Field v. Bank of Am. (In re Tirso)

• Court: U.S. District Court — District of Hawaii
• Writing for the Court: J. Michael Seabright Chief United States District Judge
• Citation: Field v. Bank of Am., N.A. (In re Tirso), 642 B.R. 833 (D. Haw. 2022)
• Decision Date: 21 July 2022
• Docket Number: Civ. 22-00075 JMS-WRP,Bk. Adv. Pro. 20-90021
• Parties: In re ROLANDO MANGSAT TIRSO AND KAMEHALYN SANTOS TIRSO, Debtors. v. BANK OF AMERICA, N.A., Defendant. DANE S. FIELD, Chapter 7 Trustee, Plaintiff,

642 B.R. 833

IN RE Rolando Mangsat TIRSO and Kamehalyn Santos Tirso, Debtors.

Dane S. Field, Chapter 7 Trustee, Plaintiff,

v.Bank of America, N.A., Defendant.

Civ. No. 22-00075 JMS-WRP

Bk. Adv. Pro. No. 20-90021

United States District Court, D. Hawai‘i.

Signed July 21, 2022

Bridget G. Morgan-Bickerton, James J. Bickerton, Bickerton Law Group LLLP, Honolulu, HI, Van-Alan H. Shima, Affinity Law Group, Honolulu, HI, for Plaintiff.

Allison Mizuo Lee, Patricia J. McHenry, Cades Schutte LLP, Honolulu, HI, Elizabeth M.Z. Timmermans, Pro Hac Vice, McGuireWoods LLP, Raleigh, NC, for Defendant.

ORDER AFFIRMING ORDER OF BANKRUPTCY COURT

J. Michael Seabright, Chief United States District Judge

I. INTRODUCTION

Under 28 U.S.C. § 158(a), Plaintiff Dane S. Field, Chapter 7 Trustee ("Plaintiff" or "Trustee"), appeals U.S. Bankruptcy Judge Robert J. Faris' February 23, 2022 Order Granting Defendant Bank of America, N.A.'s ("Defendant" or "BANA") Motion for Summary Judgment, ECF No. 1-1 at PageID ## 5–20.¹ The February 23, 2022 Order was entered in Adversary Proceeding 20-90021 in Bankruptcy Court No. 11-01873 (RJF), and Plaintiff elected under 28 U.S.C. § 158(c)(1) to have the appeal heard by this District Court rather than by the Bankruptcy Appellate Panel. See id. at PageID # 3. Based on the following, the February 23, 2022 Order is AFFIRMED.

II. STANDARD OF REVIEW

This court "reviews a bankruptcy court's grant of summary judgment de novo." In re Hawaii Island Air, Inc. , 622 B.R. 85, 88 (D. Haw. 2020). Sitting as an appellate court, the court "must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the [trial] court correctly applied the relevant substantive law." Id. at 88–89 (internal quotation marks and citation omitted). The court "may affirm the grant of summary judgment on any basis supported by the record." In re Slatkin , 525 F.3d 805, 810 (9th Cir. 2008).

III. DISCUSSION

The parties and their counsel know the background and issues; the same and similar issues have been litigated in many wrongful-foreclosure cases arising out of the former Degamo v. Bank of America, N.A. , class action, Civ. No. 13-00141 JAO-KJM (D. Haw.), or other similar actions—cases in this district court, in the Ninth Circuit, in the bankruptcy court for this district, as well as in Hawaii's trial and appellate courts.² The court thus proceeds directly to addressing the issues on appeal.

Plaintiff does not dispute that, immediately prior to the alleged wrongful non-judicial foreclosure, the debtors Rolando and Kamehalyn Tirso ("debtors") were in default of their mortgage loans. See ECF No. 16 at PageID # 945. He admits that the debtors "owed substantial debt [and] faced likely foreclosure in which, because of the depressed property market [in 2009], they would probably lose most or all savings invested[.]" Id. at PageID ## 945–46. That is, it appears to be undisputed that the amount owed by the debtors exceeded the value of the property at that time. Nor does Plaintiff dispute that BANA had a right to foreclose—rather, the allegations are that BANA failed to follow some of the strict procedures of Hawaii's now-superseded non-judicial foreclosure statutes, thereby committing a tort of wrongful foreclosure and violating Hawaii's unfair or deceptive acts or practices ("UDAP") statute. Id. at PageID # 946. And it's established that the property was purchased in foreclosure by BANA (a successor or assignee of the first mortgagee) and was later sold by the Federal Home Loan Mortgage Company to a bona fide third-party purchaser. ECF No. 18-1 at PageID ## 1384–88. It is also undisputed that BANA did not seek a deficiency judgment against the debtors after foreclosure. ECF No. 1-1 at PageID # 8; ECF No. 18-1 at PageID # 1388.

And so, in all material respects, the facts are essentially the same as analyzed in Lima v. Deutsche Bank National Trust Co. , 2021 WL 4722949 (D. Haw. Oct. 8, 2021) (" Lima II "). See id. at *1 (describing facts of three putative class actions); see also Lima v. Deutsche Bank Nat'l Tr. Co. , 149 Haw. 457, 460, 494 P.3d 1190, 1193 (2021) (" Lima I ") ("Each case shares roughly the same facts."). This court—as was Judge Faris in the February 23, 2022 Order—is therefore heavily guided by Lima I and its interpretation and application of Hawaii law. And applying the most natural reading of Lima I (and the subsequent application in Lima II ), the court concludes on de novo review that the February 23, 2022 Order should be affirmed.

The legal question here centers on Plaintiff's theory of compensatory damages. Specifically, the question is whether Plaintiff failed to meet his burden at summary judgment to produce evidence of compensatory damages for wrongful foreclosure (or a statutory UDAP claim) under a proper legal theory under Hawaii law. See, e.g. , Lima I , 149 Haw. at 464, 494 P.3d at 1197 ("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." (emphasis added)).

Plaintiff's theory of damages for wrongful foreclosure (in situations like here where the property has subsequently been conveyed to a bona fide third-party) is premised on a reading of Hawaii case law—specifically, Santiago v. Tanaka , 137 Haw. 137, 366 P.3d 612 (2016) ; Mount v. Apao , 139 Haw. 167, 384 P.3d 1268 (2016) ; Hungate v. Law Office of David Rosen , 139 Haw. 394, 391 P.3d 1 (2017) ; Delapinia v. Nationstar Mortg. LLC , 150 Haw. 91, 497 P.3d 106 (2021) ; and Lima I —that, together, purportedly requires the court to apply an "out of pocket losses" analysis for wrongful foreclosure that includes the value of the mortgagee's original loan amount in the "price paid" (or total investment) portion of the measure discussed in Santiago . See ECF No. 16 at PageID ## 943–44; ECF No. 21 at PageID ## 1816–17.³

Plaintiff argues that such a measure "distinguishes a lawful foreclosure from an unlawful one when both look quite similar in effect, and [also] sufficiently deters unlawful foreclosure," in a situation where "the involuntary sale of the mortgagor's property could have been done lawfully, but was not." ECF No. 16 at PageID # 946.

The Bankruptcy Court did not adopt Plaintiff's theory of wrongful-foreclosure damages. Instead, Judge Faris applied Lima I 's more general statements about wrongful foreclosure law and its specific holdings 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," 149 Haw. at 464, 494 P.3d at 1197, and that "their requested damages [must] restore them to their pre-tort position ... factor[ing] in their pre-nonjudicial foreclosure statuses." Id. at 466, 494 P.3d at 1199. That is, wrongful-foreclosure plaintiffs must "account[ ] for their remaining mortgage debts." Id. at 467, 494 P.3d at 1200. And because Plaintiff had no evidence of the value of the property at debtors' immediate pre-foreclosure position (i.e., the position before the allegedly wrongful tort occurred), Judge Faris concluded that Plaintiff failed to meet his burden to produce evidence of compensatory damages when accounting for the existing mortgage debts. ECF No. 1-1 at PageID # 17; In re Tirso , 2022 WL 567704, at *4.

In reviewing Judge Faris' order, this court is of course required to apply all of Lima I 's relevant statements of Hawaii law on wrongful foreclosure. Lima I reiterated, several times, that a wrongful-foreclosure plaintiff "must make a case for compensatory damages." 149 Haw. at 465, 494 P.3d at 1198 ; id. at 464, 494 P.3d at 1197 ("Plaintiff Borrowers must be able to establish a prima facie case for compensatory damages, factoring in their pre-nonjudicial foreclosure positions[.]"); id. at 467, 494 P.3d at 1200 ("In these cases, the common element between Plaintiff Borrowers' wrongful foreclosure and UDAP claims is compensatory damages."); id. ("As detailed above, Plaintiff Borrowers must establish compensatory damages to satisfy the damages elements of their wrongful foreclosure and UDAP claims.").

Lima I also made clear that "Plaintiff Borrowers cannot rely on nominal damages to withstand a motion for summary judgment." Id. at 465, 494 P.3d at 1198. It considered the argument that one of the purposes of a finding of wrongful foreclosure is deterrence, but it reasoned that "Plaintiff Borrowers must show that they are entitled to compensatory damages—the only other independent source of damages—before they may receive punitive damages." Id. at 465–66, 494 P.3d at 1198–1199. Moreover, Lima I specifically rejected a "restitution theory that Defendant Banks should not be unjustly enriched," reasoning that "Plaintiff Borrowers' reliance on restitution theory is ... inapposite when tort damages are generally intended to make plaintiffs whole." Id. at 468, 494 P.3d at 1201 (citation omitted).

Further, Lima I repeatedly instructed that "[i]n light of the purpose of compensatory damages, Plaintiff Borrowers must make a prima facie case that their requested damages will restore them to their pre-tort position to survive summary judgment." Id. at 466, 494 P.3d at 1199 ; see also id. at 467, 494 P.3d at 1200 ("[T]he general rule in measuring damages is to give a sum of money to the person wronged which as nearly as possible, will restore him [or her] to the position he [or she] would be in if the wrong had not been committed." (citation and internal quotation marks omitted)); id. at 467, 494 P.3d at 1200 ("Plaintiff Borrowers must show that the damages they seek will restore [them] to the position [they] would be in if the wrong had not been committed." (citation and internal quotation marks omitted)); id. ("Plaintiff Borrowers' failure to account for such sums makes it...