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Lima v. Deutsche Bank National Trust Co.

United States District Court, D. Hawaii

May 16, 2019

LIONEL LIMA, JR., et al., individually and on behalf of all others similarly situated, Plaintiffs,
DEUTSCHE BANK NATIONAL TRUST COMPANY, Defendant. EVELYN JANE GIBO, et al., individually and on behalf of all others similarly situated, Plaintiffs,
U.S. BANK NATIONAL ASSOCIATION, Defendant. DAVID EMORY BALD, et al., individually and on behalf of all others similarly situated, Plaintiffs,
WELLS FARGO BANK, N.A., Defendant.



         Pursuant to section 602-5(a)(2) of Hawai‘i Revised Statutes and Rule 13 of Hawai‘i Rules of Appellate Procedure, this court respectfully certifies the following question to the Hawai‘i Supreme Court:

When (a) a borrower has indisputably defaulted on a mortgage for real property, (b) a lender has conducted a nonjudicial foreclosure sale but has not strictly complied with the requirements governing such sales, and (c) the borrower sues the lender over that noncompliance after the foreclosure sale and, if the property was purchased at foreclosure by the lender, after any subsequent sale to a third-party purchaser, may the borrower establish the requisite harm for liability purposes under the law of wrongful foreclosure and/or section 480-2 of Hawai‘i Revised Statutes by demonstrating the loss of title, possession, and/or investments in the property without regard to the effect of the mortgage on those items?

         The gist of the above question may be restated (assuming but not including the underlying factual predicates) as a question about which party has the burden of proof:

Is the effect of the mortgage considered only as a matter of setoff that a lender has the burden of proving after the borrower establishes the amount of the borrower's damages, or does a borrower with no preforeclosure rights in property except as encumbered by a mortgage bear the burden of accounting for the effect of the mortgage in establishing the element of harm in the liability case?

         This question of substantive Hawai‘i law is “determinative of the cause” in three putative class actions before this court and is not answered by “clear controlling precedent in the Hawai‘i judicial decisions.” Haw. R. App. P. 13(a).

         The three cases are Lionel Lima, et al. v. Deutsche Bank National Trust Company, Civ. No. 12-00509 SOM-WRP (“Lima”); Evelyn Jane Gibo, et al. v. U.S. Bank National Association, Civ. No. 12-00514 SOM-WRP (“Gibo”); and David Emory Bald, et al. v. Wells Fargo Bank, N.A., Civ. No. 13-00135 SOM-RT (“Bald”).

         A negative answer to the certified question will dispose of all claims in each case. This court therefore respectfully asks the Hawai‘i Supreme Court to exercise its discretion to accept and decide the certified question.


         The Hawai‘i Supreme Court has jurisdiction and power “[t]o answer, in its discretion, any question of law reserved by a circuit court, the land court, or the tax appeal court, or any question or proposition of law certified to it by a federal district or appellate court if the supreme court shall so provide by rule[.]” Haw. Rev. Stat. § 602-5(a)(2).

         “When a federal district court or appellate court certifies to the Hawai‘i Supreme Court that there is involved in any proceeding before it a question concerning the law of Hawai‘i that is determinative of the cause and that there is no clear controlling precedent in the Hawai‘i judicial decisions, the Hawai‘i Supreme Court may answer the certified question by written opinion.” Haw. R. App. P. 13(a).

         The court certifying a question must provide “a statement of prior proceedings in the case, a statement of facts showing the nature of the cause, the question of law to be answered, and the circumstances out of which the question arises.” Haw. R. App. P. 13(b).


         These three putative class actions[1] have proceeded in a parallel manner. Filed in 2012 in state court and removed to federal court, these cases have lengthy histories, which the court summarizes here only as relevant to the certified question.

         Lima arises from alleged conduct relating to the nonjudicial foreclosure of properties owned by Plaintiffs Lionel Lima, Jr., Barbara-Ann Delizo-Lima, Calvin Jon Kirby II, Leneen Kron, Deirdre-Dawn K. Cabison, James C. Clay, Scott A. Coryea, Katheryn Coryea, Richard H. Farnham, Nancy L. Farnham, Timothy Ryan, Donna Ryan, Kaniala Salis, and Brian S. Weatherly (all fourteen plaintiffs referred to collectively as “the Lima Plaintiffs”). The Lima Plaintiffs are suing Defendant Deutsche Bank National Trust Company (“Deutsche Bank”). See Lima, ECF No. 238 (Second Amended Complaint).[2]

         Gibo arises from alleged conduct relating to the nonjudicial foreclosure of property owned by Plaintiffs Evelyn Jane Gibo, Patrick Stephen Hemmens, Deanne Davidson Hemmens, Vincent Labasan, and Jennifer Strike (all five plaintiffs referred to collectively as “the Gibo Plaintiffs”). The Gibo Plaintiffs are suing Defendant U.S. Bank National Association (“U.S. Bank”). See Gibo, ECF No. 196 (Second Amended Complaint).[3]

         Finally, Bald arises from alleged conduct relating to the nonjudicial foreclosure of property owned by Plaintiffs David Emory Bald, Emily Lelis, James L.K. Dahlberg, Michael John Myers, Jr., Tham Nguyen Myers, David Levy, and Thomas T. Au (all seven plaintiffs referred to collectively as “the Bald Plaintiffs”). The Bald Plaintiffs are suing Defendant Wells Fargo Bank, N.A. (“Wells Fargo”). See Bald, ECF No. 99 (First Amended Complaint).[4]

         This order refers to the Lima Plaintiffs, Gibo Plaintiffs, and Bald Plaintiffs collectively as “Plaintiff Borrowers” and to Deutsche Bank, U.S. Bank, and Wells Fargo collectively as “Defendant Banks.”[5]

         When removed, the cases included claims not only against Defendant Banks, but also against David Rosen, Defendant Banks' attorney in the foreclosure proceedings. Plaintiff Borrowers alleged that Defendant Banks and Rosen had breached their duties in selling the properties when they advertised the foreclosure sales as sales by quitclaim deed and postponed the sales without publishing notices of new dates and times.

         Plaintiff Borrowers owned properties in Hawai‘i encumbered by mortgages. Each Plaintiff Borrower defaulted on his or her mortgage. Each Bald Plaintiff's mortgage debt exceeded the amount obtained through the foreclosure sale. Bald, ECF No. 170-1, PageID # 3297. Although this court has less detailed information for the Lima and Gibo Plaintiffs, they also appear to have had mortgage balances exceeding the foreclosure sales prices. Lima, ECF No. 238-1, PageID #s 10594-96; Gibo, ECF No. 260-1, PageID #s 11089-90. Further, Wells Fargo described some Bald Plaintiffs as having deliberately chosen to default, as they were investors who owned multiple properties and decided to spend their funds on more profitable properties. Bald, ECF No. 170-1, PageID # 3297.

         Following the defaults, Defendant Banks, as mortgagees, initiated nonjudicial foreclosure proceedings, and the properties were sold in foreclosure between 2008 and 2011. Third parties purchased some of the properties. Defendant Banks purchased other properties themselves at the foreclosure sales and later sold them to third-party purchasers.

         Plaintiff Borrowers sued Defendant Banks, asserting violations of the mortgages' power of sale clause, violations of section 667-5 of Hawai‘i Revised Statutes, and unfair and deceptive acts or practices (“UDAP”) in violation of section 480-2 of Hawai‘i Revised Statutes. Lima, ECF No. 1-2; Gibo, ECF No. 1-2; Bald, ECF No. 1-3.

         This court granted motions to dismiss filed by Defendant Banks and Rosen in each case, dismissing all claims.[6]Lima, ECF No. 77; Gibo, ECF No. 94; Bald, ECF No. 45. The court concluded that Hawai‘i's nonjudicial foreclose law did not bar advertisements of sales by quitclaim deeds and did not require publication of auction postponements. Plaintiff Borrowers appealed the court's orders to the Ninth Circuit. The Lima and Gibo appeals were consolidated, and the same Ninth Circuit panel presided over both the Lima/Gibo appeal and the Bald appeal.

         The Ninth Circuit withheld any ruling pending the Hawai‘i Supreme Court's decision in Hungate v. Law Office of David B. Rosen, 139 Haw. 394, 391 P.3d 1 (2017). Ultimately, in unpublished decisions, the Ninth Circuit, relying on Hungate, reversed the dismissal of claims against Defendant Banks and remanded the cases to this court. Bald v. Wells Fargo Bank, N.A., 688 Fed.Appx. 472 (9th Cir. 2017); Lima v. Deutsche Bank Nat'l Tr. Co., 690 Fed.Appx. 911 (9th Cir. 2017). The Ninth Circuit held that Plaintiff Borrowers had standing as “consumers” under section 480-2 of Hawai‘i Revised Statutes, had adequately alleged that Defendant Banks' advertising and postponement practices were unfair within the meaning of section 480-2, and had alleged sufficient facts showing injury under section 480-2. See Bald, 688 Fed.Appx. at 474-77; Lima, 690 Fed.Appx. at 913. In the Lima/Gibo appeal, the Ninth Circuit also held that the Lima and Gibo Plaintiffs had sufficiently alleged Deutsche Bank's and U.S. Bank's liability for the alleged conduct. Lima, 690 Fed.Appx. at 913-14. The Ninth Circuit affirmed the dismissal of the claims against Rosen. Id. at 915.

         On remand, this court gave Plaintiff Borrowers leave to file amended complaints. The amended complaints removed Rosen as a defendant, added new plaintiffs, and added other practices that Defendant Banks had allegedly wrongfully engaged in during the nonjudicial foreclosure proceedings. Plaintiff Borrowers complained of the following practices:

a. Recording and publishing Notices of Sale that did not include a “description of the mortgaged property” (a) as required by HRS Section 667-7(a)(1) (2008) and (b) which was “sufficient to inform the public of the nature of the property to be offered for sale” and “calculated to interest purchasers, ” as required by Ulrich v. Sec. Inv. Co., 35 Haw. 158, 172-73 (1939); b. Publishing and/or posting the Notice of Sale for less time than required by statute; c. Selling the property despite having failed to send the borrower a notice of acceleration that gave the notice that the standard form mortgage required about the unconditional right the borrower had to bring a separate suit to stop the sale.
d. Issuing notices of sale that lacked a description of the property that would interest prospective buyers and/or comply with statute;
e. Advertising the auctions of properties by “quitclaim deed” and/or without any covenants or warranties of title whatsoever;
f. Postponing auctions so frequently that the substantial majority of sale dates advertised in the Class's published notices of sale were not the actual auction dates;
g. Postponing auctions without publishing notices of the rescheduled auctions' new dates and times;
h. Changing the location of the auction without publishing the new location; and
i. Including as a term of sale that time was of the essence and that successful bidders were expected to close their sales within thirty days of their auctions, when in fact such sales either never, or almost never, closed within the specific timeframe.

Lima, ECF No. 182, PageID #s 6540-41; Gibo, ECF No. 196, PageID #s 6520-21; see also Bald, ECF No. 99, PageID #s 2577-78 (complaining of roughly half of the listed practices).

         In their amended complaints, Plaintiff Borrowers now assert: (1) a tort claim for wrongful foreclosure, and (2) a UDAP claim under section 480-2.[7]Lima, ECF No. 182, PageID #s 6550, 6564; Gibo, ECF No. ...

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