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Hamilton v. Foreclosure Expeditors/Initiators, LLC

United States District Court, D. Hawaii

November 28, 2017

JEFFERY S. HAMILTON, and KALEIMAEOLE NOLA LINDSEY LATRONIC, individually and on behalf of all others similarly situated, Plaintiffs,
v.
FORECLOSURE EXPEDITORS/INITIATORS, LLC, a Washington limited liability company, and NORTHWEST TRUSTEE SERVICES, INC., a Washington corporation, et al., Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

          DERRICK K. WATSON UNITED STATES DISTRICT JUDGE.

         INTRODUCTION

         Defendants Northwest Trustee Services, Inc. (“NWTS”) and Foreclosure Expeditors/Initiators, LLC (“FEI”), entities that assisted mortgagees in the non-judicial foreclosures of Plaintiffs' mortgages, seek dismissal of the claims against them for wrongful foreclosure, violations of Hawai‘i Revised Statutes (“HRS”) § 480-2, and intentional interference with prospective economic advantage. Defendants contend that, as agents of the foreclosing mortgagees, they owed no direct duties to Plaintiffs during the course of foreclosure proceedings to ensure that Plaintiffs' properties sold at the best possible price, and that they are not liable under the relevant statutes or in tort.

         First, because no private cause of action exists against a mortgagee's agent based on alleged violations of the non-judicial foreclosure statute, HRS Chapter 667, and Hawai‘i courts have yet to recognize such a cause of action under the common law, Plaintiffs' wrongful foreclosure claim is dismissed. Second, Plaintiffs sufficiently allege that NWTS and FEI's conduct “occurred in the course of ‘trade or commerce'” with Plaintiffs, as is necessary to sustain a claim for unfair or deceptive acts or practices (“UDAP”) and unfair methods of competition (“UMOC”) under Section 480-2. Finally, Plaintiffs' claim for intentional interference with prospective economic advantage fails to state a claim under the circumstances alleged and is therefore dismissed.

         For these reasons, Defendants' Motion to Dismiss (Dkt. No. 68) is GRANTED as to Plaintiffs' wrongful foreclosure and intentional interference with prospective economic advantage causes of action. The Motion is DENIED, however, with respect to Plaintiffs' HRS § 480-2 claims.

         BACKGROUND

         I. Plaintiffs' Allegations

         In their First Amended Complaint (“FAC”), filed on April 24, 2013, Plaintiffs Hamilton and Latronic, individually and on behalf of others similarly situated, [1]allege that NWTS and FEI, plus several law firms and individual attorneys, violated state law during the course of non-judicial foreclosure proceedings.[2] They allege that NWTS is a Washington corporation that assists mortgagees in foreclosing real property mortgages in the States of Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington. FAC ¶ 6. FEI is described in the FAC as a Washington limited liability company that publishes, posts, and serves foreclosure notices and conducts foreclosure auctions in non-judicial foreclosure proceedings involving NWTS, Routh Crabtree Olsen, P.S. (“RCO”), and RCO Hawaii, LLLC's clients in the State of Hawaii. FAC ¶ 9. FEI is not a law firm, and neither it nor its members or managers is licensed to practice law in the State of Hawaii. FAC ¶ 9. Plaintiffs do not bring any claims against the foreclosing mortgagees.

         Hamilton and Latronic each executed mortgages to purchase real property in Hawaii, FAC ¶¶ 31, 147, and each mortgage included a power-of-sale clause that stated: “If Lender invokes the power of sale, Lender shall give Borrower notice of sale . . . Lender shall publish a notice of sale and shall sell the Property at the time and place and under the terms specified in the notice of sale.” FAC ¶¶ 33, 147. Countrywide Home Loans, Inc., the mortgagee under the Hamilton Mortgage, recorded the “Notice of Mortgagee's Intention to Foreclose Under Power of Sale” on or around October 14, 2008, and the non-judicial foreclosure sale of Hamilton's property took place on February 4, 2009. FAC ¶¶ 36, 38, 62. U.S. Bank, the assignee of the Latronic Mortgage, recorded its first “Notice of Mortgagee's Intention to Foreclose Under Power of Sale” on April 8, 2010, which was cancelled and followed by a subsequent Notice of Sale, recorded on May 13, 2010. FAC ¶ 152. The non-judicial foreclosure sale of Latronic's property took place on June 16, 2010. FAC ¶ 169.

         Plaintiffs allege that their foreclosing mortgagees contracted with NWTS to assist in foreclosing on the Hamilton and Latronic mortgages, and NWTS, in turn, arranged for its “affiliated law firm, RCO, to represent the foreclosing mortgagees in connection with the non-judicial foreclosures of those mortgages.” FAC ¶¶ 36, 151.[3] According to Plaintiffs, “NWTS authorized, ordered, directed, and/or reviewed and consented to the acts, policies, and practices of Defendants RCO and RCO Hawaii in connection with the non-judicial foreclosures of mortgages held by NWTS's clients.” FAC ¶ 37. NWTS arranged for FEI to publish the Notices of Sale as required by HRS § 667-5, FAC ¶¶ 46, 161, but charged the foreclosing mortgagee amounts higher than what was actually paid to publish the Notices of Sale in newspapers of general circulation in the counties where the properties were located, without the mortgagees' knowledge or consent. FAC ¶¶ 50, 163.

         Plaintiffs allege numerous improprieties on the part of NWTS and FEI during the course of the non-judicial foreclosures of their properties, including: violating the terms of sale in the Notices of Sale, [4] such as the published auction date and time; failing to orally announce and publish postponement notices of public auctions, and; using an FEI representative, who was not a licensed Hawaii attorney, to conduct the auctions. FAC ¶¶ 52-87, 165-77. Plaintiffs allege that their properties would have sold for higher prices at auction if the Notices of Sale had truthfully advertised the terms of sale. FAC ¶ 80. Generally, Plaintiffs allege three causes of action: (1) wrongful foreclosure; (2) violations of HRS § 480-2(a); and (3) intentional interference with prospective economic advantage (“IIPEA”). FAC ¶¶ 209-10. “As redress for Defendants' repeated violations of [HRS] § 480-2(a), wrongful foreclosure, and tortious interference with the prospective economic advantage of Plaintiffs, ” each demands, “inter alia, damages, treble damages, punitive damages, reasonable attorneys' fees, and costs.” FAC ¶ 210.

         II. Defendants' Motion To Dismiss[5]

         NWTS and FEI seek dismissal, arguing that they cannot be liable for the wrongful foreclosure or HRS Chapter 480 claims against them as a matter of law because, as agents of a foreclosing mortgagee, they owe no duty by statute or under the common law to mortgagors. Plaintiffs counter that they state cognizable claims both under the relevant statutes and also because a non-attorney agent owes a duty to use reasonable means to maximize the sales price when choosing to actively participate in a non-judicial foreclosure. Defendants also move to dismiss Plaintiffs' IIPEA cause of action as untimely and for failure to state a claim, which Plaintiffs did not oppose.

         STANDARD OF REVIEW

         Federal Rule of Civil Procedure 12(b)(6) authorizes the Court to dismiss a complaint that fails “to state a claim upon which relief can be granted.” A Rule 12(b)(6) dismissal is proper when there is either a “‘lack of a cognizable legal theory or the absence of sufficient facts alleged.'” UMG Recordings, Inc. v. Shelter Capital Partners, LLC, 718 F.3d 1006, 1014 (9th Cir. 2013) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990)).

         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.

         DISCUSSION

         As detailed below, the Court grants Defendants' Motion with respect to any wrongful foreclosure claim because: (1) NWTS and FEI, as agents, are not liable for alleged violations of HRS §§ 667-5 and 667-7 based on the Hawai‘i Supreme Court's recent decision in Hungate v. Law Office of David B. Rosen, 139 Hawai‘i 394, 391 P.3d 1 (2017); and (2) the Court declines to recognize a private cause of action in tort against a mortgagee's agent for wrongful foreclosure in the first instance. Plaintiffs' claims under HRS § 480-2, however, sufficiently allege that NWTS and FEI's conduct “occurred in the course of ‘trade or commerce'” with Plaintiffs, and Defendants' Motion is therefore denied with respect to Plaintiffs' UDAP and UMOC claims. Finally, because the FAC fails to allege facts supporting the necessary prospective economic relationship between Plaintiffs and a third party, the IIEPA claim is dismissed for failure to state a claim.

         I. Plaintiffs Fail To State A Cognizable Wrongful Foreclosure Claim Against Non-Mortgagees NWTS And FEI

         Plaintiffs allege statutory and common law wrongful foreclosure claims, which Defendants seek to dismiss based upon the recent holding in Hungate, which Defendants claim limits such causes of action to foreclosing mortgagees. Having examined the relevant statutes, their legislative history, and instructive case law on the foreclosure of mortgages, the Court concludes that Plaintiffs may not sustain a wrongful foreclosure claim under either the former non-judicial foreclosure statute or in tort as against NWTS and FEI. The Court discusses each in turn.

         A. Plaintiffs Fail To State A Wrongful Foreclosure Claim For Alleged Violations Of Former HRS §§ 667-5 et seq.

         Plaintiffs allege that NWTS and FEI violated the version of HRS §§ 667-5 and 667-7 in effect at the time of their respective foreclosures.[6] See, e.g., FAC ¶¶ 57, 67, 165, 167, 168, 170, 171. Defendants seek dismissal of the statutory wrongful foreclosure claim, arguing that no private right of action exists to enforce the provisions of former Chapter 667 against them because they were not the foreclosing mortgagee. The Court agrees.

         During the stay of proceedings in this matter, the Hawai‘i Supreme Court recognized the existence of a wrongful foreclosure action under HRS Chapter 667 Part I against foreclosing mortgagees in Hungate v. Law Office of David B. Rosen, 139 Hawai‘i 394, 391 P.3d 1 (2017). The Hawai‘i Supreme Court decided, however, that “those statutory provisions do not create a private right of action against the attorney of a foreclosing mortgagee. [It] conclude[d] [that] Hungate does not have a cause of action against [attorney] Rosen under former HRS § 667-5 and his claims against Rosen based upon the mortgage's power of sale clause cannot stand.” Hungate, 139 Hawai‘i at 402, 391 P.3d at 9.

         Plaintiffs here, as in Hungate, contend that Defendants owe them statutory duties under HRS §§ 667-5 and 667-7: the “question raised here is whether the requirements of former HRS § 667-5 and former HRS § 667-7 impose duties that may be enforced against the [agent] of a foreclosing mortgagee under a private right of action.” Hungate, 139 Hawai‘i at 405, 391 P.3d at 12. The Court, guided by the Hawai‘i Supreme Court's analysis in Hungate with respect to a mortgagee's attorney, answers the question in the negative.

         In determining whether a private right of action exists under a statute, Hawai‘i courts consider the following factors[7]-

(1) whether the plaintiff is “one of the class for whose especial benefit the statute was enacted”; (2) whether there is “any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one”; and (3) whether a private cause of action would be “consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff.” Whitey's Boat Cruises, [Inc. v. Napali-Kauai Boat Charters, Inc., ] 110 Hawai‘i 302, 312, 132 P.3d 1213, 1223 (2006). While each factor is relevant, “the key factor” is whether the legislature “intended to provide the plaintiff with a private right of action.” Id. at 313 n.20, 132 P.3d at 1224 n.20; see also Touche Ross & Co. v. Redington, 442 U.S. 560, 575, 99 S.Ct. 2479, 61 L.Ed.2d 82 (noting that the three factors used to assess whether a private cause of action may be implied from statutory language ultimately “are ones traditionally relied upon in determining legislative intent”).

Hungate, 139 Hawai‘i at 406, 391 P.3d at 13.

         As was the case in Hungate, with respect to the first factor, Plaintiffs are members of the class for whose special benefit HRS §§ 667-5 and 667-7 were enacted because “the statute was amended to benefit the ‘party in breach of the mortgage agreement.' H. Stand. Comm. Rep. No. 1192, in 2008 House Journal, at 1450. As the part[ies] in breach of the mortgage contract, [Hamilton and Latronic] fall[] within the class for whom the statute was enacted.” Hungate, 139 Hawai‘i at 406, 391 P.3d at 13.

         The second factor considers whether there is “any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one.” Whitey's Boat Cruises, Inc., 110 Hawai‘i at 312, 132 P.3d at 1223. As was the case in Hungate, former “HRS § 667-5 and its legislative history are silent as to whether the legislature intended to create a cause of action on behalf of the mortgagor against the mortgagee's [agent].” Hungate, 139 Hawai‘i at 406, 391 P.3d at 13. The Court finds that the legislative history as a whole lacks any clear statement of intent to allow private causes of action for violations of Sections 667-5 and 667-7 under the particular circumstances alleged by Plaintiffs. “[I]mplying a private right of action on the basis of [legislative] silence is a hazardous enterprise, at best.” Hungate, 139 Hawai‘i at 406, 391 P.3d at 13 (quoting Touche Ross & Co, 442 U.S. at 571) (alteration in Hungate). See also Muegge v. Wal-Mart Stores, Inc., 2013 WL 253531, at *3 (D. Haw. Jan. 22, 2013) (No private right of action created where “[n]either the statute nor its legislative history expressly indicates that the legislature intended to provide a private cause of action for violations of section 291-58. The committee reports concerning the enactment of the statute are silent as to whether the legislature intended a private cause of action.”). In short, Plaintiffs have not established that the legislature intended to create private right of action for enforcement of Sections 667-5 or 667-7.

         The Hungate court's examination of the third factor, “the underlying purposes of the legislative scheme, ” revealed that, while “amendments to the foreclosure process set forth in HRS chapter 667 Part I were intended to ‘expand[] the rights of mortgagors, '” Hungate, 139 Hawai‘i at 406, 391 P.3d at 13 (quoting Kondaur Capital Corp. v. Matsuyoshi, 136 Hawai‘i 227, 239, 361 P.3d 454, 466 (2015)), they were not intended to regulate the conduct of attorneys. Id. at 406, 391 P.3d at 13. Hungate further detailed the history of the 2008 amendment as follows, noting its particular purpose to set additional burdens on the mortgagee to protect the mortgagor, rather than to regulate attorney conduct-

a close reading of the legislative history of the 2008 amendment shows it was enacted to set additional burdens on the mortgagee to protect the mortgagor; the statute was not amended to regulate attorneys representing mortgagees. The amendment's structure or scheme attempted “to streamline and ensure transparency in the non-judicial foreclosure process by requiring a foreclosure mortgagee to provide pertinent information regarding the property ...

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