Hamilton v. Routh Crabtree Olsen, P.S. et al
Filing
76
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS re 68 - Signed by JUDGE DERRICK K. WATSON on 11/28/2017. "For the foregoing reasons, Defendants' Motion to Dismiss is GRANTED as to Plaintiff s' wrongful foreclosure and intentional interference with prospective economic advantage causes of action. Because the Motion is DENIED with respect to the HRS § 480-2 cause of action, Plaintiffs' claims for unfair or deceptive acts or practices and unfair methods of competition remain." (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 HAWAI‘I
CIVIL NO. 13-00145 DKW-KJM
JEFFERY S. HAMILTON, and
KALEIMAEOLE NOLA LINDSEY
LATRONIC, individually and on behalf
of all others similarly situated,
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
Plaintiffs,
MOTION TO DISMISS
vs.
FORECLOSURE EXPEDITORS/
INITIATORS, LLC, a Washington
limited liability company, and
NORTHWEST TRUSTEE SERVICES,
INC., a Washington corporation, et al.,
Defendants.
INTRODUCTION
Defendants Northwest Trustee Services, Inc. (“NWTS”) and Foreclosure
Expeditors/Initiators, LLC (“FEI”), entities that assisted mortgagees in the
non-judicial foreclosures of Plaintiffs’ mortgages, seek dismissal of the claims
against them for wrongful foreclosure, violations of Hawai‘i Revised Statutes
(“HRS”) § 480-2, and intentional interference with prospective economic
advantage. Defendants contend that, as agents of the foreclosing mortgagees, they
owed no direct duties to Plaintiffs during the course of foreclosure proceedings to
ensure that Plaintiffs’ properties sold at the best possible price, and that they are not
liable under the relevant statutes or in tort.
First, because no private cause of action exists against a mortgagee’s agent
based on alleged violations of the non-judicial foreclosure statute, HRS Chapter 667,
and Hawai‘i courts have yet to recognize such a cause of action under the common
law, Plaintiffs’ wrongful foreclosure claim is dismissed. Second, Plaintiffs
sufficiently allege that NWTS and FEI’s conduct “occurred in the course of ‘trade or
commerce’” with Plaintiffs, as is necessary to sustain a claim for unfair or deceptive
acts or practices (“UDAP”) and unfair methods of competition (“UMOC”) under
Section 480-2. Finally, Plaintiffs’ claim for intentional interference with
prospective economic advantage fails to state a claim under the circumstances
alleged and is therefore dismissed.
For these reasons, Defendants’ Motion to Dismiss (Dkt. No. 68) is
GRANTED as to Plaintiffs’ wrongful foreclosure and intentional interference with
prospective economic advantage causes of action. The Motion is DENIED,
however, with respect to Plaintiffs’ HRS § 480-2 claims.
2
BACKGROUND
I.
Plaintiffs’ Allegations
In their First Amended Complaint (“FAC”), filed on April 24, 2013, Plaintiffs
Hamilton and Latronic, individually and on behalf of others similarly situated,1
allege that NWTS and FEI, plus several law firms and individual attorneys, violated
state law during the course of non-judicial foreclosure proceedings.2 They allege
that NWTS is a Washington corporation that assists mortgagees in foreclosing real
property mortgages in the States of Alaska, Arizona, California, Hawaii, Idaho,
Montana, Nevada, Oregon, and Washington. FAC ¶ 6. FEI is described in the
FAC as a Washington limited liability company that publishes, posts, and serves
1
This case is a putative class action, but, until Plaintiffs move for and obtain class certification, this
Court will only consider the claims that Plaintiffs bring as individuals. The FAC defines the
putative class as—
Each “consumer” within the meaning of H.R.S. Chapter 480 who owned real
property in the State of Hawaii and who executed a mortgage on said property;
whose mortgage was thereafter the subject of a non-judicial foreclosure proceeding
pursuant to H.R.S. §§ 667-5 et seq.; who, because of said non-judicial foreclosure
proceeding, was divested of record title to or was deprived of or surrendered
possession of the property being foreclosed on or after May 31, 2008; and during
which foreclosure proceeding the foreclosing mortgagee was represented, aided, or
assisted, either directly or indirectly, by Defendants RCO, RCO HAWAII, NWTS,
and/or FEI.
FAC ¶ 16.
2
Plaintiffs subsequently dismissed with prejudice the individual attorney and law firm defendants,
Stephen D. Routh (individually), Brett P. Ryan (individually), Derek W. C. Wong (individually),
David E. Fennell (individually), Routh Crabtree Olsen, P.S. (a Washington professional service
corporation), and RCO Hawaii, LLLC (a Hawaii limited liability law company), on October 17,
2017. Dkt. No. 72.
3
foreclosure notices and conducts foreclosure auctions in non-judicial foreclosure
proceedings involving NWTS, Routh Crabtree Olsen, P.S. (“RCO”), and RCO
Hawaii, LLLC’s clients in the State of Hawaii. FAC ¶ 9. FEI is not a law firm,
and neither it nor its members or managers is licensed to practice law in the State of
Hawaii. FAC ¶ 9. Plaintiffs do not bring any claims against the foreclosing
mortgagees.
Hamilton and Latronic each executed mortgages to purchase real property in
Hawaii, FAC ¶¶ 31, 147, and each mortgage included a power-of-sale clause that
stated: “If Lender invokes the power of sale, Lender shall give Borrower notice of
sale . . . 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.” FAC ¶¶ 33, 147.
Countrywide Home Loans, Inc., the mortgagee under the Hamilton Mortgage,
recorded the “Notice of Mortgagee’s Intention to Foreclose Under Power of Sale”
on or around October 14, 2008, and the non-judicial foreclosure sale of Hamilton’s
property took place on February 4, 2009. FAC ¶¶ 36, 38, 62. U.S. Bank, the
assignee of the Latronic Mortgage, recorded its first “Notice of Mortgagee’s
Intention to Foreclose Under Power of Sale” on April 8, 2010, which was cancelled
and followed by a subsequent Notice of Sale, recorded on May 13, 2010. FAC
¶ 152. The non-judicial foreclosure sale of Latronic’s property took place on June
16, 2010. FAC ¶ 169.
4
Plaintiffs allege that their foreclosing mortgagees contracted with NWTS to
assist in foreclosing on the Hamilton and Latronic mortgages, and NWTS, in turn,
arranged for its “affiliated law firm, RCO, to represent the foreclosing mortgagees in
connection with the non-judicial foreclosures of those mortgages.” FAC ¶¶ 36,
151.3 According to Plaintiffs, “NWTS authorized, ordered, directed, and/or
reviewed and consented to the acts, policies, and practices of Defendants RCO and
RCO Hawaii in connection with the non-judicial foreclosures of mortgages held by
NWTS’s clients.” FAC ¶ 37. NWTS arranged for FEI to publish the Notices of
Sale as required by HRS § 667-5, FAC ¶¶ 46, 161, but charged the foreclosing
mortgagee amounts higher than what was actually paid to publish the Notices of
Sale in newspapers of general circulation in the counties where the properties were
located, without the mortgagees’ knowledge or consent. FAC ¶¶ 50, 163.
Plaintiffs allege numerous improprieties on the part of NWTS and FEI during
the course of the non-judicial foreclosures of their properties, including: violating
the terms of sale in the Notices of Sale,4 such as the published auction date and time;
3
HRS § 667-5 required that the foreclosing mortgagee retain a licensed Hawaii attorney during the
non-judicial foreclosure process, who was responsible for ensuring the foreclosure complied with
Chapter 667. See FAC ¶¶ 36, 151.
4
Plaintiffs allege that the Hamilton Notice of Sale included the following standardized terms that
appeared in nearly all Notices of Sale executed and recorded in non-judicial foreclosures by
Defendants RCO and RCO Hawaii—
Terms of sale are: . . . (2) Property is sold strictly in “AS IS” and “WHERE IS”
condition; (3) Property is sold without covenant or warranty, either express or
5
failing to orally announce and publish postponement notices of public auctions, and;
using an FEI representative, who was not a licensed Hawaii attorney, to conduct the
auctions. FAC ¶¶ 52–87, 165–77. Plaintiffs allege that their properties would
implied, as to title, possession or encumbrances; (4) At the close of the auction,
Purchaser shall pay at least 10% of the highest successful bid price (“Bid”) in cash,
or by cashier’s or certified check; provided, however, that Mortgagee may submit a
credit bid up to the amount of the secured indebtedness; (5) The property shall be
conveyed by Mortgagee by mortgagee’s quitclaim conveyance, provided by
Mortgagee, within 30 days after the auction and upon performance by Purchaser,
no later than 21 days after the auction, of the following obligations: (a) In order to
comply with recording the Mortgagee’s Affidavit within the statutory timeframe,
no later than thirty days from the date of sale, purchaser shall deliver to [Defendant
RCO] a cashier’s check for the remaining balance of the bid price, no later than the
21st day following sale . . . (9) Time is of the essence in this transaction and any
delay in performance by Purchaser which prevents the closing from occurring
within 30 days after the auction shall cause Mortgagee to sustain damages in
amounts which will be difficult to ascertain. In the event the sale does not close
because of any delay in performance by the Purchaser as herein stated, the 10%
down payment may be retained by Mortgagee as liquidated damages and not as a
penalty[.]
FAC ¶ 41. The Latronic Notice of Sale included the following set of standardized terms—
Terms of sale are: . . . (2) Property is sold “AS IS” and “WHERE IS”, without
covenant or warranty, either express or implied, as to title, possession, condition of
property, encumbrances or any latent or patent defects whatsoever; . . . (4) All
bidders must be prequalified and accept in writing all sale terms prior to bidding;
(5) This sale is subject to additional terms and conditions set by Mortgagee which
are posted at http://www.usa-foreclosure.com/states/hi/noi and incorporated herein
by reference; (6) If title is not conveyed to Purchaser for any reason, other than
Purchaser’s own failure to perform, the Mortgagee shall return the Bid to Purchaser
without interest, and Purchaser shall have no further recourse against Mortgagee
and its agents; (7) Time is of the essence. Any delay in Purchaser’s performance
that prevents closing within 30 days after the auction shall cause Mortgagee to
sustain damages which are difficult to measure. If the sale does not close solely
due to Purchaser’s failure to perform, the 10% down payment shall be retained by
Mortgagee as liquidated damages, not as a penalty; and (8) this sale may be
postponed by Mortgagee or its agent by public announcement.
FAC ¶ 158.
6
have sold for higher prices at auction if the Notices of Sale had truthfully advertised
the terms of sale. FAC ¶ 80. Generally, Plaintiffs allege three causes of action:
(1) wrongful foreclosure; (2) violations of HRS § 480-2(a); and (3) intentional
interference with prospective economic advantage (“IIPEA”). FAC ¶¶ 209–10.
“As redress for Defendants’ repeated violations of [HRS] § 480-2(a), wrongful
foreclosure, and tortious interference with the prospective economic advantage of
Plaintiffs,” each demands, “inter alia, damages, treble damages, punitive damages,
reasonable attorneys’ fees, and costs.” FAC ¶ 210.
II.
Defendants’ Motion To Dismiss5
NWTS and FEI seek dismissal, arguing that they cannot be liable for the
wrongful foreclosure or HRS Chapter 480 claims against them as a matter of law
because, as agents of a foreclosing mortgagee, they owe no duty by statute or under
the common law to mortgagors. Plaintiffs counter that they state cognizable claims
both under the relevant statutes and also because a non-attorney agent owes a duty to
use reasonable means to maximize the sales price when choosing to actively
5
On May 31, 2013, prior to the filing of Defendants’ present Motion (Dkt. No. 68), NWTS and FEI
filed a Motion to Dismiss the FAC (Dkt. No. 20). On October 17, 2013, the Court stayed
proceedings in this matter pending the outcome of three cases before the United States Court of
Appeals for the Ninth Circuit, Lima v. Deutsche Bank National Trust Co, Civ. No. 12-509
SOM/RLP; Gibo v. U.S. Bank N.A., Civ. No. 12-514 SOM/RLP; and Bald v. Wells Fargo Bank,
Civ. No. 13-135 SOM/KSC. Dkt. No. 51. The Court lifted the stay upon notice that the appeals
had been resolved, and, by agreement of the parties reached at a status conference before the Court
on June 22, 2017, the previously filed Motions to Dismiss were deemed withdrawn. Dkt. No. 61.
7
participate in a non-judicial foreclosure. Defendants also move to dismiss
Plaintiffs’ IIPEA cause of action as untimely and for failure to state a claim, which
Plaintiffs did not oppose.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) authorizes the Court to dismiss a
complaint that fails “to state a claim upon which relief can be granted.” A Rule
12(b)(6) dismissal is proper when there is either a “‘lack of a cognizable legal theory
or the absence of sufficient facts alleged.’” UMG Recordings, Inc. v. Shelter
Capital Partners, LLC, 718 F.3d 1006, 1014 (9th Cir. 2013) (quoting Balistreri v.
Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990)).
Pursuant to Ashcroft v. Iqbal, “[t]o survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that
is plausible on its face.’” 555 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 554, 570 (2007)). “[T]he tenet that a court must accept as true
all of the allegations contained in a complaint is inapplicable to legal conclusions.”
Id. 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). 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.” Id. (citing Twombly, 550 U.S. at
8
556). Factual allegations that only permit the court to infer “the mere possibility of
misconduct” do not constitute a short and plain statement of the claim showing that
the pleader is entitled to relief, as required by Rule 8(a)(2). Id. at 679.
DISCUSSION
As detailed below, the Court grants Defendants’ Motion with respect to any
wrongful foreclosure claim because: (1) NWTS and FEI, as agents, are not liable for
alleged violations of HRS §§ 667-5 and 667-7 based on the Hawai‘i Supreme
Court’s recent decision in Hungate v. Law Office of David B. Rosen, 139 Hawai‘i
394, 391 P.3d 1 (2017); and (2) the Court declines to recognize a private cause of
action in tort against a mortgagee’s agent for wrongful foreclosure in the first
instance. Plaintiffs’ claims under HRS § 480-2, however, sufficiently allege that
NWTS and FEI’s conduct “occurred in the course of ‘trade or commerce’” with
Plaintiffs, and Defendants’ Motion is therefore denied with respect to Plaintiffs’
UDAP and UMOC claims. Finally, because the FAC fails to allege facts
supporting the necessary prospective economic relationship between Plaintiffs and a
third party, the IIEPA claim is dismissed for failure to state a claim.
I.
Plaintiffs Fail To State A Cognizable Wrongful Foreclosure Claim
Against Non-Mortgagees NWTS And FEI
Plaintiffs allege statutory and common law wrongful foreclosure claims,
which Defendants seek to dismiss based upon the recent holding in Hungate, which
9
Defendants claim limits such causes of action to foreclosing mortgagees. Having
examined the relevant statutes, their legislative history, and instructive case law on
the foreclosure of mortgages, the Court concludes that Plaintiffs may not sustain a
wrongful foreclosure claim under either the former non-judicial foreclosure statute
or in tort as against NWTS and FEI. The Court discusses each in turn.
A.
Plaintiffs Fail To State A Wrongful Foreclosure Claim For
Alleged Violations Of Former HRS §§ 667-5 et seq.
Plaintiffs allege that NWTS and FEI violated the version of HRS §§ 667-5
and 667-7 in effect at the time of their respective foreclosures.6 See, e.g., FAC
¶¶ 57, 67, 165, 167, 168, 170, 171. Defendants seek dismissal of the statutory
wrongful foreclosure claim, arguing that no private right of action exists to enforce
the provisions of former Chapter 667 against them because they were not the
foreclosing mortgagee. The Court agrees.
During the stay of proceedings in this matter, the Hawai‘i Supreme Court
recognized the existence of a wrongful foreclosure action under HRS Chapter 667
Part I against foreclosing mortgagees in Hungate v. Law Office of David B. Rosen,
6
Sections 667-5 and 667-7 were first amended in 2008 and then repealed in 2012. See Kondaur
Capital Corp. v. Matsuyoshi, 136 Hawai‘i 227, 230 n.3, 361 P.3d 454, 457 n.3 (2015) (noting that
HRS §§ 667-5 to 667-10, which governed the process of foreclosure by power of sale and were
within Part I of Chapter 667, were repealed by 2012 Haw. Sess. Law Act 182, § 50 at 684). Thus,
during all relevant times (October 14, 2008, the date of the Notice of Sale of the Hamilton
Property, and up until June 16, 2010, when the auction on the Latronic property took place), the
relevant versions of HRS §§ 667-5 and 667-7 were those located in the HRS 2008 Supplement,
and were the same versions considered by the Hawai‘i Supreme Court in Hungate.
10
139 Hawai‘i 394, 391 P.3d 1 (2017). The Hawai‘i Supreme Court decided,
however, that “those statutory provisions do not create a private right of action
against the attorney of a foreclosing mortgagee. [It] conclude[d] [that] Hungate
does not have a cause of action against [attorney] Rosen under former HRS § 667-5
and his claims against Rosen based upon the mortgage’s power of sale clause cannot
stand.” Hungate, 139 Hawai‘i at 402, 391 P.3d at 9.
Plaintiffs here, as in Hungate, contend that Defendants owe them statutory
duties under HRS §§ 667-5 and 667-7: the “question raised here is whether the
requirements of former HRS § 667-5 and former HRS § 667-7 impose duties that
may be enforced against the [agent] of a foreclosing mortgagee under a private right
of action.” Hungate, 139 Hawai‘i at 405, 391 P.3d at 12. The Court, guided by the
Hawai‘i Supreme Court’s analysis in Hungate with respect to a mortgagee’s
attorney, answers the question in the negative.
In determining whether a private right of action exists under a statute, Hawai‘i
courts consider the following factors7—
(1) whether the plaintiff is “one of the class for whose especial
benefit the statute was enacted”; (2) whether there is “any
indication of legislative intent, explicit or implicit, either to
create such a remedy or to deny one”; and (3) whether a private
7
The Court applies Hawaii law to determine whether the statute creates a private right of action.
White v. Time Warner Cable, Inc., 2013 WL 787967, at *5 (D. Haw. Feb. 28, 2013) (“To
determine whether a private right of action exists under Hawaii statutory or regulatory law, the
court must determine whether the state legislature intended to create a private cause of action.”).
11
cause of action would be “consistent with the underlying
purposes of the legislative scheme to imply such a remedy for the
plaintiff.” Whitey’s Boat Cruises, [Inc. v. Napali-Kauai Boat
Charters, Inc.,] 110 Hawai‘i 302, 312, 132 P.3d 1213, 1223
(2006). While each factor is relevant, “the key factor” is
whether the legislature “intended to provide the plaintiff with a
private right of action.” Id. at 313 n.20, 132 P.3d at 1224 n.20;
see also Touche Ross & Co. v. Redington, 442 U.S. 560, 575, 99
S.Ct. 2479, 61 L.Ed.2d 82 (noting that the three factors used to
assess whether a private cause of action may be implied from
statutory language ultimately “are ones traditionally relied upon
in determining legislative intent”).
Hungate, 139 Hawai‘i at 406, 391 P.3d at 13.
As was the case in Hungate, with respect to the first factor, Plaintiffs are
members of the class for whose special benefit HRS §§ 667-5 and 667-7 were
enacted because “the statute was amended to benefit the ‘party in breach of the
mortgage agreement.’ H. Stand. Comm. Rep. No. 1192, in 2008 House Journal, at
1450. As the part[ies] in breach of the mortgage contract, [Hamilton and Latronic]
fall[] within the class for whom the statute was enacted.” Hungate, 139 Hawai‘i at
406, 391 P.3d at 13.
The second factor considers whether there is “any indication of legislative
intent, explicit or implicit, either to create such a remedy or to deny one.” Whitey’s
Boat Cruises, Inc., 110 Hawai‘i at 312, 132 P.3d at 1223. As was the case in
Hungate, former “HRS § 667-5 and its legislative history are silent as to whether the
legislature intended to create a cause of action on behalf of the mortgagor against the
12
mortgagee’s [agent].” Hungate, 139 Hawai‘i at 406, 391 P.3d at 13. The Court
finds that the legislative history as a whole lacks any clear statement of intent to
allow private causes of action for violations of Sections 667-5 and 667-7 under the
particular circumstances alleged by Plaintiffs. “[I]mplying a private right of action
on the basis of [legislative] silence is a hazardous enterprise, at best.” Hungate, 139
Hawai‘i at 406, 391 P.3d at 13 (quoting Touche Ross & Co, 442 U.S. at 571)
(alteration in Hungate). See also Muegge v. Wal–Mart Stores, Inc., 2013 WL
253531, at *3 (D. Haw. Jan. 22, 2013) (No private right of action created where
“[n]either the statute nor its legislative history expressly indicates that the legislature
intended to provide a private cause of action for violations of section 291-58. The
committee reports concerning the enactment of the statute are silent as to whether
the legislature intended a private cause of action.”). In short, Plaintiffs have not
established that the legislature intended to create private right of action for
enforcement of Sections 667-5 or 667-7.
The Hungate court’s examination of the third factor, “the underlying purposes
of the legislative scheme,” revealed that, while “amendments to the foreclosure
process set forth in HRS chapter 667 Part I were intended to ‘expand[] the rights of
mortgagors,’” Hungate, 139 Hawai‘i at 406, 391 P.3d at 13 (quoting Kondaur
Capital Corp. v. Matsuyoshi, 136 Hawai‘i 227, 239, 361 P.3d 454, 466 (2015)), they
were not intended to regulate the conduct of attorneys. Id. at 406, 391 P.3d at 13.
13
Hungate further detailed the history of the 2008 amendment as follows, noting its
particular purpose to set additional burdens on the mortgagee to protect the
mortgagor, rather than to regulate attorney conduct—
a close reading of the legislative history of the 2008 amendment
shows it was enacted to set additional burdens on the mortgagee
to protect the mortgagor; the statute was not amended to regulate
attorneys representing mortgagees. The amendment’s structure
or scheme attempted “to streamline and ensure transparency in
the non-judicial foreclosure process by requiring a foreclosure
mortgagee to provide pertinent information regarding the
property to interested parties.” S. Stand. Comm. Rep. No. 2108,
in 2008 Senate Journal, at 917 (emphasis added).
The committee reports explain that potential buyers and other
interested parties faced difficulties in obtaining updated
information regarding foreclosure sales from banks and entities
located outside of Hawai‘i: “A large number of Hawaii
foreclosures are handled by servicing corporations located on the
mainland that provide little to no information relating to the
foreclosure to parties that are entitled to information regarding
the property to be foreclosed.” Conf. Comm. Rep. No. 3-08, in
2008 House Journal, at 1710, 2008 Senate Journal, at 793. Due
to the growing concern that mortgagees were creating obstacles
for parties seeking information, the legislature required a
mortgagee to hire a Hawai‘i-licensed attorney, who is physically
present in the state, to serve as a “contact individual.” S. Stand.
Comm. Rep. No. 2108, in 2008 Senate Journal, at 917. The
legislature concluded that a “Hawaii-based attorney will ensure
that interested parties have a means to obtain information from a
person with a local presence and the ability to provide useful
information.” Conf. Comm. Rep. No. 3-08, in 2008 House
Journal, at 1710, 2008 Senate Journal, at 793.
Thus, the underlying structure and intent of the amendment was
to enable interested parties to request and receive information in
a timely manner from mortgagees, and not to regulate attorneys’
14
conduct. Permitting a mortgagor to assert a claim against the
foreclosing mortgagee’s attorney for failure to comply with
former HRS § 667-5 falls outside this statutory scheme.
Hungate, 139 Hawai‘i at 407, 391 P.3d at 14 (emphasis added). Likewise, because
there is no mention of regulating the conduct of any other agent who “assists” a
foreclosing mortgagee, such as a foreclosure expeditor or facilitator akin to NWTS
or FEI, the Court concludes that allowing a mortgagor to assert a direct claim against
the foreclosing mortgagee’s agent for failure to comply with former HRS § 667-5
“falls outside this statutory scheme.” Hungate, 139 Hawai‘i at 407, 391 P.3d at 14.
The Hawai‘i Supreme Court in Hungate considered a further factor: “whether
‘additional remedies are unnecessary’ when determining whether to recognize a new
cause of action.” Hungate, 139 Hawai‘i at 407, 391 P.3d at 14 (quoting Best Place,
Inc. v. Penn America Ins. Co., 82 Hawai‘i 120, 126, 920 P.2d 334, 340 (1996)).
Presented with analogous circumstances to those in Hungate, this Court finds that
“creating a cause of action under former HRS § 667-5 [against the mortgagee’s
agent] is not necessary to protect the interests of the mortgagor. Rather, the
mortgagor can protect its interests through filing a claim against the mortgagee for
wrongful foreclosure.” Hungate, 139 Hawai‘i at 407, 391 P.3d at 14 (citing
Santiago v. Tanaka, 137 Hawai‘i 137, 158–59, 366 P.3d 612, 633–34 (2016)
15
(holding the non-judicial foreclosure was wrongful and awarding restitution to
mortgagor)).8
In sum, insofar as a private right of action analysis is concerned, former HRS
§§ 667-5 and 667-7 do not provide a mortgagor with the ability to assert a wrongful
foreclosure claim against a mortgagee’s agent, whether that agent is an attorney, as
was the case in Hungate, or a mortgage facilitator, as is the case here. See Hungate,
139 Hawai‘i 394, 407, 391 P.3d 17; accord Galima v. Ass’n of Apartment Owners of
Palm Court by & through Bd. of Directors, 2017 WL 1240181, at *10 (D. Haw.
Mar. 30, 2017) (“Because the foreclosure of a condominium association’s lien is
treated like the foreclosure of a mortgage, a condominium owner cannot bring a
wrongful foreclosure action against the condominium association’s attorney for
failing to comply with the requirements of Chapter 667.”).
Accordingly, even assuming the truth of the allegations in the FAC—that the
non-judicial foreclosures did not comply with the requirements of HRS Chapter
667—Plaintiffs cannot state a wrongful foreclosure claim under those statutory
provisions against these Defendants, who were not the foreclosing mortgagees.
8
The interests of the mortgagor are protected because, if voiding the foreclosure is not possible, the
mortgagor is entitled to “restitution of their proven out-of-pocket losses” through a wrongful
foreclosure claim. Hungate, 139 Hawai‘i at 407, 391 P.3d at 14 (citation omitted). “Because
mortgagees could be required to provide restitution to injured mortgagors under a wrongful
foreclosure claim, a ‘sufficient incentive’ exists for mortgagees to ensure that the foreclosure
proceedings are correctly performed by attorneys.” Id. at 407, 391 P.3d at 14 (quoting Best Place,
Inc., 82 Hawai‘i at 127, 920 P.2d at 341).
16
B.
Plaintiffs Fail To State A Wrongful Foreclosure Tort Claim
Defendants also seek dismissal of Plaintiffs’ wrongful foreclosure claim to
the extent it is based upon a common law duty apart from any liability created by
statute. Hungate recognized that the foreclosing mortgagee “had a common law
duty to Hungate to use reasonable means to obtain the best price for Hungate’s
property,” but did not extend that duty to any other party. Hungate, 139 Hawai‘i at
402, 391 P.3d at 9.9 Plaintiffs urge the Court to recognize such a duty under
principles of agency and as a matter of competing policy considerations. See Mem.
in Opp’n at 19–20 (“[T]he policy which favors Plaintiffs’ recovery is embodied in
the longstanding rule that an agent will be personally liable for the tortious conduct
of his principal if ‘there can be found some active or passive participation in such
wrongful conduct’ by the agent.”) (quoting E. Star, Inc., S.A. v. Union Bldg.
Materials Corp., 6 Haw. App. 125, 134, 712 P.2d 1148, 1155 (1985)) (some
citations and alterations omitted); see also id. at 20 (citing Restatement (Second) of
Agency, § 343 cmt. d). The Court declines to do so.
The Hungate court reaffirmed the existing common law duty on the part of a
mortgagee conducting non-judicial foreclosure sales of real property, and “further
9
The mortgagor in Hungate did not bring such a claim against the mortgagee’s attorney, and thus,
the Hawai‘i Supreme Court did not reach the issue now before this Court—whether the
common-law duty of a foreclosing mortgagee extends to the mortgagee’s non-attorney agent to
use “fair and reasonable means in obtaining the best prices for the property on sale.” Hungate,
139 Hawai‘i at 408, 391 P.3d at 15 (citation and quotation marks omitted).
17
clarif[ied] that the mortgagee’s duty to seek the best price under the circumstances
does not require the mortgagee to obtain the fair market value of the property.”
Hungate, 139 Hawai‘i at 408, 391 P.3d at 15. “While final bids on foreclosed
property need not equate to fair market values, the mortgagee nonetheless has a duty
to use fair and reasonable means to conduct the foreclosure sale in a manner that is
conducive to obtaining the best price under the circumstances.” Hungate, 139
Hawai‘i at 409, 391 P.3d at 16. Therefore, in addition to the statutory duties
“required under the now-repealed HRS § 667 Part I, a mortgagee has a duty to use
‘fair and reasonable means in obtaining the best prices for the property on sale.’”
Hungate, 139 Hawai‘i at 408, 391 P.3d at 15.10
This Court is tasked with predicting an issue not reached in Hungate or
elsewhere—whether the Hawai‘i Supreme Court would recognize a common law
duty that extends beyond mortgagees, to their agents facilitating non-judicial
foreclosure sales of real property, under the facts of this case. “In the absence of a
governing state decision, a federal court attempts to predict how the highest state
court would decide the issue, using intermediate appellate court decisions, decisions
from other jurisdictions, statutes, treatises, and restatements as guidance.”
10
The rationale for this rule is amplified where the mortgagee purchases the foreclosed property.
See Hungate, 139 Hawai‘i at 409, 391 P.3d at 16 (“When the non-judicial foreclosure sale results
in the mortgagee purchasing the property, it is therefore imperative that the mortgagee establish
that this result occurred after a fairly conducted sale.”).
18
Evanston Ins. Co. v. Nagano, 891 F. Supp. 2d 1179, 1189 (D. Haw. 2012) (some
citations omitted); see also Diaz v. Kubler Corp., 785 F.3d 1329 (9th Cir. 2015)
(“When interpreting state law, a federal court is bound to follow the decisions of the
state’s highest court, and when the state supreme court has not spoken on an issue, a
federal court must determine what result the court would reach based on state
appellate court opinions.”). The Court predicts that Hawai‘i courts would not
recognize such a duty.
The authorities relied upon by Plaintiffs do not convince the Court that
Hawai‘i courts would adopt an independent duty on the part of a non-attorney agent
who assists a mortgagee in a non-judicial foreclosure, based upon the authorities
from this jurisdiction and elsewhere.11 For example, the Restatement (Second) of
Agency § 343, relied on by Plaintiffs, rather than creating an independent duty on
the part of an agent, restates the general rule that “[a]n agent who does an act
11
In the lending and servicing contexts, courts have declined to recognize such a duty on the part of
a mortgagee’s servicer or agent. See, e.g., Willis v. JPMorgan Chase Bank, N.A., 250 F. Supp. 3d
628, 632 (E.D. Cal. 2017) (granting motion to dismiss, finding that “plaintiff’s negligence claim
[against defendant loan servicer] fails because it did not owe plaintiff a legal duty of care under
California law”); Diunugala v. JP Morgan Chase Bank, N.A., 81 F. Supp. 3d 969, 978 (S.D. Cal.
2015) (Under California law, “a loan servicer generally does not owe a duty to the borrower of the
loan it is servicing.”); Jean v. Am. Home Mortg. Servicing, Inc., 2012 WL 1110090, at *4 (N.D.
Ga. Mar. 30, 2012) (Under Georgia law, “[n]o rational trier of fact could find that Defendant, as a
loan servicer and agent for the owner of the Loan, owed Plaintiff any fiduciary duty and it did not
owe her a fiduciary duty as a matter of law.”); see also MacKenzie v. Flagstar Bank, FSB, 738 F.3d
486, 495 (1st Cir. 2013) (“[T]he existence of a positive regulation imposing a duty on one actor
does not by itself create a similar duty as a matter of state tort common law. . . . But in the absence
of an independent duty, a plaintiff cannot proceed with a [tort] claim based solely on a statutory or
regulatory violation.”) (citations omitted).
19
otherwise a tort is not relieved from liability by the fact that he acted at the command
of the principal or on account of the principal[.]” Restatement (Second) of Agency
§ 343 (emphasis added). This general rule, however, does not speak to the
recognition of a new duty under tort law—it simply acknowledges the
well-established maxim that an agent remains liable for its own torts, despite the
existence of an agency relationship. See also Restatement (Third) of Agency
§ 7.01, cmt. b (2006) (“The justification for this basic rule is that a person is
responsible for the legal consequences of torts committed by that person.”).12 If the
act is not independently tortious based upon a duty on the part of the agent, no
independent cause of action will lie against the agent.
Absent clear legal authority in support of the claim that Plaintiffs seek to
maintain against NWTS and FEI, the Court declines to infer a private right of action
in tort against a foreclosing mortgagee’s agent, based on the facts alleged here, in
light of the instructive case law regarding the foreclosure of mortgages. That is,
this Court will not articulate a new tort principle under Hawai‘i law that Hawai‘i
appellate courts have yet to recognize. See, e.g., City of Philadelphia v. Lead Indus.
Ass’n, Inc., 994 F.2d 112, 129 (3d Cir. 1993) (agreeing with the district court that
12
This view is recognized by a majority of jurisdictions, even where the tortious acts were
committed at the direction of the agent’s principal. See, e.g., Pennhurst State School & Hosp. v.
Halderman, 465 U.S. 89, 112–14 & n.23 (1984) (discussing in the context of Eleventh
Amendment immunity).
20
“[i]f a state appellate court is not [yet] the correct tribunal for recognizing a drastic
change in state law, then neither is a federal district court sitting in diversity”). Just
as the statutory duties do not extend beyond mortgagees, this Court is not persuaded
that Hawai‘i courts would reach beyond the statute or the prior holdings of the state
courts in order to extend the common-law duty to non-mortgagees. See Kondaur,
136 Hawai‘i at 235, 361 P.3d at 462 (holding that a mortgagee has a duty to use “fair
and reasonable means in obtaining the best prices for the property on sale”) (citing
Ulrich v. Sec. Inv. Co., 35 Haw. 158, 168 (Haw. Terr. 1939);13 Silva v. Lopez, 5
Haw. 262, 265 (Haw. Kingdom 1884) (requiring the mortgagee “to use discretion in
an intelligent and reasonable manner, not to oppress the debtor or to sacrifice his
estate”).14 This federal district court sitting in diversity declines to create a duty on
13
Unlike the entities in Kondaur and Ulrich, FEI and NWTS are not parties to the mortgage or the
corresponding contractual duties created by that document, including those contained in the power
of sale. Cf. Ulrich, 35 Haw. at 170–72 (“Where a power of sale is contained in a chattel mortgage
the covenant is implied that, if exercised, the mortgagee will execute the power consistent with his
legal duties in the premises. An encyclopedic statement of the duties devolving upon the
mortgagee in the manner and conduct of a foreclosure sale pursuant to a power of sale contained in
a chattel mortgage is as follows: . . . sufficient incidents of a trust relation are present to require the
mortgagee in the conduct of the sale to exercise reasonable care and diligence in the disposition of
the property[.] [W]here the mortgagee forecloses under the power of sale in the mortgage he
stands with respect to the mortgagor’s rights in the property in the position of a trustee. . . . One of
the legal duties required of a mortgagee upon the execution by him of a power of sale contained in
a mortgage is to exercise reasonable diligence to secure the best possible prices upon the
foreclosure sale of the property to be sold.”) (emphasis added) (citations and quotations omitted).
14
Accord Fed. Home Loan Mortg. Corp. v. Kama, 2016 WL 922780, at *7–*8 (D. Haw. Mar. 9,
2016) (federal district court, interpreting Ulrich and Kondaur, held that mortgagor sufficiently
“alleged that the mortgagee breached its duty to act in good faith in connection with the
foreclosure sale, as required by Kondaur and Ulrich,” in order to state a tort claim for wrongful
foreclosure, and determining, pre-Hungate that “[b]ased on the Hawaii Supreme Court’s
21
the part of non-mortgagees, where the state appellate courts have not yet
demonstrated any indication of recognizing one.
In short, the Court concludes that Plaintiffs cannot bring a wrongful
foreclosure claim sounding in tort against NWTS and FEI. Defendants’ Motion is
therefore granted with respect to this claim.
II.
The FAC States Cognizable Claims Under HRS § 480-2
NWTS and FEI move to dismiss Plaintiffs’ Section 480-2 cause of action
because the allegedly wrongful conduct did not “occur in the course of trade or
commerce” with Plaintiffs, and thus, Defendants owed no duty under the statute to
Plaintiffs. Defendants rely upon the holding in Hungate that the plaintiff could not
sustain a Section 480-2 claim against the mortgagee’s attorney as a matter of law,
and urge this Court to extend that holding to a non-attorney agent of a foreclosing
mortgagee. Because the statute and case law cannot be read in the broad manner
urged by Defendants, the Court declines to dismiss Plaintiffs’ UDAP and UMOC
claims at this preliminary stage.
discussion of the statutory requirements in relation to the [common law] Ulrich requirements, the
Court is unclear whether in a cause of action alleging only a violation of HRS Chapter 667, the
Hawaii Supreme Court would also require that the Ulrich requirements be established. Thus, in
the instant case, the Court deems it possible that [the mortgagor] has sufficiently pled a violation of
HRS Chapter 667 based on his allegation that the mortgagee violated the duties set forth in Ulrich
and affirmed in Kondaur.”) (emphasis added).
22
Section 480-2 states, in pertinent part: “Unfair methods of competition and
unfair or deceptive acts or practices in the conduct of any trade or commerce are
unlawful.” HRS § 480-2(a). Section 480-13 provides a private right of action for
violations of Section 480-2.15 The parties dispute whether Defendants’ alleged acts
occurred “in the conduct of any trade or commerce.” The Court first outlines the
applicable framework, with particular attention to the attorney exception newly
announced in Hungate.
A.
Legal Framework
The Hawai‘i Supreme Court examined whether Hungate, in the context of a
non-judicial foreclosure, had “standing as a consumer to assert an unfair or
deceptive acts or practices claim against [the mortgagee’s attorney] Rosen.”
Hungate, 139 Hawai‘i at 412, 391 P.3d at 19. The plaintiff argued that Rosen acted
15
Only consumers, the attorney general, or the director of the office of consumer protection may
bring a UDAP claim. HRS § 480-2(d). A consumer bringing a UDAP claim must allege: (1) a
violation of HRS Chapter 480; (2) injury to plaintiff’s business or property resulting from such
violation; and (3) proof of the amount of damages. Hawaii Med. Ass’n v. Hawaii Med. Serv.
Ass’n, Inc., 113 Hawai‘i 77, 148 P.3d 1179, 1215–16 (2006); In re Kekauoha–Alisa, 674 F.3d
1083, 1092 (9th Cir. 2012). A practice is unfair when it “offends established public policy and
when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to
consumers.” Balthazar v. Verizon Haw., Inc., 109 Hawai‘i 69, 77, 123 P.3d 194, 202 (2005).
An act is deceptive when it is (1) a representation, omission, or practice that (2) is likely to mislead
consumers acting reasonably under the circumstances where (3) the representation omission or
practice is material. In re Kekauoha–Alisa, 674 F.3d at 1091.
Any person may bring a UMOC claim. HRS § 480-2(e). A “plaintiff may recover under HRS
§§ 480-2 and 480-13 for UMOC violations . . . if the plaintiff alleges and proves: (1) a violation of
HRS Chapter 480; (2) an injury to the plaintiff’s business or property that flows from the
defendant’s conduct that negatively affects competition or harms fair competition; and (3) proof of
damages.” Gurrobat v. HTH Corp., 133 Hawai‘i 1, 23, 323 P.3d 792, 814 (2014).
23
as the attorney and agent for the mortgagee in conducting the foreclosure, and
should be held liable to the same extent as his client. The Hawai‘i Supreme Court,
however, rejected the Hungate plaintiff’s comparisons to Cieri v. Leticia Query
Realty, Inc., 80 Hawai‘i 54, 65, 905 P.2d 29, 40 (1995), which held that that an agent
or broker in a real estate transaction can be sued for UDAP under HRS § 480-2.16 It
held instead that “the unique nature of the attorney-client relationship warrants
distinguishing the role of broker and attorney for purposes of this case.” Hungate,
139 Hawai‘i at 412, 391 P.3d at 19. That was so because—
[s]ellers and purchasers of real estate often “utilize and rely on
brokers for their expertise and resources, including access to data
in locating properties as well as determining pricing of
‘comparables’ as a basis for negotiations.” Cieri, 80 Hawai‘i at
65, 905 P.2d at 40. Hence, the role of a broker is to provide
clients with expertise and resources in real estate transactions.
Hungate, 139 Hawai‘i at 412–13, 391 P.3d at 19–20. “In contrast, the role of an
attorney involves representing a client’s interests against those of an opposing party
within an adversary system. Attorneys bear a duty to zealously represent clients
‘within the bounds of the law.’” Hungate, 139 Hawai‘i at 413, 391 P.3d at 20
(quoting Giuliani v. Chuck, 1 Haw. App. 379, 384, 620 P.2d 733, 737 (1980)).17
16
In Cieri, the Hawai‘i Supreme Court interpreted “trade or commerce” as used in Section 480-2 to
mean acts or practices perpetrated in a “business context.” 80 Hawai‘i at 62–65, 905 P.2d 37–40.
17
The court rejected the argument that the plaintiff could not maintain a Section 480-2 claim
because he was not a consumer of the attorney’s services. In light of the statute’s definition of
“consumer,” HRS chapter 480 “does not require that one be a ‘consumer’ of the defendant’s goods
24
With this backdrop, the Court next turns to the application of the limited
exception established by Hungate to the allegations in Plaintiffs’ FAC.
B.
Plaintiffs State Section 480-2 Claims Against Defendants
As detailed below, Court finds that the narrow exception under Section 480-2
carved out by the court in Hungate—limited by its facts to attorneys—does not
apply to Defendants under the circumstances alleged. The ruling in Hungate was
grounded in the “unique nature of the attorney-client relationship [which]
warrant[ed] distinguishing the role of broker and attorney for purposes of this case.”
Hungate, 139 Hawai‘i at 412, 391 P.3d at 19 (emphasis added). The same unique
concerns identified in Hungate are not present outside of the attorney-client
relationship. Rather, Defendants present no compelling reason to expand the
carefully crafted holding in Hungate or to depart from the rule announced in Cieri.
Plaintiffs maintain that NWTS and FEI “regularly . . . conduct[ed]
foreclosures” of mortgage loans held by financial institutions, Hungate, 139 Hawai‘i
at 410, 391 P.3d at 17, and actively engaged in “the systematic sale . . . of interests in
real property,” Cieri, 80 Hawai‘i at 65, 905 P.2d at 40, by facilitating non-judicial
or services, but merely a ‘consumer.’” A plaintiff “establishes his standing as a consumer in
terms of his relationship to a transaction, not by a contractual relationship with the defendant.”
Therefore, the “only requirement is that the consumer’s commitment of money, property, or
services in a personal investment forms the basis of his complaint.” Hungate, 139 Hawai‘i at 412,
391 P.3d at 19 (citations and quotation marks omitted).
25
foreclosure sales for profit.18 See Mem. in Opp’n at 8, Dkt. No 70; see also FAC
¶¶ 6, 9, 37, 53–54, 181(b). Plaintiffs allege direct Section 480-2 claims for UDAP
and UMOC against NWTS and FEI based upon their own conduct, not merely as the
agents of the foreclosing mortgagees.19 For example, Plaintiffs allege that at
NWTS’s direction, FEI was responsible for conducting and postponing foreclosure
auctions throughout Hawaii. See FAC ¶¶ 53–54, 57–58, 67, 167–68. Plaintiffs
also allege that Defendants violated Section 480-2 “by misrepresenting to
foreclosing mortgagees the actual cost of publishing notices of sale in non-judicial
foreclosures of Class members’ properties, thereby allowing Defendants to inflate
the cost of publication to the substantial injury of the Class.” FAC ¶ 189; see also
FAC ¶¶ 47, 49–50 (alleging that NWTS retained FEI to publish Notices of Sale for
18
Indeed, as Hungate recognized when discussing Cieri, “[s]ellers and purchasers of real estate
often ‘utilize and rely on brokers for their expertise and resources[.]’” Hungate, 139 Hawai‘i at
412, 391 P.3d at 19 (quoting Cieri, 80 Hawai‘i at 65, 905 P.2d at 40). The real estate brokers at
issue in Cieri engaged in “trade or commerce” with the plaintiffs, notwithstanding that the
individual sellers of real estate did not, because although neither a buyer nor seller, a broker is
relied upon by the parties to the transaction for their expertise and resources.
19
Specifically, Plaintiffs allege that the conduct of Defendants occurred in the “conduct of any
trade or commerce” because the “transactions involved the sales of real property at public auctions
conducted by Defendants on terms of sale advertised by Defendants to the general public: (a) as
part of Defendants’ own business of representing foreclosing mortgagees; and (b) as part of
Defendants’ clients’ business in carrying out terms of mortgage contracts with consumer
Plaintiffs.” FAC ¶ 184.
26
NWTS’s Hawaii clients, and NWTS and FEI jointly arranged to charge NWTS’s
clients more than the actual cost of publishing the notices to increase their profits).20
Defendants argue that, like the allegations in Hungate, the claims in this case
arise out of NWTS and FEI’s advertisement of foreclosure sales on behalf of
mortgagees and their alleged failure to publish notices of postponement. See
Hungate, 139 Hawai‘i at 400, 391 P.3d at 7 (in Hungate, the mortgagee’s attorney
allegedly advertised a foreclosure sale date 28 days after the first published notice,
and failed to publicize the postponed sale date). Defendants contend that, like the
attorney in Hungate, NWTS and FEI’s actions were “directly adverse to Plaintiffs
and meant to advance only the interests of the mortgagees in their pursuit of legal
remedies against the Plaintiffs.” Reply at 5, Dkt. No. 51. This characterization of
“direct adversity,” while perhaps self-evident to Defendants, is found nowhere in the
FAC, and is drawn entirely from Defendants’ briefing. At this stage of the
litigation, the Court is limited to the allegations in the FAC, which do not
demonstrate that Defendants are, in fact, similarly situated to the attorney-defendant
20
See also Galima, 2017 WL 1240181, at *15 (D. Haw. Mar. 30, 2017) (concluding that “the
AOAO’s placement of a lien on Plaintiffs’ Unit for unpaid assessments and its foreclosure of that
lien occurred in the business context, and the AOAO’s conduct may give rise to a UDAP claim”).
Cf. Dalesandro v. Longs Drug Stores Cal., Inc., 383 F. Supp. 2d 1244, 1250–51 (D. Haw. 2005)
(adopting the Cieri court’s interpretation of “trade or commerce” and concluding that a pharmacy
owner was not engaged in “trade or commerce” when it refused to provide a customer with a
complete copy of records, where the refusal was “in the context of settlement and preparation for
litigation, which is distinct from a ‘business context’”).
27
in Hungate as a matter of law. The unique factors underlying the attorney-client
relationship, recognized in Hungate, are simply not evident on the face of the
pleadings.21 Of particular concern, the Hungate court noted previous decisions
declining to recognize a duty in favor of a plaintiff adversely affected by an
attorney’s performance of legal services on behalf of the opposing party—
In [Buscher v.] Boning, [114 Hawai‘i 202, 159 P.3d 814 (2007)],
we noted that “creation of a duty in favor of an adversary of the
attorney’s client would create an unacceptable conflict of
interest. Not only would the adversary’s interests interfere with
the client’s interests, the attorney’s justifiable concern with
being sued for negligence would detrimentally interfere with the
attorney-client relationship.” Boning, 114 Hawai‘i at 220, 159
P.3d at 832.
****
Similar to the negligence issue in Boning, in foreclosure actions
an attorney’s justifiable concern with being sued by the opposing
party for UDAP could compromise the attorney’s ability to
zealously represent his or her client.
21
The Hawaii Supreme Court explained its particular “desire to avoid creating unacceptable
conflicts of interest in this context, to protect attorney-client counsel and advice from the intrusion
of competing concerns, and to allow adequate room for zealous advocacy,” and cited to the
Hawai‘i Rules of Professional Conduct, “Preamble,” ¶ 2; ¶ 8; ¶ 9. These concerns, as in the
instant case, are absent from “the role of a [real estate] broker, [which] is to provide clients with
expertise and resources in real estate transactions.” Hungate, 139 Hawai‘i at 412–13 n.22, 391
P.3d at 19–20 n.22. Accord Moore v. Mortg. Elec. Registration Sys., Inc., 848 F. Supp. 2d 107,
133 (D.N.H. 2012) (holding that mortgagors’ claims against law firm, “which pursued the
foreclosure against the Moores on behalf of the other defendants, also fail for lack of an alleged,
apparent, or implied duty,” because “[t]he New Hampshire Supreme Court has expressly
“decline[d] to impose on an attorney a duty of care to a non-client whose interests are adverse to
those of a client [and] [i]n so holding, the court noted that “the existence of a duty of the attorney to
another person would interfere with the undivided loyalty which the attorney owes his client and
would detract from achieving the most advantageous position for his client.”) (citations omitted).
28
Hungate, 139 Hawai‘i at 413, 391 P.3d at 20.
The Hungate court reasoned that “[p]ermitting a party to sue his or her
opponent’s attorney for UDAP under HRS § 480-2 in foreclosure actions presents a
similar issue in that an attorney’s concern with being sued by a party opponent could
compromise his or her representation of the client.” Hungate, 139 Hawai‘i at 413,
391 P.3d at 20. No such concern is similarly presented by permitting a party to sue
a mortgage expeditor for violations of Section 480-2 where the expeditor is engaged
by a foreclosing mortgagee in the course of a non-judicial foreclosure. That is,
Hungate’s logic does not apply with equal force to Plaintiffs’ Section 480-2 claims
against NWTS and FEI.
Hungate’s limited exception to Section 480-2 liability for attorneys, based
upon the “unique nature of the attorney-client relationship,” does not extend to
Defendants under the circumstances alleged in the FAC. Defendants present no
convincing reason to expand the narrow ruling in Hungate beyond its intended
confines. Consequently, the Court finds that the FAC sufficiently alleges that
NWTS and FEI’s conduct occurred “in the course of ‘trade or commerce’” with
Plaintiffs, and Defendants’ Motion is denied with respect to Plaintiffs’ Section
480-2 UDAP and UMOC claims.
29
III.
The Complaint Fails To State A Claim For Intentional Interference
With Prospective Economic Advantage
Defendants move to dismiss the IIPEA claim because Plaintiffs fail to allege
the essential elements necessary to maintain that cause of action. The Court agrees
and grants the unopposed Motion as to this claim.22
[T]he following elements have evolved into the tort of
intentional or tortious interference with prospective business
advantage: (1) the existence of a valid business relationship or a
prospective advantage or expectancy sufficiently definite,
specific, and capable of acceptance in the sense that there is a
reasonable probability of it maturing into a future economic
benefit to the plaintiff; (2) knowledge of the relationship,
advantage, or expectancy by the defendant; (3) a purposeful
intent to interfere with the relationship, advantage, or
expectancy; (4) legal causation between the act of interference
and the impairment of the relationship, advantage, or
expectancy; and (5) actual damages.
Lowther v. U.S. Bank N.A., 971 F. Supp. 2d 989, 1015 (D. Haw. 2013), aff’d 2017
WL 5507656 (9th Cir. Nov. 17, 2017) (quoting Bodell Construction Co. v. Ohio
Pacific Tech, Inc., 458 F. Supp. 2d 1153, 1163 (D. Haw. 2006)) (some citations
omitted); see also Meridian Mortg., Inc. v. First Hawaiian Bank, 109 Hawai‘i 35,
47–48, 122 P.3d 1133, 1146–47 (Ct. App. 2005); Lizza v. Deutsche Bank Nat’l Tr.
Co., 1 F. Supp. 3d 1106, 1122 (D. Haw. 2014), aff’d, 2017 WL 4966734 (9th Cir.
Oct. 27, 2017).
22
Although Defendants also moved to dismiss the IIPEA claim on statute of limitations grounds,
the Court need not reach this alternative rationale in light of the Court’s conclusion that Plaintiffs
fail to state a claim for IIPEA.
30
The FAC alleges that “Defendants wrongfully, intentionally or recklessly, and
tortiously interfered with Plaintiffs’ and the Class’ prospective economic advantage
in obtaining the highest price for their properties.” FAC ¶ 209. Plaintiffs also
assert that they “lost substantial equity in their properties and/or had their residual
debt increased, lost the use and/or rental value of their properties and incurred
expenses, including but not limited to legal fees and costs[.]” FAC ¶¶ 194, 197; id.
¶¶ 200, 206. These allegations are insufficient to state an IIPEA claim.
With respect to the first element, the FAC neither identifies a third party with
whom Plaintiffs had a colorable economic relationship, nor does it allege any
reasonable probability of the development of a full contractual relationship.
Similar claims have been dismissed with prejudice in this district. In Lowther, as
here, the plaintiff alleged that the defendant had interfered with plaintiff’s
opportunity to rent or sell the property. The district court rejected the claim, as the
plaintiff had not alleged the expectancy as to the rental or sale of the property prior to
the interfering conduct, holding that a general allegation that a plaintiff was deprived
of an economic opportunity is not sufficiently definite. Lowther, 971 F. Supp. 2d at
1017. The Ninth Circuit affirmed the district court’s dismissal of Lowther’s IIPEA
claim with prejudice “because Lowther failed to allege ‘the existence of a valid
business relationship or a prospective advantage.’” 2017 WL 5507656, at *1
31
(quoting Haw. Med. Ass’n v. Haw. Med. Serv. Ass’n, 113 Hawai‘i 77, 116, 148 P.3d
1179, 1218 (2006)). So too here.
Another decision from this district likewise dismissed an IIPEA claim that
“fail[ed] to allege a sufficiently definite prospective economic benefit, such as the
rental or sale of the Plaintiffs’ properties, prior to the Defendant’s allegedly
interfering conduct [or] that Defendant knew of a Plaintiff’s prospective economic
use of their Properties, or acted with a purposeful intent to interfere with that
prospective economic advantage.” Lizza v. Deutsche Bank Nat. Tr. Co., 1 F. Supp.
3d 1106, 1122–23 (D. Haw. 2014), aff’d, 2017 WL 4966734 (9th Cir. Oct. 27,
2017).
Because the FAC fails to allege, inter alia, “the existence of a valid business
relationship or a prospective advantage,” Plaintiffs fail to state a claim for IIPEA and
the cause of action is therefore dismissed. Defendants’ unopposed Motion is
granted with respect to Plaintiffs’ claim for IIPEA.23
23
In opposition, Plaintiffs request leave to amend to allege an alternate theory of
liability—“intentional harm to property interests.” See Mem. in Opp’n at 21–22. But like the
plaintiff in Lizza, they have “failed to state, as a matter of law, a claim for wrongful foreclosure,
and [apparently] ha[ve] conceded [their] default on the loan[s]. Under these circumstances,
[Plaintiffs] fail[] to state a claim for intentional harm to property interests.” Lizza v. Deutsche
Bank Nat’l Tr. Co., 2017 WL 4966734, at *1 (9th Cir. Oct. 27, 2017) (citing Giuliani v. Chuck, 1
Haw. App. 379, 620 P.2d 733, 738 (1980) (“The tort, however, requires the deprivation of or
injury to a “legally protected . . . interest.’”). Plaintiffs’ request for leave to amend is therefore
denied. If Plaintiffs wish, they may file an appropriate motion to amend that more fully addresses
this alternate theory than has been presented here.
32
CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss is GRANTED as to
Plaintiffs’ wrongful foreclosure and intentional interference with prospective
economic advantage causes of action. Because the Motion is DENIED with respect
to the HRS § 480-2 cause of action, Plaintiffs’ claims for unfair or deceptive acts or
practices and unfair methods of competition remain.
IT IS SO ORDERED.
DATED: November 28, 2017 at Honolulu, Hawai‘i.
Hamilton v. Foreclosure Expeditors/Initiators LLC et al., CV. NO. 13-00145 DKW-KJM;
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO
DISMISS
33
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?