Field v. Bank of Am., N.A. (In re Gibbs)

Citation522 B.R. 282
Decision Date05 December 2014
Docket NumberBankruptcy No. 11–03070.,Adversary No. 14–90035.
PartiesIn re Judith Lynn GIBBS, Debtor. Dane S. Field, Plaintiff, v. Bank of America, N.A., Defendant.
CourtUnited States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Hawaii

522 B.R. 282

In re Judith Lynn GIBBS, Debtor.
Dane S. Field, Plaintiff,
Bank of America, N.A., Defendant.

Bankruptcy No. 11–03070.
Adversary No. 14–90035.

United States Bankruptcy Court,
D. Hawai‘i.

Signed Dec. 5, 2014.

[522 B.R. 285]

Michael Collins, Cain & Herren LLP, Wailuku, HI, for Debtor.

Dane S. Field, Honolulu, HI, pro se.

James J. Bickerton, Bickerton Dang, Bradley R. Tamm, Shults & Tamm, ALC, Honolulu, HI, for Plaintiff.


ROBERT J. FARIS, Bankruptcy Judge.

The plaintiff in this adversary proceeding, Dane Field, is Judith Lynn Gibbs' bankruptcy trustee. The trustee claims that defendant Bank of America, N.A. (BANA), improperly foreclosed a mortgage made by Ms. Gibbs. The trustee's complaint asserts violations of the power of sale in the mortgage, Hawaii's nonjudicial foreclosure law, and Hawaii's unfair and deceptive trade practices law. Because I find that the trustee's allegations plausibly state claims for relief, I will deny BANA's motion to dismiss for failure to state a claim upon which relief may be granted.

I. BACKGROUNDA. The Nonjudicial Foreclosure

Briefly summarized, the trustee's complaint alleges the following historical facts. I accept these allegations as true for purposes of this motion.

In 2008, Ms. Gibbs entered into a revolving line of credit, secured by a second priority mortgage on her property. She eventually defaulted. So the mortgagee, BANA, exercised its right under the mortgage and Hawaii law to sell the house in a nonjudicial foreclosure sale.

In 2010, BANA's attorney executed a “Notice of Mortgagee's Intention to Foreclose Under Power of Sale,” recorded it in the Bureau of Conveyances, and published it in a newspaper of general circulation. The notice said that the sale would be held on June 16, 2010, at “the Courtyard of Hoapili Hale, Second Circuit Court Building, 2145 Main Street, Wailuku.” The notice

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further said that “this sale may be postponed by Mortgagee or its agent by public announcement.” The notice (and a website purportedly incorporated in the notice) also listed the terms of sale, including the following:

(1) BANA would only give buyers a quitclaim deed;

(2) The buyer had to pay at least ten percent of winning bid at the close of the auction;

(3) The buyer had to send BANA's attorney a cashier's check for the balance of the winning bid within twenty-one days after the auction; and

(4) The buyer had to close within thirty days or forfeit the ten percent down payment.

Shortly before the scheduled auction date, the state court stopped allowing nonjudicial foreclosure sales on its premises. So on June 16, 2010, BANA made an oral announcement postponing the sale to August 24, 2010. BANA made this announcement, not in the courtyard, but rather on a public sidewalk at the bottom of the steps of the entrance to the courthouse. A person standing in the courtyard, at the originally noticed place of the auction, could not see or hear an announcement given on the sidewalk at the bottom of the steps. BANA never published notice of the new date and location of the auction. BANA did this in order to economize on time and money, to reduce the competition against its potential credit bid, or to ensure that its preferred bidder won.

BANA conducted the auction on the sidewalk on August 24, 2010. Nancy Moore's bid of $111,875.25 (subject to the first mortgage on the property) was the winning bid. Ms. Moore made the bid on behalf of Wahikuli PS, LLC, the members of which were experienced buyers of foreclosed properties who had purchased other properties in foreclosures conducted by BANA's attorney.

Wahikuli's bid was substantially less than the market value of the property. Wahikuli later resold the house for $535,000 in 2012.

The sale closed nine months after the auction, not thirty days as specified in the notice, and BANA gave the buyer a limited warranty deed, not a quitclaim deed. BANA knew that the winning bidders would get limited warranty deeds and they would get more than thirty days to close without losing their ten percent down payment.

B. The Trustee's Adversary Proceeding

Ms. Gibbs filed for bankruptcy protection in November 2011. She received her discharge, and the case was closed. In 2014, the trustee reopened the case to initiate this adversary proceeding.

The trustee asserts three claims for relief. First, he claims that BANA violated Hawaii's Unfair and Deceptive Acts or Trade Practices (UDAP) law by engaging in a wide range of “unfair” and “deceptive” foreclosure practices. Second, he claims that BANA engaged in unfair methods of competition by deterring potential bidders, also in violation of the UDAP law. Third, he claims that BANA engaged in wrongful foreclosure by failing to comply with the nonjudicial foreclosure statute and the power of sale clause in the mortgage, and by failing to carry out its duties to act reasonably and in good faith to get the best possible price when it sold the house.


The court may dismiss a complaint for “failure to state a claim upon which relief

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can be granted.” 1 “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” 2 A formulaic recitation of the elements of a cause of action does not suffice.3 Only if a complaint states a plausible claim for relief will it survive a motion to dismiss.4

Therefore, on a motion to dismiss, there is a two-part analysis. I must first determine whether the plaintiff has stated a claim. Second, I must determine whether the claim is supported by sufficient factual allegations so that it is facially plausible.

III. DISCUSSIONA. Jurisdiction and Venue

The bankruptcy court has jurisdiction of the subject matter because this adversary proceeding arises in or is related to Ms. Gibbs' bankruptcy case. 5 Venue is proper in this district.

The bankruptcy court probably lacks the constitutional power to enter a final judgment on the trustee's claims against BANA which arise purely out of state law, unless BANA consents.6 BANA has not yet been required to state its position on consent because it filed a motion to dismiss rather than an answer. If BANA does not consent, the bankruptcy court will not enter final judgment, but rather will make recommendations to the district court at the appropriate time.7

B. The Trustee's UDAP Claim
1. The Legal Standard for a UDAP Claim

The trustee alleges that BANA violated the UDAP statute, section 480–2 of Hawaii's Revised Statutes. That section declares that “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful.” 8Section 480–2 is written broadly in order to provide plaintiffs with a flexible tool to prosecute their claims.9

A “ ‘practice is unfair when it offends established public policy and when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.’ ” 10

An act is deceptive if it is “ ‘(1) a representation, omission, or practice that (2) is likely to mislead consumers acting

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reasonably under the circumstances where (3) the representation, omission, or practice is material.’ ” 11 Failure to publicly announce the actual date of a foreclosure auction may be deceptive.12

Whether an act or practice is unfair is a question of fact.13 “The application of an objective ‘reasonable person’ standard ... is ordinarily for the trier of fact, rendering summary judgment ‘often inappropriate.’ ” 14

For purposes of the UDAP statute, lending by a financial institution is the “conduct of any trade and commerce,” and loan borrowers are “consumers.” 15

2. The Trustee's Allegations

The trustee alleges several factual bases for his claim that BANA acted unfairly or deceptively.16 Among other things, the complaint alleges that BANA advertised that it would only provide the winning bidder with a quitclaim deed, that the winner would have to close within thirty days of the sale, that the winner had to provide full payment within twenty-one days, and that “time was of the essence.” In fact, alleges the trustee, none of these conditions were true. Wahikuli had nine months to close and make the payment, but it did not lose its ten percent down payment, and Wahikuli got a limited warranty deed, not a quitclaim.

The complaint further alleges that these acts chilled bidding, damaging Ms. Gibbs by causing a lower price at auction. But for BANA's actions, the property would have sold for a higher price, and the debtor would have received the excess after BANA's lien was satisfied. Alternatively, the debtor could have earned rental proceeds if she had not lost her property due to BANA's unfair or deceptive acts in connection with the foreclosure.

3. BANA's Arguments are Unavailing
a. Plaintiff Need Not Plead or Prove that BANA Owed an Independent Duty

BANA argues that the trustee's UDAP claim fails because “he cannot base his UDAP claim on any alleged breach of duty.” 17 The unstated premise of the argument is that there can be no UDAP violation unless the defendant owes a duty, independent of the UDAP statute, to the plaintiff. This premise is incorrect, and the Ninth Circuit has rejected it:

[B]orrowers are not obliged to show that the lender owed the borrower a common law duty of care to state a claim under [the UDAP statutes].... [S]ection 480–2 is better interpreted as imposing a statutory duty on lenders not to engage in ‘unfair or deceptive acts or practices in the conduct of any trade or commerce.’ ... Thus a borrower need only allege that a lender has breached that statutory duty (in a way that caused

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private damages) in order to state a cause of action.18

The UDAP statute imposes an independent duty on all businesses to refrain from “unfair or deceptive acts or practices.” The trustee need not establish that BANA owed and breached some other duty to Ms....

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