Lima v. Deutsche Bank National Trust Co.
687 F. App'x 606
9th Cir.2017Background
- Plaintiffs (mortgagors) sued the Law Office of David B. Rosen and David B. Rosen (Attorney Defendants) under Hawaii’s Unfair or Deceptive Acts or Practices Act (UDAP) and related theories based on foreclosure auction postponements and related conduct.
- Attorney Defendants moved for Rule 11 sanctions, arguing Plaintiffs’ claims were frivolous and that Plaintiffs lacked standing and legal basis for UDAP liability against attorneys.
- The district court denied Rule 11 sanctions; the Attorney Defendants appealed. The Ninth Circuit reviews denial of Rule 11 sanctions for abuse of discretion.
- Central factual/legal disputes included whether mortgagors are "consumers" under UDAP as to a mortgagee’s attorney, whether an attorney owes a duty of care to non-clients in the foreclosure postponement context, and whether oral postponement announcements (versus written publication) violated the mortgage, HRS § 667-5, or UDAP.
- The Hawaii Supreme Court’s decision in Hungate (issued during this litigation) addressed many of the state-law questions and undermined some of Plaintiffs’ theories but also validated the consumer-standing argument.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing under UDAP (consumer status) | Mortgagors are "consumers" under UDAP as to the mortgage and therefore as to the mortgagee’s lawyer | Plaintiffs lacked consumer standing; argument was frivolous | Held for Plaintiffs; Hawaii Supreme Court in Hungate confirmed mortgagors are consumers vis-à-vis mortgagee’s lawyer; not sanctionable |
| Attorney duty of care to non-clients for postponements | Attorneys advising postponements breached a duty of care and can be liable under UDAP | Argument was baseless; attorneys owe no such duty to non-clients here | Court: Not frivolous — prior Hawaii decisions recognized duties in non-adversarial contexts; plausible under multi-factor test; denial of sanctions affirmed |
| Oral vs written postponement announcements (mortgage / HRS § 667-5 / UDAP) | Oral announcements of postponed auctions (instead of written publication) violated mortgage or § 667-5 and depressed sale prices → UDAP violation | Claims lacked merit under Hawaii law; suing attorneys for § 667-5 breach was improper | Court: Claims ultimately unsuccessful under Hungate but were not legally frivolous given competing interpretations (including a power-of-sale clause requiring written notices and Silva precedent) |
| Warranty claim targeting defendants | Plaintiffs asserted a warranty-based theory | Defendants argued the warranty claim was baseless as to them | Court: Complaint and transcript show Warranty Claim did not target these Attorney Defendants; defendants’ sanctions contention improper |
Key Cases Cited
- Retail Flooring Dealers of Am., Inc. v. Beaulieu of Am., LLC, 339 F.3d 1146 (9th Cir. 2003) (standard of review for Rule 11 abuse-of-discretion)
- Townsend v. Holman Consulting Corp., 929 F.2d 1358 (9th Cir. 1990) (definition of frivolous under Rule 11)
- In re Keegan Mgmt. Co. Sec. Litig., 78 F.3d 431 (9th Cir. 1996) (objective-reasonable-attorney standard)
- Riverhead Sav. Bank v. Nat’l Mortg. Equity Corp., 893 F.2d 1109 (9th Cir. 1990) (Rule 11 intended for exceptional circumstances)
- Hungate v. The Law Office of David B. Rosen, 391 P.3d 1 (Haw. 2017) (mortgagor is consumer as to mortgage and to mortgagee’s lawyer; addressed notice and attorney liability issues)
- Blair v. Ing, 21 P.3d 452 (Haw. 2001) (recognition of attorney duties to non-clients in non-adversarial contexts; multi-factor balancing test)
- Silva v. Lopez, 5 Haw. 262 (Haw. 1884) (broad standard for UDAP-related claims in certain contexts)