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Lynch v. Federal National Mortgage Association

United States District Court, D. Hawaii

November 15, 2016

DONNA LYNCH, Plaintiff,


          Derrick K. Watson, Judge


         Plaintiff Donna Lynch, proceeding pro se, brings numerous claims against the lender and loan servicer involved in the nonjudicial foreclosure sale of her property. Lynch seeks damages, rescission of a 2007 mortgage and to set aside the foreclosure sale, based upon the fraudulent conduct of unspecified agents acting on behalf of Defendants. Because several of Lynch's claims are not alleged with the particularity required by Federal Rule of Civil Procedure 9(b) and/or otherwise fail to state a claim for relief, Defendants' Motion to Dismiss is granted. Lynch is granted limited leave to file an amended complaint no later than December 16, 2016, with instructions below.


         Lynch brings claims against Defendants Federal National Mortgage Association (“Fannie Mae”), Countrywide Home Loans, Inc. (“Countrywide”), and Bank of America, N.A. (“BANA”), arising from the nonjudicial foreclosure sale of her real property located at 66 Haku Hale Place, Lahaina, Hawaii 96761 (“Property”), which took place on June 17, 2010 under a power of sale from a 2007 Mortgage. Complaint ¶¶ 7-15, 31.[1] Fannie Mae gained title to the Property through the foreclosure sale, and thereafter initiated a Complaint for Ejectment in the Circuit Court of the Second Circuit in the State of Hawaii to obtain possession of the Property. Defendants' Ex. B (Quitclaim Deed) and Ex. C (Complaint for Ejectment). Lynch filed the instant Complaint in state court while the ejectment action was pending.[2] Defendants removed the case to this Court on May 3, 2016.

         The Complaint alleges that during the course of refinancing her mortgage with Countrywide, Lynch “was suffering from a medical condition that affected her ability to think clearly, ” and notified Countrywide of this fact. Complaint ¶¶ 12-14. Because of her medical condition, she was unable to leave her home. Therefore, “Countrywide sent a representative to her house to force her to sign paperwork for this second refinancing. Relying on representations made by [Countrywide] or its agents, and for fear of the dire consequences Defendant threatened her with, [Lynch] reluctantly signed the new loan papers.” Complaint ¶ 15. According to Lynch, “when she became unable to make payments on this second refinanced loan, [she] became aware that she had been duped into signing a loan with considerably worse terms than the first refinance loan.” Complaint ¶ 16.

         She attempted to modify the terms of her mortgage, at times communicating with Countrywide and BANA (as servicer of the loan), “and receiving conflicting information from each.” Complaint ¶ 22. At an unspecified date, Lynch alleges that “agents of [BANA] told Plaintiff to stop making mortgage payments, falsely explaining that she had to be in default in order for her request for a loan modification to be considered. Relying on the representations of agents of [BANA], Plaintiff stopped making payments on her mortgage.” Complaint ¶¶ 27-28. She contends that the non-judicial foreclosure sale of the Property occurred while loan modification negotiations were ongoing and was wrongfully conducted because the “posting of the intention to foreclose was never put in one of the Plaintiff's local papers on Maui. It was apparently posted in the paper on Honolulu. . . . And therefore, it is not considered a ‘local newspaper.'” Complaint ¶ 32.

         Lynch alleges the following causes of action: (1) quiet title and wrongful foreclosure (Count I); (2) fraud and rescission (Count II); (3) violation of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2605(e) (“RESPA”), and 12 C.F.R. § 226.36(c)(1)(iii) (“Regulation Z”) (Count III); (4) violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1961(“ECOA”), and 12 C.F.R. § 202.9(c)(2) (“Regulation B”) (Count IV); (5) unfair and deceptive acts and practices (“UDAP”) under Haw. Rev. Stat. (“HRS”) Chapter 480 (Count V); (6) breach of the implied covenant of good faith and fair dealing (Count VI); (7) breach of agreement to negotiate loan modification contract in good faith (Count VII); (8) negligent and/or intentional misrepresentation (Count VIII); and (9) nullification and avoidance of note and mortgage due to mental incapacity (Count IX). Defendants move to dismiss the Complaint with prejudice for failure to state a claim upon which relief can be granted.


         Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss for failure to state a claim upon which relief can be granted. Pursuant to Ashcroft v. Iqbal, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” 555 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007)). “[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Id. Accordingly, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555). Rather, “[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.” Id. (citing Twombly, 550 U.S. at 556). Factual allegations that only permit the court to infer “the mere possibility of misconduct” do not constitute a short and plain statement of the claim showing that the pleader is entitled to relief as required by Rule 8(a)(2). Id. at 679.


         Because Lynch is proceeding pro se, the Court liberally construes her filings. See Erickson v. Pardus, 551 U.S. 89, 94 (2007); Eldridge v. Block, 832 F.2d 1132, 1137 (9th Cir. 1987) (“The Supreme Court has instructed the federal courts to liberally construe the ‘inartful pleading' of pro se litigants.”) (citing Boag v. MacDougall, 454 U.S. 364, 365 (1982) (per curiam)). The Court recognizes that “[u]nless it is absolutely clear that no amendment can cure the defect . . . a pro se litigant is entitled to notice of the complaint's deficiencies and an opportunity to amend prior to dismissal of the action.” Lucas v. Dep't of Corr., 66 F.3d 245, 248 (9th Cir. 1995); see also Crowley v. Bannister, 734 F.3d 967, 977-78 (9th Cir. 2013). As discussed more fully below, even liberally construed, the allegations in the Complaint are deficient for several reasons. First, the allegations of fraudulent conduct fall short of the particularity required by Federal Rule of Civil Procedure 9(b), including the time, place, party, and content of the fraudulent representations. Second, the Complaint fails to provide sufficient factual content to permit the Court to draw the reasonable inference that any Defendant is liable for the misconduct alleged. Defendants' Motion is therefore granted, but with limited leave to amend consistent with the instructions below.

         I. Count I: Quiet Title

         Count I seeks “a judgment quieting title in [Lynch's] favor, as the subject Note and Mortgage, and consequently the nonjudicial foreclosure sale conducted on the subject property and subsequent transfer of title to Defendant [Fannie Mae], are void and unenforceable[.]” Complaint ¶ 34. The Court construes the claim as seeking relief pursuant to HRS § 669-1(a), which provides that a quiet title “[a]ction may be brought by any person against another person who claims, or who may claim adversely to the plaintiff, an estate or interest in real property, for the purpose of determining the adverse claim.” Lynch, however, has not alleged even the most basic facts regarding the interests of various parties to make out a cognizable “quiet title” claim.

         Further, a plaintiff bringing a statutory quiet title claim against a mortgagee or purported servicer for the mortgagee is required to allege that she is able to tender the amount of indebtedness. See Nat'l Mortg. Ass'n v. Kamakau, 2012 WL 622169, at *9 (D. Haw. Feb. 23, 2012) (“A basic requirement of an action to quiet title is an allegation that plaintiffs are the rightful owners of the property, i.e., that they have satisfied their obligations under the [note and mortgage].”) (internal quotation marks and citation omitted); Benoist v. U.S. Bank Nat'l Ass'n, 2012 WL 3202180, at *10 (D. Haw. Aug. 3, 2012) (“[T]ender is required, regardless of whether the claim is based on common law or statute.”); Caraang v. PNC Mortg., 795 F.Supp.2d 1098, 1126 (D. Haw. 2011) (“In order for mortgagors to quiet title against the mortgagee, the mortgagors must establish that they are the rightful owners of the property and they have paid, or are able to pay, the amount of their indebtedness.”). Cases from this district and elsewhere rely on this rule requiring a plaintiff “to establish his superior title by showing the strength of his title as opposed to merely attacking the title of the defendant.” Amina v. Bank of N.Y. Mellon, 2012 WL 3283513, at *3 (D. Haw. Aug. 9, 2012). Lynch does not allege that she has paid the outstanding loan balance or that she is able to do so.

         For these reasons, Lynch fails to state a claim for quiet title, and Count I is dismissed. Because amendment may be possible, however, she is granted leave to attempt to cure the deficiencies in this claim.

         II. Count II: Fraud

         Lynch alleges in Count II that the “Note and Mortgage are void and unenforceable as procured by fraud, coercion, and under duress. [Countrywide] made multiple misrepresentations to [Lynch] . . . [she] was fraudulently induced and coerced by these statements to sign the second refinance loan documents without having time to review them or have them reviewed.” Complaint ¶ 35.

         A. Whether Fraud Claims Are Time-Barred

         From what the Court can discern, Lynch's fraud allegations stem from the refinancing of her 2007 Mortgage. See Defendants' Ex. A. Specifically, she claims that Countrywide made misrepresentations that caused her to sign refinance documents “to her detriment, ” and that “she was physically intimidated by loan officers showing up at her house, ” and as a result, “the nonjudicial foreclosure sale must be set aside.” Complaint ¶¶ 35-36. The only mortgage between Lynch and Countrywide before the Court is the 2007 Mortgage, which was also the basis for the nonjudicial foreclosure and eventual state court ejectment action. In opposition to the Motion, Lynch does not contest that the 2007 Mortgage is the operative document. Accordingly, the Court construes Count II as relating to fraudulent conduct arising from the refinancing of the 2007 Mortgage.

         Defendants move to dismiss the fraud claims as time-barred. Although the Complaint does not allege the dates of these encounters with Defendants' allegedly intimidating representatives, or the specific circumstances that resulted in the signing of the documents, these allegations appear to relate exclusively to the origination of the Countrywide Mortgage recorded in the State of Hawaii Bureau of Conveyances (“BOC”) on May 15, 2007. See Defendants' Ex. A. Lynch's fraud claims are subject to a limitations period of six years under HRS § 657-1(4). Mroz v. Hoaloha Na Eha, Inc., 360 F.Supp.2d 1122, 1135 (D. Haw. 2005) (citing Eastman v. McGowan, 86 Hawai‘i 21, 946 P.2d 1317, 1323 (1997)). As to when the statute of limitations period for a fraud-based claim begins to run:

Under Hawai‘i law, constructive notice “arise[s] as a legal inference, where circumstances are such that a reasonably prudent person should make inquiries, [and, therefore, ] the law charges a person with notice of facts which inquiry would have disclosed.” SGM Partnership v. Nelson, 5 Haw.App. 526, 529, 705 P.2d 49, 52 (1985) (citation omitted; brackets in original). Although Hawai‘i courts have not addressed whether the recording of a deed serves as constructive notice for purposes of a fraud claim, courts in the state have recognized that the recording of a document gives notice to the general public of the conveyance. See Markham v. Markham, 80 Hawai‘i, 274, 281, 909 P.2d 602, 609 (App. 1996) (noting that the “central purpose of recording a conveyance of real property is to give notice to the general public of the conveyance and to preserve the recorded instrument as evidence”). . . . [A] publicly record[ed] document . . . provides constructive notice where the document itself constitutes evidence of the fraud.

Fields v. Nationstar Mortg. LLC, 2015 WL 5162469, at *4 (D. Haw. Aug. 31, 2015) (citation omitted).

         Based on Lynch's allegations, the Mortgage itself constitutes evidence of the alleged fraud. See Complaint ¶¶ 14-19, 35-37. The Mortgage was recorded with the BOC as Document Number 2007-086966. Defendants' Ex. A. Thus, Lynch is charged with constructive knowledge of the contents of the Mortgage on May 15, 2007. In fact, Lynch had actual notice of the contents of the Mortgage when she signed the document before a notary on May 3, 2007. Lynch filed her Complaint in state court on April 4, 2016. In other words, whether the statute of limitations began to run on May 3, 2007 or May 15, 2007, Lynch failed to file her Complaint within the six-year limitations period.

         The Court finds, however, for purposes of the instant Motion, that dismissal on statute of limitations grounds would not be appropriate in light of Lynch's allegations that she was under duress and “mentally incapable of making a rational decision at that time.” Complaint ¶ 36. Although the Court is not required to assume the truth of these legal conclusions for the purpose of tolling the statute of limitations, see Iqbal, 555 U.S. at 678, liberally construed, there may be grounds to establish equitable or statutory tolling.[3] A claim may be dismissed under Rule 12 as “barred by the applicable statute of limitations only when ‘the running of the statute is apparent on the face of the complaint.'” Von Saher v. Norton Simon Museum of Art at Pasadena, 592 F.3d 954, 969 (9th Cir. 2010) (quoting Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997 (9th Cir. 2006)). Such motion should be granted “only if the assertions of the complaint, read with the required liberality, would not permit the plaintiff to prove that the statute was tolled.” Morales v. City of Los Angeles, 214 F.3d 1151, 1153 (9th Cir. 2000) (citation omitted); see also Trost v. Embernate, 2011 WL 6101543, at *2 (D. Haw. Dec. 7, 2011). Liberally construing her allegations, the Court cannot determine at this preliminary stage of the litigation whether the otherwise time-barred fraud claims relating to the 2007 Mortgage are tolled. Accordingly, the Motion is denied on this basis.

         B. Failure To Allege Fraud With Particularity

         In any event, Count II fails to satisfy the heightened pleading requirements applicable to such claims.

Fraud and fraudulent misrepresentation share the same elements. Compare Fisher v. Grove Farm Co., 123 Haw. 82, 103, 230 P.3d 382, 403 (Haw. Ct. App. 2009) (stating the elements of a fraud claim) with Ass'n of Apartment Owners, 115 Haw. at 263, 167 P.3d at 256 (stating the elements of a fraudulent misrepresentation claim). Like fraudulent misrepresentation, the elements of fraud are “1) false representations made by the defendant, 2) with knowledge of their falsity (or without knowledge of their truth or falsity), 3) in contemplation of plaintiff's reliance upon them, and 4) plaintiff's detrimental reliance.” Fisher, 123 Haw. at 103, 230 P.3d at 403.

Prim Liab. Co. v. Pace-O-Matic, Inc., 2012 WL 263116, at *8 (D. Haw. Jan. 30, 2012).

         Rule 9(b) requires that, when fraud or mistake is alleged, “a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). An allegation of fraud is sufficient if it “identifies the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations.” Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993) (internal citations and quotations omitted). “Averments of fraud must be accompanied by the who, what, when, where, and how of the misconduct charged.” Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (quoting Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)). A plaintiff must also explain why the alleged conduct or statements are fraudulent. In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 n.7 (9th Cir. 1994) (en banc), superseded by statute on other grounds by 15 U.S.C. § 78u-4.

         Lynch does not sufficiently allege the circumstances that constitute fraudulent conduct by Countrywide or its unnamed “agents” in Count II. The Complaint does not identify such facts as the times, dates, places, or other details of the alleged fraudulent activity. Neubronner, 6 F.3d at 672.

         Consequently, Count II fails to satisfy the particularity requirement of Rule 9(b) and is dismissed. Because amendment may be possible, however, Lynch is granted leave to attempt to cure the deficiencies in this claim.

         III. Count III: RESPA

         Lynch alleges in Count III that BANA “acting as servicer . . . [by] not responding within the statutory time limit and, in fact, not responding at all . . . violated 12 U.S.C. § 2605(e) and [Regulation Z].” Complaint ¶ 38. She contends that she “sent multiple written requests to [BANA] disputing the amount of debt she allegedly owed and requesting documentation. No written response addressing these issues was ever given to [Lynch]. Failing to provide an accurate ...

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