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Sakal v. Association of Apartment Owners of Hawaiian Monarch

Intermediate Court of Appeals of Hawaii

July 26, 2018

CHRISTIAN SAKAL, Plaintiff-Appellant,
v.
ASSOCIATION OF APARTMENT OWNERS OF HAWAIIAN MONARCH; JONAH SCOTT KOGEN; and K&F 1984 LLC, Defendants-Appellees, JOHN AND MARY DOES 1-10, Defendants.

          APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CIVIL NO. 14-1-1118)

          Gary Victor Dubin Frederick J. Arensmeyer for the Plaintiff-Appellant.

          Robert E. Chapman Carlos D. Perez-Mesa, Jr. Mary Martin (Clay Chapman Iwamura Pulice & Nervell) for Defendant-Appellee ASSOCIATION OF APARTMENT OWNERS OF HAWAIIAN MONARCH

          Jeffrey P. Miller for the Defendant-Appellee JONAH KOGEN

          GINOZA, CHIEF JUDGE, FUJISE and LEONARD, JJ.

          OPINION

          LEONARD, J.

         Plaintiff-Appellant Christian Sakal (Sakal) appeals from the Final Judgment (Judgment) entered by the Circuit Court of the First Circuit (Circuit Court), [1] on August 5, 2015, in favor of Defendants-Appellees the Association of Apartment Owners of Hawaiian Monarch (the AOAO) and Jonah Scott Kogen (Kogen) (collectively, Appellees). Sakal also challenges the Circuit Court's (1) Order Granting Defendant Jonah Scott Kogen's Motion to Dismiss Complaint, filed October 21, 2014 (Order Dismissing Kogen), and (2) Order Granting Defendant Association of Apartment Owners of Hawaiian Monarch's Motion to Dismiss Complaint, filed June 16, 2015 (Order Dismissing the AOAO).

         This case presents difficult and consequential questions concerning whether an association of apartment owners must have a power of sale over its units in order to foreclose on a lien against a unit through the nonjudicial power of sale foreclosure procedures set forth in the Hawai'i Foreclosures statute. After an exhaustive review, we have concluded that over a number of years the Legislature has worked to craft workable, nonjudicial foreclosure procedures, available to associations as well as lenders, but at no point did the Legislature take up the issue of whether to enact a blanket grant of powers of sale over all condominiumized properties in Hawai'i. Accordingly, we conclude that a power of sale in favor of a foreclosing association must otherwise exist, in the association's bylaws or another enforceable agreement with its unit owners, in order for the association to avail itself of the nonjudicial power of sale foreclosure procedures set forth in Hawaii Revised Statutes (HRS) chapter 667. As discussed herein, under the circumstances of this case, we conclude that Sakal may not regain title and possession of the subject property, but that the Circuit Court erred in dismissing Sakal's claims against the AOAO for wrongful foreclosure.

         I. BACKGROUND

         On May 5, 2014, Sakal filed a three-count Complaint seeking relief against the AOAO for wrongful foreclosure, and against all named defendants for quiet title and trespass. The Complaint includes, inter alia, the following factual allegations:

         It is alleged that, on January 17, 1979, the developer of the Hawaiian Monarch Condominium Project adopted the Bylaws of the Association of Apartment Owners of Hawaiian Monarch (Bylaws) and that the Bylaws provided, "the Developer hereby declares that all of the property (of the Hawaiian Monarch) is held and shall be held, conveyed, mortgaged, encumbered, leased, rented, used, occupied and improved subject to the following Bylaws . . . [.]" Article VI of the Bylaws, entitled "Common Expenses, Apartment Expenses, Taxes and Accounting," Section 4, entitled "Default in Payment of Assessments," allegedly states:

In the event of a default or defaults in payment of any such assessment or assessments and in addition to any other remedies the Board of Directors may have, the Board of Directors may enforce each such obligation as follows:
(a) By suit or suits to enforce such obligations. . .
(b) . . . [T]he Board may file a claim of lien against the Apartment of such delinquent Owner. . . . Upon recordation of a duly executed original or copy of such claim of lien with the Office of the Assistant Registrar of the Land Court of the State of Hawaii, the Board shall have all remedies provided in Section 514A-90, HRS.

         The Bylaws were reportedly amended in the 1990s, but the amendments, Sakal alleged, did not grant the AOAO "any additional power regarding the foreclosure of an association lien. "

         On March 31, 2006, Sakal was assigned a leasehold interest in 444 Niu Street, Unit 2806-A, in the Hawaiian Monarch Condominium Project (Property), as a tenant in severalty in an "Assignment of Condominium Conveyance Document" (Assignment of Conveyance) registered with the Office of the Assistant Registrar, Land Court of the State of Hawai'i (Land Court) .[2]

         On March 16, 2012, the AOAO filed a "Notice of Lien" (Lien Notice) against Sakal in the Land Court, claiming a lien for unpaid assessments in the amounts of $11, 417.91 and $10, 589.42, and on June 20, 2012, the AOAO filed a "Notice of Default and Intention to Foreclose" (Default Notice) against Sakal in the Land Court, which stated:

(i) f the default is not cured by the deadline stated in this notice, the entire unpaid balance of moneys owed to the association will be due and the association intends to conduct a power of sale foreclosure to sell the property at a public sale without any court action and without going to court, and the association or any other person may acquire the property at the public sale.

         It appears that on October 11, 2012, the AOAO filed an "Amended Notice of Default and Intention to Foreclose" with the Land Court, and on October 15, 2012, the AOAO filed a "Notice of Association's Non-Judicial Foreclosure Under Power of Sale" (Power of Sale Notice) with the Land Court, stating that a public auction would be held on December 3, 2012, at the State Capitol Building "pursuant to Sections 514B-146 and 667-21 through 667-42, HRS, as amended."

         Sakal asserts that, on November 30, 2012, he filed a Motion for Preliminary Injunction Staying Non-Judicial Foreclosure Sale of Property with the Circuit Court in Civil No. 12-1-0686, which was denied on December 3, 2012.[3] Also on December 3, 2012, the AOAO reportedly held a public auction offering the Property for sale. On January 8, 2013, the AOAO filed a "Grantor's Affidavit of Non-judicial Foreclosure Under Power of Sale" with the Land Court (Affidavit) .[4] On January 16, 2013, a quitclaim deed (Quitclaim Deed), which conveyed the Property from the AOAO to Kogen for $50, 500, was recorded in the Land Court.

         It appears that, on April 2, 2013, Kogen filed an ejectment action against Sakal in the District Court of the First Circuit (District Court) in Case No. lRC-13-1-02405. The District Court entered a Judgment for Possession and Writ of Possession in favor of Kogen on May 5, 2013.[5]

         Sakal filed the Complaint herein on May 5, 2014. The AOAO filed an answer on June 12, 2014. Kogen did not file an answer and instead, on August 11, 2014, filed a motion to dismiss the claims against him in Counts 2 and 3 of the Complaint pursuant to Rule 12(b) (6) of the Hawai'i Rules of Civil Procedure (HRCP).

         Citing Aames Funding Corp. v. Mores, 107 Hawai'i 95, 110 P.3d 1042 (2005), Kogen primarily argued that Sakal's claim for relief from the nonjudicial foreclosure was untimely because Sakal was required to challenge the validity of the foreclosure proceedings prior to the date of the recordation of the Quitclaim Deed. In opposition, Sakal argued that: (1) HRS chapter 501, which was at issue in Aames, does not apply to the property interest in this case; (2) unlike in Aames, no new Transfer Certificate of Title (TCT) was issued to Kogen; (3) the nonjudicial foreclosure conducted by the AOAO pursuant to HRS chapter 667 was illegal because the AOAO did not hold a power of sale; (4) implying a power of sale would be an unreasonable impairment of contract, and thus contrary to HRS § 514B-22; and (5) a nonjudicial foreclosure is void and unenforceable where the foreclosing entity does not have a power of sale. In reply, Kogen argued, inter alia, that the AOAO had the authority to "foreclose by power of sale" and that the Bylaws granted the AOAO the remedy of nonjudicial foreclosure because they authorize the Board of Directors to use "any other remedies it may have" to enforce assessments. At the hearing on Kogen's motion, the Circuit Court orally granted the motion, stating: "The Court finds that HRS [§ 514B-146] provides the association with broad powers, including foreclosure and [it] doesn't make any sense for the association to have to amend its bylaws every time the Legislature amends the law. Also HRS 667-102(b) claims by the unit owners are barred if not made before the affidavit and conveyance documents are filed." (Format altered). The Order Dismissing Kogen was entered on October 21, 2014.

         On March 10, 2015, the AOAO filed its motion to dismiss the Complaint in its entirety, pursuant to HRCP Rule 12(b)(6). The AOAO's motion was supported by a declaration of counsel, the Quitclaim Deed, and a transcript of the hearing on Kogen's motion to dismiss. The AOAO's arguments mirrored those in Kogen's motion to dismiss. On March 23, 2015, Sakal filed a memorandum in opposition, which was supported by a declaration of counsel, the Assignment of Conveyance, and the Lien Notice. After a hearing on March 31, 2015, the Circuit Court entered the Order Dismissing the AOAO on June 16, 2015.

         On July 16, 2015, Sakal filed a notice of appeal in CAAP-15-0000529. On August 5, 2015, the Circuit Court entered the Judgment. On August 11, 2015, Sakal filed a second notice of appeal in CAAP-15-0000573. The appeals were consolidated into CAAP-15-0000529 on August 17, 2015.

         II. POINT OF ERROR

         Sakal raises a single point of error, contending that the Circuit Court erred when it dismissed his Complaint for failure to state a claim because the AOAO conducted a wrongful power of sale nonjudicial foreclosure without having a valid power of sale.

         III. APPLICABLE STANDARD OF REVIEW

         This court reviews a trial court's ruling on a motion to dismiss de novo. Isobe v. Sakatani, 127 Hawai'i 368, 375, 279 P.3d 33, 40 (App. 2012) (citing Kamaka v. Goodsill Anderson Quinn & Stifel, 117 Hawai'i 92, 104, 176 P.3d 91, 103 (2008)).

A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his or her claim that would entitle him or her to relief. This court must, therefore, view a plaintiff's complaint in a light most favorable to him or her in order to determine whether the allegations contained therein could warrant relief under any alternate theory. Consequently, in reviewing the circuit court's order dismissing the plaintiffs' complaint in this case, our consideration is strictly limited to the allegations of the complaint, and we must deem those allegations to be true.

Id. at 376, 279 P.3d at 41 (citations and quotation marks omitted).

         IV. DISCUSSION

         A. Nonjudicial Power of Sale Foreclosure

         This wrongful foreclosure action is based on the premise that a foreclosing association of apartment owners, like a mortgagee, must have a power of sale for the unit owner's unit in order to foreclose on a lien against the unit by the nonjudicial power of sale foreclosure procedures set forth in HRS chapter 667.[6] Sakal alleges that the AOAO has not been granted a power of sale, either by contract or by statute, and therefore, the nonjudicial foreclosure of his unit was unlawful, the sale of his unit to Kogen was invalid, and he is entitled to have the sale of the unit declared void, as well as being entitled to other remedies. Appellees do not argue that a power of sale has been directly conferred on the AOAO in the Bylaws. Instead, they argue, variously, that the Bylaws provide the AOAO with broad ...


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