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Fergerstrom v. PNC Bank, N.A.

United States District Court, D. Hawaii

September 18, 2018

WAYNE FERGERSTROM, SHENANDOAH KAIAMA, and WINDY KAIAMA, individually and on behalf of all others similarly situated, Plaintiffs,
v.
PNC BANK, N.A., Defendant.

          ORDER (1) GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT; AND (2) DENYING PLAINTIFFS' MOTION TO CERTIFY CLASS

          DERRICK K. WATSON, UNITED STATES DISTRICT JUDGE.

         INTRODUCTION

         PNC seeks dismissal of the claims for wrongful foreclosure and violation of Hawaii Revised Statutes (“HRS”) Chapter 480 brought by putative class representatives Shenandoah and Windy Kaiama, and Wayne Fergerstrom, arising from nonjudicial foreclosure sales conducted by PNC in 2009 and 2010. For their part, Fergerstrom and the Kaiamas move for certification of the proposed class, and three subclasses, of consumers who were subjected to notices of foreclosure sale under HRS § 667-5, prepared by the law firms of Routh Crabtree Olsen, P.S. or RCO Hawai'i LLLC (together, “RCO”) on behalf of PNC.

         Because Plaintiffs were required to assert their claims alleging defects in their particular foreclosure proceedings, and seeking to void the foreclosure sales, prior to the entry of new Transfer Certificates of Title by the Land Court, and did not do so, both Fergerstrom's and the Kaiamas' individual claims are barred. As a matter of Hawai'i law, the Land Court's entry of Certificates of Title is conclusive and unimpeachable evidence of the subsequent owners' title to the properties, and Plaintiffs' claims, which seek to impeach the foreclosure proceedings, and demand damages to compensate for the loss of title and possession, are statutorily precluded. See Aames Funding Corp. v. Mores, 107 Hawai'i 95, 101, 110 P.3d 1042, 1048 (2005) (citing HRS § 501-118). Accordingly, the Court GRANTS PNC's Motion for Summary Judgment. Further, because the prospective class representatives have no remaining claims, the Court DENIES Plaintiffs' Motion for Class Certification, as detailed below.

         BACKGROUND

         I. Factual Background

         A. Fergerstrom Foreclosure

         On May 3, 2007, Fergerstrom executed a mortgage in favor of PNC's predecessor, National City Bank (“NCB”), as security for his performance under an unrecorded promissory note in the amount of $585, 000 secured by real property at 1066 Kina St., Kailua, Hawaii 96734 (“Fergerstrom Property”). The Fergerstrom mortgage was recorded as Land Court No. 3599690. Decl. of Dorothy J. Thomas ¶ 6, Dkt. No. 101-1; Ex. A. (Fergerstrom Mortgage), Dkt. No. 101-3. Fergerstrom defaulted on his loan in February 2009, and PNC commenced nonjudicial foreclosure proceedings under the power of sale provision contained in the mortgage.

         On August 3, 2009, PNC published a Notice of Mortgagee's Intention to Foreclose Under the Power of Sale (“Notice of Sale”) on the Fergerstrom Property. Thomas Decl. ¶ 13; Ex. J (Aff. of Foreclosure). The Notice of Sale gave notice of a foreclosure auction of the Fergerstrom Property that would take place on September 9, 2009. Id. At Fergerstrom's request, PNC postponed the September 9, 2009 sale and attempted to resolve the loan delinquency through a forbearance agreement. Thomas Decl. ¶ 14. Under the agreement, the lender agreed to forbear from conducting a foreclosure sale during the term of the agreement until an event of default. Ex. F (Forbearance Agreement); Dkt. No. 102-1. Although Fergerstrom made some payments under the forbearance agreement, he failed to cure his default, and, as a result, PNC proceeded with the foreclosure sale on April 12, 2010.[1]Thomas Decl. ¶ 15. PNC was the successful bidder at the foreclosure auction with a credit bid of $639, 637.97, the amount then owed by Fergerstrom under the Note and Mortgage. Id.

         PNC conveyed the Fergerstrom Property to the Federal National Mortgage Corporation (“Fannie Mae”), the investor on the Fergerstrom Loan, by a quitclaim deed recorded on May 13, 2010. Thomas Decl. ¶ 16, Ex. G (5/13/10 Quitclaim Deed), Dkt. No. 102-3. On May 13, 2010, the Land Court entered Certificate of Title No. 981, 816, certifying that Fannie Mae was the fee-simple owner of the Fergerstrom Property, transferring title from Certificate No. 757, 612. Decl. of Reid Davis, Ex. K (TCT No. 981, 916), Dkt. No. 103-11. Fannie Mae thereafter conveyed the Fergerstrom Property to the current, third-party owners by Limited Warranty Deed, which was filed in the Land Court on December 3, 2010, as Document 4026085 on Certificate of Title No. 981, 816, and reflects the issuance of a new Transfer Certificate of Title (“TCT”) No. 1, 005, 710.[2] Ex. L (12/3/10 Warranty Deed), Dkt. No. 102-7. The new TCT No. 1, 005, 710 indicates that it was issued and entered as of December 3, 2010, and also reflects that it was transferred “from Certificate No. 981, 816, registered 05/13/2010.” Ex. M (TCT No. 1, 005, 710), Dkt. No. 102-8.

         B. Kaiama Foreclosure

         On September 26, 2006, National City Mortgage, a division of NCB, executed a mortgage loan to Shenandoah and Windy Kaiama in the amount of $248, 000 secured by property at 642 Mikia Place, Kaunakakai, Molokai, Hawaii 96748 (“Kaiama Property”). Ex. C (Kaiama Mortgage). PNC business records reflect that the Kaiama loan became delinquent in June 2009 and was never brought current. Thomas Decl. ¶ 10; Ex. E, Dkt. No. 101-7. PNC commenced foreclosure proceedings pursuant to the power of sale provision contained in the mortgage, and on October 27, 2009, PNC published a Notice of Sale. Ex. N (Aff. of Foreclosure), Dkt. No. 102-9. The Notice of Sale identified the foreclosure sale auction date as November 13, 2009 for the Kaiama Property and set forth the terms and conditions of the sale. Id. PNC postponed the sale scheduled for November 13, 2009 until November 30, 2009. Thomas Decl. ¶ 18.

         At the November 30, 2009 foreclosure auction, PNC was the successful bidder with a credit bid of $178, 200, less than the $258, 302.16 owed by the Kaiamas on that date. Thomas Decl. ¶ 19; Ex. E. PNC conveyed the Kaiama Property to itself by a quitclaim deed recorded on April 15, 2010 in the Land Court as Document No. 3955690 on Certificate No. 779, 406. Ex. O (4/15/10 Quitclaim Deed), Dkt. No. 102-10. On April 15, 2010, the Land Court issued and entered Certificate of Title No. 978, 781, certifying that PNC was the fee-simple owner of the Kaiama Property. Ex. P (TCT No. 978, 781), Dkt. No. 102-11. On September 2, 2011, PNC sold the Kaiama Property to a third-party purchaser for $90, 000. Thomas Decl. ¶ 20. PNC conveyed title to the subsequent purchaser by Limited Warranty Deed filed in the Land Court on September 2, 2011, as Document No. 4095680, which notes the issuance of a new Certificate of Title No. 1, 031, 006. Ex. Q (9/2/11 Limited Warranty Deed), Dkt. No. 102-12. The new TCT No. 1, 031, 006 reflects that it was issued and entered as of September 2, 2011, and includes the notation “Transfer from #978781, registered 04/15/2010.” Ex. R. (TCT No. 1, 031, 006), Dkt. No. 102-13.

         II. Procedural Background

         A. Plaintiffs' Claims

         On September 16, 2013, Fergerstrom filed the original complaint, alleging wrongful foreclosure against PNC and requesting monetary damages.[3] On May 18, 2018, Fergerstrom and the Kaiamas filed their First Amended Complaint (“FAC”), asserting claims for wrongful foreclosure and violation of HRS Chapter 480, and seeking to void the foreclosure sales, restore title and possession, [4] and recover monetary damages. Plaintiffs' claims against PNC are predicated on certain defects contained in the Notice of Sale, and on PNC's alleged failure to properly publish the Notice of Sale. FAC ¶¶ 30-33, 39-42.

         The FAC asserts claims on behalf of Plaintiffs and all others similarly situated under Federal Rule of Civil Procedure 23. Plaintiffs allege that PNC “breached its duties to act in good faith to sell the properties to the owners' best advantage and to use reasonable diligence to secure the best possible price, because [it] adopted foreclosure policies and practices designed and intended to deter public participation and ‘chill' bid prices at non-judicial auctions.”[5] FAC ¶ 6.

         Count I asserts a wrongful foreclosure claim based upon PNC's practice of advertising that the property would be sold only by quitclaim deed, FAC ¶ 45, but conveying the property in certain instances to third-party bidders by limited warranty deed, FAC ¶ 46, contrary to a foreclosing mortgagee's duties under the power of sale and HRS §§ 667-5 and 667-7. FAC ¶ 48. Plaintiffs also allege that PNC violated publication notice and postponement requirements contained in the power of sale clauses in the mortgages and statutes. FAC ¶¶ 51-64. Plaintiffs assert that the foreclosure sales of the Fergerstrom Property, Kaiama Property, and “the sales of all properties of the Class members were void, or at the very least voidable” under the common law and by statute, and that “Plaintiffs and the Class are entitled to appropriate damages remedies as a result, including restitution and/or rescissory damages designed to restore the equivalent of the Properties to Plaintiffs and the Class.” FAC ¶ 73.

         Count II alleges both unfair and deceptive trade practices (“UDAP”) and unfair methods of competition (“UMOC”) claims under HRS § 480-2. Plaintiffs contend that PNC's conduct violated HRS § 480-2 in the following manner-

(a) it violated a clear and established public policies [sic]: (1) against “chilling the bidding”, (2) in favor of the “widest publicity, ” (3) that the provisions of H.R.S. §§ 667-5 et seq. and the terms and conditions of mortgage contracts were to be strictly followed by foreclosing mortgagees and that said mortgagees sell the property pledged in a manner calculated to give the best advantage to the owner of the property and use reasonable efforts to secure the “best possible price”; (2) [sic] it was immoral, unethical, oppressive, unscrupulous, and/or (3) it was substantially injurious to consumers, and constituted representations, omissions, or practices that were objectively material and misleading to the detriment of consumers such as Plaintiff, and to other consumers, who were discouraged from bidding at public auctions based on the purported terms of sale therein.

FAC ¶ 82. PNC also allegedly violated HRS § 480-2 “by advertising … the Properties for sale without covenants or warranties as to title or encumbrances, ” because such “terms of sale were false, deceptive, and misleading, inasmuch as successful third party bidders almost always received limited warranty deeds, and not quitclaims as advertised in the Class's notices of sale.” FAC ¶ 83. Further, Plaintiffs allege injury based upon “unfair and deceptive terms of sale, ” including advertising in the Notices of Sale that the successful bidders must close their sales within 30 days of the auctions, FAC ¶ 84, retaining the 10% down payment as liquidated damages for any delay in the purchaser's closing, FAC ¶ 85, and that if the foreclosing mortgagee should fail to convey title to a successful bidder for any reason “other than Purchaser's own failure to perform, ” the bidder would have “no further recourse” against the foreclosing mortgagee or its agents other than a return of its bid. FAC ¶ 86.

         Plaintiffs seek treble damages under HRS § 480-13, FAC ¶ 84, because PNC “violated a clear and established public policy that the provisions of HRS §§ 667-5 et seq. and the terms and conditions of mortgage contracts were to be strictly followed by foreclosing mortgagees and that said mortgagees sell the property pledged in a manner calculated to give the best advantage to the owner of the property and use reasonable efforts to secure the ‘best possible price.'” FAC ¶ 95. In addition to damages, Count II also seeks redress for “all such sales and sales contracts [that] are void under H.R.S. Section 480-12[, ]” FAC ¶ 96, and “to receive all proceeds and profits that PNC made or received by virtue of its conduct, and to [sic] a declaration that each such sale was void.” FAC ¶ 98.

         B. Pending Motions

         On June 1, 2018, PNC filed a Motion to Dismiss, Dkt. No. 94, and on July 13, 2018, it filed a Motion for Summary Judgment, Dkt. No. 100, requesting similar relief. As PNC's counsel noted at the August 28, 2018 hearing on the motions, the issues and grounds for relief raised in the Motion to Dismiss are largely subsumed within the later-filed Motion for Summary Judgment.[6] The Court therefore addresses the issues and evidentiary record presented by the parties in the briefing on the summary judgment motion, and, unless otherwise noted, does not separately address PNC's Motion to Dismiss.

         On July 13, 2018, Plaintiffs filed a Motion for Class Certification, for Approval of Class Notice and Dissemination Plan. Dkt. No. 103. The motion to certify requests an order granting certification to the following proposed class:

All consumers within the meaning of H.R.S. Chapter 480 who owned real property in Hawai'i land who were subjected to a notice of foreclosure sale under H.R.S. § 667-5 prepared by Derek Wong or the law firm of Routh Crabtree & Olson by or on behalf of Defendant PNC (or NCB before its merger with PNC) claiming for PNC or NCB the rights of a mortgagee with a power of sale and as to whose property Defendant PNC or NCB thereby caused the sale or transfer of the property on or after September 9, 2009.

Mot. for Class Cert. at 1, Dkt. No. 103. The proposed class further includes subclasses “A, ” “B, ” and “C.”[7] PNC opposes class treatment, for among other reasons, that Plaintiffs are not typical or adequate class representatives because they are subject to the unique defenses raised in PNC's Motion for Summary Judgment, namely, that their claims are time-barred under statutory provisions applicable to Land Court registered properties.

         STANDARD OF REVIEW

         Under Federal Rule of Civil Procedure 56(a), a “party may move for summary judgment, identifying each claim or defense-or the part of each claim or defense-on which summary judgment is sought.” A party is entitled to summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Id.

         “Rule 23 and its sub-rules are flexible and do not preclude summary judgment prior to class certification.” Villa v. San Francisco Forty-Niners, Ltd., 104 F.Supp.3d 1017, 1020 (N.D. Cal. 2015) (quoting Wright v. Schock, 742 F.2d 541, 543 (9th Cir. 1984) (explaining that the rules deliberately avoid a mechanical approach)). “This is especially true if the judgment will not be res judicata as to other individual plaintiffs or other members of any class that may be certified.” Khasin v. Hershey Co., No. 5:12-CV-01862-EJD, 2014 WL 1779805, at *2 (N.D. Cal. May 5, 2014) (citing Wright, 742 F.2d at 544).

         DISCUSSION

         Plaintiffs' claims for wrongful foreclosure and violation of HRS § 480-2, which seek to impeach the prior foreclosures and void the resulting sales, are precluded under HRS § 501-118 in light of Plaintiffs' failure to assert them prior to the Land Court's entry of new TCTs. PNC's Motion for Summary Judgment is therefore granted. Because the Court dismisses in full the class representatives' individual claims, their motion for class certification is denied.

         I. Plaintiffs' Individual Claims Are Barred

         Before turning to the merits of PNC's Motion, the Court first examines the unique structure and requirements of the Land Court registration system. As detailed below, Plaintiffs' claims seeking to void their respective foreclosure sales constitute impermissible actions to impeach the prior foreclosure proceedings, and they are therefore barred by HRS § 501-118.

         A. Legal Framework

         1. Hawaii's Land Court Recording System

         In the State of Hawaii, there are two land recording systems for registering title to real property: the Bureau of Conveyances (“BOC”) and the Land Court. SeeWells Fargo Bank, N.A. v. Omiya, 142 Hawai'i 439, 446, 420 P.3d 370, 377 (2018) (citing GGS (HI), Inc. v. N.Y. Diamond, Inc. (In re 2003 Ala Wai Blvd.), 85 Hawai'i 398, 405, 944 P.2d 1341, 1348 (App. 1997), overruled on other grounds, Knauer v. Foote, 101 Hawai'i 81, 63 P.3d 389 (2003)). “Hawaii Land Court is a court of limited jurisdiction created for the special purpose of carrying into effect the Torrens title system of land registration.” Tilley v. Bank of New York Mellon, No. CV 17-00524 HG-RLP, 2018 WL ...


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