER Granting In Part And Denying In Part Defendants' Motion To Dismiss Complaint re 5 . Signed by JUDGE J. MICHAEL SEABRIGHT on 10/25/12. (gls, )CERTIFICATE OF SERVICEParticipants registered to receive electr onic 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

PETER B. NOTTAGE, JR., and
JENNIFER A. NOTTAGE,

)
)
)
Plaintiffs,
)
)
vs.
)
)
THE BANK OF NEW YORK
)
MELLON, A NEW YORK
)
CORPORATION, AS TRUSTEE FOR )
THE CERTIFICATEHOLDERS
)
CWMBS, INC., CHL MORTGAGE
)
PASS-THROUGH CERTIFICATES, )
SERIES 2006-21; ET AL.,
)
)
Defendants.
)
________________________________ )

CIVIL NO. 12-00418 JMS/BMK
ORDER GRANTING IN PART AND
DENYING IN PART
DEFENDANTS’ MOTION TO
DISMISS COMPLAINT

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’
MOTION TO DISMISS COMPLAINT
I. INTRODUCTION
On May 25, 2012, Plaintiffs Peter and Jennifer Nottage (“Plaintiffs”)
filed this action in the First Circuit Court of the State of Hawaii alleging state law
claims against Defendants The Bank of New York Mellon, a New York
Corporation, as Trustee for the Certificateholders CWMBS, Inc., CHL Mortgage
Pass-through Certificates, Series 2006-21 (“BONY”); Countrywide Home Loans,
Inc. (“CHL”); Bank of America, N.A. (“BANA”); and Mortgage Electronic

Registration Systems, Inc. (“MERS”) (collectively “Defendants”) stemming from a
non-judicial foreclosure of Plaintiffs’ home located at 76-863 North Pakalakala
Place, Kailua-Kona, Hawaii 96740 (the “subject property”). On July 25, 2012,
Defendants removed the action to this court.
Currently before the court is Defendants’ Motion to Dismiss, in which
they argue that the Complaint fails to state a claim upon which relief can be
granted. Based upon the following, the court GRANTS in part and DENIES in
part Defendants’ Motion to Dismiss, with leave for Plaintiffs to file a First
Amended Complaint as to certain claims.
II. BACKGROUND
A.

Factual Background
As alleged in the Complaint, on September 15, 2005, Plaintiffs

entered into a loan transaction with CHL for $1,437,000 secured by the subject
property. Doc. No. 1-2, Compl. ¶ 11; id. Ex. 2. The mortgage describes that
MERS “is a separate corporation that is acting solely as a nominee for [CHL] and
[CHL’s] successors and assigns. MERS is the mortgagee under this Security
Instrument.” Id. Ex. 2 at 2.1 At some time not known to Plaintiffs, BANA became

1

The parties subsequently entered into a Modification Agreement to increase the loan
amount to $1,731,257. Doc. No. 1-2, Compl. Ex. 3.
2

the servicer of the loan. Id. ¶ 13.
In 2008, Plaintiffs began experiencing severe economic hardship and
were unable to pay their mortgage loan. Id. ¶¶ 12, 14. As a result, in January
2010, Plaintiffs sought a loan modification with BANA and complied with
BANA’s requests for documentation supporting economic hardship. Id. ¶ 14. The
Complaint asserts that BANA provided conflicting information regarding the
modification request -- in February 2010, BANA sent Plaintiffs a letter stating that
it could not fulfill a modification request, but a few weeks later BANA sent
Plaintiffs another letter stating that it was reviewing their modification request.
Id. ¶ 16. The Complaint further asserts that during the modification process,
“Plaintiffs relied upon representations made by [BANA] representatives that they
were trying to help Plaintiffs keep their home and that no payments needed to be
made in the meantime while [BANA] was processing their modification request.”
Id. ¶ 17. On April 5, 2010, Plaintiffs were notified that BANA rejected their
modification request. Id. ¶ 19.
In the meantime, on March 4, 2010, Plaintiffs received a Notice Under
Fair Debt Collections letter from BONY, who was as far as Plaintiffs knew a
stranger to the mortgage loan. Id. ¶ 18. With that said, however, on April 22, 2010
an Assignment of Mortgage was recorded in the State of Hawaii Bureau of
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Conveyances assigning the mortgage from MERS, as nominee for CHL, to BONY.
Id. ¶ 23; id. Ex. 7. The Complaint asserts that the assignment to BONY is a
“fraud” and/or nullity because (1) CHL did not exist at the time of the assignment
to BONY, id. ¶ 25; (2) MERS had no authority to assign the mortgage note, id.
¶¶ 26-27; (3) BONY could not accept the mortgage loan where the trust closed on
December 28, 2006, id. ¶¶ 31-35; and (4) the assignment was “robosigned” by
Rhoena Rice as Vice President of MERS, as nominee for CHL, even though she
has previously signed documents claiming authority from several other
corporations. Id. ¶¶ 36-38.
On April 22, 2010, Plaintiffs received a Notice of Mortgagee’s Intent
to Foreclose Under Power of Sale. Id. ¶ 20; id. Ex. 4. Over one year later, on
April 26, 2011, BONY recorded with the State of Hawaii Bureau of Conveyances a
Mortgagee’s Affidavit of Foreclosure Under Power of Sale, stating that BONY had
conducted a non-judicial foreclosure on the subject property on April 13, 2011.
Id. ¶ 21; id. Ex. 5. On July 6, 2011, a Limited Warranty Deed was recorded
transferring the subject property from BONY to Lanikai Hui, LLC. Id. ¶ 21; id.
Ex. 6.
The Complaint asserts that the foreclosure was a nullity because
BONY was not properly assigned the mortgage loan, failed to provide any

4

evidence demonstrating that it had possession of the Note, id. ¶¶ 29, 40, and “failed
to conduct its alleged nonjudicial foreclosure in compliance with [Hawaii Revised
Statutes (“HRS”) §] 667-5. Id. ¶ 41.
B.

Procedural Background
On May 25, 2012, Plaintiffs filed their Complaint alleging seven state

law claims titled (1) wrongful foreclosure; (2) breach of contract and implied
covenant of good faith and fair dealing; (3) UDAP [unfair and deceptive trade
practices]; (4) fraud; (5) negligent misrepresentation; (6) intentional and negligent
infliction of emotional distress [IIED/NIED]; and (7) promissory estoppel. On July
25, 2012, Defendants removed the action to this court.
On August 1, 2012, Defendants filed their Motion to Dismiss.
Plaintiffs filed an Opposition on October 1, 2012, and Defendants filed a Reply on
October 5, 2012. A hearing was held on October 22, 2012.
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

5

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
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

6

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.”).
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

7

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).
C.

Rule 9(b)
Federal Rule of Civil Procedure 9(b) requires that “[i]n all averments

of fraud or mistake, the circumstances constituting fraud or mistake shall be stated
with particularity.” “Rule 9(b) requires particularized allegations of the
circumstances constituting fraud.” In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541,
1547-48 (9th Cir. 1994) (en banc), superseded on other grounds by 15 U.S.C.
§ 78u-4.
In their pleadings, Plaintiffs must include the time, place, and nature
of the alleged fraud; “mere conclusory allegations of fraud are insufficient” to
satisfy this requirement. Id. (citation and quotation signals omitted). However,
“[m]alice, intent, knowledge, and other condition of mind of a person may be
averred generally.” Fed. R. Civ. P. 9(b); see also In re GlenFed, Inc. Sec. Litig, 42

8

F.3d at 1547 (“We conclude that plaintiffs may aver scienter . . . simply by saying
that scienter existed.”); Walling v. Beverly Enter., 476 F.2d 393, 397 (9th Cir.
1973) (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 Fed. R. Civ. P. 12(b)(6).
Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003).
IV. DISCUSSION
Defendants argue that the Complaint fails to state a claim upon which
relief can be granted. The court addresses each Count of the Complaint in turn.
A.

Wrongful Foreclosure (Count 1)
The Complaint asserts that BONY’s foreclosure violated Hawaii’s

foreclosure statute, HRS § 667-52 because BONY was not “a proper mortgagee,
successor assignee, or holder [of the Note].” Doc. No. 1-2, Compl. ¶ 43. The

2

As in effect at the time of the foreclosure, HRS § 667-5(a) provided:
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.
Section § 667-5 was repealed effective June 28, 2012. See Haw. Sess. Laws 2012, Ch. 182, §
50.
9

Complaint posits that BONY was not a proper mortgagee because (1) its
assignment of the mortgage loan was fraudulent where CHL did not exist at the
time of the assignment, id. ¶ 44; (2) it was not authorized to accept assets after the
trust closed, id.; (3) the assignment was “robosigned” by Rhoena Rice as Vice
President of MERS, as nominee for CHL, even though she has previously signed
documents claiming authority from several other corporations, id. ¶¶ 36-38;
(4) MERS had no authority to assign the mortgage note, id. ¶¶ 26-27; and
(5) BONY failed to provide evidence that it possessed the promissory note. Id.
¶ 29. The court addresses each of these allegations.
1.

Existence of CHL at Time of Assignment
As to Plaintiffs’ allegation that CHL could not have assigned the

mortgage loan where it longer existed at the time of the assignment to BONY,
Defendants argue that this allegation is wholly conclusory and that CHL still
exists. Contrary to Defendants’ argument, the court finds that the Complaint’s
allegations are not too conclusory -- the Complaint asserts that at the time of the
assignment, CHL no longer existed because it had been acquired by BANA. See
id. ¶¶ 25-26. Although Plaintiffs could have certainly provided more details
regarding BANA acquiring CHL, the court finds that the facts alleged, liberally
construed, are sufficient. Further, Defendants offer no support for their assertion

10

that “CHL is a viable and separate legal entity from BANA that still exists.” Doc.
No. 5-1, Defs.’ Mot. at 10. Although such fact could possibly be established on a
Motion for Summary Judgment, it is not a proper inquiry for the court on a Rule
12(b)(6) Motion to Dismiss.
The court therefore DENIES Defendants’ Motion to Dismiss Count I
to the extent Plaintiffs base their wrongful foreclosure claim on the assertion that
BONY could not have been assigned the mortgage where CHL did not exist at the
time of assignment.
2.

Violation of the Trust
Plaintiffs’ allegation that BONY was not authorized to accept assets

after the trust closed attacks the Pooling and Service Agreement (“PSA”) under
which the mortgage loan was securitized. This claims fails -- as this court has
explained in several previous actions, Plaintiffs cannot challenge what occurred
regarding the PSA because (1) Plaintiffs are third parties and lack standing to raise
a violation of the PSA, and (2) noncompliance with the terms of a PSA is irrelevant
to the validity of an assignment. See, e.g., Benoist v. U.S. Bank Nat’l Ass’n, 2012
WL 3202180, at *5 (D. Haw. Aug. 3, 2012); Abubo v. Bank of New York Mellon,
2011 WL 6011787, at *8 (D. Haw. Nov. 30, 2011).
This court came to this conclusion based on numerous cases

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addressing the very claim Plaintiffs now put forward. For example, Anderson v.
Countrywide Home Loans, 2011 WL 1627945 (D. Minn. Apr. 8, 2011), addressed
the allegations that an assignment to a securitization trust was invalid because the
PSA provided that the trust ceased accepting mortgages several years before the
contested assignment from MERS. Id. at *4. Anderson concluded that
“compliance with the chain of assignment mandated by a PSA was not relevant to
the validity of the assignee’s interest.” Id. (citing Peterson-Price v. U.S. Bank
Nat’l Ass’n, 2010 WL 1782188, at *10 (D. Minn. May 4, 2010)). It reasoned in
part that there was “no authority that an assignment made in contravention of a
PSA is invalid.” Id. It also concluded that plaintiffs did not have standing to
challenge the validity of the assignment because they were not parties to the PSA.
Id.
Many other recent and persuasive decisions follow similar logic. See
Greene v. Home Loan Serv., Inc., 2010 WL 3749243, at *4 (D. Minn. Sept. 21,
2010) (“[P]laintiffs are not a party to the [PSA] and therefore have no standing to
challenge any purported breach of the rights and obligations of that agreement.”);
Long v. One West Bank, 2011 WL 3796887, at *4 (N.D. Ill. Aug. 24, 2011)
(rejecting argument that assignment executed after trust was closed in violation of
the PSA rendered transaction invalid, reasoning that non-parties to the PSA lacked

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standing to challenge the assignment and “it is irrelevant to the validity of the
assignment whether or not it complied with the PSA”); Juarez v. U.S. Bank Nat’l
Ass’n, 2011 WL 5330465, at *4 (D. Mass. Nov. 4, 2011) (reasoning that plaintiff
“does not have a legally protected interest in the assignment of the mortgage to
bring an action arising under the PSA”); Correia v. Deutsche Bank Nat’l Trust Co.,
452 B.R. 319, 324-25 (B.A.P. 1st Cir. 2011) (rejecting argument by debtors that
mortgage assignment was invalid based upon non-compliance with PSA, as
debtors were neither parties, nor third-party beneficiaries, of the PSA); cf. Cooper
v. Bank of New York Mellon, 2011 WL 3705058, at *17 (D. Haw. Aug. 23, 2011)
(dismissing breach of contract count brought by delinquent mortgagors for breach
of PSA, reasoning that mortgagors were not third-party beneficiaries of PSA and
thus had no standing to enforce its terms).
The court has already adopted the reasoning of these cases, and
Plaintiffs offer no argument refuting this reasoning.3 The court therefore GRANTS
Defendants’ Motion to Dismiss Count I to the extent it asserts that BONY was not
a proper mortgagee due to violations of the PSA. Because granting leave to amend

3

Instead, Plaintiffs argue in wholly conclusory fashion that “Plaintiffs are not claiming
to be third party beneficiaries who are trying to enforce the contract, they are simply citing this
document to show that the underlying nonjudicial foreclosure was improper.” Doc. No. 13, Pls.’
Opp’n at 8-9. Regardless of how Plaintiffs attempt to cast their claim, it boils down to the basic
assertion that noncompliance with the PSA prevented BONY from properly holding the
mortgage loan.
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this claim would be futile, this dismissal is without leave to amend.
3.

Robosigning by MERS
The Complaint asserts that BONY was not a proper mortgagee

because the assignment was “robosigned” by Rhoena Rice as Vice President of
MERS, as nominee for CHL, even though she has previously signed documents
claiming authority from several other corporations.
This claim fails -- the Complaint fails to explain why Rice’s apparent
authority to sign documents on behalf of multiple companies establishes that she
did not have authority in this instance, and fails to assert facts explaining how any
“robosigning” caused Plaintiffs any harm or damages. See Chua v. IB Prop.
Holdings, LLC, 2011 WL 3322884, at *2 (C.D. Cal. Aug. 1, 2011) (“[T]o the
extent that Plaintiffs take issue with Lisa Markham’s dual position, Plaintiffs have
not identified a relevant legal authority prohibiting one individual from working
for both CitiMortgage and MERS or from acting as an agent for both.”). Further, it
is unclear what claim Plaintiffs could possibly raise where MERS has not contested
Rice’s authority to act. The court therefore reiterates its holding from other cases
that conclusory assertions of “robo-signing” fail to state a plausible claim. See,
e.g., Abubo, 2011 WL 6011787, at *7 (citing Cooper, 2011 WL 3705058, at *13
(rejecting identical argument that Durham was not authorized to execute an

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assignment on behalf of MERS); Singer v. BAC Home Loan Servicing, LP, 2011
WL 2940733, at *2 (D. Ariz. July 21, 2011) (rejecting as unsupported an assertion
that a “robosigner” unlawfully signed a substitution of trustee form)); see also
Nastrom v. New Century Mortg. Corp., 2012 WL 2090145, at *6 (E.D. Cal. June 8,
2012) (dismissing claim where “Plaintiffs offer no factual allegations (or legal
theory) indicating how the alleged robo-signing of documents which assigned the
subject loans harmed Plaintiffs”); Block v. BAC Home Loans Servicing LP, 2012
WL 2031640, at *4 (E.D. Mich. June 6, 2012) (“Plaintiffs’ vague and speculative
assertions of what has been labeled as ‘robo-signing’ are insufficient to state a
plausible claim of fraud or irregularity.”); Schultz v. BAC Home Loans Servicing,
LP, 2011 WL 3684481, at *2 (D. Ariz. Aug. 23, 2011) (“[A]lthough Plaintiff
asserts that various ‘robosigners’ were involved with signing documents pertaining
to her mortgage, she has provided no facts supporting this claim or why she is
accordingly entitled to relief for breach of contract.”).
The court therefore GRANTS Defendants’ Motion to Dismiss Count I
to the extent based on allegations of “robosigning.” Because granting leave to
amend this claim would be futile, this dismissal is without leave to amend.
4.

MERS’ Authority to Assign the Mortgage Note
The Complaint’s assertion that the foreclosure was wrongful because

15

MERS had no authority to assign the mortgage note also fails. The court recently
rejected this same argument in Pascual v. Aurora Loan Services, LLC, 2012 WL
2355531, at *4 (D. Haw. June 19, 2012) (“Pascual I”), and its reasoning applies
equally here.
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’s 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 Plaintiffs of MERS’s role as the nominee for the “Lender and
Lender’s successors and assigns.” See Doc. No. 1-2, Compl. Exs. at page 53-55 of
124. Thus, to the extent CHL still existed at the time of the assignment, MERS
exercised the authority granted to it by CHL by assigning the mortgage to BONY.
Id. at 123 of 124.
Thus, in light of the express disclosures in the mortgage giving MERS
the authority act on behalf of CHL and the transfer of the mortgage to BONY,
Plaintiffs have no basis to assert that CHL did not authorize MERS to transfer the
mortgage. Indeed, this court has already rejected numerous borrowers’ claims

16

challenging MERS’s authority to assign, on behalf of a lender, the mortgage. See,
e.g., Fed. Nat’l Mortg. Ass’n v. Kamakau, 2012 WL 622169, at *4 & *5 n.5 (D.
Haw. Feb. 23, 2012) (explaining that a borrower cannot challenge an assignment
that he was not a party to, and that plaintiff may not assert claims based on the
argument that MERS lacked authority to assign its right to foreclose); Lindsey v.
Meridias Cap., Inc., 2012 WL 488282, at *3 n.6 (D. Haw. Feb. 14, 2012) (“‘[A]ny
argument that MERS lacked the authority to assign its right to foreclose and sell
the property based on its status as ‘nominee’ cannot stand in light of [Cervantes.]”
(quoting Velasco v. Sec. Nat’l Mortg. Co., 2011 WL 4899935, at *11 (D. Haw.
Oct. 14, 2011)); Teaupa v. U.S. Nat’l Bank N.A., 836 F. Supp. 2d 1083, 1104 (D.
Haw. 2011) (dismissing without leave to amend claim asserting that MERS lacks
standing to foreclose); Abubo, 2011 WL 6011787, at *8 (dismissing claim
challenging MERS’s authority to assign the mortgage on the basis that “the
involvement of MERS in the assignment cannot be a basis for voiding the
assignment, much less for a claim of fraud”).
The court therefore GRANTS Defendants’ Motion to Dismiss Count I
to the extent based on allegations that MERS lacked authority to assign the
mortgage note. Because granting leave to amend this claim would be futile, this
dismissal is without leave to amend.

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5.

BONY’s Failure to Provide Evidence That It Possessed the Note
Finally, the Complaint asserts that BONY violated HRS § 667-5 by

failing to provide evidence that it possessed the promissory note. Like many of
Plaintiffs’ other arguments, the court has already rejected this argument in Pascual
(in which the plaintiffs were represented by the same counsel in this action) and its
reasoning applies here.
Specifically, Pascual v. Aurora Loan Servs., LLC, 2012 WL 3583530
(D. Haw. Aug. 20, 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 § 6675 would be inconsistent with decisions in other jurisdictions that have refused to
read a “show me the note” requirement into non-judicial foreclosure statutes that
do not otherwise explicitly include such a requirement. See id. 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, Plaintiffs raise 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 Plaintiffs --

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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 non-judicial foreclosure statute. Pascual II, 2012 WL 3583530, at *5.
Indeed, In re Veal actually recognized that non-judicial foreclosure statutes may
change the common law rule requiring a mortgagee to hold the underlying note,
which appears to be exactly what the Hawaii legislature did in enacting § 667-5.
Id.
The court therefore GRANTS Defendants’ Motion to Dismiss Count I
to the extent based on allegations that BONY failed to establish that it holds the
note. Because granting leave to amend this claim would be futile, this dismissal is
without leave to amend.
B.

Breach of Contract and Implied Covenant of Good Faith and Fair
Dealing (Count II)
The Complaint asserts this claim “as an alternative theory of relief

. . . assuming arguendo [that BONY] had legal or contractual authority to invoke
the power of sale.” Doc. No. 1-2, Compl. ¶ 48. The Complaint further asserts that
BONY “had a duty of good faith and fair dealing with Plaintiffs, the mortgagors, as
to all matters related to performance of the subject mortgage loan,” Doc. No. 1-2,
Compl. ¶ 48, and that BONY breached this covenant of good faith and fair dealing
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by failing “to take commercially reasonable steps to verify its lawful ownership of
the Note and Mortgage before declaring Plaintiffs in default” of the mortgage loan.
Id. ¶ 51.
This claim is internally inconsistent -- on the one hand, the claim
assumes that BONY had authority to invoke the power of sale in the mortgage
loan, but then on the other hand asserts that BONY failed to verify its ownership
and “was not the lawful holder” of the mortgage loan. Needless to say, Plaintiffs
cannot have it both ways. To the extent this claim is premised on BONY having
proper authority under the mortgage loan, whether it verified its ownership would
be legally irrelevant. And to the extent BONY is not the proper mortgagee, then
Plaintiffs fail to explain how BONY had a contractual duty of good faith and fair
dealing with Plaintiffs. On these bases alone, the claim fails.
Further, to the extent Plaintiffs are attempting to assert a breach of
contract claim, they fail to state a claim.4 Plaintiffs fail to allege even the basic
elements of a breach of contract claim, much less the factual allegations to support
it. Completely missing from this Count is any mention of the particular provision
of the mortgage loan that BONY violated, any assertion that Plaintiffs performed
4

In their Opposition, Plaintiffs assert that their claim is one for breach of contract, as
opposed to a claim for bad faith. Such concession comports with the fact that a claim for bad
faith based upon a mortgage loan contract is not recognized in Hawaii. See, e.g., Teaupa v. U.S.
Nat’l Bank N.A., 836 F. Supp. 2d 1083, 1093 (D. Haw. 2011).
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under the mortgage loan, or an assertion of how Plaintiffs were injured. See, e.g.,
Velez v. The Bank of New York Mellon, 2011 WL 572523, at *3 (D. Haw. Feb. 15,
2011) (explaining that a breach of contract claim requires a plaintiff to identify
(1) the contract at issue; (2) the parties to the contract; (3) whether Plaintiff
performed under the contract; (4) the particular provision of the contract allegedly
violated by the Defendant; (5) when and how the Defendant allegedly breached the
contract; and (6) how Plaintiff was injured).
The court therefore GRANTS Defendants’ Motion to Dismiss Count
II, with leave for Plaintiffs to amend to assert a breach of contract claim.
C.

UDAP (Count III)
The Complaint asserts that Defendants engaged in unfair and

deceptive trade practices in violation of HRS § 480-2:
with respect to mortgage loan servicing, Assignment of
Mortgage, execution of the Limited Warranty Deed,
wrongful foreclosure of Plaintiffs’ home, and related
matters by, among other things:
(a) Instituting wrongful nonjudicial foreclosure
upon Plaintiffs’ home without contractual authority to do
so;
(b) Executing and recording false and
misleading documents;
(c) Executing and recording documents without
the legal authority to do so;
(d) Failing to disclose the principal for which
documents were being executed and recorded;
(e) Failing to record Powers of Attorney in
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connection with other recorded documents;
(f)
Accepting the subject mortgage as trustee
without the legal authority to do so; [and]
(g) Other deceptive business practices.
Doc. No. 1-2, Compl. ¶ 56. The Complaint further asserts that Defendants’
violations “have caused substantial harm to Plaintiffs” and therefore entitle them
“to an award of actual, threefold, and punitive damages in an amount to be
determined at trial.” Id. ¶¶ 57, 59.
Defendants argue that this claim fails because Plaintiffs have failed to
state a cognizable claim for wrongful foreclosure and they have otherwise failed to
allege damages or that the action is in the public interest. See Doc. No. 5-1, Defs.’
Mot. at 18-19; see also Tokuhisa v. Cutter Mgmt. Co., 223 P.3d 246, 261 (Haw.
App. 2009) (“Thus, § 480-13 establishes four essential elements: (1) a violation of
chapter 480; (2) injury to plaintiff’s business or property resulting from such
violation; (3) proof of the amount of damages; and (4) a showing that the action is
in the public interest or that the defendant is a merchant.”) (citations omitted). As
described above, however, Plaintiffs have asserted a cognizable wrongful
foreclosure claim based on the assertion that CHL did not exist at the time of its
assignment to BONY. And certainly, BONY’s foreclosure of Plaintiffs’ home -- if
wrongful -- would cause damages to Plaintiffs (as alleged in the Complaint), and
this action would be in the public interest.
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To the extent this claim is based on facts independent of BONY’s
alleged wrongful foreclosure, however, these claims are so vague and conclusory
that they fail to state a plausible UDAP claim. The Complaint fails to explain
(1) who executed and recorded what documents, and why they did not have legal
authority; (2) who failed to disclose which principal regarding what particular
documents; and (3) who failed to record Powers of Attorney as to what recorded
documents. And further missing from these allegations is any explanation as to (1)
against whom each of these UDAP violations is alleged against; and
(2) precisely how these allegations caused injury to Plaintiffs. Without any factual
allegations explaining these vague assertions, Plaintiffs have failed to state
plausible claim for relief on any of these bases.
Finally, to the extent this claim is based on BANA’s loan servicing of
the mortgage loan, the Complaint fails to assert sufficient facts establishing any
unfair or deceptive practices. The Complaint asserts that during the loan
modification process, “Plaintiffs relied upon representations made by [BANA]
representatives that they were trying to help Plaintiffs keep their home and that no
payments needed to be made in the meantime while [BANA] was processing their
modification request.” Doc. No. 1-2, Compl. ¶ 17. To the extent these statements
formed any promise, such promise apparently terminated on April 5, 2010 when

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Plaintiffs were notified that BANA rejected their modification request. Id. ¶ 19. It
was only after BANA rejected the modification request, on April 22, 2010, that
BONY sought to foreclose on the subject property. Id. ¶ 20. And it was not until
one year later that BONY did in fact foreclose. Without more explanation, these
allegations simply do not establish a UDAP violation.
The court therefore GRANTS in part and DENIES in part Defendants’
Motion to Dismiss Count III, with leave for Plaintiffs to amend.
D.

Fraud (Count IV)
The Complaint asserts that “the critical title documents, the

Assignment of the Mortgage, and the Limited Warranty Deed are products of fraud
committed by robo-signers misrepresenting their authority and corporate capacity,
and are therefore legally void.” Doc. No. 1-2, Compl. ¶ 62. The Complaint further
asserts that BONY’s “false, fraudulent, and material representations that it was the
lawful holder of the Note and Mortgage and had legal and contractual authority to
conduct the nonjudicial foreclosure, caused the wrongful nonjudicial foreclosure of
the subject property.” Id. ¶ 63. Finally, the Complaint asserts that BONY
“declared Plaintiffs to be in breach of the mortgage loan and proceeded with the
nonjudicial foreclosure, knowing that it was not the proper mortgagee, successor
assignee, or holder of the mortgage loan, but inducing Plaintiff to believe

24

otherwise.” Id. ¶ 64.
It appears that Plaintiffs base this claim on their allegations of
wrongful foreclosure by BONY, and as explained above, Plaintiffs have failed to
state a cognizable claim for wrongful foreclosure except to the extent based on the
allegation that CHL had been acquired by BANA at the time of the assignment to
BONY. To the extent Plaintiffs could base a fraud claim based on the fact that
CHL did not exist at the time of the assignment, however, the Complaint fails to
“assert ‘particularized allegations of the circumstances constituting fraud’ . . . such
as the time, place, and nature of the alleged actions.” Chun v. Accredited Home
Lenders, Inc., 2011 WL 3273120, at *4 (D. Haw. July 29, 2011) (quoting In re
GlenFed, Inc. Sec. Litig., 42 F.3d at 1547-48). Indeed, Plaintiffs’ theory of fraud
by BONY is completely undefined -- for example, do Plaintiffs assert that BONY
knew that CHL could not assign the mortgage loan, and/or that BONY and CHL
and/or BANA worked together to create this alleged false assignment? Without
any particular allegations explaining BONY’s allegedly fraudulent acts, this claim
fails to state a plausible claim for fraud.
The court therefore GRANTS Defendants’ Motion to Dismiss Count
IV, with leave for Plaintiffs to amend.

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E.

Negligent Misrepresentation (Count V)
The Complaint asserts that BONY “had a duty to exercise reasonable

care and skill to follow Hawaii law with regard to foreclosures, to refrain from
taking any action against Plaintiffs that it did not have legal authority to do, and to
provide Plaintiffs with accurate information regarding the transfer and assignment
of their Mortgage.” Doc. No. 1-2, Compl. ¶ 69. The Complaint further asserts that
BONY breached this duty by, among other things, foreclosing on the subject
property without legal authority, which caused Plaintiffs to suffer “general and
specific damages in an amount to provide at trial.” Id. ¶¶ 71-72.
These allegations are too vague and conclusory to state a plausible
claim for negligent misrepresentation. To assert such claim, Plaintiffs must allege
facts establishing that: “‘(1) false information [is] supplied as a result of the failure
to exercise reasonable care or competence in communicating the information; (2)
the person for whose benefit the information is supplied suffered the loss; and (3)
the recipient relies upon the misrepresentation.’” Zanakis-Pico v. Cutter Dodge,
Inc., 98 Haw. 309, 321, 47 P.3d 1222, 1234 (2002) (quoting Blair v. Ing, 95 Haw.
247, 269, 21 P.3d 452, 474 (2001); Restatement (Second) of Torts § 552 (1977)).
Although Plaintiffs have stated a plausible claim for wrongful foreclosure based on
the allegation that CHL did not exist at the time of the assignment, the Complaint

26

fails to allege any facts establishing that Plaintiffs relied upon the purported false
misrepresentation that BONY owned the mortgage loan.5
The court therefore GRANTS Defendants’ Motion to Dismiss Count
V of the Complaint with leave to amend.
F.

IIED and NIED (Count VI)
The Complaint asserts that BONY should have known prior to

commencing the nonjudicial foreclosure that it did not own the mortgage loan and
that foreclosing “was likely to cause Plaintiffs severe emotional distress, mental
anguish, insomnia, headaches, anxiety and depression.” Doc. No. 1-2, Compl.
¶¶ 74-75. The Complaint further asserts that:
As a proximate result of [BONY’s] negligent acts and
omissions, as well as [its] intentional and deliberate acts
in proceeding with the unlawful foreclosure of the
subject property all the while knowing the Assignment of
Mortgage was (a) executed by known robo-signer
without any legal authority or capacity to execute the
same; and b) that Countrywide, the alleged assignor, did
not even exist at the time the Assignment of Mortgage
was executed, the Defendant Trustee did cause Plaintiffs
to suffer Emotional Distress.
Id. ¶ 76. Defendants argue that these allegations fail to assert a plausible NIED or

5

Defendants further argue that this claim fails because a lender generally does not owe a
borrower a duty of care. See Doc. No. 5-1, Defs.’ Mot. at 5-1 (citing Caraang v. PNC Mortg.,
795 F. Supp. 2d. 1098, 1122 (D. Haw. 2011)). Defendants do not address, however, whether a
lender owes a duty to a borrower where it seeks to foreclose on the property at issue. The court
need not address this issue, however, where the claim fails for other reasons.
27

IIED claim. The court addresses each claim in turn.
1.

NIED
A plaintiff may recover for NIED “where a reasonable [person],

normally constituted, would be unable to adequately cope with the mental stress
engendered by the circumstances of the case.” Doe Parents No. 1 v. State, 100
Haw. 34, 69, 58 P.3d 545, 580 (2002) (citations and quotations omitted). An
NIED claim “is nothing more than a negligence claim in which the alleged actual
injury is wholly psychic and is analyzed utilizing ordinary negligence principles.”
Id. (citations and quotations omitted). To maintain an NIED claim, “an NIED
claimant must establish, incident to his or her burden of proving actual injury (i.e.,
the fourth element of a generic negligence claim), that someone was physically
injured by the defendant’s conduct, be it the plaintiff himself or herself or someone
else.” Id.
Defendants argue that this claim fails because the Complaint fails to
plead any facts showing that any Defendant engaged in negligent conduct, that
Plaintiffs suffered emotional distress, or that any negligence conduct was the legal
cause of Plaintiffs’ emotional distress. The court disagrees. As described above,
the Complaint asserts a cognizable claim for wrongful foreclosure, which means
that BONY allegedly breached a duty to Plaintiffs not to foreclose on the subject

28

property where it had no valid claim. The Complaint further asserts that BONY’s
wrongful foreclosure caused Jennifer Nottage to experience mental anguish,
insomnia, headaches, anxiety and depression, and rendered her unable to conduct
activities of daily living such as driving. See Doc. No. 1-2, Compl. ¶¶ 75-77.
These allegations are sufficient to establish an NIED claim.
The court therefore DENIES Defendants’ Motion to Dismiss
Plaintiffs’ NIED claim.
2.

IIED

An IIED claim requires Plaintiffs to establish that: (1) the act that
caused the harm was intentional or reckless; (2) the act was outrageous; and
(3) the act caused extreme emotional distress to another. Young v. Allstate Ins.
Co., 119 Haw. 403, 429, 198 P.3d 666, 692 (2008). An IIED claim “requires
conduct exceeding all bounds usually tolerated by decent society and which is of a
nature especially calculated to cause, and does cause, mental distress of a very
serious kind.” Hac v. Univ. of Haw., 102 Haw. 92, 106, 73 P.3d 46, 60 (2003)
(citing Tibke v. McDougall, 479 N.W.2d 898, 907 (S.D. 1992)). An outrageous act
is one such that upon reading the plaintiff’s complaint “average members of our
community might indeed exclaim, ‘Outrageous.’” See Young, 119 Haw. at 429-30,
198 P.3d at 692-93.

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Defendants argue that this claim fails because Plaintiffs have failed to
assert a plausible wrongful foreclosure claim and in any event, “[d]efault and
foreclosure proceedings generally do not rise to the level of extreme and
outrageous conduct.” See Doc. No. 5-1, Defs.’ Mot. at 23 (quoting Uy v. Wells
Fargo Bank, N.A., 2011 WL 1235590, at *14 (D. Haw. Mar. 28, 2011) (citing
Erickson v. Long Beach Mortg. Co., 2011 WL 830727, at *7 (W.D. Wash. Mar. 2,
2011) (citation omitted) (dismissing IIED claim on summary judgment)); see also
Enriquez v. Countrywide Home Loans, FSB, 814 F. Supp. 2d 1042, 1070 (D. Haw.
2011) (applying Uy); cf. Bass v. Ameriquest Mortg. Co., 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”).
The court rejects this argument -- as explained above, Plaintiffs have
asserted a cognizable wrongful foreclosure claim, and the cases relied upon by
Defendants address the situation where the terms of the loan and/or loan
modification procedures were challenged. See Uy, 2011 WL 1235590, at *14
(“The Court is unpersuaded by Plaintiff’s suggestion that Wells Fargo’s conduct

30

was extreme and outrageous because Plaintiff ‘may not have been properly
qualified for the loan, not all terms of the loan were disclosed to him, his payments
could go up to $7800.00 per month, his request for a loan modification was denied,
etc.’”). A very different situation is presented here where Plaintiffs allege that
BONY foreclosed on the subject property without receiving a valid assignment.
And viewing the facts alleged in a light most favorable to Plaintiffs, such wrongful
foreclosure may be considered outrageous conduct.6
The court therefore DENIES Defendants’ Motion to Dismiss
Plaintiffs’ IIED claim.
G.

Promissory Estoppel (Count VII)
The Complaint asserts that “in applying for the loan modification,

Plaintiffs relied upon representations, false promises, and assertions made by
[BANA] that it was willing to accommodate a loan modification to help Plaintiffs
keep their home and that no payments needed to be made in the meantime while
[BANA] was processing their modification request.” Doc. No. 1-2, Compl. ¶ 78.
The Complaint further asserts that despite these promises, on April 22, 2010
Plaintiffs received BONY’s Notice of Intent to Foreclose. Id. ¶ 79.

6

Defendants further argue that the Complaint fails to allege causation and emotional
distress. As explained above for Plaintiffs’ NIED claim, Plaintiffs have sufficiently alleged
these elements.
31

Under Hawaii law, Plaintiffs must establish the following four
elements to state a claim for promissory estoppel:
(1) There must be a promise;
(2) The promisor must, at the time he or she made the
promise, foresee that the promisee would rely upon the
promise (foreseeability);
(3) The promisee does in fact rely upon the promisor’s
promise; and
(4) Enforcement of the promise is necessary to avoid
injustice.
White v. Pac. Media Grp., 322 F. Supp. 2d 1101, 1109 (D. Haw. 2004) (quoting In
re Herrick, 82 Haw. 329, 337-38, 922 P.2d 942, 950-51 (1996)). In this context,
“[a] ‘promise’ is defined as ‘a manifestation of intention to act or refrain from
acting in a specified way, so made as to justify a promisee in understanding that a
commitment has been made.’” In re Herrick, 82 Haw. at 338, 922 P.2d at 951
(quoting Restatement (Second) of Contracts § 2(1) (1979)); see also Matsumura v.
Bank of Am., N.A., 2012 WL 463933, at *5 (D. Haw. Feb. 10, 2012) (discussing
promissory estoppel claim brought in wrongful foreclosure action).
Defendants argue that the Complaint fails to establish the existence of
any promise that must be enforced to avoid injustice. The court agrees -- the
Complaint does not assert that BANA actually promised that it would provide
Plaintiffs a modification; rather, it asserts only that it told Plaintiffs that they need
not make payments while BANA was reviewing the loan modification request.
32

According to the Complaint, this promise was not violated -- on April 5, 2010,
BANA notified Plaintiffs that it had rejected the modification request, Doc. No. 12, Compl. ¶ 17, and it was not until April 22, 2010 that BONY notified Plaintiffs of
its intent to foreclose and then one year later completed the foreclosure sale. Id. ¶¶
20, 21. Thus, any promise not to seek foreclosure during the loan modification
process was terminated before BONY sought foreclosure.
The court therefore GRANTS Defendants’ Motion to Dismiss Count
VII with leave to amend.
V. CONCLUSION
Based on the above, the court GRANTS in part and DENIES in part
Defendants’ Motion to Dismiss. Plaintiffs’ claims against BONY for wrongful
foreclosure, UDAP, NIED, and IIED remain, to the extent based on the assertion
that CHL did not exist at the time it purported to assign the mortgage loan to
BONY. Plaintiffs are further granted leave to file a First Amended Complaint
asserting claims for UDAP, fraud, negligent misrepresentation, and promissory
estoppel consistent with this Order by November 12, 2012. Plaintiffs are notified
that a First Amended Complaint will supersede the Complaint. 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

33

Complaint as nonexistent. Ferdik, 963 F.2d at 1262. If Plaintiffs fail to file a First
Amended Complaint, Plaintiffs’ claims for wrongful foreclosure, UDAP, NIED,
and IIED will proceed against BONY.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, October 25, 2012.

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

Nottage v. The Bank of New York Mellon, a New York Corporation, as Trustee for the
Certificateholders CWMBS, Inc., CHL Mortgage Pass-through Certificates, Series 2006-21, Civ.
No. 12-00418 JMS/BMK, Order Granting in Part and Denying in Part Defendants’ Motion to
Dismiss Complaint

34