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Lynch v. Bank of New York Mellon

United States District Court, D. Hawaii

July 30, 2018



          Leslie E. Kobayashi, United States District Judge.

         Before the Court are: Defendants Nettleton S. Payne III and Diane Elizabeth Payne's (“the Paynes”) FRCP Rule 12(B)(6) Motion to Dismiss Plaintiffs Robert John Lynch and Jennifer Ann Lynch's Second Amended Complaint Filed on September 11, 2017 [Dkt. No. 29] (“Payne Motion”), filed on September 21, 2017; and Defendant Bank of New York Mellon's (“BONY”) Motion to Dismiss Plaintiffs' [29] Second Amended Complaint (“BONY Motion”), filed on September 25, 2017. [Dkt. nos. 30, 33.] Plaintiffs Robert John Lynch and Jennifer Ann Lynch (“Plaintiffs”) filed their memoranda in opposition on December 6, 2017. [Dkt. Nos. 35, 36.] On December 13, 2017, BONY and the Paynes filed their respective replies. [Dkt. nos. 37, 38.] 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”). For the reasons set forth below, the Payne Motion is hereby denied and the BONY Motion is hereby granted in part and denied in part. The BONY Motion is granted insofar as Plaintiffs' wrongful foreclosure claim is dismissed with prejudice, and the BONY Motion is denied in all other respects.


         Plaintiffs commenced this action on May 13, 2016 in state court. [Notice of Removal, filed 4/28/17 (dkt. no. 1), Decl. of Summer H. Kaiawe (“Kaiawe Removal Decl.”), Exh. 1 (state court docket sheet) at 3.] Plaintiffs also filed their First Amended Complaint in state court on July 22, 2016. [Kaiawe Removal Decl., Exh. 3 (First Amended Complaint).] The First Amended Complaint alleged a wrongful foreclosure claim against BONY and a quiet title claim against the Paynes.

         On August 15, 2017, this Court issued an Order Granting in Part and Denying in Part Defendant Nettleton S. Payne III and Diane Elizabeth Payne's Motion to Dismiss (“8/15/17 Order”). [Dkt. no. 28.[1] The 8/15/17 Order dismissed the quiet title claim without prejudice because the First Amended Complaint failed to plausibly allege that the Paynes are not bona fide purchasers of Plaintiffs' real property (the “Property”). 2017 WL 3568667, at *1, *5. The 8/15/17 Order stated:

If Plaintiffs intend to pursue the quiet title claim, then factual allegations which plausibly demonstrate that the Paynes colluded with BONY, were involved in a scheme to wrongfully obtain title from Plaintiffs, or had actual knowledge of BONY's alleged misconduct must be sufficiently pled or the claim will again fail to survive a motion to dismiss, and that dismissal may be with prejudice.

Id. at *5.

         Plaintiffs filed their Second Amended Complaint on September 11, 2017.[2] [Dkt. no. 29.] The factual allegations discussed in the 8/15/17 Order are also alleged in the Second Amended Complaint and will not be repeated here. In addition, the Second Amended Complaint includes the Mortgagee's Affidavit of Foreclosure Under Power of Sale, which BONY recorded in the State of Hawai`i Bureau of Conveyances (“BOC”) on October 18, 2010 (“Amended Foreclosure Affidavit”).[3] [Second Amended Complaint, Exh. B.] According to the Amended Foreclosure Affidavit, the scheduled September 18, 2009 public foreclosure auction was orally postponed at the auction. [Id. at 4, 24.[4] There were four people present at the scheduled September 18, 2009 auction, and the new auction date, time, and place were announced. [Id. at 24 (Decl. of Postponement, dated 9/18/09, by Kelly Tmakiung, Auctioneer).] However, according to Plaintiffs, there was no published notice regarding the postponement. See Second Amended Complaint at ¶ 27 (stating the published notice regarding the original auction date “was the only published notice of the sale date, location and time and terms of sale”). BONY was the sole bidder at the October 23, 2009 auction, and it purchased the Property for $1, 186, 600.00. [Amended Foreclosure Aff. at 4.]

         Plaintiffs state section 22 of their mortgage on the Property (“Mortgage”) required the mortgagee to publish written notice of the sale when exercising its power to sell the Property. [Second Amended Complaint at ¶ 28.] Plaintiffs argue the failure to publish any written notice of the October 23, 2009 auction violated: section 22 of the Mortgage; Haw. Rev. Stat. § 667-7(a) (2009);[5] and the requirements recognized in Hungate v. Law Office of David B. Rosen, 139 Hawai`i 394, 391 P.3d 1 (2017). [Id. at ¶ 30.] Plaintiffs further allege that, in light of these violations, BONY did not have the right to sell the Property to anyone - let alone itself - on October 23, 2009. [Id. at ¶ 31.] Therefore, BONY's sale of the Property to itself and its subsequent sale to the Paynes are either void or voidable. [Id. at ¶ 34.]

         The Second Amended Complaint alleges the following claims: “Count I - Quiet Title, Ejectment & Declaratory Relief Against All Defendants” (“Count I” or “quiet title claim”); [id. at pg. 4 (emphasis omitted);] and a wrongful foreclosure claim against BONY (“Count II”).[6] Count I includes a section setting forth “Special Allegations” addressing the 8/15/17 Order. See id. at pg. 17. The Special Allegations include:

-a reiteration of the allegations in the First Amended Complaint that, based on the contents of publicly recorded documents concerning the Property, the Paynes had notice of problems with the title they received from BONY; compare First Amended Complaint at ¶¶ 43-44 with Second Amended Complaint at ¶¶ 49-52, 59-60;
-at the time of the foreclosure, Plaintiffs' Mortgage loan was being serviced by either Bank of America (“BOA”) or BAC Home Loans LP (“BAC”), a subsidiary of BOA, and it is likely that BOA/BAC used an form addendum that is commonly used in the sale of property owned by a lender (“REO Addendum”), or another similar form addendum; [Second Amended Complaint at ¶¶ 53-56, Exh. C (REO Addendum);]
-the REO Addendum notifies the purchaser the sale may be subject to either judicial approval of the foreclosure or the mortgagor's right of redemption, and the REO Addendum requires the purchaser to acknowledge that he may be dispossessed of the property if the mortgagor pays certain sums; [Second Amended Complaint at ¶ 57;] and
-the Paynes purchased the Property at a discounted price - $999, 900 in 2010 when the tax-assessed value was over $2, 270, 000 and the 2001 purchase price was $2, 000, 000 - [id. at ¶ 67, ] which should have put the Paynes on notice that there may be defects in the foreclosure process and possible claims by Plaintiffs, [id. at ¶ 68].

         Plaintiffs argue that, under the circumstances of this case, the Paynes had actual or constructive notice of both Plaintiffs' claim that the foreclosure was invalid and Plaintiffs' right to cure any default on their Mortgage. [Id. at ¶¶ 58, 69.]

         The Paynes seek the dismissal with prejudice of Plaintiffs' quiet title claim against them on the ground that: they are bona fide purchasers; or, in the alternative, Plaintiffs' claim against them is time-barred. The BONY Motion argues: 1) both of Plaintiffs' claims against BONY are time-barred; and 2) even Plaintiffs' claims are timely, Plaintiffs' quiet title claim against BONY fails because Plaintiffs cannot reclaim title to the Property from bona fide purchasers.


         I. Consideration of Exhibits

         The applicable case law regarding the consideration of exhibits in the context of a motion to dismiss is set forth in the 8/15/17 Order. 2017 WL 3568667, at *2.

         In addition to the Amended Foreclosure Affidavit and the REO Addendum, discussed supra, the Second Amended Complaint also includes Plaintiffs' Apartment Deed, recorded in the BOC on December 14, 2001 (“Plaintiffs' Deed”). [Second Amended Complaint, Exh. A.] Plaintiffs have also submitted: their Mortgage, which was recorded in the BOC on July 21, 2005; BONY's Notice of Mortgagee's Intention to Foreclose Under Power of Sale, recorded in the BOC on August 27, 2009 (“Notice of Sale”); the Foreclosure Affidavit; the Amended Foreclosure Affidavit; BONY's Mortgagee's Quitclaim Deed, recorded in the BOC on June 1, 2010, by BONY as grantor, in favor of BONY as grantee (“BONY Deed”); and the Apartment Deed (Limited Warranty), recorded in the BOC on November 5, 2010, by BONY as grantor, in favor of the Paynes as grantee (“Payne Deed”).[7] [Mem. in Opp. to Payne Motion, Decl. of James J. Bickerton, Exh. D (Mortgage), Exh. E (Notice of Sale), Exh. F (Foreclosure Aff.), Exh. G (Amended Foreclosure Aff.), Exh. H (BONY Deed), Exh. I (Payne Deed).[8] For the same reasons set forth in the 8/15/17 Order, the Court will consider the exhibits listed in this section in ruling on the Payne Motion and the BONY Motion (collectively “Motions”), and the consideration those exhibits does not require the conversion of the Motions into motions for summary judgment.[9]

         II. Whether Plaintiffs' Claims Are Time-Barred

         At the outset, this Court must address the argument, raised in both Motions, that all of ...

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