Court: District Court, D. Hawaii; May 22, 2019; Federal District Court
Plaintiffs Christopher Carpenter, Mary T. Bulzomi, Daniel K. Iwasaki, Bernie L. Acoba, Roman Gulla Bibat, and Angie Siapno Bibat filed a Motion for Order of Remand on February 28, 2019, regarding their case involving property foreclosures. The case, initially filed in the State of Hawai'i Second Circuit Court on December 21, 2018, was removed to federal court on January 30, 2019. The court held a hearing on April 19, 2019, where the motion was partially granted. Specifically, the court remanded the case back to state court because the non-diverse defendants were not fraudulently joined. However, the request for attorneys' fees related to the removal was denied, as PNC Bank, N.A. had a reasonable basis for seeking removal despite it being improper.
The background involves allegations that PNC, as the successor to National City Bank, improperly conducted nonjudicial foreclosures on the Plaintiffs' properties using powers granted in their mortgages. The First Amended Complaint asserts that the foreclosure notices were inadequate and violated Hawai'i law by failing to provide a proper property description. Additionally, the Plaintiffs argue that only quitclaim deeds were offered during the foreclosures, which did not serve to secure the best price for the properties. The auctions were also contested due to discrepancies in scheduling and notice, leading Plaintiffs to claim wrongful deprivation of property and potential invalidation of the sales.
Defendant Robert White claims title to property owned by Carpenter and Bulzomi, Guinevere Ray Stromberg claims title to property owned by Iwasaki and Acoba, and Enrique Piano Paa, Jr. and Joyce Lan Kim Paa claim title to property owned by the Bibats. All these defendants reside in Hawai'i. Plaintiffs assert that the foreclosure affidavits relevant to their properties indicate defects in the title chain, arguing that the Purchaser Defendants are not bona fide purchasers (BFPs). Additionally, Plaintiffs contend that PNC's quitclaim deeds to its nominees are void ab initio, rendering the subsequent special warranty deeds to the Purchaser Defendants also void.
Plaintiffs claim membership in the class from the case Fergerstrom v. PNC Bank, which was filed in Hawai'i state court in 2013 and subsequently removed to federal court, where class certification was denied in 2018. They argue that the statute of limitations for their claims was tolled during this period, making their claims against PNC timely. The claims include wrongful foreclosure against PNC, violations of unfair trade practices against PNC, and quiet title and ejectment against the Purchaser Defendants and various lienholders.
PNC removed the case based on diversity jurisdiction, asserting that Plaintiffs are either from Hawai'i or New Jersey, and potentially that the Bibats are from Nevada, while PNC is a Delaware citizen, ensuring complete diversity. PNC contends that the citizenship of the Purchaser Defendants and lienholders is irrelevant due to alleged fraudulent joinder. Plaintiffs seek remand to state court, arguing lack of subject matter jurisdiction and invoking the forum defendant rule, along with a request for attorneys' fees and costs.
The excerpt also outlines the principles governing removal jurisdiction under 28 U.S.C. § 1441, emphasizing that such statutes are strictly construed against removal, placing the burden on the removing defendant to establish the propriety of removal, with any ambiguities resolved in favor of remand.
PNC removed the case under 28 U.S.C. 1332(a), which allows federal jurisdiction for civil actions exceeding $75,000 between citizens of different states, necessitating complete diversity of citizenship. Complete diversity is assessed by excluding the citizenship of any fraudulently joined defendants. Fraudulent joinder can be established either by actual fraud in jurisdictional facts or by showing the plaintiff’s inability to establish a cause of action against a non-diverse party. A defendant can demonstrate fraudulent joinder if it can show that the joined individual cannot be liable under any legal theory. Conversely, if there is any possibility a state court could find a viable claim against a resident defendant, the federal court must deem the joinder proper and remand the case.
The burden of proving fraudulent joinder lies heavily on the defendant due to a presumption against it. Courts have rejected claims of fraudulent joinder where defenses necessitate a deep inquiry into the merits of the plaintiff’s case. In this instance, Iwasaki and Acoba are identified as Hawai'i citizens, similar to the Purchaser Defendants, suggesting a lack of complete diversity unless their citizenship is disregarded for fraudulent joinder. PNC argues that the claims against the Purchaser Defendants are legally insufficient, which is central to the fraudulent joinder analysis.
The assessment of fraudulent joinder differs from evaluating a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Even if claims against the Purchaser Defendants may fail under Rule 12(b)(6), this does not automatically imply fraudulent joinder. The inquiry focuses on whether a state court could deny a motion to dismiss based on Hawai'i law regarding the failure to state a claim, as outlined in Haw. R. Civ. P. 12(b)(6).
Fed. R. Civ. P. 12(b)(6) and Haw. R. Civ. P. 12(b)(6) share identical language but are interpreted differently in federal and state courts. In federal court, a complaint must present sufficient factual matter, accepted as true, to establish a "plausible" claim for relief, as per Ashcroft v. Iqbal and Bell Atl. Corp. v. Twombly. This means the plaintiff must plead facts that allow for a reasonable inference of the defendant's liability. Conversely, the Hawai'i Supreme Court has rejected this "plausibility" standard in favor of a traditional "notice" pleading standard, asserting that complaints must merely state a "short and plain statement" of the claim, as outlined in Haw. R. Civ. P. 8(a). Under Hawai'i law, it is not necessary to plead legal theories precisely, and dismissals under Haw. R. Civ. P. 12(b)(6) are appropriate only when the allegations clearly demonstrate a lack of a claim. The court will not accept conclusory allegations regarding the legal effects of the events alleged. The excerpt also defines a non-bona fide purchaser as one who does not pay adequate consideration or takes with knowledge of fraud, with references to case law that delineate the characteristics of bona fide purchasers.
The Court previously dismissed a quiet title claim due to the plaintiffs' insufficient factual allegations regarding the status of the individuals who purchased their foreclosed property as bona fide purchasers (BFPs). The current issue pertains to the fraudulent joinder of the Purchaser Defendants and Lienholder Defendants, rather than the sufficiency of plaintiffs' claims against them under the Twombly/Iqbal standard. The essential elements for a quiet title claim include the plaintiff having a substantial interest in the property and a title superior to that of the defendants. The plaintiffs assert their substantial interest as former owners and claim their titles are superior because the Purchaser Defendants acquired their titles following a wrongful foreclosure by PNC and are not BFPs. Under Hawai'i's notice pleading standard, the allegations made by the plaintiffs constitute a sufficient "short and plain statement" without the need for extensive supporting facts. Citing a Hawai'i Supreme Court case, the Court emphasized that a plaintiff must assert a substantial interest and a superior title. The plaintiffs further assert that the Purchaser Defendants had constructive or actual notice that their titles depended on the validity of the foreclosure, that defects existed in the foreclosure processes, and that inquiries into these processes would have revealed non-compliance with statutory requirements, thereby rendering the subsequent deeds void or voidable.
The Court is assessing whether it can disregard the Plaintiffs' claims regarding "record notice" and "inquiry notice" as mere conclusory allegations. While the argument cannot be dismissed outright, it must be evaluated against established Hawai'i law, which has no appellate decisions rejecting the record/inquiry notice theory. The Court notes that under federal pleading standards, the Plaintiffs' argument does not meet the plausibility requirement, but the present inquiry is whether a state court could find a valid cause of action. Hawai'i's notice pleading standard allows for the possibility that the Plaintiffs adequately alleged their title is superior to that of the Purchaser Defendants, thus challenging PNC's fraudulent joinder argument based on bona fide purchaser (BFP) status.
Additionally, PNC contends that the joining of the Purchaser and Lienholder Defendants is fraudulent due to the statute of limitations, asserting that the quiet title claims are time-barred as they relate to foreclosures from 2010 and 2011. The Court notes that the Plaintiffs' claims accrued upon the execution or recordation of the Purchaser Defendants' deeds in 2011. PNC argues that a six-year statute of limitations applies, as the claims arise from wrongful foreclosure, while the 20-year statute applies only to adverse possession claims, which are not relevant to this case.
The central issue is whether state courts could determine that the Plaintiffs' quiet title claims are timely. No Hawai'i appellate court has definitively established the statute of limitations for wrongful foreclosure claims, although a two-year limit under Haw. Rev. Stat. 657-7 has been suggested to be inappropriate. In Malabe and Hungate, the Hawai'i Supreme Court acknowledged wrongful foreclosure claims filed four years after foreclosure, indicating a possible six-year statute of limitations under Haw. Rev. Stat. 657-1(1), as predicted by this Court. However, there is no established Hawai'i law specifically addressing quiet title claims arising from wrongful foreclosure, and the relevant statute of limitations may differ based on the nature of the claims.
The Hawai'i Supreme Court has stated that the applicable statute of limitations depends on the claim type, not the form of the pleading. The mortgagee's argument for uniformity in applying the wrongful foreclosure statute to quiet title claims is rejected. The Court suggests that the six-year statute likely applies to the quiet title claims, but acknowledges the possibility of a longer, twenty-year statute under Haw. Rev. Stat. 657-31. However, it ultimately concludes that it does not need to decide on the applicable statute because, even under the shorter six-year period, the quiet title claims would still be timely. The current interpretation and ruling indicate that the six-year limitation is more suitable for quiet title claims related to wrongful foreclosure, though no appellate court has firmly established this. Thus, the Plaintiffs' claims against the Purchaser Defendants cannot be deemed time-barred under existing Hawai'i law.
A Hawai'i state court may determine that Plaintiffs’ quiet title claims against the Purchaser and Lienholder Defendants are timely under the twenty-year statute of limitations, leading to the rejection of PNC's fraudulent joinder argument. The court finds that under the notice pleading standard, Plaintiffs have sufficiently claimed their title is superior, and thus the Purchaser Defendants were not fraudulently joined. This extends to the Lienholder Defendants, whose claims are derivative of the claims against the Purchaser Defendants. Consequently, the lack of fraudulent joinder means all defendants’ citizenship must be considered for diversity jurisdiction, resulting in a lack of complete diversity and remanding the case to state court. Plaintiffs' request for attorneys' fees and costs related to the removal is denied, as PNC had an objectively reasonable basis for removal, supported by relevant case law. The court grants the remand motion in part and denies the request for fees, directing the Clerk's Office to facilitate the remand unless PNC files for reconsideration. Additionally, the court notes that the Bibats could be considered Hawai'i citizens due to their relocation intentions, impacting jurisdictional considerations.
Iwasaki and Acoba, being citizens of Hawai'i, eliminate the need for the Court to ascertain the citizenship status of the Bibats. Under Haw. R. Civ. P. 8(a), a claim for relief must include a clear statement of the claim and a demand for judgment. Fed. R. Civ. P. 8(a) similarly mandates jurisdictional claims. In prior cases, such as Seegers, the Court indicated that mere allegations of wrongdoing in affidavits do not suffice to establish a reasonable inference of knowledge of misconduct by Current Owners unless factual content is provided linking them to the alleged wrongdoing. The Court referenced cases where plaintiffs failed to prove constructive notice based on recorded documents. The statute of limitations for claims against PNC was tolled until the denial of class certification, per Fergerstrom, but this tolling did not apply to claims against the Purchaser and Lienholder Defendants. Relevant statutes of limitations include: Section 657-31, allowing twenty years for actions to recover land possession; Section 657-7, setting a two-year limit for personal injury claims; and Section 657-1, which mandates a six-year limit for actions based on contracts or debts.
