Sigwart v. U.S. Bank National Association et al
Filing
25
ORDER GRANTING DEFENDANTS MOTION TO DISMISS COMPLAINT 11 . Signed by JUDGE LESLIE E. KOBAYASHI on 03/31/2014. -- To the extent that Plaintiff's claim has been dismissed without prejudice, this Court GRANTS Plaintiff lea ve to file a First Amended Complaint consistent with the terms of this Order. Plaintiff must file her First Amended Complaint by no later than April 30, 2014. This Court CAUTIONS Plaintiff that, if she fails to file her First Amended Complaint by Apr il 30, 2014, the portions of the claim which this Order dismissed without prejudice may be dismissed with prejudice. Further, if Plaintiff's First Amended Complaint fails to cure the defects identified in this Order or adds new parties, claims, or theories of liability, this Court may dismiss those claims with prejudice. (eps)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
JULIE M. SIGWART,
Individually and as Trustee
of the Revocable Living Trust
Dolphin Star Trust Dated
December 10, 2003,
)
)
)
)
)
)
)
Plaintiff,
)
)
vs.
)
)
U.S. BANK NATIONAL
)
ASSOCIATION, also known as
)
U.S. BANK N.A., a national
)
banking association; and
)
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC., a )
)
Delaware corporation,
)
)
Defendants.
_____________________________ )
CIVIL 13-00529 LEK-RLP
ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS COMPLAINT
Before the Court is Defendants U.S. Bank National
Association (“US Bank”) and Mortgage Electronic Registration
Systems, Inc.’s (“MERS”, collectively “Defendants”) Motion to
Dismiss Complaint (“Motion”), filed January 10, 2014.
11.]
[Dkt. no.
Plaintiff Julie M. Sigwart (“Plaintiff”) filed her
memorandum in opposition on February 14, 2014, and Defendants
filed their reply on February 24, 2014.
[Dkt. nos. 20, 21.]
This matter came on for hearing on March 12, 2014.
Appearing on behalf of Plaintiff were James J. Bickerton, Esq.,
and John F. Perkin, Esq., and appearing on behalf of Defendants
was Glenn T. Melchinger, Esq.
After careful consideration of the
Motion, supporting and opposing memoranda, and the arguments of
counsel, Defendants’ Motion is HEREBY GRANTED for the reasons set
forth below.
BACKGROUND
Plaintiff, a California resident, filed her Complaint
against US Bank and MERS, which have their principal places of
business in Ohio and Virginia, respectively, in connection with
the foreclosure of her property at 210 Humupea Place, Kihei,
Maui, Hawai`i 96753 (“the Property”).
14(3),1 5, 9, 10.]
[Complaint at ¶¶ 1-2,
Though not stated, it appears that US Bank
held the mortgage for the Property (“the Mortgage”) at the time
of the foreclosure.
Plaintiff alleges that MERS acted as an
agent of US Bank, and thus US Bank is vicariously liable for
MERS’s actions during the foreclosure process.
[Id. at ¶ 15(3).]
MERS (or US Bank2), in turn, retained The Law Office of David B.
Rosen (“the Rosen Firm” or “the Firm”), which is not named as a
defendant in the Complaint, to “perform any and all actions in
connection with the non-judicial foreclosure” of the Property.
[Id. at ¶ 7.]
This, Plaintiff alleges, makes Defendants,
“[p]ursuant to the doctrine of respondent
1
Plaintiff inadvertently included two paragraphs numbered
“14” and “15” – one set on page 3 and the other on pages 5-6.
2
It is not clear from the Complaint which party retained
the Rosen Firm. In paragraph 7, Plaintiff alleges that MERS
retained the Rosen Firm, but in paragraph 14(5) Plaintiff claims
US Bank did.
2
superior, . . . vicariously liable for any and all actions
performed by their agent, the Rosen Firm, in connection with the
foreclosure . . . . ”
[Id. at ¶ 8.]
Plaintiff owned the Property, and held it as a trustee
of a living trust named the Dolphin Star Trust Dated December 10,
2003.
[Id. at ¶ 10.]
It was mortgaged as security for a loan of
$353,500, and the Mortgage contained a power of sale provision
permitting non-judicial foreclosure.
[Id. at ¶¶ 11-12.]
Plaintiff admits that she “defaulted on the note secured by her
mortgage” and, thereafter, the Rosen Firm commenced foreclosure
under Part I of Haw. Rev. Stat. Chapter 667.3
[Id. at ¶¶ 14-15.]
Plaintiff alleges that the Rosen Firm was obligated to
“(a) strictly comply with the power of sales terms and (b) adhere
to common law duties imposed on holders of a power of sale by
Hawai`i for over 100 years” and that it did not do so,
specifically that it violated the Mortgage, Chapter 667, Haw.
Rev. Stat. § 480-2, and other common law duties.
20.]
[Id. at ¶¶ 15-
Plaintiff alleges that these violations made the auction
sale unlawful and that “Plaintiff has been harmed because she
lost title to and possession of her properties [sic] in this
unlawful sale.”
[Id. at ¶ 20.]
She also claims that there was
3
Haw. Rev. Stat. Chapter 667 was revised in 2012, so an
earlier, now-outdated version was operative at the time of the
foreclosure. All citations to Chapter 667 in this Order are to
the 2008 version.
3
“substantial equity” in the Property, which she lost due to
Defendants’ unlawful acts.
[Id. at ¶ 60.]
According to Plaintiff, Defendants and the Rosen Firm
breached their duties to Plaintiff to get the best possible price
for the Property from the foreclosure sale in four specific ways:
First, the Rosen Firm noticed the auction sale to be
twenty-eight days after the first published advertisement of
sale, as opposed to twenty-nine days after as statutory law
purportedly requires.
[Id. at ¶¶ 21a., 23-31.]
Plaintiff claims
that § 667-7 requires that an auction sale date must be “‘after
the expiration of four weeks from the date when first
advertised’” and that Haw. Rev. Stat. § 1-29 requires “exclusion
of the first day of any period.”
Complaint).]
[Id. at ¶¶ 23-25 (emphasis in
Thus, the foreclosure sale date must be twenty-nine
days after the first publication of the notice.
The foreclosure
notice was published three times, on July 3, 10 and 17, 2009,
with a sale date of July 31, 2009, only twenty-eight days after
the first publication date.
[Id. at ¶ 29.]
Therefore, Plaintiff
claims that no lawful sale date was ever published.
¶ 31.]
[Id. at
Further, Plaintiff alleges that the Rosen Firm placed the
auction date out only twenty-eight days in over seventy-five
percent of the US Bank foreclosures it handled, making it a
common practice of the Firm.
[Id. at ¶ 27.]
4
Second, the Rosen Firm and Defendants allegedly
breached section 22 of the Mortgage, and thus acted unfairly and
or/deceptively in violation of Haw. Rev. Stat. § 480-2, by not
publishing notice of a new sale date when they moved the auction
date back.
[Id. at ¶¶ 21b., 32-43.]
Plaintiff claims that
section 22 of the Mortgage requires the foreclosed property, “at
a minimum, [ ] be sold on a date that was advertised by
publication.”
[Id. at ¶ 33.]
The Rosen Firm postponed the
auction date from July 31, 2009 until August 28, 2009 without
ever “publishing” the new date, which Plaintiff claims is the
Rosen Firm’s common practice.
[Id. at ¶¶ 36, 38.]
Plaintiff
admits that the Affidavit of Foreclosure (“the Affidavit”) states
that a “postponement was cried on July 31, 2009,” but appears to
claim that oral notice of postponement is improper.
[Id. at
¶¶ 39-43.]
Third, Defendants advertised that they were selling the
Property with a quitclaim deed, rather than a warranty deed,
which brought a lower price, thereby allegedly breaching a duty
to Plaintiff to get the best possible price for the Property.
[Id. at ¶¶ 21c., 44-48.]
Plaintiff alleges that Defendants knew
that the Property was unencumbered and that Plaintiff herself
could have transferred it with a warranty deed.
[Id. at ¶ 46.]
Plaintiff claims that this is a common practice of US Bank,
whereby the bank purchases deeds at low quitclaim prices and
5
resells them at higher prices via warranty deed.
[Id. at
¶¶ 45, 48.]
Fourth, the Rosen Firm violated Chapter 667 by
publishing the notice of foreclosure in a County of Hawai`i
newspaper that is not in general circulation on Maui.
¶¶ 21d., 49-51.]
[Id. at
Plaintiff alleges that Haw. Rev. Stat. § 667-
5(a)(1) requires publication of the notice of the foreclosure
sale “‘in a newspaper having a general circulation in the county
in which the mortgaged property lies.’”
[Id. at ¶ 50.]
She
claims that the Hawaii Tribune-Herald, where the Rosen Firm
noticed the auction, has a general circulation on the island of
Hawai`i, but not on Maui.
[Id. at ¶ 49.]
Further, she alleges
that the Affidavit falsely and deceptively stated that the notice
was first filed in the Maui News.
[Id. at ¶ 51.]
Plaintiff alleges that she is entitled to treble
damages under Chapter 480.
She alleges that she is a “consumer”
within the meaning of § 480-1 and that the four acts4 she
complains of (and the false disclosure in the Affidavit),
4
Since Plaintiff alleges that it is a common practice of
the Rosen Firm to set the auction date on the twenty-eighth day,
and to postpone with no written notice, and for US Bank to
purchase foreclosed property by quitclaim deed and resell with a
warranty deed, the Court will refer to these as “the 28-Day
Practice,” “the Postponement Practice,” and “the Quitclaim
Practice.” The Postponement and Quitclaim Practices were
challenged in other cases, brought by the same counsel, before
this district court. See infra Discussion § II.C.3. Also, the
Court refers to the Firm’s allegedly improper publication in the
Hawai`i Tribune-Herald as “the Hawai`i County Publication.”
6
together and separately, fall within Hawaii’s Unfair and
Deceptive Act and Practices (“UDAP”) statute and were
“substantial factors in completing the foreclosure . . . .”
at ¶¶ 52-57.]
[Id.
Plaintiff alleges that these acts “caused
Plaintiff to lose title to and possession of her Property
unlawfully” and also caused “a loss of her equity in the
Property[.]”
[Id. at ¶ 58.]
Plaintiff alleges that the $383,712.13 foreclosure
auction offer by US Bank as the only bidder was well below the
market value of the Property of about $600,000.
[Id. at ¶ 59.]
Plaintiff also claims that she was directly and proximately
“harmed and injured in that she lost title, possession and
occupancy of her Property” on October 15, 2009.
64.]
[Id. at ¶¶ 62-
Plaintiff alleges that she is entitled to damages,
attorneys’ fees, prejudgment interest, treble damages, punitive
damages, and other appropriate relief.
[Id. at pg. 20, Prayer
for Relief.]
DISCUSSION
I.
Standing
As a threshold matter, Defendants argue that Plaintiff
does not have standing to bring this lawsuit because she
surrendered all rights to the Property in a bankruptcy proceeding
prior to the foreclosure sale.
[Reply at 3, 6-13.]
Defendants
first raised this argument in their Reply, claiming that they
7
discovered Plaintiff’s bankruptcy proceeding only after receiving
the Memorandum in Opposition, and not earlier, specifically
because Plaintiff did not include the bankruptcy case in her
statement of related cases.
7).]
[Reply at 3 (citing dkt. no. 17, at
While it is generally improper to raise an argument for the
first time in a reply brief, see Local Rule LR7.4, where, as
here, the argument goes to the Court’s very basis for subject
matter jurisdiction, the Court may consider it.
Accordingly, on
March 7, 2014, the Court issued an order raising this issue,
[dkt. no. 23,] and heard oral argument on it at the hearing on
March 12, 2014.
The Court now finds that, for purposes of the
current Motion only, Plaintiff has a sufficient factual basis for
See Maya v. Centex Corp., 658 F.3d 1060, 1068 (9th
standing.
Cir. 2011) (stating that at pleading stage, general factual
allegations showing a plaintiff has suffered injury suffice).
“To establish Article III standing, an injury must be
‘concrete, particularized, and actual or imminent; fairly
traceable to the challenged action; and redressable by a
favorable ruling.’”
Clapper v. Amnesty Int’l USA, 133 S. Ct.
1138, 1147 (2013) (quoting Monsanto Co. v. Geertson Seed Farms,
561 U.S. 139, ––––, 130 S. Ct. 2743, 2752, 177 L. Ed. 2d 461
(2010)).
Thus, Plaintiff must be able to point to an injury that
is fairly traceable to the allegedly wrongful foreclosure
practices.
Defendants argue that Plaintiff cannot do this
8
because she had no legal right to the Property at the time of the
foreclosure.
To support their argument, Defendants cite to two
documents on the bankruptcy docket.
[Reply, Decl. of Glenn T.
Melchinger (“Melchinger Reply Decl.”), Exhs. B & C.]
Exhibit B
is a one-page document, filed May 1, 2009, signed by Plaintiff
and titled, “Declaration of Debtor re: Surrender of Property,” in
which Plaintiff states that she “relinquishes any and all legal,
equitable and possessory interests” in the Property.
Sigwart, 08-01664 (dkt. no. 74).]
[In re
Exhibit C includes a
bankruptcy schedule, filed April 3, 2009, where Plaintiff states
her intention to surrender the Property.
[Id. (dkt. no. 65), at
Statement of Intention, pg. 2.]
Defendants first argue that, since Plaintiff stated her
intention to surrender the Property to support her discharge from
bankruptcy, she should now be estopped from challenging the
foreclosure.
[Reply at 8-9.]
For support, Defendants describe
Ibanez v. U.S. Bank National Ass’n, 856 F. Supp. 2d 273 (D. Mass.
2012), where a Massachusetts district court held that a debtor
who had stated an intention to surrender property in bankruptcy
could not bring a wrongful foreclosure lawsuit to recover damages
for the sale of that same property.
[Id.]
But, unlike the Ibanez Court, numerous courts,
including the Bankruptcy Appellate Panel of the Ninth Circuit,
9
have held that 11 U.S.C. § 521, which requires the statement of
intention, is “essentially a notice statute” and does not abridge
a debtor’s substantive rights to her property under state law.
In re Mayton, 208 B.R. 61, 68 (B.A.P. 9th Cir. 1997); see also,
e.g., In re Parker, 139 F.3d 668, 673 (9th Cir. 1998)
(acknowledging Mayton), superceded by statute on other grounds,
as recognized in, In re Dumont, 581 F.3d 1104 (9th Cir. 2009).
The purpose of the statement of intention is to notify creditors
of a debtor’s interest in selling property so they may move to
lift the automatic stay that results from initiation of the
bankruptcy proceeding, see Mayton, 208 B.R. at 67, as at least
one creditor did in Plaintiff’s bankruptcy [In re Sigwart, 0801664 (dkt. no. 67)].
But the notice requirement does not “alter
the debtor’s or the trustee’s rights with regard to such
property . . . .”
11 U.S.C. § 521(a)(2).
Thus, Plaintiff’s
filing of a notice of intention to surrender the Property does
not preclude her from bringing suit under state law to challenge
the foreclosure procedure.
Defendants also argue that, not only did Plaintiff
state that she intended to surrender the Property, she actually
did surrender it, which divested her of all legal right to the
Property.
B).]
[Reply at 6-7 (citing Melchinger Reply Decl., Exh.
Upon the Court’s review of the bankruptcy docket, however,
it appears that, while Plaintiff “surrendered” the Property to
10
the trustee to sell, in fact, the trustee did not sell it.
re Sigwart, 08-01664 (dkt. no. 76).]
[In
The Property, therefore,
reverted to Plaintiff when the bankruptcy judge discharged the
debt and issued its final decree on July 27, 2009.
nos. 85, 87).]
[Id. (dkt.
As of August 28, 2009, when the Rosen Firm
auctioned the Property, Plaintiff still owned it, and thus, for
purposes of the current Motion only, Plaintiff has a sufficient
factual basis for standing.
II.
Motion to Dismiss
A.
Vicarious Liability
Defendants argue that the Complaint fails to state a
claim against them because, other than the Quitclaim Practice,
all of the allegations focus on the acts of the Rosen Firm, and
not on any actions of Defendants.
[Mem. in Supp. of Motion at 5-
6 (citing Complaint at ¶¶ 7, 15, 27, 36, 38, 49, 51).]
They
therefore claim that Plaintiff’s limited factual allegations
supporting vicarious liability fail to state a claim under Fed.
R. Civ. P. 9(b) and 12(b)(6).
[Id. at 7, 12-14.]
This Court,
however, finds that Plaintiff’s complaint alleges sufficient
facts to state a plausible claim based on vicarious liability.
See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
The Hawai`i Supreme Court recently held,
An employer is vicariously liable for the
torts of its agents or employees committed in the
scope of their employment. State v. Hoshijo ex
rel. White (White), 102 Hawai`i 307, 319, 76 P.3d
11
550, 562 (2003) (“‘[G]enerally, a principal can
only be held vicariously liable for the actions of
an agent under the theory of respondeat
superior.’”). In White, this court cited the
Second Restatement § 219, which indicated that a
principal may be subject to liability for the acts
of his agents or employees if the agents committed
a tort “while acting in the scope of their
employment.” Second Restatement § 219(1).
As explained in White, conduct is within the
scope of employment if “(a) it is of the kind that
he [or she] is employed to perform, (b) it occurs
substantially within the authorized time and space
limits, and (c) it is actuated at least in part,
by a purpose to serve the master[.]” White, 102
Hawai`i at 319–320, 76 P.3d at 562–63 (quoting
Second Restatement § 228). Further, an act may
fall within the scope of employment even if it is
forbidden by the employer. Id. at 320, 76 P.3d at
563 (“[A]n act, although forbidden, or done in a
forbidden manner, may be within the scope of
employment.”) (quoting Second Restatement § 230).
Lales v. Wholesale Motors Co., No. SCWC-28516, 2014 WL 560829, at
*44 (Hawai`i Feb. 13, 2014) (alterations in Lales) (footnote
omitted).
“‘A principal who puts a servant or other agent in a
position which enables the [servant], while apparently acting
within his authority, to commit a fraud upon third persons is
subject to liability to such third persons for fraud.’”
White,
102 Hawai`i at 319, 76 P.3d at 562 (alteration in White) (quoting
Second Restatement § 261 at 570).
Plaintiff alleges that US Bank hired MERS to act as its
agent and that Defendants retained the Rosen Firm “as Defendants’
agent to perform any and all actions in connection with the
nonjudicial foreclosure” of the Property, and thus Defendants are
12
vicariously liable for the acts of the Rosen Firm “in connection
with the foreclosure[.]”
[Complaint at ¶¶ 15(3), 7-8.]
Taken in
the light most favorable to the nonmoving party, see Fed’n of
African Am. Contractors v. City of Oakland, 96 F.3d 1204, 1207
(th Cir. 1996), the Rosen Firm’s four alleged acts at issue in
this case were “committed in the scope of [the Rosen Firm’s]
employment.”
See Lales, 2014 WL 560829, at *44; Johnson v.
Lucent Techs. Inc., 653 F.3d 1000, 1010 (9th Cir. 2011).
Further, Plaintiff alleges that the Rosen Firm’s acts perpetuated
a fraud on her that benefitted Defendants, insofar as it allowed
US Bank to recover the principal of the loan and resell the
Property at a higher price.
P.3d at 562.
See White, 102 Hawai`i at 319, 76
Taken together, Plaintiff alleges sufficient facts
to support a plausible claim based on vicarious liability against
Defendants.
B.
Notice and Corrective Action Provision
Defendants also argue that the Court should dismiss the
Complaint in its entirety because the Mortgage includes a notice
and corrective action provision, and Plaintiff does not allege
that she notified Defendants of any breach of rights under the
Mortgage or provided a reasonable period to cure.
of Motion at 9-11.]
[Mem. in Supp.
Section 20 of the Mortgage provides,
Neither Borrower nor Lender may commence, join, or
be joined to any judicial action (as either an
individual litigant or the member of a class) that
arises from the other party’s actions pursuant to
13
this Security Instrument or that alleges that the
other party has breached any provision of, or any
duty owed by reason of, this Security Instrument
until such Borrower or Lender has notified the
other party (with such notice given in compliance
with the requirements of Section 15) of such
alleged breach and afforded the other party hereto
a reasonable period after the giving of such
notice to take corrective action.
[Id. at 10 (emphasis in Mem. in Supp.) (quoting Motion, Decl. of
Glenn T. Melchinger (“Melchinger Decl.”), Exh. A at § 20)].5
Plaintiff cites to cases that allowed UDAP-type fraud claims to
go forward in spite of similar cure provisions and argues that
Ҧ20 does not bar a statutory consumer protection claim for
‘unfair’ or ‘deceptive’ practices.”
[Mem. in Opp. at 30.]
The
Court does not read those cases so broadly since such a rule
would allow a plaintiff to style mortgage-based violations as
“unfair business practices” and circumvent the cure provision.
While some cases do create an exception for UDAP-type claims,
they also require that the “claims exist independently of the
5
In general, under Fed. R. Civ. P. 12(b)(6), review is
limited to the contents of the complaint. See, e.g., Sprewell v.
Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).
“However, courts may ‘consider certain materials-documents
attached to the complaint, documents incorporated by reference in
the complaint, or matters of judicial notice-without converting
the motion to dismiss into a motion for summary judgment.’”
Lindsay v. Bank of Am., N.A., Civil No. 12-00277 LEK-BMK, 2012 WL
5198160, at *8 (D. Hawai`i Oct. 19, 2012) (quoting United States
v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003)). Plaintiff refers
to the Mortgage in multiple places in the Complaint, e.g.,
Complaint at ¶¶ 11-13, 33-34, and thus it is proper to consider
the text of the Mortgage here without converting the Motion into
a motion for summary judgment.
14
parties’ mortgage contract.”
Beyer v. Countrywide Home Loans
Servicing LP, No. C07-1512MJP, 2008 WL 1791506, at *3 (W.D. Wash.
Apr. 18, 2008), aff'd, 359 Fed. Appx. 701 (9th Cir. 2009); see
also Kerns v. United States, No. 3:12CV490-JRS, 2012 WL 5877479,
at *4 (E.D. Va. Nov. 20, 2012).
The issue here is a close one.
On one hand, the power
of sale provision in the Mortgage requires the lender to give
notice to the borrower before foreclosing, publish the notice of
sale, and pay proceeds in excess of expenses and the security
interest to those so entitled to them.
at § 22.]
[Melchinger Decl., Exh. A
On the other, Hawai`i statute, and not the Mortgage,
creates the specific requirements that Plaintiff alleges
Defendants have violated.
Another court, facing a similar issue,
framed it this way: “The provision applies if Plaintiff is
alleging that U.S. Bank breached a duty ‘owed by reason of’ the
mortgage.”
St. Breux v. U.S. Bank, Nat’l Ass’n, 919 F. Supp. 2d
1371, 1375 (S.D. Fla. 2013).
The court continued,
The decision of whether the notice and cure
provision applies in this case is a close one.
The provision only applies if U.S. Bank breached
“any provision of, or any duty owed by reason of”
the mortgage. Though U.S. Bank makes a fair
but-for argument, the Court concludes that the
duty to disclose the name of the owner or master
servicer is not a duty owed by reason of the
mortgage. It is a duty owed by reason of [the
Truth-in-Lending Act (“TILA”)]. The parties have
not directed the Court to any provision in the
mortgage requiring U.S. Bank or its servicer to
provide the name, address, and phone number of the
owner or master servicer. In the absence of TILA,
15
there would be no suit. The claim is not directly
related to the mortgage, so the notice and cure
provision does not apply.
Id. at 1376.
Similarly, here the specific duties that Defendants
allegedly violated are “owed by reason of” Chapter 667, not the
Mortgage.
Granted, the broad language of section 20 could be
read to apply to any conduct related in any way to foreclosure
“pursuant to” the Mortgage.
This Court, however, agrees with the
numerous courts that have considered this issue in the past, and
declines to create a new, broad interpretation of this provision.
For these reasons, the Court finds that section 20 is
inapplicable to this lawsuit.6
The one exception to this finding is regarding
Plaintiff’s allegations that directly rely on the Mortgage.
Plaintiff alleges that section 22 of the Mortgage requires
Defendants to publish all sale dates, including postponed dates.
[Complaint at ¶¶ 33-34.]
To the extent that Plaintiff’s UDAP
claim regarding the Postponement Practice allegation is based on
the specific language of section 22 of the Mortgage, and not on
Hawai`i law, the Complaint is DISMISSED WITH PREJUDICE for
6
Further, the Court rejects Defendants’ argument that
Plaintiff’s challenge to the foreclosure process is untimely
under Aames Funding Corp. v. Mores, 107 Hawai`i 95, 110 P.3d 1042
(2005). Aames holds that challenges to the right to foreclose
must be brought before new title is recorded after foreclosure.
Id. at 102-03, 110 P.3d 1049-50. Since Plaintiff does not
challenge Defendants’ right to foreclose (or attempt to void the
sale), the Aames rule does not bar the Complaint here.
16
failure to comply with the notice and corrective action provision
in Plaintiff’s Mortgage.
See Cal. ex rel. Cal. Dep’t of Toxic
Substances Control v. Neville Chem. Co., 358 F.3d 661, 673 (9th
Cir. 2004) (“denial of leave to amend is appropriate if the
amendment would be futile”) (internal quotations and citations
omitted).
C.
Acts Supporting a UDAP Claim
Defendants argue that Plaintiff fails to allege a
viable UDAP claim.
This Court has held that to state a claim
under § 480-13, “the plaintiff must demonstrate: (1) a violation
of section 480–2; (2) injury to the consumer caused by such a
violation; and (3) proof of the amount of damages.”
Lowther v.
U.S. Bank N.A., Civil No. 13-00235 LEK-BMK, 2013 WL 4777129, at
*16 (D. Hawai`i Sept. 4, 2013) (citations omitted).
Under the Hawaii Unfair and Deceptive
Business Practice Act (“UDAP”) it is unlawful to
engage in “unfair or deceptive acts or practices
in the conduct of any trade or commerce.” Haw.
Rev. Stat. § 480–2(a). The Hawaii Supreme Court
describes “deceptive acts or practices” as having
“the capacity or tendency to mislead or deceive.”
Courbat v. Dahana Ranch, Inc., 111 Hawai`i 254,
141 P.3d 427, 434–435 (Haw. 2006) (quoting State
by Bronster v. U.S. Steel Corp., 82 Hawai`i 32,
919 P.2d 294, 312–13 (Haw. 1996)). The Hawaii
Supreme Court has adopted the Federal Trade
Commission’s three-part analytical Cliffdale
Assocs. test for deception. Id. (citing In re
Cliffdale Assocs., Inc., 103 F.T.C. 110, Trade
Cas. (CCH) P22137 (1984)). Under the Cliffdale
Assocs. test, a deceptive act or practice is (1) a
representation, omission, or practice that (2) is
likely to mislead consumers acting reasonably
17
under circumstances where (3) the representation,
omission, or practice is material. Id.; see FTC
v. Pantron I Corp., 33 F.3d 1088, 1095 (9th Cir.
1994). “A representation, omission, or practice
is considered ‘material’ if it involves
‘information that is important to consumers and,
hence, likely to affect their choice of, or
conduct regarding, a product.’” Id. (citing
Novartis Corp. v. FTC, 343 U.S. App. D.C. 111, 223
F.3d 783, 786 (D.C. Cir. 2000)).
Any allegation under H.R.S. § 480–2(a)
involving claims of fraudulent business practices
must be plead with particularity pursuant to Fed.
R. Civ. P. 9(b). Smallwood v. NCsoft Corp., 730
F. Supp. 2d 1213, 1232–1233 (D. Haw. 2010). Rule
9(b) requires a party asserting a claim involving
fraud to “state with particularity the
circumstances constituting fraud[.]” Fed. R. Civ.
P. 9(b). The claim must “be accompanied by the
‘who, what, when, where, and how’ of the
misconduct charged.” Kearns v. Ford Motor Co.,
567 F.3d 1120 (9th Cir. 2009) (internal citation
and quotation marks omitted); see Alan Neuman
Prod., Inc. v. Albright, 862 F.2d 1388, 1393 (9th
Cir. 1988).
Almaden v. Peninsula Mortg., Inc., Civ. No. 12-00390 HG-BMK, 2012
WL 6738512, at *9 (D. Hawai`i Dec. 31, 2012).
Further, this district court has found that Chapter 480
applies to mortgage loans.
Mortgage loans made by financial institutions fall
within the scope of Hawaii’s unfair and deceptive
trade practices statute. Haw. Cmty. Fed. Credit
Union v. Keka, 94 Hawai`i 213, 11 P.3d 1, 15
(2000) (“[T]he transaction at issue in the present
matter falls within the ambit of HRS ch. 480,
inasmuch as (1) a loan extended by a financial
institution is activity involving ‘conduct of any
trade and commerce’ and (2) loan borrowers are
‘consumers’ within the meaning of HRS § 480–1
(1993).”).
18
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, 123 P.3d
194, 202 (2005). . . .
Newcomb v. Cambridge Home Loans, Inc., 861 F. Supp. 2d 1153, 1168
(D. Hawai`i 2012) (alterations in Newcomb).
1.
28-Day Practice
Defendants argue that § 667-7 simply requires that a
seller set the foreclosure sale date twenty-eight days from the
date of first publication of the foreclosure sale notice, and
therefore the Rosen Firm did not violate the statute by placing
the original sale date of the Property on July 31, 2009 – twentyeight days after first publication on July 3, 2009.
11.]
[Reply at
Plaintiff argues that the statute requires publication
after the twenty-eighth day, and thus the earliest the Rosen Firm
could place the sale date was August 1, 2009.
[Mem. in Opp. at
12.]
Haw. Rev. Stat. § 667-7(a) states, “[t]he notice of
intention of foreclosure shall contain: (1) A description of the
mortgaged property; and (2) A statement of the time and place
proposed for the sale thereof at any time after the expiration of
four weeks from the date when first advertised.”
added.)
(Emphasis
The Court agrees with Plaintiff that the plain and
obvious meaning of this statute is that the sale must be set more
19
than twenty-eight days from first publication.
“[W]here the
statutory language is plain and unambiguous, [the court’s] sole
duty is to give effect to its plain and obvious meaning.”
Pila`a
400, LLC v. Bd. of Land & Natural Res., No. SCWC-28358, 2014 WL
594120, at *33 (Hawai`i Feb. 14, 2014) (some alterations in
Pila`a) (internal quotation marks and citations omitted).
Further, this meaning conforms with the Hawai`i computation of
time statute, which states that “[t]he time in which any act
provided by law is to be done is computed by excluding the first
day and including the last.”
Haw. Rev. Stat. § 1-29.
Excluding
July 3, 2009, since it was “the first day,” and counting twentyeight days, § 667-7(a) provides that the earliest possible sale
date should have been August 1, 2009.
Thus, Plaintiff has stated
sufficient allegations that, if proven, would establish that the
initial sale date violated § 667-7(a).
Further, Plaintiff alleges that “The Rosen Firm
published proposed sale dates that were only 28 days after first
publication in over 75% of U.S. BANK foreclosures that they
handled, thus showing that these acts by the Rosen Firm were not
isolated but constituted a practice.”
(emphasis in original).]
[Complaint at ¶ 27
Together with the mandate that “Hawaii
law requires strict compliance with statutory foreclosure
procedures,” see In re Kekauoha-Alisa, 674 F.3d 1083, 1090 (9th
Cir. 2012) (discussing Lee v. HSBC Bank USA, 121 Hawai`i 287,
20
291, 218 P.3d 775, 779 (2009)), the Court finds that, construed
in the light most favorable to the nonmoving party, Plaintiff has
plausibly pled that the 28-Day Practice is unfair and deceptive
under Chapter 480.
See Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009).
2.
Hawai`i County Publication
Defendants also argue that Plaintiff’s allegation
regarding publication of the foreclosure sale in the Hawaii
Tribune-Herald is “conclusory” and that, in any event, the
Tribune-Herald had an online presence in 2009, and publication in
a newspaper of “limited circulation” is sufficient under § 667-5.
[Mem. in Supp. of Motion at 20 & n.18.]
Haw. Rev. Stat. § 667-
5(a) requires, inter alia, that, “[t]he attorney shall: (1) Give
notice of the mortgagee’s, successor’s, or person’s intention to
foreclose the mortgage and of the sale of the mortgaged property,
by publication of the notice once in each of three successive
weeks (three publications), . . . in a newspaper having a general
circulation in the county in which the mortgaged property
lies[.]”
Plaintiff alleges that the Hawaii Tribune-Herald has
“no general circulation in the County of Maui.” [Complaint at ¶
49.]
While Defendant may dispute the actual circulation of the
Hawaii Tribune-Herald on Maui and whether that presence is
sufficient to fulfill the publication requirement, these are
disputes of fact not well-suited to the motion to dismiss stage.
21
Plaintiff has pled facts regarding the Hawai`i County Publication
with sufficient particularity to put Defendants on notice of the
claim, and this practice could have been unfair or deceptive to
Plaintiff as well as to other consumers interested in bidding on
the Property.
See Kekauoha-Alisa, 674 F.3d at 1090 (requiring
strict compliance with Chapter 667).
3.
Postponement and Quitclaim Practices
Defendants argue that this district court has already
rejected arguments that practices identical to the Postponement
and Quitclaim Practices support a valid UDAP claim.
[Mem. in
Supp. of Motion at 1, 17-18, 19 (citing Lima v. Deutsche Bank
Nat’l Trust Co., 943 F. Supp. 2d 1093 (D. Hawai`i 2013), as
amended (May 6, 2013) (dismissing both Gibo v. U.S. Bank Nat’l
Ass’n, No. 12-00514 SOM-RLP (D. Hawai`i) and Lima v. Deutsche
Bank Nat’l Trust Co., No. 12-00509 SOM-RLP (D. Hawai`i)); Bald v.
Wells Fargo Bank, Civil No. 13-00135 SOM/KSC, 2013 WL 3864449 (D.
Hawai`i July 25, 2013).]
This Court agrees that the allegations
in Lima, Gibo, and Bald (“the Similar Cases”) are substantively
identical to those that Plaintiff alleges.
Further, the Court
finds the analysis and conclusions in the Similar Cases
persuasive, and will follow them here.
Nothing in Chapter 667 or
the Mortgage requires Defendants to advertise the sale as more
than a quitclaim deed, or to postpone by publication rather than
orally, as Plaintiff admits was done.
22
The Court agrees with
Chief United States District Judge Susan Oki Mollway that the
decision of whether to require additional nonjudicial foreclosure
safeguards is better left to the legislature than the courts.
See Lima, 943 F. Supp. 2d at 1100; Bald, 2013 WL 3864449, at *5.
The only differences between the arguments before Chief
Judge Mollway in the Similar Cases and the ones presented by
Plaintiff here are the additional practices (the 28-Day Practice
and the Hawai`i County Publication), and Plaintiff’s argument
that, since the initial notification of sale of the Property was
improper, oral postponement under § 667-5(d) was not available to
the Rosen Firm.
See Mem. in Opp. at 21-22.
Haw. Rev. Stat.
§ 667-5(d) provides, “Any sale, of which notice has been given as
aforesaid, may be postponed from time to time by public
announcement made by the mortgagee or by some person acting on
the mortgagee’s behalf.”
Plaintiff argues that, since the first
foreclosure sale notice was improper – that is, notice was not
“given as aforesaid” – oral postponement was improper.
This
interpretation stretches the language of § 667-5(d) and therefore
this Court declines to adopt it.
Further, this Court refuses the
invitation to extend UDAP protection to nonjudicial foreclosure
practices that fall outside of Chapter 667, such as the
Postponement and Quitclaim Practices.
For the foregoing reasons,
the Court finds that Plaintiff’s allegations regarding the
Postponement and Quitclaim Practices do not support a UDAP claim,
23
and thus GRANTS Defendants’ Motion with prejudice as to those
portions of Plaintiff’s UDAP claim.
D.
Harm to Plaintiff
Finally, Defendants argue that Plaintiff’s allegations
do not support a UDAP claim because Plaintiff has not
sufficiently pled “a specific injury traceable to the actions of
the Defendants[.]”
[Mem. in Supp. of Motion at 1.]
First, they
argue that, because Plaintiff admits that she was in default and
does not claim that US Bank had no right to foreclose, Plaintiff
does not allege any cognizable injury.
[Id. at 1-2.]
While in
the Complaint Plaintiff alleges that Defendants’ acts caused her
to lose title and possession of the Property, [Complaint at
¶¶ 20, 56, 58, 63, 64,] Plaintiff’s memorandum in opposition and
her counsel’s argument at the hearing make it clear that she does
not challenge US Bank’s right to foreclose.
Rather, Plaintiff
solely seeks redress for some loss of equity in the Property she
allegedly suffered when US Bank sold her Property at below market
value.
Plaintiff is correct that theoretically she has a right
to any remainder of the proceeds from the foreclosure sale after
other claims and expenses have been deducted.
§ 667-10.
Haw. Stat. Rev.
Thus, in theory, she could state a legally cognizable
theory of harm for loss of equity due to Defendants’ violations
of Chapter 667, which resulted in the sale of the Property at a
24
deflated price.
In the Complaint, however, Plaintiff has not
pled facts that support a plausible claim for relief under this
theory.
Further, this Court does not read Chapter 667 to require
that the mortgagee, when selling property by nonjudicial
foreclosure, must sell the property at fair market value.
Defendants also argue that, to state a valid UDAP
claim, Plaintiff must prove that she suffered damage arising
specifically from the violations.
15-21.]
[Mem. in Supp. of Motion at
“[W]hile proof of a violation of chapter 480 is an
essential element of an action under § 480–13, the mere existence
of a violation is not sufficient ipso facto to support the
action; forbidden acts cannot be relevant unless they cause
private damage.”
Gomes v. Bank of Am., N.A., Civ. No. 12-00311
SOM/BMK, 2013 WL 2149743, *8 (D. Hawai`i May 15, 2013) (quoting
Robert’s Hawaii Sch. Bus, Inc. v. Laupahoehoe Transp. Co., 91
Hawai`i 224, 254 n.30, 982 P.2d 853, 883 n.30 (1999)).
“Plaintiff must allege that she suffered damages as a result of
Defendants’ conduct that go beyond her speculative allegation of
an unspecified loss of ‘equity, as well as her past and future
investment.’
Plaintiff’s vague allegation of damages contains
insufficient factual detail to meet the Rule 8 pleading
standard.”
Dias v. Fed. Nat’l Mortg. Ass’n, Civil No. 12-00394
DKW KSC, 2013 WL 6894453, at *10 (D. Hawai`i Dec. 31, 2013)
(quotation marks and citation omitted).
25
The Court finds that Plaintiff’s allegations of harm do
not go beyond “speculative allegations.”
Plaintiff does not
provide any reason to believe that, by pushing the initial sale
date back one day and publishing the notice in a newspaper that
has general circulation on Maui, the auction would have attracted
more buyers, willing to pay more for the Property.
In fact,
Plaintiff concedes that the sale was postponed nearly one month
to August 28, 2009, and the fact remains that, even at that later
date, US Bank was the only bidder.
[Complaint at ¶¶ 28-40, 59.]
This reasoning is consistent with the bankruptcy
court’s decision in a similar foreclosure lawsuit.
In In re
Kekauoha-Alisa, the Ninth Circuit affirmed a bankruptcy court’s
avoidance of sale, where the lender’s failure to orally postpone
the auction properly violated § 667-5 and amounted to a deceptive
practice, but remanded to “determine the difference, if any,
between Debtor’s situation had Lenders properly postponed the
foreclosure sale and Debtor’s actual situation, given that the
sale was improperly postponed.”
674 F.3d at 1093.
The court
explained that, “[t]his framing properly narrows the inquiry to
the damage caused by Lenders’ deceptive postponement.”
(citation omitted).
Id.
On remand, the bankruptcy court held,
Second, having reviewed the record again, I
now think that the improper notice of postponement
did not cause the Debtor to lose the value of the
equity in her property. The defective
postponement did not extinguish the Debtor’s debt
to the Lenders, discharge the lien of the
26
mortgage, or preclude the Lenders from
foreclosing. It means only that the Lender must
renotice the foreclosure for a later date. Any
damages flowing from the fact of the foreclosure
are not compensable, because the Lender
unquestionably had (and still has) the right to
foreclose. The only compensable damages are those
caused by the wrongful postponement of the
foreclosure—in other words, damages caused by the
fact that the Lenders took ownership and
possession of the Debtor’s property before the
Lenders were entitled to do so.
In re Kekauoha-Alisa, Bankruptcy No. 467,468, Adversary No. 0690041, 2012 WL 3061511, at *2 (Bankr. D. Hawai`i July 26, 2012).
Thus, Plaintiff must allege facts, that if proven,
would show that Defendants’ notice of the one-day-early auction
and publication on Hawai`i actually “cause[d] [Plaintiff] to lose
the value of the equity in her property.”
See id.
To the extent
that Plaintiff may be alleging loss of ownership and use of the
Property, these portions of Plaintiff’s UDAP claim are DISMISSED
WITH PREJUDICE.
To the extent that Plaintiff alleges loss of
equity from the foreclosure sale, the allegations are too vague
to state a plausible claim and that portion of the UDAP claim is
DISMISSED WITHOUT PREJUDICE.
See Harris v. Amgen, Inc., 573 F.3d
728, 737 (9th Cir. 2009) (holding that dismissal with prejudice
is improper unless “the complaint could not be saved by any
amendment” (quoting Lee v. City of Los Angeles, 250 F.3d 668, 692
(9th Cir. 2001))).
27
CONCLUSION
On the basis of the foregoing, Defendants U.S. Bank
National Association and Mortgage Electronic Registration
Systems, Inc.’s Motion to Dismiss Complaint, filed January 10,
2014, is HEREBY GRANTED.
The following portions of the UDAP
claim are DISMISSED WITH PREJUDICE:
- the portions of the UDAP claim based on the specific
language of the Mortgage;
- the portions of the UDAP claim based on the
Postponement and Quitclaim Practices; and
- the portions of the UDAP claim alleging damages
arising from loss of ownership and use of the Property.
The following portions of the UDAP claim are DISMISSED
WITHOUT PREJUDICE:
- the portions of the UDAP claim alleging damages from
loss of equity due to Defendants’ violations of Chapter 667.
To the extent that Plaintiff’s claim has been dismissed
without prejudice, this Court GRANTS Plaintiff leave to file a
First Amended Complaint consistent with the terms of this Order.
Plaintiff must file her First Amended Complaint by no later than
April 30, 2014.
This Court CAUTIONS Plaintiff that, if she fails
to file her First Amended Complaint by April 30, 2014, the
portions of the claim which this Order dismissed without
prejudice may be dismissed with prejudice.
28
Further, if
Plaintiff’s First Amended Complaint fails to cure the defects
identified in this Order or adds new parties, claims, or theories
of liability, this Court may dismiss those claims with prejudice.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, March 31, 2014.
/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
JULIE M. SIGWART, ETC. VS. U.S. BANK NATIONAL ASSOCIATION, ET
AL.; CIVIL NO. 13-00529 LEK-RLP; ORDER GRANTING DEFENDANTS’
MOTION TO DISMISS COMPLAINT
29
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?