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Lowther v. U.S. Bank N.A.

United States District Court, D. Hawai'i

September 4, 2013

PATRICK LOWTHER, individually and on behalf of all others similarly situated, Plaintiffs,
U.S. BANK N.A. and DOE DEFENDANTS 1-50, Defendants

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[Copyrighted Material Omitted]

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For Patrick Lowther, individually and on behalf of all others similarly situated, Plaintiff: Brandee J. Faria, John F. Perkin, LEAD ATTORNEYS, Perkin & Faria, Honolulu, HI; James J. Bickerton, LEAD ATTORNEY, Bickerton Lee Dang & Sullivan, Honolulu, HI; Stanley H Roehrig, LEAD ATTORNEY, Law Office of Stanley H. Roehrig, Hilo, HI; Van-Alan H. Shima, LEAD ATTORNEY, Affinity Law Group, Honolulu, HI.

For U.S. Bank N.A., U.S. Bank National Association as Trustee under Pooling and Servicing Agreement dated as of December 1, 2006 Mastr Asset Backed Securities Trust 2006-HE5 Mortgage Pass-Through Certificates Series 2006-HE5, Defendant: James B. Rogers, Paul Alston, LEAD ATTORNEYS, Alston Hunt Floyd & Ing, Honolulu, HI.


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Leslie E. Kobayashi, United States District Judge.

On May 31, 2013, Defendant U.S. Bank National Association as Trustee under Pooling and Servicing Agreement Dated as of December 1, 2006 MASTR Asset Backed Securities Trust 2006-HE5 Mortgage Pass-through Certificates Series 2006-HE5 (" Defendant" or " U.S. Bank" ), filed its Motion to Dismiss Complaint Filed on April 4, 2013 (" Motion" ). [Dkt. no. 9.] Plaintiff Patrick Lowther (" Plaintiff" ) filed his memorandum in opposition on July 22, 2013, and Defendant filed its reply on July 29, 2013. [Dkt. nos. 18, 19.]

The Court finds this matter 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

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the District of Hawai'i (" Local Rules" ). After careful consideration of the Motion, supporting and opposing memoranda, and the relevant legal authority, Defendant's Motion is HEREBY GRANTED IN PART AND DENIED IN PART for the reasons set forth below.


On April 4, 2013, Plaintiff filed this purported class action against Defendant in state court. [Notice of Removal, filed 5/14/13 (dkt. no. 1), Exh. 1 (" Complaint" ). [1]] On May 14, 2013, Defendant removed the instant action to this district court. [Dkt. no. 1.]

Plaintiff owned real property located at 74-5058 Huaala Street, Kailua-Kona, Hawai'i (the " Property" ). [Complaint at ¶ 19.] The Complaint asserts that, on or about July 13, 2006, Plaintiff executed a loan in favor of New Century Mortgage Corporation (" New Century" ), secured by a mortgage (" Mortgage" ) on the Property. On or about July 25, 2006, the Mortgage was recorded in the State of Hawai'i Bureau of Conveyances (" BOC" ) by or on behalf of New Century, as Document No. 2006-135170. [Id. at ¶ ¶ 7, 19, 21.]

The Complaint alleges that New Century and Home 123 Corporation (" Home 123" ) [2] engaged in lending to sub-prime borrowers in Hawai'i, and were subsidiaries or divisions of New Century Financial Corporation, subsequently known as New Century TRS Holdings, Inc. On or about April 2, 2007, all three entities initiated bankruptcy proceedings in the State of Delaware, and the bankruptcy court order appointed a trustee in liquidation (" Trustee" ), effective August 1, 2008. Thus, Plaintiff alleges that " [f]rom and after August 1, 2008, no person or entity other than the Trustee had any power to transfer, assign, convey or otherwise dispose of any asset, title or interest, legal or equitable of Home 123 or New Century." [Id. at ¶ ¶ 7, 22-24.]

Plaintiff alleges that, on or prior to February 18, 2009, Defendant caused the execution of an assignment of the Mortgage and related note (" Note" ) from New Century to U.S. Bank (" Assignment" ). Plaintiff alleges that the Assignment " was signed purportedly on behalf of New Century by a person who was in fact an agent of U.S. Bank who falsely claimed to be authorized to sign on behalf of New Century." [Id. at ¶ 25 (citing Complaint, Exh. 1).] At the time Defendant accepted Assignment, it knew that only the Trustee had authority to transact business on behalf of New Century, and that those executing the Assignment had no such authority. Plaintiff therefore alleges that Defendant executed the Assignment in violation of Haw. Rev. Stat. § 708-852(1). [3] On February 24, 2009, Defendant recorded the Assignment in the BOC, as Document No. 2009-027272. Defendant subsequently commenced a non-judicial foreclosure of the Property pursuant to Haw. Rev. Stat. § 667-5, [4]

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and the foreclosure sale took place on April 30, 2009. [Id. at ¶ ¶ 27, 29-32.] Plaintiff alleges that Defendant used the " unauthorized, improper, void ab initio, unfair and deceptive" Assignment in order to:

(a) Purportedly establish U.S. BANK as a mortgagee qualified to use the non-judicial foreclosure procedure;
(b) Purportedly create an unfair and deceptive " chain of title" in the official state records which would purportedly show U.S. BANK as having the ability to convey title by virtue of the foreclosure;
(c) Unfairly and deceptively give the published notice of foreclosure sale required by Chapter 667 an appearance of having been published by an entity with the legal right and title to foreclose; and/or
(d) Conceal or obscure defects or the existence of other entities in the chain of title from New Century or Home 123 by which U.S. BANK might otherwise have been required to claim ownership of the notes and/or mortgages of the right to foreclose.

[Id. at ¶ 32.]

Plaintiff asserts that he is a " consumer" within the meaning of Haw. Rev. Stat. § 480-1, and that he is entitled to damages under § 480-13. [Id. at ¶ 39.] Plaintiff therefore alleges a claim for unfair and deceptive practices within the meaning of Haw. Rev. Stat. Chapter 480 (" UDAP" or " Count I" ), based on: the fact that Defendant lacked authority from New Century and the Trustee to execute the Assignment; [id. at ¶ ¶ 25, 27; ] the fact that Defendant's execution of the Assignment was in violation of § 708-852(1); [id. at ¶ 30, 32, 34; ] Defendant's preparation, receipt, and use of the Assignment of the Mortgage and Note; [id. at ¶ 28; ] Defendant's act of recording the Assignment in the BOC; [id. at ¶ 29; ] and Defendant's " knowing use and recordation" of the Assignment to cause the foreclosure sale of the Property [id. at ¶ 34.]. Plaintiff also asserts that, based on the Complaint's allegations of Defendant's conduct, Defendant is liable to Plaintiff for: wrongful foreclosure of the Property (" Count II" ); intentional interference with prospective economic advantage (" Count III" ); and trespass (" Count IV" ). [Id. at ¶ ¶ 32, 34, 36, 37.]

Plaintiff seeks the following relief: actual damages; reimbursement of costs and expenses under Haw. Rev. Stat. Chapter 480, including attorneys' fees; treble damages as provided by law; prejudgment interest; punitive damages; declaratory relief stating that the Assignment is null and void; equitable and injunctive relief to impose a constructive trust on the Property and monies obtained by Defendant through the use of the Assignment; equitable and injunctive relief to enjoin Defendant from " using, asserting or relying on any assignment from New Century or Home 123, executed after August 1, 2008, that is not executed by or with the express authorization of the Trustee in bankruptcy[; ]" and any other appropriate relief.

I. Motion

Defendant filed its Motion pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, and asserts that the Complaint fails to state a claim upon which relief can be granted. [Motion at 1-2.] At the outset, Defendant contends that all claims contained in the Complaint are time-barred. Defendant argues that, because the defects in the Complaint cannot be

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remedied by an amendment, the Complaint should be dismissed with prejudice. [Mem. in Supp. of Motion at 2.]

A. Count I - UDAP

Defendant argues that Count I is time-barred under the applicable four-year statute of limitations. Defendant contends that the statute of limitations for UDAP claims, pursuant to Haw. Rev. Stat. § 480-24(a) and the relevant case law, " begins to run from the date of the occurrence of the violation, not the date of discovery." [Id. at 5-6 (some citations omitted) (citing Haw. Rev. Stat. § 480-24(a); Teaupa v. U.S. Nat'l Bank N.A., 836 F.Supp.2d 1083, 1099-1100 (D. Hawai'i 2011)).]

According to Defendant, the allegations supporting Count I are based upon Defendant's act of executing the Assignment. Defendant argues, therefore, that Count I accrued on the date Defendant allegedly executed the Assignment, February 18, 2009. Applying a four-year limitations period, Defendant contends that Plaintiff would had to have brought Count I before February 18, 2013. [Mem. in Supp. of Motion at 6-7 (citing Complaint at ¶ ¶ 25, 28, 29, 32).] Because Plaintiff did not file his the Complaint until April 4, 2013, and does not offer any justification for equitable tolling of the statute of limitations, Defendant argues that Count I is time-barred and should be dismissed with prejudice. [Id. at 7.]

B. Plaintiff's Other Claims

Defendant appears to categorize Counts II, III, and the Complaint's other allegations, as tort claims. [5] Defendant notes that the Complaint repeatedly alleges claims for " wrongful foreclosure" and " unclean hands/tortfeasor conduct against public policy." Defendant argues that this Court has previously held that Hawai'i courts do not recognize a common law cause of action for wrongful foreclosure. [Id. (quoting Valencia v. Carrington Mortg. Servs., LLC, Civil No. 10-00558 LEK-RLP, 2013 WL 375643, at *6 (D. Hawai'i Jan. 29, 2013)).] Defendant further argues that there is no cause of action for " unclean hands" or " tortfeasor conduct against public policy," and that the former is only an affirmative defense. Defendant contends that, on this basis alone, these tort claims should be dismissed. [Id. (citations omitted).]

Defendant next argues that Count III also fails on its face. Defendant asserts that, in order to state an intentional interference claim,

a plaintiff must allege facts showing: (1) the existence of a prospective business relationship sufficiently definite and specific such that there is a reasonable probability of it coming to fruition[; ] (2) knowledge of the relationship; (3) a purposeful intent to interfere with the relationship; (4) causation between the act of interference and the impairment of the relationship; and (5) actual damages.

[Id. at 8 (citing Meridian Mortg., Inc. v. First Hawaiian Bank, 109 Hawai'i 35, 47-48, 122 P.3d 1133, 1146-47 (App. 2005)).] Defendant argues that: Plaintiff does not identify the existence of a business relationship; the Complaint fails to allege that Defendant had knowledge or a purposeful intent to interfere with any such purported business relationship; and that the " intent" element of an intentional interference claim " denotes purposefully improper interference and requires a state of mind or motive more culpable than mere intent." [Id. (internal quotation marks omitted)

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(quoting Hawaii Motorsports Inv., Inc. v. Clayton Grp. Servs., Inc., CIV. No. 09-00304 SOM/BMK, 2010 WL 3398553, at *15 (D. Hawai'i Aug. 27, 2010)).] Defendant asserts that, because the Complaint fails to allege any of the requisite elements, Count III is inadequately pled and should be dismissed.

Finally, Defendant argues that Plaintiff's purported tort claims are untimely. Defendant asserts that, under Hawai'i law, tort claims are subject to a two-year statute of limitations, pursuant to Haw. Rev. Stat. § 657-7. [6] According to Defendant, Plaintiff's alleged tort claims would have accrued when he discovered, or could have discovered, the tortious act of which he is complaining, the damage, and the causal connection between the two. [Id. at 8-9 (quoting Ass'n of Apartment Owners of Newtown Meadows v. Venture 15, Inc., 115 Hawai'i 232, 277, 167 P.3d, 225, 270 (2007)).]

Defendant refers to the Complaint, where Plaintiff concedes that: on or about April 2, 2007, New Century initiated bankruptcy proceedings, which are a matter of public record; the Assignment became a matter of public record on February 24, 2009; the Foreclosure Notice became a matter of public record on March 16, 2009; and the foreclosure sale of the Property occurred on April 30, 2009. [Id. at 9 (citing Complaint at ¶ ¶ 23, 25, 32).] Based on the foregoing, Defendant argues that all of the information necessary for Plaintiff to allege the tort claims set forth in the Complaint would have been in Plaintiff's possession, or available to him, on April 30, 2009, at the very latest. Defendant therefore contends that April 30, 2011 would have been the last day on which Plaintiff could have brought his tort claims against Defendant. Because Plaintiff did not file the instant action until April 4, 2013, Defendant argues that Counts II, III, and any other of Plaintiff's tort claims are time-barred and should be dismissed with prejudice. [Id. at 9-10.]

In conclusion, Defendant urges the Court to dismiss the Complaint in its entirety and with prejudice.

II. Memorandum in Opposition

At the outset, Plaintiff notes that, in the face of a motion to dismiss, he does not need to present declarations or exhibits, and the facts alleged in the Complaint are accepted as true. Plaintiff further notes that a court may take judicial notice of matters of public records, which a court may then properly consider on a motion to dismiss. Plaintiff attached several exhibits to his memorandum in opposition. Because the attached exhibits are matters of public record, Plaintiff requests that the Court take judicial notice of the exhibits. [Mem. in Opp. at 3 & n.2; id., Decl. of James J. Bickerton (" Bickerton Decl." ).]

A. Count I - UDAP

Plaintiff argues that a UDAP is not complete until the objective of the actor is obtained, and the alleged injury actually occurs. Plaintiff therefore contends that Count I did not accrue until Defendant took title to and possession of the Property. [Id. at 1, 4, 7, 14-15.] Plaintiff asserts that Defendant's Motion avoids the " real issues" in the instant case, which Plaintiff argues are:

(1) if a false or deceptive or unfair act occurs as part of an overall plan to acquire the plaintiff's property, when does the claim accrue?
(2) Given that actual injury is an element of a [UDAP

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claim], can the claim accrue before the required element of injury occurs? (3) What is the effect of the language in Section 480-24 providing that in cases of " continuing violation" of the UDAP claim accrues at any time during the period of continuing violation?

[Id. at 13 (footnote omitted).]

Plaintiff then appears to address arguments that he anticipates Defendant will make in its reply. Plaintiff argues that Defendant is not permitted to move to dismiss on inapplicable grounds and then present its real arguments for the first time in the reply, as such a procedure would deny Plaintiff due process. Plaintiff asserts, therefore, that Defendant cannot include any new arguments in its reply that it did not already raise or rely on in its Motion. According to Plaintiff, the only arguments Defendant presented for dismissal of the UDAP claim are that: Count I accrued on the date it filed the Assignment in the BOC; and no equitable tolling or " discovery" rule is available, meaning that any claim Plaintiff filed after the four-year anniversary of the Assignment's filing date would be untimely. [Id. at 13-14.]

Plaintiff focuses on a provision in Haw. Rev. Stat. § 480-24(a) that states, " [f]or the purpose of this section, a cause of action for a continuing violation is deemed to accrue at any time during the period of the violation." Plaintiff argues that a UDAP claim cannot accrue until all of its elements exist, and that an essential element of a UDAP claim is injury. Plaintiff argues, therefore, that Count I accrued when Defendant's purportedly false filing of the Assignment in the BOC caused the injury that Plaintiff alleges. Plaintiff argues that his alleged injury is not Defendant's filing of the Assignment, but the loss of the Property that the filing subsequently caused. [Id. at 14-15 (citations omitted).]

Plaintiff argues that, even if Defendant's filing of the Assignment in the BOC caused actual injury, such an act intended to obtain the Property constitutes a " continuing violation" under § 480-24(a). Plaintiff relies on Anzai v. Chevron Corp., 168 F.Supp.2d 1180 (D. Hawai'i 2001), and states that " a plaintiff who 'provides a " continuing violation," . . . would be entitled to seek provable damages that might have occurred prior to the four years before the suit was filed, if the continuing violation occurred during that period.'" [Id. at 15 (quoting Anzai, 168 F.Supp.2d at 1187).] Plaintiff argues that Count I is based on Defendant's entire scheme to take the Property by using the Assignment it filed, not merely Defendant's act of filing. Plaintiff contends that Defendant's scheme was not complete until Defendant purchased the Property at the foreclosure sale, the date of which is within the four-year statute of limitations period preceding the filing of the Complaint. Plaintiff argues that, even assuming, arguendo, Defendant's act of filing the Assignment in the BOC is the original violation, this violation continued until the foreclosure sale. [Id. at 8, 15-16 (citing Bickerton Decl., Exh. 1).]

In support of his argument of a continuing violation, Plaintiff notes that Defendant's scheme to deprive Plaintiff of the Property would not have been furthered if, after filing the Assignment with the BOC, Defendant had filed a document to withdraw or cancel the recordation of the Assignment. Plaintiff argues that this demonstrates that the continued existence, not the mere filing or execution, of the Assignment in the BOC effected and aided the foreclosure process. Thus, Plaintiff asserts, Count I did not accrue until Defendant

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purchased the Property at the foreclosure sale on April 30, 2009. [Id. at 16.]

Although Plaintiff notes that elements of fraudulent concealment are present in this case, Plaintiff does not need to resort to " tolling" provisions regarding such concealment. Plaintiff also notes that he does not rely upon the argument that a " discovery" rule is applicable. Plaintiff asserts, therefore, that Defendant's arguments based on these points are " straw men," and that his UDAP claim accrued when the Assignment " completed its mission and title to the [Property] was transferred to U.S. Bank." [Id.]

Plaintiff argues that the cases Defendant relies on mainly concerned whether there was equitable tolling or a " discovery" rule, and are only relevant to the instant case to the extent that those courts recognized that a UDAP claim is not complete until the transaction in question is finalized. [Id. at 17 (other citations omitted) (citing Teaupa, 836 F.Supp.2d at 1099-1100).] Plaintiff contends that, construing the Complaint's allegations in his favor, Plaintiff could prove facts to show Defendant's continuing violation, which began at or before it recorded the Assignment in the BOC, and continued until the transfer of title at the foreclosure sale. [Id. at 8, 18.]

Plaintiff states, " [a] continuing violation is 'a continuing pattern of related improper conduct.'" [Id. at 18 (quoting Au v. Republic State Mortg. Co., Civil No. 11-00251 JSM/KSC, 2013 WL 1339738, at *13 n.24 (D. Hawai'i Mar. 29, 2013)).] Plaintiff asserts that he has alleged a pattern and course of conduct on the part of Defendant, which began with its recording of the Assignment and ended with the conclusion of the foreclosure proceedings on the Property based on the Assignment. Plaintiff argues that, construing the allegations of the Complaint in his favor, Defendant has not met its burden of showing that the Complaint is untimely because it was not filed within four years of Defendant's continuing UDAP violation. Plaintiff asserts that, pursuant to § 480-24(a), Count I accrued on or after April 30, 2009, and Plaintiff may recover all damages relating to Defendant's continuing violation, including those that might have occurred prior to the four years before the Complaint was filed. [Id. (quoting Anzai, 168 F.Supp.2d at 1187).]

Plaintiff asserts that, even if the Court is unwilling to extend the statute of limitations period to damages that occurred prior to April 30, 2009, Count I is not time-barred to the extent that it seeks to recover damages relating to the foreclosure itself. Plaintiff argues that this district court has previously held that, " in the event of continuing wrongful conduct, those damages that flow from an act undertaken within the limitation period are certainly recoverable even if other related claims are time-barred." [Id. at 19 (citing Robert's Waikiki U-Drive, Inc. v. Budget Rent-A-Car Systems, Inc., 491 F.Supp. 1199, 1228 (D. Hawai'i 1980), aff'd, 732 F.2d 1403 (9th Cir. 1984)).]

Plaintiff notes Defendant's argument that Count I is time-barred because the first wrongful act the Complaint alleges occurred prior to the limitation period. Plaintiff asserts that Defendant's argument is not only inconsistent with § 480-24(a), but also with federal law, as pronounced in Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971). According to Plaintiff,

Zenith involved a 1963 suit to recover damages for an anti-trust conspiracy that took place prior to 1954. The Supreme Court held that, to the extent the earlier conspiracy caused damages that occurred within four years of the filing

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date which could not have been recovered at the time of the original wrongful act, a claim to recover those 1959-63 damages was not barred by the antitrust statute of limitations.

[Id. (citing Zenith, 401 U.S. at 340-42, 91 S.Ct. at 807-08).]

Plaintiff contends that, based on Zenith, this district court, in Robert's Waikiki, previously rejected the argument that Defendant now makes. [Id. at 20-21 (quoting Robert's Waikiki, 491 F.Supp. at 1228).] Plaintiff asserts that, pursuant to Zenith and Robert's Waikiki, because " the damages relating to foreclosure were clearly too speculative at the time of the wrongful foreclosure, the cause of action for those damages clearly did not arise until the foreclosure occurred." Plaintiff therefore maintains that, under any interpretation of § 480-24(a), Count I is not time-barred. [Id. at 21.]

Plaintiff refers to Defendant's reliance on McDevitt v. Guenther, 522 F.Supp.2d 1272 (D. Hawai'i 2007), for its proposition that damages occurring within the limitation, as a result of a wrongful act that occurred prior to the limitation period, are time-barred. In opposition, Plaintiff argues that McDevitt is distinguishable in that the damages in the instant case flowed at least in part from Defendant's wrongful acts that occurred within the limitations period. According to Plaintiff, the McDevitt court cited the Zenith court's analysis, but failed to apply Zenith's main holding. Plaintiff argues that the rule in Zenith is not ...

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