Lima v. Deutsche Bank National Trust Co.

Citation: 943 F. Supp. 2d 1093Docket: United States District Court, D. Hawaii

Court: District Court, D. Hawaii; April 30, 2013; Federal District Court

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Motions to dismiss filed by Deutsche Bank, U.S. Bank, and attorney David B. Rosen have been granted in two separate but similar foreclosure cases. The first case involves Lionel Lima, Jr. and Barbara-Ann Delizo-Lima (the Lima Plaintiffs), who claim wrongful foreclosure on their Pearl City property following the assignment of their mortgage to Deutsche Bank in January 2009. They allege that Deutsche Bank initiated foreclosure proceedings without proper notice and sold the property at a significantly undervalued public auction, providing a limited warranty deed instead of the promised quitclaim deed. The Lima Plaintiffs also claim that they owed an additional $40,000 under a second mortgage at the time of foreclosure.

The second case concerns Evelyn Gibo, who alleges improper foreclosure on her property by U.S. Bank, also represented by Rosen. Gibo's mortgage was assigned to Deutsche Bank, which recorded a notice of intention to foreclose in March 2009, but the public auction was delayed without notification. The court considered both cases together for efficiency and ultimately dismissed all claims raised by the plaintiffs against the defendants.

The Lima Plaintiffs allege that Deutsche Bank's practice of issuing Notices of Sale for quitclaim deeds negatively impacted auction prices by discouraging potential buyers and failing to represent the property interests adequately, constituting a breach of duty. They assert that advertising sales through quitclaim deeds was not aimed at achieving the best possible price. Additionally, the Plaintiffs claim Deutsche Bank's postponement of the Kirby Property auction without proper notice violated the publication requirements of the Kirby Mortgage, resulting in decreased auction attendance and lower prices. Rosen, as an attorney for Deutsche Bank, is accused of being involved in the allegedly unlawful auction practices. The Plaintiffs assert violations of Hawaii's nonjudicial foreclosure statute and that these violations also constitute unfair and deceptive acts or practices under Hawaii law.

In response, Deutsche Bank has filed a Motion to Dismiss, arguing that the Plaintiffs lack standing to bring claims against it outside its trustee capacity, that their alleged injuries are not traceable to unrelated trusts, and that their allegations do not meet the standards of Rule 8(a)(2) of the Federal Rules of Civil Procedure. Deutsche Bank claims the Plaintiffs failed to provide required notice of contract breaches and did not challenge the foreclosure sales before the properties were sold. Additionally, it contends that the UDAP claim is inadequately pled.

Rosen's Motion to Dismiss asserts that he does not owe a duty of care to the Lima Plaintiffs and argues that their UDAP claims are legally insufficient.

In December 2005, Gibo and Daniel Cheung acquired the Gibo Property in Ewa Beach with a mortgage of $400,792. Gibo claims Cheung did not sign the promissory note, thus he is not personally liable. In July 2010, U.S. Bank acquired the Gibo Mortgage and initiated foreclosure proceedings, recording a Notice of Mortgagee’s Intention to Foreclose on July 22, 2010, which was published in a local newspaper on three occasions. The notice indicated the property would be sold without warranties and set a public auction for August 27, 2010, later postponed to September 17, 2010, resulting in a sale for $326,772. At foreclosure, Gibo owed approximately $100,000 on a second mortgage.

Gibo alleges that U.S. Bank should have recognized that it had the power and duty to sell the property with full title warranties and that its actions violated Hawaii’s UDAP law by failing to secure the best price and not properly notifying about the auction postponement. U.S. Bank's Motion to Dismiss challenges Gibo's claims on several grounds, including the failure to name co-borrower Daniel Cheung, lack of standing to bring claims against U.S. Bank beyond its trustee capacity, insufficient allegations under Rule 8(a)(2), and non-compliance with a condition precedent related to the mortgage. U.S. Bank also contends that Gibo's UDAP claims are inadequately pleaded and barred by litigation privilege.

Rosen, another party involved, argues that Gibo’s claims against him fail due to a lack of duty of care and contends that Gibo's UDAP claims are legally insufficient.

Deutsche Bank and U.S. Bank contend that Plaintiffs lack standing to sue, claiming no injury has occurred. However, the court has previously rejected this jurisdictional challenge and will not reconsider it in the current order. The Banks also argue that Plaintiffs can only sue them in their capacity as trustees and lack standing concerning trusts unrelated to the Plaintiffs’ mortgages. As the claims of other class members are not before the court, the unrelated trust issue remains unaddressed. 

The focus is on nonjurisdictional claims against the Banks and Rosen, which may be dismissed under Rule 12(b)(6) if they lack a cognizable legal theory or sufficient factual basis. To survive such a motion, allegations must raise a right to relief above the speculative level and must be plausible on their face, providing enough factual content for the court to infer the defendant's liability.

The Plaintiffs, Lima and Gibo, assert two primary allegations against the Banks: first, that the Banks breached their duty by advertising foreclosure sales that only resulted in quitclaim deeds; second, that the Banks violated Hawaii Revised Statutes section 667-5 by failing to publish notices of postponed foreclosure auctions. These failures are claimed to violate both section 667-5 and section 480-2, which prohibits unfair or deceptive acts or practices (UDAP). The court will analyze these arguments in detail.

Hawaii's nonjudicial foreclosure law permits the use of quitclaim deeds without requiring more comprehensive conveyances. The court questioned the plaintiffs on why banks should be obligated to provide more than a quitclaim deed in nonjudicial foreclosures when such requirements do not exist in judicial foreclosures. Plaintiffs cited the lack of court oversight in nonjudicial foreclosures and referenced *Ulrich v. Security Inv. Co.*, a case involving a chattel mortgage where the court ruled that the mortgagee must act fairly to secure the best price at auction. However, the court found *Ulrich* inapplicable, noting that it dealt with personal property, while Hawaii Revised Statutes section 667-5 specifically excludes personal property from its scope. The court emphasized that the legislature could have incorporated principles from *Ulrich* into section 667-5 but chose not to do so. Consequently, the court rejected the plaintiffs' request to impose additional requirements on the foreclosure process, expressing concern that doing so could hinder property sales and create uncertainties about conveyance standards. Overall, the court maintained that it should not rewrite the statute to include protections not explicitly stated by the legislature.

Hawaii law does not require the publication of auction postponements for nonjudicial foreclosure sales. According to section 667-5(d) of the Hawaii Revised Statutes, postponements can be made through public announcements by the mortgagee or their representative. The Plaintiffs have not claimed that such announcements were absent, but rather argue that only a published notice is acceptable. However, the law and the language of the mortgages do not equate "announcement" with "publication." The Banks have complied with the requirement to publish initial notices of foreclosure auctions. The Plaintiffs contend that new notices must be published for each change in the auction schedule, but the original notices allow for postponement through public announcement, which does not necessitate additional publication. The court concluded that a postponed sale, publicly announced without changing the auction's time or terms, meets legal requirements. Therefore, the Plaintiffs’ claims regarding the Banks' actions and potential violations of the Unfair and Deceptive Acts and Practices (UDAP) statute are unfounded. Additionally, the court dismissed allegations against Rosen related to the postponement scheme, as they were tied to the flawed claims against the Banks.

The court grants the motions, resolving all claims in the Gibo and Lima cases, but delays entering judgment to allow Plaintiffs the opportunity to file a Second Amended Complaint. Plaintiffs must file a motion for leave to do so with the Magistrate Judge by May 21, 2013, including a copy of the proposed complaint. The court does not express an opinion on the likelihood of such a motion being granted. Should Plaintiffs fail to file by the deadline, judgment will be entered in favor of the Banks and Rosen on May 22, 2013, and the cases will be closed. Both cases are filed as putative class actions, but no class has been certified. Additionally, when considering a Rule 12(b)(6) motion to dismiss, if the court evaluates evidence outside the pleadings, it typically converts the motion to a Rule 56 motion for summary judgment, providing the nonmoving party a chance to respond. However, materials attached to the complaint or incorporated by reference may be considered without conversion.