428 P.3d 761 (Hawai‘i 2018), SCWC-15-0000005, Bank of America, N.A. v. Reyes-Toledo

Docket Nº:SCWC-15-0000005
Citation:428 P.3d 761, 143 Hawai‘i 249
Opinion Judge:McKENNA, J.
Party Name:BANK OF AMERICA, N.A., successor by merger to BAC Home Loans Servicing, LP FKA Countrywide Home Loans Servicing LP, Respondent/Plaintiff-Appellee, v. Grisel REYES-TOLEDO, Petitioner/Defendant-Appellant, and Wai Kaloi at Makakilo Community Association; Makakilo Community Association; and Palehua Community Association, Respondents/Defendants-...
Attorney:R. Steven Geshell, Honolulu, for petitioner Jade Lynne Ching, Nakashima Ching LLC, Honolulu, for respondent
Judge Panel:NAKAYAMA, ACTING C.J., MCKENNA, POLLACK, AND WILSON, JJ., AND CIRCUIT COURT JUDGE GARIBALDI, IN PLACE OF RECKTENWALD, C.J., RECUSED
Case Date:October 09, 2018
Court:Supreme Court of Hawai'i
 
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Page 761

428 P.3d 761 (Hawai‘i 2018)

143 Hawai‘i 249

BANK OF AMERICA, N.A., successor by merger to BAC Home Loans Servicing, LP FKA Countrywide Home Loans Servicing LP, Respondent/Plaintiff-Appellee,

v.

Grisel REYES-TOLEDO, Petitioner/Defendant-Appellant,

and

Wai Kaloi at Makakilo Community Association; Makakilo Community Association; and Palehua Community Association, Respondents/Defendants-Appellees.

No. SCWC-15-0000005

Supreme Court of Hawai‘i

October 9, 2018

As Corrected OCTOBER 15, 2018

Page 762

[Copyrighted Material Omitted]

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CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-15-0000005; CIVIL NO. 12-1-0668)

R. Steven Geshell, Honolulu, for petitioner

Jade Lynne Ching, Nakashima Ching LLC, Honolulu, for respondent

NAKAYAMA, ACTING C.J., MCKENNA, POLLACK, AND WILSON, JJ., AND CIRCUIT COURT JUDGE GARIBALDI, IN PLACE OF RECKTENWALD, C.J., RECUSED

OPINION

McKENNA, J.

I. Introduction

This case returns to us after it was remanded to the Intermediate Court of Appeals ("ICA") by our February 28, 2017 opinion Bank of America, N.A. v. Reyes-Toledo, 139 Hawai‘i 361, 390 P.3d 1248 (2017) ("Reyes-Toledo I "). In Reyes-Toledo I, we vacated a foreclosure decree based on issues of fact regarding whether Bank of America, N.A., a National Association, as successor by merger to BAC Home Loans Servicing, LP FKA Countrywide Home Loans Servicing LP ("Bank of America") held the note at the time the foreclosure lawsuit was filed. See 139 Hawai‘i at 373, 390 P.3d at 1260.

Relevant to this certiorari proceeding, Reyes-Toledo I remanded the case to the ICA for a determination of whether the Circuit Court of the First Circuit ("circuit court")1 erred by dismissing Grisel Reyes-Toledo’s ("Homeowner[’s]") four-count counterclaim before granting summary judgment for foreclosure in favor of Bank of America. See 139 Hawai‘i at 373, 390 P.3d at 1260. On remand, the ICA ruled the circuit court properly dismissed the wrongful foreclosure, declaratory relief, and quiet title counts in Homeowner’s counterclaim, but that it erred in dismissing the unfair and deceptive trade practices count. See Bank of America, N.A., Successor v. Reyes-Toledo, No. CAAP- 15-0000005, 140 Hawai’i 248, 2017 WL 3122498 (App. July 21, 2017) (SDO).

In sum, the ICA concluded the three counts were appropriately dismissed pursuant to Hawai‘i Rules of Civil Procedure ("HRCP") Rule 12(b)(6) because: (1) as Homeowner did not provide any authority to support "the proposition that a wrongful foreclosure claim can be raised prior to foreclosure or the sale of the property in judicial foreclosure," no set of facts would entitle Homeowner to relief, Reyes-Toledo, SDO at 6; (2) the face of the Mortgage listed MERS as "mortgagee" and "nominee," and as such, Homeowner’s arguments in support of her allegations that "MERS was nothing more than a strawman and a conduit for fraud being practiced upon the Defendant and others" lacked merit, Reyes-Toledo, SDO at 7; and (3) Homeowner’s quiet title count does not allege that she paid, or was able to pay, the outstanding debt on the Property "so as to demonstrate the superiority of her claim," Reyes-Toledo, SDO at 9. In so concluding, the ICA applied the "plausibility" pleading standard set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), which it had previously adopted in Pavsek v. Sandvold, 127 Hawai‘i 390, 279 P.3d 55 (App. 2012). See Reyes-Toledo, SDO at 2-4; see also

Ashcroft v. Iqbal, 556 U.S. 662, 677-80, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (clarifying Twombly ).

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Homeowner timely filed an application for writ of certiorari ("Application"), asserting the ICA erred in upholding the dismissal of the other three counts as it applied the wrong pleading standard.2 According to Homeowner, these three counts should have survived dismissal because when a party moves to dismiss a complaint pursuant to Hawai‘i Rules of Civil Procedure ("HRCP") Rule 12(b)(6), the party admits the well-pleaded allegations of fact.

This appeal raises two issues: (1) the standard a pleading3 must meet to overcome a HRCP Rule 12(b)(6) motion to dismiss; and (2) whether a claim for wrongful foreclosure exists under Hawai‘i law.

As to the first issue, this court has never adopted the Twombly /Iqbal "plausibility" pleading standard, and we now expressly reject it. We reaffirm that in Hawai‘i state courts, the traditional "notice" pleading standard governs. This provides citizen access to the courts and to justice.

As to the second issue, we hold that a party may bring a claim for wrongful foreclosure before the foreclosure actually occurs.

We therefore vacate the ICA’s judgment on appeal affirming the circuit court’s dismissal of three counts of Homeowner’s counterclaim, and remand the case to the circuit court for further proceedings consistent with this opinion as well as our opinion in Reyes-Toledo I .

II. Background

Only the factual and procedural backgrounds relevant to the issues on certiorari are discussed below.4

A. Homeowner’s Answer and Counterclaim

In response to Bank of America’s complaint seeking foreclosure ("Complaint") of Homeowner’s property ("Property"), Homeowner filed her Answer and Counterclaim on September 28, 2012, denying all of the allegations in the Complaint, except those pertaining to her personal background, her September 24, 2007 execution of a promissory note made payable to Countrywide Bank, FSB ("Note"), and the recordation of a mortgage on the Property that secured the Note ("Mortgage"). She also asserted the following defenses in her Answer: (1) failure to state a claim upon which relief can be granted, (2) assumption of risk and contributory negligence, (3) fraud, based on Homeowner’s reasonable belief that Bank of America was not the real party-in-interest and owner of the Note and Mortgage through any claimed assignment by Mortgage Electronic Registration Systems, Inc. ("MERS"), and (4) illegality, insofar as Bank of America was not the owner and holder of the Note and Mortgage and therefore not entitled to foreclose on the Mortgage. She also contended that there was no valid interim assignment of the Mortgage to Bank of America and no valid negotiation for value of the Note to Bank of America. She further asserted MERS could not be a lawful beneficiary of the Mortgage if it lacked possession of the Note.

Homeowner also asserted the following defenses in the event the Note and Mortgage had been transferred into a trust and securitized: (1) the claimed assignment of the Note and Mortgage into the trust may have violated the ninety-day closing date; (2) the claimed Mortgage assignment to Bank of America in October 2011 would be void as a violation of the express terms of the trust; (3) the purported assignment by which Bank of America claimed ownership of the Note and Mortgage may violate the trust provisions for the closing-date rule; (4) the purported transfers or assignments of the Mortgage after the closing date of the trust would be void in violation of the express terms of the trust and 26 U.S.C. § 860 et seq. ; (5) the purported transfers may violate New York trust law and would therefore be void; (6) the Note

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may never have been transferred into the trust; (7) MERS was not a lender, banker, or servicer and therefore any transfers by MERS were void; (8) the purported transfers into and out of the trust violated the Internal Revenue Code, 26 U.S.C. § 860; (9) the claimed assignments into and out of the trust may have violated the Pooling and Service Agreement ("PSA"), together with the Underwriting Agreement for the trust; (10) if there were transfers into a trust under the PSA, the transfers were not performed according to the terms of the trust and were therefore void; (11) the Note and Mortgage may never have been deposited or transferred into the trust; and (12) if the transfers were made into and out of a securitized trust, the signatures may have been by unauthorized persons and therefore void as forgeries, which would render the purported transfers fraudulent and void.

Homeowner asserted four counts in the counterclaim filed along with her Answer: (1) wrongful foreclosure; (2) declaratory relief; (3) quiet title; and (4) unfair and deceptive trade acts and practices (sometimes "UDAP") under HRS § 480-1 et seq.

In the first count of her counterclaim, alleging wrongful foreclosure, Homeowner incorporated by reference the defenses in her Answer, and alleged that Bank of America’s conduct in commencing the foreclosure action was willful, malicious, and without just cause.

In the second count of her counterclaim, seeking declaratory relief, Homeowner incorporated by reference the allegations in the wrongful foreclosure count. She asserted she was...

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