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Chavez v. Deutsche Bank National Trust Co.

United States District Court, D. Hawaii

May 31, 2019

LUIS C. CHAVEZ, INDIVIDUALLY, AND AS SPECIAL ADMINISTRATOR OF THE ESTATE OF MARCARIO ARAUJO CHAVEZ; Plaintiff,
v.
DEUTSCHE BANK NATIONAL TRUST COMPANY, OCWEN LOAN SERVICING, LLC, AMERICAN HOME MORTGAGE SERVICING, INC., JOHN DOES 1-10, DOE CORPORATIONS 1-10, DOE PARTNERSHIPS 1-10, DOE ENTITIES 1-10, DOE GOVERNMENTAL UNITS 1-10, Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S SECOND AMENDED COMPLAINT

          Leslie E. Kobavashi, United States District Judge.

         On January 23, 2019, Defendants Deutsche Bank National Trust Company, as Trustee for American Home Mortgage Assets Trust 2007-3, Mortgage-Backed Pass-Through Certificates Series 2007-3 (“Deutsche Bank”); Ocwen Loan Servicing, LLC (“Ocwen”); and Homeward Residential, Inc., formerly known as American Home Mortgage Servicing, Inc. (“AHMSI, ” collectively “Defendants”) filed their Motion to Dismiss Plaintiff's Second Amended Complaint (“Motion”). [Dkt. no. 48.] Plaintiff Luis C. Chavez, Individually and as Special Administrator of the Estate of Marcario Araujo Chavez (“Plaintiff”), filed his memorandum in opposition on March 15, 2019, and Defendants filed their reply on March 22, 2019. [Dkt. nos. 56, 57.] This matter came on for hearing on April 5, 2019. On April 22, 2019, this Court issued an entering order informing the parties of its rulings on the Motion. [Dkt. no. 59.] The instant Order supersedes that entering order. Defendants' Motion is hereby granted in part and denied in part for the reasons set forth below.

         BACKGROUND

         The instant case arises from issues related to the mortgage on certain real property in Makawao, Hawai`i (“the Property”). After he executed the mortgage, Plaintiff's father, Marcario Araujo Chavez (“M.A. Chavez”), transferred the Property to Plaintiff.

         Plaintiff, who was proceeding pro se at the time, initiated this action on April 6, 2016 in state court, and he filed his First Amended Complaint on July 6, 2017, as well as an errata thereto (“Errata”) on July 11, 2017. [Notice of Removal of Civil Action (“Notice of Removal”), filed 9/6/17 (dkt. no. 1), Decl. of J. Blaine Rogers (“Rogers Removal Decl.”), Exh. A (state court docket sheet), Exh. C at 2-4 (Errata), Exh. C at 5-21 (First Amended Complaint).] Defendants removed the action based on diversity jurisdiction or, in the alternative, federal question jurisdiction. [Notice of Removal at ¶¶ 7, 24.]

         The First Amended Complaint alleged: an unfair and deceptive acts and practices (“UDAP”) claim; a claim alleging breach of the implied covenant of good faith and fair dealing; a promissory estoppel claim; and a claim for punitive damages. The Errata added a claim under the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, et seq. On June 27, 2018, this Court issued an Order Granting in Part and Denying in Part Defendants' Motion to Dismiss (“6/27/18 Order”). [Dkt. no. 32.[1] All of Plaintiff's claims were dismissed without prejudice, except for the claim for punitive damages, which was dismissed with prejudice. 6/28/18 Order, 2018 WL 3148097, at *2, *5.

         Plaintiff, who is now represented by pro bono counsel, filed his Second Amended Complaint on December 10, 2018. [Dkt. no. 44.]

         According to the Second Amended Complaint, Plaintiff and his family began development on the Property in 1988. As of 1995, there were two separate houses on the Property, the second of which Plaintiff built with his sons. [Id. at ¶ 8.] Plaintiff acquired the Property from M.A. Chavez through a quit claim deed on April 3, 2007. [Id. at ¶¶ 2, 4.] Plaintiff maintains both houses on the Property and uses the second house as a rental unit. Plaintiff ultimately intends to sell the second house to fund his retirement. [Id. at ¶¶ 8-9.]

         When Plaintiff acquired the Property, it was encumbered by a $650, 000.00 mortgage loan (“Mortgage”) that M.A. Chavez obtained from American Home Mortgage on March 7, 2007. AHMSI was the servicer for the Mortgage. [Id. at ¶ 17.] According to Plaintiff, he has always made timely payments on the Mortgage, and AHMSI accepted the payments from him. [Id. at ¶¶ 5, 18.] Plaintiff therefore alleges AHMSI and Ocwen, which Plaintiff alleges is AHMSI's successor, were aware that Plaintiff “had a vested interest in the Property.” [Id. at ¶¶ 18, 28.]

         M.A. Chavez died on November 30, 2010, and Plaintiff became the administrator of M.A. Chavez's estate (“Estate”). Plaintiff alleges that, in his capacity as the administrator, he has the authority to negotiate details regarding the Mortgage. [Id. at ¶¶ 6-7.] According to Plaintiff, in March 2010, his payments on the Mortgage began accruing a surplus. [Id. at ¶¶ 22-24.] The surplus exceeded the monthly Mortgage payment. The Mortgage statement dated January 21, 2011 reflected a $4, 393.60 surplus in escrow. [Id. at ¶ 25.] On numerous occasions, AHMSI representatives told Plaintiff the surplus would be applied to the Mortgage, but the surplus has neither been applied to the Mortgage nor returned to Plaintiff. [Id. at ¶¶ 26-28, 39.] Plaintiff alleges the misappropriation of his funds are part of an ongoing “pattern and practice of misconduct by Ocwen.” [Id. at ¶ 49.]

         In January 2011, Plaintiff contacted AHMSI to obtain information about paying off the Mortgage.[2] [Id. at ¶ 29.] In February 2011, an AHMSI employee inspected the Property. [Id. at ¶ 31.] Plaintiff alleges that, prior to the inspection, AHMSI did not realize there were two houses on the Property, and AHMSI “wanted to unjustly enrich itself by profiting off of [Plaintiff's] hard work.” [Id. at ¶ 33.] Thereafter, AHMSI allegedly engaged in a pattern of harassment that “began in 2011 upon maliciously publicly filing a fraudulent foreclosure instrument, and actively continued through 2017.” [Id. at ¶ 34.]

         On April 5, 2011, Plaintiff received a notice that AHMSI was accelerating the Mortgage and foreclosing upon the Property (“First Notice”). [Id. at ¶ 35.] Plaintiff alleges AHMSI charged “gratuitous and inappropriate fees” because of the delinquency alleged in the First Notice. [Id.] At that time, Defendants knew or should have known that the Mortgage account was current, with a surplus of $16, 313.68. [Id. at ¶¶ 37-38.] According to Plaintiff, the Mortgage required that, in the event of a deficiency, the surplus on the account should have been applied to the account before any acceleration notice was sent, and therefore AHMSI should not have sent the First Notice. [Id. at ¶¶ 40-41.]

         After sending Plaintiff the First Notice, Defendants “wrongfully, maliciously, and unlawfully continued to harass” him. [Id. at ¶ 42.] In violation of the Mortgage's requirement that an acceleration notice allow at least thirty days to cure the default, Defendants sent Plaintiff another notice of the loan acceleration two days after the First Notice (“Second Notice”), and they denied him the opportunity to respond to either the First Notice or the Second Notice (collectively “Notices”). [Id. at ¶¶ 36, 43-44.] Within thirty days from either of the Notices, Plaintiff attempted to make a $4, 400.00 payment to AHMSI through Western Union, but AHMSI wrongfully returned the payment and refused to apply it to his account. [Id. at ¶ 44.] Plaintiff alleges that, “[s]hortly thereafter, ” it wrongfully rejected his payment, “AHMSI began improperly assessing fines and late fees to the Mortgage for the Property. These fines began in June 2010 and continue until to [sic] this day.” [Id. at ¶ 46.]

         Plaintiff argues that, even if he was delinquent in the Mortgage payments, and even if there had been no surplus in the account, AHMSI wrongfully prevented him from making a payment and denied him his right to cure any delinquency. [Id. at ¶ 45.] Plaintiff also alleges that, within thirty days of the Notices, he sent AHMSI dispute letters, but AHMSI ignored them. [Id. at ¶ 47.]

         Plaintiff alleges he continues to suffer from severe emotional distress as a result of the harassment, and he has a reasonable belief that the harassment will continue unless he obtains a court order. [Id. at ¶¶ 34, 48.] Defendants publicly filed a foreclosure notice before they notified him, which resulted in Plaintiff “learn[ing] about this embarrassing situation from friends and even strangers.” [Id. at ¶ 48.] Plaintiff also alleges Defendants' “improper fines and late fees . . . compound[s] their egregious behavior and [Plaintiff's] emotional distress.” [Id. at ¶ 50.]

         Plaintiff alleges that, on March 13, 2017, Deutsche Bank filed a second assignment of the Mortgage (“3/13/17 Assignment”). However, Plaintiff alleges that there was no legal instrument assigning the Mortgage to Deutsche Bank prior to the 3/13/17 Assignment. [Id. at ¶ 19.] Plaintiff also alleges the 3/13/17 Assignment is invalid because it was “robo-signe[d.]” [Id. at ¶ 20.] Further, there has never been a legitimate assignment of the Mortgage to Defendants. Plaintiff therefore argues Deutsche Bank does not have a valid, enforceable interest in the Property, and it was never authorized to receive payments on the Mortgage. [Id. at ¶ 21.] Plaintiff also argues that, although Ocwen sent him “a ‘charge off' letter indicating the loan for the Property was charged off, ” Ocwen has sent him bills as recently as August 2018. [Id.]

         Defendants initiated a second foreclosure action against Plaintiff in 2017. [Id. at ¶ 51.] Plaintiff alleges this was another example of the “bait-and-switch” Defendants engaged in, in which they gave him “conflicting and contradictory information.” [Id.] Plaintiff contends the foregoing actions by Defendants constitute “a pattern of ongoing illegal and improper conduct.” [Id.] As a result, the Property is encumbered and Plaintiff can neither “live peacefully on his [P]roperty” nor “sell the second house on the Property.” [Id. at ¶ 52.]

         Plaintiff alleges the following claims: 1) a UDAP claim, in violation of Haw. Rev. Stat. § 480-2 (“Count I”); 2) a claim alleging FDCPA violations, in violation of 15 U.S.C. §§ 1692d, 1692e, and 1692f(6) (“Count II”); 3) breach of contract (“Count III”); 4) breach of the implied covenant of good faith and fair dealing (“Count IV”); 5) promissory estoppel (“Count V”); 6) conversion (“Count VI”); 7) intentional interference with prospective economic advantage (“Count VII”); 8) a quiet title claim, pursuant to Haw. Rev. Stat. § 669-1 (“Count VIII”); 9) fraud (“Count IX”); 10) intentional infliction of emotional distress (“IIED” and “Count X”); 11) negligent infliction of emotional distress (“NIED” and “Count XI”); and 12) a claim alleging that Defendants violated the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2601, et seq. (“Count XII”).

         Defendants now seek dismissal, with prejudice, of all claims in the Second Amended Complaint.

         DISCUSSION

         I. Preliminary Issues

         The 6/27/18 Order only granted Plaintiff leave to re-allege the claims in his First Amended Complaint and Errata, except his claim for punitive damages. 6/28/18 Order, 2018 WL 3148097, at *5. This Court expressly stated: “Plaintiff is not allowed to add any new claims, parties, or theories of liability in the second amended complaint. If he wishes to do so, he must file a motion for leave to amend.” Id. Defendants therefore argue Count III, and Counts VI through XII should be automatically dismissed.

         The 6/28/18 Order arguably only gave Plaintiff limited leave to amend. However, the deadline to add parties and amend pleadings has not yet passed. See Second Amended Rule 16 Scheduling Order, filed 1/29/19 (dkt. no. 55), at ¶ 5 (stating the deadline is 6/14/19). If Plaintiff filed a motion for leave to add claims beyond those asserted in the First Amended Complaint and the Errata, the motion would be timely, and leave to amend would likely be granted because of the liberal amendment standard. See Fed.R.Civ.P. 15(a) (“The court should freely give leave when justice so requires.”). To facilitate the timely resolution of Plaintiff's claims on the merits, and in the interest of judicial economy, this Court denies Defendants' request to dismiss automatically all claims in the Second Amended Complaint that were not asserted in the First Amended Complaint and Errata.

         Plaintiff agrees that Count IV should be dismissed with prejudice. [Mem. in Opp. at 16.] In light of Plaintiff's concession, Count IV is dismissed with prejudice. The remainder of Plaintiff's claims will be addressed on the merits.

         II. Standing

         As previously noted, all of Plaintiff's claims are related to disputes regarding the Mortgage on the Property. This Court first turns to the issue of whether Plaintiff has standing to pursue each claim, either in his individual capacity (“Plaintiff Individually”) or in his capacity as the Estate's Special Administrator (“Plaintiff as Administrator”).

         A. Contract-Based Claims

         The following claims in the Second Amended Complaint relate to liability on the Mortgage loan and will be referred to as the “Contract-Based Claims”: Count III (breach of contract); Count V (promissory estoppel); Count VI (conversion); Count VIII (quiet title); and Count XII (RESPA violations).

         1. Plaintiff Individually

         For purposes of the instant Motion, this Court accepts the factual allegations of the Second Amended Complaint as true. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (stating that, “for the purposes of a motion to dismiss we must take all of the factual allegations in the complaint as true”). Thus, this Court assumes that Plaintiff Individually, was not a party to the original Mortgage. See Second Amended Complaint at ¶ 17 (stating M.A. Chavez entered into the Mortgage). Plaintiff Individually purportedly became a party to the Mortgage by virtue of a “step up rate contract.” [Id. at ¶ 81.] Based on representations that Plaintiff's counsel made at the hearing on the Motion, the “step up rate contract” was similar to a loan modification agreement. However, the allegations of the Second Amended Complaint are insufficient to support that position.

         Plaintiff also argues that, through the administration of the Estate, Plaintiff Individually has assumed liability for the Mortgage loan. Such an agreement is only enforceable if it is in writing. See Haw. Rev. Stat. § 656-1(2), (4).[3] The factual allegations of the Second Amended Complaint do not support a reasonable inference that such a writing exists.

         The United States Supreme Court has described the elements of standing as follows:

First, the plaintiff must have suffered an injury in fact - an invasion of a legally protected interest which is (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical. Second, there must be a causal connection between the injury and the conduct complained of - the injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court. Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (brackets, ellipses, footnote, citations, and internal quotation marks omitted). A “particularized” injury “must affect the plaintiff in a personal and individual way.” Id. at 560 n.1.

         Because Plaintiff Individually has no obligation under either the Mortgage or the underlying loan, the actions and omissions that gave rise to the Contract-Based Claims have not caused an “actual or imminent, ” “concrete and particularized” injury to him. See id. at 560. The claims by Plaintiff Individually in the Contract-Based Claims therefore fail to state plausible claims for relief because he lacks standing to pursue them. See Iqbal, 556 U.S. at 678 (“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007))). The claims by Plaintiff Individually in the Contract-Based Claims are dismissed without prejudice because it is arguably possible for Plaintiff Individually to plead additional factual allegations that would support a plausible basis for standing. See Hoang v. Bank of Am., N.A., 910 F.3d 1096, 1102 (9th Cir. 2018) (“Dismissal with prejudice and without leave to amend is not appropriate unless it is clear on de novo review that the complaint could not be saved by amendment.” (citation and quotation marks omitted)).

         2. Plaintiff as Administrator

         Based on the factual allegations of the Second Amended Complaint, the Estate remains liable on the Mortgage and the underlying loan. See Second Amended Complaint at ¶ 7 (alleging Plaintiff “is empowered to . . . negotiate the details of the mortgage”), ¶ 18 (alleging that, “[a]t all times, [Plaintiff] paid the mortgage for the Property”). Thus, the alleged acts and omissions that form the basis of the Contract-Based Claims allegedly caused, or are causing, harm to the Estate. See, e.g., id. at ¶ 46 (alleging the improper fines and late fees associated with the Mortgage “continue until to this day”). The Contract-Based Claims therefore plead a sufficient factual basis to support a plausible standing argument by Plaintiff as Administrator. Thus, Defendants' argument that Plaintiff as Administrator lacks standing to bring the Contract-Based Claims is rejected.

         B. Non-Contract Claims

         The following claims do not relate to liability on the Mortgage loan and will be referred to as the “Non-Contract Claims”: Count I (UDAP); Count II (FDCPA violations); Count VII (interference with prospective advantage); Count IX (fraud); Count X (IIED); and Count XI (NIED).

         1. Plaintiff Individually

         The acts which form the bases of the Non-Contract Claims occurred while Plaintiff was acting as the Estate's Special Administrator. However, the damages that allegedly resulted from those acts were, or are being, suffered by Plaintiff Individually. See, e.g., id. at ¶ 56 (alleging Defendants “repeatedly sent, on numerous occasions over multiple years, individuals to harass [Plaintiff] regarding the status of his mortgage for the Property”). Thus, the Non-Contract Claims plead a sufficient factual basis to support a plausible standing argument by Plaintiff Individually. Defendants' argument that Plaintiff Individually lacks standing to pursue the Non-Contract Claims is rejected.

         2. Plaintiff as Administrator

         The acts and omissions that form the bases of the Non-Contract Claims occurred after M.A. Chavez's death. See, e.g., id. at ¶ 34 (alleging the pattern of harassment began in 2011 and continued through 2017), ¶ 51 (alleging Defendants attempted to foreclosure upon the Property in 2017).

         M.A. Chavez therefore was not injured by those acts, and the Estate does not have standing to pursue claims based on those acts. Further, Plaintiff as Administrator does not have standing to pursue an IIED claim or a NIED claim because a legal entity, such as the Estate, cannot suffer emotional distress. Cf. Doran v. Wells Fargo Bank, Civil No. 11-00132 LEK-BMK, 2011 WL 2160643, at *15 & n.9 (D. Hawai`i May 31, 2011) (citing cases and ruling that the plaintiffs could assert an IIED claim individually, but could not assert the claim as trustees on behalf of their family trust).

         The claims asserted by Plaintiff as Administrator in the Non-Contract Claims do not state plausible claims for relief because of the lack of standing. Those claims are therefore dismissed, and the dismissal is with prejudice because it is not possible for Plaintiff as Administrator to cure this defect by amendment.

         III. Sufficiency of the Remaining Claims

         A. Claims by Plaintiff as Administrator

         1. Breach of Contract (Count III)

         Under Hawai`i law, “[t]he elements of a breach of contract claim are ‘(1) the contract at issue; (2) the parties to the contract; (3) whether plaintiff performed under the contract; (4) the particular provision of the contract allegedly violated by defendants; and (5) when and how defendants allegedly breached the contract.'” Marine Lumber Co. v. Precision Moving & Storage Inc., CIVIL 16-00365 LEK-RLP, 2017 WL 1159093, at *6 (D. Hawai`i Mar. 28, ...


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