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Brown v. Porter Mcguire Kiakona & Chow, LLP

United States District Court, D. Hawaii

November 29, 2018

BENITA J. BROWN, ET AL., Plaintiffs,
v.
PORTER MCGUIRE KIAKONA & CHOW, LLP, a Hawaii limited liability partnership, as an individual entity; THE ASSOCIATION OF APARTMENT OWNERS OF TERRAZZA/ CORTEBELLA/LAS/BRIAS/ TIBURON, as an individual entity and on behalf of all others similarly situated; DOE DEFENDANTS 1-100, Defendants.

          ORDER DENYING MOTION TO DISMISS COUNT V OF THE THIRD AMENDED COMPLAINT [DKT 61]

          LESLIE E. KOBAYASHI UNITED STATES DISTRICT JUDGE

         On May 25, 2018, Defendant the Association of Apartment Owners of Terrazza/Cortebella/Las Brisas/Tiburon (“Terrazza AOAO”) filed its Motion to Dismiss Count V of the Third Amended Complaint [Dkt 61] (“Motion”). [Dkt. no. 68.] Plaintiff Benita J. Brown (“Brown”) filed her memorandum in opposition on August 14, 2018, and the Terrazza AOAO filed its reply on August 21, 2018. [Dkt. nos. 94, 99.] The Court finds this matter 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”). The Terrazza AOAO's Motion is hereby denied for the reasons set forth below.

         BACKGROUND

         The operative pleading at this time is the May 18, 2018 Third Amended Class Action Complaint (“Third Amended Complaint”). [Dkt. no. 61.] In or around August 2004, Brown purchased Apartment No. 176 in the condominium project known as Las Brisas, Phase 15 in Ewa Beach (“Unit” and “Las Brisas”). Las Brisas was managed by the Terrazza AOAO. Brown purchased the Unit for approximately $270, 000, and obtained a $262, 000 loan - secured by a mortgage on the Unit - to do so. [Third Amended Complaint at ¶ 8.] Between January 30, 2007 and February 8, 2007, the Terrazza AOAO recorded a lien against the Unit for $1, 487.64 in unpaid assessments. In order to collect its debt, the Terrazza AOAO, through Defendant Porter McGuire Kiakona & Chow, LLP (“PMKC”), initiated a nonjudicial foreclosure pursuant to the former Haw. Rev. Stat. §§ 667-5 to 667-10 (“Chapter 667, Part I”) and conducted a public sale on May 20, 2011.[1] The Terrazza AOAO submitted the winning bid for the Unit and executed a quitclaim deed in favor of itself on June 9, 2011. It therefore obtained possession and control of the Unit, including all of the benefits from it, while Brown remains liable for the amounts secured by the mortgage. [Id.] Brown brings this case as a putative class action by a plaintiff class, which she represents, against PMKC and a putative defendant class, which the Terrazza AOAO represents.

         Brown argues the members of the defendant class engaged in nonjudicial foreclosures under Chapter 667, Part I, even though they did not hold mortgages with powers of sale. She alleges the defendant class did so in order to avoid the consumer protection provisions in Part II. [Id. at ¶¶ 18-19.] Brown asserts all of these foreclosures were wrongful and/or invalid. [Id. at ¶ 23.] Brown asserts the following claims: a claim against all defendants (PMKC, the Terrazza AOAO, and the defendant class) for a declaratory judgment that, during the relevant period, homeowner associations without mortgages containing a power of sale could not use Chapter 667, Part I (“Count I”); a wrongful foreclosure claim against the Terrazza AOAO and the defendant class, based on the improper use of Part I (“Count II”); a Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, et seq., claim against all defendants (“Count III”); an unfair and deceptive acts and practices (“UDAP”) claim under Haw. Rev. Stat. Chapter 480 against the Terrazza AOAO and the defendant class (“Count IV”); and an “Improper Foreclosure” claim against the Terrazza AOAO and the defendant class, based on the failure to obtain adequate prices for the properties in foreclosure (“Count V”). Insofar as this Court has not ruled on the parties' motions regarding class certification, [2] this Order will focus upon Brown's claims against PMKC and the Terrazza AOAO.

         In the instant Motion, the Terrazza AOAO seeks the dismissal of Count V, with prejudice, on the ground that “Improper Foreclosure” is not a cognizable claim under Hawai`i law.

         DISCUSSION

         This Court has concluded that wrongful foreclosure is a cognizable claim under Hawai`i law. Galima v. Ass'n of Apartment Owners of Palm Court, CIVIL 16-00023 LEK-KSC, 2017 WL 1240181, at *9 (D. Hawai`i Mar. 30, 2017) (discussing Federal Home Loan Mortgage Corp. v. Kama, Civ. No. 14-00137 ACK-KSC, 2016 WL 922780, at *5-6 (D. Hawai`i Mar. 9, 2016); Kondaur Capital Corp. v. Matsuyoshi, 136 Hawai`i 227, 361 P.3d 454 (2015); Hungate v. Law Office of David B. Rosen, SCAP-13-0005234, 2017 WL 747870, at *10 (Hawai`i Feb. 27, 2017)).[3] “A plaintiff may bring a wrongful foreclosure claim where: (1) the foreclosure process failed to comply with Haw. Rev. Stat. Chapter 667; and (2) the foreclosing entity did not have the right to foreclose.” Id. (brackets, internal quotation marks, and citations omitted).

         Brown's wrongful foreclosure claim alleges:

45. AOAO Defendants were not authorized or entitled to conduct a nonjudicial foreclosure or power of sale under Part I. As such, the foreclosure notices sent by AOAO Defendants were procedurally defective, and the resulting sales that occurred were unlawful and constituted wrongful foreclosures.
46. As a result of the wrongful foreclosures, AOAO Defendants stole, converted, and/or wrongfully dispossessed plaintiff and plaintiff class members of their properties.

[Third Amended Complaint at pg. 17.] Thus, the focus of Brown's wrongful foreclosure claim is the alleged failure to comply with Chapter 667, Part I. This Court previously ruled that the elements of Brown's wrongful foreclosure were sufficiently pled against the Terrazza AOAO. [Brown v. Porter McGuire Kiakona & Chow, LLP, et al., CV 16-00448 LEK-KSC, Order Denying Defendant Association of Apartment Owners of Terrazza/Cortebella/Las Brisas/Tiburon's Motion to Dismiss, etc., filed 8/30/17 (dkt. no. 95) (“CV 16-448 8/30/17 Order”), at 26-27 (denying the AOAO defendants' motions to dismiss as to the wrongful foreclosure claims).[4] ]

         In contrast, Brown's “Improper Foreclosure” claim alleges:

67. AOAO Defendants were required to use all fair and reasonable means to obtain the best possible prices for the properties of Plaintiff and plaintiff class members but they failed to do so, ...

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