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

• Decision Date: 30 March 2017
• Docket Number: CIVIL 16-00023 LEK-KSC
• Parties: RUDY AKONI GALIMA and ROXANA BEATRIZ GALIMA, Plaintiffs, v. ASSOCIATION OF APARTMENT OWNERS OF PALM COURT, by and through its Board of Directors; DOE DEFENDANTS 1-10, Defendants.
• Court: U.S. District Court — District of Hawaii

RUDY AKONI GALIMA and ROXANA BEATRIZ GALIMA, Plaintiffs, v. ASSOCIATION OF APARTMENT OWNERS OF PALM COURT,by and through its Board of Directors;DOE DEFENDANTS 1-10, Defendants.

CIVIL 16-00023 LEK-KSC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII

March 30, 2017

ORDER DENYING DEFENDANT ASSOCIATION OF APARTMENT OWNERS OF PALM COURT'S AMENDED MOTION TO DISMISS SECOND AMENDED COMPLAINT [DKT 34]; AND GRANTING IN PART AND DENYING IN PART DEFENDANT BRYSON CHOW'S MOTION TO DISMISS [DKT. 34] SECOND AMENDED COMPLAINT

Before the Court are: Defendant Association of Apartment Owners of Palm Court's ("AOAO")¹ Amended Motion to Dismiss Second Amended Complaint [Dkt 34] ("AOAO Motion"), filed on August 24, 2016;² and Defendant Bryson Chow's ("Chow") Motion to Dismiss [Dkt. 34] Second Amended Complaint ("Chow Motion"), filed on October 31, 2016. [Dkt. nos. 39, 56.] Plaintiffs Rudy Akoni Galima and Roxana Beatriz Galima ("Plaintiffs") filed their memorandum in opposition to the AOAO Motion ("AOAOOpposition") on October 28, 2016, and the AOAO filed its reply ("AOAO Reply") on November 3, 2016. [Dkt. nos. 55, 58.] Plaintiffs filed their memorandum in opposition to the Chow Motion ("Chow Opposition") on November 7, 2016, and Chow filed his reply ("Chow Reply") on November 21, 2016. [Dkt. nos. 59, 63.] The AOAO Motion and the Chow Motion (collectively "Motions") came on for hearing on December 5, 2016.

On February 28, 2017, this Court granted the AOAO's request for leave to submit supplemental exhibits in support of the AOAO Motion, and this Court allowed the parties to file supplemental memoranda addressing the new exhibits and the Hawai`i Supreme Court's recent decision in Hungate v. Law Office of David B. Rosen, SCAP-13-0005234, 2017 WL 747870 (Hawai`i Feb. 27, 2017). [Dkt. nos. 73 (letter requesting leave), 74 (entering order granting leave).] On March 2, 2017, the AOAO filed the new exhibits ("Supplemental Exhibits"). [Dkt. no. 74.] On March 15, 2017, the parties filed their respective supplemental memoranda. [Dkt. nos. 75 (Chow Supplement), 76 (AOAO Supplement), 77 (Plaintiffs' Supplement).] After careful consideration of the Motions, supporting and opposing memoranda, the arguments of counsel, and the relevant legal authority, the AOAO Motion is HEREBY DENIED in its entirety, and the Chow Motion is HEREBY GRANTED IN PART AND DENIED IN PART. Specifically, the Court DENIES the Chow Motion as to Count II, and GRANTS the ChowMotion in all other respects.

INTRODUCTION

This case poses a question of first impression as to whether an AOAO could elect to use the former Haw. Rev. Stat. Chapter 667, Part I when it was not a holder of a mortgage with a power of sale. This Court predicts the state supreme court will determine an AOAO could not.

The background of this case relevant to the instant Motion involves the filing of this action in the State of Hawai`i Circuit Court of the First Circuit ("state court"). Plaintiffs' First Amended Complaint was filed on January 15, 2016 in the state court, and, on January 22, 2016, Defendant removed the case to this district court based on federal question jurisdiction. [Notice of Removal, filed 1/22/16 (dkt. no. 1), at ¶ 3.]

On August 19, 2016, Plaintiffs filed their Second Amended Complaint, which alleges that Plaintiff Rudy Akoni Galima ("Mr. Galima") is a "member of the military service on active duty." [Dkt. no. 34 at ¶ 1.] In March 2006, when Mr. Galima was stationed in Hawai`i, Plaintiffs purchased Unit Number 10-A in a condominium project known was Palm Court, Increment IC in Ewa Beach ("the Unit" and "Palm Court"). The AOAO is the Palm Court homeowners' association. [Id. at ¶¶ 8-10.]

In March 2008, Mr. Galima was reassigned to a duty station outside of Hawai`i, and Plaintiffs rented the Unit.Their tenant, however, failed to pay the rent on a consistent basis, causing Plaintiffs to fall behind on their financial obligations related to the Unit. [Id. at ¶¶ 12-13.] On April 10, 2010, the AOAO recorded a $6,882.86 lien on the Unit for unpaid assessments. [Id. at ¶ 14.] As a result of this lien, Chow (the AOAO's attorney) filed for nonjudicial foreclosure. [Id. at ¶¶ 4, 18.]

Plaintiffs informed the AOAO and Chow (collectively "Defendants") that they were in the process of selling the Unit, and Plaintiffs asked to establish a payment plan for the amounts owed. Plaintiffs entered into contract to sell the Unit for a price that was below the market value ("the Short Sale"). Plaintiffs negotiated a settlement with the holder of their first mortgage, and they paid off their second mortgage. [Id. at ¶¶ 15-17.] In spite of these events, Defendants issued notice that they would sell the Unit pursuant to Haw. Rev. Stat. § 514B-146 and §§ 667-5 to 667-10 ("Chapter 667, Part I"), and Defendants conducted the sale on about October 19, 2010.³ TheAOAO submitted the winning bid and executed a quitclaim deed as both the grantor and the grantee. The deed was recorded on November 9, 2010. Because of Defendants' actions, the Short Sale did not close. Plaintiffs lost the Unit and remain liable for the amount secured by their first mortgage. [Id. at ¶¶ 18-21.]

Plaintiffs allege that: Defendants' use of Chapter 667, Part I was improper because the AOAO was not a holder of a mortgage with a power of sale; and Defendants should have used the process set forth in Haw. Rev. Stat. §§ 667-21 through 667-42 ("Chapter 667, Part II"). Plaintiffs assert that Chapter 667, Part II has consumer protection provisions for homeowners and that Defendants used Chapter 667, Part I specifically to circumvent these consumer protections. Had Defendants complied with Chapter 667, Part II, Plaintiffs contend they would not have lost the Unit. [Id. at ¶¶ 22-27.]

Plaintiffs also allege that Defendants fraudulently concealed their wrongdoing "by implying, stating and/or representing that they were authorized to conduct a nonjudicial foreclosure or public sale under Part I." [Id. at ¶ 28.]Plaintiffs assert that, as members of the homeowner's association, they were entitled to rely - and did in fact rely - upon Defendants' representations about the AOAO's asserted authority under Chapter 667, Part I. Plaintiffs therefore argue that they did not discover their claims against Defendants until sometime in December 2015. [Id. at ¶¶ 29-30.]

The Second Amended Complaint alleges the following claims: a wrongful foreclosure claim against Defendants ("Count I"); a claim against Chow for violations of the Fair Debt Collections Practices Act ("FDCPA"), 15 U.S.C. § 1692, et seq. ("Count II"); a claim against Defendants for unfair or deceptive acts or practices ("UDAP") under Haw. Rev. Stat. § 480-2 ("Count III"); a fraud claim against Defendants ("Count IV"); and a claim seeking "recovery against Defendants for mental anguish and emotional distress" ("Count V") [id. at ¶ 55 (emphasis omitted)]. This Court construes Count V as alleging a claim for the intentional infliction of emotional distress ("IIED"). See id. at ¶ 60 ("DEFENDANTS deliberately, intentionally and wrongfully utilized the expedited power of sale process contained in Part I" (bold emphasis added)). Defendants seek dismissal of all claims.

DISCUSSION

I. Chapter 667, Part I and Part II

All of Plaintiffs' claims are premised upon the theory that Defendants' use of Chapter 667, Part I to foreclose upon the AOAO's lien on the Unit was improper because they were required to follow Chapter 667, Part II. This Court will therefore address this issue first.

The Second Amended Complaint alleges that Defendants gave notice of the public sale of the Unit pursuant to Haw. Rev. Stat. § 514B-146 and Chapter 667, Part I. [Second Amended Complaint at ¶ 18.] Haw. Rev. Stat. § 514B-22 states,⁴ in pertinent part:

Sections 514B-4, 514B-5, 514B-35, 514B-41(c), 514B-46, 514B-72, and part VI,⁵ and section 514B-3 to the extent definitions are necessary in construing any of those provisions, and all amendments thereto, apply to all condominiums created in this State before July 1, 2006; provided that those sections:

(1) Shall apply only with respect to events and circumstances occurring on or after July 1, 2006; and

(2) Shall not invalidate existing provisions of the declaration, bylaws, condominium map, or other constituent documents of those condominiums if to do so would invalidate the reserved rights of a developer or be an unreasonableimpairment of contract.

According to the Second Amended Complaint, the Palm Court homeowners' association was created in or around 1990. [Second Amended Complaint at ¶ 9.] There is no dispute that the events at issue in this case occurred after July 1, 2006. Further, based on the allegations in the Second Amended Complaint, there is no indication that § 514B-22(2) applies. This Court therefore CONCLUDES, for purposes of the instant Motions only, that Chapter 514B applies.

The version of § 514B-146(a) in effect at the time of the foreclosure of Plaintiffs' Unit stated, in pertinent part:

All sums assessed by the association but unpaid for the share of the common expenses chargeable to any unit shall constitute a lien on the unit with priority over all other liens . . .

The lien of the association may be foreclosed by action or by nonjudicial or power of sale foreclosure procedures set forth in chapter 667, by the managing agent or board, acting on behalf of the association, in like manner as a mortgage of real property. . . .

Haw. Rev. Stat. § 514B-146(a) (2010).⁶

During the relevant time period, Chapter 667, Part I contained the following provisions relevant to the instant case:Haw. Rev. Stat. § 667-1 (2010) stated: "The circuit court may assess the amount due upon a mortgage, whether of real or personal property, without the intervention of a jury, and shall render judgment for the amount awarded, and the foreclosure of the mortgage. Execution may be issued on the judgment, as ordered by the court."

Haw. Rev. Stat. § 667-5 (2010) stated, in pertinent part:

(a) When a power of

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