Ocwen Loan Servicing, LLC v. Lum
| Decision Date | 20 April 2015 |
| Docket Number | CIVIL 13-00497 LEK-KSC |
| Parties | OCWEN LOAN SERVICING, LLC, Plaintiff, v. KENNY T. LUM, MIE VIVI WELLS, REX SCHAUMLEFFEL, SOVEREIGN PACIFIC ASSET MANAGEMENT, Defendants. |
| Court | U.S. District Court — District of Hawaii |
Before the Court is Plaintiff Ocwen Loan Servicing, LLC's ("Plaintiff") Motion for Summary Judgment ("Motion"), filed November 12, 2014. [Dkt. no. 28.] Defendant Rex Schaumleffel ("Schaumleffel") filed his memorandum in opposition on February 13, 2015, and Plaintiff filed its reply on February 23, 2015. [Dkt. nos. 58, 61.] This matter came on for hearing on March 9, 2015. After the hearing, the Court directed Plaintiff to file a supplemental brief regarding its standing to bring the instant case. [Entering Order, filed 3/12/15 (dkt. no. 77 ("3/12/15 EO")).] Accordingly, on March 19, 2015, Plaintiff filed its supplemental brief and, on March 24, 2015, Schaumleffel filed his supplemental response. [Dkt. nos. 79, 80.] After careful consideration of the Motion, supporting and opposing memoranda, and the arguments of counsel, Plaintiff's Motion is HEREBY GRANTED for the reasons set forth below.
On September 30, 2013, Plaintiff - a Delaware corporation with its principal place of business in Florida - filed its complaint against Defendants - and Hawai`i residents - Kenny T. Lum ("Lum"), Mie Vivi Wells ("Wells"), Schaumleffel, Marc Melton ("Melton"), and Sovereign Pacific Asset Management Trust ("SPAM," all collectively "Defendants"),1 asserting diversity jurisdiction. [Complaint at ¶¶ 1-9.] This action is, in essence, an attempt by Plaintiff, the successor in interest in a mortgage, to reassert the lien after the recordation of a fraudulent satisfaction executed by Melton, and subsequent sale of the property by Lum and Wells to Schaumleffel, a bona fide purchaser for value. [Id. at ¶¶ 10-35.]
The Complaint alleges the following claims: a declaratory judgment against all Defendants that Plaintiff's lien has priority, even over Schaumleffel ("Count I"); conversion against Lum, Wells, and Melton, for their involvement in the purported fraud ("Count II"); tortious interference with contractual relations against Melton for signing the fraudulent satisfaction on behalf of Plaintiff's predecessor in interest, GMAC Mortgage, LLC ("Count III"); civil conspiracy against Lum,Wells, and Melton ("Count IV"); and an equitable lien against Defendants, in the event that the Court does not void the fraudulent satisfaction ("Count V"). [Id. at ¶¶ 36-71.]
Plaintiff seeks a declaratory judgment that: Plaintiff has a superior, valid, and enforceable interest in the property; the mortgage was not eliminated by the satisfaction; to the extent it was eliminated, the mortgage and lien interest are reinstated; and Schaumleffel's interest is subject to the mortgage. In addition, Plaintiff requests the following remedies: actual and punitive damages, based on the tort claims; attorneys' fees and costs; and all other appropriate relief.
Rather than filing an answer, on February 21, 2014, Melton - who appears to have been at the center of the fraudulent mortgage elimination scheme - filed a number of documents, in which he admitted the allegations in the Complaint. [Melton Notice of Acceptance (dkt. no. 12-1) at 1 .] He does not oppose theMotion.2
Lum and Wells deny wrongdoing, and Wells has brought a cross claim against Melton.3 [Dkt. no. 11-1 (Defendant Mie Vivi Wells Cross-Claim against Defendants Sovereign Pacific Asset Management Trust and Marc Melton ("Cross-Claim")), filed 2/24/14.] Wells appears to request indemnification in the event there is a judgment against her and Lum. [Cross-Claim at 6.] Lum and Wells also bring third-party complaints against McTigue and Blackwell, and their businesses, Optimum Realty LLC, and Optimum Marketing & Management, who Lum and Wells allege participated in the fraud. [Dkt. nos. 19 (filed 3/10/14), 22 (filed 3/20/14).] However, neither Lum nor Wells oppose the Motion.
Schaumleffel, on the other hand, has brought cross claims against his co-defendants, including against Lum and Wells, who he alleges were part of the fraud. [Dkt. no. 24 (filed 6/30/14) at 7-10 (Cross-Claim Against Defendants Kenny T. Lum, Mie Vivi Wells, Sovereign Pacific Asset Management, and Marc Melton ("Schaumleffel Cross-Claim")).] He also filed a third-party complaint against Richard Ornellas and Kevin Lum, alleging they were involved in the fraud along with the co-defendants. [Dkt. no. 57 (filed 2/12/15).] Schaumleffel is the sole Defendant that opposes the Motion.
The following facts are undisputed.4
On January 22, 2007, GMAC Mortgage USA Corporation("GMAC-USA") extended a $469,600.00 loan to Lum to purchase a condominium unit in Waikiki ("Property") in exchange for a promissary note ("Note"). Lum and Wells executed and granted Mortgage Electronic Registration Systems, Inc. ("MERS"), as nominee for GMAC-USA, a mortgage ("Mortgage") encumbering the Property, which was recorded on January 30, 2007 with the Hawai`i Bureau of Conveyances ("Hawai`i BOC"). [Pltf. CSOF at ¶ 2; Montoya Aff., Exh. 3.] On September 30, 2010, MERS assigned the Mortgage to GMAC Mortgage, LLC ("GMACM") and, on October 7, 2010, GMACM recorded the assignment with the Hawai`i BOC. [Pltf. CSOF at ¶ 3; Montoya Aff., Exh. 4.]
Lum and Wells defaulted on their mortgage payments and, on October 18, 2010, GMACM recorded a Notice of Mortgagee's Intention to Foreclose Under Power of Sale with the Hawai`i BOC ("Notice of Intent"). [Pltf. CSOF at ¶ 4; Montoya Aff., Exh. 5 (Notice of Intent).] On November 9, 2010, GMACM and Lum and Wells executed a repayment plan ("Repayment Plan"), which acknowledged default, and reaffirmed their debt obligation. [Pltf. CSOF at ¶ 5; Montoya Aff., Exh. 6.] Thereafter, Lum and Wells breached the Repayment Plan by failing to make the required payments. [Pltf. CSOF at ¶ 6.]
On August 19, 2011, Lum mailed GMACM documents, including a "Certified Promissory Note" ("Fraudulent Note"), and "Mortgage Satisfaction Agreement" ("Fraudulent Agreement," all together "Mortgage Satisfaction Packet"). [Id. at ¶ 7; Montoya Aff., Exh. 7.5] The Fraudulent Note, executed by Lum, McTigue and Melton, purported to pay $490,000.00 to GMACM in full satisfaction of Lum's debts, [Mortgage Satisfaction Packet at 7-8,] and the Fraudulent Agreement provided for release from the Mortgage if GMACM did not respond within three days [id. at 10-11].
On September 16, 2011, Melton executed a document, titled "Satisfaction," which purported to release Wells and Lum from the Mortgage ("Fraudulent Satisfaction"). [Pltf. CSOF at ¶ 8; Montoya Aff., Exh. 8.] The Fraudulent Satisfaction reads in full:
[Fraudulent Satisfaction at 2.] Further, Melton executed the satisfaction as the "Asst. Secretary For GMAC MORTGAGE, LLC." [Id.]
On September 19, 2011, Melton recorded the Fraudulent Satisfaction "for GMAC MORTGAGE, LLC" with the Hawai`i BOC. [Pltf. CSOF at ¶ 10; Fraudulent Satisfaction at 1.] Melton was not at that time, or any other, an employee or affiliate of GMACM, nor was he authorized to speak on behalf of GMACM.6 [Pltf. CSOF at ¶¶ 8-9; Melton Notice of Acceptance.]
On October 17, 2011, Lum, Wells, and Schaumleffel executed an Exchange Apartment Deed ("Exchange Deed") conveying the Property to Schaumleffel and, on November 9, 2011, Schaumleffel recorded the Exchange Deed with the Hawai`i BOC. [Pltf. CSOF at ¶ 12; Montoya Aff., Exh. 9.] On August 27, 2013, an assignment of the Mortgage was recorded with the Hawai`i BOC, conveying the Mortgage from GMACM to Plaintiff ("Assignment").7[Pltf. CSOF at ¶ 13; Montoya Aff., Exh. 1.]
The central issue in the Motion, and the case, is the effect of the Fraudulent Satisfaction on the Mortgage: whether the Fraudulent Satisfaction extinguished the Mortgage and, if it did, whether the Court should reinstate the Mortgage as an equitable remedy. The result will be that either Plaintiff or Schaumleffel will bear the loss and be forced to seek indemnification from Melton and the other individuals involved in the mortgage elimination scheme.
As an initial matter, Schaumleffel argues that Plaintiff does not have standing to bring this action. Specifically, he argues that, although Plaintiff has offered evidence that it was assigned the Mortgage, it has neither offered any evidence that it actually possesses the Mortgage nor that it offered consideration for the Assignment. He further points out that it is incongruous that GMACM is actively pursuing foreclosure on the Mortgage in state court, while Plaintiff isasserting its own interest in the Mortgage before this Court.8 [Mem. in Opp. at 16-18; Schaumleffel's Suppl. Response at 2-7.]
The law is settled in this jurisdiction, however, that a mortgagee need not hold paper title to assert its right under a mortgage. See, e.g....
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