Field v. HSBC Bank USA, N.A. (In re Ho)

• Decision Date: 18 January 2017
• Docket Number: Case No. 10–03596,Adv. Pro. No. 16–90033
• Citation: 564 B.R. 49
• Parties: IN RE Darren Dean HO and Sharay Keala Ho, Debtors. Dane S. Field, Trustee of the estate of Darren Dean Ho and Sharay Keala Ho, Plaintiff, v. HSBC Bank USA, N.A., et al., Defendants.
• Court: U.S. Bankruptcy Court — District of Hawaii

564 B.R. 49

IN RE Darren Dean HO and Sharay Keala Ho, Debtors.

Dane S. Field, Trustee of the estate of Darren Dean Ho and Sharay Keala Ho, Plaintiff,

v.HSBC Bank USA, N.A., et al., Defendants.

Case No. 10–03596

Adv. Pro. No. 16–90033

United States Bankruptcy Court, D. Hawai‘i.

Signed January 18, 2017

James J. Bickerton, Bridget G. Morgan, Stanley H. Roehrig, Bickerton Dang LLLP, John Francis Perkin, Perkin & Faria, LLLC, Van–Alan H. Shima, Affinity Law Group, LLLC, Honolulu, HI, for Plaintiff.

David B. Rosen, Law Office of David B. Rosen, ALC, Charles A. Price, Koshiba Agena & Kubota, Susan Tius, Rush Moore LLP, Honolulu, HI, for Defendants.

Re: Dkt. 17

MEMORANDUM OF DECISION ON MOTION TO DISMISS

Robert J. Faris, United States Bankruptcy Judge

This is a "wrongful foreclosure" action. Defendant HSBC Bank USA, N.A. ("HSBC"), joined by the other defendants except defendant American Savings Bank, F.S.B., moves the court to dismiss this adversary proceeding. For the reasons that follow, I will grant the motion in one respect and deny it in all other respects.

I. FACTS

This section very briefly summarizes the allegations of the complaint. For purposes of this motion, I assume that those allegations are true.

The plaintiff ("Trustee") is the trustee of the bankruptcy estate of Darren Dean Ho and Sharay Keala Ho ("Hos"). Prior to the Hos' bankruptcy filing, HSBC foreclosed a mortgage on the Hos' property. According to the Trustee, HSBC did not conduct the foreclosure sale properly, and therefore the foreclosure sale was void. HSBC purchased the property at the foreclosure sale and later sold the property to the defendants David Lee Stoltzfus and Rhonda Marie Bode Stoltszfus ("Stoltzfus Defendants").

II. JURISDICTION AND VENUE

This is a pre-answer motion to dismiss that does not challenge the bankruptcy court's personal jurisdiction, the sufficiency of service or process, or venue. Therefore, HSBC and the joining defendants have waived these defenses.¹

The motion also does not challenge the bankruptcy court's subject matter jurisdiction, but this defense is not waived.² Further, all federal courts have an independent obligation to ascertain their own subject matter jurisdiction.³

If the Trustee is successful, he will recover money or property for the estate. Therefore, this adversary proceeding is "related to" the Hos' bankruptcy case, and the bankruptcy court has subject matter jurisdiction.⁴

The bankruptcy court probably cannot enter a final judgment in this adversary proceeding unless all defendants consent.⁵ The defendants are not yet required to file answers in which they must state whether they will consent. Therefore, I must withhold decision on whether to enter a final judgment or instead issue proposed findings and a recommended judgment for the district court's review.

III. STANDARD

HSBC argues that the court should dismiss the complaint under Fed. R. Civ. P. 12(b)(6), which applies to this adversary proceeding by virtue of Fed. R. Bankr. P. 7012.

"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."⁶ A formulaic recitation of the elements of a cause of action does not suffice.⁷

"A motion to dismiss the complaint on the grounds that the cause of action is barred by a statute of limitations is treated as a ... 12(b)(6) motion to dismiss for failure to state a claim and can be granted when the validity of the affirmative defenses is apparent from the face of the pleading."⁸

IV. DISCUSSION

A. Statute of Limitations

HSBC argues that the statute of limitations bars this action. HSBC relies on Haw. Rev. Stat. § 657–7, which provides that, subject to an exception that does not apply here, "Actions for the recovery of compensation for damage or injury to persons or property shall be instituted within two years after the cause of action accrued, and not after ...."

The Trustee argues that Hawaii's catch-all statute of limitations applies. That section is Haw. Rev. Stat. § 657–1(4), which provides, "The following actions shall be commenced within six years next after the cause of action accrued, and not after: ...

(4) Personal actions of any nature whatsoever not specifically covered by the laws of the State."

Alternatively, the Trustee argues that Haw. Rev. Stat. § 657–31 applies: "No person shall commence an action to recover possession of any lands or make any entry thereon, unless within twenty years after the right to bring the action first accrued."

I agree with the Trustee that the six-year statute applies.

Contrary to HSBC's contentions, it does not matter whether the Trustee's claims sound in tort or contract. "The Hawaii Supreme Court has stated that the appropriate statute of limitations period is determined by the nature of the claim or right alleged in the pleadings, not by the form of the pleadings."⁹

The question whether the six year or two year statute of limitations applies turns on whether the plaintiff is claiming injury to a person or damage to property. If plaintiff seeks damages arising from the physical injury to a person or injury to a tangible interest in property, then Haw. Rev. Stat. § 657–7, the two year statute of limitations, applies. If the plaintiff seeks recovery for loss of an intangible property interest, Haw. Rev. Stat. § 657–1(4)'s six year statute of limitations applies.¹⁰

In this case, the Trustee does not allege any physical harm to the mortgaged property. Instead, he argues that HSBC wrongfully deprived the debtors of their ownership interest in that property, consisting of intangible interests such as title and the right to possession. Thus, the six year statute applies and the action is timely.¹¹

Because the complaint is timely under the six year statute, I need not consider whether the twenty year statute of Haw. Rev. Stat. § 657–31 applies.

HSBC cites to Hawaii decisions applying the two year statute to insurance bad faith claims.¹² That decision relies entirely on the logic that such claims are tort claims, and the two year statute governs tort claims. Since these cases are hard to reconcile with the other Hawaii decisions cited above, which hold that the nature of the injury, and not the form of the action, dictates which statute of limitations applies, they should be confined to the insurance bad faith context.

Both HSBC and the Trustee cite unreported decisions of Hawaii trial judges, who have different views of this issue. However, the parties have not provided me with the judges' reasoning, so it is difficult for me to evaluate those decisions even though they have no precedential effect. In any event, I respectfully disagree with those decisions that apply the two year statute. (The conflict among the trial courts indicates the need for appellate decisions in this area.)

HSBC also points out that, under Hawaii law, a mortgagor seeking to set aside an improper foreclosure must act timely.¹³ But the Hawaii courts have never defined "timely" in this context, let alone said that the courts should apply the shortest possible statute of limitations. It is more appropriate to consider the timeliness of the mortgagor's actions under the rubric of laches or as a condition to the grant of any equitable remedies, so that the timeliness of the mortgagor's action can be assessed in the context of a particular case.

B. Laches

HSBC argues that the court should dismiss the complaint under the doctrine of laches. Laches is different from the statute of limitations since laches is an equitable defense whereas the statute of limitations is created by law.¹⁴ HSBC points to the six year delay between the foreclosure auction and the filing of this case and the resale of the property to the Stoltzfus Defendants.

A court of equity, therefore, will only consider a claim brought without unreasonable delay. More explicitly, the court will entertain a suit if it has been brought without undue delay after plaintiff knew of the wrong or knew of facts and circumstances sufficient to impute such knowledge to him and the time lapse has not resulted in prejudice to the defendant. Prejudice has been found, for example, where fading memories or death has caused the loss of evidence, where changes in the value of the subject matter or in the defendant's position have occurred, and where there are intervening rights of third parties. And whether a claim is barred by laches is determined by the circumstances of each particular case.¹⁵

Laches is an affirmative defense that depends heavily on the factual context. It would be unusual to effectively apply laches when a party has filed its action before the statute of limitations applicable to the action has run.¹⁶ Furthermore, on a motion to dismiss, the court generally considers only the face of the complaint. While it may be possible for a complaint to reveal a laches defense on its face, such a complaint would be rare, and this is not that complaint.

C. Void or Voidable

HSBC objects to the complaint's allegation that, because the foreclosure sale was defective, it was void. HSBC denies that the foreclosure was improper but contends that, even if there was a defect, the sale would be voidable, not void.

This is a technical but important distinction. One who takes title in a void transaction cannot pass good title to anyone. But if the transaction is voidable, a good faith purchaser for value can acquire a valid title.¹⁷

Hawaii case law on this point is inconsistent. In earlier cases, the Hawaii Supreme Court said that a defective foreclosure sale is "void" or, if notice was defective, "void and not voidable."¹⁸ The Hawaii Supreme Court has never expressly overruled these decisions.

In more recent decisions, however, the Hawaii Supreme Court has repeatedly stated that an improper foreclosure sale is "voidable at the election of the mortgagor."¹⁹ In view of these repeated recent holdings, I conclude that an improperly conducted foreclosure sale under Hawaii law is voidable,...