Galima v. Ass'n of Apartment Owners of Palm Court

Decision Date10 April 2020
Docket NumberCIV. NO. 16-00023 LEK-RT
Citation453 F.Supp.3d 1334
Parties Rudy Akoni GALIMA, Roxana Beatriz Galima, Plaintiffs, v. ASSOCIATION OF APARTMENT OWNERS OF PALM COURT, BY AND THROUGH Its BOARD OF DIRECTORS; Doe Defendants 1-10, Bryson Chow, Defendants.
CourtU.S. District Court — District of Hawaii

Chanelle M.C. Fujimoto, Steven K.S. Chung, Michael L. Iosua, Timothy E. Ho, Imanaka Asato, LLLC, Honolulu, HI, Timothy G. Blood, Pro Hac Vice, Blood Hurst & O'Reardon, LLP, San Diego, CA, for Plaintiffs.

David R. Major, Jai W. Keep-Barnes, James G. Diehl, Karin L. Holma, Sharon Paris, Bays Lung Rose & Holma, Honolulu, HI, for Defendant Association of Apartment Owners of Palm Court.

Christopher T. Goodin, Peter W. Olson, Cades Schutte LLP, Honolulu, HI, for Defendant Bryson Chow.

ORDER DENYING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT

Leslie E. Kobayashi, United States District Judge

This matter arises out of the foreclosure of Plaintiffs Rudy Akoni Galima and Roxana Beatriz Galima's ("Plaintiffs") condominium apartment by Defendant Association of Apartment Owners of Palm Court's ("AOAO") pursuant to the nonjudicial foreclosure procedure available at that time within Chapter 667, Part I of the Hawai'i Revised Statutes.1 On December 31, 2019, partial summary judgment was granted in favor of Plaintiffs on their wrongful foreclosure claim because the AOAO did not have an agreed upon power of sale provision or other contractual agreement which authorized it to use Chapter 667, Part I. Subsequently, the State of Hawai'i Legislature passed Senate Bill No. 551A Bill for an Act Relating to Condominiums (which became law on July 10, 2019 and is known as Act 282), and it states that the legislative intent in 1999 and in subsequent legislative sessions regarding nonjudicial foreclosures was that condominium associations should be able to use the nonjudicial foreclosure process regardless of whether an agreed upon power of sale existed in the associations' governing documents. The current motions address the effect of Act 282 on Plaintiffs' remaining claims in this case.2

The question raised therefore is: Does Act 282 require the partial summary judgment as to the wrongful foreclosure claim entered in favor of Plaintiffs and against the AOAO and Defendant Bryson Chow ("Chow") to be eviscerated, and instead require summary judgment to be entered in favor of the AOAO and Chow ("Defendants"), and against Plaintiffs? It does not.

BACKGROUND

The long and fact-intensive procedural history and background of this case are set forth at length in previous court orders and are familiar to the parties.3 A brief review of certain rulings by this Court and the Hawai'i Intermediate Court of Appeals ("ICA") regarding whether condominium associations were permitted to use the nonjudicial foreclosure procedure, and the reactionary enactment of Act 262 is helpful here.

I. Court Rulings

The ruling pertinent to the issues at hand in the 3/30/17 Order regarding Defendants' respective motions to dismiss is:

Having examined the relevant statutes, their legislative history, and instructive case law regarding the foreclosure of mortgages, this Court PREDICTS that the Hawai'i Supreme Court would reject Defendants' proposed interpretation of [Haw. Rev. Stat.] § 514B-146(a) (2010) and would agree with Plaintiffs' proposed interpretation. Thus, this Court CONCLUDES that, because § 514B-146(a) (2010) required a condominium association to foreclose upon its lien "in like manner as a mortgage of real property," an association could only use the Chapter 667, Part I foreclosure procedure if it had an agreement with the condominium owner providing for a power of sale....

2017 WL 1240181, at *9. The conclusion relied heavily on the Hawai'i Supreme Court's careful review of pertinent legislative history:

The Hawai'i Supreme Court's discussion in Hungate [v. Law Office of David B. Rosen ] of the legislative history behind the 2008 amendments to Chapter 667 is instructive.
[A]mendments to the foreclosure process set forth in HRS chapter 667 Part I were intended to "expand[ ] the rights of mortgagors ." Kondaur Capital Corp. v. Matsuyoshi, 136 Hawai'i 227, 239, 361 P.3d 454, 466 (2015) (explaining that amendments to former HRS § 667-5 "added requirements that mortgagees must fulfill in order to accomplish a valid foreclosure sale" resulting in a benefit to mortgagors by "expand[ing] and bolster[ing] the protections to which they are entitled").
... [A] close reading of the legislative history of the 2008 amendment shows it was enacted to set additional burdens on the mortgagee to protect the mortgagor .... The amendment's structure or scheme attempted "to streamline and ensure transparency in the non-judicial foreclosure process by requiring a foreclosure mortgagee to provide pertinent information regarding the property to interested parties." S. Stand. Comm. Rep. No. 2108, in 2008 Senate Journal, at 917 (emphasis added).
391 P.3d 1, 14 [ (Hawai'i 2017)4 ] (italic emphases and some alterations in Hungate ) (bold emphases added); see also id. ("the statute was amended to benefit the party in breach of the mortgage agreement’ " (quoting H. Stand. Comm. Rep. No. 1192, in 2008 House Journal, at 1450)). Section 514B-146(a) (2010) – which was in effect in 2008 when the legislature enacted the 2008 amendments to Chapter 667 – provided that the foreclosure of a condominium association lien was to be treated like the foreclosure of a mortgage. Because the legislature is presumed to have been aware of that fact when it enacted the 2008 amendments to Chapter 667, the legislature is also presumed to have intended that the additional protections provided for mortgagors in the amendments to Chapter 667 would also be available to condominium owners subject to condominium association liens.

Id. at 14 (footnote omitted).

Subsequently, in its 12/31/18 Order, the Court made clear that the rulings in the 3/30/17 Order regarding the requirements of § 514B-146(a) (2010) and Chapter 667, Part I were rulings of law which apply throughout the case, absent an intervening change in the controlling law. 12/31/18 Order, 2018 WL 6841818, at *8. Summary judgment was granted in favor of Plaintiffs as to the elements of their wrongful foreclosure claim ("Count I") because the AOAO did not have an agreed upon power of sale provision or other contractual agreement authorizing it to utilize Chapter 667, Part I, and therefore the foreclosure of Plaintiffs' unit pursuant to Part I violated Chapter 667.5 Id. at *9. Summary judgment was also granted in favor of the AOAO as to Plaintiffs' unfair or deceptive acts or practices claim ("Count III") and their fraud claim ("Count IV"). Id. at *11-12. Additional rulings were made which do not bear directly on the issues raised in the Motions.

In 2018, the ICA similarly interpreted § 514B-146 and Chapter 667:

a power of sale is an authority reserved by or granted to a person or entity to dispose of another person's vested property interest, for the first party's own benefit or the benefit of a third party. See Victoria Ward[, Ltd. v. Zion Sec. Corp.], 36 Haw. [614,] 630 [ (Terr. 1944) ]. We will not infer that such significant powers have been granted over an entire class of property in the absence of a clear legislative act or, with respect to a particular association or property, by express authorization in a contract entered into by, or otherwise binding on, the affected parties. HRS chapter 667 provides for various alternative processes or procedures through which a lienholder might foreclose on a property, but it does not grant a lienholder association with a power of sale over a unit owner's property. Rather, such power of sale must otherwise exist in order for the association to lawfully avail itself of the nonjudicial foreclosure alternative.

Sakal v. Ass'n of Apartment Owners of Hawaiian Monarch, 143 Hawai'i 219, 226, 426 P.3d 443, 450 (Ct. App. 2018), reconsideration denied , NOS. CAAP-15-0000529 and CAAP-15-0000573, 2018 WL 4483207 (Hawai'i Ct. App. Sept. 19, 2018), and cert. granted , SCWC-15-0000529, 2019 WL 245225 (Hawai'i Jan. 17, 2019).6 The ICA concluded that " § 514B-146 does not authorize an association to conduct a nonjudicial or power of sale foreclosure other than as provided in HRS chapter 667, which does not authorize a nonjudicial or power of sale foreclosure absent a power of sale." Id. at 228, 426 P.3d at 452. In reaching this conclusion, it noted there was no statutory language in Chapters 667, 514A, or 514B expressly granting a power of sale. Id. at 228 & n.18, 426 P.3d at 452 & n.18. "Nothing in the legislation or legislative history of Hawai'i condominium law supports a conclusion that, at any time, the Legislature enacted or intended to enact a statute granting powers of sale over all condominiums in the State to their respective associations." Id. at 228 n.18, 426 P.3d at 452 n.18.

II. Act 282

The State of Hawai'i Legislature passed Senate Bill No. 551A Bill for an Act Relating to Condominiums - during the 2019 regular session, it became law on July 10, 2019, and is known as Act 282. 2019 Haw. Sess. Laws Act 282, at 779-83; 2019 House Journal, at 735 (Governor's Message re Act 282). In its description of Act 282's purpose, the legislature states, in pertinent part:

the intermediate court of appeals in Sakal v. Association of Apartment Owners of Hawaiian Monarch, 143 Haw. 219, 426 P.3d 443 (2018), held that the legislature intended that associations can only conduct nonjudicial foreclosures if they have specific authority to conduct nonjudicial foreclosures in their declaration or bylaws or in an agreement with the owner being foreclosed upon.
The legislative history indicates this was not the intent of the legislature in 1999, nor in legislatures that have made subsequent amendments. Therefore, this Act confirms the legislative intent that condominium associations should be able to use nonjudicial foreclosure to collect delinquencies
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