Federal Home Loan Mortgage Corp. v. Kama
ORDER 1) DENYING IN PART AND SUA SPONTE STAYING IN PART COUNTERCLAIM DEFENDANT AND THIRD PARTY DEFENDANTS' MOTION TO DISMISS COUNTS 1 AND 3 OF THE AMENDED THIRD PARTY COMPLAINT; AND 2) SUA SPONTE STAYING THE CASE re 35 , 70 - Signed by JUDGE ALAN C. KAY on 3/9/2016. "For the foregoing reasons, the Court DENIES IN PART AND STAYS IN PART Third Party Defendants' Motion to Dismiss. The Court denies the Motion to Dismiss as to Count 3 (wrongful foreclos ure) and stays consideration of the Motion to Dismiss as to Count 1 (violation of HRS Chapter 667). The Court stays this case until July 1, 2016, administratively closes the case, and vacates all previously schedul ed proceedings (including trial) and all deadlines." Motions terminated: 35 MOTION to Dismiss Counts 1 and 3 of the Amended Third Party Complaint filed by BAC Home Loans Servicing, LP, Feder al Home Loan Mortgage Corp., Bank of America, N.A., FHLMC S/A 3-Day ARC-125949. 70 MOTION to Stay or Continue Trial filed by Federal Home Loan Mortgage Corp., Bank of America, N.A. (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
FEDERAL HOME LOAN MORTGAGE
ROBERT H.Y. KAMA,
FEDERAL HOME LOAN MORTGAGE
CORPORATION, BANK OF AMERICA,
N.A., AS SUCCESSOR-ININTEREST TO BAC HOME LOANS
SERVICING, L.P., AND FHLMC
S/A 3-DAY ARC-125949,
and Third Party
) Civ. No. 14-00137 ACK-KSC
ORDER 1) DENYING IN PART AND SUA SPONTE STAYING IN PART
COUNTERCLAIM DEFENDANT AND THIRD PARTY DEFENDANTS’ MOTION TO
DISMISS COUNTS 1 AND 3 OF THE AMENDED THIRD PARTY COMPLAINT;
AND 2) SUA SPONTE STAYING THE CASE
For the reasons set forth below, the Court DENIES IN
PART AND STAYS IN PART Counterclaim Defendant Federal Home Loan
Mortgage Corporation (“Freddie Mac”), Third Party Defendant Bank
of America N.A., as successor-in-interest to BAC Home Loan
Servicing, L.P. (“BANA”), and Third Party Defendant FHLMC S/A 3
day ARCH-125949’s (“FHLM”) (collectively, “Third Party
Defendants”) Motion to Dismiss Counts 1 and 3 of the Amended
Third Party Complaint (“Motion to Dismiss” or “MTD”), ECF No.
The Court denies the Motion to Dismiss as to Count 3
(wrongful foreclosure) and stays consideration of the Motion to
Dismiss as to Count 1 (violation of HRS Chapter 667).
additionally STAYS the proceedings as discussed below.
This matter arises from the foreclosure of residential
property located on the Big Island of Hawaii.
procedural and factual background is as follows.
On December 22, 2006, Defendant, Counterclaim
Plaintiff, and Third Party Plaintiff Robert Kama (“Kama”) and
non-party Lisa Kama1 entered into a transaction with Finance
Factors, Limited (“Finance Factors”), obtaining a $180,000 loan
secured by a mortgage (“Mortgage”) on their residence at 17-287
Volcano Road, Kurtistown/Keaau,2 Hawaii (“Property”).
Robert and Lisa Kama were married at the time the
Mortgage was recorded, but are now divorced. Am. Compl. ¶¶ 15,
16, ECF No. 29. Following the divorce, Lisa Kama transferred
her ownership interest in the Property to Kama. Id. ¶ 16.
The Amended Complaint states the home is located in
Keaau, Hawaii but the Mortgage states it is located in
A, ECF No. 35-3;3 Am. Compl. ¶ 15, ECF No. 29.
names Robert and Lisa Kama as “Borrower[s],” Finance Factors as
the “Lender,” and non-party Mortgage Electronic Registration
Systems, Inc. (“MERS”) as nominee for Lender and as mortgagee
under the Mortgage.
On September 22, 2010, MERS, as
nominee for Finance Factors, executed an Assignment of Mortgage
(“Assignment”), evidencing the assignment of all rights to BAC
Home Loans Servicing, LP (BANA).4
MTD, Ex. B, ECF No. 35-4.
Pursuant to the “incorporation by reference” doctrine,
the Court considers Exhibits A-E attached to the instant Motion
to Dismiss, only insofar as discussed herein. See Marder v.
Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (“Generally, the scope
of review on a motion to dismiss for failure to state a claim is
limited to the contents of the complaint. A court may consider
evidence on which the complaint ‘necessarily relies’ if: (1) the
complaint refers to the document; (2) the document is central to
the plaintiff’s claim; and (3) no party questions the
authenticity of the copy attached to the 12(b)(6) motion. The
court may treat such a document as part of the complaint, and
thus may assume that its contents are true for purposes of a
motion to dismiss under Rule 12(b)(6).” (citations omitted));
Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (noting
that the Ninth Circuit has extended the incorporation by
reference doctrine “to situations in which the plaintiff’s claim
depends on the contents of the document, the defendant attaches
the document to its motion to dismiss, and the parties do not
dispute the authenticity of the document, even though the
plaintiff does not explicitly allege the contents of that
document in the complaint”).
The Court need not consider Exhibit F to resolve the
instant motion because the Court stays the issues relevant to
Exhibit F, as discussed below.
BANA is the successor-by-merger and successor-ininterest to BAC Home Loans Servicing, LP. All references herein
will be to BANA and not BAC Home Loans Servicing, LP.
State of Hawaii Bureau of Conveyances recorded the Assignment on
October 7, 2010.
On October 21, 2010, BANA as record
assignee of the Mortgage, recorded a Notice of Mortgagee’s
Intention to Foreclose Under Power of Sale (“Notice of Sale”).
Id. Ex. C, ECF No. 35-5.
Sometime in 2010, as a result of a workplace injury,
Kama sought a loan modification from BANA through the federal
Home Affordable Modification Program (“HAMP”).
19, 22, ECF No. 29.
Am. Compl. ¶¶
A representative at BANA named “Bonita
Black” told Kama “that it looked like he qualified for a HAMP
loan modification” and “that as long as he complied with the
terms of the paperwork . . . which was forthcoming in the mail,
he would not be foreclosed on.”
Id. ¶ 21.
Kama complied with
the requests for paperwork from BANA “and was told . . . in
early April, 2011, that his HAMP application was complete and no
further documentation was needed from him.”
Id. ¶ 20.
also received a letter from BANA stating that he “would not lose
his home during the loan modification evaluation.”
Id. ¶ 38
(citing Am. Compl., Ex. B).
However, on April 21, 2011, the State of Hawaii Bureau
of Conveyances recorded a Mortgagee’s Affidavit of Foreclosure
Under Power of Sale (“Affidavit of Sale”), evidencing the sale
of the Property on April 11, 2011 to BANA.
35-6; Am. Compl. ¶ 23, ECF No. 29.
MTD, Ex. D, ECF No.
On June 22, 2011, BANA
executed a Mortgagee’s Quitclaim Deed Pursuant to Power of Sale,
which granted the Property to Freddie Mac.
MTD, Ex. E, ECF No.
On October 18, 2012, Freddie Mac filed an Ejectment
Complaint in the Circuit Court of the Third Circuit, State of
Hawaii (“state circuit court”).
See Notice of Removal at 2, ECF
On August 20, 2013, Kama filed an Answer, Counterclaim,
and Third Party Complaint (Complaint) against Counterclaim
Defendant Freddie Mac and Third Party Defendants BACHLS,5 Federal
Housing Finance Agency (“FHFA”), and FHLM.
Id. Ex. A, ECF No.
The Complaint raised the following claims: 1) Violation of
Hawaii Revised Statutes (“HRS”) Chapter 6676 (Lack of Legal Right
The Complaint incorrectly listed BACHLS rather than
BANA as a third party defendant. See Order Denying
Counterclaim/Third-Party Plaintiff’s Motion to Stay Proceedings
Pending Appeal of Related Cases and Granting in Part and Denying
in Part Counterclaim Defendant and Third-Party Defendants’
Motion to Dismiss Counterclaim and Third-Party Complaint
(“Order”) at 6 n.6, ECF No. 28.
HRS Chapter 667 sets forth the procedures governing
foreclosures in the State of Hawaii. HRS Chapter 667 was
substantially amended on May 5, 2011, and again on June 18,
2012. See 2011 Haw. Sess. Laws Act 48 (approved May 5,
2011); 2012 Haw. Sess. Laws Act 182 (approved June 18, 2012).
These amendments do not apply to foreclosures that took place
prior to their approval. See 2011 Haw. Sess. Laws Act 48, § 45
(stating that “[t]his Act shall take effect upon its approval”);
2012 Haw. Sess. Laws Act 182, § 69 (same). Because the
foreclosure of the Property occurred on April 11, 2011, these
amendments do not apply to the foreclosure procedures used in
this case. Accordingly, all references to HRS Chapter 667 in
this Order are to the 2008 version. HRS §§ 667-5 to 667-10
(continued . . . )
to Foreclose); 2) Violation of HRS Chapter 667 (Failure to
Provide Public Announcement of Continued Date and to Follow
Initial Terms of Sale); 3) Breach of Contract – Third Party
Beneficiary of HAMP Contract; 4) Unfair and Deceptive Acts and
Practices (“UDAP”) In Loss Mitigation; 5) Wrongful Foreclosure;
6) Promissory Estoppel; 7) Unconstitutional Deprivation of
Kama’s Property Without Due Process of Law; and 8) Quiet Title.
In the state circuit court, Freddie Mac filed a Motion
for Summary Judgment on the Ejectment Complaint and prevailed on
February 25, 2014.
Notice of Removal, Ex. B, ECF No. 1-3.
Freddie Mac filed a Notice of Removal to remove Kama’s Complaint
to this Court on March 18, 2014, pursuant to 12 U.S.C. §
Notice of Removal at 1, ECF No. 1.
On April 1, 2014, Third Party Defendants filed a
Motion to Dismiss the Complaint in its entirety with prejudice
( . . . continued)
governed the process of non-judicial foreclosure pursuant to a
power of sale. HRS §§ 667-5 to 667-8 were repealed by the
Hawaii legislature in 2012. 2012 Haw. Sess. Laws Act 182, § 50.
12 U.S.C. § 1452(f) provides that “all civil actions
to which [Freddie Mac] is a party shall be deemed to arise under
the laws of the United States, and the district courts of the
United States shall have original jurisdiction of all such
actions, without regard to amount or value[.]” The statute
further provides that any state action to which Freddie Mac is a
party may at any time before trial be removed to a United States
district court by Freddie Mac. 12 U.S.C. § 1452(f).
and without leave to amend.
ECF No. 7.8
The Court held a
hearing regarding Third Party Defendants’ Motion to Dismiss on
September 15, 2014.
At the hearing, Kama orally moved to stay
The Court directed Kama to file a written
motion to stay the proceedings, which Kama filed on September
ECF No. 24.
On October 3, 2014, the Court denied Kama’s motion to
stay and granted in part and denied in part Third Party
Defendants’ Motion to Dismiss.
Order at 1, ECF No. 28.
Specifically, the Court dismissed without prejudice Kama’s
violation of HRS Chapter 667 claims, breach of contract claim,
wrongful foreclosure claim, due process claim, and quiet title
Id. at 22-33, 39-41, 44-50.
The court denied Third
Party Defendants’ Motion to Dismiss with respect to Kama’s UDAP
claim and promissory estoppel claim.
Id. at 33-38, 41-44.
Court granted Kama leave to file an amended complaint within 30
Id. at 51.
FHFA filed a separate Motion to Dismiss the Complaint.
ECF No. 10. FHFA’s Motion only sought to dismiss the
Complaint’s Seventh Cause of Action. Id. On May 13, 2014,
however, Kama filed a “Notice of Voluntary Dismissal of Claims
Against Defendant Federal Housing Finance Agency” wherein Kama
voluntarily dismissed not only the Seventh Cause of Action as to
FHFA, but also every other cause of action in the Complaint
asserted against FHFA. ECF No. 18. As a result, FHFA was
dismissed from this action and FHFA’s Motion was deemed
withdrawn. See Order at 9-10.
On October 31, 2014, Kama filed the Amended Complaint
Am. Compl., ECF No. 29.
The Amended Complaint
asserts four “cause[s] of action” against Third Party
Defendants: 1) Violations of HRS Chapter 667 (Count 1); 2)
Unfair and Deceptive Acts and Practices pursuant to HRS § 480:2
(Count 2); 3) Wrongful Foreclosure (Count 3); and 4) Promissory
Estoppel (Count 4).
Id. ¶¶ 89-119.
On December 1, 2014, Third Party Defendants filed a
Motion to Dismiss Counts 1 and 3 of the Amended Complaint.
ECF No. 35.
Between December 2014 and August 2015, the parties
requested and received from the Court several continuances of
the hearing date on the Motion to Dismiss, to allow for loan
modification review in attempt to resolve the matter.
Nos. 38-41, 46, 48.
Accordingly, on August 11, 2015 the Court
terminated the pending Motion to Dismiss and directed Third
Party Defendants to inform the Court if they wished to reinstate
the motion following the loan modification review process.
Minute Order at 2, ECF No. 48.
On November 19, 2015, the Motion
to Dismiss was reinstated, and a hearing date set for February
ECF No. 56.
On January 19, 2016, Kama filed a Memorandum in
Opposition to Third Party Defendants’ Motion to Dismiss
ECF No. 59.
On January 25, 2016, Third Party
Defendants filed a Reply in support of their Motion to Dismiss
ECF No. 60.
A hearing on the Motion to Dismiss was held on
February 8, 2016.9
At the hearing, the Court requested that
Third Party Defendants file information in response to questions
posed by the Court.
Accordingly, on February 12, 2016, Third
Party Defendants filed a Supplemental Brief in Support of their
Motion to Dismiss (“Supp. Brief”).
ECF No. 66.
Kama filed a
Responsive Supplemental Brief in Opposition to the Motion to
Dismiss (“Resp. Supp. Brief”) on February 17, 2016.
Kama’s attorney, Paul Sulla, filed a Motion to Withdraw
prior to the hearing. ECF No. 57. At the hearing, Mr. Sulla
agreed that he was moving to withdraw for financial reasons,
that he had filed an Opposition to the Motion to Dismiss, and
that he was able to adequately represent Kama at the hearing.
Mr. Sulla further agreed that the hearing on his Motion to
Withdraw could be deferred to a later date. In view of what
transpired at the hearing on the Motion to Dismiss and the
ruling by this Court staying in part and denying in part the
Motion to Dismiss and staying the case, the Court directs Mr.
Sulla to reconsider whether he wishes to withdraw as Kama’s
attorney in this matter, and if he does, to request a new
hearing date on his Motion to Withdraw from Magistrate Judge
Both parties attached several documents to their
supplemental briefs. The Court will not consider the documents
submitted by the parties in their supplemental briefs for the
purposes of the Motion to Dismiss.
However, the Court notes that apparently the foreclosure
sale of the Property was continued three times without newspaper
publication and apparently without written notice to Kama;
although Attorney Derek Wong, who signed the Affidavit of
(continued . . . )
Motion to Dismiss
Federal Rule of Civil Procedure (“Rule”) 12(b)(6)
authorizes the Court to dismiss a complaint that fails “to state
a claim upon which relief can be granted.”
Rule 12(b)(6) is
read in conjunction with Rule 8(a), which requires only “a short
and plain statement of the claim showing that the pleader is
entitled to relief.”
Fed. R. Civ. P. 8(a)(2).
The Court may
dismiss a complaint either because it lacks a cognizable legal
theory or because it lacks sufficient factual allegations to
support a cognizable legal theory.
Balistreri v. Pacifica
Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988).
In resolving a Rule 12(b)(6) motion, the court must
( . . . continued)
Foreclosure, represented that he made a public announcement at
the specified auction location at the time of each continuance,
and it appears the continuances were made because BANA was
considering Kama’s HAMP Loan Modification Application. See
Supp. Brief, Exs. A, B, E (Notices of Continuance of Sale), ECF
Nos. 66-3, 66-4, 66-7.
The Court also notes that apparently, as late as March
31, 2011, BANA contacted Kama to request further documents; that
is, BANA’s request to Kama was made 11 days before the
foreclosure sale occurred. See Supp. Brief, Ryan Dansby Decl.
¶ 20, ECF No. 66-1. The Court further notes that Kama provided
a document to the Court from BANA apparently indicating that
BANA had received all requested documentation and that his file
was complete. Resp. Supp. Brief, Ex. A, ECF No. 67-2.
The Court reiterates that it is not considering any of
the aforesaid documents submitted with the supplemental briefs
for the purposes of deciding the Motion to Dismiss.
construe the complaint in the light most favorable to the
plaintiff and accept all well-pleaded factual allegations as
Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777, 783
(9th Cir. 2012).
The complaint must contain sufficient factual
matter accepted as true to “state a claim to relief that is
plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
“The plausibility standard . . . asks for more than a
sheer possibility that a defendant has acted unlawfully.”
“Where a complaint pleads facts that are ‘merely consistent
with’ a defendant’s liability, it ‘stops short of the line
between possibility and plausibility of entitlement to relief.’”
Id. (quoting Twombly, 550 U.S. at 557).
“In considering a
motion to dismiss, the court is not deciding whether a claimant
will ultimately prevail but rather whether the claimant is
entitled to offer evidence to support the claims asserted.”
Tedder v. Deutsche Bank Nat. Trust Co., 863 F. Supp. 2d 1020,
1030 (D. Haw. 2012) (citing Twombly, 550 U.S. at 563 n.8).
Stay of Case
A court may stay proceedings as part of its inherent
power “to control the disposition of the causes on its docket
with economy of time and effort for itself, for counsel, and for
Landis v. N. Am. Co., 299 U.S. 248, 254 (1936); see
also Clinton v. Jones, 520 U.S. 681, 706 (1997) (“The District
Court has broad discretion to stay proceedings as an incident to
its power to control its own docket.”).
The inherent power to
stay includes granting an order to stay “pending resolution of
independent proceedings which bear upon the case.”
Certified Grocers of Cal., Ltd., 593 F.2d 857, 863 (9th Cir.
Where a stay is considered pending the resolution of
another action, the court need not find that two cases possess
identical issues; a finding that the issues are substantially
similar is sufficient to support a stay.
See Landis, 299 U.S.
The issues involved in the pending proceedings need not
be “controlling of the action before the court” for a stay to be
Leyva, 593 F.2d at 864.
In determining the propriety of a stay, the Court must
“weigh competing interests and maintain an even balance.”
Landis, 299 U.S. at 254-55.
The Court Denies the Motion to Dismiss as to Count 3:
Kama’s Amended Complaint alleges that the foreclosure
sale was “wrongful and without right” because 1) it “was
conducted in breach of BAC/BOA’s promise not to foreclose while
they were in the process of sending Mr. Kama a loan modification
offer,” 2) “the Notice of Intent to foreclose provided the
incorrect auction location description and thus was legally
deficient and of no legal effect”, 3) the continued foreclosure
date was never published, and 4) “the foreclosure, as a whole,
was conducted in a manner that was in violation of H.R.S. 480 et
seq. [UDAP], and was therefore wrongful and without right.”
Compl. ¶ 110, ECF No. 29.
Kama’s allegations include his
contention that BANA “breached its duties to act in good faith
to sell the Subject Property to the owners’ best advantage and
to use reasonable diligence to secure the best possible price,
because it adopted foreclosure policies and practices designed
and intended to deter public participation and ‘chill’ bid
prices at non-judicial auctions.”
Am. Compl. ¶ 57, ECF No. 29.
As the Court noted in its previous Order, “[a]
wrongful foreclosure claim is a state law claim.”
U.S. Bank, N.A., 971 F. Supp. 2d 989, 1011 (D. Haw. 2013)
(citing Doran v. Wells Fargo Bank, Civil No. 11–00132 LEK–KSC,
2011 WL 5239738, at *9 (D. Hawaii Oct. 31, 2011)); see also
Order at 39, ECF No. 28.
A recent Hawaii Supreme Court decision related to a
non-judicial foreclosure appears to support the viability of a
wrongful foreclosure claim in cases such as Kama’s.
Capital Corporation v. Matsuyoshi, the Hawaii Supreme Court
addressed the validity of a non-judicial foreclosure in the
context of an ejectment action.
361 P.3d 454 (Haw. 2015).
doing so, the court discussed the duties imposed on mortgagees
in non-judicial foreclosures, particularly where the “mortgagee
acts as both the seller and the purchaser of the subject
Id. at 456.
Here, as in Kondaur, BANA (as
successor-in-interest to BACHLS) was the mortgagee and also
purchased the Property.
Thus, the duties described in Kondaur
In Kondaur, the court first examined the applicability
of Ulrich v. Security Investment Company, 35 Haw. 158 (Haw.
Terr. 1939), a case related to a non-judicial foreclosure of the
mortgagor’s “law firm and chattels.”
Kondaur, 361 P.3d at 462.
In Ulrich, the court determined that “[t]he legal duties imposed
upon the mortgagee required it to use all fair and reasonable
means in obtaining the best prices for the property on sale and”
that because “the sale was not made in good faith, that the
amount received upon the sale was inadequate and that the
mortgagee took a wrongful and unfair advantage of the mortgagor,
the foreclosure sale must be set aside.”
35 Haw. at 168
The court appeared to use the terms “best
price(s)” and “adequate price(s)” interchangeably in describing
the mortgagee’s duty, further noting in the same paragraph that,
“where the mortgagee himself purchases at the sale, the burden
is on him to show that the sale was regularly and fairly
conducted in every particular, and that an adequate price was
paid for the goods sold.”
Id. (emphasis added) (citation
Several pages later, the court again made reference to
the mortgagee’s duties in terms of demonstrating that the “best
price” was obtained.
Specifically, the court stated that “[o]ne
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.”
Id. at 172
The court then turned to particular
deficiencies related to the foreclosure sale at issue, noting,
inter alia, that the defendant, who conducted the foreclosure
sale, “kept the sale as quiet as possible” and in doing so,
violated his duties.
In this respect, the court explained
that publically announcing the foreclosure sale is critical,
stating that “[o]ne of the ordinary and usual methods employed
. . . to obtain the best possible prices on a foreclosure sale
is to give the impending sale publicity.”
Id. at 172-73.
referencing the “best price” twice in describing the mortgagee’s
duties, the court again switched to using the term “adequate
price,” stating that “it affirmatively appears that the
mortgagee, due to its neglect to observe the duties incumbent
upon it, failed to sell the property . . . for an adequate
Id. at 174 (emphasis added).
Based on the Ulrich
court’s determination that the mortgagee failed “to show that
the sale was regularly and fairly conducted in every particular
and that an adequate price was paid for the property sold,” id.
at 181, the court “vacated and set aside” the foreclosure sale,
id. at 186.
In Kondaur, the court held that Ulrich applied to nonjudicial foreclosures of real property, despite arguments to the
361 P.3d at 466-67.
On this basis, the court held
that under Ulrich, mortgagees have the duty “to exercise their
right to non-judicial foreclosure under a power of sale in a
manner that is fair, reasonably diligent, and in good faith, and
to demonstrate that an adequate price was procured for the
Id. at 467.
In its discussion of Ulrich, the
Kondaur court appeared to adopt the Ulrich court’s use of the
terms “best” and “adequate” interchangeably, stating in the same
paragraph that a mortgagee’s duties include the “use [of] all
fair and reasonable means in obtaining the best prices for the
property on sale” and that where the mortgagee purchases the
property, the burden is on the mortgagee to “show that . . . an
adequate price was paid for the goods sold.”
Id. at 462
(emphases added) (quoting Ulrich, 35 Haw. at 168).
The court determined that Kondaur11 failed to satisfy
its “initial burden” of demonstrating that the sale was
conducted fairly, diligently, and in good faith.
Id. at 470.
In this respect, the court rejected a claim that introduction of
the Affidavit of Sale satisfied this requirement.
Id. at 469.
To the contrary, the court noted that the Affidavit of Sale
contained no information regarding the “fairness and regularity
of the foreclosure sale” and “[did] not make any declaration
concerning the adequacy of [the] price” at which the subject
property was sold.
Id. at 469-70.
The court further explained
that “the Ulrich requirements are not statutorily or
contractually based” but that “[i]nstead, they are separate and
distinct from the requirements of the foreclosure statute and
the operative mortgage.”
Id. at 470.
Based on the court’s
determination that Kondaur failed to meet its initial burden of
demonstrating that the foreclosure sale satisfied Ulrich, the
court vacated the trial court’s granting of summary judgment in
Kondaur’s favor in the ejectment action and remanded the case
for further proceedings.
Id. at 470-71.
The court noted that because Kondaur was “a quitclaim
transferee of a self-dealing mortgagee” Kondaur was required to
introduce evidence to satisfy the Ulrich requirements. Id. at
469. In Kondaur, the mortgagee purchased the subject property
at the foreclosure sale and thereafter conveyed the property to
Kondaur Capital Corporation. Id. at 457.
Guided by the Hawaii Supreme Court’s decision in
Kondaur, the Court concludes that Kama has sufficiently pled a
wrongful foreclosure claim.
In particular, Kama has alleged
that the mortgagee breached its duty to act in good faith in
connection with the foreclosure sale, as required by Kondaur and
To support these claims, Kama cites to the mortgagee’s
policies and practices in connection with the foreclosure sale,
which he maintains resulted in the sale of the Property at less
than market value, including the allegations that the initial
published auction date was delayed for four months, the
continued auction dates were never published, and the
foreclosure took place despite the mortgagee’s promise not to
foreclose12 while Kama’s loan modification was pending.
In the Motion to Dismiss, Third Party Defendants argue
that this claim is barred by Hawaii’s Statute of Frauds, stating
that “any oral assertions made during the loss mitigation
process are irrelevant.” MTD at 14, ECF No. 35-1. Hawaii’s
Statute of Frauds, HRS § 656-1(8), requires a “writing” to bring
an action “[t]o charge any financial institution upon an
agreement by the financial institution to lend money or extend
credit in an amount greater than $50,000.” However, Kama’s
Amended Complaint alleges that BANA “clearly promised, in
writing that Mr. Kama ‘would not lose his home during the loan
modification evaluation.’” Am. Compl. ¶ 38, ECF No. 29. In
support of his claim, Kama attached to the Amended Complaint a
letter from BANA to Robert and Lisa Kama dated March 6, 2011,
requesting each borrower to complete by March 21, 2011 a signed
and dated copy of IRS form 4506-T. Id. Ex. B, ECF No. 29-2.
The letter stated that “no foreclosure sale will be conducted
and you will not lose your home during the [HAMP] evaluation”
but also noted that foreclosure proceedings would resume if the
required documents were not received by March 21, 2011. Id.
(continued . . . )
Compl. ¶¶ 53, 74, 110, ECF No. 29.13
Notably, the allegation
that the sale date was continued without publication relates to
the Ulrich court’s conclusion that publicity surrounding the
( . . . continued)
Third Party Defendants do not argue in their Motion to Dismiss
that such a writing would fail to satisfy Hawaii’s Statute of
Frauds. Accordingly, the Court does not further consider the
statute of frauds defense. The Court notes that it is not
convinced that the statute of frauds would bar Kama’s claim in
this context, where the alleged promise has been raised as part
of a wrongful foreclosure claim and the wrongful foreclosure
claim invokes the overall fairness and reasonableness of the
Kama also cites to several practices, in relation to
BANA’s duties to act in good faith and with reasonable
diligence, which he claims resulted in UDAP violations. See Am.
Compl. ¶ 57, ECF No. 29; see also id. ¶¶ 71-83. The Motion to
Dismiss contends that these practices fail to support a UDAP
claim based on cases previously decided in this district court,
and accordingly Third Party Defendants argue that they also fail
to support a wrongful foreclosure claim. MTD at 18-23, ECF No.
The UDAP violations raised by Kama may also be
considered separate grounds for wrongful foreclosure. See Am.
Compl. ¶ 110, ECF No. 29. The Court finds it is not necessary
to consider the merits of these practices in the instant Motion
to Dismiss because Kama has asserted other grounds for wrongful
foreclosure that withstand the Motion to Dismiss. Moreover, as
discussed infra, the Court’s Order stays the proceedings in the
instant matter pending resolution of related appeals, which
involve UDAP claims in similar contexts.
The Court similarly does not consider the merits of
Kama’s wrongful foreclosure claim based on the allegedly
incorrect auction location in the Notice of Sale. Id. This
claim is substantially similar to Kama’s claim, within Count 1,
that HRS Chapter 667 was violated because the Notice of Sale
contained misleading information regarding the location of the
foreclosure sale. See Am. Compl. ¶ 49. The Court stays
consideration of the Motion to Dismiss as to Count 1 as provided
sale is a critical component of the mortgagee’s duty to obtain
the best possible price in connection with the sale.
Ulrich, 35 Haw. at 172-73.
Moreover, as in Kondaur, here it
appears that the Affidavit of Sale on its face fails to meet the
Indeed, the Affidavit of Sale contains no
mention of the “fairness and regularity of the foreclosure sale”
or “any declaration concerning the adequacy of [the] price” at
which the Property was sold.
361 P.3d at 469-70.
In their Motion to Dismiss, Third Party Defendants
assert that they owed no duty to Kama.
MTD at 16, ECF No. 35-1.
However, the Hawaii Supreme Court’s decision in Kondaur makes
clear that this is not the case.14
In their Reply, Third Party
Defendants acknowledge Kondaur, noting that “while the Supreme
Court of Hawaii has recently defined a mortgagee’s duty to a
mortgagor during a nonjudicial foreclosure sale, it has
decidedly limited it short of Counterclaim Plaintiff’s alleged
duty to obtain ‘the best possible price.’”
60 (citation omitted).
Reply at 13, ECF No.
At the hearing on the Motion to Dismiss,
Third Party Defendants further argued that Kama’s Amended
Complaint should be dismissed on this basis, because the “best
possible price” standard pled by Kama was legally deficient.
The Court notes that Kondaur had not yet been
published at the time of the initial filing of the Motion to
The Court rejects Third Party Defendants’ contention
that the distinction between an “adequate price” and the “best
possible price” bars Kama’s claim.
As discussed above, the
Hawaii Supreme Court in Ulrich and Kondaur appears to have
equated the terms “adequate” and “best” in describing a
mortgagee’s duties in this context.
See Ulrich, 35 Haw. at 168,
170, 172-74; Kondaur, 361 P.3d at 462.
Further, pursuant to
Kondaur, the burden is on Third Party Defendants to demonstrate
that the non-judicial foreclosure satisfied the Ulrich
requirements, which as discussed above, go beyond the duty to
obtain the “best possible price” or an “adequate price” for the
For the foregoing reasons, the Court denies the Motion
to Dismiss with respect to Count 3.
The Court notes that, in
contrast to Count 1, see infra, the Court need not stay the
consideration of the Motion to Dismiss with respect to Count 3
because Kama has sufficiently pled his claim for wrongful
foreclosure pursuant to Kondaur and Ulrich.
The Court Stays Consideration of the Motion to Dismiss as
to Count 1: Violation of HRS Chapter 667
Kama’s Amended Complaint asserts violations of HRS
Chapter 667, Hawaii’s foreclosure statute.
ECF No. 29.
Am. Compl. ¶¶ 89-97,
The court sua sponte stays consideration of the
Motion to Dismiss with respect to Count 1.
In Ulrich and Kondaur, as discussed above, the Hawaii
Supreme Court laid out a mortgagee’s duties where the mortgagee
purchases the subject property in a non-judicial foreclosure.
In Kondaur, the court explained the relationship between the
statutory requirements for non-judicial foreclosures, pursuant
to HRS Chapter 667, and the requirements established in Ulrich.
First, the court noted that the requirements that a mortgagee
demonstrate that the sale was conducted “regularly and fairly”
and that “an adequate price was paid . . . . were promulgated by
the [Ulrich] court while fully recognizing” that application of
such requirements “may sometimes mean obligating a mortgagee to
act above and beyond the statutory requirements.”
P.3d at 462 (citing Ulrich, 35 Haw. at 168, 172-73).
determining Ulrich’s applicability to non-judicial foreclosures
of real property, the court noted that the amendments to the
foreclosure statute enacted after Ulrich—which provide
additional safeguards to mortgagors—led to the “conclusion . . .
that the legislature approved of Ulrich and supplemented it with
more robust statutory protections.”
Id. at 466.
court held that “the Ulrich requirements are not statutorily or
contractually based” and that “[i]nstead, they are separate and
distinct from the requirements of the foreclosure statute and
the operative mortgage.”
Id. at 470 (citing Ulrich, 35 Haw. at
Relatedly, the court held that even where a mortgagee
can establish “minimal adherence to the statutory requirements”
of a non-judicial foreclosure, this will not in and of itself
“establish that the foreclosure sale similarly satisfied the
Based on the Hawaii Supreme Court’s discussion of the
statutory requirements in relation to the 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.
in the instant case, the Court deems it possible that Kama 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.
Accordingly, the Court sua
sponte stays consideration of Third Party Defendants’ Motion to
Dismiss with respect to Count 1, pending resolution of related
In particular, the Court is aware that the Hawaii
Supreme Court currently has a case pending, Hungate v. Rosen,
(which was argued in June of 2015, about two weeks before
Kondaur), which raises, inter alia, a wrongful foreclosure claim
in connection with claims that HRS Chapter 667 was violated by a
mortgagee who also purchased the subject property.
Plaintiff-Appellant at 25-32, Hungate v. Rosen, SCAP-13-0005234
(Haw. Sept. 12, 2014).
The Court anticipates that resolution of
the Hungate case will provide further guidance as to the
relationship between the statute and the duties laid out in
Ulrich and Kondaur.
Appeals currently pending before the Ninth Circuit
also invoke issues related to the interplay between HRS Chapter
667 and the duties established in Ulrich.
In Lima v. Deutsche
Bank National Trust Company, for example, Plaintiffs-Appellants
argue that common law duties established in Ulrich and other
Hawaii state cases are imposed on mortgagees through the power
of sale to provide “necessary protection for borrowers because
Chapter 667 has always been silent on critical aspects of the
Brief of Plaintiffs-Appellants at 33-34,
Lima et al. v. Deutsche Bank Nat’l Trust Co. et al., No. 1316091 (9th Cir. Oct. 4, 2013); see also id. at 35-43.
Kondaur was decided by the Hawaii Supreme Court after Lima was
argued before the Ninth Circuit, resolution of Lima and related
cases will likely involve an analysis of the statutory
requirements in relation to the duties established in the
relevant caselaw, including Kondaur and Ulrich.
Therefore, as discussed further below, the Court
exercises its discretion to stay consideration of the Motion to
Dismiss with respect to Count 1 pending resolution of the appeal
in Hungate and other related cases.
III. The Court Sua Sponte Stays Further Proceedings
The Court may within its power stay proceedings in the
interests of judicial efficiency and fairness.
See Landis, 299
U.S. at 254; Clinton, 520 U.S. at 706; see also Lockyer v.
Mirant Corp., 398 F.3d 1098, 1109 (9th Cir. 2005) (“A district
court has discretionary power to stay proceedings in its own
court . . . .”).
For reasons of judicial economy, the Court may
grant such a stay pending the outcome of other legal proceedings
related to the case.
The Court notes it is not required that
the other proceedings be “necessarily controlling of the action
before the court.”
Leyva, 593 F.2d at 863-64.
whether a stay is appropriate, the court must consider
the competing interests which will be affected by
the granting or refusal to grant a stay . . . .
Among those competing interests are the possible
damage which may result from the granting of a
stay, the hardship or inequity which a party may
suffer in being required to go forward, and the
orderly course of justice measured in terms of
the simplifying or complicating of issues, proof,
and questions of law which could be expected to
result from a stay.
Lockyer, 398 F.3d at 1110 (quoting CMAX, Inc. v. Hall, 300 F.2d
265, 268 (9th Cir. 1962)).
The Court finds that staying proceedings pending the
appeals of related cases will serve the interests of judicial
efficiency and economy and will help to clarify the issues and
questions of law going forward.
See Landis, 299 U.S. at 256
(“True, a decision in the cause then pending in New York may not
settle every question of fact and law in suits by other
companies, but in all likelihood it will settle many and
simplify them all.”).
As noted above, Hungate, currently
pending before the Hawaii Supreme Court, involves issues
directly related to the instant case with respect to wrongful
foreclosures and violations of the foreclosure statute.
also raises issues regarding the viability of a UDAP claim in
the wrongful foreclosure context and in relation to HRS Chapter
667, claims at issue in Kama’s Amended Complaint.
As mentioned above, the Court is also aware of
appellate proceedings before the Ninth Circuit which are
directly relevant to the instant case.
In Gibo v. U.S. Bank
N.A., Civ. No. 12-00514 SOM-RLP (Ninth Circuit Case No. 1316092); Lima v. Deutsche Bank National Trust Company, Civ. No.
12-00509 SOM-RLP (Ninth Circuit Case No. 13-16091); and Bald v.
Wells Fargo Bank, Civ. No. 13-00135 SOM-KSC (Ninth Circuit Case
No. 13-16622), plaintiffs alleged wrongdoing by the mortgagee in
connection with non-judicial foreclosure sales, raising UDAP
claims and violations of HRS Chapter 667.
On appeal to the
Ninth Circuit, from this district court, the Bald, Gibo, and
Lima plaintiffs frame the issues, inter alia, as whether the
district court erred in dismissing claims brought under the UDAP
statute, HRS § 480-2, where the plaintiffs allege that the banks
committed unfair and deceptive acts and practices by (1)
offering the subject properties by quitclaim deed only and (2)
selling the subject properties without publishing the continued
foreclosure sale date.
See Briefs of Plaintiffs-Appellants in
Bald et al. v. Wells Fargo Bank, N.A., et al., No. 13-16622 (9th
Cir. Dec. 18, 2013); Gibo v. U.S. Bank et al., No. 13-16092 (9th
Cir. Oct. 4, 2013); Lima et al. v. Deutsche Bank Nat’l Trust Co.
et al., No. 13-16091 (9th Cir. Oct. 4, 2013).
Notably, as in
these cases, Kama’s Amended Complaint raises the issue that the
mortgagee failed to publish the continued foreclosure sale
The Court finds that resolution of the state and
federal appellate cases will provide guidance with respect to
many of the issues raised in Kama’s Amended Complaint.
the rulings will likely not resolve all of the issues before the
Court, they will probably assist the Court in determining
threshold issues raised by Kama.
The Court is also concerned
with the possibility of inconsistent rulings if the proceedings
continue prior to resolution of the related appeals.
Karoun Dairies, Inc. v. Karlacti, Inc., No. 08CV1521 AJB WVG,
2013 WL 4716202, at *5 (S.D. Cal. Sept. 3, 2013) (noting
inconsistent ruling “would likely extend litigation in order to
address the inconsistent decisions” and “[a]s a result . . .
would waste judicial time and resources as well as impose
further hardship and inequity to the parties”).
prejudice caused by the temporary delay will be minimal given
the state of the proceedings.15
Accordingly, the Court stays further proceedings in
this matter, including discovery.
Absent a change in
circumstances, the stay shall remain in effect until July 1,
2016, at which time the parties are directed to contact the
Court to schedule a status conference.
The parties shall
contact the Court if at any time during the stay the
circumstances change or there are developments in the relevant
In light of the stay, the Court
administratively closes the case and vacates all previously
scheduled proceedings (including trial) and all deadlines.
case will be deemed reopened when the stay is lifted.16
The Court notes that Kama previously sought a stay in
the case pending resolution of appellate proceedings. At that
time, the Court denied Kama’s request because the claims raised
in Kama’s original Complaint were distinct from the issues posed
in the allegedly related appeals. See Order at 17-20, ECF No.
28. However, Kama’s Amended Complaint raises additional issues,
not previously before the Court, which make the stay appropriate
at this time. The Court additionally notes that Kondaur had not
been decided at the time of Kama’s request to stay the
The Court’s sua sponte stay of the proceedings moots
Third Party Defendants’ Motion to Stay the Case, or in the
Alternative Continue Trial. ECF No. 70. Accordingly, the
motion is denied. The Court notes that Kama filed a Notice of
Non-Opposition to Third Party Defendants’ Motion to Stay the
Case, or in the Alternative Continue Trial. ECF No. 73.
For the foregoing reasons, the Court DENIES IN PART
AND STAYS IN PART Third Party Defendants’ Motion to Dismiss.
The Court denies the Motion to Dismiss as to Count 3 (wrongful
foreclosure) and stays consideration of the Motion to Dismiss as
to Count 1 (violation of HRS Chapter 667).
The Court stays this
case until July 1, 2016, administratively closes the case, and
vacates all previously scheduled proceedings (including trial)
and all deadlines.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, March 9, 2016.
Alan C. Kay
Sr. United States District Judge
Federal Home Loan Mortgage Corporation v. Kama, Civ. No. 14-00137 ACK-KSC,
ORDER 1) DENYING IN PART AND SUA SPONTE STAYING IN PART COUNTERCLAIM
DEFENDANT AND THIRD PARTY DEFENDANTS’ MOTION TO DISMISS COUNTS 1 AND 3 OF THE
AMENDED THIRD PARTY COMPLAINT; AND 2) SUA SPONTE STAYING THE CASE
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