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Brown v. Porter Mcguire Kiakona & Chow, LLP

United States District Court, D. Hawaii

August 30, 2017

BENITA J. BROWN,, Plaintiffs,
v.
PORTER MCGUIRE KIAKONA & CHOW, LLP, a Hawaii limited liability partnership,, Defendants.

         ORDER DENYING DEFENDANT ASSOCIATION OF APARTMENT OWNERS OF TERRAZZA/CORTBELLA/LAS BRISAS/TIBURON'S MOTION TO DISMISS; DENYING DEFENDANT ASSOCIATION OF APARTMENT OWNERS OF KO OLINA KAI GOLF ESTATES AND VILLAS' MOTION FOR JUDGMENT ON THE PLEADINGS; GRANTING IN PART AND DENYING IN PART DEFENDANT EKIMOTO & MORRIS, LLLC'S MOTION TO DISMISS; AND GRANTING IN PART AND DENYING IN PART DEFENDANT PORTER MCGUIRE KIAKONA & CHOW, LLP'S SUBSTANTIVE JOINDER IN THE E&M MOTION

          Leslie E. Kobayashi United States District Judge

         On August 10, 2016, Plaintiffs Benita J. Brown, Craig Connelly and Kristine Connelly (collectively “Plaintiffs”), [1] filed their Class Action Complaint (“Complaint”). [Dkt. no. 1.] On September 28, 2016, Defendant Ekimoto & Morris, LLLC (“E&M”) filed a motion to dismiss the Complaint (“E&M Motion”), and Defendant the Association of Apartment Owners of Terrazza/Cortbella/Las Brisas/Tiburon (“Terrazza AOAO”) filed its motion to dismiss (“Terrazza AOAO Motion”) on September 29, 2016. [Dkt. nos. 40, 42.] On October 14, 2016, Defendant Porter McGuire Kiakona & Chow, LLP (“PMKC”) filed a substantive joinder in the E&M Motion (“PMKC Joinder” or “the Joinder”). [Dkt. no. 65.] On October 3, 2016, Defendant Association of Apartment Owners of Ko Olina Kai Golf Estates and Villas (“Ko Olina AOAO”) filed its Motion for Judgment on the Pleadings on Counts I-IV of Plaintiffs' Class Action Complaint, Filed August 10, 2016 (“Ko Olina AOAO Motion”).[2] [Dkt. no. 46.]

         On March 30, 2017, this Court issued an order ruling on the motions to dismiss in a case that presents substantively similar issues and claims as those in the instant case, Galima v. Ass'n of Apartment Owners of Palm Court, , CV 16-00023 LEK-KSC (“Galima Order”). 2017 WL 1240181. This Court ordered the parties to file memoranda regarding whether the analysis in the Galima Order applies in the instant case. [Dkt. no. 76.] E&M, the Ko Olina AOAO, and the Terrazza AOAO filed their respective memoranda on April 25, 2017. [Dkt. nos. 80 (“E&M Galima Mem.”) 81 (“Ko Olina AOAO Galima Mem.”), 83 (“Terrazza AOAO Galima Mem.”).] Also on April 25, 107, PMKC filed a joinder in the E&M Galima Memorandum (“PMKC Galima Joinder”). [Dkt. no. 82.] On May 9, 2017, Plaintiffs filed their response to Defendants' memoranda (“Plaintiffs' Galima Memorandum”).[3] [Dkt. no. 84.]

         The Court finds these matters 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 the District of Hawai`i (“Local Rules”).[4] The Terrazza AOAO Motion and the Ko Olina AOAO Motion are hereby denied, and the E&M Motion and the PMKC Joinder are hereby granted in part and denied in part, for the reasons set forth below.

         BACKGROUND

         Around August 2004, Plaintiff Benita J. Brown (“Brown”) purchased Apartment No. 176 in the condominium project known as “Las Brisas, Phase 15” in Ewa Beach, Hawai`i (“the Brown Unit” and “Las Brisas”). Brown obtained a loan to purchase the unit that was secured by a mortgage on the unit (“Brown Mortgage”). Las Brisas was managed by the Terrazza AOAO. The Terrazza AOAO, by and through PMKC, [5] gave notice that it would sell the Brown Unit at a public sale pursuant to the former Haw. Rev. Stat. §§ 667-5 to 667-10 (“Chapter 667, Part I”). The public sale was conducted on or around May 20, 2011, and the Terrazza AOAO submitted the winning bid. The Terrazza AOAO executed a quitclaim deed on June 9, 2011, and the deed was recorded on the same date. Brown lost her unit and remains liable for the amounts secured by the Brown Mortgage. [Complaint at ¶ 8.] The Terrazza AOAO has taken “possession, control, and enjoyment of the [Brown Unit] and all of its benefits.” [Id.]

         Around August 2004, Plaintiffs Craig Connelly and Kristine Connelly (“the Connellys”) purchased Apartment No. M36-4 in the condominium project known as “Ko Olina Kai Golf Estates & Villas” in Kapolei, Hawai`i (“the Connelly Unit” and “Ko Olina”). The Connellys obtained a loan to purchase the unit that was secured by a mortgage on the unit (“Connelly Mortgage”). Ko Olina was managed by the Ko Olina AOAO. The Ko Olina AOAO, by and through E&M, [6] gave notice that it would sell the Connelly Unit at a public sale pursuant to Chapter 667, Part I. The public sale was conducted on or around June 17, 2011, and the Ko Olina AOAO submitted the winning bid. The Ko Olina AOAO executed a quitclaim deed on August 2, 2011, and the deed was recorded on August 9, 2011. The Connellys lost their unit and remain liable for the amounts secured by the Connelly Mortgage. [Id. at ¶ 9.] The Ko Olina AOAO has taken “possession, control, and enjoyment of the [Connelly Unit] and all of its benefits.” [Id.]

         The gravamen of the claims in the instant case is the same as that of the claims in Galima - a condominium association's ability to use the nonjudicial process under the former Chapter 667, Part I. The Complaint in the instant case alleges the following claims: a claim seeking a declaratory judgment that 1) Defendants were not entitled to use Part I, 2) Defendants were required to use Haw. Rev. Stat. §§ 667-21 through 667-42 (“Chapter 667, Part II”), and 3) because they did not use Part II, the foreclosures were wrongful (“Count I”); [id. at ¶¶ 41-44;] a wrongful foreclosure claim against Defendants (“Count II”); [id. at ¶¶ 45-49;] a claim against PMKC and E&M (“the Law Firm Defendants”) for violations of the Fair Debt Collections Practices Act (“FDCPA”), 15 U.S.C. § 1692, et seq. (“Count III”); and a claim against Defendants for unfair or deceptive acts or practices (“UDAP”) under Haw. Rev. Stat. Chapter 480 (“Count IV”) [id. at ¶¶ 56-66].

         Plaintiffs seek the following relief: compensatory, statutory, treble, and punitive damages; restitution and disgorgement of revenues; declaratory and injunctive relief; pre-and post-judgment interest; attorneys' fees and costs; and any other appropriate relief. [Id. at Prayer for Relief ¶¶ C-H.]

         The Law Firm Defendants seek the dismissal of all of Plaintiffs' claims against them with prejudice. The Terrazza AOAO also seeks the dismissal of all of Plaintiffs' claims, and the Ko Olina AOAO seeks judgment as matter of law as to all of Plaintiffs' claims.[7]

         DISCUSSION

         I. Whether the Galima Analysis of Chapter 667, Part I Applies

         In Galima, the defendants made the same argument that Defendants make in the Motions and the Joinder - that the version of Haw. Rev. Stat. § 514B-146(a) in effect at the time of the challenged foreclosures allowed a condominium association to use Chapter 667, Part I or Part II, regardless of whether the association had an agreement with the condominium owner which contained a power of sale provision.[8]

         The Terrazza AOAO Motion is based on § 514B-146(a) (2011). See, e.g., Mem. in Supp. of Terrazza AOAO Motion at 3. The Ko Olina AOAO Motion, the E&M Motion, and the PMKC Joinder are based on Haw. Rev. Stat. § 514A-90(a) (2011). See, e.g., Mem. in Supp. of Ko Olina AOAO Motion at 2; E&M Motion at 3; PMKC Joinder at 5. For the reasons stated in the Galima Order, 2017 WL 1240181, at *3, this Court concludes that, for purposes of the instant Motions and Joinder, § 514B-146 (2011) applies. However, this Court notes that § 514A-90(a) (2011) was substantially similar to § 514B-146(a) (2011). See Galima Order, 2017 WL 1240181, at *3 n.6 (noting that § 514A-90(a) (2010) was substantially similar to § 514B-146(a) (2010)).[9]

         In the Galima Order, this Court stated:

Having examined the relevant statutes, their legislative history, and instructive case law regarding the foreclosure of mortgages, this Court PREDICTS that the Hawai`i Supreme Court would reject Defendants' proposed interpretation of § 514B-146(a) (2010) and would agree with Plaintiffs' proposed interpretation. Thus, this Court CONCLUDES that, because § 514B-146(a) (2010) required a condominium association to foreclose upon its lien “in like manner as a mortgage of real property, ” an association could only use the Chapter 667, Part I foreclosure procedure if it had an agreement with the condominium owner providing for a power of sale.

2017 WL 1240181, at *9 (bold emphasis added).[10]

         A. Section 514A-82(b)(13)

         The Ko Olina AOAO and the Law Firm Defendants first argue that Galima was wrongly decided because this Court failed to consider the fact that every condominium association's bylaws contain a power of sale provision by operation of Haw. Rev. Stat. § 514A-82(b)(13).[11] Section 514A-82(b) states, in pertinent part:

         In addition to the requirements of subsection (a), the bylaws shall be consistent with the following provisions:

. . . .
(13) A lien created pursuant to section 514A-90 may be enforced by the association in any manner permitted by law, including nonjudicial or power of sale foreclosure procedures authorized by chapter 667; and
. . . .
The provisions of this subsection shall be deemed incorporated into the bylaws of all condominium projects existing as of January 1, 1988, and all condominium projects created after that date.

         Defendants do not cite any case in which a court has applied § 514A-82(b)(13) in the broad manner Defendants suggest here, and this Court has been unable to find any.

         In this Court's view, it is clear from a plain language reading of § 514A-82(b)(13) that a condominium association may enforce its lien as “permitted by law, ” including the use of the nonjudicial foreclosure process, when it is “authorized by chapter 667.” (Emphases added.) In other words, the authority to enforce a condominium association's lien - which is automatically incorporated by operation of law into all condominium associations' bylaws - is the same authority that is described in Chapter 667. Section 514A-82(b)(13) does not grant condominium associations any greater rights than those that exist under Chapter 667.

         In the Galima Order, this Court noted:

[Section] 514B-146(a) (2010) . . . stated that the condominium's foreclosure pursuant to Chapter 667 had to be “in like manner as a mortgage of real property.” Section 667-5(a) (2010) expressly stated, “[w]hen a power of sale is contained in a mortgage, and where the mortgagee . . . desires to foreclose under power of sale upon breach of a condition of a mortgage . . . .” (Emphasis added.) The Hawai`i Supreme Court [in Santiago v. Tanaka, 137 Hawai`i 137, 154-55, 366 P.3d 612, 629-30 (2016), [12] has construed this language as requiring an agreed upon power of sale in a mortgage in order to invoke the § 667-5 (2010) procedures.

2017 WL 1240181, at *6 (emphases and some alterations in Galima).[13] Ultimately, this Court concluded that “there are situations when a condominium association cannot use Chapter 667, Part I to foreclose upon its lien - i.e., when the association does not have an agreement with the homeowner providing for a power of sale.” Id. at *7.

         B. Legislative History of Relevant Condominium Statutes

         The Ko Olina AOAO and the Law Firm Defendants also argue that Galima was wrongly decided because, while this Court considered the legislative history of Chapter 667, it did not consider the legislative history of the condominium laws - Chapters 514A and 514B. First, in Galima, this Court recognized that, in interpreting a provision of the Hawai`i Revised Statutes: its first duty was to look at the statute's plain language; id. at *7 n.11; and it only considered legislative intent when the statute's language was ambiguous, id. at *7 n.12. Second, this Court's conclusion that a condominium association could not use Chapter 667, Part I to foreclose upon its lien when it did not have an agreement with a power of sale was based on “a plain language reading” because “the statutes in question (as interpreted by the Hawai`i Supreme Court) [we]re unambiguous.” Id. at *7. This Court expressly stated that it could stop its analysis there, but went on to discuss “the legislative intent behind the 2010 versions of the statutes in question” because the legislative intent was consistent with this Court's interpretation of Chapter 667. Id. Thus, the conclusion in Galima was not dependent upon the legislative history of Chapter 667, and its discussion of that legislative history did not require it to discuss the legislative history of Chapters 514A and 514B. None of the relevant sections of Chapters 514A and 514B were found to be ambiguous and, therefore, the argument that Galima was wrongly decided because this Court failed to look at the legislative history of Chapters 514A and 514B is soundly rejected.

         Although the plain language of the relevant statutes is unambiguous, this Court has the discretion to consider the legislative history of Chapters 514A and 514B. See Friends of Makakilo v. D.R. Horton-Schuler Homes, LLC, 134 Hawai`i 135, 139, 338 P.3d 516, 520 (2014) (“Yet, even if the plain language of a statute is clear, this court can nevertheless consider legislative history to ensure its interpretation of the statute does not produce an absurd result contrary to legislative intent.” (emphasis added)). However, even if the legislative history presented in this case was considered, [14] the Galima analysis remains unchanged. In particular, the Ko Olina AOAO and the Law Firm Defendants urge this Court to consider Act 236, which enacted subsection (13) of § 514A-82(b) and amended § 514A-90(a)(2) to add the “or by nonjudicial or power of sale foreclosure procedures set forth in chapter 667.” See 1999 Haw. Sess. Laws Act 236, § 3 at 725-27, § 4 at 727-29. Act 236 states:

The legislature finds that associations of apartment owners are increasingly burdened by the costs and expenses connected with the collection of delinquent maintenance and other common expenses.
The legislature further finds that the number of foreclosures in this State has greatly increased, and that associations of apartment owners are often required to bear an unfair share of the economic burden when purchasers in foreclosure actions exercise rights of ownership over purchased apartments without paying their share of common maintenance fees and assessments.
The legislature further finds that more frequently associations of apartment owners are having to increase maintenance fee assessments due to increasing delinquencies and related enforcement expenses. This places an unfair burden on those non-delinquent apartment owners who must bear an unfair share of the common expenses, and is particularly inequitable when a delinquent owner is also an occupant who has benefited [sic] from the common privileges and services.
The legislature further finds that there is a need for clarification regarding the authority of associations of apartment owners to use non-judicial and power of sale foreclosure procedures to enforce liens for unpaid common expenses.
The legislature further finds that there is a need for clarification as to where associations of apartment owners may deposit or hold their funds, and how they may invest their funds.
The purpose of this Act is to:
(1) Allow associations of apartment owners to collect delinquent maintenance and common expenses directly from the ...

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