Onewest Bank v. Ass'n of the Owners of the Kumulani At the Uplands At Mauna Kea

• Decision Date: 09 January 2020
• Docket Number: SCWC-16-0000123
• Citation: 456 P.3d 178
• Parties: ONEWEST BANK, F.S.B., Respondent/Plaintiff-Appellant, v. The ASSOCIATION OF the OWNERS OF the KUMULANI AT the UPLANDS AT MAUNA KEA, an unincorporated association, Petitioner/Defendant-Appellee, and Diana G. Brown; D. Michael Dunne, Successor Trustee of the Revocable Living Trust of Harold G. Strand and Margaret M. Strand; Jerry Ivy; Omni Financial, Inc.; Citibank (South Dakota), N.A., Respondents/Defendants-Appellees.
• Court: Hawaii Supreme Court

456 P.3d 178

ONEWEST BANK, F.S.B., Respondent/Plaintiff-Appellant,

v. The ASSOCIATION OF the OWNERS OF the KUMULANI AT the UPLANDS AT MAUNA KEA, an unincorporated association, Petitioner/Defendant-Appellee,andDiana G. Brown; D. Michael Dunne, Successor Trustee of the Revocable Living Trust of Harold G. Strand and Margaret M. Strand; Jerry Ivy; Omni Financial, Inc.; Citibank (South Dakota), N.A., Respondents/Defendants-Appellees.

SCWC-16-0000123

Supreme Court of Hawai‘i.

January 9, 2020

Cid H. Inouye, Kristi L. Arakaki, Honolulu, for Petitioner

Charles R. Prather, Peter T. Stone, Honolulu, for Respondent OneWest Bank, F.S.B.

RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

OPINION OF THE COURT BY WILSON, J.

In response to a pair of post-judgment motions filed in this foreclosure case, the Circuit Court of the Third Circuit ("circuit court") filed two orders. The first found Respondent/Plaintiff-Appellant OneWest Bank, F.S.B. ("OneWest"), the foreclosing mortgagee and winning bidder at the foreclosure auction, liable for damages in an amount equal to its down payment for its failure to close the foreclosure sale. The second awarded that down payment amount as expectation damages to Petitioner/Defendant-Appellee the Association of the Owners of the Kumulani at the Uplands at Mauna Kea ("the Association"), a junior lienholder. Because creditors in a judicial foreclosure action are "entitled to payment according to the priority of their liens," Hawai‘i Revised Statutes ("HRS") § 667-3 (2016), we hold that the circuit court abused its discretion by awarding damages to the Association, rather than by applying the down payment amount to reduce the debt owed to OneWest.

I. BACKGROUND

A. Circuit Court Proceedings

1. Foreclosure Action, Auctions, and Confirmation of Sale

On September 23, 2011, OneWest commenced a judicial foreclosure action by filing a complaint in the circuit court. OneWest alleged that Diana G. Brown ("Brown") had defaulted on a $548,000.00 note and mortgage assigned to OneWest that covered Brown’s fee simple interest in an apartment in a condominium project called the Kumulani at the Uplands at Mauna Kea.¹ OneWest alleged that Brown was in breach of the note and mortgage, and that it was entitled to foreclosure of the mortgage, payment from the sale of the mortgaged property, and monetary judgment against Brown.

On October 21, 2011, the Association, one of the defendants in the foreclosure action, filed its answer. The Association claimed that it had "a lien for all sums assessed but unpaid for the share of common expenses chargeable to the subject property" under HRS § 514B-146(a) (Supp. 2011). It asked that the circuit court determine the priority of the parties’ claims, but did not ask for any other relief except for reasonable attorneys’ fees and costs and further relief as the court deemed just and equitable.

On July 5, 2013, OneWest moved for summary judgment against the Association and for an order for an interlocutory decree of foreclosure. At an August 26, 2013 hearing on this motion,² the circuit court found that OneWest’s delay in initiating the proceedings constituted laches and allowed it to collect only the remaining principal amount of the mortgage, two years interest at a rate of seven percent, and pre-acceleration late charges. It barred OneWest from collecting any additional interest, escrow advances and taxes, property preservation fees, property inspection fees, broker price opinion fees, or appraisal fees. The total amount it permitted OneWest to collect was $581,972.26.

On June 3, 2014, the circuit court filed its findings of fact, conclusions of law, and order granting OneWest’s summary judgment motion. It directed that the summary judgment and interlocutory decree of foreclosure requested by OneWest be entered as a final judgment to OneWest’s complaint. It foreclosed on the mortgage and appointed a commissioner to take possession of the property and to sell it, and expressly "reserve[d] jurisdiction to determine the party or parties to whom any surplus shall be awarded." The court’s order authorized OneWest and all other parties to purchase the property, requiring the successful bidder to make a down payment of no less than ten percent of the highest successful bid price, but providing that OneWest could satisfy the down payment by way of offset up to the amount of its secured debt if it was the purchaser, and ordering that "[a]t the Court’s discretion, the ten percent (10%) down payment may be forfeited in full or in part if the purchaser fails to pay the balance of the purchase price as hereinafter set forth." It provided further that "[i]n no event shall the purchaser be liable for damages greater than the forfeiture of the ten percent (10%) down payment." The circuit court’s judgment was filed the same day.

At the first public auction of the property, held on August 11, 2014, the property was sold to a couple, the only bidding party, for $50,000.00, subject to confirmation by the circuit court. OneWest filed a motion to re-open bidding, which the court granted on October 31, 2014. At the second auction, held on December 9, 2014, the property was sold to OneWest, the highest bidder, for $815,098.42, subject to confirmation by the circuit court.

On January 12, 2015, OneWest filed a motion for an order confirming the foreclosure sale and directing conveyance. On March 6, 2015, the circuit court filed an order granting OneWest’s motion. The court approved the sale of the property to OneWest at the offered price of $815,098.42, and required that the closing date be within 35 days of the filing of its order—that is, on or before April 10, 2015. The court approved payments from the sale in the following order: to the commissioner, to OneWest, to the Association, and to the escrow account for the closing of the sale, with any remainder to Brown. Pursuant to the order, final judgment was entered in favor of OneWest on March 27, 2015.

However, OneWest refused to close the sale by the court-ordered date of April 10, 2015. OneWest’s failure to comply with the March 6, 2015 order led to the filing of two motions in May 2015. The first motion was the Association’s May 12, 2015 "Motion for an Order to Show Cause and for Civil Contempt and for Other Relief[.]" The Association’s motion resulted in an order on July 24, 2015 holding OneWest liable for damages. The second motion was OneWest’s May 21, 2015 "Motion for an Order (1) Vacating Order Confirming the Foreclosure Sale Filed March 6, 2015; (2) Determining Deductions to Plaintiff’s Credit Bid Deposit; (3) Reopening Bid at Hearing on Motion; (4) Confirming Sale to Plaintiff at Adjusted Credit Bid Amount; (5) for Other HRCP Rule 60(b) Relief; Alternatively (6) Instructing Commissioner to Conduct a New Auction[.]" OneWest’s motion was ultimately denied on September 22, 2015 in an order that required OneWest to pay damages to the Association. The award of damages to the Association is at issue in this appeal.

2. The Association’s Motion for an Order to Show Cause

On May 12, 2015, the Association filed a motion for an order for OneWest to show cause why it had refused to comply with the court’s March 6, 2015 order and why it should not be held in civil contempt for its refusal. The Association also moved for an order that another public auction on the property be held and that OneWest be required to pay the commissioner the difference between its winning bid at the December 9, 2014 auction and the winning bid obtained at the new auction. It also requested that OneWest pay the Association accrued fees and dues on the property, the Association’s attorneys’ fees and costs, post judgment interest on OneWest’s bid, all costs of the prior and requested future sale, and amounts paid to the commissioner as rental proceeds. In the alternative, it requested that specific compliance be enforced against OneWest.

In its memorandum supporting the motion, the Association argued that if the court chose not to hold a new sale and determined that OneWest’s damages should be limited to $81,509.84 (because the court’s June 3, 2014 order required damages to be limited to the down payment amount of ten percent of the purchase price), the court should specifically enforce OneWest’s compliance with the sales contract and make OneWest pay the Association all the fees, costs, interest, and proceeds the Association was requesting.

On July 24, 2015, the circuit court filed its order granting in part and denying in part the Association’s motion. It denied the Association’s request for a third auction, required OneWest to pay the Association’s accrued monthly fees and dues, and held that OneWest was liable for $81,509.84 in damages, "with disposition of said amount subject to further order of the Court[.]"

3. OneWest’s HRCP Rule 60(b) Motion

On May 21, 2015, shortly after the Association filed its motion for an order to show cause, OneWest, pursuant to Hawai‘i Rules of Civil Procedure ("HRCP") Rule 60(b) (2006), moved for an order vacating the March 6, 2015 order confirming the foreclosure sale, determining deductions to its credit bid deposit, reopening bidding at the hearing on the motion, confirming the sale to OneWest at the adjusted credit bid amount, and for other relief, or, in the alternative, for instructions to the commissioner to hold a new auction.

The crux of OneWest’s argument was that, at the time of its $815,098.42 bid, it mistakenly believed that when the court stated in its October 31, 2014 order re-opening bidding that OneWest would not be entitled to a deficiency judgment, it meant that OneWest would not have to pay excess proceeds to junior lienholders if it made a bid equal to the total amount of the debt. OneWest stated that if it had realized that the June 3, 2014 decree of foreclosure, which limited its recovery on the debt to $581,972.26, had "fixed" its credit bid at that amount, it would have bid $581,972.26, and still won the auction, rather than...