HANSEN v. 20 (2019)

SUMMARY DISPOSITION ORDER

Plaintiff-Appellant Claus Zimmerman Hansen (Hansen) appeals from the First Amended Final Judgment, filed December 15, 2015, in the Circuit Court of the Second Circuit (circuit court).¹ Judgment was entered in favor of Defendants-Appellees Bank of America, N.A. and U.S. Bank, N. A. (collectively Defendants) granting Defendants Bank of America, N.A. and U.S. Bank N.A.'s Motion to Dismiss Plaintiff's Second Amended Complaint Filed April 22, 2014, (Motion to Dismiss) filed October 21, 2014, and denying Plaintiff's Motion to Amend Pleading, filed Ex Officio on December 16, 2014 (Motion to Amend Pleading).

This appeal arises out of a civil action brought by Hansen alleging that Defendants committed deceptive acts and practices, prior to an attempted non-judicial foreclosure of Hansen's property, which created a cloud on the marketability of the title of the property, causing Hansen damages.

On appeal, Hansen contends that the circuit court erred when it: (1) granted Defendants' motion to dismiss Hansen's Second Amended Complaint even though Hansen has standing and sufficiently pleaded Defendants' unfair and deceptive trade practices; and (2) denied Hansen leave to amend his complaint.

Upon careful review of the record and the briefs submitted by the parties and having given due consideration to the arguments advanced and the issues raised by the parties, as well as the relevant case law, we resolve Hansen's appeal as follows.

(1) Hansen's first point of error on appeal contends., that the circuit court erred in granting Defendants' motion to dismiss Hansen's Second Amended Complaint. Hansen contends that the circuit court failed to interpret the Second Amended Complaint in Hansen's favor. Hansen also contends that he sufficiently pleaded Defendant's Unfair and Deceptive Acts and Practices Act (UDAP) violations.

We review a circuit court's ruling on a motion to dismiss de novo. Bank of America, N.A. v. Reyes-Toledo, 143 Hawai‘i 249, 256, 428 P.3d 761, 76.8 (2018) (citing Hungate v. Law Office of David B. Rosen, 139 Hawai‘i 394, 401, 391 P.3d 1, 8 (2017)). In reviewing a motion to dismiss for failure to state a claim under Hawai‘i Rules of Civil Procedure (HRCP) Rule 12(b)(6) (2000), the Hawai‘i Supreme Court recently emphasized Hawaii's liberal notice pleading standard under which “a complaint is good if it contains a short and plain statement of the claim showing that the pleader is entitled to relief.” Id. at 262, 428 P.3d at 774 (quoting Kawakami v. Kahala Hotel Investors, LLC, 142 Hawai‘i 507, 518, 421 P.3d 1277, 1288 (2018)). Thus,

a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his or her claim that would entitle him or her to relief. The appellate court must therefore view a plaintiff's complaint in a light most favorable to him or her in order to determine whether the allegations contained therein could warrant relief under any alternative theory. For this reason, in reviewing a circuit court's order dismissing a complaint ․ the appellate court's consideration is strictly limited to the allegations of the complaint, and the appellate court must deem those allegations to be true.

Id. at 257, 428 P.3d at 769 (quoting Kealoha v. Machado, 131 Hawai‘i 62, 74, 315 P.3d 213, 225 (2013)).

The Hawai‘i Supreme Court further stated that:

dismissal pursuant to HRCP Rule 12(b)(6) is appropriate where the allegations of the complaint itself clearly demonstrate that plaintiff does not have a claim, and in weighing the allegations of the complaint as against a motion to dismiss, the court will not accept conclusory allegations concerning the legal effect of the events the plaintiff has [alleged].

Id. at 262-63, 428 P.3d at 774-75 (internal quotation marks and citations omitted).

In the Second Amended Complaint, Hansen presented a single count alleging that:

Defendants engaged in UDAPs that violate [Hawaii Revised Statutes (HRS)] § 480-2(a) and/or 481A-3, by participating [sic] the following:

i. in the fabrication of the Assignment that was made with the intent to deceive and/or create confusion or misunderstanding for the Plaintiff, the public, and the courts, as to the authority to transfer Plaintiff's Property knowing that it was incompetent and unreliable evidence to support an assertion of foreclosure;

ii. by violating HRS [§] 502-83 in not recording transfers of real estate interests;

iii. in creating and allowing a servicer compensation structure to continue when compensation and cost structures between the Servicers and the trust created Servicer incentives to foreclose rather than restructure the loan even though modifications would benefit both the owner of the mortgage and the borrower;

iv. in failing to institute and operate a process of service and communication with borrowers in default management situations so that loss mitigation could be successfully utilized.

Hansen further asserted that: (1) Plaintiff is a consumer as that term is defined in HRS § 480-1; (2) Defendants are engaged in trade or commerce in the mortgage loan industry, residential mortgage-backed securities industry, debt servicing/collection, and foreclosure activities; (3) such acts and practices involve “trade or commerce” as that term is used in HRS § 480-2(a); and (4) Plaintiff was damaged as a result of Defendants' acts.

In response, Defendants contend that the circuit court correctly dismissed the Second Amended Complaint because Hansen lacks standing to challenge the validity of the assignment of mortgage and note made for purposes of securitization (Assignment). Specifically, Defendants argue that for any damages to result from a cloud on title caused by Defendants' actions, the cloud on title must first be shown to actually exist (i.e., that the Assignment was void). Defendants argue that Hansen, as a mortgagor, does not have standing to challenge the validity of the Assignment and thus cannot base further claims upon the Assignment's invalidity.

The circuit court did not address the issue of Hansen's standing and explicitly limited its dismissal to an analysis of the four corners of the Second Amended Complaint. The circuit court did not address arguments outside of the complaint, which the circuit court correctly stated would have required a conversion of the motion to dismiss into a motion for summary judgment under HRCP Rule 12(b). See Gonsalves v. Gilbert, 44 Haw. 543, 550, 356 P.2d 379, 383 (1960). Accordingly, in reviewing the circuit court's dismissal, we evaluate only whether the Second Amended Complaint states a claim upon which relief may be granted.²

Hansen's Second Amended Complaint alleged that the Assignment created a cloud on the marketability of title and, therefore, sufficiently alleged a UDAP claim for damages. Further, Hansen's complaint alleged additional bases which could support a UDAP claim for damages. Deeming Hansen's allegations to be true, as we must in evaluating a Rule 12(b)(6) motion to dismiss, the UDAP claim satisfies HRCP Rule 8(a) (2000) and the notice pleading standard. Accordingly, the circuit court erred in dismissing the Second Amended Complaint for failure to state a claim.

(2) Hansen's second point on appeal contends that the circuit court abused its discretion in denying his motion to amend the Second Amended Complaint, even though he filed his motion prior to the circuit court entering the order on Defendants' motion to dismiss. As we have overruled the dismissal of Hansen's Second Amended Complaint, we need not address this point of error.

Based on the foregoing, the circuit court erred in granting Defendants Bank of America, N.A. and U.S. Bank N.A.'s Motion to Dismiss Plaintiff's Second Amended Complaint Filed April 22, 2014, filed October 21, 2014, because the complaint satisfied the notice pleading standard. Accordingly, we vacate the First Amended Final Judgment, filed December 15, 2015, in its entirety, and we remand to the circuit court for further proceedings consistent with this opinion.

I concur with the majority but write separately to further explain my reasoning. Plaintiff-Appellant Claus Zimmerman Hansen (Hansen) challenges the Circuit Court's order granting a motion to dismiss his Second Amended Complaint, filed by Defendants-Appellees Bank of America, National Association As Trustee For Washington Mutual Mortgage Pass-Through Certificates Series 2007-0A4 Trust (Bank of America), and US Bank As The Successor Trustee to Bank of America (collectively Defendants). In paragraph 45 of the Second Amended Complaint, Hansen asserts that Defendants engaged in Unfair and Deceptive Acts and Practices (UDAP) that violate Hawaii Revised Statutes (HRS) §§ 480-2 ¹ and/or 481A-3.²

The Second Amended Complaint contains fairly extensive factual assertions that are often not clear or easy to understand. I agree, however, that it was error to dismiss Hansen's UDAP claim under HRS § 480-2. The allegations in the Second Amended Complaint, which we must deem as true for purposes of our de novo review in this appeal, include a variety of assertions related to the sale and assignment of Hansen's mortgage and note that he originally entered into with Washington Mutual Bank, FA. Paragraphs 14 through 32 appear to allege in brief that: a Pooling and Servicing Agreement (PSA) established the Washington Mutual Mortgage Pass-Through Certificates WMALT Series 2007-4 Trust (the Trust);³ Hansen's mortgage and note were sold by Washington Mutual Bank, FA to WaMu Asset Acceptance Corp., and then to the Trust, but these transactions were not recorded in the Bureau of Conveyances (Bureau); “Washington Mutual Bank” was seized and placed “into the receivership of the Federal Deposit Insurance Corporation (FDIC)”; Bank of America merged with LaSalle Bank NA, trustee for the Trust, and became the trustee; Barbara Hindman (Hindman), acting for the FDIC, executed an assignment of Hansen's mortgage and note that was recorded in the Bureau; Hindman's assignment is misleading because the FDIC sold nothing to Bank of America; because Hansen's mortgage and note were already in the Trust, Hindman's assignment of the mortgage and note contained numerous false statements, misrepresentations and material omissions, including that the FDIC assigned Hansen's mortgage and note to Bank of America.

The Second Amended Complaint further alleges, in relevant part:

33. On December 15, 2009, Bank of America executed a Notice of Mortgagee's Non-Judicial Foreclosure Under Power of Sale (“Notice of Sale”) announcing Bank of America's intention to foreclose on the property by way of public sale on January 26, 2010.

34. The assertions made in this foreclosure notice were inaccurate, incomplete and not supported by competent and reliable evidence.

35. The Defendants knew, or neglected to have in place sufficient reviews and supervision of sworn statements to discover, the fraudulent documents that they were relying upon in the foreclosure process, such as the inaccurate foreclosure affidavit, was legally insufficient and factually inadequate to support the claim of the right to foreclosure.

36. This Notice of Sale was recorded with the State of Hawaii Bureau of Conveyances on December 24, 2009, as Document #2009-195958. The foreclosure sale did not take place.

37. From the last payment by Mr. Hansen on the mortgage in November 2008 until the notice of non-judicial foreclosure on December 15, 2009, the Defendants did not make any serious attempt to modify the loan to avoid foreclosure.

38. Prior to the Notice of Mortgagee's Non-Judicial Foreclosure Under Power of Sale, the Defendants did not notify the Plaintiff of all loss mitigation options.

39. Defendants violated federal laws, Federal Housing Authority regulations and guidance, HAMP and other MHA servicer participation agreements program requirements and contractual requirements governing loss mitigation. Defendants failed to discharge their required loan modification obligations. In the course of this conduct, management and oversight of loan modifications with regard to Plaintiff's requested loan modification, the Defendants engaged in a pattern of unfair and deceptive practices which, include, but are not limited to, the following:

a. failing to perform proper loan modification underwriting;

b. failing to gather or evaluate loan modification application documentation and other paper work;

c. failing to provide adequate staffing to implement programs;

d. failing to adequately train staff responsible for loan modifications;

e. failing to establish adequate processes for loan modifications;

f. denying Plaintiff in a trial modification;

g. wrongfully denying modification applications;

h. failing to respond to Plaintiff's inquiries;

i. providing false or misleading information to Plaintiff while referring the loan to foreclosure during the loan modification application process;

j. providing false or misleading information to Plaintiff while initiating foreclosures where the Plaintiff was in good faith actively pursuing a loss mitigation alternative offered by the Defendants;

k. providing false or misleading information to Plaintiff about loan modification while scheduling and conducting foreclosure sales;

l. misrepresenting or failing to provide accurate and timely information to Plaintiff who was in need of, and eligible for, loss mitigation services, including loan modifications;

m. falsely advising Plaintiff that he must be at least 60 days delinquent in loan payments to qualify for a loan modification;

n. miscalculating Plaintiff's eligibility for loan modification programs and improperly denying loan modification relief to him;

o. misleading Plaintiff by representing that a loan modification application would be handled promptly when Defendants regularly failed to act on loan modifications in a timely manner;

p. failing to properly process Plaintiff's applications for loan mitigation and modifications, including failing to account for documents submitted by Plaintiff and failing to respond to his reasonable requests for information and assistance;

q. failing to assign adequate staff resources with sufficient training to handle the demand from distressed borrowers including Plaintiff; and

r. misleading Plaintiff by providing false or deceptive reasons for denial of loan modifications.

(Emphases added).

In turn, paragraphs 45 through 49 of the Second Amended Complaint allege:

45. Defendants engaged in UDAPs that violate HRS § 480-2(a) and/or 481A-3, by participating the following:

i. in the fabrication of the Assignment that was made with the intent to deceive and/or create confusion or misunderstanding for the Plaintiff, the public, and the courts, as to authority to transfer Plaintiff's Property knowing that it was incompetent and unreliable evidence to support an assertion of foreclosure;

ii. by violating HRS 502-83 in not recording transfers of real estate interests;

iii. in creating and allowing a servicer compensation structure to continue when compensation and cost structures between the Servicers and the trust created Servicer incentives to foreclose rather than restructure the loan even though modifications would benefit both the owner of the mortgage and the borrower;

iv. in failing to institute and operate a process of service and communication with the borrowers in default management situations so that loss mitigation could be successfully utilized.

46. As a direct and proximate result of one or more of these acts and/or omissions of Defendants and their unfair and deceptive business practices the Plaintiff has been damaged.

47. Defendants' described acts and practices were contrary to public policy, in violation of Hawaii law and were deceptive, immoral, unethical, oppressive, unscrupulous and substantially injurious to consumers, and were, therefore, unfair in violation of HRS § 480-2(a).

48. Defendants' described acts and practices involved material representations, omissions or practices that were likely to mislead consumers acting reasonably under the circumstances, and were therefore deceptive in violation of HRS §§ 480-2 (a), 481A-3 and 454M, or all of them.

49. Defendants' described acts and practices make it impossible for State of Hawaii Bureau of Conveyances to maintain accurate records of the title to real property in the State of Hawaii, and they have, in particular, caused a break in the chain of title to Plaintiff's property making the title to the property unmarketable and uninsurable.

(Emphases added).

In sum, the Second Amended Complaint alleges a variety of false and misleading conduct by Defendants -- including false statements and misrepresentations in an assignment of the mortgage and note by Hindman to Bank of America that was recorded in the Bureau, and a fraudulent or misleading notice of non-judicial foreclosure filed in the Bureau (which did not result in a foreclosure) — that created a cloud on title and rendered Hansen's property unmarketable and uninsurable. Hansen further alleged a variety of false, misleading and/or deceptive actions related to Hansen's “requested loan modification.” Hansen's allegations do not challenge the validity of the assignment of the mortgage and note in the context of a judicial foreclosure, see U.S. Bank N.A. v. Mattos, 140 Hawai‘i 26, 35, 398 P.3d 615, 624 (2017); U.S. Bank Nat'l Ass'n v. Salvacion, 134 Hawai‘i 170, 174-76, 338 P.3d 1185, 1189-91 (App. 2014), and he does not seek relief as to title to the subject property. Rather, Hansen seeks monetary damages, including because he claims the Defendants' conduct caused a break in the chain of title to his property rendering his property unmarketable and uninsurable. Because we must accept as true the factual allegations in the Second Amended Complaint, there are sufficient factual allegations in the Second Amended Complaint to support a UDAP claim under HRS § 480-2. See Hungate v. Law Office of David B. Rosen, 139 Hawai‘i 394, 410-12, 391 P.3d 1, 17-19 (2017); Agard v. Deutsche Bank Nat'l Tr. Co., No. CAAP-13-0002872, 2015 WL 337254 at *5-6 (Hawai‘i App. Jan. 26, 2015) (Ginoza, J. concurring).

With regard to Hansen's claim under HRS § 481A-3, entitled “Deceptive Trade Practices,” it is unclear whether this is a viable claim in this case. However, neither party addressed, on appeal or in the circuit court proceedings, whether the allegations in the Second Amended Complaint support a claim under the statutory language in HRS § 481A-3 or the scope of this statute. Given this record, it appears the Circuit Court's dismissal of this claim should also be vacated.

Based on the above, I respectfully concur.

FOOTNOTES

1.   The Honorable Joseph E. Cardoza presided.

2.   On June 24, 2016, this court denied Defendants' appellate Motion for Judicial Notice without prejudice to consideration of the motion by the merit panel. Defendants' motion requested that this court review several documents recorded in the State of Hawai‘i Bureau of Conveyances which Defendants claim demonstrate that Hansen lacks standing to bring his claims. We decline to consider these documents on their merits in this appeal. In reviewing the circuit court's dismissal of Hansen's complaint, our review “is strictly limited to the allegations of the complaint, and the appellate court must deem those allegations to be true.” Reyes-Toledo, 143 Hawai‘i at 257, 428 P.3d at 769 (quoting Kealoha, 131 Hawai‘i at 74, 315 P.3d at 225).

1.   HRS § 480-2 (2008) provides:§ 480-2 Unfair competition, practices, declared unlawful. (a) Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful.(b) In construing this section, the courts and the office of consumer protection shall give due consideration to the rules, regulations, and decisions of the Federal Trade Commission and the federal courts interpreting section 5(a)(1) of the Federal Trade Commission Act (15 U.S.C. 45(a)(1)), as from time to time amended.(c) No showing that the proceeding or suit would be in the public interest (as these terms are interpreted under section 5(b) of the Federal Trade Commission Act) is necessary in any action brought under this section.(d) No person other than a consumer, the attorney general or the director of the office of consumer protection may bring an action based upon unfair or deceptive acts or practices declared unlawful by this section.(e) Any person may bring an action based on unfair methods of competition declared unlawful by this section.

2.   HRS § 481A-3 (2008) provides:[§ 481A-3] Deceptive trade practices. (a) A person engages in a deceptive trade practice when, in the course of the person's business, vocation, or occupation, the person:(1)  Passes off goods or services as those of another;(2) Causes likelihood of confusion or of misunderstanding as to the source, sponsorship, approval, or certification of goods or services;(3) Causes likelihood of confusion or of misunderstanding as to affiliation, connection, or association with, or certification by, another;(4) Uses deceptive representations or designations of geographic origin in connection with goods or services;(5) Represents that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation, or connection that the person does not have;(6) Represents that goods are original or new if they are deteriorated, altered, reconditioned, reclaimed, used, or secondhand;(7) Represents that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another;(8) Disparages the goods, services, or business of another by false or misleading representation of fact;(9) Advertises goods or services with intent not to sell them as advertised;(10) Advertises goods or services with intent not to supply reasonably expectable public demand, unless the advertisement discloses a limitation of quantity;(11) Makes false or misleading statements of fact concerning the reasons for, existence of, or amounts of price reductions; or(12) Engages in any other conduct which similarly creates a likelihood of confusion or of misunderstanding.(b) In order to prevail in an action under this chapter, a complainant need not prove competition between the parties or actual confusion or misunderstanding.(c) This section does not affect unfair trade practices otherwise actionable at common law or under other statutes of this State.

3.   Some parts of the Second Amended Complaint refer to the “Washington Mutual Mortgage Pass-Through Certificates WMALT Series 2007-OA4 Trust,” (emphasis added) which appears to be referring to the same trust. There are other apparent inconsistencies in the Second Amended Complaint in its reference to certain entities.