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Mohr v. Deutsche Bank National Trust Company as Trustee

United States District Court, D. Hawaii

June 13, 2019

SANFORD A. MOHR AND TINA A. MOHR, Plaintiffs,
v.
DEUTSCHE BANK NATIONAL TRUST COMPANY AS TRUSTEE, ET AL., Defendants.

          ORDER GRANTING DEFENDANT BNC'S MOTION FOR SUMMARY JUDGMENT AND GRANTING IN PART AND DENYING IN PART DEFENDANT MLB'S SUBSTANTIVE JOINDER

          ALAN C. KAY, SR. UNITED STATES DISTRICT JUDGE

         For the reasons set forth below, the Court GRANTS Defendant BNC Mortgage, Inc.'s Motion for Summary Judgment, ECF No. 51, and GRANTS IN PART and DENIES IN PART Intervenor-Defendant MLB SUB I, LLC's Substantive Joinder to Defendant BNC Mortgage, Inc.'s Motion for Summary Judgment, ECF No. 53, as follows:

1. To the extent that it seeks the same relief as that sought by BNC in BNC's Motion for Summary Judgment, the Substantive Joinder is GRANTED.
2. To the extent that it seeks additional relief beyond the relief sought by BNC in BNC's Motion for Summary Judgment, the Substantive Joinder is DENIED.

         BACKGROUND

         I. The 2004 Mortgage Transaction and Default

         This dispute arises from a transaction that took place in 2004 when, to refinance their home mortgage, Sanford and Tina Mohr (“Plaintiffs”) executed a promissory note with subprime lender and named Defendant Finance America, LLC (“Finance America”). BNC's Concise Statement of Facts (“CSF”) ¶ 2, ECF No. 52; Pls.' CSF ¶ 1, ECF No. 87. The note was secured by a mortgage (the “Mortgage”) executed in favor of Mortgage Electronic Registration Systems, Inc. (“MERS”) as sole nominee for Finance America, and serviced by Defendant HomEq Servicing Corporation (“HomEq”). See BNC's CSF Ex. 2, ECF No. 52-3. The parties executed the loan documents memorializing the transaction on April 16, 2004. Id.; see also Pls.' CSF ¶ 1.

         Six months later, Plaintiffs stopped making payments on their Mortgage. BNC's CSF ¶ 3. In response, Finance America and MERS advised Plaintiffs in March 2005 that they intended to begin non-judicial foreclosure proceedings. Id. Plaintiffs in turn sent letters to Finance America, Defendant Deutsche Bank National Trust Company as Trustee (“Deutsche Bank”), and HomEq purporting to rescind the Mortgage based on alleged violations of the Truth In Lending Act (“TILA”). See id.; Pls.' CSF ¶ 3.

         II. The State-Court Action

         On April 19, 2005, Plaintiffs filed a complaint, ECF No. 38-4, in Hawai`i state court against, inter alia, Finance America, HomeEq, MERS, and Deutsche Bank seeking declaratory and monetary relief based on these alleged violations. In response, Finance America and MERS cancelled the planned non-judicial foreclosure sale. BNC's CSF ¶ 4. Plaintiffs filed their First Amended Complaint, ECF No. 38-14 (“FAC”), on January 31, 2006. In it, Plaintiffs allege, in relevant part, that they are entitled to (1) rescission of the Mortgage under TILA; (2) damages under TILA; and (3) damages under Hawai`i's unfair or deceptive acts or practices (“UDAP”) law. See FAC, Counts I-III. The First Amended Complaint also asserts a cause of action to quiet title based on Defendants' apparent intention to initiate foreclosure proceedings. Id. Count V.

         Plaintiffs and Defendant BNC Mortgage, Inc. (“BNC”) negotiated a settlement in 2008, though the parties disagree on the precise timeline and outcome. See BNC's CSF ¶ 6; Pls.' CSF ¶ 5. Under the agreement, Plaintiffs were to tender the proceeds of the loan less certain bank charges and interest, and BNC would release the Mortgage. BNC's CSF ¶ 6. The parties agree and the record shows that BNC executed and recorded a document releasing the Mortgage on December 10, 2008. Id. Ex. 4-I, ECF No. 52-5; see also Pls.' CSF ¶ 6. The record also shows that BNC then recorded a document rescinding and cancelling the release, BNC's CSF Ex. 6-1, ECF No. 52-7, which it apparently did when Plaintiffs failed to pay the agreed-upon amount to satisfy the judgment. See BNC's Mot. Summ. J. (“MSJ”) at 3, ECF No. 51-1.

         III. Subsequent Reassignments of the Mortgage

         Movant BNC became the owner of the Mortgage in 2005 when it merged with Finance America. MSJ at 2 n.3; see also ECF No. 38-30. On July 25, 2013, MERS, as nominee for Finance America-which had since merged with BNC-assigned the Mortgage to BNC's parent company, Lehman Brothers. Opp. Ex. A-3, ECF No. 86-1. Thereafter, on April 22, 2014, Lehman Brothers assigned the Mortgage to MLB. Id. Ex. A-4; BNC's CSF Ex. 3, ECF No. 52-4. MLB asserts that it is now the current owner of the Mortgage. MLB's CSF at 2, ECF No. 54.

         IV. The Bankruptcy Proceedings

         BNC filed for bankruptcy in 2009, and the case was consolidated with that of its parent company, Lehman Brothers Holdings, Inc. (“Lehman Brothers”), which had filed for bankruptcy shortly beforehand.[1] BNC's CSF ¶¶ 7-8. In light of the bankruptcy proceedings, the state-court action was stayed. MSJ at 3.

         While the stay was in place, Plaintiffs filed a proof of claim, ECF No. 52-5 (“POC”), in the bankruptcy proceedings appearing to seek the same relief sought in the state-court action: rescission and damages under TILA and UDAP. The proof of claim attached a copy of the First Amended Complaint as the basis for the claim. See POC Ex. A. In response, the plan administrator, for Lehman Brothers objected to Plaintiffs' proof of claim “on BNC's behalf.” BNC's CSF Ex. 5, ECF No. 52-6.

         In a supplemental objection, ECF No. 52-7 (“Suppl. Obj.”), the plan administrator argued that Plaintiffs' claims were invalid on several additional grounds: (1) BNC no longer possessed any interest in the loan, so it could not rescind the Mortgage; (2) Plaintiffs were not entitled to rescission because they failed to plead that they could tender the loan amount; (3) the claims for TILA damages were barred by the one-year statute of limitations; and (4) any state-law claims rested on the same facts as the alleged TILA violations and were thus preempted. On April 23, 2015, following a hearing attended by Plaintiffs, the bankruptcy court issued an order, ECF No. 52-8, granting the objection and disallowing and expunging Plaintiffs' claim in its entirety, with prejudice (the “Bankruptcy Order”).[2]

         V. Procedural Background

         This case came before the Court after MLB moved to intervene in the state-court action, which the state court allowed on August 5, 2016. ECF No. 39-18. MLB then removed the case on September 6, 2016, ECF No. 1, asserting federal question and diversity jurisdiction.[3]

         On March 8, 2018, after the bankruptcy stay was lifted, BNC filed the instant Motion for Summary Judgment, ECF No. 51, along with a concise statement of facts, ECF No. 52. MLB then filed a Substantive Joinder to BNC's Motion (“Joinder”), as well as its own CSF. ECF Nos. 53 & 54. On March 22, 2018, at Plaintiffs' request, Magistrate Judge Puglisi entered an order to stay the case until December 31, 2018, ECF No. 63, and the Court administratively withdrew BNC's Motion and MLB's Joinder, ECF No. 64. After the stay was lifted, the Court reinstated the motions. ECF No. 71. Plaintiffs then sought yet another continuance of the hearing on BNC's Motion, which this Court granted. ECF Nos. 82 & 84.

         Plaintiffs filed opposition briefing (“Opposition”) in response to the Motion and the Joinder on May 20, 2019, ECF Nos. 86 & 88, and BNC filed its reply on May 24, 2019, ECF No. 90. The Court held a hearing ...


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