Lynch v. The Bank Of New York Mellon et al
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS NETTLETON S. PAYNE III AND DIANE ELIZABETH PAYNE'S MOTION TO DISMISS RE 10 MOTION to Dismiss. Signed by JUDGE LESLIE E. KOBAYASHI on 08/15/2017. Th e Court GRANTS Plaintiffs leave to amend their quiet title claim against the Paynes. Plaintiffs do not have leave to add any new parties, claims, or theories of liability. Plaintiffs must file their second amended complaint by September 11, 2017. If Plaintiffs fail to file their second amended complaint by September 11, 2017, the claim will be dismissed with prejudice. (eps, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
CIVIL 17-00195 LEK-RLP
ROBERT JOHN LYNCH III and
JENNIFER ANN LYNCH,
BANK OF NEW YORK MELLON;
NETTLETON S. PAYNE III; DIANE )
ELIZABETH PAYNE; MORTGAGE
SYSTEMS, INC., and DOE
ORDER GRANTING IN PART AND DENYING
IN PART DEFENDANTS NETTLETON S. PAYNE III
AND DIANE ELIZABETH PAYNE’S MOTION TO DISMISS
Defendants Nettleton S. Payne III and Diane Elizabeth
Payne’s (“the Paynes”) “FRCP Rule 12(B)(6) Motion to Dismiss
Plaintiffs Robert John Lynch and Jennifer Ann Lynch’s First
Amended Complaint Filed on July 22, 2016” (“Motion”) was filed on
May 15, 2017.
[Dkt. no. 10.]
Plaintiffs Robert John Lynch and
Jennifer Ann Lynch (“Plaintiffs”), filed their memorandum in
opposition on May 26, 2017, and the Paynes filed their reply on
June 5, 2017.
[Dkt. nos. 17, 18.]
This matter came on for
hearing on June 19, and the Paynes’ Motion is hereby granted in
part and denied in part for the reasons set forth below.
This action arises out of the foreclosure of
Plaintiffs’ fee simple condominium unit in Kamuela, Hawai`i (the
“Property”), which was purchased in 2001.
[Notice of Removal,
Decl. of Summer H. Kaiawe (“Kaiawe Decl.”), Exh. 3 (First Amended
Complaint) at ¶ 16.]
In 2005, Plaintiffs obtained a loan in the
amount of $2,000,000, secured by a mortgage on the Property (the
[Id. at ¶ 17.]
By virtue of an assignment of the
Mortgage, recorded on August 27, 2009, Defendant Bank of New York
Mellon (“BONY”) became the mortgagee and commenced foreclosure
proceedings against Plaintiffs.
[Id. at ¶¶ 19-21.]
of Haw. Rev. Stat. § 667-5 (part of the state’s foreclosure
statute) in effect at the time of the foreclosure required that
the foreclosing mortgagee act through a licensed Hawai`i
attorney, and that the attorney comply with the mortgage’s
provisions governing the mortgagee’s power of sale.
Mortgage contained a provision requiring a mortgagee exercising
the power of sale to sell the Property at a time and place set
forth in a published notice (“Published Sale Provision”).
at ¶ 21.]
BONY recorded a Notice of Mortgagee’s Intention to
Foreclose Under Power of Sale (“Notice of Sale”) in the State of
Hawai`i Bureau of Conveyances (“BOC”) on August 27, 2009.
[Kaiawe Decl., Exh. 6 (Mortgagee’s Affidavit of Foreclosure Under
Power of Sale (“Foreclosure Affidavit”)), Exh. H (Notice of
BONY published the Notice of Sale on August 4, 11, and
18, 2009, in the West Hawaii Today, a newspaper of general
circulation in the county where the Property is located.
[Foreclosure Affidavit at 2.]
The Notice of Sale stated that the
auction of the Property would take place on September 18, 2009,
at the Third Circuit Court Building, but the auction did not take
place on that date.
[Notice of Sale at 1; First Amended
Complaint at ¶ 23.] No other notice of an auction date was ever
Plaintiffs allege that BONY had no right to foreclose
until it published proper notice of the new auction date, and
failed to use a Hawai`i attorney for the foreclosure process.
[First Amended Complaint at ¶ 27, ¶14.b.]
BONY held the
foreclosure sale by public auction on October 23, 2009, and BONY
was the sole bidder.
[Foreclosure Affidavit at 2.]
On May 14, 2010, BONY executed a quitclaim deed
conveying the Property to itself, and recorded that deed on
June 1, 2010.
[Id. at ¶ 28.]
BONY sold the Property to the
Paynes and recorded a limited warranty deed on November 5, 2010.
[Id. at ¶ 32.]
Plaintiffs allege that, because BONY failed to
satisfy all of the conditions required for lawful foreclosure
under the Mortgage and Haw. Rev. Stat. Chapter 667, Part I
(2009), the transfer of the Property to BONY was void.
Therefore, BONY had no title to convey to the Paynes.
BONY recorded the Foreclosure Affidavit in the BOC on
November 5, 2009.
Plaintiffs argue that the Paynes: had “record notice”
that BONY had not complied with the provisions in the Mortgage
governing the mortgagee’s exercise of its power of sale (“Power
of Sale Provisions”) nor the provisions of Chapter 667, Part I;
and were aware that BONY made no warranty of title.
Plaintiffs filed their First Amended Complaint on
July 22, 2016, in state court, and the action was removed to
federal court based on diversity jurisdiction.
Removal, filed 4/28/17 (dkt. no. 1), at ¶¶ 11-12.]
The First Amended Complaint alleges a wrongful
foreclosure claim against BONY (“Count I”); and a quiet title
claim against the Paynes (“Count II”).
As against the Paynes,
Plaintiffs seek return of title and possession of the Property.
[Id. at ¶¶ 48-49.]
The Paynes seek to dismiss the quiet title claim
against them with prejudice, and argue that this claim accrued at
the October 23, 2009 foreclosure sale, and the six-year
limitations period under Haw. Rev. Stat. § 657-1(4) applies to
the quiet title claim.2
Because Plaintiffs did not bring this
action until May 13, 2016, the Paynes submit that Plaintiffs’
quiet title claim is time-barred.
[Mem. in Supp. of Motion at
Section 657-1 provides in relevant part: “The following
actions shall be commenced within six years next after the cause
of action accrued, and not after: . . . . (4) Personal actions of
any nature whatsoever not specifically covered by the laws of the
However, the date as to when the quiet title claim accrued
cannot be ascertained from the parties’ submissions.
whether the quiet title claim is time-barred cannot be determined
based on the current record.
Nevertheless, the Motion must be granted because
Plaintiffs fail to allege plausible facts that the Paynes were
not bona fide purchasers and therefore the First Amended
Complaint fails to state a claim against the Paynes.
reason, whether the quiet title claim is time-barred need not be
Consideration of Exhibits
“[G]enerally the scope of review on a motion to dismiss
for failure to state a claim is limited to the Complaint.”
Daniels–Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir.
“[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
Id. (citations and internal quotation marks
Ordinarily, consideration of other materials requires
the district court to convert a motion to dismiss into a motion
for summary judgment.
Yamalov v. Bank of Am. Corp., CV. No.
10–00590 DAE–BMK, 2011 WL 1875901, at *7 n.7 (D. Hawai`i May 16,
2011) (citing Parrino v. FHP, Inc., 146 F.3d 699, 706 n.4 (9th
The Paynes submitted a copy of the Foreclosure
Affidavit as an exhibit to the Notice of Removal.
The Note of Sale was Exhibit H to the Foreclosure
Exhibit 6 and Exhibit H meet all of the requirements
stated in Daniels–Hall.
Further, the First Amended Complaint
refers to the Notice of Sale and the Foreclosure Affidavit,
[First Amended Complaint at ¶¶ 22-24 (Notice of Sale); id. at ¶
31 (Foreclosure Affidavit),] and these documents are central to
Plaintiffs’ theory that the Paynes are not bona fide purchasers.
No party questions the authenticity of either Exhibit 6 or
The Foreclosure Affidavit and the Notice of Sale can
be considered therefore without converting the instant Motion
into a motion for summary judgment.
Bona Fide Purchaser
Return of title and possession of the Property from the
Paynes is sought based upon the transfer of title after an
allegedly defective foreclosure sale.
However, the Hawai`i
Supreme Court has held that,
“[w]here it is determined that the nonjudicial
foreclosure of a property is wrongful, the sale 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)]. We also held that where
Parrino was superseded by statute on other grounds, as
stated in Abrego Abrego v. The Dow Chemical Co., 443 F.3d 676,
681–82 (9th Cir. 2006) (per curiam).
the property has passed into the hands of an
innocent purchaser for value, rendering the
voiding of a foreclosure sale impracticable, an
action at law for damages is generally the
appropriate remedy. Id.
Mount v. Apao, 139 Hawai`i 167, 180, 384 P.3d 1268, 1281 (2016)
Thus, in order for Plaintiffs to regain title
to the Property after it was purchases by the Paynes, Plaintiffs
must prove that the Paynes were not innocent purchasers for
value, i.e., bona fide purchasers.
In order to state a plausible quiet title claim against
the Paynes, sufficient factual allegations must be pled to allow
reasonable inference that the Paynes are not bona fide
See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(“To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” (quoting Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955 (2007))).
The First Amended Complaint is woefully incomplete to maintain
such a claim.
Plaintiffs assert that the Published Sale Provision
required BONY to sell the Property at the time and place
specified in the Notice of Sale.
¶ 25 (quoting Mortgage at ¶ 22).]
[First Amended Complaint at
Plaintiffs claim that BONY’s
recording of the Notice of Sale with the BOC provided the Paynes
with “record notice,” i.e. constructive notice, that the nonjudicial foreclosure sale and transfer of the Property from BONY
to BONY was void.
[Id. at ¶¶ 43-44.]
Plaintiffs’ theory is that
BONY’s Notice of Sale provided constructive notice to the Paynes
that BONY did not comply with the Power of Sale Provision because
the date published in the Notice of Sale was not the date of the
Additionally, Haw. Rev. Stat. § 667-5 (2009) required
that BONY act through a Hawai`i licensed attorney, and that BONY
abide by the requirements of the Power of Sale Provisions.
Plaintiffs allege that, since the Notice of Sale provided
constructive notice that BONY did not comply with the Power of
Sale Provisions, the Notice of Sale also provided constructive
notice that BONY did not comply with § 667-5 (2009).
¶ 43.] These allegations are merely
conclusory and lack
plausibility as well as substance.
In their opposition, Plaintiffs allege (for the first
time) that the public recording of the Foreclosure Affidavit in
the BOC provided constructive notice that the non-judicial
foreclosure sale and transfer of the Property to BONY was void
because the Foreclosure Affidavit disclosed that the auction date
had been postponed.
[Mem. in Opp. at 6-7.]
contend, the Paynes are not bona fide purchasers because of the
constructive notice in the Foreclosure Affidavit that the date of
the auction was not the same date listed on the Notice of Sale.
Having this constructive knowledge that BONY did not comply with
§ 667-5 (2009), Plaintiffs allege the Paynes had notice of BONY’s
deficient title to the Property.
The Hawai`i Supreme Court has defined a non-bona fide
purchaser as follows:
A non-bona fide purchaser is one who does not pay
adequate consideration, “takes with knowledge that
his transferor acquired title by fraud[,] or . . .
buys registered land with full notice of the fact
that it is in litigation between the transferor
and a third party.” Akagi v. Oshita, 33 Haw. 343,
347 (1935); Achiles v. Cajigal, 39 Haw. 493, 499
(1952); see generally 92A C.J.S. Vendor and
Purchaser § 547 (2010) (defining a bona fide
purchaser as “one who acquires an interest in a
property for valuable consideration, in good
faith, and without notice of any outstanding
claims which are held against the property by
Kondaur Capital Corp. v. Matsuyoshi, 136 Hawai`i 227, 240 n.27,
361 P.3d 454, 467 n.27 (2015) (alterations in Kondaur Capital).
Even if BONY wrongfully foreclosed on the Property, a bona fide
purchaser is innocent of any wrongdoing by the grantee if that
purchaser lacked knowledge of the wrongdoing.
See Application of
Bishop Trust Co., 35 Haw. 816, 825 (1941) (holding that every
subsequent purchaser of registered land who takes a certificate
of title for value, “except in cases of fraud to which he is a
party, is entitled . . . to hold the same free from all
encumbrances except those noted on the certificate and the
statutory encumbrances enumerated”); Akagi, 33 Haw. at 347
(noting that some courts have held that a bona fide purchaser is
only required to make a limited inquiry regarding the
transferor’s title, and that, to void a transferee’s title, the
transferee must have had knowledge of fraud or notice that, at
the time of purchase, the land was the subject of litigation
regarding whether the transferee was a bona fide purchaser);
Kanamu v. Park, 6 Haw. 91, 94 (1872) (stating that a deed granted
to a bona fide purchaser who is unaware of any fraud by the
grantor is valid); see also Packaging Prods. Co. v. Teruya Bros.,
Ltd., 58 Haw. 580, 585, 574 P.2d 524, 528 (1978) (“[The grantee]
was not required to look beyond its grantor’s certificate, and
its knowledge, actual or constructive, of the earlier bill of
sale would have no effect upon its status as a good faith
purchaser for value.” (some citations omitted) (citing Bishop
Trust, 35 Haw. 816)).
Plaintiffs here fail to allege that the Paynes: took
title without paying adequate consideration; took title with
knowledge that BONY acquired title by fraud; or had notice of
litigation between Plaintiffs and BONY regarding the Property.
Accordingly, Plaintiffs fail to plead factual allegations
plausibly linking the Paynes to BONY’s alleged misconduct.
Conclusory assertions in the First Amended Complaint are
insufficient to establish that the Paynes had knowledge of BONY’s
While Plaintiffs cite Decano v. Hutchinson Sugar Co.,
45 Haw. 505, 371 P.2d 217 (1962), for the proposition that
recording a certificate of entry provides public notice of a
wrongful foreclosure, to bolster their claim against the Paynes,
this argument widely misses the mark.
Supreme Court stated:
In Decano, the Hawai`i
The recordation of the certificate of entry is
constructive notice to all persons who claim any
title or interest acquired subsequent to the
mortgage under which the entry for foreclosure is
made, and enables them to determine, with facility
and precision, what is necessary to be done for
the preservation and protection of the interest
which they may have acquired in the estate.
Robbins v. Rice, 73 Mass. (7 Gray) 202, 203
45 Haw. at 518, 371 P.2d at 224.
There, the supreme court was
addressing persons claiming rights to the property under the
terms of the mortgagor.
Decano cannot be interpreted as
suggesting that mere recordation of a notice of sale or a
foreclosure affidavit is sufficient to provide notice to a third
party, such as a bona fide purchaser, that a foreclosure was
While Plaintiffs attempt to argue that their First
Amended Complaint plausibly alleges that the Paynes are not bona
fide purchasers, it clearly does not.
The First Amended
Complaint contains the most generalized allegation that the
Paynes had knowledge that the foreclosure was unlawful because of
BONY’s recordation of the Notice of Sale and fails include any
factual content from which any reasonable inference could be
drawn that the Paynes colluded with BONY, knew of wrongdoing by
BONY, or were not bona fide purchasers.
See Iqbal, 556 U.S.
Simply alleging that the Paynes are not bona fide
purchasers is an improper legal conclusion, and cannot be
accepted as true for purposes of the Motion.
See id. (“Although
for the purposes of a motion to dismiss we must take all of the
factual allegations in the complaint as true, we ‘are not bound
to accept as true a legal conclusion couched as a factual
allegation.’” (quoting Twombly, 550 U.S. at 555 (internal
quotation marks omitted)).
Plaintiffs’ quiet title claim thus
fails to state a plausible claim for relief and must be
dismissed. See Fed. R. Civ. P. 12(b)(6).
To justify dismissal with prejudice, it must be clear
that the claim could not be saved by any amendment.
Cty. Ass’n of Retired Emps. v. Sonoma Cty., 708 F.3d 1109, 1118
(9th Cir. 2013) (“As a general rule, dismissal without leave to
amend is improper unless it is clear, upon de novo review, that
the complaint could not be saved by any amendment.” (brackets,
citation and internal quotation marks omitted)).
The bar being
set so very low, it could be possible for Plaintiffs to cure the
defects in their claim against the Paynes.
The dismissal of
Plaintiffs’ quiet title claim therefore is without prejudice.4
If Plaintiffs intend to pursue the quiet title claim,
then factual allegations which plausibly demonstrate that the
Paynes colluded with BONY, were involved in a scheme to
wrongfully obtain title from Plaintiffs, or had actual knowledge
of BONY’s alleged misconduct must be sufficiently pled or the
claim will again fail to survive a motion to dismiss, and that
dismissal may be with prejudice.
In light of this ruling, the limitations period issue, the
void vs. voidable issue, and the other arguments raised by the
parties are not reached.
On the basis of the foregoing, Defendants Nettleton S.
Payne III and Diane Elizabeth Payne’s FRCP Rule 12(B)(6) Motion
to Dismiss Plaintiffs Robert John Lynch and Jennifer Ann Lynch’s
First Amended Complaint Filed on July 22, 2016, which the Paynes
filed on May 15, 2017, is HEREBY GRANTED IN PART AND DENIED IN
The Motion is GRANTED insofar as the quiet title claim
against the Paynes is HEREBY DISMISSED.
The Motion is DENIED
insofar as the dismissal of the claim against the Paynes is
The Court GRANTS Plaintiffs leave to amend their quiet
title claim against the Paynes.
Plaintiffs do not have leave to
add any new parties, claims, or theories of liability.
Plaintiffs must file their second amended complaint by
September 11, 2017.
If Plaintiffs fail to file their second
amended complaint by September 11, 2017, the claim will be
dismissed with prejudice.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, August 15, 2017.
/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
ROBERT JOHN LYNCH, ET AL. VS. THE BANK OF NEW YORK MELLON, ET AL;
CIVIL 17-00195 LEK-RLP; ORDER GRANTING IN PART AND DENYING IN
PART DEFENDANTS NETTLETON S. PAYNE III AND DIANE ELIZABETH
PAYNE'S MOTION TO DISMISS
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