David Bald v. Wells Fargo Bank , 688 F. App'x 472 ( 2017 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS APR 24 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
DAVID EMORY BALD, individually and No. 13-16622
on behalf of all others similarly situated;
EMILY LELIS, individually and on behalf D.C. No.
of all others similarly situated, 1:13-cv-00135-SOM-KSC
Plaintiffs-Appellants,
MEMORANDUM *
v.
WELLS FARGO BANK, N.A., a national
banking association; DOE DEFENDANTS
1-50,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Hawaii
Susan Oki Mollway, District Judge, Presiding
Argued and Submitted October 13, 2015
Honolulu, Hawaii
Before: O’SCANNLAIN, TALLMAN, and M. SMITH, Circuit Judges.
In this putative class action, David Emory Bald and Emily Lelis
(collectively, Plaintiffs) contend that defendant Wells Fargo Bank, N.A. (Wells
Fargo) violated Hawaii Revised Statutes (HRS) § 480-2 in connection with the
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
nonjudicial foreclosure sales of Plaintiffs’ homes. HRS § 480-2(a) prohibits
“unfair or deceptive acts or practices in the conduct of any trade or commerce,”
including acts that violate common law duties. Kapunakea Partners v. Equilon
Enters. LLC, 679 F. Supp. 2d 1203, 1209–10 (D. Haw. 2009) (quoting HRS § 480-
2(a)). Plaintiffs allege that Wells Fargo violated its common law duty to exercise
its power of sale in a manner that does not unreasonably damage the debtor by (1)
advertising in its notice of sale that only a quitclaim deed would be provided to the
winning bidder, despite the fact that it sometimes provided a limited warranty
deed; and (2) not publishing notices of postponement of foreclosure auctions.
The district court granted Wells Fargo’s motion to dismiss, holding that the
Hawaii foreclosure statute did not prescribe the form of deed to be offered and
allowed postponement via oral announcement, and that the Hawaii common law
duty of a mortgagee to not unnecessarily injure the debtor did not apply.
I. Wells Fargo argues that Plaintiffs lack standing because they are not
“consumers” as to Wells Fargo pursuant to HRS § 480-2. Consumer is defined as
“a natural person who, primarily for personal, family, or household purposes,
purchases, attempts to purchase, or is solicited to purchase goods or services or
who commits money, property, or services in a personal investment.” HRS § 480-
1. “In the context of consumer debt, the determination of whether the individual
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seeking suit is a ‘consumer’ should rest on whether the underlying transaction
which gave rise to the obligation met the requirements of HRS § 480-1.” Hungate
v. Law Office of David B. Rosen, 391 P.3d 1, 17 (Haw. 2017) (internal quotation
marks and alteration omitted). As in Hungate, the underlying transactions in this
case “involved committing money in a personal investment pursuant to HRS
§ 480-1, namely, purchasing residential property,” and “an individual who
purchases residential property through acquiring a loan . . . is a ‘consumer’
committing money in a personal investment within the meaning of HRS § 480-1.”
Id. Thus, Plaintiffs have standing as consumers.
II. Plaintiffs argue that the district court erred by dismissing its claims that,
pursuant to HRS § 480-2, Wells Fargo’s practices in conducting nonjudicial
foreclosures were unfair or deceptive. “[W]hether a practice constitutes an unfair
or deceptive trade practice is ordinarily a question of fact.” Hungate, 391 P.3d at
17. “To determine sufficiency, we accept the allegations made in [Plaintiffs’]
complaints as true and view them in the light most favorable to [Plaintiffs].” Id.
(internal quotation marks omitted).
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To violate HRS § 480-2, a practice need only be unfair or deceptive, not
both. See State by Bronster v. U.S. Steel Corp., 919 P.2d 294, 313 (Haw. 1996).1
“A practice is unfair when it [1] offends established public policy and [2] when the
practice is immoral, unethical, oppressive, unscrupulous or [3] substantially
injurious to consumers.” Hungate, 391 P.3d at 18 (internal quotation marks
omitted). Plaintiffs “need not allege that [Wells Fargo’s] actions meet all three of
these factors to assert an unfair act or practice.” Id. Rather, “[a] practice may be
unfair because of the degree to which it meets one of the criteria or because to a
lesser extent it meets all three.” Id. (quoting Kapunakea Partners, 679 F. Supp. 2d
at 1210). “A practice may be unfair if it ‘offends public policy as established by
statutes, the common law, or otherwise.’” Id. (quoting Kapunakea Partners, 679
F. Supp. 2d at 1210).
Plaintiffs sufficiently alleged that Wells Fargo’s practices were unfair
because they offend public policy as established by the common law. In Hungate,
id. at 15, the Hawaii Supreme Court clarified that the common law duties
established in Silva v. Lopez, 5 Haw. 262 (1884), and Ulrich v. Security Investment
Co., 35 Haw. 158 (1939), apply to a mortgagee in conducting nonjudicial
foreclosures. A mortgagee must exercise its “discretion in an intelligent and
1
Because Plaintiffs sufficiently alleged that Wells Fargo’s practices were unfair,
we decline to address whether Plaintiffs sufficiently alleged that Wells Fargo’s
practices were deceptive.
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reasonable manner, not to oppress the debtor or to sacrifice his estate.” Silva, 5
Haw. at 265. In conducting a foreclosure sale a mortgagee must “exercise
reasonable diligence to secure the best possible prices,” Ulrich, 35 Haw. at 172,
and this duty applies to both real property and chattel mortgages. Hungate, 391
P.3d at 15. Although the law does not impose a duty to obtain fair market value in
a foreclosure sale, “the mortgagee nonetheless has a duty to use fair and reasonable
means to conduct the foreclosure sale in a manner that is conducive to obtaining
the best price under the circumstances.” Id. at 16. Additionally, when the
mortgagee purchases the property in a nonjudicial foreclosure sale, the mortgagee
“has the burden to establish that the sale was fairly conducted and resulted in an
adequate price under the circumstances.” Id.
A jury could find that Wells Fargo’s practice of advertising only quitclaim
deeds violated its common law duty to “exercise reasonable diligence to secure the
best possible prices,” and thus was unfair. Ulrich, 35 Haw. at 172. Because the
fairness of a practice is a question of fact, the district court erred by treating the
question as one necessarily to be resolved as a categorical question of law. Noting
that HRS § 667-5 did not specify what form of deed should be advertised, the
district court was “particularly concerned that it could create a host of problems if
it were to rule, without further detail, that a quitclaim deed or an advertisement
promising only a quitclaim deed violated a court-created duty.” However, the
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district court’s ruling need not be categorical, and we view the allegations in the
light most favorable to Plaintiffs. Hungate, 391 P.3d at 17–18. The facts alleged
show that Wells Fargo only advertised quitclaim deeds in its foreclosure sale
notices, but provided a limited warranty deed in many instances. Advertising a
warranty deed would enhance the value of the property being sold, and the
complaint adequately alleged that Wells Fargo’s failure to do so for the
foreclosures at issue was an unfair practice. Whether that is so, or whether,
instead, the practice was reasonable, is a question of fact to be addressed on
remand.
A jury could also find that Wells Fargo’s practice of postponing foreclosure
sales without publishing notice was unfair. Plaintiffs allege that Wells Fargo’s
postponement of the Lelis auction by announcement constituted a breach of a term
in the Lelis mortgage providing that “Lender shall publish a notice of sale and shall
sell the property at the time and place and under the terms specified in the notice of
sale.” The Hawaii Supreme Court recently considered a mortgage with an
identical term in its power of sale clause and held that, although HRS § 667-5
allowed for postponement by public announcement, if the power of sale clause
requires more than does the statute, the mortgagee must follow the power of sale
clause. Hungate, 391 P.3d at 11. The Court held that because the power of sale
clause can be reasonably interpreted as requiring that a postponement must be
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published in order for the postponed sale to be made “at the time and place and
under the terms specified in the notice of sale,” and because ambiguities in a
contract are construed against the drafter, the mortgagee was required to publish a
new notice of sale to postpone a sale. Id. Thus, given that the Lelis mortgage
contained the identical mortgage provision, Plaintiffs sufficiently alleged that
Wells Fargo’s practice of postponement by public announcement was unfair
because it violated the terms of the parties’ contract.
Additionally, a jury could find that postponement by public announcement
violated Wells Fargo’s common law “duty to use fair and reasonable means to
conduct the foreclosure sale in a manner that is conducive to obtaining the best
price under the circumstances.” Id. at 16. Postponement may negatively impact
the sale price when interested bidders would have attended on the noticed sale date
but cannot or do not attend the postponed sale. See, e.g., Albice v. Premier Mortg.
Servs. of Wash., Inc., 276 P.3d 1277, 1285 (Wash. 2012) (holding that numerous
continuances postponing a sale led to a lower price). Thus, Plaintiffs sufficiently
alleged that Wells Fargo’s practices of advertising only quitclaim deeds and
postponing by public announcement were unfair.
III. In addition to sufficiently alleging that a defendant’s conduct was unfair or
deceptive within the meaning of HRS § 480-2, a plaintiff must “allege sufficient
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facts to show he was injured.” Hungate, 391 P.3d at 19. The statute “does not
define injury or damages, but Hawai‘i courts have not set a high bar for proving
injury.” Id. (internal quotation marks omitted).
Wells Fargo argues that the pleading was not specific enough because the
heightened fraud pleading standard applies. Wells Fargo relies on Baker v. Castle
& Cooke Homes Hawaii, Inc., No. 11-00616 SOM-RLP, 2012 WL 1454967, at
*17 (D. Haw. Apr. 25, 2012), which held that “[b]ecause section 480–2 is based on
fraudulent acts, claims brought under that chapter are subject to the heightened
pleading requirements under Rule 9(b) of the Federal Rules of Civil Procedure.”
However, Baker concerned a fraudulent practice rather than an unfair one, and did
not note that the two prongs are treated separately under Hawaii law. Id.; see State
by Bronster, 919 P.2d at 313. No heightened pleading standard applies in this
case, where the allegations are sufficient under the “unfair” prong. See Vess v.
Ciba-Geigy Corp. USA, 317 F.3d 1097, 1104–05 (9th Cir. 2003).
To state an HRS § 480-2 claim that is not based on a fraudulent practice, a
plaintiff “need only allege that he has, as a direct and proximate result of [the
defendant’s] violation of section 480-2, sustained special and general damages
[sufficient] to withstand a motion to dismiss.” Hungate, 391 P.3d at 19 (internal
quotation marks and alterations omitted).
For the foregoing reasons, we REVERSE the district court’s order granting
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Wells Fargo’s motion to dismiss and REMAND for proceedings consistent with
this memorandum.
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