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Chung v. U.S. Bank, N.A.

United States District Court, D. Hawaii

April 17, 2017

HEEJOON CHUNG, Plaintiff,
v.
U.S. BANK, N.A., Trustee, under Securitization Servicing Agreement dated as of December 1, 2005, Structured Asset Investment Loan Trust Mortgage Pass-Through Certificates, Series 2005-11; and OCWEN LOAN SERVICING, LLC, Defendants.

          ORDER GRANTING DEFENDANTS' MOTION FOR JUDGMENT ON THE PLEADINGS ON COUNT II OF THE COMPLAINT AND GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

          ALAN C. KAY UNITED STATES DISTRICT JUDGE

         TABLE OF CONTENTS

         PROCEDURAL BACKGROUND ........................................... 4

         FACTUAL BACKGROUND .............................................. 7

         STANDARD ........................................................ 9

         I. Judgment on the Pleadings ............................... 9 II. Summary Judgment ...................................... 11

         DISCUSSION ..................................................... 13

         I. Defendants' Motion for Judgment on the Pleadings as to Count II of the Complaint .............................. 13

         a. Whether the Claim is Time-Barred Under Haw. Rev. Stat. Chapter 480 .......................................... 13

         b. Whether the SCRA Provides a Cognizable Basis for Plaintiff's UDAP Claim ............................... 26

         c. Whether Count II is Insufficiently Pled to the Extent it is Based on the 2015 Communications or Any Other Conduct .............................................. 31

         II. Plaintiff's Motion for Partial Summary Judgment ........ 36

         a. FDCPA Claim .......................................... 36

         i. Whether Plaintiff Establishes that the Loan was a Personal Debt ................................... 37

         ii. Whether Ocwen is a “Debt Collector” ............. 41

         iii. Whether Defendants Violated the FDCPA ........... 49

         1. Whether Defendants Violated the FDCPA When they Demanded Different Amounts Owed on the Same Date ......................................... 49

         2. Whether Defendants' Alleged “Gamesmanship” in the Instant Litigation Violated the FDCPA ....52

         3. Whether Defendants Violated the FDCPA for Sending Plaintiff Letters After They Knew He was Represented by an Attorney ............... 54

         4. Whether Defendants Violated the FDCPA by Improperly Charging Late Fees, Insurance Charges, and Attorney's Fees ................. 58

         5. Whether Defendants Violated the FDCPA by Reporting False Credit Information ........... 58

         6. Whether Defendants Violated the FDCPA by Attempting to Collect on the Alleged Debt, Even Though They Knew it was Time-Barred .......... 59

         iv. Whether the Bona Fide Error Defense Applies ..... 62

         b. UDAP Claim ........................................... 63

         c. Negligence and Negligent Misrepresentation Claims....65

         CONCLUSION ..................................................... 65

         For the reasons set forth below, the Court GRANTS Defendants' Motion for Judgment on the Pleadings on Count II of the Complaint. The Court DISMISSES Count II of the Complaint WITHOUT PREJUDICE. The Court GRANTS IN PART and DENIES IN PART Plaintiff Heejoon Chung's Motion for Partial Summary Judgment.

         PROCEDURAL BACKGROUND

         On January 18, 2016, Plaintiff Heejoon Chung (“Plaintiff”) filed a Complaint for Damages and Injunctive Relief (“Complaint”) against Defendants U.S. Bank, N.A. Trustee, Under Securitization Servicing Agreement dated as of December 1, 2005, Structured Asset Investment Loan Trust Mortgage Pass-Through Certificates, Series 2005-11 (“U.S. Bank”) and Ocwen Loan Servicing, LLC (“Ocwen, ” and together with U.S. Bank, “Defendants”). ECF No. 1. Plaintiff asserts that Defendants made false and misleading representations in connection with a non-judicial foreclosure on real property located at 91-743 Ihipehu Street, Ewa Beach, Hawaii 96706 (“Property”), and later attempted to collect a debt from him despite purporting to release him from such debt upon foreclosure. Id. ¶¶ 12, 27, 3063, 67. Plaintiff alleges: (1) violations of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692; (2) unfair or deceptive acts or practices (“UDAP”) in violation of the Hawaii Revised Statutes (“Haw. Rev. Stat.”), Chapter 480 and the Servicemembers Civil Relief Act (“SCRA”); (3) negligent misrepresentation; and (4) negligence. Id. ¶¶ 48-70.

         In Count I of his Complaint, Plaintiff predicates his FDCPA claim on conduct occurring within the year prior to the filing of the case. Id. ¶ 50. Plaintiff alleges violations of 15 U.S.C. §§ 1692c-g. Id. ¶¶ 48-56. In Count II of his Complaint, Plaintiff alleges UDAP violations under provisions of Haw. Rev. Stat. Chapter 480 and the SCRA based on events in 2005 and 2010. Id. ¶¶ 59-60. Plaintiff specifically predicates his UDAP claim on the following statutes: (1) 50 U.S.C. § 521; (2) Haw. Rev. Stat. § 667-1, et seq.; (3) Haw. Rev. Stat. § 480D-1, et. seq.; (4) Haw. Rev. Stat. § 443B-1, et. seq.; (5) Haw. Rev. Stat. § 480-1, et seq.; (6) Haw. Rev. Stat. § 480-2; and (7) Haw. Rev. Stat. § 480-12. Id. ¶¶ 57-61. Defendants filed an Answer to the Complaint on February 23, 2016 responding to the allegations in the Complaint and asserting various affirmative defenses. ECF No. 13.

         On July 11, 2016, Plaintiff filed a Motion for Judgment on the Pleadings and Memorandum in Support of Motion “based upon the failure of Defendants to truthfully respond to the allegations of the Complaint.” ECF No. 24-1 at 1. The Court denied Plaintiff's Motion on September 6, 2016. ECF No. 32. On September 9, 2016, Defendants filed a Motion for Leave to file a First Amended Answer, Counterclaim, and Third Party Complaint. ECF No. 33. Plaintiff opposed Defendants' request. ECF No. 35. Defendants filed a First Amended Answer, Counterclaim, and Third Party Complaint on October 5, 2016. ECF No. 37. On November 1, 2016, the Magistrate Judge entered an order granting in part and denying in part Defendants' Motion for Leave to File a First Amended Answer, Counterclaim, and Third Party Complaint. ECF No. 43.

         On November 9, 2016, Defendants filed a Motion for Judgment on the Pleadings on Count II of the Complaint (“Defendants' Motion”). ECF No. 48. On February 27, 2017, Plaintiff filed an Opposition to Defendants' Motion for Judgment on the Pleadings (“Plaintiff's Opposition”). ECF No. 66. On March 6, 2017, Defendants filed their Reply to Plaintiff's Opposition (“Defendants' Reply”). ECF No. 70.

         On March 8, 2017, the Court ordered supplemental briefing on whether 50 U.S.C. § 3936 would apply to the statute of limitations issue raised in Defendants' Motion. ECF No. 71. On March 14, 2017, both parties filed Memorandum addressing this issue. ECF Nos. 73, 74.

         Separately, on November 9, 2016, Plaintiff filed a Motion for Partial Summary Judgment (“Plaintiff's Motion”) on all claims, reserving the damages determination (ECF No. 45), along with a Concise Statement of Facts in support of his Motion (“Pl.'s CSF in Supp.”). ECF No. 46. On February 27, 2017, Defendants filed an Opposition to Plaintiff's Motion for Partial Summary Judgment (“Defendants' Opposition”) (ECF No. 67), along with a Separate and Concise Statement of Facts (“Defs.' CSF in Opp'n”). ECF No. 68. On March 6, 2017, Plaintiff filed a Reply to Defendants' Opposition (“Plaintiff's Reply”). ECF No. 69.

         The Court held a hearing on Defendants' and Plaintiff's Motions on March 20, 2017 at 11:00 a.m. At the hearing, the Court asked Defendants to file a full version of the Asset Purchase Agreement, which was Exhibit 1 of Defendants' Separate and Concise Counterstatement of Facts. Defendant thereafter filed the full agreement. ECF No. 76. The Court then gave Plaintiff an opportunity to respond. ECF No. 77. Plaintiff filed a Memorandum responding to the full document on March 24, 2017. ECF No. 78.

         FACTUAL BACKGROUND

         On October 4, 2005, Plaintiff purchased the Property. Complaint ¶ 12. The purchase was made with funds obtained from BNC Mortgage, Inc. (“BNC”), which was a loan secured by a first mortgage on the Property and later transferred to U.S. Bank on March 10, 2010. Complaint ¶ 13; Pl.'s CSF in Supp., Exs. B1, B2, D. Plaintiff alleges, upon information and belief, that there were various irregularities in the loan process with BNC, including failure to provide proper disclosures, an improper signing location, and failure to provide copies of the loan documents. Complaint ¶¶ 16-19, 22. Several days after closing, Plaintiff entered into a second mortgage loan on the Property. Id. ¶ 21.

         HomEq Servicing (“HomEq”) originally handled the loan servicing. Pl.'s CSF in Supp., Ex. C. On April 15, 2009, HomEq sent Plaintiff a letter advising him of his default on the loan, which Plaintiff did not receive. Complaint ¶ 24; Pl.'s CSF in Supp., Chung Decl. ¶ 18.

         Plaintiff alleges that the mortgage was non-judicially foreclosed through a public auction conducted on July 8, 2010. Complaint ¶ 27; Pl.'s CSF in Supp., Ex. E ¶ 5j. A Mortgagee's Affidavit of Foreclosure Under Power of Sale (“Affidavit”) was recorded in the Land Court on August 3, 2010. Complaint ¶ 27; Pl.'s CSF in Supp., Ex. E. The Affidavit erroneously stated that Plaintiff was not on active military duty at the time of foreclosure when, in fact, a report attached as an exhibit to the affidavit indicates that he was on active military duty from November 3, 1995 with no end date. Complaint ¶¶ 31-32, Pl.'s CSF in Supp., Ex. E. Plaintiff was stationed in South Carolina in 2010 and alleges that he did not receive notice of the non-judicial foreclosure during that time. Complaint ¶ 28.

         Due to a problem with recording the deed, however, title to the Property never passed to U.S. Bank but remained in Plaintiff's name. Pl.'s CSF in Supp., Chung Decl. ¶ 33; Defs.' CSF in Opp'n, Flannigan Decl. ¶ 14.

         Ocwen began servicing the loan in 2010. Defs.' CSF in Opp'n, Ex. 1. In July 2015, Ocwen sent Plaintiff letters stating that the loan was delinquent as of March 2, 2009 and that the current amount due on the loan exceeded $216, 000. Complaint ¶¶ 36-38; Pl.'s CSF in Supp., Exs. G, H. Shortly thereafter, Plaintiff contacted an attorney and first learned of the non-judicial foreclosure. Pl.'s CSF in Supp., Chung Decl. ¶ 23.

         Plaintiff was on “Active Duty Status” in the U.S. Army from November 3, 1995 until November 2015. Complaint ¶¶ 3, 11; Plaintiff's Reply, Exhibit A (Plaintff's Depo.) at 198.

         STANDARD

         I. Judgment on the Pleadings

         Under Federal Rule of Civil Procedure 12(c), “[a]fter the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings.” Judgment on the pleadings is properly granted “when, accepting all factual allegations in the complaint as true, there is no issue of material fact in dispute, and the moving party is entitled to judgment as a matter of law.” Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012) (citation and original alteration omitted).

         Analysis under Rule 12(c) is substantially identical to analysis under Rule 12(b)(6) because, under both rules, a court must determine whether the facts alleged in the complaint, taken as true, entitle the plaintiff to a legal remedy. Id. The Court must therefore assess whether the complaint “contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Harris v. Cty. of Orange, 682 F.3d 1126, 1131 (9th Cir. 2012) (Iqbal applies to Rule 12(c) motions because Rule 12(b)(6) and Rule 12(c) motions are functionally equivalent).

         Judgment on the pleadings under Rule 12(c) is limited to material included in the pleadings, unless the Court elects to convert the motion into one for summary judgment. Yakima Valley Mem'l Hosp. v. Dep't of Health, 654 F.3d 919, 925 n.6 (9th Cir. 2011). Rule 12(d) gives the Court “discretion to accept and consider extrinsic materials offered in connection with these motions, and to convert the motion to one for summary judgment when a party has notice that the district court may look beyond the pleadings.” Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1207 (9th Cir. 2007).

         The Court must accept as true the facts as pled by the non-movant, and will construe the pleadings in the light most favorable to the nonmoving party. U.S. ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1053 (9th Cir. 2011); Doyle v. Raley's Inc., 158 F.3d 1012, 1014 (9th Cir. 1998). Additionally, mere conclusory statements in a complaint or “formulaic recitation[s] of the elements of a cause of action” are not sufficient. Twombly, 550 U.S. at 555. Thus, the Court discounts conclusory statements, which are not entitled to a presumption of truth, before determining whether a claim is plausible. Iqbal, 556 U.S. at 678. However, “dismissal with prejudice and without leave to amend is not appropriate unless it is clear on de novo review that the complaint could not be saved by amendment.” Harris v. Cty. of Orange, 682 F.3d 1126, 1131 (9th Cir. 2012) (citation omitted).

         II. Summary Judgment

         Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). Rule 56(a) mandates summary judgment “against a party who fails to make a showing sufficient to establish the existence of an element essential to the party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Broussard v. Univ. of Cal. at Berkeley, 192 F.3d 1252, 1258 (9th Cir. 1999).

         “A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact.” Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007) (citing Celotex, 477 U.S. at 323); see also Jespersen v. Harrah's Operating Co., 392 F.3d 1076, 1079 (9th Cir. 2004). “When the moving party has carried its burden under Rule 56 [(a)] its opponent must do more than simply show that there is some metaphysical doubt as to the material facts [and] come forward with specific facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586-87 (1986) (citation and internal quotation marks omitted); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (stating that a party cannot “rest upon the mere allegations or denials of his pleading” in opposing summary judgment).

         “An issue is ‘genuine' only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party, and a dispute is ‘material' only if it could affect the outcome of the suit under the governing law.” In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008) (citing Anderson, 477 U.S. at 248). When considering the evidence on a motion for summary judgment, the court must draw all reasonable inferences on behalf of the nonmoving party. Matsushita Elec. Indus. Co., 475 U.S. at 587; see also Posey v. Lake Pend Oreille Sch. Dist. No. 84, 546 F.3d 1121, 1126 (9th Cir. 2008) (stating that “the evidence of [the nonmovant] is to be believed, and all justifiable inferences are to be drawn in his favor”).

         DISCUSSION

         I. Defendants' Motion for Judgment on the Pleadings as to Count II of the Complaint

         a. Whether the Claim is Time-Barred Under Haw. Rev. Stat. Chapter 480

         Defendants argue that Plaintiff's claims under Haw. Rev. Stat. § 480-based on the origination of his loan in October 2005 and representations made about Plaintiff's military status during the non-judicial foreclosure conducted in August 2010-are time barred.[1] Under Haw. Rev. Stat. § 480-24, “Any action to enforce a cause of action arising under [Chapter 480] shall be time barred unless commenced within four years after the cause of action accrues . . . a cause of action for a continuing violation is deemed to accrue at any time during the period of the violation.”

         Defendants argue that the occurrence rule, which states that a cause of action accrues upon the occurrence of the alleged violation, applies. On the other hand, Plaintiff argues that the discovery rule, which states that a cause of action accrues when the plaintiff discovers the harm, applies. The Court holds that a UDAP cause of action accrues, pursuant to Haw. Rev. Stat. § 480-24, four years from the date of the occurrence of the violation, as opposed to Plaintiff's discovery of the violation. See McDevitt v. Guenther, 522 F.Supp.2d 1272, 1289 (D. Haw. 2007) (Kay, J.) (“The Court holds that the applicable rule governing the statute of limitations for claims arising under Haw. Rev. Stat. § 480-2 is the occurrence rule.”); see also In re Sumbillo, No. AP 1490052, 2015 WL 5162466, at *2 (D. Haw. Sept. 1, 2015) (noting that “[j]udges in this District Court for the past thirty-five years [have applied the occurrence rule] in determining when a cause of action accrues under Chapter 480”); Lowther v. U.S. Bank N.A., 971 F.Supp.2d 989, 1003 (D. Haw. 2013) (applying the occurrence rule); Rundgren v. Bank of N.Y. Mellon, No. CIV 10-00252 JMS/LEK, 2010 WL 4066878, at *6 (D. Haw. Oct. 14, 2010) (same).

         The Court is not persuaded by Plaintiff's argument that the discovery rule is now the standard in Hawaii. Plaintiff argues that two cases invoking the discovery rule apply here: Schmidt v. HSC, Inc., 131 Haw. 497, 503, 319 P.3d 416, 422 (2014) and Leibert v. Fin. Factors, Ltd., 71 Haw. 285, 286, 788 P.2d 833, 835 (1990). However, neither case considered a UDAP claim under Chapter 480; Schmidt involved a Hawaii law related to fraudulent transfer, and Leibert involved a Hawaii law related to fraudulent concealment. In addition, Plaintiff's argument-that a case cited by Defendants, Reyes v. HSBC Bank USA, Nat. Ass'n, 135 Haw. 407, 353 P.3d 410 (Haw. Ct. App. 2015), is unpersuasive because it does not discuss the holding in Schmidt-is of no consequence because Schmidt does not apply here.

         Plaintiff also relies on February 5, 2016 and July 11, 2016 orders and a hearing transcript in Kane v. Deutsche Bank Nat. Trust Co., Adv. No. 15-90045 (Bankr. D. Haw. 2016). The Kane court held that the statute of limitations does not bar a claim under Haw. Rev. Stat. § 480-12, a provision which voids a contract that violates Chapter 480, because it is a defense and to bar such claims would result in a void contract becoming “un-void” due to the mere lapse of time. However, the Kane court did not rely on any authority for this assertion and also stated that it was merely predicting how the Hawaii state courts would hold. In addition, contrary authority exists. See Rundgren v. Bank of N.Y. Mellon, Civ. No. 10-00252 JMS/LEK, 2010 WL 4066878, at *6 (D. Haw. Oct. 14, 2010) (“[Section] 480-24's four-year statute of limitations, which extends to any action to enforce a cause of action arising under this chapter, also applies to § 480-12.” (internal quotation marks and original alteration omitted)).[2] The Court, therefore, declines to follow Kane and holds that the occurrence rule applies.

         Because the occurrence rule applies, the Court must determine when the violation occurred. A violation does not occur until all the elements of a claim have occurred, including injury and damages. In re Sumbillo, Civ. No. 15-00125 JMS-BMK, 2015 WL 5162466, at *3 (D. Haw. Sept. 1, 2015). Without citing any authority, Plaintiff argues that injury and damage did not occur until after Plaintiff received the demand letters from Ocwen in 2015 and incurred damages in determining his rights. This, however, would be the date Plaintiff discovered the injury and not the date when the injury and damages occurred.

         The Court finds that any injury and damages in this case would have occurred on the only two dates pled in Plaintiff's complaint related to the UDAP claim-the date of the loan transactions on October 4, 2005 and the Affidavit, which was filed on August 3, 2010. See id. at *3 (“[C]ontrary to Deutsche Bank's argument that the injury and damages both occurred when the notice was published-the Sumbillos could not have been injured or damaged at least until the date of the auction on August 26, 2010.”); Uyeshiro v. Irongate Azrep BW LLC, Civ. No. 13-00043 ACK-BMK, 2014 WL 414219, at *15 (D. Haw. Feb. 3, 2014) (Kay, J.) (stating that the conduct at issue occurred when the sales contract was executed); Ramos v. Chase Home Fin., 810 F.Supp.2d 1125, 1128, 1139 (D. Haw. 2011) (holding that the claim accrued on the date the loan transaction was consummated).[3] Because Plaintiff did not file his complaint until January 19, 2016, approximately 10 years and 3 months after the October 2005 loan transaction and five years and six months after the July 2010 foreclosure, the claim is time-barred unless there is a basis for tolling the statute of limitations.

         Plaintiff argues that the limitations period should be tolled because Defendants failed to serve Plaintiff with notice of foreclosure, and Plaintiff did not learn of the foreclosure of his home and the Affidavit stating that he was not in the military until 2015. Plaintiff further alleges that when Defendants sent a letter to Plaintiff demanding payment in 2015, they continued to conceal their foreclose proceedings. Plaintiff cites to Rundgren v. Bank of N.Y. Mellon,777 F.Supp.2d 1224 (D. Haw. 2011) to support his claim. In Rundgren, the Court held that equitable tolling may be appropriate in a Haw. Rev. Stat. § 480 claim where there has been fraudulent concealment. See id. at 1231 (construing “HRS Ch. 480 in accordance with federal cases interpreting similar ...


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