Yanagi v. Bank of Am., N.A. (In re Herrero)
| Decision Date | 28 July 2021 |
| Docket Number | Adv. Pro. No. 21-90005,Case No. 10-02991 |
| Parties | In re: MYRNA M. HERRERO, Debtor. RICHARD A. YANAGI, Chapter 7 Trustee; and FREDRICK A. MENDOZA, Plaintiffs, v. BANK OF AMERICA, N.A., JOEL BRANDON VILLAMOR, JULIA KELLY, PROSPECT MORTGAGE, LLC, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., and DOE DEFENDANTS 1-50 Defendants. |
| Court | U.S. Bankruptcy Court — District of Hawaii |
In this adversary proceeding, Plaintiffs Richard A. Yanagi, as trustee of the chapter 7 bankruptcy estate of Myrna M. Herrero, and Fredrick A. Mendoza assert claims against two groups of defendants: Counts I and II state claims against Bank of America, N.A. ("BANA") and Mortgage Electronic Registration Systems, Inc. ("MERS"), and Count III states claims against Joel Brandon Villamor, Julia Kelly, and Prospect Mortgage, LLC ("the QTE Defendants"). The Plaintiffs' claims arise out of the allegedly wrongful nonjudicial foreclosure of real property belonging to Ms. Herrero and Mr. Mendoza (the "Property").
BANA and MERS move to dismiss the complaint, arguing that the Plaintiffs' claims are untimely under the applicable statutes of limitations, that the mortgage held by MERS has been released, and that the Plaintiffs have not proven their ability to tender the amount of the indebtedness on the real property, which is required to state a claim for wrongful foreclosure.
For the reasons described below, I will GRANT the motion in part and DENY it in part.
Ms. Herrero and Mr. Mendoza owned real property in Eleele, Hawaii. In August 2009, the mortgage on their property was assigned to BAC Home Loans Servicing, L.P ("BAC"). On June 24, 2010, BAC purportedly conducted a public auction of the Property.2 BAC submitted the highest bid at the June 24 auction as a credit bid on behalf of the Federal National Mortgage Association ("Fannie Mae"), which held a beneficial interest in the note and mortgage.3
On July 9, 2010, BAC's attorney executed a Mortgagee's Affidavit of Foreclosure Under Power of Sale pertaining to the foreclosure of themortgage and sale of the Property.4 The foreclosure affidavit was recorded in the Bureau of Conveyances on July 19, 2010.5 On July 27, 2010, BAC executed a "Mortgagee's Quitclaim Deed Pursuant to Power of Sale" conveying the Property to Fannie Mae.6 On August 6, 2010, the quitclaim deed was recorded.7
In July 2011, BAC merged into BANA and BANA assumed all of BAC's obligations and liabilities existing at the time of the merger.8
The Property changed hands several times until it was finally conveyed to Defendants Villamor and Kelly by warranty deed on February 19, 2016.9 On February 20, 2016, Mr. Villamor and Ms. Kelly executed a mortgage on the Property in favor of MERS.10 On March 15, 2021, a Release of Mortgage was recorded whereby MERS acknowledged full payment andsatisfaction of the mortgage.
On September 29, 2010, Ms. Herrero filed her chapter 7 bankruptcy petition. She did not list claims against BANA in her bankruptcy schedules.11 On December 28, 2010, she obtained a chapter 7 discharge and her case was closed.12
Ms. Herrero was allegedly a class member in a putative class action entitled Degamo v. Bank of America, N.A., filed in state court on September 7, 201213 and removed to federal district court on March 25, 2013.14 The plaintiffs in Degamo asserted claims against BANA for wrongful nonjudicial foreclosure in violation of Haw. Rev. Stat. § 667-5 and unfair or deceptive acts or practices or unfair methods of competition under Haw.Rev. Stat. chapter 480.15 MERS was not a defendant in the class action.
On September 22, 2017, one of the named plaintiffs, Milagros Juan Degamo, was dismissed from the class action.16 The court dismissed the Degamo class action with prejudice on March 14, 2019, because the remaining named plaintiffs lacked prudential standing as a result of prior bankruptcy filings.17
On December 31, 2020, Ms. Herrero moved to reopen her chapter 7 case to add her claim against BANA and others arising from the nonjudicial foreclosure sale to her bankruptcy schedules.18 I entered an order granting the motion on January 4, 2021,19 and Richard A. Yanagi was appointed as the chapter 7 trustee on January 7, 2021.20
Mr. Mendoza and Trustee Yanagi filed their adversary complaint, commencing this proceeding, on February 9, 2010.21 Count I of the complaint alleges that BANA's foreclosure of the Property did not comply with section 667-5 and the power of sale in the mortgage.22 Count II alleges that BANA engaged in unfair and deceptive trade practices ("UDAP") and unfair methods of competition ("UMOC") in violation of Haw. Rev. Stat. chapter 480.23 Count III is a claim for quiet title and ejectment against the QTE Defendants.
On March 22, 2021, BANA and MERS filed this motion, arguing that the complaint should be dismissed under Fed. R. Civ. P. 12(b)(6), made applicable by Fed. R. Bankr. P. 7012(b).24 The remaining QTE Defendants joined in the motion on March 24, 2021.25 The motion came for hearing onMay 14, 2021. Van-Alan H. Shima appeared for the Plaintiffs and Patricia J. McHenry appeared for BANA and MERS.
"To survive a motion to dismiss, a complaint must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'"26 "A Rule 12(b)(6) dismissal may be based on either a 'lack of a cognizable legal theory' or 'the absence of sufficient facts alleged under a cognizable legal theory.'"27 When ruling on a rule 12(b)(6) motion, a court must construe the complaint in the light most favorable to the plaintiff and accept all well-pleaded factual allegations as true.28
The key is whether the allegations are well-plead; a court is not bound by conclusory statements, statements of law, or unwarrantedinferences cast as factual allegations.29 "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do."30
A federal court hearing claims under state law applies the substantive law of the state, including the state's statute of limitations.31 "Federal courts must abide by a state's tolling rules, which are integrally related to statutes of limitations."32
33
Under the class action tolling rule, "the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action."34 The Hawaii Supreme Court has adopted the class action tolling rule35 and has also approved so-called "cross-jurisdictional tolling," under which the pendency of a class action in federal court tolls the statute of limitations for purposes of a subsequent state court action.36
BANA claims that class action tolling ended on September 22, 2017, when the last plaintiff with prudential standing was dismissed from Degamo. The Plaintiffs argue that the statute of limitations still has not begun to run because the judgment in Degamo was vacated in part and no class certification motion has yet been denied.37
To decide when tolling ended, I must predict (1) whether the Hawaii Supreme Court would apply class action tolling where the named plaintiffs lacked standing to bring their claims, and (2) whether the court would continue to apply class action tolling after a putative class action is dismissed where the dismissal is appealed. There is no controlling Hawaii Supreme Court precedent on these questions.
Answering the first issue, I predict that the Hawaii Supreme Court would apply class action tolling where the named plaintiffs' lack of standing is not clear from the face of the complaint.
Courts have developed three different approaches to whether class action tolling applies where the named plaintiffs in the putative class action lack standing.38 Courts following the first approach maintain that the filing of a class action does not satisfy American Pipe's requirements when the putative class representative lacks standing.39 Courts following the second approach reason that a suit on a claim that the claimant had no power to bring still functions "to give a defendant notice of whatever causes of action are asserted therein," so the named plaintiff's lack of standing has no effect.40 Courts following the third, "middle-ground," approach will not apply class action tolling to later claims brought by putative class membersif the class representative's lack of standing was clear from the pleadings. Courts employ the middle-ground approach for two reasons: one, if it is clear from the face of the complaint that the plaintiff lacks standing, the defendant may not be notified of the substantive claims against it, and two, "any putative class members who argue reliance upon that filing would be allowed, effectively, to sleep on their rights."41
Of the three approaches, I believe the middle-ground approach is most consistent with the Hawaii Supreme Court's holdings in Patrickson and Levi.42 This approach strikes a balance between "[t]he primary purpose of a statute of limitations," which "is to compel the exercise of a right of action...
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