BANK OF AMERICA, N.A., SUCCESSOR BY MERGER TO BAC HOME LOANS SERVICING, LP FKA COUNTRYWIDE HOME LOANS SERVICING LP v. GRISEL REYES-TOLEDO; WAI KALOI AT MAKAKILO COMMUNITY ASSOCIATION; MAKAKILO COMMUNITY ASSOCIATION; and PALEHUA COMMUNITY ASSOCIATION
SCWC-15-0000005
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
OCTOBER 9, 2018
143 Hawaiʻi 249 | 428 P.3d 761
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-15-0000005; CIVIL NO. 12-1-0668)
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ***
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NAKAYAMA, ACTING C.J., MCKENNA, POLLACK, AND WILSON, JJ., AND CIRCUIT COURT JUDGE GARIBALDI, IN PLACE OF RECKTENWALD, C.J., RECUSED
I. Introduction
This case returns to us after it was remanded to the Intermediate Court of Appeals (“ICA”) by our February 28, 2017 opinion Bank of America, N.A. v. Reyes-Toledo, 139 Hawaiʻi 361, 390 P.3d 1248 (2017) (“Reyes-Toledo I”). In Reyes-Toledo I, we vacated a foreclosure decree based on issues of fact regarding whether Bank of America, N.A., a National Association, as successor by merger to BAC Home Loans Servicing, LP FKA Countrywide Home Loans Servicing LP (“Bank of America”) held the note at the time the foreclosure lawsuit was filed. See 139 Hawaiʻi at 373, 390 P.3d at 1260.
Relevant to this certiorari proceeding, Reyes-Toledo I remanded the case to the ICA for a determination of whether the Circuit Court of the First Circuit (“circuit court”)1 erred by dismissing Grisel Reyes-Toledo’s (“Homeowner[‘s]”) four-count counterclaim before granting summary judgment for foreclosure in favor of Bank of America. See 139 Hawaiʻi at 373, 390 P.3d at 1260. On remand, the ICA ruled the circuit court properly dismissed the wrongful foreclosure, declaratory relief, and quiet title counts in Homeowner’s counterclaim, but that it erred in dismissing the unfair and deceptive trade practices count. See Bank of America, N.A., Successor v. Reyes-Toledo, No. CAAP-15-0000005 (App. July 21, 2017) (SDO).
In sum, the ICA concluded the three counts were appropriately dismissed pursuant to
This appeal raises two issues: (1) the standard a pleading3 must meet to overcome a
As to the first issue, this court has never adopted the Twombly/Iqbal “plausibility” pleading standard, and we now expressly reject it. We reaffirm that in Hawaiʻi state courts, the traditional “notice” pleading standard governs. This provides citizen access to the courts and to justice.
As to the second issue, we hold that a party may bring a claim for wrongful foreclosure before the foreclosure actually occurs.
We therefore vacate the ICA’s judgment on appeal affirming the circuit court’s dismissal of three counts of Homeowner’s counterclaim, and remand the case to the circuit court for further proceedings consistent with this opinion as well as our opinion in Reyes-Toledo I.
II. Background
Only the factual and procedural backgrounds relevant to the issues on certiorari are discussed below.4
A. Homeowner’s Answer and Counterclaim
In response to Bank of America’s complaint seeking foreclosure (“Complaint”) of Homeowner’s property (“Property”), Homeowner filed her Answer and Counterclaim on September 28, 2012, denying all of the allegations in the Complaint, except those pertaining to her personal background, her September 24, 2007 execution of a promissory note made payable to Countrywide Bank, FSB (“Note”), and the recordation of a mortgage on the Property that secured the Note (“Mortgage”). She also asserted the following defenses in her Answer: (1) failure to state a claim upon which relief can be granted, (2) assumption of risk and contributory negligence, (3) fraud, based on Homeowner’s reasonable belief that Bank of America was not the real party-in-interest and owner of the Note and Mortgage through any claimed assignment by Mortgage Electronic Registration Systems, Inc. (“MERS”), and (4) illegality, insofar as Bank of America was not the owner and holder of the Note and Mortgage and therefore not entitled to foreclose on the Mortgage. She also contended that there was no valid interim assignment of the Mortgage to Bank of America and no valid negotiation for value of the Note to Bank of America. She further asserted MERS could not be a lawful beneficiary of the Mortgage if it lacked possession of the Note.
Homeowner also asserted the following defenses in the event the Note and Mortgage had been transferred into a trust and securitized: (1) the claimed assignment of the Note and Mortgage into the trust may have violated the ninety-day closing date; (2) the claimed Mortgage assignment to Bank of America in October 2011 would be void as a violation of the express terms of the trust; (3) the purported assignment by which Bank of America claimed ownership of the Note and Mortgage may violate the trust provisions for the closing-date rule; (4) the purported transfers or assignments of the Mortgage after the closing date of the trust would be void in violation of the express terms of the trust and
Homeowner asserted four counts in the counterclaim filed along with her Answer: (1) wrongful foreclosure; (2) declaratory relief; (3) quiet title; and (4) unfair and deceptive trade acts and practices (sometimes “UDAP”) under
In the first count of her counterclaim, alleging wrongful foreclosure, Homeowner incorporated by reference the defenses in her Answer, and alleged that Bank of America’s conduct in commencing the foreclosure action was willful, malicious, and without just cause.
In the second count of her counterclaim, seeking declaratory relief, Homeowner incorporated by reference the allegations in the wrongful foreclosure count. She asserted she was entitled to declaratory relief pursuant to
In the third count of her counterclaim, requesting the quieting of her title, Homeowner again incorporated by reference the allegations in the wrongful foreclosure count. She asserted she was entitled to have her legal title to the Property quieted against Bank of America’s claims pursuant to
Finally, in the fourth count of her counterclaim, alleging unfair and deceptive trade acts and practices, Homeowner again incorporated by reference the allegations in the wrongful foreclosure count. She alleged she was a consumer with respect to the Mortgage and Note, and she asserted the acts and conduct of Bank of America, its agents and predecessors, and MERS constituted an unfair and deceptive trade practice by “either or both mortgage lenders, mortgage servicers, mortgage holders, claimants, debt collectors, and/or finance companies.” Homeowner claimed she paid about $55,593 to Bank of America based on erroneous information and billings, and on the assumption that Bank of America was the rightful owner of the Mortgage. She maintained Bank of America and MERS were therefore subject to liability under
B. Motion to Dismiss Counterclaim
On October 22, 2012, Bank of America filed a Motion to Dismiss Defendant Grisel Reyes-Toledo’s Counterclaim (“Motion to Dismiss Counterclaim”). As to the wrongful foreclosure count, Bank of America asserted Homeowner did not describe any foreclosure that had actually occurred or what was wrongful about the alleged foreclosure, and that therefore the count should be dismissed. As to the declaratory judgment count, Bank of America alleged the involvement of MERS in loan transactions has been repeatedly approved by this court and that there was no allegation that MERS exceeded its traditionally approved role in Homeowner’s case.
In her Memorandum in Opposition to Bank of America’s Motion to Dismiss Counterclaim, Homeowner argued that all counts of her counterclaim, including the wrongful foreclosure count, were sufficient to survive a
In its Reply Memorandum, Bank of America asserted that if Homeowner believed Bank of America lacked authority to foreclose, then her arguments were defenses, not affirmative claims for relief. Bank of America also asserted that a claim for wrongful foreclosure cannot arise before a foreclosure occurs. Bank of America alleged that to the extent Homeowner’s other counts relied upon allegations set forth in the wrongful foreclosure count, they should also be dismissed.
On February 12, 2013, the circuit court entered an order granting Bank of America’s Motion to Dismiss Counterclaim (“Order Dismissing Counterclaim”). Homeowner filed a motion for reconsideration contending she had sufficiently pled her “compulsory” counterclaim as Bank of America was not the mortgagee, had no right to bring a foreclosure action, and was liable to her for over $160,000 based on her UDAP counterclaim. In the alternative, she moved for entry of final judgment and a
After Bank of America filed its opposition, on December 31, 2013, the circuit court denied Homeowner’s Motion for Reconsideration and Rule 54(b) Certification (“Order Denying Defendant Grisel Reyes-Toledo’s Motion for (1) Reconsideration of the February 12, 2013 Order Dismissing Counterclaim; (2)
C. ICA’s Decision on Remand
Addressing the propriety of the dismissal of Homeowner’s counterclaim for the first
A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his or her claim that would entitle him or her to relief. We must therefore view a plaintiff’s complaint in a light most favorable to him or her in order to determine whether the allegations contained therein could warrant relief under any alternative theory. For this reason, in reviewing a circuit court’s order dismissing a complaint our consideration is strictly limited to the allegations of the complaint, and we must deem those allegations to be true.
Reyes-Toledo, SDO at 3 (quoting In Re Estate of Rogers, 103 Hawaiʻi 275, 280–81, 81 P.3d 1190, 1195–96 (2003)). The ICA went on, however, to quote an excerpt from Twombly, 550 U.S. at 555, which the ICA previously quoted in Pavsek, 127 Hawaiʻi 390, 279 P.3d 55 (App. 2012):
While a complaint attacked by [a HRCP] 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. Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint’s allegations are true (even if doubtful in fact).
Reyes-Toledo, SDO at 4 (quoting Pavsek, 127 Hawaiʻi at 403, 279 P.3d at 68).
Based on these standards, the ICA concluded the circuit court did not err in dismissing three of the four counts of Homeowner’s counterclaim.
First, with respect to the wrongful foreclosure count, the ICA noted that although Homeowner alleged Bank of America’s conduct in commencing the foreclosure was “willful, malicious, and without just cause,” she failed to identify any other specific acts that would make the foreclosure wrongful. Reyes-Toledo, SDO at 4. Further, the ICA opined that Homeowner failed to provide any authority to support her proposition that a wrongful foreclosure claim can be asserted before the foreclosure or sale of the property in judicial foreclosure. See Reyes-Toledo, SDO at 6. According to the ICA’s analysis, only non-judicial wrongful foreclosure has been recognized in Hawaiʻi, and other jurisdictions have held a wrongful foreclosure claim does not arise until after the foreclosure occurs. See Reyes-Toledo, SDO at 4-5 (citing Santiago v. Tanaka, 137 Hawaiʻi 137, 366 P.3d 612 (2016); Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034 (9th Cir. 2011)). As this case involved a pending judicial foreclosure and Homeowner asserted her wrongful foreclosure claim before any foreclosure or sale occurred, the ICA concluded Homeowner could not prove a set of facts that would entitle her to relief on the wrongful foreclosure count. See Reyes-Toledo, SDO at 6.
Second, the ICA also concluded the circuit court did not err in dismissing the declaratory judgment count. See Reyes-Toledo, SDO at 7-8. The ICA disagreed with Homeowner’s argument that pursuant to Bain, 285 P.3d 34, she was entitled to declaratory relief under
Bain was decided in the context of a non-judicial deed-of-trust foreclosure, whereas the instant case is a judicial foreclosure of a mortgage. Thus, the procedures and law in Bain appear to be inapplicable here. The Bain decision was limited to whether MERS is a “beneficiary” under the language of Washington’s Deed of Trust Act, thus the analysis is different. In addition, Bain is a Washington State case; upon review, we are not inclined to depart from the Hawaiʻi cases that have consistently recognized the validity of assignments of
mortgages by MERS where lenders granted to MERS, as nominee for lenders and lenders’ successors and assigns, the right to exercise all of those interests granted by a borrower, including the right to foreclose and sell a property and to take any action required of a lender.
Reyes-Toledo, SDO at 7 (quoting Hermano, SDO at 6-7) (citations omitted). Here, MERS was listed in the Mortgage as “mortgagee” and “nominee,” and the Mortgage’s terms granted MERS the right to “exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.” Id. Thus, the ICA concluded Homeowner’s argument was without merit and the circuit court did not err in dismissing this count. See Reyes-Toledo, SDO at 7-8.
Third, the ICA concluded the circuit court did not err in dismissing Homeowner’s quiet title count. See Reyes-Toledo, SDO at 9. The ICA reasoned that as with the counterclaimant in Hermano, Homeowner’s reliance on Amina, Civil No. 11-00714 JMS/BMK, 2012 WL 3283513, to support her argument that a “borrower does not need to tender payment to allege that the promissory note and the mortgage were paid where the borrower brings a quiet title action against a party, who, according to the complaint, is not a mortgagee,” was misplaced. Id. To the ICA, Amina provided a significant clarification:
To be clear . . . this is not a case where Plaintiffs assert that Defendant’s mortgagee status is invalid (for example, because the mortgage loan was securitized or because Defendant does not hold the note). On their own, such allegations would be insufficient to assert a quiet title claim-they admit that a defendant is a mortgagee and attack the weakness of the mortgagee’s claim to the property without establishing the strength and superiority of the borrower’s claim (by asserting an ability to tender).
Id. (quoting Amina, 2012 WL 3283513, at *5).
The ICA concluded each of Homeowner’s arguments — that Bank of America’s mortgagee status was invalid, the mortgage loan was securitized, and Bank of America did not possess the Note — were “specifically distinguished” in Amina. See id. The ICA concluded the quiet title count therefore failed because Homeowner did not “demonstrate the superiority of her claim” as she did not allege she paid, or was able to pay, the outstanding debt on the Property. Id.
As to Homeowner’s UDAP claim raised in the fourth and final count of her counterclaim, however, the ICA concluded that because of this court’s decisions in Santiago, 137 Hawaiʻi 137, 366 P.3d 612, Hungate v. Law Office of David B. Rosen, 139 Hawaiʻi 394, 391 P.3d 1 (2017), and Reyes-Toledo I, the circuit court erred in dismissing the UDAP counterclaim. See Reyes-Toledo, SDO at 10-11.
Finally, the ICA also concluded Homeowner was not entitled to any further relief based on her request for reconsideration of the circuit court’s dismissal of her counterclaim. See Reyes-Toledo, SDO at 11-12. The ICA reasoned she failed to present any new evidence or arguments in conjunction with her motion for reconsideration that could not have been presented during the earlier adjudicated motion to dismiss. See id.
The ICA thus affirmed in part and vacated in part the circuit court’s Order Dismissing Counterclaim, and remanded to the circuit court for further proceedings. See Reyes-Toledo, SDO at 12. The ICA entered its Judgment on Appeal on October 5, 2017.
D. Application for Writ of Certiorari
Homeowner timely applied for a writ of certiorari (“Application”) from the October 5, 2017 Judgment entered by the ICA pursuant to its July 21, 2017 SDO, essentially arguing the three remaining counts of her counterclaim should not have been dismissed pursuant to
III. Standard of Review
A circuit court’s ruling on a motion to dismiss is reviewed de novo. See Hungate, 139 Hawaiʻi at 401, 391 P.3d at 8 (quoting Kamaka v. Goodsill Anderson Quinn & Stifel, 117 Hawaiʻi 92, 104, 176 P.3d 91, 103 (2008),
It is further well established that:
a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his or her claim that would entitle him or her to relief. The appellate court must therefore view a plaintiff’s complaint in a light most favorable to him or her in order to determine whether the allegations contained therein could warrant relief under any alternative theory. For this reason, in reviewing a circuit court’s order dismissing a complaint . . . the appellate court’s consideration is strictly limited to the allegations of the complaint, and the appellate court must deem those allegations to be true.
Kealoha v. Machado, 131 Hawaiʻi 62, 74, 315 P.3d 213, 225 (2013) (citations and brackets omitted).
IV. Discussion
We accepted certiorari to address two issues: (1) the clarification of the proper standard for a
A. HRCP Rule 12(b)(6) Standard
The first issue requires us to review the “plausibility” pleading standard the ICA applied in affirming the dismissal of three counts of Homeowner’s counterclaim pursuant to
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. Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint’s allegations are true (even if doubtful in fact).
Pavsek, 127 Hawaiʻi at 403, 279 P.3d at 68 (quoting Twombly, 550 U.S. at 555).
Prior to Twombly and Iqbal, the “notice pleading” standard was applied in federal courts to determine whether a pleading can be dismissed for “failure to state a claim upon which relief can be granted” under
Although the “plausibility” pleading standard has not been adopted by this court,7 the ICA has nevertheless relied on it in evaluating
We begin with the plain language of
We first interpreted
H.R.C.P., Rule 8(a)(1) provides that a pleading for claim of relief shall contain ‘a short and plain statement of the claim showing that the pleader is entitled to relief.’ It is also to be noted thatRule 8(f) reads: ‘All pleadings shall be so construed as to do substantial justice.’. . . .
We believe that the mandate of
H.R.C.P. Rule 8(f) that ‘all pleadings shall be so construed as to do substantial justice’ epitomizes the general principle underlying all rules of H.R.C.P. governing pleadings, and by the adoption of H.R.C.P. we have rejected ‘the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome’ and in turn accepted the principle that the purpose of pleading is to facilitate a proper decision on the merits.’Accordingly, under
Rule 8(a)(1) ‘a complaint is sufficient if it sets forth ‘a short and plain statement of the claim showing that the pleader is entitled to relief.’ . . . The rule is satisfied if the statement gives the defendant fair notice of the claim and the ground upon which it rests. . . . It is not necessary to plead under what particular law the recovery is sought.’. . . .
‘In appraising the sufficiency of the complaint we follow, of course, the accepted rule that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.’ . . . Though it may be improbable for the plaintiffs to prove their claims, they are entitled to an opportunity to make that attempt. It is not for a court to circumvent a determination of an action upon the merits of the case by accepting an assertion that the claim asserted in the complaint is groundless.
Hall, 53 Haw. at 219-22, 491 P.2d at 544-46 (citations omitted). In other words, “[HRCP] Rule 8(a)(1) does not require the pleading of facts; it requires a complaint to set forth ‘a short and plain statement of the claim showing that the pleader is entitled to relief.‘” Hall, 53 Haw. at 220, 491 P.2d at 545 (citations omitted)). Thus, we held whether a pleading states evidence, facts, or conclusions of law was not dispositive. Id.
We held to these principles in subsequent cases. See, e.g., Au v. Au, 63 Haw. 210, 221, 626 P.2d 173, 181 (per curiam), recon. denied, 63 Haw. 263, 626 P.2d 173 (1981) (“Thus,
Next, we examine the purpose and history of
Finally, we turn to the context of
In addition, the HRCP also provides a mechanism for dealing with any lack of clarity resulting from our preference for notice pleading under
Lastly, the HRCP are to “be construed and administered to secure the just, speedy, and inexpensive determination of every action.”
Notably, our case law cites heavily to Conley v. Gibson, 355 U.S. 41, 47 (1957). For many years the Supreme Court of the United States similarly interpreted
In Gibson, the Court addressed what became known as the “no set of facts” standard. See 355 U.S. at 44. The Supreme Court held, among other things, the petitioners’ complaint containing general allegations survived a motion to dismiss because the FRCP did not require claimants to set out detailed facts for the basis of their claim. See 355 U.S. at 47. The Court stated it followed the accepted rule that “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” 355 U.S. at 45-46 (footnote omitted). Further, the Court reasoned the FRCP only required a “‘short and plain statement of the claim’ that will give the defendant fair notice of what the plaintiff‘s claim is and the grounds upon which it rests.” 355 U.S. at 47 (footnote omitted) Following the “simple guide” of
Justice Stevens, joined by Justice Ginsburg, dissented in Twombly. See 550 U.S. at 570-97. Pointing out that the plausibility standard was an evidentiary standard, Justice Stevens stated that the plausibility standard contradicted what the FRCP intended to codify. See 550 U.S. at 580. He explained: “Under the relaxed pleadings standards of the Federal Rules, the idea was not to keep litigants out of court but rather to keep them in. The merits of a claim would be sorted out during a flexible pretrial process and, as appropriate, through the crucible of trial.” 550 U.S. at 575. Justice Stevens noted that twenty-six States and the District of Columbia utilized the Gibson Court‘s language of “whether it appears ‘beyond doubt’ that ‘no set of facts’ in support of the claim would entitle the plaintiff to relief.” 550 U.S. at 578 (footnote omitted).
Two years after Twombly, the Supreme Court clarified the plausibility standard in Ashcroft v. Iqbal, 556 U.S. 662 (2009). The Court held that the Twombly plausibility standard was not limited to complaints in the antitrust conspiracy context, but instead, was applicable to “all civil actions and proceedings in the United States district courts.” Iqbal, 556 U.S. at 678-80, 684 (quoting
Although “[t]he advent of plausibility pleading in Twombly and Iqbal was motivated in significant part by a desire . . . to deter allegedly abusive practices . . . and to contain costs,” when compared to the “notice pleading” standard, the “plausibility” pleading standard is restrictive as it results in decreased access to the courts for citizens. Arthur R. Miller, From Conley to Twombly to Iqbal: A Double Play on the Federal Rules of Civil Procedure, 60 Duke L.J. 1, 21 & n.67 (2010) (“[T]he perception among many practicing attorneys and commentators is that the grant rate [for motions to dismiss] has increased, particularly in civil rights cases, employment discrimination, private enforcement matters, class actions, and proceedings brought pro se. Some initial empirical evidence supports these impressions.“).
Indeed, when the FRCP was promulgated in 1938, “[t]he rulemakers believed in citizen access to the courts and in the resolution of disputes on their merits,” and therefore had “established a relatively plainly worded, non-technical procedural system.” Arthur R. Miller, Are the Federal Courthouse Doors Closing? What‘s Happened to the Federal Rules of Civil Procedure?, 43 Tex. Tech. L. Rev. 587, 587-88 (2011) (footnotes omitted); see also Twombly, 550 U.S. at 573 (Stevens, J., dissenting) (“Rule 8(a)(2) of the Federal Rules requires that a complaint contain ‘a short and plain statement of the claim showing that the pleader is entitled to relief.’
The “plausibility” pleading standard, i.e., “fact pleading by another name,” however, has effectively “tak[en] federal civil practice back toward code and common law procedure and their heavy emphasis on detailed pleadings and frequent resolution by a demurrer to the complaint or code motion to dismiss.” Miller, 60 Duke L.J. at 21. Indeed, Twombly suggests “parity between the level of scrutiny applied to claims at the Rule 12(b)(6) and Rule 56 stages—with the only distinction being that between alleged facts and evidenced facts . . . .” A. Benjamin Spencer, Plausibility Pleading, 49 B.C. L. Rev. 431, 437 (2008); see also Twombly, 550 U.S. at 586 (Stevens, J., dissenting) (“Everything today‘s majority says would therefore make perfect sense if it were ruling on a Rule 56 motion for summary judgment and the evidence included nothing more than the Court has described. But it should go without saying . . . that a heightened production burden at the summary judgment stage does not translate into a heightened pleading burden at the complaint stage.“). This “approach [is] wholly out of line with the original liberal vision of the rules and would ultimately saddle plaintiffs in disfavored actions like antitrust and civil rights claims with burdens they will have difficulty meeting.” Spencer, 49 B.C. L. Rev. at 488 (footnotes omitted).
Furthermore, “[s]ince Iqbal, what constitutes ample facts, and whether those facts appear plausible, are matters left to the presiding judge‘s discretion—whereas one judge may subjectively regard a claim as fanciful or implausible, another may permit a similar claim to proceed.” Ramzi Kassem, Implausible Realities: Iqbal‘s Entrenchment of Majority Group Skepticism Towards Discrimination Claims, 114 Penn St. L. Rev. 1443, 1465 (2010).
For all of these reasons, the ICA‘s adoption of the Pavsek “plausibility” standard is contrary to our well-established historical tradition of liberal notice pleading and undermines citizen access to the courts and to justice. Instead of deeming the factual allegations as true as we have consistently held to govern
For approximately seventy years, we have upheld our liberal notice pleading standard. See, e.g., Kawakami v. Kahala Hotel Investors, LLC, 142 Hawai‘i 507, 518, 421 P.3d 1277, 1288 (2018) (“Under our rules, a complaint is good if it contains a short and plain statement of the claim showing that the pleader is entitled to relief.” (quoting Yap v. Wah Yen Ki Tuk Tsen Nin Hue of Honolulu, 43 Haw. 37, 39 (Haw. Terr. 1958))); Laeroc Waikiki Parkside, LLC v. K.S.K. (Oahu) Ltd., 115 Hawai‘i 201, 166 P.3d 961 (2007) (citing In re Genesys Data Techs., Inc., 95 Hawai‘i at 41, 18 P.3d at 903; Au, 63 Haw. at 220-21, 626 P.2d at 181); Hall, 53 Haw. at 221, 491 P.2d at 545; Midkiff v. Castle & Cooke, Inc., 45 Haw. 409, 413-16, 368 P.2d 887, 890-92 (1962). Courts should “not depart from the doctrine of stare decisis without some compelling justification.” State v. Garcia, 96 Hawai‘i 200, 206, 29 P.3d 919, 925 (2001) (quoting Hilton v. South Carolina Pub. Ry. Comm‘n, 502 U.S. 197, 202 (1991)) (emphasis in original). Not once have we questioned, or found ambiguous, our standards for
Although Twombly and Iqbal are persuasive in interpreting and applying
Having reaffirmed our traditional notice pleading standard, we now turn to the issue of whether the ICA erred in affirming the circuit court‘s dismissal of three counts of Homeowner‘s counterclaim.
B. Wrongful Foreclosure Claim
In the following analysis, we first address whether the ICA erred in concluding there must first be a foreclosure before a wrongful foreclosure claim can be brought. We then apply the traditional notice pleading standard to determine whether the circuit court erred in dismissing Homeowner‘s wrongful foreclosure claim.
Although we have not previously squarely addressed whether a wrongful foreclosure counterclaim may be brought in a judicial foreclosure case when no foreclosure or sale of the property has yet occurred, upon careful review, we hold that such a wrongful foreclosure claim exists in Hawai‘i. We base our conclusion on our past consideration of potential circumstances in which a wrongful foreclosure claim may exist in non-judicial foreclosures. See Hungate, 139 Hawai‘i at 407, 391 P.3d at 14 (holding there was no need to create a cause of action against a foreclosing mortgagee‘s attorney under former
In Reyes-Toledo I, we recognized and discussed the problems associated with modern mortgage securitization practices. See Reyes-Toledo I, 139 Hawai‘i at 369 & n.14, 390 P.3d at 1256 & n.14. We noted that “[t]he requirement that a foreclosing plaintiff prove its entitlement to enforce the note at the commencement of the proceedings ‘provides strong and necessary incentives to help ensure that a note holder will not proceed with a foreclosure action before confirming that it has a right to do so.‘” Id. (citations omitted). “Basic requirements of Hawaii‘s Uniform Commercial Code and our law on standing should not be modified, especially in light of the widespread problems created by the securitization of mortgages, because a requirement that seems to be merely technical in nature may serve an essential purpose.” Id. “[T]he possession requirement, which applies unless a specific statutory exception exists, protects the maker of an instrument from multiple enforcements of the same instrument.” Id. (citing Hanalei, BRC Inc. v. Porter, 7 Haw. App. 304, 308, 760 P.2d 676, 679 (1988)). Accordingly, a foreclosing plaintiff must prove “the existence of an agreement, the terms of the agreement, a
It follows that if a foreclosing plaintiff does not prove the aforementioned elements and commences a foreclosure action, the mortgagor should be able to challenge the lawsuit without having to await a foreclosure decree. Indeed, other jurisdictions have held that a party may not foreclose without having the legal power to do so.12 See, e.g., Barrionuevo v. Chase Bank, N.A., 885 F. Supp. 2d 964, 974 (N.D. Cal. 2012) (holding the mortgagors stated a claim of wrongful foreclosure against the bank, trustee under a deed of trust, and others by alleging the defendants were not current beneficiaries under the deed of trust); 100 Lakeside Trail Trust v. Bank of America, N.A., 804 S.E.2d 719, 725 (Ga. App. 2017) (noting that under Georgia law, “an attempted wrongful foreclosure claim exists when, in the course of a foreclosure action that was not completed, a defendant makes a knowing and intentional publication of untrue and derogatory information concerning the debtor‘s financial condition, and damages were sustained as a direct result of the publication” (citation and brackets omitted)); Fields v. Millsap & Singer, P.C., 295 S.W.3d 567, 571
(Mo. Ct. App. 2009) (stating “[a] tort action for damages for wrongful foreclosure lies against a mortgagee only when the mortgagee had no right to foreclose at the time foreclosure proceedings were commenced,” but “[i]f the right to foreclose existed, no tort cause of action for wrongful foreclosure can be maintained” (citation omitted)); Gregorakos v. Wells Fargo Nat‘l Ass‘n, 647 S.E.2d 289, 292 (Ga. App. 2007) (stating that in Georgia, “a plaintiff asserting a claim of wrongful foreclosure must establish a legal duty owed to it by the foreclosing party, a breach of that duty, a causal connection between the breach of that duty and the injury it sustained, and damages” (citation and brackets omitted)); McKnight Family, L.L.P. v. Adept Mgmt., 310 P.3d 555, 559 (Nev. 2013) (stating a wrongful foreclosure claim challenges the authority behind the foreclosure, not the foreclosure act itself). Thus, we hold that a mortgagor may bring a wrongful foreclosure claim before a foreclosure decree is entered.
Therefore, to assert a wrongful foreclosure claim, the foreclosing plaintiff must have failed to establish its standing as required by Reyes-Toledo I and the mortgagor must have suffered an “injury in fact” and damages as a result. As explained above, a mortgagor need not wait for a foreclosure decree to assert a wrongful foreclosure claim. If a party with no authority or standing files a foreclosure action, no foreclosure decree would result, yet the mortgagor would have spent time and incurred expenses to defend against such a lawsuit. Allowing a mortgagor to bring a wrongful foreclosure counterclaim without awaiting an actual foreclosure benefits judicial economy and efficiency, as a foreclosure defendant should not have to institute a separate legal action after the pending foreclosure case is decided. Accordingly, a mortgagor should be able to assert a counterclaim for wrongful foreclosure based on the underlying facts of the pending foreclosure case. However, we emphasize this does not mean a mortgagor must assert the wrongful foreclosure claim as a compulsory counterclaim.
Here, it remains an issue of fact whether Bank of America attempted to foreclose on Homeowner‘s Property without standing to do so. See Reyes-Toledo I, 139 Hawai‘i at 371, 390 P.3d at 1258 (“A foreclosing plaintiff‘s burden to prove entitlement to enforce the note overlaps with the requirements of standing in foreclosure actions as ‘[s]tanding is concerned with whether the parties have the right to bring suit.‘” (citation omitted)). As a result of defending against Bank of
We next address whether Homeowner‘s wrongful foreclosure count was properly dismissed by the circuit court, which the ICA affirmed applying the incorrect “plausibility” pleading standard. By incorporating the defenses in her Answer into her wrongful foreclosure count, Homeowner asserted Bank of America was not the real party-in-interest, owner, holder, or holder in due course of the Note and Mortgage. She also asserted there was “no valid negotiation for value of [her] promissory note to [Bank of America].” She argued that, therefore, “[Bank of America]‘s conduct in commencing this case was willful, malicious, without just cause,” and she was entitled to “general, special, and punitive damages in an amount to vest this Court with jurisdiction.”
Taking Homeowner‘s allegations as true, as we must in evaluating a Rule 12(b)(6) motion to dismiss, the wrongful foreclosure count within her counterclaim satisfies
C. Declaratory Judgment Claim
Homeowner‘s declaratory judgment count, which incorporated by reference the allegations set forth in her wrongful foreclosure count, asserted she was entitled to declaratory relief under
As Homeowner argues, the declaratory judgment count also asserted: (1) Bank of America was not the owner and holder of the Mortgage and Note; (2) Bank of America was not entitled to foreclose on the Mortgage and Note; (3) MERS was not the mortgagee on the Mortgage but rather was a “sham and fraud” and MERS “acted only as a strawman“; (4) the court should decide who is the mortgagee on the Mortgage and the Note; and (5) Homeowner can recover costs and attorney‘s fees pursuant to
D. Quiet Title Claim
Homeowner also incorporated by reference the allegations in her wrongful foreclosure count into her quiet title count. Stating she was the owner of the Property, she sought to quiet title to the Property against Bank of America‘s adverse claim, asserting Bank of America was not the mortgagee. Accepting Homeowner‘s allegations as true, she has satisfied
V. Conclusion
For the foregoing reasons, the ICA erred in affirming the circuit court‘s dismissal of the remaining three counts of Homeowner‘s counterclaim because the assertions satisfied our traditional notice pleading standard. Accordingly, we vacate the ICA‘s Judgment on Remand. We also vacate the circuit court‘s Order Dismissing Counterclaim and Order Denying Motion for Reconsideration to the extent it denied reconsideration of the Order Dismissing Counterclaim,13 and we remand to the circuit court for further proceedings consistent with this opinion.
R. Steven Geshell for petitioner
Jade Lynne Ching, Nakashima Ching LLC for respondent
/s/ Paula A. Nakayama
/s/ Sabrina S. McKenna
/s/ Richard W. Pollack
/s/ Michael D. Wilson
/s/ Colette Y. Garibaldi