Kondaur Capital Corporation v. Matsuyoshi.

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Electronically Filed
Supreme Court
SCWC-12-0000867
23-NOV-2015
08:57 AM
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---o0o---
KONDAUR CAPITAL CORPORATION,
Respondent/Plaintiff-Appellee,
vs.
LEIGH MATSUYOSHI,
Petitioner/Defendant-Appellant.
SCWC-12-0000867
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-12-0000867; CIVIL NO. 12-1-0185)
November 23, 2015
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.
OPINION OF THE COURT BY POLLACK, J.
In Ulrich v. Security Investment Co., 35 Haw. 158
(Haw. Terr. 1939), we held that a personal property mortgagee
seeking to enforce a non-judicial foreclosure sale bears the
burden of establishing that the sale was conducted in a manner
that is fair, reasonably diligent, and in good faith and that an
adequate price was procured for the property. In the years
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after Ulrich was decided, the legislature made several
amendments to the non-judicial foreclosure statute, and the
viability of Ulrich in light of these amendments, as well as
Ulrich’s applicability to real property non-judicial
foreclosures, has recently been questioned, with federal courts
in Hawaii reaching conflicting results. 1
We hold that the duties set forth in Ulrich remain
viable law and are applicable to non-judicial foreclosures of
real property mortgages. 2 Additionally, in situations where a
mortgagee acts as both the seller and the purchaser of the
subject property at a non-judicial foreclosure sale, that
mortgagee, or its quitclaim transferee or non-bona fide
successor, bears the burden of proving compliance with the
requirements of Ulrich.
I. FACTUAL BACKGROUND/PROCEDURAL HISTORY
A. The Underlying Mortgage and Related Proceedings
In February 2007, Jun Matsuyoshi and others conveyed a
residential property located in Līhuʻe, Kauaʻi (Property) by
1
Compare Lima v. Deutsche Bank Nat’l Trust Co., 943 F. Supp. 2d
1093 (D. Haw. 2013), with Field v. Bank of Am., N.A. (In re Gibbs), 522 B.R.
282 (Bankr. D. Haw. 2014).
2
All references to “non-judicial foreclosures” in this opinion do
not encompass non-judicial foreclosures conducted pursuant to Hawaii Revised
Statutes (HRS) Chapter 667, Part II. When referring to this type of
foreclosure, a specific statutory designation is included. Similarly, the
use of “foreclosure statute” in this opinion, when not modified by a specific
statutory section, excludes HRS Chapter 667, Part II.
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warranty deed to Leigh Matsuyoshi (Matsuyoshi). The following
month, Matsuyoshi signed a mortgage on the Property (Mortgage)
and a promissory note (Note) promising to pay $500,000 to Resmae
Mortgage Corporation (Resmae) in return for a loan that
Matsuyoshi had received.
Resmae recorded the Mortgage with the Bureau of
Conveyances (Bureau). The Mortgage listed Matsuyoshi as the
borrower of $500,000, and it included an acceleration and power
of sale clause, which provided, among other things, that
Matsuyoshi would be given at least 30 days to cure a default of
payment.
In May 2008, Lester K.M. Leu (Leu), an attorney
authorized to act on behalf of Resmae Liquidation Properties LLC
(RLP), sent a Notice of Intent to Foreclose to Matsuyoshi
(notice of default). The notice of default stated that
Matsuyoshi’s loan was in default because scheduled payments had
not been made since April 1, 2008, and that the amount due was
$9,704.34. The notice of default stated further that Matsuyoshi
must pay this amount by June 20, 2008, or the loan would be
accelerated and the Property referred for foreclosure action.
In August 2008, an assignment of the Mortgage from
Resmae to RLP was recorded. Matsuyoshi was personally served
with a Notice of Mortgagee’s Non-Judicial Foreclosure Under
Power of Sale (Notice of Sale). The Notice of Sale stated that
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RLP intended to sell the Property at an auction to be held in
Honolulu on November 13, 2008. The Notice of Sale also stated
that the Property would be sold “AS IS” and “WHERE IS.”
Thereafter, the Property was auctioned off at a
foreclosure sale in Honolulu. In the Mortgagee’s Affidavit of
Foreclosure Under Power of Sale (Affidavit of Sale), Leu
certified that in compliance with Hawai’i Revised Statutes (HRS)
§§ 667-5 through 667-10 3 and the Note and Mortgage, Mortgagee or
its representative, or Affiant, conducted the public auction
sale on November 13, 2008, “at the date, time, and place set
forth in the Notice and under the conditions stated therein, and
Affiant, or her representative, declared the Property sold to
[RLP] for $416,900.20, which was the highest bid at said sale.”
Leu stated that the default remained uncured at the time of
sale. On November 17, 2008, the Affidavit of Sale was recorded
in the Bureau.
In January 2009, RLP executed a quitclaim deed, which
was subsequently recorded, conveying the Property to itself. In
July 2010, a quitclaim deed was executed by RLP conveying the
Property to Kondaur Capital Corporation (Kondaur). 4 The
3
HRS §§ 667-5 to 667-10 governed the process of foreclosure by
power of sale (i.e., non-judicial foreclosure) and were within Part I of
Chapter 667. HRS §§ 667-5 to 667-8 were repealed by the legislature in 2012.
2012 Haw. Sess. Law Act 182, § 50 at 684.
4
In relevant part, the quitclaim deed recited that
(continued . . .)
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quitclaim deed expressly stated that “[n]otwithstanding anything
in this deed to the contrary, [RLP] makes no representations,
warranties or promises regarding any claims by LEIGH MATSUYOSHI,
her heirs, successors or assigns.” Kondaur recorded its
quitclaim deed the following year, in February 2011.
Thereafter, Kondaur gave Matsuyoshi notice to vacate; Matsuyoshi
did not leave the Property.
B. Kondaur’s Ejectment Action Against Matsuyoshi
On June 5, 2012, Kondaur filed a complaint for
possession of the Property against Matsuyoshi in the Circuit
Court of the Fifth Circuit (circuit court). The complaint
requested a judgment for immediate and exclusive possession of
the Property and a writ of possession. The complaint stated
that Kondaur had “acquired title and current ownership of the
(. . . continued)
for ONE AND NO/100 DOLLARS ($1.00) and other valuable
consideration paid by [Kondaur], the receipt of which is
hereby acknowledged, [RLP] does hereby release, remise and
quitclaim unto [Kondaur], as TENANT IN SEVERALTY, his/her
heirs, personal representatives, successors and assigns,
all of that certain real property described in Exhibit “A”
attached hereto and made a part hereof.
Exhibit A to the quitclaim deed refers to
[a]ll of that certain parcel of land situate at Kalapaki,
Lihue, District of Puna, Island and County of Kauai, State
of Hawaii, being LOT 148 of the “LIHUE TOWN ESTATES”, as
shown on File Plan Number 1408, filed in the Bureau of
Conveyances of the State of Hawaii, and containing an area
of 6,000 square feet, more or less.
Exhibit A further indicates Matsuyoshi as the previous owner.
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Property through a Quitclaim Deed recorded on February 24,
2011.”
On June 27, 2012, Kondaur filed a Motion for Summary
Judgment Against All Defendants on Complaint filed June 5, 2012
(MSJ). Kondaur requested that the circuit court grant the MSJ
and enter a Judgment for Possession of the Property for Kondaur
and against Matsuyoshi, issue a Writ of Possession, enter the
judgment as final, and set a time and date for a trial on
damages. A declaration by Ann Pham (Pham) attached to the MSJ
stated that she was an asset manager for Kondaur and a custodian
of Kondaur’s records. Pham declared that according to regular
business records maintained by Kondaur, Kondaur owned the
Property pursuant to Kondaur’s quitclaim deed. Pham also
declared that Kondaur had given Matsuyoshi notice to vacate, and
Matsuyoshi “has so far continued to reside at the Property and
has otherwise failed or refused to leave.” Also attached to the
MSJ were several exhibits. 5
5
Exhibit A was a certified copy of Kondaur’s quitclaim deed.
Exhibit B was a certified copy of RLP’s quitclaim deed.
Exhibit C was a certified copy of the Mortgagee’s Affidavit of
Foreclosure Under Power of Sale. Exhibit C also included a copy of the deed
from Jun Matsuyoshi, et al., to Matsuyoshi; the Note; the Mortgage; the
Assignment of Mortgage and Note from Resmae to RLP; the notice of default;
the Notice of Sale; a list of parties “who have recorded encumbrances, liens,
and/or other claims against the Property or who have requested notice” and
received the Notice of Sale; the returns and acknowledgments of service from
those parties listed; an Affidavit of Posting of the Notice of Sale on the
Property; an Affidavit of Publication of the Notice of Sale in the Honolulu
(continued . . .)
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In its memorandum in support of the MSJ, Kondaur
asserted that it had undisputed title to the Property and that
Matsuyoshi was residing on the Property as a trespasser.
Kondaur argued that its quitclaim deed was prima facie evidence
of the conveyance to it from RLP, and that, therefore, it was
the owner of the Property and entitled to immediate and
exclusive possession.
Kondaur also contended that the Affidavit of Sale was
evidence that the power of sale was duly executed. Kondaur
maintained that the foreclosure sale extinguished Matsuyoshi’s
interest in the Property and that RLP “subsequently conveyed the
Property to Kondaur by virtue of the Quitclaim Deed dated July
14, 2010.”
Kondaur asserted that because Matsuyoshi failed to
cure her default in payments prior to the sale, “she is without
standing to contest the validity of the foreclosure conducted by
[RLP] and the superior title to the Property subsequently
acquired by Kondaur.” Kondaur concluded that Matsuyoshi had no
interest in the Property, Matsuyoshi must vacate it immediately,
and a judgment for possession and writ of ejectment should be
issued.
(. . . continued)
Star-Bulletin; and a report from the Department of Defense Manpower Data
Center stating that Matsuyoshi was not an active duty member of the military.
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On July 6, 2012, Kondaur requested an entry of default
against Matsuyoshi pursuant to Hawaii Rules of Civil Procedure
(HRCP) Rule 55(a) “for her failure to answer or otherwise
respond” to Kondaur’s complaint. Default was entered by the
clerk of the circuit court on the same day.
On August 15, 2012, Matsuyoshi filed, through counsel,
her opposition to the MSJ, which was later amended on August 21,
2012. Matsuyoshi acknowledged that she “fell behind on her
mortgage payments,” but she maintained that technical violations
of HRS § 667-5 voided the foreclosure sale. Matsuyoshi argued
“that all notices and acts required by the power contained in
the [M]ortgage shall be complied with.” According to
Matsuyoshi, RLP’s foreclosure against her was void because RLP
did not comply with the notice requirement under the Mortgage
and because the auction sale was conducted on Oahu rather than
on Kauai, the county where the Property is located. Finally,
Matsuyoshi noted that Kondaur stood in privity of contract with
RLP based on the quitclaim deed that Kondaur received from RLP.
In its reply, Kondaur contended that Matsuyoshi’s
“failure . . . to establish by admissible evidence that the Note
and Mortgage were not in default at the time of the non-judicial
foreclosure is dispositive.” Kondaur maintained that Matsuyoshi
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presented no admissible evidence showing that she did not
receive notice of her default under the terms of the Mortgage.
At the hearing on the MSJ, 6 Matsuyoshi argued that the
foreclosure sale violated the foreclosure statute because it was
carried out on Oʻahu when the Property was on Kauaʻi. Matsuyoshi
contended that the sale on Oʻahu precluded her from exercising
her right to redeem the Property. Matsuyoshi also emphasized
that RLP “was the only bidder” at the foreclosure sale.
Kondaur replied that, in 2008, “there was no
prohibition in . . . [HRS] Chapter 667 . . . that prohibited a
lender from doing a foreclosure sale [for a property located on
Kauaʻi] on the island of Oahu.” According to Kondaur, there was
no prejudice because the purpose of a judicial sale is to get
the highest price possible, and “the market on Oahu is obviously
much bigger than the market on Kauai in terms of prospective
purchasers.” 7
At the conclusion of the hearing, the circuit court
granted Kondaur’s MSJ. On September 18, 2012, the circuit court
6
The Honorable Randal G.B. Valenciano presided.
7
In relation to this point, Matsuyoshi argued:
And if Plaintiff’s argument is Oahu has a bigger market,
then why aren’t these foreclosure sales uniformly conducted
in Los Angeles? Why aren’t they conducted in New York
City? Why aren’t they conducted right next to the bank
that has the ability to pay for these large mortgages in
the first place and out bid [sic] each other?
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entered its “Order Granting [Kondaur’s] [MSJ]” (MSJ Order),
which included an order for a writ of possession to issue. The
circuit court also issued its judgment (MSJ Judgment). On
September 20, 2012, the circuit court issued a writ of
possession.
After the MSJ Judgment was rendered, Matsuyoshi
submitted a declaration averring that she was “absolutely
positive that the [M]ortgage . . . was not signed by [her]
before a notary public” and that the notarization on the
Mortgage is false. Further, Matsuyoshi claimed that the
mortgage documents were not explained to her, nor was she given
copies of the documents that she signed. Finally, Matsuyoshi
declared that she did not sign the mortgage application and that
the amounts listed as her income in the application are false.
Matsuyoshi filed post-judgment motions, including a Motion to
Set Aside the MSJ Judgment and a Motion to Set Aside Entry of
Default pursuant to HRCP Rule 55(c). Matsuyoshi contended that
the entry of default should be set aside because her post-
judgment declaration presented a meritorious defense to
Kondaur’s action. The circuit court denied the Motion to Set
Aside Entry of Default.
Matsuyoshi timely filed a Notice of Appeal from the
MSJ Judgment, but she did not appeal from the circuit court’s
order denying her post-judgment motions.
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II. APPELLATE PROCEEDINGS
A. Initial Disposition of the Intermediate Court of Appeals
Matsuyoshi’s Opening Brief maintained that the circuit
court erred in granting Kondaur’s MSJ. Matsuyoshi argued that
where the mortgagee is also the purchaser of a foreclosed
property, the mortgagee should be held to the strictest standard
of good faith and diligence. Consistent with these
requirements, Matsuyoshi reasoned that the mortgagee has a duty
“to obtain for the [P]roperty as large a price as possible.”
Matsuyoshi contended that “[t]he sale of property located on
Kauaʻi at the front entrance to the First Circuit Courthouse did
not show reasonable diligence and good faith in an endeavor to
obtain the best possible prices [sic] consistent with such
diligence and good faith.”
In its Answering Brief, Kondaur argued that, because
“Matsuyoshi never set aside the default that was entered against
her,” she was “barred” from challenging Kondaur’s MSJ or
defending the complaint. Kondaur recognized that Matsuyoshi did
eventually file a motion to set aside the default, but argued
that Matsuyoshi “failed to present any discernible argument to
the [circuit court] that her default should be set aside” and
that, therefore, the Intermediate Court of Appeals (ICA) should
not consider her untimely arguments.
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Kondaur further contended that the circuit court
properly granted its MSJ because it presented undisputed
evidence of title to the Property and that Matsuyoshi was thus
residing there unlawfully and without permission. Kondaur
maintained that Matsuyoshi’s contention that the foreclosure
sale was void because it occurred on Oʻahu must fail because at
the time of the sale, Hawaii’s foreclosure statute did not
prohibit the sale of the Property on Oʻahu, the power of sale
contained in the Mortgage did not prohibit the lender from
conducting the auction on Oʻahu, and “the decision to have the
public auction on Oʻahu was consistent with the stated purposes
of the . . . foreclosure statute.” Kondaur additionally
contended that conducting the auction on Oʻahu was reasonable
because Oʻahu was a larger market, Matsuyoshi failed to establish
that she was prejudiced by the occurrence of the foreclosure
sale on Oʻahu, and Matsuyoshi presented no evidence that she
intended to or could have bid at the auction.
In her Reply Brief, Matsuyoshi maintained that,
regardless of the effect of the entry of default, “the MSJ
should not have been granted because the material facts did not
show that Kondaur was entitled to judgment as a matter of law.”
Matsuyoshi argued that she was not bound by the recitations in
Kondaur’s quitclaim deed because she was not a party to the
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conveyance. Further, Matsuyoshi contended that Kondaur’s
quitclaim deed “establishes only that Kondaur obtained whatever
interest, if any, that [RLP] . . . had in the [P]roperty.”
Concerning the sale on Oʻahu, Matsuyoshi asserted that
merely following the foreclosure statute was not sufficient and
that the sale on Oʻahu was unreasonable. Matsuyoshi argued that
she did not need to demonstrate that she was prejudiced by the
sale on Oʻahu and contended that this would be impossible to
prove without a comparable sale occurring on Kauaʻi.
On March 7, 2014, the ICA issued its Memorandum
Opinion (Opinion). The ICA concluded that because Matsuyoshi
“raise[d] genuine issues as to the validity of the Mortgage” in
her post-judgment declaration, summary judgment for Kondaur was
erroneously granted. The ICA also held that as a consequence of
the default, it could consider whether the factual allegations
in Kondaur’s complaint were “well-pled,” and the ICA concluded
that they were not. The ICA declined “to reach further issues
raised by the parties,” vacated the MSJ Judgment, and remanded
the case for proceedings consistent with its Opinion.
Kondaur filed an application for writ of certiorari to
this court on May 15, 2014, challenging the ICA’s decision. 8
8
The following questions were presented:
I. Whether the ICA erred by reversing the Circuit
Court’s decision to grant summary judgment in favor
(continued . . .)
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This court granted certiorari, and in an opinion published on
October 23, 2014, we held that the ICA erred in treating the
entry of default as if it were a default judgment and then
evaluating whether the allegations in the complaint were well-
pled. Kondaur Capital Corp. v. Matsuyoshi, 134 Hawaiʻi 342, 351—
52, 341 P.3d 548 (2014). This court additionally held that
“[w]hen reviewing a summary judgment, an appellate court’s
consideration of the record is limited to those materials that
were considered by the trial court in ruling on the motion.”
Id. at 350, 341 P.3d at 556. Because the ICA relied on “the
post-judgment Matsuyoshi Declaration as a basis to find disputed
material facts” that would preclude summary judgment, we
concluded that the ICA erred, vacated the ICA’s Judgment on
Appeal, and “remand[ed] the case to the ICA to consider the
further issues that it ‘decline[d] to reach’ that were ‘raised
by the parties’ on appeal.” Id. at 352, 341 P.3d at 558.
B. The ICA’s Post-Remand Summary Disposition Order
On November 19, 2014, the ICA issued its post-remand
summary disposition order (SDO), which affirmed the MSJ Judgment.
(. . . continued)
of Petitioner based on evidence that was not a matter
of record at the time the Circuit Court considered
the motion.
II. Whether on de novo review this Court should affirm
the Circuit Court’s judgment granting a summary
judgment in favor of Petitioner.
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In particular, the ICA held that summary judgment in favor of
Kondaur was properly granted, explaining that Kondaur met its
initial burden of demonstrating a prima facie case of ejectment
by submitting “admissible evidence of ownership and title to the
[Property] in the form of exhibits attached to its MSJ, which
included a certified copy of its quitclaim deed and Ann Pham’s
affidavit.”
The ICA rejected Matsuyoshi’s arguments concerning the
alleged invalidity of Kondaur’s title as a result of the
foreclosure sale being conducted in a different county than where
the Property is located. The ICA reasoned that the applicable
version of HRS § 667-5 did not require the “foreclosure sale be
held in the county where the subject property is located, and
nothing in the record indicates that the mortgagee failed to
fulfill its duty to exercise reasonable diligence to secure the
best price for the Property” “when it sold the Property for
$416,900.20.” 9
C. Matsuyoshi’s Application for Writ of Certiorari
On April 6, 2015, Matsuyoshi filed an application for
writ of certiorari seeking review of the ICA’s post-remand SDO.
9
Matsuyoshi also raised to the ICA a second point of error on
appeal—whether the circuit court erred in denying Matsuyoshi’s Motion to Set
Aside the MSJ Judgment. The ICA held that it “lack[ed] jurisdiction to
address Matsuyoshi’s second error raised on appeal” “because Matsuyoshi did
not appeal the November 14, 2012 Post-Judgment Order denying her HRCP Rule
60(b) Motion.”
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Matsuyoshi argues that the ICA misapplied the summary judgment
standard by requiring her to present evidence when Kondaur—the
movant in this case—had failed to present a prima facie case
establishing that the sale of the Property was valid. Relying
on Ulrich and analogous authorities setting forth the common law
governing fiduciaries and quasi-fiduciaries, Matsuyoshi argues
that, because Kondaur has “the ultimate burden of proof both as
a plaintiff and as the direct quitclaim privy of [RLP] who
carried out the Oʻahu-Self-Sale,” it “was required to establish
in its moving papers that the sale was properly and fairly
conducted and that the price was adequate,” particularly when
the mortgagee is self-dealing in a manner that creates an
inherent conflict of interest. Applying this principle,
Matsuyoshi contends that Kondaur failed to present any evidence
that it acted diligently to secure the best price for the
Property.
Matsuyoshi additionally argues that even if Kondaur
satisfied its initial burden, genuine issues of material fact
existed as to whether RLP violated the foreclosure statute and
its duties under the power of sale contained in the Mortgage.
Matsuyoshi maintains that the auction sale conducted on Oʻahu was
itself evidence that RLP did not act diligently, “as potential
bidders on Kauaʻi necessarily would have had to purchase an
airplane ticket and travel to Oʻahu for the sale, while potential
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bidders on Oʻahu could not view the [P]roperty unless they
traveled to Kauaʻi.” According to Matsuyoshi, this dilemma was
exacerbated by the fact that one of RLP’s sale terms was to
convey the Property to the winning bidder “AS IS.” 10
In response, Kondaur argues that the ICA correctly
affirmed the circuit court’s grant of its MSJ because Kondaur
satisfied its initial burden to demonstrate a prima facie case
of ejectment, while Matsuyoshi correspondingly failed to raise a
genuine issue of material fact. Kondaur contends that requiring
a third-party successor-in-interest such as Kondaur to establish
a predecessor-in-interest’s reasonable diligence is tantamount
to requiring such a successor-in-interest to disprove every
possible defense to an ejectment action, which a summary
judgment movant is not required to do. Further, Kondaur argues
that Ulrich is consistent with the view that the mortgagor is
the party who must introduce “credible evidence to support [his
or] her alleged defense that the sale price at auction was
10
Matsuyoshi also identifies technical defects that allegedly
voided RLP’s non-judicial foreclosure of the Property. Matsuyoshi argues
that the notice of default that RLP sent did not comply with the notice
requirements of the Mortgage and was therefore defective. Additionally,
Matsuyoshi contends that the Honolulu Star-Bulletin—the newspaper in which
the notice of sale for the Property was published—was not a newspaper of
general circulation in Kauaʻi County in 2008, thus violating the publication
requirement of HRS § 667-5(a)(1). In light of our disposition of other
issues raised by Matsuyoshi, we do not address the asserted technical
defects.
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fraudulent”—a burden that Matsuyoshi failed to satisfy in this
case.
Finally, Kondaur argues that Matsuyoshi’s challenge to
the venue of the non-judicial foreclosure auction is without
merit because neither the applicable version of the foreclosure
statute nor the power of sale contained in the Mortgage required
the sale to be conducted in the same county as where the
Property is located.
Matsuyoshi asserts in her reply that assigning the
burden to Kondaur of proving the validity of the non-judicial
foreclosure sale is consistent with the burden-shifting approach
employed in a summary judgment analysis, and that Kondaur is not
being asked to disprove every possible defense that Matsuyoshi
may have. Matsuyoshi maintains “that where the ejectment
plaintiff is the mortgagee (or its non-bona fide purchaser
transferee standing in its shoes),” this requirement “is not a
‘defense’ at all, but rather an element of the plaintiff’s
claim.”
III. DISCUSSION
A. Ulrich and the Division between Federal Courts in Hawaii as
to Its Continued Vitality
More than 70 years ago, in Ulrich v. Security
Investment Co., 35 Haw. 158 (Haw. Terr. 1939), this court
detailed legal principles governing the burden of proof in cases
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arising from foreclosure sales. At stake in Ulrich was the
mortgagor’s interest in his law firm and chattels. 35 Haw. at
159—60. Pursuant to the power of sale in the underlying
mortgage, and after the mortgagor defaulted on the loan, the
mortgagee commenced non-judicial foreclosure proceedings. Id.
at 162—64. However, the mortgagee “kept the sale as quiet as
possible,” did not give adequate personal or public notice to
the mortgagor of the impending foreclosure, and acted both as
the auctioneer and the purchaser during the auction. Id. at
172, 174. In addition, the description of the property to be
sold was such that it failed to “inform the public of the nature
of the property to be offered for sale,” and prospective buyers
were not afforded the opportunity to inspect the property. Id.
at 173.
This court held that a mortgagee is required to “use
all fair and reasonable means in obtaining the best prices for
the property on sale,” such that where “the sale [i]s not made
in good faith, that the amount received upon the sale was
inadequate and that the mortgagee took a wrongful and unfair
advantage of the mortgagor, the foreclosure sale must be set
aside.” Id. at 168. Further, this court declared that “where
the mortgagee himself purchases at the sale, the burden is on
him to show that the sale was regularly and fairly conducted in
every particular, and that an adequate price was paid for the
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goods sold.” Id. (citation omitted) (internal quotation mark
omitted). These requirements were promulgated by the court
while fully recognizing that their application may sometimes
mean obligating a mortgagee to act above and beyond the
statutory requirements. See id. at 172—73 (recognizing that the
foreclosure statute did not require that the foreclosure sale be
publicized, but in any event finding that the mortgagee failed
to act reasonably by failing to do so).
Under the facts of Ulrich, the court ultimately
determined that the mortgagee “failed to exercise reasonable
diligence and good faith in an endeavor to obtain the best
possible prices consistent with such diligence and good faith.”
Id. at 170. Accordingly, the court vacated and set aside the
foreclosure sale. Id. at 185—86.
Ulrich has never been overruled by this court. But
because HRS § 667-5 has been amended several times since Ulrich
was decided in 1939, a federal district court has raised doubts
as to the continued vitality of its holding. In Lima v.
Deutsche Bank Nat’l Trust Co., 943 F. Supp. 2d 1093 (D. Haw.
2013), the U.S. District Court for the District of Hawaiʻi ruled
that Ulrich was not applicable to the facts of that case for two
reasons: first, because Ulrich involved a chattel mortgage,
while Lima involved a real property mortgage; and, second,
because none of the principles laid out in Ulrich were included
20
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by the Hawaiʻi legislature in its amendment to HRS § 667-5 in
2008. 11 Id. at 1099-1100. Hence, although not directly so
11
HRS § 667-5 (Supp. 2008) provides as follows:
(a) When a power of sale is contained in a mortgage, and
where the mortgagee, the mortgagee’s successor in interest,
or any person authorized by the power to act in the
premises, desires to foreclose under power of sale upon
breach of a condition of the mortgage, the mortgagee,
successor, or person shall be represented by an attorney
who is licensed to practice law in the State and is
physically located in the State. The attorney shall:
(1) Give notice of the mortgagee’s, successor’s, or
person’s intention to foreclose the mortgage and of
the sale of the mortgaged property, by publication of the
notice once in each of three successive weeks (three
publications), the last publication to be not less than
fourteen days before the day of sale, in a newspaper
having a general circulation in the county in which the
mortgaged property lies; and
(2) Give any notices and do all acts as are authorized or
required by the power contained in the mortgage.
(b) Copies of the notice required under subsection (a)
shall be:
(1) Filed with the state director of taxation; and
(2) Posted on the premises not less than twenty-one days
before the day of sale.
(c) Upon the request of any person entitled to notice
pursuant to this section and sections 667-5.5 and 667-6,
the attorney, the mortgagee, successor, or person
represented by the attorney shall disclose to the requestor
the following information:
(1) The amount to cure the default, together with the
estimated amount of the foreclosing mortgagee’s
attorneys’ fees and costs, and all other fees and costs
estimated to be incurred by the foreclosing mortgagee
related to the default prior to the auction within five
business days of the request; and
(2) The sale price of the mortgaged property once
auctioned.
(continued . . .)
21
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stating, the district court essentially held that Ulrich had
been overruled by the legislature by virtue of its silence—by
failing to expressly include any of Ulrich’s requirements in the
language of HRS § 667-5. 12
On the other hand, in Field v. Bank of Am., N.A. (In
re Gibbs), 522 B.R. 282 (Bankr. D. Haw. 2014), the Bankruptcy
Court for the District of Hawaiʻi disagreed with the Lima court,
held that Ulrich continued to be good law, and applied its
requirement that a mortgagee must use all fair and reasonable
means to maximize the sale price of the property sold at a
foreclosure sale. Id. at 289—91. The fact that Ulrich
(. . . continued)
(d) Any sale, of which notice has been given as aforesaid,
may be postponed from time to time by public announcement
made by the mortgagee or by some person acting on the
mortgagee’s behalf. Upon request made by any person who is
entitled to notice pursuant to section 667-5.5 or 667-6, or
this section, the mortgagee or person acting on the
mortgagee’s behalf shall provide the date and time of a
postponed auction, or if the auction is cancelled,
information that the auction was cancelled. The mortgagee
within thirty days after selling the property in pursuance
of the power, shall file a copy of the notice of sale and
the mortgagee’s affidavit, setting forth the mortgagee’s
acts in the premises fully and particularly, in the bureau
of conveyances.
(e) The affidavit and copy of the notice shall be recorded
and indexed by the registrar, in the manner provided in
chapter 501 or 502, as the case may be.
(f) This section is inapplicable if the mortgagee is foreclosing
as to personal property only.
12
The Lima court judge held similarly in Bald v. Wells Fargo Bank,
Civil No. 13—00135 SOM/KSC, 2013 WL 3864449 (D. Haw. July 25, 2013), appeal
filed, No. 13-16622, 2013 WL 3864449 (9th Cir. Aug. 12, 2013), which involved
a self-dealing foreclosure sale of real property by the mortgagee. Id. at
*4-*5.
22
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concerned a chattel mortgage instead of a real property mortgage
was immaterial, according to the bankruptcy court, because the
foreclosure statute in effect at that time did not expressly
exclude from its provisions chattel mortgages. 13 Id. at 290.
Further, the bankruptcy court was unpersuaded by the reasoning
of the district court in Lima concerning the legislative history
of HRS § 667-5. In the bankruptcy court’s view, the legislature
approved of the principles embodied by Ulrich because the
subsequent amendments it made to HRS § 667-5 did not expressly
overrule Ulrich. Id.
1. The Amendments to the Foreclosure Statute are Not
Inconsistent with Ulrich
At the time that Ulrich was decided, the statutory
provisions governing non-judicial foreclosures were RLH §§ 4724-
4728 (1935). Ulrich, 35 Haw. at 163. 14 Subsequent amendments to
13
The bankruptcy court cited Chapter XXXIII of the Acts of
1874 as the operative statute. In re Gibbs , 522 B.R. at 290 n.24. Although
the applicable statutory provisions were “sections 4724 to 4728, [Revised
Laws of Hawaiʻi (RLH)] 1935,” Ulrich, 35 Haw. at 163, the bankruptcy court’s
reasoning is equally supported under RLH §§ 4724-4728 (1935), which also did
not differentiate between chattel mortgages and real property mortgages.
14
The relevant parts of RLH § 4724 (1935), the former version of
HRS § 667-5, provided as follows:
Sec. 4724. Notice of foreclosure; affidavit after
sale. When a power of sale is contained in a mortgage, the
mortgagee, or any person having his estate therein, or
authorized by such power to act in the premises, may, upon
a breach of the condition, give notice of his intention to
foreclose the mortgage, by publication of such notice . . .
. He shall, within thirty days after selling the property
in pursuance of the power, file a copy of the notice of
sale and his affidavit, setting forth his acts in the
(continued . . .)
23
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the foreclosure statute support the view that Ulrich remains
viable law. 15 After Ulrich was decided in 1939, RLH § 4724 was
not amended until 1967, and that amendment concerned only a
requirement that the affidavit and copy of the notice of the
foreclosure sale be recorded and indexed. 1967 Haw. Sess. Laws
Act 256, § 1 at 383. Both the accompanying House Standing
Committee Report and the Senate Standing Committee Report
reflected that the purpose of the 1967 amendment was “to
standardize the recording procedures in the Bureau of
Conveyances,” and neither Ulrich nor its holding was
referenced. 16
A substantive amendment was effectuated in 1972, and
it was at this time that HRS § 667-5 was made inapplicable to
foreclosures of personal property mortgages. 1972 Haw. Sess.
Laws Act 90, §9 at 362. The legislative history related to the
1972 amendment did not touch upon Ulrich, and the committee
reports stated only that the amendments were intended “to
(. . . continued)
premises fully and particularly, in the bureau of
conveyances, in Honolulu. The affidavit and copy of the
notice shall be recorded by the registrar, with a notice of
reference thereto in the margin of the record of the
mortgage deed, if recorded in his office.
15
Kondaur apparently does not contest Ulrich’s application to this
case, and, therefore, the initial dispute concerns the correctness of the
ICA’s assignment between the parties of the burden of proving the
satisfaction of the Ulrich requirements.
16
H. Stand. Comm. Rep. No. 828, in 1967 House Journal, at 801; S.
Stand. Comm. Rep. No. 450, in 1967 Senate Journal, at 1051.
24
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eliminate inconsistencies with the rules of court; delete
outmoded provisions; make improvements of a technical nature;
and transfer procedural matters to rules of court.” 17 The Report
of Committee on Coordination of Rules and Statutes, referenced
by the legislative reports accompanying the 1972 amendment, 18
stated that the addition to HRS § 667-5 of the paragraph
excluding personal property foreclosures from the foreclosure
statute was meant “to clarify the relationship of this section
to the Uniform Commercial Code, 490: 9-501(4).” Report of
Committee on Coordination of Rules and Statutes Vol. 2, § 667-5
(1971). Thus, the exclusion of personal property foreclosures
was not precipitated by the decision in Ulrich, but instead it
was intended to conform HRS § 667-5 to the law governing secured
transactions of personal property.
The 1984 amendment also did not affect the substance
of HRS § 667-5, as it functioned only to authorize the revisor
of statutes to “change statutory language by removing gender-
specific terminology without altering the sense, meaning, or
effect of any act,” whenever the revisor supplements or replaces
17
H. Stand. Comm. Rep. No. 330-72, in 1972 House Journal, at 772;
S. Stand. Comm. Rep. No. 623-42, in 1972 Senate Journal, at 1006—07.
18
H. Stand. Comm. Rep. No. 330-72, in 1972 House Journal, at 772;
S. Stand. Comm. Rep. No. 623-42, in 1972 Senate Journal, at 1006—07; Spec.
Com. Rep. 9, in 1972 House Journal, at 1115—32; Spec. Com. Rep. 7, in 1972
Senate Journal, at 697—741.
25
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volumes of the HRS. 19 The 1989 amendment merely added a
requirement that copies of foreclosure sale notices should be
filed with the state director of taxation. 1989 Haw. Sess. Laws
Act 20, § 5 at 56—57. Again, the underlying legislative history
was silent about Ulrich and the requirements that it set forth. 20
The last amendment to HRS § 667-5 before its repeal
was in 2008. 2008 Haw. Sess. Laws Act 138, § 1 at 370—71. That
amendment expanded the protections it guaranteed mortgagors by,
among other things, requiring mortgagees to retain an attorney
who is licensed to practice and physically present in the State.
Id. This requirement was meant to “ensure that interested
parties have means to obtain information from a person with a
local presence and the ability to provide useful information.” 21
This rationale was echoed by the accompanying Senate Standing
Committee Report and the House Standing Committee Report. 22
Again, there was no indication that the principles set forth in
Ulrich were to be nullified or modified.
19
1984 Haw. Sess. Laws Act 90, § 1 at 166; H. Stand. Comm. Rep. No.
85-84, in 1984 House Journal, at 837; S. Stand. Comm. Rep. No. 635-84, in
1984 Senate Journal, at 1332.
20
H. Stand. Comm. Rep. No. 421, at 1001; S. Stand. Comm. Rep. No.
1257, at 1274—75.
21
Conf. Comm. Rep. No. 3-08, in 2008 House Journal, at 1710—11,
2008 Senate Journal, at 793—94.
22
H. Stand. Comm. Rep. No. 1192-08, in 2008 House Journal, at 1450—
51; S. Stand. Comm. Rep. No. 2108, in Senate Journal, at 917—18.
26
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The foregoing amendments do not indicate that the
legislature explicitly or implicitly disapproved of Ulrich. If
the legislature had sought to express disapproval of Ulrich, it
could have fashioned, for example, a presumption of validity,
conclusive or otherwise, in instances where a foreclosure sale
is conducted in accordance with the foreclosure statute and the
underlying mortgage, as the legislature did with regard to HRS §
667-34 (Supp. 2008) (“[A]ny foreclosure sale held in accordance
with this part shall be conclusively presumed to have been
conducted in a legal, fair, and reasonable manner.”). 23 See,
23
HRS § 667-34 is encompassed by Part II of Chapter 667 of the HRS,
which sets forth an alternative power of sale process with more exacting
standards, compliance with which would provide greater finality to a
mortgagee’s foreclosure sale. See HRS §§ 667-21 to 667-42 (Supp. 2008).
Those standards include, under HRS § 667-22 (Supp. 2008), a more detailed
notice of intention to foreclose than that required by HRS § 667-5.
Additionally, HRS §§ 667-25, 667-29, 667-30, and 667-31 (Supp. 2008) specify
requirements that a mortgagee must follow in conducting the foreclosure sale,
including a requirement that the sale must be in the same county as where the
property is located, unless the parties consent upon a different-county sale.
The alternative power of sale process requires the mortgagee to conduct two
open houses of the property before the foreclosure sale. HRS § 667-26 (Supp.
2008). A public notice with very detailed specifications is also required
under HRS § 667-27 (Supp. 2008). HRS § 667-32 (Supp. 1998) requires the
affidavit after public sale to contain particularized recitals and sets forth
a form that the mortgagee’s affidavit must substantially follow. These
requirements, among others, do not appear in HRS §§ 667-5 to 667-10, under
whose authority RLP’s foreclosure sale was conducted.
The advantage to electing the alternative power of sale process
under Part II of Chapter 667 is that, once the affidavit after public sale
and the conveyance documents have been recorded, the mortgagor and other
claimants “shall be forever barred of and from any and all right, title,
interest, and claims at law or in equity in and to the mortgaged property,”
HRS § 667-33(b)(2), an assurance that HRS
§§ 667-5 to 667-10 do not guarantee. Further, as already mentioned, a
conclusive presumption arises as to the legality, fairness, and
reasonableness of the foreclosure sale conducted pursuant to the alternative
power of sale process. HRS § 667-34.
27
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e.g., Hawaiʻi Gov’t Employees Ass’n, AFSCME Local 152, AFL-CIO v.
Lingle, 124 Hawaiʻi 197, 203—04, 239 P.3d 1, 7—8 (2010) (finding
that a previous ICA decision, with which the legislature
disagreed, was overruled by a statutory amendment); Lee v.
United Pub. Workers, AFSCME, Local 646, AFL-CIO, 125 Hawaiʻi 317,
322—23, 260 P.3d 1135, 1140—41 (App. 2011) (accord). 24 Instead
of prescribing a conclusive presumption or a provision of
similar import, HRS § 667-8 (1993) states only that an affidavit
averring that the non-judicial foreclosure “has in all respects
complied with the requirements of the power of sale and the
statute . . . shall be admitted as evidence that the power of
sale was duly executed.” (Emphasis added). 25 Hence, there is no
24
These two cases involved a previous decision by the ICA that the
Hawaiʻi Labor Relations Board (HLRB) and the circuit courts had concurrent
jurisdiction over complaints arising under previous versions of HRS sections
89-14 and 377-9. Lee, 125 Hawaiʻi at 322. The subsequent statutory amendment
explicitly conferred HLRB with exclusive original jurisdiction over such
complaints, which this court viewed as an express overruling by the
legislature of the ICA’s previous decision. Lingle, 124 Hawaiʻi at 203-04.
25
This provision dates back to the inception of the foreclosure
statute in 1874, when its language read:
If it appears by such affidavit that he has in all respects
complied with the requisitions of the power
of sale, in relation to all things to be done by him before
selling the property, and has sold the same in the manner
required by such power, the affidavit, or a duly certified
office copy of the record thereof, shall be admitted as
evidence that the power of sale was duly executed.
1874 Haw. Sess. Laws Act XXXIII, § 2, at 31. This language was not
significantly modified by post-Ulrich amendments. See 1972 Haw. Sess. Laws
Act 90, § 9(g), at 363 (setting forth the version of the statute that was
valid until its repeal in 2012).
28
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indication that the legislature intended to overrule Ulrich,
circumscribe its application, or otherwise modify its effect in
the realm of non-judicial foreclosures. Cf. Lingle, 124 Hawaiʻi
at 203—04, 239 P.3d at 7—8; Lee, 125 Hawaiʻi at 322—23, 260 P.3d
at 1140—41.
2. The Amendments to HRS § 667-5 Expanded the Rights of
Mortgagors, Further Buttressing Ulrich’s Vitality
The amendments to HRS § 667-5, through 76 years of
Ulrich’s existence, have added requirements that mortgagees must
fulfill in order to accomplish a valid foreclosure sale. See,
e.g., 1967 Haw. Sess. Laws Act 256, § 1 at 383 (requiring
mortgagees to record and index the affidavit and copy of the
notice of sale); 1989 Haw. Sess. Laws Act 20, § 5 at 56—57
(requiring mortgagees to file copies of foreclosure sale notices
with the state director of taxation). The benefits of some of
these added statutory requirements, such as those derived from
the 2008 amendments, were meant to accrue to mortgagors so as to
expand and bolster the protections to which they are entitled.
See 2008 Haw. Sess. Laws Act 138, § 1 at 370—71 (amending HRS §
667-5 to require mortgagees to hire local attorneys who could
facilitate a greater and more convenient transfer of information
about foreclosure to mortgagors, and requiring mortgagees to
disclose more particularized information upon a mortgagor’s
request).
29
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Hence, it is inconsistent to assume that the
legislature overruled Ulrich and the rights it promulgated at
the same time as when the legislature expanded the rights of
mortgagors. See In re Gibbs, 522 B.R. at 290 (holding that the
increase in mortgagors’ rights effectuated by the 2008 amendment
to HRS § 667-5 was consistent with the view that the legislature
approved of Ulrich). The more logical conclusion, consistent
with the expansion of the rights of mortgagors in the
foreclosure statute, is that the legislature approved of Ulrich
and supplemented it with more robust statutory protections. See
id.
3. Ulrich is Applicable to Real Property Non-Judicial
Foreclosures
When Ulrich was decided, the version of the
foreclosure statute then existing was contained in RLH §§ 4724—
4728. RLH § 4724, the 1935 counterpart of HRS § 667—5, was
applicable to all mortgage foreclosure sales regardless of
whether the subject matter was real property or chattels. The
exclusion of chattels from HRS § 667—5 was not effectuated until
its 1972 amendment. See 1972 Haw. Sess. Laws Act 90, §9 at 362.
Even then, there is no indication that the legislature excluded
chattels from the application of HRS § 667—5 in order to
circumscribe Ulrich’s application to chattels only. See Report
of Committee on Coordination of Rules and Statutes Vol. 2, §
30
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667-5 (1971). The apparent rationale of the 1972 amendment was
merely to conform HRS § 667-5 to UCC article 9, which governs
secured transactions of personal property. See id.
Ulrich similarly did not limit its holding to chattel
mortgages, although the facts of that case involved chattels
only. Restricting it would have been illogical, not only
because the foreclosure statute involved in Ulrich did not
differentiate between chattels and real property, RLH §§ 4724—
4728; see In re Gibbs, 522 B.R. at 290 (reasoning similarly),
but also because Ulrich’s rationale applies with equivalent, if
not greater, force in the foreclosure sale of real property.
The motivation for the requirements set forth in
Ulrich is to protect the mortgagor from being wrongfully and
unfairly taken advantage of by the mortgagee, Ulrich, 35 Haw. at
168, and this purpose is not rendered irrelevant merely because
the subject matter of a foreclosure sale is real property rather
than chattels. To the contrary, where, as here, the property at
issue is the primary residence of an individual, the rationale
underlying Ulrich’s requirements is only strengthened. Cf.
Ulrich, 35 Haw. at 159—60 n.1 (concerning the foreclosure sale
of office property, interest in law practice, share in earned
attorneys’ fees, and household belongings). Thus, reasoning
that Ulrich’s application is confined to only chattel mortgages,
31
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see, e.g., Lima, 943 F. Supp. 2d at 1099, is not analytically
persuasive.
4. The Duties of Mortgagees under Ulrich
To summarize, Ulrich requires mortgagees to exercise
their right to non-judicial foreclosure under a power of sale in
a manner that is fair, reasonably diligent, and in good faith,
and to demonstrate that an adequate price was procured for the
property. 26 Ulrich, 35 Haw. at 168. In instances where the
mortgagee assumes the role of a purchaser in a self-dealing
transaction, the burden is on the mortgagee, or its quitclaim
transferee or non-bona fide successor, 27 to establish its
compliance with these obligations. Id. Its failure to do so
would render the foreclosure sale voidable and could therefore
be set aside at the timely election of the mortgagor. See id.
26
A more generalized articulation of these duties may be found in
Silva v. Lopez, 5 Haw. 262 (Haw. Kingdom 1884), which states “that the law
requires the mortgagee, in the exercise of his power, to use discretion in an
intelligent and reasonable manner, not to oppress the debtor or to sacrifice
his estate.” Id. at 265.
27
A non-bona fide purchaser is one who does not pay adequate
consideration, “takes with knowledge that his transferor acquired title by
fraud[,] or . . . buys registered land with full notice of the fact that it
is in litigation between the transferor and a third party.” Akagi v. Oshita,
33 Haw. 343, 347 (1935); Achiles v. Cajigal, 39 Haw. 493, 499 (1952); see
generally 92A C.J.S. Vendor and Purchaser § 547 (2010) (defining a bona fide
purchaser as “one who acquires an interest in a property for valuable
consideration, in good faith, and without notice of any outstanding claims
which are held against the property by third parties”).
32
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B. Summary Judgment in Favor of Kondaur was Erroneously
Granted
1. Summary Judgment and the Elements of Ejectment
Under settled law, “[t]his court reviews a circuit
court’s grant or denial of summary judgment de novo.” Price v.
AIG Hawaiʻi Ins. Co., 107 Hawaiʻi 106, 110, 111 P.3d 1, 5 (2005);
see Thomas v. Kidani, 126 Hawaiʻi 125, 128, 267 P.3d 1230, 1233
(2011). “[S]ummary judgment is appropriate if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law.” Price, 107 Hawaiʻi
at 110 (quoting Haw. Cmty. Fed. Credit Union v. Keka, 94 Hawaiʻi
213, 221, 11 P.3d 1, 9 (2000)). Further, all evidence and
inferences therefrom “must be viewed in the light most favorable
to the non-moving party.” Id. (quoting Keka, 94 Hawaiʻi at 221,
11 P.3d at 9).
The moving party has the initial burden of
“demonstrating the absence of a genuine issue of material fact.”
Exotics Hawaii-Kona, Inc. v. E.I. Du Pont De Nemours & Co., 116
Hawaiʻi 277, 301, 172 P.3d 1021, 1045 (2007) (emphasis omitted)
(quoting Young v. Planning Comm’n of the Cnty. of Kauaʻi, 89
Hawaiʻi 400, 407, 974 P.2d 40, 47 (1999)). This burden may be
discharged “by demonstrating that . . . if the case went to
33
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trial[,] there would be no competent evidence to support a
judgment for his or her opponent.” Id. (alteration in original)
(quoting Young, 89 Hawaiʻi at 407, 974 P.2d at 47). Only with
the satisfaction of this initial showing does the burden shift
to the nonmoving party to respond “by affidavits or as otherwise
provided in HRCP Rule 56[,] . . . set[ting] forth specific facts
showing that there is a genuine issue for trial.” Id. (quoting
Young, 89 Hawaiʻi at 407, 974 P.2d at 47).
In order to maintain an ejectment action, the
plaintiff “must necessarily prove that [he or she] owns the
parcel[] in issue,” State v. Magoon, 75 Haw. 164, 175, 858 P.2d
712, 718—19 (1993); see State v. Midkiff, 49 Haw. 456, 460, 421
P.2d 550, 554 (1966), meaning that he or she must have “the
title to and right of possession of” such parcel, Carter v.
Kaikainahaole, 14 Haw. 515, 516 (Haw. Terr. 1902).
Additionally, the plaintiff must establish that “possession is
unlawfully withheld by another.” Id. In this case, Kondaur
submitted a certified copy of its quitclaim deed from RLP as
part of its MSJ. The quitclaim deed recited that RLP conveyed
the Property to Kondaur but made “no representations, warranties
or promises regarding any claims by LEIGH MATSUYOSHI, her heirs,
successors or assigns.” The certified copy of the quitclaim
deed and all of its attachments suffice to establish only that
Kondaur has an ownership interest in and right of possession of
34
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the Property, subject to Matsuyoshi’s title and ownership
interest in the same Property. This conditional status of
Kondaur’s title originates from the language of Kondaur’s
quitclaim deed, which specifically carves out from Kondaur’s
interest any claims that Matsuyoshi may still have on the
Property. It is therefore clear from the language of the deed
that it does not convey a title superior to that of Matsuyoshi’s
title and interest because it goes so far as acknowledging that
Matsuyoshi may have some ownership claim on the Property.
Moreover, the very nature of a quitclaim deed also
circumscribes the interest that Kondaur could have in the
Property. Because a quitclaim deed is capable of conveying only
that which the predecessor-in-interest already possessed in the
first place, Kondaur has whatever rights RLP had on the
Property, and the quitclaim deed in no way indicates that
Kondaur has an absolute and unassailable interest in the
Property. See Hustace v. Kapuni, 6 Haw. App. 241, 245, 718 P.2d
1109, 1112 (1986) (stating that the grantee “acquired whatever
interest the [grantors] may have had in the property”); see also
Hagan v. Gardner, 283 F.2d 643, 646 (9th Cir. 1960) (stating
that a quitclaim deed “operates to transfer only what right,
title and interest the grantor may have”).
Thus, Kondaur’s title to and interest in the Property
depends on whether RLP actually had valid title and interest in
35
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the Property to convey. Because the title to the Property
deeded by RLP to Kondaur derives from a non-judicial foreclosure
sale of the Property, the strength and validity of Kondaur’s
title is unavoidably intertwined with the validity of the
foreclosure sale. See Lee v. HSBC Bank USA, 121 Hawaiʻi 287,
292, 218 P.3d 775, 780 (2009) (holding that an agreement created
at a defective and invalid foreclosure sale is void and
unenforceable and that, in such a case, the purchaser is
“entitled only to return of his or her downpayment plus accrued
interest”). It therefore became incumbent upon Kondaur to
demonstrate that the foreclosure sale was conducted in
accordance with Ulrich to prove that its quitclaim deed is valid
and superior to any claims that Matsuyoshi may have on the
Property. 28
2. Kondaur Failed to Satisfy its Initial Burden
Kondaur’s quitclaim deed carries with it all of the
infirmities that the prior non-judicial foreclosure might have
occasioned upon the deed. Hustace, 6 Haw. App. at 245, 718 P.2d
at 1112; Hagan, 283 F.2d at 646. Pursuant to the principles
embodied by Ulrich, RLP’s self-dealing of the Property triggered
28
Similarly, because a non-bona fide purchaser does not take title
free and clear of all interests, see 92A C.J.S., supra, § 547, that
purchaser, in order to enforce its interest and defeat a mortgagor’s claim,
would have to prove that the mortgagee-transferor complied with the
requirements of Ulrich.
36
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its burden to prove in the summary judgment proceeding that the
foreclosure “sale was regularly and fairly conducted in every
particular.” Ulrich, 35 Haw. at 168. This burden was
transferred to Kondaur by virtue of its quitclaim deed, the
validity of which, vis-à-vis Matsuyoshi’s interest in the
Property, is dependent on the validity of the foreclosure sale.
Accordingly, Kondaur, as a quitclaim transferee of a
self-dealing mortgagee (i.e., RLP), was required under Ulrich to
introduce evidence that RLP exercised its right to non-judicial
foreclosure under a power of sale in a manner that was fair,
reasonably diligent, and in good faith, and to demonstrate that
an adequate price was procured for the Property. Ulrich, 35
Haw. at 168. 29 A prima facie case demonstrating compliance with
the foregoing requirements would have shifted the burden to
Matsuyoshi to raise a genuine issue of material fact.
29
Compliance with the Ulrich requirements is an ingredient of a
valid non-judicial foreclosure. In turn, a quitclaim deed derived from a
valid non-judicial foreclosure would divest the mortgagor of all ownership
claims to a disputed property. See Cooper v. Island Realty Co., 16 Haw. 92,
103 (Haw. Terr. 1904) (stating that foreclosure of a mortgage extinguishes
the equity of redemption and the legal estate held by the mortgagor); 74
C.J.S. Quieting Title § 35 (2010) (“Foreclosure of the mortgage divests the
mortgagor . . . of title or interest in the property covered by the
mortgage.”).
Conversely, if the Ulrich requirements were not satisfied, a
quitclaim deed would convey only a voidable interest in the property. See
Ulrich, 35 Haw. at 168 (reasoning that an unfair mortgage foreclosure sale
was voidable at the timely election of the mortgagor); cf. Lee, 121 Hawaiʻi at
292, 218 P.3d at 780 (concluding that “an agreement created at a foreclosure
sale . . . is void and unenforceable where the foreclosure sale is invalid
under the statute”).
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The only evidence produced by Kondaur with respect to
the manner in which the sale was conducted was derived from
RLP’s Affidavit of Sale prepared by Leu, RLP’s attorney. The
Affidavit of Sale merely “certifies that in compliance with and
pursuant to Hawaii Revised Statutes 667-5 through 667-10 and
th[e] . . . Mortgage, Mortgagees or its representative, or
Affiant or her representative” conducted the non-judicial
foreclosure sale in compliance with all statutory requirements
and the terms of the Mortgage. 30 But the Affidavit of Sale fails
to provide any averments as to the fairness and regularity of
the foreclosure sale or as to whether RLP conducted the
30
HRS § 667-7 (Supp. 2008) provides:
(a) The notice of intention of foreclosure shall contain:
(1) A description of the mortgaged property; and
(2) A statement of the time and place proposed for the
sale thereof at any time after the expiration of four
weeks from the date when first advertised.
(b) The affidavit described under section 667-5 may
lawfully be made by any person duly authorized to act for
the mortgagee, and in such capacity conducting the
foreclosure.
HRS § 667-9 (1993) states:
If the mortgage was executed by a man having at the time no
lawful wife, or if the mortgagor being married, his wife
joined in the deed in token of her release of dower, the
sale of the property in the mode aforesaid shall be
effectual to bar all claim and possibility of dower in the
property.
The full text of HRS § 667-5 (Supp. 2008) is stated in note
11, and the relevant portion of HRS § 667-8 (1993) can be found on
pages 28 and 39-40.
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foreclosure sale in a diligent and reasonable manner. 31 This
document does not even speak of any reason as to why the
foreclosure sale was conducted on Oʻahu when the Property is on
Kauaʻi. 32 Although the Affidavit of Sale states that the Property
was sold for $416,900.20 at the foreclosure sale, it does not
make any declaration concerning the adequacy of this price. 33
While HRS § 667-8 at that time provided that an
affidavit averring that the non-judicial foreclosure “has in all
respects complied with the requirements of the power of sale and
31
The foreclosure statute required mortgagees to file in the Bureau
“the mortgagee’s affidavit, setting forth the mortgagee’s acts in the
premises fully and particularly.” HRS § 667-5(d) (emphasis added).
32
Kondaur asserted in the circuit court and the ICA that
“conducting the public sale on the island of Oahu [made it possible for] the
foreclosing mortgagee . . . to conduct the sale in a larger market with more
prospective purchasers.” This assertion fails to establish that the
foreclosure sale satisfied the requirements of Ulrich, not only because it is
conclusory but also because evidence substantiating this assertion was not
submitted in support of the MSJ. See Thomas v. Kidani, 126 Hawaiʻi 125, 132—
33, 267 P.3d 1230, 1237—38 (2011) (conclusory assertions as to essential
elements are insufficient to satisfy summary judgment burden); Exotics
Hawaii-Kona, Inc., 116 Hawaiʻi at 316 n.4, 172 P.3d at 1060 n.4 (stating that
a conclusion must be supported by a “factual basis and the process of
reasoning which makes the conclusion viable” (internal quotation mark and
emphasis omitted) (quoting Hayes v. Douglas Dynamics, Inc., 8 F.3d 88, 92
(1st Cir. 1993)); Kondaur Capital Corp. v. Matsuyoshi, 134 Hawaii 342, 352,
341 P.3d 548, 558 (2014) (consideration of a circuit court’s summary judgment
award is limited to evidence presented to and considered by the circuit
court).
In any event, because the Property is located on Kauaʻi and the
terms of the sale included a clause requiring the buyer to take the Property
“AS IS” and “WHERE IS,” it is at least a question of fact whether the
foreclosure sale actually benefited from the larger pool of potential real
estate buyers on Oahʻu. The record simply is insufficient to prove or
disprove the advantages or disadvantages of selling an “as is” residential
property on a different island.
33
A 2008 tax assessment of the Property placed its total net value
at $473,000.
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the statute . . . shall be admitted as evidence that the power
of sale was duly executed,” the Ulrich requirements are not
statutorily or contractually based. Instead, they are separate
and distinct from the requirements of the foreclosure statute
and the operative mortgage. See Ulrich, 35 Haw. at 172—73
(recognizing that the foreclosure statute did not require that
the foreclosure sale be publicized, but in any event finding
that the mortgagee failed to act reasonably by failing to do
so). Hence, a mortgagee’s minimal adherence to the statutory
requirements and the terms of the mortgage under which the
foreclosure sale is conducted—the only facts that RLP’s
Affidavit of Sale supports—does not establish that the
foreclosure sale similarly satisfied the Ulrich requirements. 34
See id.
34
For example, the fact that HRS § 667-5 does not contain a
requirement that a foreclosure sale must be conducted in the same county as
where the Property is located does not automatically mean that a self-dealing
mortgagee may always conduct a different-county sale. While a different-
county sale does not violate HRS § 667-5, it does not mean that such a sale
will similarly be valid under Ulrich, which sets forth duties independent of
those imposed by the statute. The Ulrich requirements, depending on the
circumstances of a particular property and the foreclosure sale, could
necessitate a foreclosure sale to be held in the county in which the property
is located. Hence, a different-county sale may or may not comport with
Ulrich depending on, among other things, the type, value, and location of the
property; sale or auction conditions (e.g., clause stating that the sale is
“as is,” “where is,” etc.); amount and type of notification to the mortgagor;
and amount and type of publicity regarding the sale. Thus, we reject
Kondaur’s assertion that it was not required to conduct the foreclosure sale
in the same county as where the Property is located because HRS § 667-5 did
not contain such a requirement.
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Since Kondaur failed to satisfy its initial burden of
showing that RLP conducted the foreclosure sale in a manner that
was fair, reasonably diligent, in good faith, and would obtain
an adequate price for the Property, the burden never shifted to
Matsuyoshi and summary judgment was erroneously granted. See
Morinoue v. Roy, 86 Hawaiʻi 76, 81, 947 P.2d 944, 949 (1997)
(vacating grant of summary judgment because movant failed to
establish prima facie case of adverse possession). As a result,
Matsuyoshi did not have to raise any genuine issue of material
fact and, contrary to Kondaur’s argument, was not preliminarily
obligated to establish that she suffered actual prejudice from
the foreclosure sale being conducted on Oʻahu rather than on
Kauaʻi.
Kondaur maintains that bearing the burden of proving
compliance with Ulrich is tantamount “to disprov[ing] every
possible defense that may or may not be raised by the opposing
party . . . [to] a non-judicial foreclosure sale”—a task that a
summary judgment movant is not required to discharge. We
disagree. The Ulrich requirements are not meant to serve as a
mortgagor’s defense against a self-dealing mortgagee or, as
here, that mortgagee’s quitclaim transferee, but the
requirements were crafted to serve as affirmative obligations
that mortgagees must fulfill when utilizing the process of non-
judicial foreclosure. See Ulrich, 35 Haw. at 168 (requiring the
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mortgagee to affirmatively act in a manner that is not wrongful
and unfair to the mortgagor, and assigning the burden to the
self-dealing mortgagee to prove compliance with this
requirement). Here, since a prima facie case of ejectment
requires Kondaur to prove ownership of the subject property, see
Magoon, 75 Haw. at 175, 858 P.2d at 718—19; Midkiff, 49 Haw. at
460, 421 P.2d at 554, and Kondaur’s ownership depends on the
validity of RLP’s self-dealing foreclosure sale, RLP’s adherence
to the Ulrich requirements is merely an element of, and not a
defense to, Kondaur’s ejectment action. Therefore, the burden
of proving compliance with the Ulrich requirements is properly
assigned to Kondaur, the quitclaim transferee of RLP. Further,
as already discussed, HRS §§ 667-5 to 667-10 do not provide a
conclusive presumption as to the validity of a foreclosure sale
once it has been proven that the mortgagee complied with the
mortgage terms and the statute. Cf. HRS § 667-34. The absence
of such a conclusive presumption is consistent with requiring a
self-dealing mortgagee, or its quitclaim transferee or non-bona
fide successor, to prove compliance with Ulrich. 35
35
It also bears noting that it would be unduly onerous to require a
mortgagor to prove that the self-dealing mortgagee disregarded Ulrich’s
requirements since, as a practical matter, the facts that bear upon the
conduct of the foreclosure sale are most likely in the possession and
knowledge of the self-dealing mortgagee, or its quitclaim transferee or non-
bona fide successor, not the mortgagor.
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IV. CONCLUSION
Accordingly, the ICA’s March 5, 2015 Judgment on
Appeal and the circuit court’s September 20, 2012 “Judgment on
Order Granting Plaintiff Kondaur Capital Corporation’s Motion
for Summary Judgment Against All Defendants on Complaint Filed
June 5, 2012” are vacated, and the case is remanded to the
circuit court for further proceedings.
James J. Bickerton, /s/ Mark E. Recktenwald
Bridget G. Morgan and
Joe Moss /s/ Paula A. Nakayama
for petitioner
/s/ Sabrina S. McKenna
Michael C. Bird and
Thomas J. Berger /s/ Richard W. Pollack
for respondent
/s/ Michael D. Wilson
43