Galima et al v. Association of Apartment Owners of Palm Court
Filing
246
ORDER Granting In Part and Denying In Part Defendants' Motions For Summary Judgment Regarding Damages re 184 187 .On the basis of the foregoing, Chow's Motion for Summary Judgment Regarding the Measure of Damages Under the Fair Debt C ollection Practices Claim in Count II of the Third Amended Complaint [Dkt. 88] and the AOAO's Motion for Partial Summary Judgment Limiting Plaintiffs' Measure of Damages Arising out ofTheir Claim for Wrongful Foreclosure, both of which were filed February 6, 2019, are HEREBY GRANTED IN PART AND DENIED IN PART. The Motions are GRANTED insofar as Plaintiffs have conceded that, if they prevail on their wrongful foreclosure claim and elect the damages remedy, they would not be entitled to recoverlost rental value as part of their damages. Further, in that instance, Plaintiffs would also be precluded from including lost rental value in their damages for their FDCPA claim. The Motions are DENIED in all other respects. Signed by JUDGE LESLIE E. KOBAYASHI on 5/3/2019. (cib)
UNITED STATES DISTRICT COURT
DISTRICT OF HAWAII
RUDY AKONI GALIMA, ROXANA
BEATRIZ GALIMA,
CIV. NO. 16-00023 LEK-RT
Plaintiffs,
vs.
ASSOCIATION OF APARTMENT OWNERS
OF PALM COURT, BY AND THROUGH
ITS BOARD OF DIRECTORS; DOE
DEFENDANTS 1-10, BRYSON CHOW,
Defendants.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’
MOTIONS FOR SUMMARY JUDGMENT REGARDING DAMAGES
Before the Court are: Defendant Bryson Chow’s (“Chow”)
Motion for Summary Judgment Regarding the Measure of Damages
Under the Fair Debt Collection Practices Claim in Count II of
the Third Amended Complaint [Dkt. 88] (“Chow Motion”), filed on
February 6, 2019; and Defendant Association of Apartment Owners
of Palm Court’s (“AOAO”)1 Motion for Partial Summary Judgment
Limiting Plaintiffs’ Measure of Damages Arising out of Their
Claim for Wrongful Foreclosure (“AOAO Motion”), also filed on
February 6, 2019.
[Dkt. nos. 184, 187.]
Plaintiffs Rudy Akoni
Galima and Roxana Beatriz Galima (“Plaintiffs”) filed their
1
Plaintiffs have sued the AOAO by and through its Board of
Directors.
memorandum in opposition to the Chow Motion and their memorandum
in opposition to the AOAO Motion on March 22, 2019.
nos. 196, 198.]
[Dkt.
The AOAO and Chow filed their respective reply
memoranda on March 29, 2019.
[Dkt. nos. 203, 204.]
These matters came on for hearing on April 12, 2019.
The AOAO and Chow (“Defendants”) each filed a supplemental
memorandum on April 18, 2019 and April 19, 2019, respectively.
[Dkt. nos. 220, 221.]
Plaintiffs filed their supplemental
memorandum on May 3, 2019.
[Dkt. no. 245.]
The Chow Motion and
the AOAO Motion (“Motions”) are hereby granted in part and
denied in part.
The Motions are granted, insofar as this Court
rules that, if Plaintiffs prevail on their wrongful foreclosure
claim and elect the damages remedy, Plaintiffs will be precluded
from recovering lost rental value as part of their damages for
either the wrongful foreclosure claim or their claim under the
Fair Debt Collection Practices Act.
The Motions are denied in
all other respects.
BACKGROUND
The instant case arises from the nonjudicial
foreclosure sale of Plaintiffs’ Apartment No. 10A in a
condominium project known as Palm Court, Increment 1C (“Unit”)
by the AOAO, which was represented by Chow in the foreclosure
process.
The operative pleading in this case is Plaintiffs’
Third Amended Complaint.
[Filed 5/22/17 (dkt. no. 88).]
2
The
relevant background of this case is set forth in this Court’s
Order Granting in Part and Denying in Part: Plaintiffs’ Motion
for Partial Summary Judgment; Defendant AOAO’s Motion for
Summary Judgment; and Defendant Chow’s Motion for Summary
Judgment, filed on December 31, 2018 (“12/31/18 Order”), as
supplemented by the Order Denying Defendant Bryson Chow’s Motion
for Partial Reconsideration, filed on March 8, 2019 (“3/8/19
Order”).
[Dkt. nos. 173, 195.2]
The following claims and issues remain in this case:
-as to Plaintiffs’ wrongful foreclosure claim against the AOAO
(“Count I”), the AOAO’s defenses and, if Plaintiffs prevail on
the AOAO’s defenses, Plaintiffs’ damages;3
2
The 12/31/18 Order is also available at 2018 WL 6841818,
and the 3/8/19 Order is available at 2019 WL 1102188.
3
Partial summary judgment was granted in favor of
Plaintiffs as to Count I, insofar as this Court concluded that
Plaintiffs established all of the elements of their wrongful
foreclosure claim. 12/31/18 Order, 2018 WL 6841818, at *18.
This Court ruled that:
as a matter of law, the AOAO was not authorized
to utilize [Haw. Rev. Stat.] Chapter 667, Part I
to foreclose upon Plaintiffs’ Unit. Because it
did not have an agreed upon power of sale
provision or other contractual agreement
authorizing it to utilize Chapter 667, Part I,
the AOAO was required to utilize Chapter 667,
Part II to foreclose upon Plaintiffs’ Unit.
Thus, the AOAO’s use of Part I was a violation of
Chapter 667.
Id. at *9. The AOAO argues the recent passage of Senate Bill
551 by the Hawai`i State Legislature invalidates this Court’s
prior rulings and “ends this case.” [Letter to the Court from
the AOAO’s counsel, filed 5/1/19 (dkt. no. 236), at Page 3 of
(. . . continued)
3
-all issues regarding Plaintiffs’ claim against Chow alleging
violations of the Fair Debt Collection Practices Act (“FDCPA”),
15 U.S.C. § 1692, et seq. (“Count II”), except that Plaintiffs’
argument that the statute of limitations was tolled based on
fraudulent concealment has been rejected; and
-all issues regarding Plaintiffs’ claim against the AOAO for
mental anguish and emotional distress, which has been construed
as a claim for intentional infliction of emotional distress
(“Count V”), except that Plaintiffs’ argument that the statute
of limitations was tolled based on fraudulent concealment has
been rejected.
The Chow Motion is limited to the issue of the measure
of actual damages if Plaintiffs prevail on their FDCPA claim.4
Chow seeks a ruling that, in proving their actual damages,
Plaintiffs cannot rely on either the Unit’s fair market value –
i.e., the amount the Unit would have sold for in an arm’s length
transaction between a willing buyer and a willing seller – or
the Unit’s rental value since the foreclosure.
Chow’s position
is that Plaintiffs must establish the amount that the Unit would
have sold for in a valid foreclosure sale – i.e., in this case,
a foreclosure conducted pursuant to Chapter 667, Part II – at
the time of the Part I nonjudicial foreclosure sale (“Part II
Foreclosure Value”).
Plaintiffs’ damages would be the
18.] However, this Court declines to address the effect of
Senate Bill 551 at this time because it has not been adopted as
law yet.
4
The Chow Motion does not address liability, including
whether Chow’s actions caused Plaintiffs’ damages, and the Chow
Motion does not address statutory damages.
4
difference between the Part II Foreclosure Value and the amounts
Plaintiffs owed to the AOAO for their delinquent maintenance
fees.
The AOAO Motion seeks a ruling that the measure of
Plaintiffs’ damages for their wrongful foreclosure claim is the
Part II Foreclosure Value, minus all liens against the Unit,
including Plaintiffs’ mortgages and the amounts Plaintiffs owed
the AOAO.
In other words, the AOAO’s position is that
Plaintiffs have no actionable damages because, at the time of
the foreclosure, they had no equity in the Unit.
The AOAO also
seeks a ruling that Plaintiffs are precluded from: seeking the
return of the Unit; and arguing their damages are based on
either the Unit’s fair market value or the alleged conversion of
the Unit.
DISCUSSION
I.
Return of the Unit
This Court first turns to the AOAO’s argument that, as
a matter of law, Plaintiffs are barred from seeking the return
of title to, and possession of, the Unit in this action.
This
Court has concluded, as a matter of law, that Plaintiffs have
established the elements of their wrongful foreclosure claim
against the AOAO.
12/31/18 Order, 2018 WL 6841818, at *9.
The
Hawai`i Supreme Court has stated: “Where it is determined that
the nonjudicial foreclosure of a property is wrongful, the sale
5
of the property is invalid and voidable at the election of the
mortgagor, who shall then regain title to and possession of the
property.”
Santiago v. Tanaka, 137 Hawai`i 137, 158, 366 P.3d
612, 633 (2016) (emphases added) (citations omitted).
Further,
akin to its judicial authority “to fashion an equitable relief
in foreclosure cases,” a court has authority to fashion
equitable relief in wrongful foreclosure cases.
Id.
In Santiago, the supreme court noted that voiding the
foreclosure sale was “rendered impracticable” because the
foreclosed property had already been resold to a third-party.5
Id. (citing 123 Am. Jur. Proof of Facts 3d § 31 (2011) (“It has
long been held that if the property has passed into the hands of
an innocent purchaser for value, an action at law for damages is
generally the appropriate remedy.”)).
However, in the instant
case, voiding the foreclosure sale of the Unit would not be
5
Louis Santiago and Ruth Tanaka (“Tanaka”) agreed that
Louis Santiago and his wife, Yong Hwan Santiago (“the
Santiagos”), would purchase the Nawiliwili Tavern (“Tavern”)
from Tanaka for $1,300,000, consisting of a $800,000 down
payment, and $500,000 secured by a sixty-month mortgage.
Santiago, 137 Hawai`i at 139-40, 366 P.3d at 614-15. Tanaka
later foreclosed upon the mortgage and sold the Tavern to
herself for $365,000 after a public foreclosure auction. Id. at
144-45, 366 P.3d at 619-20. A state court ruled that Tanaka was
entitled to ownership and possession of the Tavern, and the
state court entered judgment in favor of Tanaka as to the
Santiagos’ claims. After the entry of judgment, but while the
Santiagos’ appeal was still pending, Tanaka sold the Tavern to a
third-party. Id. at 146-47 & n.24, 366 P.3d at 621-22 & n.24.
6
impracticable because the Unit is still held by the AOAO, i.e.,
the wrongfully foreclosing lienholder.
See Pltfs.’ concise
statement of facts in supp. of mem. in opp. to AOAO Motion
(“Pltfs.’ AOAO CSOF”), filed 3/22/19 (dkt. no. 199), Timothy G.
Blood’s decl. (“Blood AOAO Decl.”), Exh. H (excerpts of the
AOAO’s response to Pltfs.’ request for answers to interrogs.) at
9-10 (stating “the monthly rental income from the [Unit] is
$1,500.00” and the funds are “deposited each month into the
operating fund for the AOAO”).
Santiago is directly on point and is controlling legal
authority in this case.
See Order ruling on motions to dismiss,
filed 3/30/17 (dkt. no. 79) (“3/30/17 Order”), at 12 (“When
interpreting [Haw. Rev. Stat.] § 514B-146(a) (2010) and the
other Hawai`i statutes relevant to the instant case, this Court
is bound by the decisions of the Hawai`i Supreme Court.” (citing
Trishan Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 427 (9th Cir.
2011))).6
Defendants argue that Santiago is inapplicable to the
instant case because: the Santiagos cured the default before the
foreclosure; Santiago, 137 Hawai`i at 144, 366 P.3d at 619; and
the mortgage in Santiago did not allow nonjudicial foreclosure,
id. at 155, 366 P.3d at 630.
In contrast, Defendants contend a
nonjudicial foreclosure would have been legally possible in this
6
The 3/30/17 Order is also available at 2017 WL 1240181.
7
case, if the AOAO had followed Chapter 667, Part II.
First,
nothing in Santiago indicates that the case’s legal analysis
applies only where the plaintiff cured the default before the
allegedly wrongful foreclosure.
As to Defendants’ second
argument, Tanaka also conducted the foreclosure under Haw. Rev.
Stat. § 667-5, which has since been repealed, but the Hawai`i
Supreme Court held that the foreclosure was unlawful because the
mortgage did not contain a power of sale.
at 154-55, 366 P.3d at 629-30.
Santiago, 137 Hawai`i
Thus, Santiago presents the same
situation as the instant case, i.e., a Part I foreclosure
improperly conducted without a power of sale.
Compare 12/31/18
Order, 2018 WL 6841818, at *3 (noting the nonjudicial
foreclosure of the Unit was conducted pursuant to Part I); id.
at *8-9 (concluding the AOAO did not have a power of sale and
that the AOAO’s use of Part I was unlawful).
This Court
therefore rejects Defendants’ attempts to distinguish Santiago.
Because this Court has ruled that the AOAO’s
foreclosure of the Unit was wrongful, and because the Unit is
still held by the AOAO, this Court concludes that, pursuant to
Santiago, return of the Unit is an available remedy for
Plaintiffs’ wrongful foreclosure claim.
A.
Statutory Protections
The AOAO argues that, even if Santiago would otherwise
apply, Plaintiffs are precluded from seeking return of the Unit
8
because of the effect of the Land Court filings.
Land Court property.
The Unit is
See 12/31/18, 2018 WL 6841818, at *2, *3,
*5 & n.6 (noting that documents related to the Unit were filed
in the Land Court).
The Quitclaim Deed in which the AOAO as
grantor conveyed the Unit to itself as grantee was recorded on
November 9, 2010 in the Land Court.
[Concise statement of facts
in supp. of AOAO motion (“AOAO CSOF”), filed 2/6/19 (dkt.
no. 188), Decl. of James Diehl (“Diehl Decl.”), Exh. I
(Quitclaim Deed) at 1.]
The Assistant Registrar’s Office stamp
on the deed includes “Issuance of Cert(s) 1,003,228.”
[Id.]
The AOAO therefore argues that, based on Aames v. Funding Corp.
v. Mores, 107 Hawai`i 95, 110 P.3d 1042 (2005), and Haw. Rev.
Stat. § 501-118, the recordation of the transfer certificate of
title (“TCT”) is dispositive, and Plaintiffs cannot challenge
the foreclosure of the Unit because they failed to do so before
the new TCT was recorded.
Section 501-118(c) states:
In case of foreclosure by exercising the power of
sale without a previous judgment, the affidavit
required by chapter 667 shall be recorded with
the assistant registrar. The purchaser or the
purchaser’s assigns at the foreclosure sale may
thereupon at any time present the deed under the
power of sale to the assistant registrar for
recording and obtain a new certificate. Nothing
in this chapter shall be construed to prevent the
mortgagor or other person in interest from
directly impeaching by action or otherwise, any
foreclosure proceedings affecting registered
9
land, prior to the entry of a new certificate of
title.
(Emphasis added.)
However, the Hawai`i Supreme Court has held
that “the issuance of a new certificate of title number is not
the statutory equivalent of an entry of a new certificate of
title under HRS § 501-118.”
Wells Fargo Bank, N.A. v. Omiya,
142 Hawai`i 439, 451, 420 P.3d 370, 382 (2018).
Further,
registering a quitclaim deed is not equivalent to
the creation or entry of a new certificate of
title. As Wells Fargo [- the party challenging
the quitclaim deed -] argued, the evidence does
not show that a new certificate of title was
entered; had one been created, a certified and
sealed copy of the certificate would have been
admissible as evidence. See HRS § 501-88 (2006)
(certified and sealed copies of certificates
“shall be received as evidence in all the courts
of the State”); cf. Aames Funding Corp. v. Mores,
107 Hawai`i 95, 97, 110 P.3d 1042, 1044 (2005)
(“Trial began with both parties stipulating to
the authenticity of . . . a certified copy of TCT
No. 587,098,” which was accepted into evidence).
Id. at 455, 420 P.3d at 386 (some alterations in Wells Fargo).
In the present case, no party has submitted a certified and
sealed copy of the certificate of title for the Unit.
Moreover, § 501-118(c) only applies to foreclosures
pursuant to the exercise of a power of sale, which the AOAO did
not have.
See 12/31/18 Order, 2018 WL 6841818, at *9 (“Because
it did not have an agreed upon power of sale provision or other
contractual agreement authorizing it to utilize Chapter 667,
Part I, the AOAO was required to utilize Chapter 667, Part II to
10
foreclose upon Plaintiffs’ Unit.” (emphasis added)).
The AOAO
therefore is not entitled to the protection of § 501-118.
The AOAO also argues Haw. Rev. Stat. § 667-102 allows
a former homeowner to bring a wrongful foreclosure action, but
it prohibits the former homeowner from seeking return of the
property.
Section 667-102(b) states:
When both the affidavit and the conveyance
document are recorded:
(1) The sale of the unit is considered
completed;
(2) All persons claiming by, through, or
under the unit owner and all other persons
having liens on the unit junior to the lien
of the association shall be forever barred
of and from any and all right, title,
interest, and claims at law or in equity in
and to the unit and every part of the unit,
except as otherwise provided by law;
(3) The lien of the association and all
liens junior in priority to the lien of an
association shall be automatically
extinguished from the unit; and
(4) The purchaser shall be entitled to
immediate and exclusive possession of the
unit.
The AOAO’s Affidavit of Non-Judicial Foreclosure Sale under
Power of Sale (“Foreclosure Affidavit”) was recorded in the Land
Court on November 4, 2010.
Aff.) at 1.]
[Diehl Decl., Exh. H (Foreclosure
The AOAO argues that, because the Foreclosure
Affidavit and the Quitclaim Deed have been recorded, Plaintiffs
are barred from seeking return of the Unit, pursuant to
11
§ 667-102, as interpreted by the Hawai`i Intermediate Court of
Appeals (“ICA”) in Sakal v. Ass’n of Apartment Owners of
Hawaiian Monarch, 143 Hawai`i 219, 426 P.3d 443 (Ct. App. 2018).7
However, § 667-102 was enacted in 2012 and took effect
on June 28, 2012.
§ 69 at 689.
2012 Haw. Sess. Laws Act 182, § 3 at 644-45,
Thus, the foreclosure sale in this case occurred
before § 667-102 took effect, rendering this case
distinguishable from Sakal.
Compare 12/31/18 Order, 2018 WL
6841818, at *3-5 (stating the foreclosure sale of the Unit, and
the recordation of the relevant documents, occurred in 2010),
with Sakal, 143 Hawai`i at 222, 426 P.3d at 446 (noting the
public auction was “reportedly held” on December 3, 2012, and
the relevant documents were recorded in January 2013).
This
Court must therefore determine whether § 667-102 applies
retroactively to foreclosures that occurred before the statute
took effect.
Because there is no Hawai`i case law addressing
whether § 667-102 applies retroactively,8 this Court must predict
7
The Hawai`i Supreme Court granted Christian Sakal’s
application for a writ of certiorari. SCWC-15-0000529, 2019 WL
245225 (Hawai`i Jan. 17, 2019).
8
In Ass’n of Apartment Owners of Terrazza/Cortebella/Las
Brisas/Tiburon ex rel. Board of Directors v. Lopez (“Lopez”),
the association foreclosed on a lien for unpaid assessments and
conveyed the unit to itself. It recorded the foreclosure
affidavit and the quitclaim deed in the Land Court, all before
§ 667-102 took effect. Lopez, NO. CAAP-14-0001093, 2019 WL
336919, at *1 (Hawai`i Ct. App. Jan. 28, 2019). The association
(. . . continued)
12
how the Hawai`i Supreme Court would decide the issue.
See
3/30/17 Order, 2017 WL 1240181, at *5 (some citations omitted)
(citing Trishan Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 427
(9th Cir. 2011)).
Regarding the retroactive effect of civil
statutes, th[e Hawai`i Supreme C]ourt has stated:
HRS § 1–3 (1993) provides that “[n]o law has
any retrospective operation, unless
otherwise expressed or obviously intended.”
Also, this court has noted the “general rule
in most jurisdictions that [s]tatutes or
regulations which say nothing about
retroactive application are not applied [to
prior claims or events] if such a
construction will impair existing rights,
create new obligations or impose additional
duties with respect to past transactions.”
Clark v. Cassidy, 64 Haw. 74, 77 n.6, 636
P.2d 1344, 1346 n.6 (1981).
Wong v. Takeuchi, 88 Hawai`i 46, 51, 961 P.2d
611, 616 (1998) (citing State of Hawai`i Org. of
Police Officers v. Society of Professional
Journalists, 83 Hawai`i 378, 389, 927 P.2d 386,
397 (1996)) (Some brackets added.).[9]
rented the unit to third-parties, who became delinquent in their
rent. The association filed a summary possession action against
the renters, and the original owner sought to intervene. Id. at
*2. The ICA vacated the judgment, holding that the district
court did not have jurisdiction over the action because the
title to the unit was at issue. Id. at *7. One of the issues
was whether § 667-102 applied, but the ICA did not have to
address that issue because the existence of issues regarding
title was dispositive of the appeal. See id. (noting that
§ 667-102 “may potentially raise an additional issue regarding
title to the Property” (emphasis added)).
9
SHOPO was superseded by statute on other grounds. See
Peer News LLC v. City & Cty. of Honolulu, 138 Hawai`i 53, 55,
376 P.3d 1, 3 (2016).
13
Nevertheless, under an equally established rule
of construction, a statute providing remedies or
procedures that do not affect existing rights,
but merely alter the means of enforcing or giving
effect to such rights, may apply to pending
claims — even those arising before the effective
date of the statute. See Clark, 64 Haw. at 77,
636 P.2d at 1347 (citations omitted).
Tam v. Kaiser Permanente, 94 Hawai`i 487, 495, 17 P.3d 219, 227
(2001) (some alterations in Tam) (some citations omitted).
Act 182 does not state that the statutes enacted
therein are retroactive.
See 2012 Haw. Sess. Laws Act 182, § 69
at 689 (stating the Act “shall take effect upon its approval,”
with certain exceptions, none of which apply to § 667-L in
section 3 of the Act, which became § 667-102).
Nor is there any
indication in the legislative history of Act 182 that the
legislature intended § 667-102 to apply retroactively.10
Therefore, § 667-102 does not apply to the foreclosure of the
Unit if retroactive application would “impair existing rights,
create new obligations or impose additional duties with respect
to past transactions.”
See Wong, 88 Hawai`i at 51, 961 P.2d at
616 (some citations and quotation marks omitted).
10
The legislature did intend to “[e]stablish a time limit
for filing actions to void title transfers of foreclosed
property.” H. Stand. Comm. Rep. No. 626-12, in 2012 House
Journal, at 1186. However, it cannot be inferred from that
intent alone that the legislature intended § 667-102 to be
retroactive, particularly since Act 182 also repealed
Chapter 667, Part I. See 2012 Haw. Sess. Laws Act 182, §§ 50-54
at 684.
14
The AOAO’s interpretation of § 667-102 would clearly
impose additional duties with respect to the foreclosure of the
Unit, a transaction that occurred before § 667-102 was enacted.
See Trans. of 4/12/19 hrg. (“4/12/19 Hrg. Trans.”), filed
4/24/19 (dkt. no. 222), at 30 (the AOAO’s counsel argued, “a
fair reading of that statute says that as of 2012, if you’re in
a situation where the affidavit is recorded and the certificate
is recorded, you better stand up and challenge fast or you lose
your right to claim the title”).
Under the AOAO’s
interpretation, if a foreclosure affidavit and a conveyance
document were recorded before the enactment of § 667-102, as
soon as the statute took effect, the prior owner of the property
was required to raise an immediate challenge to the foreclosure
or lose the ability to recover the property.
That would be so,
even if the statute of limitations applicable to the prior
owner’s claim had not yet passed.
Thus, retroactive application
of § 667-102 would “impose additional duties with respect to [a]
past transaction[].”
The AOAO also argues that § 667-102 applies
retroactively because it is a procedural law, and “there’s a
variety of federal courts that have found that the retroactive
application of a procedural law is far more palatable than the
retroactive application of a substantive law.”
Trans. at 32.]
[4/12/19 Hrg.
However, as previously noted, Hawai`i law
15
controls this Court’s interpretation of the Hawai`i statutes at
issue in this case.
Hawai`i courts also allow the retroactive
application of procedural, as opposed to substantive, statutes.
See, e.g., Kaho`ohanohano v. Dep’t of Human Servs., 117 Hawai`i
262, 314, 178 P.3d 538, 590 (2008) (“in the absence of any
indication as to retroactive application, [the statute will]
only be applied retroactively if such construction would result
in a mere remedial or procedural change”).
The Hawai`i Supreme
Court has stated:
Substantive rights are generally defined as
rights which take away or impair vested rights
acquired under existing laws, or create a new
obligation, impose a new duty, or attach a new
disability in respect to transactions or
considerations already past, as distinguished
from remedies or procedural laws which merely
prescribe methods of enforcing or giving effect
to existing rights.
Clark, 64 Haw. at 77, 636 P.2d at 1346–47 (footnote and internal
quotation marks omitted).
Thus, under Hawai`i case law,
§ 667-102 affects Plaintiffs’ substantive rights because
applying it retroactively would “attach a new disability” to a
past transaction.
As further evidence that § 667-102 does not apply
retroactively to the foreclosure of the Unit, the Court notes
there was a similar statute to § 667-102 already in effect in
2010 – Haw. Rev. Stat. § 667-33.
However, § 667-33 was part of
Chapter 667, Part II; there was no corresponding statute in
16
Part I.
If the legislature intended for the terms of § 667-33
to apply to Part I, it would have included a similar statute
within Part I.
Further, the benefits to foreclosing lienholders
in Part II were only provided if the lienholder complied with
the requirements of Part II.
Allowing lienholders to have the
benefits of Part II without complying with the requirements of
Part II would render the Part II requirements meaningless, which
would be contrary to the well-settled principles of statutory
interpretation.
See, e.g., Kaheawa Wind Power, LLC v. Cty. of
Maui, 135 Hawai`i 202, 209, 347 P.3d 632, 639 (Ct. App. 2014)
(discussing rules governing statutory construction (quoting In
re Ainoa, 60 Haw. 487, 490, 591 P.2d 607, 609 (1979); Potter v.
Hawaii Newspaper Agency, 89 Hawai`i 411, 422, 974 P.2d 51, 62–63
(1999))).
On the basis of the foregoing, this Court predicts
that the Hawai`i Supreme Court would hold that § 667-102 does
not apply retroactively to the foreclosure sale of Plaintiffs’
Unit.
This Court therefore rejects the AOAO’s argument that
§ 667-102 precludes Plaintiffs from seeking the return of the
Unit as a remedy for their wrongful foreclosure claim.
B.
Election of Remedies
The AOAO next argues that, even if it would have been
legally possible for Plaintiffs to obtain return of the Unit in
this action, they can no longer do so because they have already
17
elected to pursue a damages remedy.
The Hawai`i Supreme Court
has stated:
when there exists two or more concurrent but
inconsistent remedies, as here, the equitable
doctrine of election of remedies provides that:
[A] plaintiff need not elect, and cannot be
compelled to elect between inconsistent
remedies during the course of trial. If,
however, a plaintiff has unequivocally and
knowledgeably elected to proceed on one of
the remedies he or she is pursuing, he or
she may be barred recourse to the other.
The doctrine acts as a bar precluding a
plaintiff from seeking an inconsistent
remedy as a result of his or her previous
conduct or election.
Cieri v. Leticia Query Realty, Inc., 80 Hawai`i
54, 71, 905 P.2d 29, 46 (1995) (internal
quotation marks, citations, brackets, and
ellipses omitted) (emphasis in original). The
purpose of the election of remedies doctrine “is
not to prevent recourse to any remedy, or to
alternative remedies, but to prevent double
recoveries or redress for a single wrong.” 25
Am. Jur. 2d Election of Remedies § 3 at 665
(2004) (footnotes omitted).
Exotics Hawaii-Kona, Inc. v. E.I. Du Pont De Nemours & Co., 116
Hawai`i 277, 291, 172 P.3d 1021, 1035 (2007) (alteration and
first emphasis in Exotics Hawaii-Kona) (second emphasis added).
The election-of-remedies doctrine is a procedural
rule, Bischoff v. Cook, 118 Hawai`i 154, 162, 185 P.3d 902, 910
(Ct. App. 2008), and therefore this Court is not required to
follow it.
See MacRae ex rel. Watters v. HCR Manor Care Servs.,
LLC, 691 F. App’x 476, 478 (9th Cir. 2017) (stating “the Erie
18
doctrine . . . provides that federal courts sitting in diversity
jurisdiction follow state substantive law, but not state
procedural law” (citing Erie Railroad Co. v. Tompkins, 304 U.S.
64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938))); Cortez v. Skol, 776
F.3d 1046, 1054 n.8 (9th Cir. 2015) (“[A] federal court
exercising supplemental jurisdiction over state law claims is
bound to apply the law of the forum state to the same extent as
if it were exercising its diversity jurisdiction.” (citation and
quotation marks omitted)).11
However, this district court has followed the
election-of-remedies doctrine from Cieri and Exotics HawaiiKona.
See, e.g., Suzuki v. Helicopter Consultants of Maui,
Inc., Civ. No. 13-00575 JMS-KJM, 2017 WL 2839499, at *1–2 (D.
Hawai`i May 23, 2017); Mauna Kea Beach Hotel Corp. v. Affiliated
FM Ins. Co., CV No. 07-00605 DAE-KSC, 2008 WL 11345955, at *6
(D. Hawai`i Mar. 7, 2008).
This Court agrees that following the
Hawai`i election-of-remedies doctrine is appropriate in this
case to determine whether the return of the Unit is foreclosed
by Plaintiffs’ election for their wrongful foreclosure claim
because the federal election-of-remedies doctrine is
11
This
Plaintiffs’
Plaintiffs’
1240181, at
Court has federal question jurisdiction over
FDCPA claim and supplemental jurisdiction over
state law claims. See 3/30/17 Order, 2017 WL
*5.
19
substantively the same as the Hawai`i doctrine.
See, e.g.,
Teutscher v. Woodson, 835 F.3d 936, 955-56 (9th Cir. 2016)
(describing the election of remedies under federal law).
The fact that the Third Amended Complaint alleges
neither a quiet title claim nor an ejectment claim does not
constitute an unequivocal election to proceed only on a damages
remedy because quiet title and ejectment are remedies implicit
in a wrongful foreclosure claim when the foreclosing entity is
still in possession of the property.
See Gamblin v. Nationstar
Mortg. LLC, Civ. No. 17-00557 ACK-RLP, 2018 WL 5831207, at *14
(D. Hawai`i Nov. 7, 2018) (noting quiet title and ejectment “are
remedies sought for Plaintiffs’ wrongful foreclosure claims”
and, where the plaintiffs do assert quiet title and ejectment
claims, “[t]hese claims are essentially duplicative of
Plaintiffs’ wrongful foreclosure claims against Defendants, and
cannot stand against mortgagees who assert neither title to nor
right of possession of the Property”).
The Third Amended Complaint does not have a specific
prayer for the return of the Unit, but the fact that Plaintiffs
seek return of the Unit can be reasonably inferred from the
language in the prayer for relief.
Plaintiffs seek a judgment
for, inter alia: “their actual losses,” which they list as
distinct from their request for “compensatory damages, treble
damages, [and] punitive damages”; and they also pray for “such
20
other and further relief as this Court deems just and proper
against [the] AOAO.”
[Third Amended Complaint at pg. 9.]
Thus,
the Third Amended Complaint’s prayer for relief is not an
“unequivocal[] and knowledgeabl[e] elect[ion] to proceed on” a
damages remedy alone.
291, 172 P.3d at 1035.
See Exotics Hawaii-Kona, 116 Hawai`i at
Nor is there anything else in the record
that constitutes such an election.
Therefore, the election-of-
remedies doctrine does not preclude Plaintiffs from seeking the
return of the Unit.
The AOAO also argues that Plaintiffs must elect prior
to trial whether they are seeking the return of the Unit or
damages.
The election-of-remedies doctrine does not require a
pretrial election.
Cf. id. (stating the “plaintiff need not
elect, and cannot be compelled to elect between inconsistent
remedies during the course of trial”).
The primary concern of
the doctrine is the avoidance of double recovery.
Id.
If
Plaintiffs ultimately prevail on Count I at trial, they will be
required to elect their remedy prior to the entry of final
judgment, but they are not required to make the election prior
to, or during, trial.
The AOAO Motion is therefore denied as to the AOAO’s
requests for: a ruling that Plaintiffs are precluded from
seeking the return of the Unit; and an order requiring
21
Plaintiffs to elect either the return of the Unit or the damages
remedy prior to trial.
II.
Lost Rental Value
At the hearing on the Motions, Plaintiffs conceded
that lost rental value is only an available remedy if Plaintiffs
recover the Unit.
See Trans. of 4/12/19 hrg. (“4/12/19 Hrg.
Trans.”), filed 4/24/19 (dkt. no. 222), at 24 (“So we would
agree with [Chow’s counsel] that, you know, if we take – if we
say, You keep the property, we shouldn’t be entitled to the
rental income.”).
Because Plaintiffs do not, and cannot, seek
return of the Unit from Chow as a remedy for their FDCPA claim,
lost rental income cannot be considered as a component of
Plaintiffs’ damages for that claim.
Similarly, if Plaintiffs
ultimately elect the damages remedy for their wrongful
foreclosure claim, they would not be entitled to include lost
rental income as an element of their damages.
Therefore, the
AOAO Motion is granted, to the extent that it seeks a ruling
that lost rental income cannot be a component of Plaintiffs’
damages, if they elect the damages remedy.
The Chow Motion is
granted, to the extent that it seeks a ruling that lost rental
income cannot be a component of Plaintiffs’ damages as to
Count II.
Nothing in this ruling, however, precludes Plaintiffs
from seeking prejudgment interest in the event they ultimately
22
elect the damages remedy for their wrongful foreclosure claim
should they prevail at trial.
A.
Wrongful Foreclosure
There is no Hawai`i case law addressing the issue of
whether a plaintiff can recover lost rental income if he
recovers the property in a wrongful foreclosure action.
This
Court must therefore predict how the Hawai`i Supreme Court would
decide the issue.
This district court has stated:
In Hawaii, the common law tort of slander of
title requires a party to establish “special
damages” proximately resulting from a slander of
title. Isobe v. Sakatani, 279 P.3d 33, 42-43
(Haw. Ct. App. 2012) (citing 50 Am. Jur. 2d Libel
and Slander § 530 (2006); B&B Inv. Grp. v.
Gitler, 581 N.W.2d 17, 20 (Mich. Ct. App. 1998)).
Although the Hawaii courts have not extensively
discussed the damages recoverable in an action
for slander of title, the authorities to which
the Isobe court cited provide some illumination.
Specifically, attorney’s fees and lost rent, both
of which Plaintiff seeks here, are recoverable.
See 50 Am. Jur. 2d Libel and Slander § 534
(explaining that a plaintiff may recover “the
attorney’s fees incurred in removing the cloud
upon the plaintiff’s property title.”); B&B Inv.
Grp., 581 N.W.2d at 20 (stating that special
damages include loss of rent). . . .
Bank of New York Mellon v. Perry, Case No. 17-cv-00297 DKW-RLP,
2019 WL 289069, at *1 (D. Hawai`i Jan. 22, 2019).
Whether a
wrongful foreclosure claim is akin to a slander of title claim
depends upon the specific facts of the claim.
Compare Gamblin,
2018 WL 5831207, at *8 n.10 (“Nor does the Court agree with
23
Defendants that ‘the underpinnings of Plaintiffs’ wrongful
foreclosure claim mirror the elements for slander of title.’
Plaintiffs’ wrongful foreclosure claims do not turn on allegedly
false claims made in the Notice of Intent to Foreclose or
Mortgagee’s Affidavit; rather, they are predicated on the
allegedly improper loss of title, possession, and rental value
of the Property that resulted from the foreclosure sale.”
(citations omitted)), with Martin v. GMAC Mortg. Corp., Civil
No. 11-00118 LEK-BMK, 2011 WL 6002617, at *12 (D. Hawai`i
Nov. 30, 2011) (“Plaintiffs may establish a slander of title
claim based on wrongful foreclosure if they can prove that
GMACM’s lien and the foreclosure action was false or otherwise
improper.” (citing Johnson v. Ass’n of Apartment Owners of
Ke Aina Kai Townhomes, CIVIL NO. 06–00106 HG–KSC, 2006 U.S.
Dist. LEXIS 61106, at *27 (D. Haw. Aug. 25, 2006) (rejecting a
slander of title claim based on wrongful foreclosure because it
was undisputed that the defendant “had a statutory right to file
a lien and foreclosure action.
Plaintiffs cannot show that the
filing of the lien and foreclosure action was ‘false’ or
improper because it was sanctioned by existing law.”))).
In the instant case, Plaintiffs have shown that the
foreclosure of the Unit was improper because it was not
sanctioned by the law in effect at the at time.
Further,
Plaintiffs’ wrongful foreclosure claim is based on statements in
24
the foreclosure documents, which falsely assert that the AOAO
had the authority to proceed under Chapter 667, Part I.
Thus,
Plaintiffs’ wrongful foreclosure claim is akin to a slander of
title claim, and this Court predicts that the Hawai`i Supreme
Court would hold that, where the wrongful foreclosure claim is
akin to a slander of title claim, the plaintiff may also recover
lost rent when he recovers the property.
In re Kekauoha-Alisa, 674 F.3d 1083 (9th Cir. 2012),
involved a claim alleging that the manner in which the lender
conducted the foreclosure of the debtor’s property constituted a
deceptive practice, in violation of Haw. Rev. Stat. Chapter 480.
The bankruptcy court awarded, as part the debtor’s damages, lost
rental value for the period when the debtor lost possession of
the property.
Id. at 1092–93.
The Ninth Circuit noted that
“[t]he damages the bankruptcy court awarded all flow from the
foreclosure on Debtor’s home,”12 but the Ninth Circuit reversed
12
The Ninth Circuit noted the damages award “appear[ed] to
give Debtor an inappropriate windfall” because it was undisputed
“that the Mortgage was in default and that the mortgagee was
entitled to foreclose. The only question [wa]s whether the
proper party foreclosed the Mortgage in the proper manner.”
Kekauoha-Alisa, 674 F.3d at 1093. Similarly, in the instant
case, it is undisputed that Plaintiffs were delinquent in their
association fees, and the AOAO was entitled to foreclose on
their lien, if the AOAO had followed the proper procedure.
However, the amount of the AOAO’s lien was small in comparison
to the value of the Unit at the time of the foreclosure sale.
Although the amount of Plaintiffs’ mortgage loans exceeded the
value of the Unit at the time of the foreclosure sale, there is
(. . . continued)
25
the judgment and remanded the case because the bankruptcy court
failed to make findings regarding causation.
Id. at 1093.
The
Ninth Circuit stated remand was
the appropriate course because the factual record
may not be complete — Debtor suggests, for
example, that she can prove that but for Lenders’
improper postponement, she might have succeeded
in curing her default. This fact, if proven,
might establish that Debtor’s temporary loss of
possession of the property was “fairly traceable”
to Lenders’ deceptive practice. Flores [v.
Rawlings Co., 117 Hawai`i 153, 167 n.23], 177
P.3d [341,] 355 n.23 [(Hawai`i 2008).]
Therefore, on remand the bankruptcy court must
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. This framing properly narrows the
inquiry to the damage caused by Lenders’
deceptive postponement. Id. at 357.
Id.
Although Kekauoha-Alisa did not involve a wrongful
foreclosure claim, the factual basis of the Chapter 480 claim
was a wrongful foreclosure.
Therefore, the analysis in
Kekauoha-Alisa supports Plaintiffs’ position that lost rental
value can be part of the damages for a wrongful foreclosure
claim, where the plaintiff recovers the property and establishes
causation.
no indication in the record that either of Plaintiffs’ mortgage
holders was attempting to foreclose. See the discussion infra
of the AOAO’s “under water” argument.
26
If Plaintiffs prevail on Count I and elect the return
of the Unit as their remedy, they will also be entitled to an
award of loss of reasonable rental value.
The Unit’s reasonable
rental value may be established through, for example, evidence
of historical rents for the Unit or other similar units, subject
to the Federal Rules of Evidence.
The AOAO would be entitled to
offset, from the rental value of the Unit, the AOAO’s reasonable
monetary burden of ownership during the period when the AOAO had
title and possession of the Unit.
The reasonable monetary
burden includes, but is not necessarily limited to, property
taxes, association fees, and the cost of reasonable repairs and
maintenance for the Unit.
The AOAO Motion is denied, insofar as this Court rules
that, if Plaintiffs prevail on Count I and elect the return of
the Unit as their remedy, Plaintiffs are also entitled to
recover lost rental value, subject to an offset for the AOAO’s
reasonable burdens of ownership.
B.
FDCPA Claim
If Plaintiffs prevail on their FDCPA claim, they are
entitled to recover, among other things, actual damages, which
are those “sustained as a result of a defendant’s conduct in
violation of the statutes.”
See Slater v. PRA Recovery, Civil
No. 12-00290 HG-RLP, 2012 WL 5269400, at *6 (D. Hawai`i
Sept. 21, 2012) (citing 15 U.S.C. § 1692k(a)(1)), report and
27
recommendation adopted, 2012 WL 5269390 (Oct. 22, 2012); see
also, e.g., Alonso v. Blackstone Fin. Grp. LLC, 962 F. Supp. 2d
1188, 1201 (E.D. Cal. 2013) (“in the Ninth Circuit a plaintiff
may recover for actual damages . . . as long as she has tendered
evidence substantiating that she suffered [the damages] as a
result of the defendant’s FDCPA violations” (citation omitted)).
It is undisputed that Plaintiffs were renting the Unit
prior to the foreclosure.
at *2.
See 12/31/18 Order, 2018 WL 6841818,
If Plaintiffs prevail on Count II at trial, including
establishing causation, Plaintiffs would be able to recover the
lost rental value of the Unit as part of their actual damages.
The measure of Plaintiffs’ lost rental value damages for their
FDCPA claim is the same as the measure for that component of
their wrongful foreclosure damages, i.e., the reasonable rental
value, offset by the reasonable monetary burden of ownership.13
Therefore the Chow Motion is denied, to the extent it seeks a
ruling that Plaintiffs are not entitled to recover lost rent as
an element of their damages for Count II.
13
Plaintiffs would not be able to recover the same damages
from the AOAO as to Count I and from Chow as to Count II.
However, the Motions do not ask this Court to determine how
liability would be apportioned between the AOAO and Chow if
Plaintiffs prevail on both claims. This Court therefore makes
no findings or conclusions on that issue at this time.
28
III. Measure of the Damages Remedy
If Plaintiffs prevail on Count I, they may ultimately
elect the damages remedy in lieu of the return of the Unit.
Again, this Court concludes that Santiago controls the
determination of the measure of Plaintiffs’ damages remedy.
Although voiding the foreclosure sale in Santiago was
impracticable because the Tavern had been sold to a third-party,
voiding the foreclosure sale of the Unit would not be
impracticable in this case if Plaintiffs elect the damages
remedy.
In determining the appropriate relief for the
Santiagos’ wrongful foreclosure claim, the Hawai`i Supreme Court
stated:
Jenkins v. Wise, 58 Haw. 592, 574 P.2d 1337
(1978), is instructive. In that case, even
though this court found the purchaser to be in
default, we disapproved of the circuit court’s
disposition that essentially effectuated a total
forfeiture of the purchaser’s interest, in part
because the seller’s “security interests in the
property were never in jeopardy.” Id. at 598,
574 P.2d at 1342. In this context, the court
found that “where no injustice would thereby
result to the injured party, equity will
generally favor compensation rather than
forfeiture against the offending party.” Id. at
597, 574 P.2d at 1341. Thus, instead of
cancelling the purchase contract and depriving
the purchaser of the property and the significant
amount of money that she already paid, this court
ordered the purchaser of the property to pay the
seller the entire unpaid balance of the purchase
price and accrued interests in exchange for
specific performance by the seller under the
purchase contract. Id. at 604, 574 P.2d at 1345.
29
Similar to Jenkins, Tanaka’s security
interests in the Tavern were never in jeopardy.
At the time of their ejectment, the Santiagos had
made virtually full payment to Tanaka for the
Tavern, including an $800,000 down payment and
$585,161.60 in mortgage payments. Hence, we
exercise our equitable power in awarding
restitution to the Santiagos so as to prevent
forfeiture of their interests. Accordingly, we
conclude that the Santiagos are entitled to
restitution of their proven out-of-pocket losses
from Tanaka’s wrongful foreclosure of the
Mortgage and subsequent sale of the Tavern. See
Fleming v. Napili Kai, Ltd., 50 Haw. 66, 70, 430
P.2d 316, 319 (1967) (declaring that equity
jurisprudence “is not bound by the strict rules
of the common law, but can mold its decrees to do
justice amid all the vicissitudes and intricacies
of life” (quoting Bowen v. Hockley, 71 F.2d 781,
786 (4th Cir. 1934))). This amount is equal to
the undisputed $800,000 down payment that the
Santiagos paid for the Tavern, $585,161.60 in
mortgage payments from September 2006 to March
2011, consisting of principal, interest, and
fees, $17,518.31 that the Santiagos were required
to pay in closing charges associated with the
sale, and $10,110.88 in property taxes that the
Santiagos paid after Tanaka had wrongfully sold
the Tavern back to herself. . . .
Santiago, 137 Hawai`i at 158, 366 P.3d at 633 (emphasis added).
The AOAO makes much of the fact that the Unit was
“under water” at the time of the foreclosure sale.
Hrg. Trans. at 36.
See 4/12/19
Plaintiffs purchased the Unit in 2006 with a
$249,600 first mortgage loan and a $62,400 second mortgage loan.
12/31/18 Order, 2018 WL 6841818, at *1.
The lien on the Unit
for unpaid association fees that the AOAO recorded on April 1,
2010 was for $6,882.86.
Id. at *2.
The amount Plaintiffs owed
to the AOAO grew, including late fees and attorneys’ fees and
30
costs.
According to a demand letter dated August 30, 2010,
Plaintiffs owed $10,697.40.
Id. at *2-4.
The parties have submitted evidence that, at the time
of the foreclosure sale, the Unit was only worth $249,000.
[Concise statement of facts in supp. of Chow Motion (“Chow
CSOF”), filed 2/6/19 (dkt. no. 185), Decl. of Christopher T.
Goodwin (“Goodwin Decl.”), Exh. 7 (Pltf. Rudy Akoni Galima’s
response to the AOAO’s request for answers to interrogs., dated
3/1/18) at Answer no. 5; Goodwin Decl., Exh. 8 (Pltf. Beatriz
Galima’s response to the AOAO’s request for answers to
interrogs., dated 3/1/18) at Answer no. 5; Diehl Decl., Exh. J
(Individual Condo Unit Appraisal Report) at 4.]
The AOAO
therefore argues it had to foreclose to collect upon its lien,
and Plaintiffs suffered no injury in the wrongful foreclosure
because Plaintiffs had no equity in the Unit.
However, there is
no evidence in the current record that, at the time the AOAO
initiated the Part I foreclosure process for the Unit, either
the holder of Plaintiffs’ first mortgage or the holder of their
second mortgage: 1) was attempting to foreclose; or 2) asserted
a claim against any proceeds that the AOAO’s foreclosure sale of
the Unit would generate.14
Nor have the parties presented any
14
Plaintiffs’ counsel represented that, while Plaintiffs
were attempting to complete a “short sale” of the Unit, they
satisfied the second mortgage. [4/12/19 Hrg. Trans. at 46.]
(. . . continued)
31
evidence that either of Plaintiffs’ mortgagees attempted to
foreclose after the AOAO had title to and possession of the
Unit.15
Plaintiffs have presented evidence that, after the
foreclosure sale, they remain liable on the first mortgage loan.
See 12/31/18 Order, 2018 WL 6841818, at *5.
Viewing the current record in the light most favorable
to Plaintiffs, see Crowley v. Bannister, 734 F.3d 967, 976 (9th
Cir. 2013), this Court finds that, like the creditors in Jenkins
and Santiago, the AOAO’s security interest was not in jeopardy
at the time of the improper Chapter 667, Part I foreclosure of
the Unit.
Therefore, pursuant to Santiago, if Plaintiffs
prevail on Count I and elect the damages remedy, they will be
“entitled to restitution of their proven out-of-pocket losses
from [the AOAO]’s wrongful foreclosure.”
See 137 Hawai`i at
158, 366 P.3d at 633.
However, because the nature of the AOAO’s lien is
fundamentally different from the mortgage that was foreclosed
upon in Santiago, the measure of Plaintiffs’ out-of-pocket
Because that fact is not apparent from the evidence in the
current record, that fact has not been considered in this
Court’s analysis of the Motions.
15
It appears from the state judiciary’s public access
website that, on September 25, 2013, Deutsche Bank National
Trust Co. filed a foreclosure action against, inter alia,
Plaintiffs and the AOAO in state court. However, on January 24,
2014, the case was dismissed without prejudice, by stipulation.
32
losses from the wrongful foreclosure is different from the
measure of the Santiagos’ out-of-pocket losses.
Here, it is
undisputed that Plaintiffs were delinquent in their association
fees and that the AOAO properly placed a lien on the Unit.
This
Court has ruled, as a matter of law, that the AOAO was not
authorized to utilize Chapter 667, Part I and was instead
required to utilize Part II.
It is also undisputed that the
AOAO did not follow the procedures required under Part II.
Plaintiffs have presented evidence that, prior to the
foreclosure, they were attempting to complete a short sale of
the Unit.
[Blood AOAO Decl., Exh. A (Decl. of Rudy Akoni
Galima, dated 1/17/18) at ¶ 20.16]
Based on the facts of this
case, Plaintiffs’ out-out-pocket loss from the AOAO’s wrongful
foreclosure of the Unit is the amount that the Unit would have
sold for without the AOAO’s illegal use of Part I.
Defendants have taken the position that the basis of
Plaintiffs’ damages is the hypothetical Part II Foreclosure
Value.
Plaintiffs’ position appears to be that, in the
additional time it would have taken for the AOAO to comply with
the procedural requirements of Part II, Plaintiffs would have
16
Rudy Galima’s declaration was originally filed in support
of Plaintiffs’ motion for summary judgment, which was granted in
part and denied in part in the 12/31/18 Order. See, e.g.,
12/31/18 Order, 2018 WL 6841818, at *2 (citing declaration); see
also Blood AOAO Decl. at ¶ 2.
33
been able to either complete the short sale or otherwise sell
the Unit for its fair market value at the time.
In other words,
there would have been no Part II foreclosure sale.
The
determination of which theory is the correct measure of damages
in this case involves factual issues.
See Kekauoha-Alisa, 674
F.3d at 1092 (“The proper calculation of damages and causation
are questions of fact under Hawaii law . . . .” (some citations
omitted) (citing Kato v. Funari, 118 Hawai`i 375, 191 P.3d 1052,
1058 (2008) (damages are question of fact))).
Summary judgment
is not possible because there are genuine issues regarding the
material facts relevant to the determination of the correct
measure of damages.
See Fed. R. Civ. P. 56(a).
Further, the
resolution of the factual issues necessary to determine the
correct measure of damages will involve weighing competing
evidence and making credibility determinations, both of which
this Court cannot do on summary judgment.
See Blankenhorn v.
City of Orange, 485 F.3d 463, 470 (9th Cir. 2007) (quoting
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct.
2505 (1986)).
This Court therefore concludes that, if Plaintiffs
prevail on Count I and elect a damages remedy, Plaintiffs are
entitled to recover the amount that the Unit would have sold for
without the AOAO’s illegal use of Part I.
34
However, this Court
cannot determine the correct measure of that amount at this
time.
Further, this Court rejects the AOAO’s argument that
the amount the Unit would have sold for without the AOAO’s
illegal use of Part I must be off set by Plaintiffs’ obligations
on their mortgages.
Plaintiffs’ mortgage loans are separate
legal obligations which are not before the Court in this action.
Plaintiffs’ mortgage holders are not parties to this case.
Nor
has any, much less admissible, evidence been presented that the
mortgage holders have sought to foreclose and recover
satisfaction of their liens.
Further, although title to the
Unit is at issue in this case, the determination of the proper
title holder of the Unit does not place Plaintiffs’ mortgages at
issue because Hawai`i follows the lien theory regarding
mortgages, not a title theory.
See Heejoon Chung v. U.S. Bank,
N.A., CIVIL NO. 16-00017 ACK-RLP, 2016 WL 9525596, at *3 (D.
Hawai`i Nov. 1, 2016) (distinguishing between the title theory,
which Hawai`i followed in the early 1900’s, and the lien theory,
which Hawai`i has followed since 1939).17
Thus, it is not for
this Court to decide whether, or to what extent, Plaintiffs’
17
“The lien theory is codified by Hawaii Revised Statute
Section 506-1, which states that a mortgage on real property
shall create only a lien ‘and shall not be deemed to pass
title.’” Heejoon Chung, 2016 WL 9525596, at *3 (quoting Haw.
Rev. Stat. § 506–1).
35
mortgagees can assert a claim to any monetary award Plaintiffs
may obtain as to Count I.
This Court concludes that, if
Plaintiffs prevail on Count I and elect the damages remedy,
their damages are not reduced by the amounts of Plaintiffs’
mortgage obligations.18
To the extent the AOAO Motion also asserts this Court
must off-set the amount Plaintiffs still owe on the AOAO’s lien,
that argument is also rejected.
The AOAO did not assert a
counterclaim against Plaintiffs.
See AOAO’s Answer to Third
Amended Complaint, filed 6/5/17 (dkt. no. 89).
Further, on
November 4, 2015, the AOAO filed a Complaint (Assumpsit-Money
Owed) against Plaintiffs in a state district court to collect:
$9,331.83 in maintenance fees; $943.16 in late fees; and
$6,744.88 in attorneys’ fees and costs (“Collection
Complaint”).19
[Blood AOAO Decl., Exh. I.]
To the extent that
18
As to this argument, and others, the AOAO has presented a
myriad of cases from other jurisdictions, which the AOAO argues
support its positions. Those cases are not persuasive, either
because: 1) there is controlling Hawai`i law on point; or
2) where there is no controlling Hawai`i law, this Court can
predict how the Hawai`i Supreme Court would decide the issue, in
light of related principles in controlling Hawai`i law or in
other authorities interpreting and applying Hawai`i law. Thus,
it is not necessary for this Court to consider the AOAO’s case
law from other jurisdictions.
19
It appears from the state judiciary’s public access
website that the Collection Complaint was dismissed without
prejudice by the state court, sua sponte, on December 6, 2018.
36
the AOAO asks this Court to issue rulings regarding the AOAO’s
entitlement to amounts it sought in the Collection Complaint,
this Court declines to do so because such a ruling would be
impermissible under the Rooker-Feldman doctrine.
See Bianchi v.
Rylaarsdam, 334 F.3d 895, 898 (9th Cir. 2003); see also Rooker
v. Fidelity Trust Co., 263 U.S. 413 (1923); D.C. Court of
Appeals v. Feldman, 460 U.S. 462 (1983).20
Finally, if Plaintiffs prevail on Count I and elect a
damages remedy, the amount that the Unit would have sold for
without the AOAO’s illegal use of Part I will also be the
starting point for Plaintiffs’ actual damages if they prevail on
Count II and they establish causation.
20
The Ninth Circuit stated:
Rooker–Feldman is a powerful doctrine that
prevents federal courts from second-guessing state
court decisions by barring the lower federal courts
from hearing de facto appeals from state-court
judgments: If claims raised in the federal court
action are “inextricably intertwined” with the state
court’s decision such that the adjudication of the
federal claims would undercut the state ruling or
require the district court to interpret the
application of state laws or procedural rules, then
the federal complaint must be dismissed for lack of
subject matter jurisdiction. See Feldman, 460 U.S. at
483 n.16 & 485, 103 S. Ct. 1303. Simply put, “the
United States District Court, as a court of original
jurisdiction, has no authority to review the final
determinations of a state court in judicial
proceedings.” Worldwide Church of God v. McNair, 805
F.2d 888, 890 (9th Cir. 1986).
Bianchi, 334 F.3d at 898.
37
IV.
Other Components of Plaintiffs’ Damages
Although the Motions do not seek rulings as to the
following potential components of Plaintiffs’ damages, this
Court provides the analysis below in order to provide guidance
to the parties.
Plaintiffs argue that, if they prevail on Count I and
elect a damages remedy, they would be entitled to prejudgment
interest on the award.
The Hawai`i Supreme Court has stated:
Prejudgment interest is “essentially
compensatory in nature” and is “given on money
demands as damages for delay in payment, being
just compensation to the plaintiff for a default
on the part of his debtor.” Sussel v. Civil
Serv. Comm’n, 74 Haw. 599, 618–19, 851 P.2d 311,
321, reconsideration denied, 74 Haw. 650, 857
P.2d 600 (1993) (quoting Lucas v. Liggett & Myers
Tobacco Co., 51 Haw. 346, 349, 461 P.2d 140, 143
(1969)). See also Amfac, Inc. [v. Waikiki
Beachcomber Inv. Co.], 74 Haw. [85,] 137, 839
P.2d [10,] 36 [(1992)] (“The purpose of [HRS
§ 636–1621 is] to allow the court to designate the
commencement date of interest in order to correct
the injustice when a judgment is delayed for a
long period of time for any reason, including
litigation delays.” (Citations and internal
quotation marks omitted.)).
21
Haw. Rev. Stat. § 636-16 states:
In awarding interest in civil cases, the judge is
authorized to designate the commencement date to
conform with the circumstances of each case,
provided that the earliest commencement date in
cases arising in tort, may be the date when the
injury first occurred and in cases arising by
breach of contract, it may be the date when the
breach first occurred.
38
The plaintiffs-appellees maintain, somewhat
hyperbolically, that prejudgment interest is
“virtually mandatory” and is a “right” recognized
at common law. More moderately, the plaintiffsappellees acknowledge that this court has stated
that “prejudgment interest is to be allowed
wherever it is properly proved.” Sussel, 74 Haw.
at 618, 851 P.2d at 313 (citing City and County
of Honolulu v. Caetano, 30 Haw. 1 (1927)).
However, it is clearly within the discretion of
the circuit court to deny prejudgment interest
where appropriate, for example, where: (1) the
defendant’s conduct did not cause any delay in
the proceedings, see Amfac, Inc., 74 Haw. at 137,
839 P.2d at 36; (2) the plaintiff himself has
caused or contributed to the delay in bringing
the action to trial, see Schmidt v. Board of
Directors of the Association of Apartment Owners
of the Marco Polo Apartments, 73 Haw. 526, 534–
35, 836 P.2d 479, 484 (1992); or (3) an
extraordinary damage award has already adequately
compensated the plaintiff, see Leibert v. Finance
Factors, Ltd., 71 Haw. 285, 293, 788 P.2d 833,
838 (holding that it was an abuse of discretion
for the circuit court to award prejudgment
interest to a treble damages award),
reconsideration denied, 71 Haw. 664, 833 P.2d 899
(1990).
Roxas v. Marcos, 89 Hawai`i 91, 153, 969 P.2d 1209, 1271 (1998)
(some alterations in Roxas).
The AOAO Motion also seeks a ruling that Plaintiffs
are barred from relying on a conversion theory of damages at
trial.
Based on the analysis, supra, it is not necessary to
address Plaintiffs’ alternate damages theory based on
conversion.
However, this Court notes that the AOAO had notice
that Plaintiffs’ wrongful foreclosure claim was based, in part,
on a conversion theory.
See Third Amended Complaint at ¶ 34.
39
Finally, although the Chow Motion focuses on the
portion of Plaintiffs’ actual damages related to the value of
the Unit, this Court notes that emotional distress damages are
also available as part of actual damages under the FDCPA.
See,
e.g., McCollough v. Johnson, Rodenburg & Lauinger, LLC, 637 F.3d
939, 957–58 (9th Cir. 2011) (holding there was sufficient
evidence to support the jury’s award of $250,000 in actual
damages, based on the plaintiff’s testimony and that of his
examining psychologist).
However, in considering whether the
plaintiff is entitled to emotional distress damages (and, if so,
how much), the court must “consider[] the frequency and
persistence of noncompliance by Defendants, the nature of such
noncompliance, and the extent to which such noncompliance was
intentional.”
Slater v. PRA Recovery, Civil No. 12-00290 HG-
RLP, 2012 WL 5269400, at *6 (D. Hawai`i Sept. 21, 2012) (citing
15 U.S.C. § 1692k(b)), report and recommendation adopted, 2012
WL 5269390 (Oct. 22, 2012).
The Court raises these issues solely to provide
guidance to the parties.
The Court makes no findings or
conclusions as to whether or not Plaintiffs would be entitled to
interest or conversion damages if they prevail on Count I, or
emotional distress damages if they prevail on Count II.
The
Court notes that the Motions did not present any issues related
to damages for Count V.
40
CONCLUSION
On the basis of the foregoing, Chow’s Motion for
Summary Judgment Regarding the Measure of Damages Under the Fair
Debt Collection Practices Claim in Count II of the Third Amended
Complaint [Dkt. 88] and the AOAO’s Motion for Partial Summary
Judgment Limiting Plaintiffs’ Measure of Damages Arising out of
Their Claim for Wrongful Foreclosure, both of which were filed
February 6, 2019, are HEREBY GRANTED IN PART AND DENIED IN PART.
The Motions are GRANTED insofar as Plaintiffs have conceded
that, if they prevail on their wrongful foreclosure claim and
elect the damages remedy, they would not be entitled to recover
lost rental value as part of their damages.
Further, in that
instance, Plaintiffs would also be precluded from including lost
rental value in their damages for their FDCPA claim.
The
Motions are DENIED in all other respects.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAI`I, May 3, 2019.
RUDY AKONI GALIMA, ET AL. VS. AOAO OF PALM COURT, ET AL; CV 1600023 LEK-RT; ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS' MOTION FOR SUMMARY JUDGMENT REGARDING DAMAGES
41
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