Bald et al v. Wells Fargo Bank, N.A. et al

Filing 45

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS re 8 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 7/25/13. "The court grants Wells Fargo's Motion to Dismiss. TheClerk is directed to enter judgment for Wells Fargo and to clo se this case." see footnote 2 on page 2 regarding 5 MOTION to Dismiss filed by David Rosen -- " 2 Plaintiffs initially also sued David Rosen in both his professional and personal capacity. See ECF No. [ 1]. On March 21, 2013, Rosen filed a Motion to Dismiss. ECF No. 5 . On July 1, 2013, before this court had heard argument on Rosen's Motion to Dismiss, Plaintiffs dismissed Rosen from this lawsuit. ECF No. 40 . Given Rosen's dismi ssal from this case, the court denies Rosen's Motion to Dismiss as moot." (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
DAVID EMORY BALD,
individually and on behalf of
others similarly situated;
and EMILY LELIS, individually
and on behalf of others
similarly situated;

)
)
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)
)
)
)
Plaintiffs,
)
)
vs.
)
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WELLS FARGO BANK,
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Defendant.
)
_____________________________ )

CIVIL NO. 13-00135 SOM/KSC
ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS

ORDER GRANTING DEFENDANT’S MOTION TO DISMISS
I.

INTRODUCTION.
Before this court is a case against Defendant Wells

Fargo Bank (“Wells Fargo”) arising from alleged conduct relating
to the nonjudicial foreclosure of property owned by Plaintiff
David together with his wife, Susan Coloma Bald (“the Balds”), as
well as property owned by Plaintiff Emily Lelis.1

Currently

before the court is Wells Fargo’s Motion to Dismiss Plaintiffs’

1

This case is a putative class action, but no class has
been certified to date.

First Amended Complaint (“Motion”).2

The court grants Wells

Fargo’s motion.
II.

BACKGROUND.
The Balds had real property in Honolulu, Hawaii (the

“Bald Property”).

First Am. Compl. ¶ 24, ECF No. 25.

On July

26, 2007, a mortgage was recorded against the Bald Property to
secure an unrecorded promissory note for a loan the Balds
obtained in the amount of $535,000.00 (the “Bald Mortgage”).

Id.

¶ 25.
Lelis also owned real property in Honolulu, Hawaii (the
“Lelis Property”).

Id.

¶ 26.

On April 18, 2007, a mortgage was

recorded against the Lelis Property to secure an unrecorded
promissory note for a loan Lelis obtained in the amount of
$500,000.00 (the “Lelis Mortgage”).

Id. ¶ 27.

Both the Bald Mortgage and the Lelis Mortgage were
filed in the Office of the Assistant Registrar of the Land Court
of the State of Hawaii (the “Land Court”).

Id. ¶¶ 25, 27.

Plaintiffs describe Defendant Wells Fargo as the assignee for
both the Bald Mortgage and the Lelis Mortgage.

Id. ¶ 30.

Plaintiffs assert:
2

Plaintiffs initially also sued David Rosen in both his
professional and personal capacity. See ECF No. 1. On March 21,
2013, Rosen filed a Motion to Dismiss. ECF No. 5. On July 1,
2013, before this court had heard argument on Rosen’s Motion to
Dismiss, Plaintiffs dismissed Rosen from this lawsuit. ECF No.
40. Given Rosen’s dismissal from this case, the court denies
Rosen’s Motion to Dismiss as moot.
2

In executing their respective Mortgages,
Plaintiffs BALD and LELIS each pledged all of
their right, title, and interest in their
Property to their mortagee, and each Mortgage
(which was a standard-form single-family
residential mortgage similar to the ones
executed by other members of the Class) gave
the mortgagee a power of sale under which
Plaintiffs BALD and LELIS agreed to entrust
the sale of all of their right, title, and
interest in their Property to their mortgagee
in the event they defaulted on their Note,
with the proceeds in excess of amounts due
under their Note plus costs to go back to
Plaintiffs. Each mortgagee in turn impliedly
agreed to sell the interests of Plaintiffs
BALD and LELIS in their respective Properties
in a manner intended to obtain the best
possible price for the Property so entrusted.
Similar agreements by the original lender
were made with respect to each member of the
Class.
Id. ¶ 28.

Plaintiffs further assert that Plaintiffs “were each

required by their respective lenders to have marketable title to
their Properties in fee simple without encumbrances in order for
such Properties to serve as adequate security for their loans.”
Id. ¶ 29.

As a result, “each lender knew that the interest

pledged by Plaintiffs was an unencumbered fee simple interest
that Plaintiffs had in turn acquired by warranty deed, and that
is what each lender agreed to sell in the event that it exercised
the power of sale.”

Id.

Wells Fargo subsequently commenced nonjudicial
foreclosure proceedings against Plaintiffs pursuant to section
667-5 of the Hawaii Revised Statutes and the power of sale
contained in both Mortgages.

Id.
3

¶ 31.

With regard to the Bald

Mortgage, Wells Fargo “caused to be published in a newspaper of
general circulation a ‘Notice of Mortgagee’s Intention to
Foreclose Under Power of Sale’ (the ‘Bald Notice of Sale’).”

Id.

¶ 32.
Plaintiffs complain that Wells Fargo wrongly advertised
the Bald Property and the Lelis Property as being sold by
quitclaim deed only, even though Wells Fargo “knew or through the
exercise of reasonable care should have known that there were no
superior claims of title or priority to its own claim and that it
therefore had the power and the duty to market and sell the
property of each member of the class in fee simple.”

Id. ¶ 34.

The Bald Plaintiffs argue that Wells Fargo’s decision “had the
foreseeable effect of discouraging potential buyers” and lowering
the bidding prices.

Id. ¶ 36.

On April 24, 2009, Wells Fargo auctioned the Bald
Property. Id. ¶ 37.
$372,000.00.

Id.

Wells Fargo submitted the high bid of
The Balds allege that, because the Bald

Property was sold for an amount that “was insufficient to satisfy
the entire outstanding balance of the Bald Note,” the Balds
“continue[] to owe Defendant WELLS FARGO, or whomever currently
owns the Note, the remaining unpaid balance.”

Id. ¶ 40.

Wells

Fargo subsequently sold the Bald Property to a third party via
limited warranty deed for $399,000.00. Id. 38.

Plaintiffs argue

that Wells Fargo had a duty to sell the Bald Property and the

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Lelis Property “on the best reasonable terms and conditions to
get the best price.”

Id. ¶ 35.

With regard to the Lelis Property, Plaintiffs assert
that Wells Fargo failed to comply with Paragraph 22 of the Lelis
Mortgage.

Paragraph 22 provides: “Lender shall publish a notice

of sale and shall sell the Property at the time and place and
under the terms specified in the notice of sale.”

Id. ¶ 48.

Plaintiffs complain that “[t]he public auction of the Lelis
Property was not held on February 18, 2011, as stated in the
Lelis Notice of Sale.” Id. ¶ 49.

Instead, Wells Fargo postponed

the auction until April 1, 2011, and “did not publish a notice of
the postponed auction’s rescheduled date and time.”

Id. ¶ 50.

Plaintiffs argue that Wells Fargo is liable for
conducting foreclosure sales that were “contrary to the
foreclosing mortgagee’s duties under the power of sale and H.R.S.
§ 667-5” and “wrongful and an unfair and/or deceptive act or
practice within the meaning of H.R.S. Chapter 480.”
III.

Id. ¶ 41.

STANDARD OF REVIEW.
A.

Rule 12(b)(1).

To the extent Wells Fargo challenges Plaintiffs’
standing, the court construes their motions under Rule 12(b)(1).
See HRPT Properties Trust. v. Lingle, 676 F.Supp.2d 1036, 1041
(D. Haw. 2009).

A challenge under Rule 12(b)(1) can be either a

facial or a factual attack on jurisdiction.
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A facial attack

asserts that the allegations in a complaint are insufficient to
invoke federal jurisdiction.

A factual attack disputes the truth

of the allegations that would otherwise confer federal
jurisdiction.

Safe Air for Everyone v. Meyer, 373 F.3d 1035,

1039 (9th Cir. 2004).

When standing is factually attacked in a

Rule 12(b)(1) motion, the court may hear evidence before ruling
on the issue.

St. Clair v. City of Chico, 880 F.2d 199, 200-202

(9th Cir. 1989).
B.

Rule 12(b)(6).

Where a jurisdictional challenge fails, dismissal of
claims under Rule 12(b)(6) of the Federal Rules of Civil
Procedure may be based on either: (1) lack of a cognizable legal
theory, or (2) insufficient facts under a cognizable legal
theory.

Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699

(9th Cir. 1988) (citing Robertson v. Dean Witter Reynolds, Inc.,
749 F.2d 530, 533–34 (9th Cir. 1984)).

“[T]o survive a Rule

12(b)(6) motion to dismiss, factual allegations must be enough to
raise a right to relief above the speculative level, on the
assumption that all the allegations in the complaint are true
even if doubtful in fact.”

Bell Atl. Corp. v. Twombly, 550 U.S.

544, 555 (2007)) (internal quotation marks omitted); accord
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“the pleading
standard Rule 8 announces does not require ‘detailed factual
allegations,’ but it demands more than an unadorned,

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the-defendant-unlawfully-harmed-me accusation”).

“While a

complaint attacked by a Rule 12(b)(6) motion to dismiss does not
need detailed factual allegations, a plaintiff's obligation to
provide the ‘grounds' of his ‘entitlement to relief’ requires
more than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.”
U.S. at 555.

Twombly, 550

The complaint must “state a claim to relief that is

plausible on its face.”

Id. at 570.

“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 677.
IV.

ANALYSIS.
Plaintiffs allege wrongdoing by Wells Fargo in two

respects.

First, Plaintiffs argue that Wells Fargo breached a

duty to Plaintiffs by advertising foreclosure sales through which
property would be conveyed only by quitclaim deeds.

Second,

Plaintiffs argue that Wells Fargo violated section 667-5 of
Hawaii Revised Statutes by failing to publish notices of
foreclosure auction postponements.

Plaintiffs assert that Wells

Fargo’s alleged failures on these fronts constitute both a
violation of section 667-5 as well as a violation of section 4802 of Hawaii Revised Statutes, which prohibits unfair and

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deceptive acts and practices.

The court addresses each argument

in turn.
A.

This Court has Jurisdiction.

Wells Fargo alleges that Plaintiffs do not have
standing to bring their claims.
To establish standing, a plaintiff must demonstrate (1)
actual or threatened injury that (2) is fairly traceable to the
challenged action such that (3) it is likely to be redressed by a
favorable decision.
555, 560 (1992).

Lujan v. Defenders of Wildlife, 504 U.S.

Although the burden of establishing standing

lies with the party asserting federal jurisdiction, the manner
and degree of evidence necessary to meet this burden varies
depending on the stage of litigation.

Id.

at 561.

At the

pleading stage, “general factual allegations of injury resulting
from the defendant’s conduct may suffice.”

Id. (internal

citations and quotations omitted).
Wells Fargo asserts that “Plaintiffs lack standing to
assert claims against Wells Fargo as a trustee for any trust
other than the two trusts that owned and held Plaintiffs’ loans
(the ‘Unrelated Trusts’).

Because Plaintiffs have not alleged

that they have any connection to the Unrelated Trusts, Plaintiffs
cannot meet their threshold jurisdictional burden of establishing
their standing to assert claims against Wells Fargo as trustee fo
the Unrelated Trusts.”

Motion at 8-9.
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The court rejects Wells Fargo’s jurisdictional
challenges.

“It is familiar law that the liabilities incurred by

trustees — whether such liabilities are in contract or in tort or
under the terms of a statute — are their liabilities.
principals.”

They are

See also Henry Waterhouse Trust Co. v. King, 33

Haw. 1, 18 (1934).

The trustee is therefore “subject to personal

liability to third persons for torts committed in the course of
the administration of the trust to the same extent that he would
be liable of he held the property free of trust.”

Restatement

(Second) of Trusts § 264 (1959).
Plaintiffs’ general factual allegations of injury
purportedly stemming from Wells Fargo’s conduct are adequate for
this stage in the litigation.

With no class action presently

certified, it is sufficient for Plaintiffs to have pled claims
against Wells Fargo in whatever capacity Wells Fargo held their
mortgages.

Whether Wells Fargo’s other capacities are in issue,

and whether Plaintiffs may sue Wells Fargo in those other
capacities, need not be addressed given the rulings in this
order.
What remain in issue for now are the nonjurisdictional
claims against Wells Fargo.

The court examines the merits of

those claims below.

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B.

Hawaii’s Nonjudicial Foreclosure Law Does Not Bar
Quitclaim Deeds or Advertisements Stating That
Only Quitclaim Deeds Will Be Provided.

Hawaii law does not require a conveyance in a
nonjudicial foreclosure sale to be more than a quitclaim deed.
See Haw. Rev. Stat. § 667-5.
The court asked Plaintiffs to come to the hearing on
the present motion prepared to explain why the court should reach
a result different from the result it reached in Lima v. Deutsche
Bank and Gibo v. U.S. Nat’l Bank, 2013 WL 1856255 (Apr. 30,
2013).

At the hearing, the Plaintiffs acknowledged that their

case was very similar to the Lima case, yet urged the court to
reconsider its earlier opinion.
In their papers, Plaintiffs relied heavily on two
cases.

First, like the plaintiffs in Lima, Plaintiffs in this

case referred to Ulrich v. Security Inv. Co., 35 Haw. 158 (Haw.
1939), numerous times in their briefs.
Ulrich involved an attorney who owed $1,500 to his law
partner.

The debt was secured by a chattel mortgage assigning

the borrower’s interest in the general partnership and his onehalf interest in all fees to be earned by the firm.

The

creditor-partner exercised a power of sale in the mortgage and
held an auction at which he sold the partnership interest to
himself for $250, without disclosing to potential third-party
buyers prior to the auction that the law firm had a claim for
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about $20,000 in fees in a case on which the mortgagor-partner
had worked for over a decade.

Id. at 173.

The Hawaii Supreme

Court reasoned that the “legal duties imposed upon the mortgagee
required it to use all fair and reasonable means in obtaining the
best prices for the property on sale.”

Id. at 168.

Because the

foreclosing partner took “wrongful and unfair advantage” of his
partner, the court set aside the sale.”

Id.

Second, Plaintiffs in this case also rely on Silva v.
Lopez, 5 Haw. 262 (Haw. 1884).

Silva involved a sale made by the

defendant as mortgagee under a power of sale.

Id. at 262.

Among

other things, the plaintiff complained that the advertisement of
the sale did not comply with the terms of the power of sale.

Id.

The court observed, “To effect a valid sale under power, all the
directions of the power must be complied with.”

Id.

Upon

determining that the defendants had failed to comply with the
“directions of the power,” the court ruled that the sale of the
real estate was invalid.

Id. at 265.

Neither of these cases is persuasive as authority in
the present case.

First, Ulrich involved a chattel mortgage.

By

contrast, section 667-5 “is inapplicable if the mortgagee is
foreclosing as to personal property only.”
667-5(g).

Haw. Rev. Stat. §

Second, to the extent the Hawaii Legislature intended

section 667-5 to embody any principle articulated in Ulrich or
Silva, the Legislature certainly had the ability to include any

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such principle in the nonjudicial foreclosure statute it passed.
Yet section 667-5 nowhere suggests any principle derived from
Ulrich on which Plaintiffs now rely.

Certainly, section 667-5

does not state that a conveyance resulting from a nonjudicial
foreclosure sale must be by limited warranty deed, or that an
advertisement for a foreclosure auction must promise a limited
warranty deed.
Ulrich was decided in 1939, and Silva was decided in
1884.

Both cases were therefore decided many decades before the

Hawaii Legislature substantially revised Hawaii’s nonjudicial
foreclosure statute in 2008.

The language in Ulrich and Silva

was therefore available to the Hawaii Legislature for inclusion
or paraphrasing in any statute.

Plaintiffs appear to be urging

this court to read into statutory language requirements that the
Legislature could have, but clearly did not, expressly adopt.

In

short, Plaintiffs are asking this court to rewrite section 667-5.
While borrowers might indeed benefit from additional
statutory protections when borrowers do not have the benefit of
court oversight, this court declines to overstep its proper role
by inserting into section 667-5 such additional protections.

The

court is particularly concerned that it could create a host of
problems if it were to rule, without further detail, that a
quitclaim deed or an advertisement promising only a quitclaim
deed violated a court-created duty to use reasonable means to

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obtain the best price in a foreclosure sale.

For example, a bar

on conveyance by quitclaim or on an advertisement promising only
a quitclaim could raise questions about what else is required or
barred.

In short, the language Plaintiffs ask this court to read

into section 667-5 could lead to issues a legislature is far
better positioned to address than a court is.
Even if Plaintiffs are correct in arguing that an
established public policy of section 667-5 is to protect the
mortgagor from the wrongful loss of property, Opp’n at 10,
Plaintiffs fail to establish that any wrongful loss of property
occurred.
C.

Publication of an Auction Postponement is Not
Required by Hawaii Law.

Hawaii law nowhere requires that notice of the
postponement of a nonjudicial foreclosure sale be published in a
newspaper.

Rather, section 667-5(d) of the Hawaii Revised

Statutes provides: “Any sale, of which notice has been given . .
. may be postponed from time to time by public announcement made
by the mortgagee or by a person acting on the mortgagee’s
behalf.”

The First Amended Complaint does not allege that public

announcements were not made.

Instead, Plaintiffs appear to be

contending that the only permissible public announcement is a
“published notice” in a newspaper.

No statute, contract

provision, or case authority equates “announcement” with
“publication in a newspaper.”
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D.

Plaintiffs Do Not State a Section 480-2 Violation.

Because Plaintiffs’ allegations regarding advertisement
of or conveyance by a quitclaim deed, as well as their
allegations regarding the postponement of foreclosure sales, fail
to assert actionable misconduct by Wells Fargo, the court also
concludes that Plaintiffs do not state a UDAP violation.

These

conclusions make it unnecessary for this court to address Wells
Fargo’s other arguments for dismissal.
V.

CONCLUSION.
The court grants Wells Fargo’s Motion to Dismiss.

The

Clerk is directed to enter judgment for Wells Fargo and to close
this case.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, July 25, 2013.

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

David Bald et al. v. Wells Fargo Bank, 13-cv-00135 SOM/KSC, ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS

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