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

• Decision Date: 03 May 2019
• Docket Number: CIV. NO. 16-00023 LEK-RT
• 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.
• Court: U.S. District Court — District of Hawaii

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.

CIV. NO. 16-00023 LEK-RT

UNITED STATES DISTRICT COURT DISTRICT OF HAWAII

May 3, 2019

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT REGARDING DAMAGES

Before the Court are: Defendant Bryson Chow's ("Chow") Motion for Summary Judgment Regarding the Measure of Damages Under the Fair Debt Collection Practices Claim in Count II of the Third Amended Complaint [Dkt. 88] ("Chow Motion"), filed on February 6, 2019; and Defendant Association of Apartment Owners of Palm Court's ("AOAO")¹ Motion for Partial Summary Judgment Limiting Plaintiffs' Measure of Damages Arising out of Their Claim for Wrongful Foreclosure ("AOAO Motion"), also filed on February 6, 2019. [Dkt. nos. 184, 187.] Plaintiffs Rudy Akoni Galima and Roxana Beatriz Galima ("Plaintiffs") filed theirmemorandum in opposition to the Chow Motion and their memorandum in opposition to the AOAO Motion on March 22, 2019. [Dkt. nos. 196, 198.] The AOAO and Chow filed their respective reply memoranda on March 29, 2019. [Dkt. nos. 203, 204.]

These matters came on for hearing on April 12, 2019. The AOAO and Chow ("Defendants") each filed a supplemental memorandum on April 18, 2019 and April 19, 2019, respectively. [Dkt. nos. 220, 221.] Plaintiffs filed their supplemental memorandum on May 3, 2019. [Dkt. no. 245.] The Chow Motion and the AOAO Motion ("Motions") are hereby granted in part and denied in part. The Motions are granted, insofar as this Court rules that, if Plaintiffs prevail on their wrongful foreclosure claim and elect the damages remedy, Plaintiffs will be precluded from recovering lost rental value as part of their damages for either the wrongful foreclosure claim or their claim under the Fair Debt Collection Practices Act. The Motions are denied in all other respects.

BACKGROUND

The instant case arises from the nonjudicial foreclosure sale of Plaintiffs' Apartment No. 10A in a condominium project known as Palm Court, Increment 1C ("Unit") by the AOAO, which was represented by Chow in the foreclosure process. The operative pleading in this case is Plaintiffs' Third Amended Complaint. [Filed 5/22/17 (dkt. no. 88).] Therelevant background of this case is set forth in this Court's Order Granting in Part and Denying in Part: Plaintiffs' Motion for Partial Summary Judgment; Defendant AOAO's Motion for Summary Judgment; and Defendant Chow's Motion for Summary Judgment, filed on December 31, 2018 ("12/31/18 Order"), as supplemented by the Order Denying Defendant Bryson Chow's Motion for Partial Reconsideration, filed on March 8, 2019 ("3/8/19 Order"). [Dkt. nos. 173, 195.²]

The following claims and issues remain in this case:

-as to Plaintiffs' wrongful foreclosure claim against the AOAO ("Count I"), the AOAO's defenses and, if Plaintiffs prevail on the AOAO's defenses, Plaintiffs' damages;³-all issues regarding Plaintiffs' claim against Chow alleging violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, et seq. ("Count II"), except that Plaintiffs' argument that the statute of limitations was tolled based on fraudulent concealment has been rejected; and

-all issues regarding Plaintiffs' claim against the AOAO for mental anguish and emotional distress, which has been construed as a claim for intentional infliction of emotional distress ("Count V"), except that Plaintiffs' argument that the statute of limitations was tolled based on fraudulent concealment has been rejected.

The Chow Motion is limited to the issue of the measure of actual damages if Plaintiffs prevail on their FDCPA claim.⁴ Chow seeks a ruling that, in proving their actual damages, Plaintiffs cannot rely on either the Unit's fair market value - i.e., the amount the Unit would have sold for in an arm's length transaction between a willing buyer and a willing seller - or the Unit's rental value since the foreclosure. Chow's position is that Plaintiffs must establish the amount that the Unit would have sold for in a valid foreclosure sale - i.e., in this case, a foreclosure conducted pursuant to Chapter 667, Part II - at the time of the Part I nonjudicial foreclosure sale ("Part II Foreclosure Value"). Plaintiffs' damages would be thedifference between the Part II Foreclosure Value and the amounts Plaintiffs owed to the AOAO for their delinquent maintenance fees.

The AOAO Motion seeks a ruling that the measure of Plaintiffs' damages for their wrongful foreclosure claim is the Part II Foreclosure Value, minus all liens against the Unit, including Plaintiffs' mortgages and the amounts Plaintiffs owed the AOAO. In other words, the AOAO's position is that Plaintiffs have no actionable damages because, at the time of the foreclosure, they had no equity in the Unit. The AOAO also seeks a ruling that Plaintiffs are precluded from: seeking the return of the Unit; and arguing their damages are based on either the Unit's fair market value or the alleged conversion of the Unit.

DISCUSSION

I. Return of the Unit

This Court first turns to the AOAO's argument that, as a matter of law, Plaintiffs are barred from seeking the return of title to, and possession of, the Unit in this action. This Court has concluded, as a matter of law, that Plaintiffs have established the elements of their wrongful foreclosure claim against the AOAO. 12/31/18 Order, 2018 WL 6841818, at *9. The Hawai`i Supreme Court has stated: "Where it is determined that the nonjudicial foreclosure of a property is wrongful, the saleof the property is invalid and voidable at the election of the mortgagor, who shall then regain title to and possession of the property." Santiago v. Tanaka, 137 Hawai`i 137, 158, 366 P.3d 612, 633 (2016) (emphases added) (citations omitted). Further, akin to its judicial authority "to fashion an equitable relief in foreclosure cases," a court has authority to fashion equitable relief in wrongful foreclosure cases. Id.

In Santiago, the supreme court noted that voiding the foreclosure sale was "rendered impracticable" because the foreclosed property had already been resold to a third-party.⁵ Id. (citing 123 Am. Jur. Proof of Facts 3d § 31 (2011) ("It has long been held that if the property has passed into the hands of an innocent purchaser for value, an action at law for damages is generally the appropriate remedy.")). However, in the instant case, voiding the foreclosure sale of the Unit would not beimpracticable because the Unit is still held by the AOAO, i.e., the wrongfully foreclosing lienholder. See Pltfs.' concise statement of facts in supp. of mem. in opp. to AOAO Motion ("Pltfs.' AOAO CSOF"), filed 3/22/19 (dkt. no. 199), Timothy G. Blood's decl. ("Blood AOAO Decl."), Exh. H (excerpts of the AOAO's response to Pltfs.' request for answers to interrogs.) at 9-10 (stating "the monthly rental income from the [Unit] is $1,500.00" and the funds are "deposited each month into the operating fund for the AOAO").

Santiago is directly on point and is controlling legal authority in this case. See Order ruling on motions to dismiss, filed 3/30/17 (dkt. no. 79) ("3/30/17 Order"), at 12 ("When interpreting [Haw. Rev. Stat.] § 514B-146(a) (2010) and the other Hawai`i statutes relevant to the instant case, this Court is bound by the decisions of the Hawai`i Supreme Court." (citing Trishan Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 427 (9th Cir. 2011))).⁶ Defendants argue that Santiago is inapplicable to the instant case because: the Santiagos cured the default before the foreclosure; Santiago, 137 Hawai`i at 144, 366 P.3d at 619; and the mortgage in Santiago did not allow nonjudicial foreclosure, id. at 155, 366 P.3d at 630. In contrast, Defendants contend a nonjudicial foreclosure would have been legally possible in thiscase, if the AOAO had followed Chapter 667, Part II. First, nothing in Santiago indicates that the case's legal analysis applies only where the plaintiff cured the default before the allegedly wrongful foreclosure. As to Defendants' second argument, Tanaka also conducted the foreclosure under Haw. Rev. Stat. § 667-5, which has since been repealed, but the Hawai`i Supreme Court held that the foreclosure was unlawful because the mortgage did not contain a power of sale. Santiago, 137 Hawai`i at 154-55, 366 P.3d at 629-30. Thus, Santiago presents the same situation as the instant case, i.e., a Part I foreclosure improperly conducted without a power of sale. Compare 12/31/18 Order, 2018 WL 6841818, at *3 (noting the nonjudicial foreclosure of the Unit was conducted pursuant to Part I); id. at *8-9 (concluding the AOAO did not have a power of sale and that the AOAO's use of Part I was unlawful). This Court therefore rejects Defendants' attempts to distinguish Santiago.

Because this Court has ruled that the AOAO's foreclosure of the Unit was wrongful, and because the Unit is still held by the AOAO, this Court concludes that, pursuant to Santiago, return of the Unit is an available remedy for Plaintiffs' wrongful foreclosure claim.

A. Statutory Protections

The AOAO argues that, even if Santiago would otherwise apply, Plaintiffs are precluded from seeking return of the Unitbecause of the effect of the Land Court filings. The Unit is Land Court property. See 12/31/18, 2018 WL 6841818, at *2, *3, *5 & n.6 (noting that documents related to the Unit were filed in the Land Court). The Quitclaim Deed in which the AOAO as grantor conveyed the Unit to itself as grantee was recorded on November 9, 2010 in the Land Court. [Concise statement of facts in supp. of AOAO motion ("AOAO CSOF"), filed 2/6/19 (dkt. no. 188), Decl. of James Diehl ("Diehl Decl."), Exh. I (Quitclaim Deed) at 1.] The Assistant Registrar's Office stamp on the deed includes "Issuance of Cert(s) 1,003,228." [Id.] The AOAO therefore argues that, based on Aames v. Funding Corp. v. Mores, 107 Hawai`i 95, 110 P.3d 1042 (2005...