Field v. Bank of America, N.A.

• Court: United States Bankruptcy Court, D. Hawaii
• Decided: February 23, 2022
• Docket: 20-90021
• Status: Unknown

Opinion

Date Signed: February 23, 2022 ky we SO ORDERED. WAS) 27D ety Robert J. Faris ier OF ge United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT

DISTRICT OF HAWAITI

In re: Case No. 11-01873 (RJF) Chapter 7 ROLANDO MANGSAT TIRSO AND KAMEHALYN SANTOS TIRSO,

Debtors. Adv. Pro. No. 20-90021 DANE 5S. FIELD, Chapter 7 Trustee, Dkt. 42, 52, 54 Plaintiff,

VS.

BANK OF AMERICA, N.A.,

Defendants.

ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

In this adversary proceeding, the trustee contends that defendant

Bank of America, N.A. (“BANA”) improperly foreclosed a mortgage on the debtor’s property. Under Hawai'i law, borrower-plaintiffs in wrongful

foreclosure cases like this one must account for their outstanding mortgage debt at the time of foreclosure when calculating their damages. Defendant

Bank of America, N.A. seeks summary judgment, arguing that the trustee cannot prove damages. BANA also argues that some of the trustee’s claims

are time-barred. I agree with BANA and will GRANT its motion. I. BACKGROUND

In December 2006, Rolando Mangsat Tirso and Kamehalyn Santos Tirso purchased property located in Kapolei, Hawaii.1 This purchase was

entirely financed by two mortgages – the first in the amount of $272,200.00 and the second in the amount of $61,800.00.2 Mortgage Electronic

Registration Systems, Inc., held the first mortgage as nominee for First Magnus Financial Corporation.3 BANA eventually acquired the first

1 Compl. ¶ 14, ECF No. 1. 2 Statement of Undisputed Material Facts, ¶ 4-5, ECF No. 42. 3 Id. mortgage,4 but not the second mortgage.5 Mr. and Mrs. Tirso began

missing payments in March 2009, and BANA initiated a non-judicial foreclosure.6 In 2010, BANA made the only bid at the foreclosure auction

for approximately $261,459.00.7 BANA then conveyed the property to Federal Home Loan Mortgage Company (“Freddie Mac”) which then

conveyed the property to third parties.8 At the time of the foreclosure auction, the Tirsos’ outstanding debt on

their first mortgage was approximately $265,281.22. BANA did not seek a deficiency judgment against the Tirsos. The servicer of the second

mortgage did seek a deficiency judgment. In 2011, the debtors filed a chapter 7 bankruptcy petition and

obtained a discharge.9 The Tirsos were allegedly members of the proposed plaintiff class in

a putative class action entitled Degamo v. Bank of America, N.A., filed in state

4 Id. at ¶¶ 3, 6. 5 Id. at ¶ 11. 6 Id.at ¶ 14. 7 Id. at ¶¶ 20, 26. 8 Compl. ¶¶ 37, 40, ECF No. 1. 9 Final Decree, ECF No. 25 in main bankruptcy case; Discharge of Debtors, ECF No. 24 in main bankruptcy case. court on September 7, 201210 and later removed to federal district court.11

The plaintiffs in Degamo asserted claims against BANA arising out of numerous allegedly wrongful foreclosures.12 That case was dismissed with

prejudice on March 14, 2019, because the named plaintiffs lacked prudential standing as a result of prior bankruptcy filings.13

The trustee filed the complaint in this adversary proceeding on October 1, 2020, alleging wrongful deprivation of real property and unfair

and deceptive trade practices and unfair methods of competition.14 BANA now moves for summary judgment on both counts, arguing

that the trustee is unable to establish the element of damages. II. LEGAL STANDARD

Under Rule 56 of the Federal Rules of Civil Procedure, the court shall grant summary judgment when “the movant shows that there is no

10 Compl. ¶ 12-13, ECF No. 1. 11 Defendant’s Notice of Removal, Degamo v. Bank of Am., N.A., No. 1:13-cv-00141-JAO-KJM (D. Haw. Mar. 25, 2013), ECF No. 1. 12 First Am. Compl. ¶ 46, Degamo, No. 1:13-cv-00141-JAO-KJM (D. Haw. Apr. 23, 2013), ECF No. 14. 13 Order Denying Pls’ Mot. Accept Ratification or Permit Substitution and Renewed Mot. for Leave to File Second Am. Compl., Degamo, No. 1:13-cv-00141-JAO-KJM, 2019 U.S. Dist. LEXIS 41608, at *23 (D. Haw. Haw. 14, 2019), ECF No. 147. 14 Compl. ¶¶ 50, 71, ECF No. 1. genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.”15 Moreover, when a non-moving plaintiff fails to establish an element essential to their case, summary judgment in

favor of the movant is proper.16 In such a case, there is no genuine issue concerning any material fact “since a complete failure of proof concerning

an essential element of the plaintiff’s case necessarily renders all other facts immaterial.”17

III. DISCUSSION A. Wrongful Foreclosure Damages after Lima

To establish a prima facie case of wrongful foreclosure, a plaintiff must establish (1) a legal duty owed to the mortgagor by the foreclosing

party; (2) a breach of that duty; (3) a causal connection between the breach of that duty and the injury sustained; and (4) damages.18 To establish a

prima facie case for a UDAP claim, a plaintiff must establish (1) that the

15 Fed. R. Civ. P. 56(a); See Lima v. Deutsche Bank National Trust Co., 2021 WL 4722949 at *5 (D. Haw. Oct. 8, 2021) (internal citations omitted). 16 See Lima v. Deutsche Bank National Trust Co., 494 P.3d 1190, 1197 (Haw. 2021) (quoting Exotics Hawaii- Kona, Inc. v. E.I. du Pont de Nemours & Co., 172 P.3d 1021, 1046 (Haw. 2007)). 17 Id. 18 Lima, 494 P.3d at 1197 (Haw. 2021) (internal citations omitted). defendant violated the UDAP statute (or another statute that incorporates

the UDAP statute); (2) that the consumer was injured as a result of the UDAP violation; and (3) the amount of damages sustained as a result of the

UDAP violation.19 In Lima v. Deutsche Bank National Trust Co.,20 the Hawaii supreme

court responded to a certified question posed by the federal district court and held that “a borrower bears the burden of accounting for the effect of a

mortgage when establishing the element of harm in the liability case for a wrongful foreclosure or unfair or deceptive acts or practices case.”21 The

court reasoned that damages is an element of the plaintiff’s case, and that “Plaintiff Borrowers must be able to establish a prima facie case for

compensatory damages, factoring in their pre-nonjudicial foreclosure positions, to survive Defendant Banks’ motions for summary judgment.”22

The court further held that wrongful foreclosure plaintiffs cannot survive a

19 Id. at 1197-98. 20 494 P.3d 1190 (2021). 21 Id. at 1193. 22 Id. at 1197. motion for summary judgment by relying on nominal or punitive

damages.23 The court did not discuss every issue about the calculation of

compensatory damages because the district court’s certified question was narrower than that. But the court did reiterate the basic principle that the

purpose and goal of compensatory damages is to restore injured parties to their position prior to the wrongful conduct.24

B. Lima Applied to This Case The core allegation of the complaint is that BANA conducted the

foreclosure sale of the Tirso’s property in an improper manner. There is no genuine dispute that, prior to the foreclosure, the Tirsos owned property

that was subject to two mortgages, that they had defaulted under both mortgages, that they were not able to cure those defaults, and that BANA

23 Id. at 11980-99. 24 Id. The trustee argues that the compensatory model is insufficient. He seizes upon language in Delapinia and Hungate that indicate damages in these wrongful foreclosure suits should “deter” this unlawful conduct. In this way, the trustee attempts to collapse the distinct categories of compensatory and punitive damages. While it is true that this action arises from tort and punitive damages – designed to deter future wrongful conduct – may be available, to survive summary judgment, the trustee must prove compensatory damages. These damages focus on restoring the wronged party rather than punishing the wrongful actor or deterring future wrongdoing. was entitled to foreclose in a manner provided by law. This position is

unenviable, but it is the position to which the trustee (who stands in the Tirsos’ shoes) is entitled to be restored.

The damages that the trustee seeks would put the trustee in a much better position than the Tirsos occupied before the wrongful act. The

trustee contends that the damages must include virtually every penny the Tirsos paid to acquire, own, and maintain the property. These amounts

would restore the Tirsos, not to the position they occupied before the foreclosure, but to the position they occupied before they even bought the

property. Hawai'i law does not support such a windfall. The trustee relies heavily on Santago v. Tanaka, 366 P.3d 612 (Haw.

2016). Tanaka sold a tavern to the Santiagos. The Santiagos made a large down payment and also executed a note and mortgage in favor of Tanaka.

Tanaka later conducted a nonjudicial foreclosure of the mortgage, acquired the tavern at the foreclosure sale, and resold the tavern to a third party. The

supreme court held that Tanaka was not entitled to foreclose because (1) she made misrepresentations to the Santiagos when she sold the tavern to them, (2) the mortgage did not include a power of sale authorizing a

nonjudicial foreclosure, and (3) the Santiagos had cured their default, and indeed “had made virtually full payment to Tanaka for the Tavern.”25 In

other words, in Santiago, there never should have been a foreclosure sale at all. It was impossible, however, to undo the sale, because Tanaka had

resold the tavern to a third party. In that context, the court held that the Santiagos were entitled to damages equal to their down payment, all of the

mortgage payments they had made to Tanaka, the closing charges they paid, and the property taxes they paid after the wrongful foreclosure sale.

This out-of-pocket measure of damages was appropriate in Santiago for two reasons. First, the Santiagos should never have lost the property

because Tanaka was not entitled to foreclose at all. It was reasonable to compensate the Santiagos for the vendor’s wrongful taking of their

property by putting them in the position they would have occupied if they had never bought the property in the first place. Second, the court held that

Tanaka had made misrepresentations to the Santiagos on which the

25 Id. at 158. Santiagos relied when they bought the tavern. (Mr. Santiago testified that

the Santiagos would not have bought the tavern if they had known the truth.) Awarding damages equal to the full amount the Santiagos spent in

reliance on the false or misleading statements was appropriate. This case is different from Santiago in a crucial respect.26 In this case,

there is no genuine dispute that BANA was entitled to foreclose and the Tirsos were going to lose their property. The trustee does not deny that

they were not making the required payments, or that BANA had a valid and enforceable mortgage. The position to which the Tirsos must be

restored is the position they occupied just before the foreclosure; at that point, they were going to lose the property in a foreclosure sale. The wrong

that they allegedly suffered was not the occurrence of the foreclosure sale, but rather the manner in which that sale took place.

26 The trustee argues that Lima adopts all of the items of damages described in Santiago as available “out- of-pocket” losses. But that language is dicta as it was not necessary to answer the certified question. Moreover, the Lima court discussed Santiago only to explain why it was unnecessary to account for the mortgage debt in that case (because the Santiagos had paid off the mortgage), and not to identify the overall damages calculation for all wrongful foreclosure cases. In a case like this one, the most natural measure of damages is the

difference between the price that the property would have brought in a proper foreclosure sale and the price paid at the defective foreclosure sale.

The trustee has offered no evidence of the existence or amount of this value difference.

The trustee also claims that he is entitled to recover damages for loss of use of the property. He asserts that the fair market rental value of the

property was at least $1,300.00 per month at the time of foreclosure. He further argues that debtors were ousted from the property four months

prior to the property being sold from Freddie Mac to a third-party purchaser in October 2010.27 The trustee then asserts it would have taken

the debtors six additional months from the sale to a third party “to identify, negotiate for, purchase and close on a replacement property.” Therefore,

the trustee calculates the debtors suffered $13,000.00 in loss of use.

27 The trustee alleges that Freddie Mac cannot be considered a third-party purchaser of the Property because BANA submitted the winning bid at the auction as a “credit bid” on behalf of and for the benefit of Freddie Mac, which held a beneficial interest in the Note and Mortgage. See Compl. ¶ 38, ECF No. 1. Such an award would also put the Tirsos in a better position than

they occupied just before the foreclosure sale. At that point, they were facing an imminent foreclosure. Even accepting the allegations of the

complaint as true, the foreclosure was held at most a few days early. Under no circumstances did the Tirsos have the right to remain in the property

after a valid foreclosure sale, regardless of how long it may have taken them to find a new residence.

The trustee has failed to provide any evidence of any compensable damages. His failure to offer evidence to support an element of his case

means that summary judgment in favor of BANA is appropriate. C. Time Bar on New Theories of Liability

Even if the trustee could prove compensatory damages and sustain his claims through summary judgment, BANA argues in the alternative

that it is at least entitled to summary judgment on the trustee’s new theories of liability related to alleged misconduct regarding the notice of

acceleration and loss mitigation. I agree with BANA; based on Hawaii law, the statute of limitations has run on these theories of liability. A federal court hearing claims under state law applies the

substantive law of the state, including the state’s statute of limitation.28 “Federal courts must abide by a state’s tolling rules, which are integrally

related to statutes of limitations.”29 “When interpreting state law, federal courts are bound by decisions

of the state’s highest court. ‘In the absence of such a decision, a federal court must predict how the highest state court would decide the issue

using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance.’”30

Under the class action tolling rule, “the commencement of a class action suspends the applicable statute of limitation as to all asserted

members of the class who would have been parties had the suit been permitted to continue as a class action.”31 The Hawaii Supreme Court has

adopted the class action tolling rule32 and has also approved the so-called

28 See Albano v. Shea Homes Ltd. Partnership, 634 F.3d 524, 530 (9th Cir. 2011). 29 Id. 30 Ariz. Elec. Power Coop., Inc. v. Berkeley, 59 F.3d 988, 991 (9th Cir. 1995) (quoting In re Kirkland, 915 F.2d 1236, 1238 (9th Cir. 1990)) (internal citations omitted). 31 Patrickson v. Dole Food Co., 368 P.3d 959, 968 (Haw. 2015) (quoting Am. Pipe & Const. Co v. Utah, 414 U.S. 538, 551 (1974)). 32 Levi v. Univ. of Hawaii, 679 P.2d 129, 132 (Haw. 1984). “cross-jurisdictional tolling,” under which the pendency of a class action in

federal court tolls the statute of limitations for purposes of a subsequent state court action.33

As I have held in similar cases, I find that class action tolling continued until at least March 14, 2019, when the district court dismissed

Degamo.34 BANA argues that Degamo tolled the limitations period as to claims

that were asserted in that case but not as to other claims. As I previously have held, I predict that the Hawaii Supreme Court would not require

exact identity of claims and would instead consider whether the “new claims” would relate back to the class action complaint if they were alleged

in an amended pleading in the same action under Haw. R. Civ. P. 15(c). BANA correctly observes that the complaint in Degamo did not

include any allegations regarding the notice of acceleration and loss mitigation. The allegedly wrongful conduct asserted in Degamo began with

33 Patrickson, 368 P.3d at 970. 34 See, e.g., Order Granting in Part, Denying in Part Defendants’ Motion to Dismiss, Yanagi v. Bank of America, N.A., Adversary Proceeding No. 21-90003 (July 28, 2021), ECF No. 23. the notice of sale; there were no allegation of any prior wrongdoing. The

notice of acceleration would have been given before the notice of sale, i.e., before the events that Degamo was concerned with. The allegations relating

to the notice of acceleration “alter[] the fact situation to such an extent that the subsequent claim arises not out of the original occurrence but instead

out of another.”35 None of the allegations in the Degamo complaint put BANA on notice that it needed to marshal evidence about events that took

place before the foreclosure process began. Therefore, this allegation does not “concern the same evidence, memories, and witnesses as the subject

matter of the original class suit.”36 Therefore, I determine that the claims based on alleged misconduct

regarding the notice of acceleration and loss mitigation are time barred. IV. CONCLUSION

I will GRANT BANA’s Motion for Summary Judgment. END OF ORDER

35 See Mauian Hotel, Inc. v. Maui Pineapple Co., 481 P.2d 310, 314 (Haw. 1971). 36 See Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 355 (1983) (Powell, J., concurring).