Compton v. Countrywide Fin. Corp.

Decision Date04 August 2014
Docket NumberNo. 11–17158.,11–17158.
PartiesWatoshina Lynn COMPTON, Plaintiff–Appellant, v. COUNTRYWIDE FINANCIAL CORPORATION; Countrywide Home Loans, Inc.; Bank of America Corporation; BAC Home Loans Servicing, LP; U.S. Bank National Association as Trustee, for CSMC Mortgage–Backed Pass Through Certificates, Series 2006–7; U.S. Bank N.A.; Does, John and Mary Does, 1–10, Defendants–Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

OPINION TEXT STARTS HERE

James Harry Fosbinder, Ivey Fosbinder Fosbinder, LLC, Wailuku, HI, for PlaintiffAppellant.

Dennis Peter Maio (argued) and Rosalie Euna Kim, Reed Smith LLP, San Francisco, CA, for DefendantsAppellees.

Appeal from the United States District Court for the District of Hawaii, Susan Oki Mollway, Chief District Judge, Presiding. D.C. No. 1:11–cv–00198–SOM–BMK.

Before: WILLIAM A. FLETCHER, SANDRA S. IKUTA, and ANDREW D. HURWITZ, Circuit Judges.

OPINION

IKUTA, Circuit Judge:

Watoshina Lynn Compton appeals the district court's dismissal of her claim under section 480–2 of the Hawaii Revised Statutes, which authorizes consumers to “bring an action based upon unfair or deceptive acts or practices.” Haw.Rev.Stat. § 480–2(d) (referred to herein as a UDAP claim). Because Compton's complaint adequately alleges that unfair and deceptive acts by Bank of America Corporation (BAC) 1 caused an injury resulting in damages, we reverse the district court.

I

We assume the following facts taken from the complaint are true for the purpose of our review. See Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1055 n. 1 (9th Cir.2008).

In 2003, Compton purchased a piece of real property through a privately funded construction loan. Compton later sought to refinance this loan and, in May 2006, executed a promissory note and mortgage giving Countrywide Home Loans, Inc., a security interest in the property. After Compton refinanced her mortgage and before the events at issue in this case, BAC acquired Countrywide.

After making timely loan payments for more than two years, Compton began suffering financial difficulties due to a decline in her fiberglass pool business. In August 2008, while still making timely payments, Compton contacted BAC to inquire about modifying her loan to lower the monthly payments. The BAC representative informed her that she would not qualify for a loan modification unless she was at least 30 days behind on her loan payments. Compton continued making timely payments for another eight months.

In May 2009, Compton stopped making loan payments and subsequently applied for a loan modification. According to her complaint, Compton's simple request to modify her loan resulted in a twenty-month entanglement in a Kafkaesque nightmare. Compton alleges that during the period from May 2009 to August 2010, she indefatigably sought a loan modification, while BAC intentionally frustrated her efforts, gave her misleading and erroneous advice, and imposed a never-ending list of new requirements and demands, despite knowing that a loan modification agreement would never be forthcoming. After Compton submitted her first loan modification application, the complaint alleges, a series of ever-changing BAC representatives told Compton that the application was under review, continued to demand further documentation, failed to respond to her requests for updates, and finally told her that her loan modification application file had been closed. Her second loan modification application met with the same fate. In August 2009, BAC approved her third loan modification application and sent Compton a modification agreement. After Compton signed the modification agreement, had it notarized, and returned it to the bank, a BAC representative informed her that the agreement was incomplete due to a problem with the notary's signature block. Compton submitted re-notarized documents, but a BAC representative told Compton that the notary stamp was still deficient and she would have to submit a fourth modification application. After Compton submitted this fourth application, BAC representatives assured Compton that the bank would not commence foreclosure proceedings while the modification process was underway. Despite these repeated assurances, on August 26, 2010, Compton learned that a notice of foreclosure had been recorded against her property. When she contacted BAC regarding the foreclosure notice, she learned that her fourth application had been denied due to “lack of documentation” and her file closed on August 19, 2010. Several months later, when Compton tried to apply for a fifth time, a different representative informed Compton that the foreclosure notice rendered her ineligible for a loan modification.

On March 28, 2011, Compton filed a complaint in the district court alleging a UDAP claim under section 480–2(d), among other claims, and seeking injunctive relief and monetary damages. Compton alleged that BAC engaged in unfair and deceptive acts and practices, including: (1) misinforming her that only borrowers who were at least 30 days behind on their mortgage payments were eligible for loan modifications, although BAC does not, in fact, have such a requirement; (2) purposefully delaying her efforts to negotiate a loan modification and repeatedly terminating her loan modification requests; (3) misrepresenting the length of time it would take to process her loan modification, and knowingly and purposefully drawing out the modification process so that she would end up in foreclosure; and (4) misrepresenting that foreclosure proceedings would not be brought against her so long as her loan modification application remained pending, and then backdating paperwork so it would falsely appear that BAC commenced foreclosure proceedings only after denying her loan modification application. Compton alleges that as a result of BAC's misrepresentations and delays, she spent almost two years in a futile effort to modify her mortgage loan and, as a result of failing to obtain a modification, ended up in foreclosure.

The defendants filed a motion to dismiss Compton's complaint for failure to state a claim.

The district court granted the defendants' motion as to all claims. The district court dismissed Compton's UDAP claim without prejudice for failure to state a claim. Compton v. Countrywide Fin. Corp., Civ. No. 11–00198 SOM–BMK, 2011 WL 2746807, at *6 (D.Haw. July 13, 2011). Compton elected not to amend her complaint, and the district court entered final judgment on August 16, 2011. Compton has appealed the judgment only as to the dismissal of her UDAP claim.

II

Hawaii enacted section 480–2 “in broad language in order to constitute a flexible tool to stop and prevent fraudulent, unfair or deceptive business practices for the protection of both consumers and honest businessmen.” Ai v. Frank Huff Agency, Ltd., 61 Haw. 607, 616, 607 P.2d 1304 (1980), overruled on other grounds by Robert's Haw. Sch. Bus, Inc. v. Laupahoehoe Transp. Co., 91 Hawaii 224, 982 P.2d 853 (1999). State courts construe this section liberally, Hawaii Cmty. Fed. Credit Union v. Keka, 94 Haw. 213, 229, 11 P.3d 1 (2000), in light of the state legislature's intention to ‘encourage those who have been victimized by persons engaging in unfair or deceptive acts or practices to prosecute their claim,’ thereby affording ‘an additional deterrent to those who would practice unfair and deceptive business acts,’ Zanakis–Pico v. Cutter Dodge, Inc., 98 Hawaii 309, 317, 47 P.3d 1222 (2002) (quoting S.R. No. 600, at 1111 (1969) (Comm.Rep.); H.R. No. 661, at 882–83 (1969) (Comm Rep.)).

Under section 480–2(a), “unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful.” Haw.Rev.Stat. § 480–2(a).2 Hawaii courts have held that [a] practice is unfair when it offends established public policy and when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.” Balthazar v. Verizon Haw., Inc., 109 Hawaii 69, 77, 123 P.3d 194 (2005) (alteration in original) (quoting Keka, 94 Hawaii at 228, 11 P.3d 1).

Although the statute does not define the term “deceptive,” Hawaii courts construe it “in accordance with judicial interpretations of similar federal antitrust statutes.” Courbat v. Dahana Ranch, Inc., 111 Hawaii 254, 261, 141 P.3d 427 (2006) (quoting Haw.Rev.Stat. § 480–3); see alsoHaw.Rev.Stat. § 480–2(b) (requiring courts to construe the statute with “due consideration” to FTC rules, regulations, and decisions). Under this interpretation, “a deceptive act or practice is (1) a representation, omission, or practice[ ] that (2) is likely to mislead consumers acting reasonably under the circumstances [where] (3) [ ] the representation, omission, or practice is material.’ Courbat, 111 Hawaii at 262, 141 P.3d 427 (alterations in original) (quoting FTC v. Verity Int'l, Ltd., 443 F.3d 48, 63 (2d Cir.2006)). “A representation, omission, or practice is considered ‘material’ if it involves ‘information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product.’ Id. (quoting Novartis Corp. v. FTC, 223 F.3d 783, 786 (D.C.Cir.2000)). This inquiry is objective—the test is “whether the act or omission ‘is likely to mislead consumers.’ Id. (quoting Verity Int'l, 443 F.3d at 63). Material misrepresentations made during the course of loan negotiations can constitute an unfair or deceptive act within the meaning of section 480–2(a). See Keka, 94 Hawaii at 229, 11 P.3d 1.

Finally, the Hawaii Supreme Court has determined that “a loan extended by a financial institution is activity involving ‘conduct of any trade and commerce.’ Id. at 227, 11 P.3d 1; seeHaw.Rev.Stat. § 480–2(a) (making unfair or deceptive acts or practices unlawful only when they arise “in the conduct of any trade or commerce”).

Section 480–13(b)(1) provides that [a]ny consumer who is injured by any unfair or deceptive act or...

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