Lynch v. The Bank Of New York Mellon et al
Filing
60
ORDER Denying Defendants Nettleton S. Payne III and Diane Elizabeth Payne's Motion To Dismiss; and Granting In Part and Denying In Part Defendant Bank of New York Mellon's Motion to Dismiss re 30 33 ."On the basis of the foregoing, the Paynes' FRCP Rule 12(B)(6) Motion to Dismiss Plaintiffs Robert John Lynch and Jennifer Ann Lynchs Second Amended Complaint Filed on September 11, 2017 [Dkt. No. 29 , filed September 21, 2017 is HEREBY DENIED; and BONY's Motion to Dismiss Plaintiffs' 29 Second Amended Complaint, filed September 25, 2017, is HEREBY GRANTED IN PART AND DENIED IN PART. The BONY Motion is GRANTED insofar as Plaintiffs' wrongful foreclosure claim against BONY is DISMISSED WIT H PREJUDICE. The BONY Motion is DENIED as to Plaintiffs' quiet title claim against BONY.BONY and the Paynes are ORDERED to file their respective answers to the Second Amended Complaint (except as to Count II which is dismissed) by August 21, 2018. The Court EMPHASIZES that this deadline will not be affected by the filing of any motion for reconsideration of the instant Order. If any motion for reconsideration is filed and granted, the defendants will be permitted to file amended answers, if necessary." Signed by JUDGE LESLIE E. KOBAYASHI on 7/30/2018. (cib, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
ROBERT JOHN LYNCH III and
JENNIFER ANN LYNCH,
)
)
)
)
Plaintiffs,
)
vs.
)
)
BANK OF NEW YORK MELLON;
)
NETTLETON S. PAYNE III; DIANE )
ELIZABETH PAYNE; MORTGAGE
)
)
ELECTRONIC REGISTRATION
)
SYSTEMS, INC., and DOE
)
DEFENDANTS 1-50,
)
)
Defendants.
_____________________________ )
CIVIL 17-00195 LEK-RLP
ORDER DENYING DEFENDANTS NETTLETON S. PAYNE III
AND DIANE ELIZABETH PAYNE’S MOTION TO DISMISS;
AND GRANTING IN PART AND DENYING IN PART
DEFENDANT BANK OF NEW YORK MELLON’S MOTION TO DISMISS
Before the Court are: 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 Second Amended Complaint Filed on September 11, 2017
[Dkt. No. 29] (“Payne Motion”), filed on September 21, 2017; and
Defendant Bank of New York Mellon’s (“BONY”) Motion to Dismiss
Plaintiffs’ [29] Second Amended Complaint (“BONY Motion”), filed
on September 25, 2017.
[Dkt. nos. 30, 33.]
Plaintiffs
Robert John Lynch and Jennifer Ann Lynch (“Plaintiffs”) filed
their memoranda in opposition on December 6, 2017.
35, 36.]
[Dkt. nos.
On December 13, 2017, BONY and the Paynes filed their
respective replies.
[Dkt. nos. 37, 38.]
The Court finds these
matters suitable for disposition without a hearing pursuant to
Rule LR7.2(d) of the Local Rules of Practice of the United States
District Court for the District of Hawai`i (“Local Rules”).
For
the reasons set forth below, the Payne Motion is hereby denied
and the BONY Motion is hereby granted in part and denied in part.
The BONY Motion is granted insofar as Plaintiffs’ wrongful
foreclosure claim is dismissed with prejudice, and the BONY
Motion is denied in all other respects.
BACKGROUND
Plaintiffs commenced this action on May 13, 2016 in
state court.
[Notice of Removal, filed 4/28/17 (dkt. no. 1),
Decl. of Summer H. Kaiawe (“Kaiawe Removal Decl.”), Exh. 1 (state
court docket sheet) at 3.]
Plaintiffs also filed their First
Amended Complaint in state court on July 22, 2016.
[Kaiawe
Removal Decl., Exh. 3 (First Amended Complaint).]
The First
Amended Complaint alleged a wrongful foreclosure claim against
BONY and a quiet title claim against the Paynes.
On August 15, 2017, this Court issued an Order Granting
in Part and Denying in Part Defendant Nettleton S. Payne III and
Diane Elizabeth Payne’s Motion to Dismiss (“8/15/17 Order”).
[Dkt. no. 28.1]
The 8/15/17 Order dismissed the quiet title
1
The 8/15/17 Order is also available at 2017 WL 3568667.
The 8/15/17 Order ruled on the Paynes’ May 15, 2017 motion to
(continued...)
2
claim without prejudice because the First Amended Complaint
failed to plausibly allege that the Paynes are not bona fide
purchasers of Plaintiffs’ real property (the “Property”).
WL 3568667, at *1, *5.
2017
The 8/15/17 Order stated:
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.
Id. at *5.
Plaintiffs filed their Second Amended Complaint on
September 11, 2017.2
[Dkt. no. 29.]
The factual allegations
discussed in the 8/15/17 Order are also alleged in the Second
Amended Complaint and will not be repeated here.
In addition,
the Second Amended Complaint includes the Mortgagee’s Affidavit
of Foreclosure Under Power of Sale, which BONY recorded in the
State of Hawai`i Bureau of Conveyances (“BOC”) on October 18,
2010 (“Amended Foreclosure Affidavit”).3
[Second Amended
1
(...continued)
dismiss the First Amended Complaint.
[Dkt. no. 10.]
2
Defendant Mortgage Electronic Registration Systems, Inc.
(“MERS”) filed its answer to the Second Amended Complaint on
September 22, 2017. [Dkt. no. 32.] MERS did not file any
document regarding either the Payne Motion or the BONY Motion.
3
The 8/15/17 Order discusses the original Mortgagee’s
Affidavit of Foreclosure Under Power of Sale, which BONY recorded
(continued...)
3
Complaint, Exh. B.]
According to the Amended Foreclosure
Affidavit, the scheduled September 18, 2009 public foreclosure
auction was orally postponed at the auction.
[Id. at 4, 24.4]
There were four people present at the scheduled September 18,
2009 auction, and the new auction date, time, and place were
announced.
[Id. at 24 (Decl. of Postponement, dated 9/18/09, by
Kelly Tmakiung, Auctioneer).]
However, according to Plaintiffs,
there was no published notice regarding the postponement.
See
Second Amended Complaint at ¶ 27 (stating the published notice
regarding the original auction date “was the only published
notice of the sale date, location and time and terms of sale”).
BONY was the sole bidder at the October 23, 2009 auction, and it
purchased the Property for $1,186,600.00.
[Amended Foreclosure
Aff. at 4.]
Plaintiffs state section 22 of their mortgage on the
Property (“Mortgage”) required the mortgagee to publish written
3
(...continued)
in the BOC on November 5, 2009 (“Foreclosure Affidavit”). See,
e.g., 2017 WL 3568667, at *1 & n.1. The Amended Foreclosure
Affidavit includes, inter alia, additional information regarding
the postponement of the auction and additional exhibits. Compare
Kaiawe Removal Decl., Exh. 6 (Foreclosure Aff.) with Second
Amended Complaint, Exh. B (Amended Foreclosure Aff.).
4
The Amended Foreclosure Affidavit consists of multiple
documents that are not consecutively paginated. All citations to
the Amended Foreclosure Affidavit refer to the page numbers
assigned by the district court’s electronic filing system.
Pages 2-4 is the affidavit itself, and the subsequent pages are
the exhibits to the affidavit.
4
notice of the sale when exercising its power to sell the
Property.
[Second Amended Complaint at ¶ 28.]
Plaintiffs argue
the failure to publish any written notice of the October 23, 2009
auction violated: section 22 of the Mortgage; Haw. Rev. Stat.
§ 667-7(a) (2009);5 and the requirements recognized in Hungate v.
Law Office of David B. Rosen, 139 Hawai`i 394, 391 P.3d 1 (2017).
[Id. at ¶ 30.]
Plaintiffs further allege that, in light of these
violations, BONY did not have the right to sell the Property to
anyone – let alone itself – on October 23, 2009.
[Id. at ¶ 31.]
Therefore, BONY’s sale of the Property to itself and its
subsequent sale to the Paynes are either void or voidable.
[Id.
at ¶ 34.]
The Second Amended Complaint alleges the following
claims: “Count I - Quiet Title, Ejectment & Declaratory Relief
Against All Defendants” (“Count I” or “quiet title claim”); [id.
at pg. 4 (emphasis omitted);] and a wrongful foreclosure claim
against BONY (“Count II”).6
Count I includes a section setting
5
Plaintiffs cite to the 2008 version of the statute. See,
e.g., Second Amended Complaint at ¶ 39. However, there were no
amendments made to § 667-7 between the amendment that took effect
June 3, 2008 and the foreclosure of the Property, which occurred
in 2009. Section 667-7, and other sections of Haw. Rev. Stat.
Chapter 667, Part I, were repealed in 2012. See, e.g., Galima v.
Ass’n of Apartment Owners of Palm Court, CIVIL 16-00023 LEK-KSC,
2017 WL 1240181, at *2 n.3 (D. Hawai`i Mar. 30, 2017).
6
Plaintiffs’ claims are state law claims over which this
Court has diversity jurisdiction. See 8/15/17 Order, 2017 WL
3568667, at *2. “When a district court sits in diversity . . . ,
(continued...)
5
forth “Special Allegations” addressing the 8/15/17 Order.
id. at pg. 17.
See
The Special Allegations include:
-a reiteration of the allegations in the First Amended Complaint
that, based on the contents of publicly recorded documents
concerning the Property, the Paynes had notice of problems
with the title they received from BONY; compare First
Amended Complaint at ¶¶ 43-44 with Second Amended Complaint
at ¶¶ 49-52, 59-60;
-at the time of the foreclosure, Plaintiffs’ Mortgage loan was
being serviced by either Bank of America (“BOA”) or BAC Home
Loans LP (“BAC”), a subsidiary of BOA, and it is likely that
BOA/BAC used an form addendum that is commonly used in the
sale of property owned by a lender (“REO Addendum”), or
another similar form addendum; [Second Amended Complaint at
¶¶ 53-56, Exh. C (REO Addendum);]
-the REO Addendum notifies the purchaser the sale may be subject
to either judicial approval of the foreclosure or the
mortgagor’s right of redemption, and the REO Addendum
requires the purchaser to acknowledge that he may be
dispossessed of the property if the mortgagor pays certain
sums; [Second Amended Complaint at ¶ 57;] and
-the Paynes purchased the Property at a discounted price –
$999,900 in 2010 when the tax-assessed value was over
$2,270,000 and the 2001 purchase price was $2,000,000 – [id.
at ¶ 67,] which should have put the Paynes on notice that
there may be defects in the foreclosure process and possible
claims by Plaintiffs, [id. at ¶ 68].
Plaintiffs argue that, under the circumstances of this case, the
Paynes had actual or constructive notice of both Plaintiffs’
claim that the foreclosure was invalid and Plaintiffs’ right to
cure any default on their Mortgage.
6
[Id. at ¶¶ 58, 69.]
(...continued)
the court applies state substantive law to the state law claims.”
Mason & Dixon Intermodal, Inc. v. Lapmaster Int’l LLC, 632 F.3d
1056, 1060 (9th Cir. 2011).
6
The Paynes seek the dismissal with prejudice of
Plaintiffs’ quiet title claim against them on the ground that:
they are bona fide purchasers; or, in the alternative,
Plaintiffs’ claim against them is time-barred.
The BONY Motion
argues: 1) both of Plaintiffs’ claims against BONY are timebarred; and 2) even Plaintiffs’ claims are timely, Plaintiffs’
quiet title claim against BONY fails because Plaintiffs cannot
reclaim title to the Property from bona fide purchasers.
DISCUSSION
I.
Consideration of Exhibits
The applicable case law regarding the consideration of
exhibits in the context of a motion to dismiss is set forth in
the 8/15/17 Order.
2017 WL 3568667, at *2.
In addition to the Amended Foreclosure Affidavit and
the REO Addendum, discussed supra, the Second Amended Complaint
also includes Plaintiffs’ Apartment Deed, recorded in the BOC on
December 14, 2001 (“Plaintiffs’ Deed”).
Complaint, Exh. A.]
[Second Amended
Plaintiffs have also submitted: their
Mortgage, which was recorded in the BOC on July 21, 2005; BONY’s
Notice of Mortgagee’s Intention to Foreclose Under Power of Sale,
recorded in the BOC on August 27, 2009 (“Notice of Sale”); the
Foreclosure Affidavit; the Amended Foreclosure Affidavit; BONY’s
Mortgagee’s Quitclaim Deed, recorded in the BOC on June 1, 2010,
by BONY as grantor, in favor of BONY as grantee (“BONY Deed”);
7
and the Apartment Deed (Limited Warranty), recorded in the BOC on
November 5, 2010, by BONY as grantor, in favor of the Paynes as
grantee (“Payne Deed”).7
[Mem. in Opp. to Payne Motion, Decl. of
James J. Bickerton, Exh. D (Mortgage), Exh. E (Notice of Sale),
Exh. F (Foreclosure Aff.), Exh. G (Amended Foreclosure Aff.),
Exh. H (BONY Deed), Exh. I (Payne Deed).8]
For the same reasons
set forth in the 8/15/17 Order, the Court will consider the
exhibits listed in this section in ruling on the Payne Motion and
the BONY Motion (collectively “Motions”), and the consideration
those exhibits does not require the conversion of the Motions
into motions for summary judgment.9
II.
Whether Plaintiffs’ Claims Are Time-Barred
At the outset, this Court must address the argument,
raised in both Motions, that all of Plaintiffs’ claims are
time-barred.
7
The Payne Deed is also an exhibit in support of the Payne
Motion. [Payne Motion, Decl. of Summer H. Kaiawe (“Kaiawe Payne
Motion Decl.”), Exh. 5.]
8
None of these exhibits are consecutively paginated. All
citations to Plaintiffs’ exhibits refer to the page numbers
assigned in the district court’s electronic case filing system.
9
The parties’ exhibits that are not identified in this
section: 1) are filings in this case or legal authorities, both
of which this Court could consider even if they were not
exhibits; or 2) are not relevant to this Court’s analysis.
8
A.
Wrongful Foreclosure
This Court has predicted the Hawai`i Supreme Court
would hold that a six-year limitations period applies to wrongful
foreclosure claims pursuant to Haw. Rev. Stat. § 657-1(1).10
See
Galima v. Ass’n of Apartment Owners of Palm Court, CIVIL 16-00023
LEK-KSC, 2017 WL 1240181, at *10 (D. Hawai`i Mar. 30, 2017)
(citing Lowther v. U.S. Bank N.A., 971 F. Supp. 2d 989, 1013-14
(D. Hawai`i 2013) (discussing Niutupuivaha v. Wells Fargo Bank,
N.A., Civil No. 13-00172 LEK-KSC, 2013 WL 3819600, at *9 (D.
Hawai`i July 22, 2013))).
Section 657-1(1) states:
The following actions shall be commenced within
six years next after the cause of action accrued,
and not after:
(1) Actions for the recovery of any debt
founded upon any contract, obligation, or
liability, excepting such as are brought upon
the judgment or decree of a court; excepting
further that actions for the recovery of any
debt founded upon any contract, obligation,
or liability made pursuant to chapter 577A
shall be governed by chapter 577A.
Therefore, Plaintiffs’ argument that the twenty-year statute of
limitations provided in Haw. Rev. Stat. § 657-31 applies is
rejected.11
See Mem. in Opp. to BONY Motion at 28-32.
10
BONY reserves the right to argue a two-year limitations
period applies, if the Hawai`i appellate courts address the
issue. [Mem. in Supp. of BONY Motion at 1 n.1.]
11
Section 657-31 states: “No person shall commence an
action to recover possession of any lands, or make any entry
thereon, unless within twenty years after the right to bring the
(continued...)
9
The Paynes and BONY contend the statute of limitations
for a wrongful foreclosure claim begins to run from the date of
the foreclosure sale.
[Mem. in Supp. of Payne Motion at 27 (some
citations omitted) (citing Niutupuivaha v. Wells Fargo Bank,
N.A., 2013 WL 3819600, Civ. No. 13-00172 LEK-KSC, at *10 (D. Haw.
July 22, 2013); Lowther v. U.S. Bank, N.A., 971 F. Supp. 2d 989,
1014 (D. Haw. 2013); Galima v. Ass’n of Apartment Owners of Palm
Court by & through its Bd. of Directors, Civ. No. 16-00023
LEK-KSC, 2017 WL 1240181, at *10 (D. Haw. Mar. 30, 2017)); Mem.
in Supp. of BONY Motion at 7 (some citations omitted) (citing
Galima, 2017 WL 1240181, at *10).]
the occurrence rule.12
BONY argues this is based on
[Mem. in Supp. of BONY Motion at 7
(citing Schimmelfennig v. Grove Farm Co., 41 Haw. 124, 130
(1955)).]
However, in Niutupuivaha, Lowther, and Galima, this
Court did not address when the six-year limitations period for a
wrongful foreclosure claim begins to run.
The issue in both
Niutupuivaha and Lowther was whether the wrongful foreclosure
11
(...continued)
action first accrued.”
12
Under the occurrence rule, “the accrual of the statute of
limitations begins when the negligent act occurs or the contract
is breached.” Blair v. Ing, 95 Hawai`i 247, 264, 21 P.3d 452,
469 (2001). In contrast, “[u]nder the discovery rule, a cause of
action does not accrue, and the limitations period therefore does
not begin to run, until the plaintiff knew or should have known
of the defendant’s negligence.” Id. (citation and internal
quotation marks omitted).
10
claim was time-barred under the two-year limitations period
provided in Haw. Rev. Stat. § 657-7 – a position this Court
rejected in both cases.
Niutupuivaha, 2013 WL 3819600, at *12;13
Lowther, 971 F. Supp. 2d at 1014.14
Similarly, in Galima, this
Court rejected the argument that the wrongful foreclosure claim
was untimely because the plaintiffs filed their action “well
within six years of” the date of the foreclosure sale.
1240181, at *10.
2017 WL
It was unnecessary to address whether the six-
year limitations period began to run on the date of the
foreclosure sale or at a later date.
Thus, none of this Court’s
cases have ruled that the occurrence rule applies to wrongful
foreclosure claims, i.e. that the six-year statute of limitations
period always begins to run from the date of the foreclosure
sale.
Insofar as there is no Hawai`i case law addressing this
issue, this Court must predict how the Hawai`i Supreme Court
13
In Niutupuivaha, the nonjudicial foreclosure sale
occurred on March 23, 2010, and the plaintiffs filed their action
on December 31, 2012. [Niutupuivaha, Notice of Removal of Action
by Defs. Wells Fargo Bank, N.A. & Mortgage Electronic
Registration Systems, Inc., filed 4/12/13 (dkt. no. 1), Exh. A
(complaint) at ¶ 7.]
14
In Lowther, the foreclosure sale took place on April 30,
2009, and the plaintiff filed his action on April 4, 2013. 971
F. Supp. 2d at 993-94. After this Court dismissed Lowther’s
original complaint without prejudice, he filed an amended
complaint, which this Court dismissed with prejudice. 2014 WL
2452598 (May 30, 2014). On appeal, the Ninth Circuit affirmed
this Court’s rulings. 702 F. App’x 517 (2017).
11
would decide the issue.
See Galima, 2017 WL 1240181, at *5
(discussing standard for deciding state law issues “[i]n the
absence of a governing state decision”).
This Court has
analogized wrongful foreclosure claims to legal malpractice
claims, which are also “‘hybrids of tort and contract and which
have as their gravamen injury to intangible property interests’.”
Niutupuivaha, 2013 WL 3819600, at *11 (quoting Higa v.
Mirikitani, 55 Haw. 167, 173, 517 P.2d 1, 5 (1973)).
The Hawai`i
Supreme Court has adopted the discovery rule and rejected the
occurrence rule for both medical malpractice and legal
malpractice claims.
72.
Blair, 95 Hawai`i at 264-67, 21 P.3d at 469-
Therefore, it is likely that the discovery rule applies to
wrongful foreclosure claims.
However, it is unnecessary for this Court to determine
whether the occurrence rule or the discovery rule applies to
Plaintiffs’ wrongful foreclosure claim in this case because their
claim would be time-barred under either rule.
Under the
occurrence rule, the statute of limitations began to run on the
date of the foreclosure auction sale – October 23, 2009.
The
Second Amended Complaint does not specify when Plaintiffs learned
that the sale was held on that date.
At the latest, Plaintiffs
had notice of the October 23, 2009 sale date upon the recordation
of the original Foreclosure Affidavit, which was recorded on
November 5, 2009.
The original Foreclosure Affidavit stated the
12
Property was sold at the October 23, 2009 auction, i.e. not on
the date that had been specified in the written public notices.
Under Plaintiffs’ theory of the case, the filing of the original
Foreclosure Affidavit was sufficient to put Plaintiffs on notice
of the actual date of the sale.
See Second Amended Complaint at
¶ 40 (“All of the violations of the power or the statute alleged
herein were apparent or could be reasonably inferred or discerned
from the Foreclosure Affidavit and any subsequent purchaser or
mortgagee thus had constructive notice that a self-dealing
mortgagee had sold the Property to itself or its nominee by
quitclaim deed without having fulfilled conditions for a lawful
sale.”).
The information contained in the original Foreclosure
Affidavit was enough to prompt Plaintiffs to make a reasonably
diligent inquiry into why the foreclosure auction did not go
forward on the date specified in both the Notice of Sale and the
newspaper announcements.
See Vidinha v. Miyaki, 112 Hawai`i 336,
341, 145 P.3d 879, 884 (Ct. App. 2006) (stating in the context of
a medical malpractice claim, “the discovery rule is not without
limit.
It includes a duty of reasonably diligent inquiry, which
in turn requires prompt consultation with those in the medical
and legal community.”), aff’d, 114 Hawai`i 262, 160 P.3d 738
(2007) (table of dispositions).
Thus, under the discovery rule,
the statute of limitations for Plaintiffs’ wrongful foreclosure
13
claim began to run on November 5, 2009, or earlier if Plaintiffs
had actual notice of the sale on the unpublished auction date.
This Court also rejects Plaintiffs’ argument that
wrongful foreclosure is a continuing tort.
That Plaintiffs
continue to experience the effects of the foreclosure does not
render their wrongful foreclosure claim a continuing tort.
See
Begley v. Cty. of Kauai, CIVIL 16-00350 LEK-KJM, 2018 WL 295799,
at *2 (D. Hawai`i Jan. 4, 2018) (“Generally, a continuing tort is
defined as one inflicted over a period of time; it involves a
wrongful conduct that is repeated until desisted, and each day
creates a separate cause of action.
A continuing tort sufficient
to toll a statute of limitations is occasioned by continual
unlawful acts, not by continual ill effects from an original
violation, and for there to be a continuing tort there must be a
continuing duty.” (internal quotation marks and some citations
omitted) (quoting Anderson v. State, 88 Hawai`i 241, 247, 965
P.2d 783, 789 (Ct. App. 1998))).
Plaintiffs filed this action on May 13, 2016, which was
more than six years after either October 23, 2009 or November 5,
2009.
Plaintiffs fail to state a plausible wrongful foreclosure
claim because the claim is time-barred.15
See Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (“To survive a motion to dismiss, a
15
This Court rejects all of Plaintiffs’ arguments why their
wrongful foreclosure claim should not be time-barred, including
the arguments not specifically addressed in this Order.
14
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 (2007))); id. (“A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.” (citing Twombly, 550 U.S. at 556)).
Count II must therefore be dismissed.
Further, the dismissal of Count II must be with
prejudice because it is clear that Plaintiffs cannot save their
wrongful foreclosure claim by amendment.
See Sonoma 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 BONY
Motion is granted insofar as Count II is dismissed with
prejudice.
B.
Quiet Title
It is not clear what statute of limitations period
applies to a quiet title claim arising from an alleged wrongful
foreclosure.
The Hawai`i Supreme Court has stated that the
appropriate statute of limitations period is determined by the
nature of the claim or right alleged in the pleadings, not by the
15
form of the pleadings.
177 (1981).
Au v. Au, 63 Haw. 210, 214, 626 P.2d 173,
The supreme court has also recognized that “where
two or more causes of action arise from a single transaction,
different statute of limitations are applicable to the separate
claims.”
Id.
BONY’s argument that the same statute of
limitations for Plaintiffs’ wrongful foreclosure claim
automatically applies to Plaintiffs’ quiet title claims is
therefore rejected.
Looking at the nature of Plaintiffs’ quiet
title claims, at a minimum, the § 657-1(1) six-year statute of
limitations would apply for similar reasons that statute of
limitations applies to Plaintiffs’ wrongful foreclosure claim.
However, it is possible that a longer limitations period, such as
the § 657-31 twenty-year period, may apply.
This Court need not
decide which statute of limitations applies because, even under
the shorter period, Plaintiffs’ quiet title claims would be
timely.
Under Hawai`i law:
In an action to quiet title, the burden is on
the plaintiff to prove title in and to the land in
dispute, and, absent such proof, it is unnecessary
for the defendant to make any showing. State v.
Zimring, 58 Haw. 106, 110, 566 P.2d 725, 729
(1977) (citations omitted). The plaintiff has the
burden to prove either that he has paper title to
the property or that he holds title by adverse
possession. Hustace v. Jones, 2 Haw. App. 234,
629 P.2d 1151 (1981); see also Harrison v. Davis,
22 Haw. 51, 54 (1914). While it is not necessary
for the plaintiff to have perfect title to
establish a prima facie case, he must at least
prove that he has a substantial interest in the
16
property and that his title is superior to that of
the defendants. Shilts v. Young, 643 P.2d 686,
689 (Alaska 1981).
Maui Land & Pineapple Co. v. Infiesto, 76 Hawai`i 402, 407-08,
879 P.2d 507, 512-13 (1994) (emphasis added) (some citations
omitted).
Plaintiffs’ quiet title claims are therefore based
upon BONY’s and the Paynes’ title to, i.e. ownership of, the
Property.16
Plaintiffs’ quiet title claim against the Paynes
could not have accrued until the Paynes acquired title to the
Property.
Assuming the factual allegations of the Second Amended
Complaint to be true, the Paynes acquired their title to the
Property by either October 30, 2010, when the Payne Deed was
executed, or November 5, 2010, when the deed was recorded.
See
Iqbal, 556 U.S. at 678 (“for the purposes of a motion to dismiss
we must take all of the factual allegations in the complaint as
true”).
Similarly, Plaintiffs’ quiet title claim against BONY
could not have accrued until BONY actually became a title holder.
Assuming the factual allegations of the Second Amended Complaint
to be true, BONY acquired its title to the Property by either
May 14, 2010, when the BONY Deed was executed, or June 1, 2010,
when the deed was recorded.
Regardless of whether the dates of
the deeds’ execution or the dates of their recordation control,
16
Plaintiffs’ quiet title claim against BONY does not arise
from the foreclosure process but from BONY’s purchase of the
Property. In other words, if BONY had not sold the Property to
itself at the foreclosure sale, Plaintiffs would have only had a
wrongful foreclosure claim against BONY.
17
Plaintiffs filed this action within six years.
Plaintiffs have
therefore pled sufficient facts that, if proven, would plausibly
support a ruling that their quiet title claims are timely.
The
BONY Motion and the Payne Motion are each denied to the extent it
seeks dismissal of Count I as time-barred.
III. Whether the Paynes Are Bona Fide Purchasers
As previously noted, the 8/15/17 Order concluded that
Plaintiffs failed to plead a plausible quiet title claim against
the Paynes because Plaintiffs failed to plead sufficient facts to
support their position that the Paynes are not bona fide
purchasers.
A.
Whether Non-Bona Fide Purchaser Status Must Be Pled
Plaintiffs object that the 8/15/17 Order improperly
requires that they “plead their way around the affirmative
defense” that the Paynes are bona fide purchasers.
Amended Complaint at ¶ 46 n.3.]
[Second
Plaintiffs argue bona fide
purchaser status “remains an affirmative defense on which the
defendant bears the burden of proof and Plaintiffs have no burden
to plead or prove.”
[Id. at ¶ 47 & n.4 (citing cases and 77 Am
Jur 2d Vendor and Purchaser § 727 (1975)).]
First, to the extent Plaintiffs ask this Court to
reconsider its ruling in the 8/15/17 Order that they must plead a
plausible position that the Paynes are not bona fide purchasers,
the request is an untimely attempt to seek reconsideration of the
18
8/15/17 Order.
See Local Rule LR60.1 (stating motions for
reconsideration alleging legal error “must be filed and served
not more than fourteen (14) days after the court’s written order
is filed”).
This Court declines to consider Plaintiffs’
argument.
Further, even if this Court considered Plaintiffs’
untimely request for reconsideration, the request would be
denied.
It is true that bona fide purchaser status, also
referred to as innocent purchaser status, is an affirmative
defense.
See, e.g., Iwamoto v. Hironaga, No. 30302, 2011 WL
3808780, at *4 (Hawai`i Ct. App. Aug. 30, 2011) (referring to the
holder in due course defense as “the statutory equivalent of the
common law innocent purchaser defense”).
However, a required
element of Plaintiffs’ quiet title claim against the Paynes is
that Plaintiffs’ title to the Property is superior to the Paynes’
title.
513.
See Maui Land & Pineapple, 76 Hawai`i at 408, 879 P.2d at
Thus, to state a plausible quiet title claim against the
Paynes as third-party purchasers after BONY’s allegedly wrongful
foreclosure, more was required than merely the allegations that
the Paynes took title and BONY’s actions were wrongful.
To plead
a plausible basis for the superiority of Plaintiffs’ title over
the Paynes’ title, Plaintiffs had to address whether the Paynes
are bona fide purchasers.
Even if Plaintiffs had filed a timely
motion for reconsideration of the 8/15/17 Order, the motion would
19
have been denied.
The Court now turns to the sufficiency of the
factual allegations in the Second Amended Complaint.
B.
Whether Plaintiffs Cured the Defect
Identified in the 8/15/17 Order
The Paynes argue Count I fails to state a plausible
quiet title claim against them because Plaintiffs failed to cure
the defect identified in the 8/15/17 Order.
BONY argues that, if
the Paynes are bona fide purchasers, Plaintiffs cannot recover
title to the Property, and therefore Plaintiffs’ quiet title
claim against BONY also fails.
In addition to reiterating their argument based upon
the information available to the Paynes through the publicly
recorded documents about the Property, Plaintiffs have also
alleged that the Paynes may have received the REO Addendum and
that the Paynes purchased the Property at a discounted price.
It
is a close question whether Plaintiffs have stated a plausible
basis for their position that their title is superior to the
Paynes’ title.
If this case were at another procedural stage,
such as summary judgment, the current record would be clearly
insufficient to support judgment in favor of Plaintiffs on their
quiet title claim against the Paynes, and it may also be
insufficient to avoid a summary judgment motion by the Paynes.
However, at the motion to dismiss stage, when this Court must
assume Plaintiffs’ factual allegations to be true, Plaintiffs
have pled – albeit just barely – sufficient factual allegations
20
to support a plausible quiet title claim against the Paynes.
Plaintiffs must be allowed to proceed with discovery to try to
obtain evidence to prove, and strengthen, their factual
allegations.
The Payne Motion is therefore denied.
Because BONY’s argument why Plaintiffs’ quiet title
claim against it is premised upon the plausibility of Plaintiffs’
quiet title claim against the Paynes, the BONY Motion is also
denied.17
CONCLUSION
On the basis of the foregoing, the Paynes’ FRCP
Rule 12(B)(6) Motion to Dismiss Plaintiffs Robert John Lynch and
Jennifer Ann Lynch’s Second Amended Complaint Filed on
September 11, 2017 [Dkt. No. 29], filed September 21, 2017 is
HEREBY DENIED; and BONY’s Motion to Dismiss Plaintiffs’ [29]
Second Amended Complaint, filed September 25, 2017, is HEREBY
GRANTED IN PART AND DENIED IN PART.
The BONY Motion is GRANTED
insofar as Plaintiffs’ wrongful foreclosure claim against BONY is
DISMISSED WITH PREJUDICE.
The BONY Motion is DENIED as to
Plaintiffs’ quiet title claim against BONY.
17
Although Plaintiffs’ wrongful foreclosure claim is timebarred, in order to prove the merits of their quiet title claims,
Plaintiffs will be required to prove that BONY and/or MERS did
not properly complete the foreclosure process in this case. The
instant Motions do not present the issue of whether Plaintiffs
have pled sufficient factual allegations to support that portion
of their quiet title claims, and thus the Court makes no findings
or conclusion regarding that issue.
21
BONY and the Paynes are ORDERED to file their
respective answers to the Second Amended Complaint (except as to
Count II which is dismissed) by August 21, 2018.
The Court
EMPHASIZES that this deadline will not be affected by the filing
of any motion for reconsideration of the instant Order.
If any
motion for reconsideration is filed and granted, the defendants
will be permitted to file amended answers, if necessary.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, July 30, 2018.
/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
ROBERT JOHN LYNCH, III, ET AL. VS. THE BANK OF NEW YORK MELLON,
ET AL; CIVIL 17-00195 LEK-RLP; ORDER DENYING DEFENDANTS NETTLETON
S. PAYNE III AND DIANE ELIZABETH PAYNE’S MOTION TO DISMISS; AND
GRANTING IN PART AND DENYING IN PART DEFENDANT BANK OF NEW YORK
MELLON’S MOTION TO DISMISS
22
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?