Khaleghi v. Indymac Venture, LLC

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Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
23-FEB-2022
07:49 AM
Dkt. 58 MO
NO. CAAP-XX-XXXXXXX
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI#I
MORTEZA KHALEGHI and KAREN KHALEGHI, Plaintiffs-Appellants,
v.
INDYMAC VENTURE, LLC; ONEWEST BANK, FSB, Defendants-Appellees,
and
DOE DEFENDANTS 1-20; and DOE ENTITIES 1-20, Defendants
APPEAL FROM THE CIRCUIT COURT OF THE SECOND CIRCUIT
(CIVIL NO. 2CC151000071)
MEMORANDUM OPINION
(By: Leonard, Presiding Judge, Hiraoka and McCullen, JJ.)
The parties to this appeal are before us for the third
time. Plaintiffs-Appellants Morteza Khaleghi and Karen Khaleghi
(collectively, the Khaleghis) and Defendant-Appellee Indymac
Venture, LLC were parties to a mortgage foreclosure lawsuit.
That lawsuit was terminated on the merits; Indymac foreclosed the
Khaleghis' mortgage, sold the mortgaged property, and obtained a
deficiency judgment against the Khaleghis. The Khaleghis
appealed. We affirmed. The Khaleghis did not petition the
supreme court for review. The Khaleghis satisfied the deficiency
judgment.
The Khaleghis then filed the action below. They
claimed that Indymac committed unfair and deceptive acts or
practices (UDAP) in violation of Hawaii Revised Statutes (HRS)
§ 480–2 while prosecuting the foreclosure action, and was
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unjustly enriched by the deficiency judgment. Indymac moved to
dismiss. The circuit court granted the motion. The Khaleghis
appealed. We vacated the dismissal on procedural grounds and
remanded for further proceedings.
On remand Indymac moved for judgment on the pleadings
or for summary judgment. The circuit court granted the motion
based on res judicata (claim preclusion). A Final Judgment was
entered on January 11, 2017.1 The Khaleghis appealed. For the
reasons explained below, we affirm the Final Judgment.
BACKGROUND
The Foreclosure Action
The Khaleghis are California residents. In 2007 they
signed a $5.3 million promissory note to build a second home on
Maui (the Property). The note was secured by a mortgage on the
Property. The note and mortgage were assigned to Indymac.
The Khaleghis failed to make payments due on the note.
Indymac filed a mortgage foreclosure action in July 2009
(Foreclosure Action). The Khaleghis were served with the
complaint. They did not answer the complaint. Their defaults
were entered.
Indymac moved for summary judgment and a decree of
foreclosure in October 2010. In November or December 2010 (while
Indymac's motion for summary judgment was pending) the Khaleghis
received a third-party offer to purchase the Property for
$3.4 million, contingent upon Indymac's consent. The offer was
made using Hawaii Association of Realtors forms, and contained
several other contingencies. The Khaleghis accepted the offer on
December 3, 2010, but Indymac did not consent.2 The third-party
sale never closed.
1
The Honorable Rhonda I.L. Loo presided.
2
The record does not reflect whether any of the other contingencies
had, or could have, been satisfied.
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Indymac's motion for summary judgment was granted. A
foreclosure commissioner was appointed. The commissioner was
authorized to take possession of the Property and sell it at
public auction. Findings of fact, conclusions of law, an order
granting Indymac's motion for summary judgment, and a judgment of
foreclosure (Foreclosure Judgment), were entered on February 16,
2011.3
The Khaleghis moved for relief from the Foreclosure
Judgment under Rule 60(b)(4) of the Hawai#i Rules of Civil
Procedure (HRCP)4 "insofar as said Judgment purports to allow for
entry of a deficiency judgment against the Khaleghis." They
argued: (1) the circuit court lacked personal jurisdiction over
them because HRS § 634-23 gave the circuit court in rem
jurisdiction over the Property only; (2) they were not properly
served with the foreclosure complaint; (3) their due process
rights were violated by the way Indymac obtained a deficiency
judgment against them; and (4) their note and mortgage were
governed by California law, which does not permit deficiency
judgments. Their motion was denied. They filed a notice of
appeal. That appeal was docketed as CAAP-XX-XXXXXXX.
Meanwhile, on June 3, 2011, a foreclosure auction was
conducted. The commissioner reported that Indymac had submitted
the high bid, for $909,246. The Khaleghis then moved to set
aside their defaults. They argued (among other things) that they
had a meritorious defense because Indymac's $909,246 bid was
unreasonably low based on the $3.4 million third-party offer (to
which Indymac did not consent).
3
The Honorable Shackley F. Raffetto presided over the Foreclosure
Action.
4
HRCP Rule 60 provides, in relevant part:
(b) Mistakes; inadvertence; excusable neglect; newly
discovered evidence; fraud, etc. On motion and upon such
terms as are just, the court may relieve a party or a
party's legal representative from a final judgment, order,
or proceeding for the following reasons: . . . (4) the
judgment is void[.]
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Indymac moved to confirm the foreclosure sale. The
Khaleghis opposed the motion, again contending they had accepted
the $3.4 million offer for the Property but could not close the
transaction because Indymac did not consent. The Khaleghis
argued that Indymac's $909,246 bid was unconscionably low because
the fair market value of the Property was $3.4 million (based
upon the third-party offer). They did not, however, argue that
the amount of any deficiency judgment should be the difference
between the amount they owed Indymac and the fair market value of
the Property, rather than the amount of the high bid at the
foreclosure auction.5 The Khaleghis also filed a motion to stay
the foreclosure proceedings pending a proposed mediation.
On September 21, 2011, the circuit court conducted a
combined hearing on Indymac's motion to confirm the foreclosure
sale, the Khaleghis' motion to set aside their defaults, and the
Khaleghis' motion to stay. Four bidders appeared at the hearing.
The record does not reflect whether the person who had made the
$3.4 million offer was one of the bidders. Bidding was reopened.
The highest bid was for $2.788 million. The circuit court orally
confirmed the foreclosure sale for $2.788 million and denied the
Khaleghis' motions to set aside their defaults and to stay
proceedings.
Orders denying the Khaleghis' motions to set aside
their defaults and to stay the foreclosure proceedings were
entered on October 7, 2011. A judgment confirming the
foreclosure sale was entered on October 18, 2011 (Judgment
Confirming Sale). On November 17, 2011, the Khaleghis filed a
5
Had that argument been made and accepted, the ruling would have
prospective effect only, and would not have reduced the amount of the
deficiency judgment against the Khaleghis. See HawaiiUSA Fed. Credit Union v.
Monalim, 147 Hawai#i 33, 45, 48-49, 54 & n.32, 464 P.3d 821, 833, 836-37, 842
& n.32 (2020) (adopting "majority rule" that mortgagor has "the right to
insist that the greater of the fair market value of the real estate or the
foreclosure sale price be used in calculating the deficiency[ judgment,]" but
"only to foreclosure cases in which a deficiency judgment is first entered
after the date of this opinion."). In Monalim the supreme court declined to
allow the Monalims to apply the newly adopted rule because a deficiency
judgment against the Monalims had already been entered by the circuit court.
Id. at 54 n.32, 464 P.3d at 842 n.32.
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notice of appeal from the Judgment Confirming Sale. That appeal
was docketed as CAAP-XX-XXXXXXX. It did not address the order
denying the Khaleghis' motion to set aside their defaults.
A deficiency judgment against the Khaleghis was entered
on December 8, 2011. An amended deficiency judgment for
$2.5 million was entered on January 23, 2012 (Deficiency
Judgment). The Khaleghis did not appeal from the Deficiency
Judgment.
We consolidated the Khaleghis' appeals. The Khaleghis'
consolidated opening brief raised two points of error: (1) the
Khaleghis were not properly served with Indymac's foreclosure
complaint; and (2) Indymac was entitled to a judgment against the
Property only, and had no right to a deficiency judgment against
the Khaleghis individually.
On their second point of error, the Khaleghis argued
that HRS §§ 634-23 and 634-24 gave the circuit court in rem
jurisdiction over the Property only. They did not argue (as they
did in their motion for relief from the Foreclosure Judgment)
that their note and mortgage were governed by California law,
which did not allow deficiency judgments. They did not argue (as
they did in their motion to set aside their defaults and in their
opposition to Indymac's motion to confirm the foreclosure sale)
that the high bid in the foreclosure auction was not reasonable
because they had received a bona fide offer to purchase the
Property for $3.4 million. They also did not argue that the
amount of the Deficiency Judgment should have been the difference
between the amount they owed Indymac and the $3.4 million alleged
fair market value of the Property, rather than the $2.788 million
high bid at the re-opened foreclosure auction. See note 5.
We held: (1) the Khaleghis were properly served with
Indymac's foreclosure complaint; and (2) the Khaleghis were
personally liable for the Deficiency Judgment. Indymac Venture,
LLC v. Khaleghi, Nos. CAAP-XX-XXXXXXX, CAAP-XX-XXXXXXX, 2014 WL
3708116, at *2-3 (Haw. App. July 25, 2014) (SDO) (Khaleghi I).
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The Khaleghis did not petition the Hawai#i Supreme Court for
certiorari.
On January 9, 2015, the Khaleghis paid $3.3 million to
Indymac to satisfy the Deficiency Judgment. That terminated the
Foreclosure Action.
The Action Below
On February 13, 2015, the Khaleghis (through new
counsel) filed the action below against Indymac and Defendant-
Appellee OneWest Bank, FSB (collectively, Indymac).6 An amended
complaint was filed on April 6, 2015. An errata was filed on
April 7, 2015.
The Khaleghis' corrected amended complaint alleged one
count of UDAP in violation of HRS § 480–2 and one count of unjust
enrichment. As described by the Khaleghis, the "gravamen" of
their claims was "that Indymac (1) wrongly rejected a
$3.4 million offer on the [P]roperty . . . and (2) lulled [them]
into non-action [in the Foreclosure Action] by causing them to
believe that the proceedings against them would be in rem and
would not lead to a deficiency judgment." They claimed damages
of $3.3 million (the amount they paid to satisfy the Deficiency
Judgment), trebled pursuant to HRS § 480-13.
Indymac moved to dismiss the amended complaint as a
sanction under HRCP Rule 11. The circuit court treated the
motion as a motion to dismiss under HRCP Rule 12(b)(6), and
granted the motion.
The Khaleghis appealed. We held: "The circuit court
abused its discretion in treating [Indymac's] HRCP Rule 11 Motion
for sanctions as an HRCP Rule 12(b)(6) motion to dismiss."
Khaleghi v. Indymac Ventures, LLC, No. CAAP-XX-XXXXXXX, 2016 WL
4268709, at *4 (Haw. App. Aug. 11, 2016) (mem.) (Khaleghi II).
6
The Khaleghis alleged that OneWest Bank was formed to acquire
certain of Indymac's assets and liabilities, and was Indymac's successor in
interest to the Khaleghis' note and mortgage. OneWest Bank and Indymac did
not dispute those allegations, were jointly represented in the circuit court,
and are jointly represented on this appeal.
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We vacated the dismissal and remanded for proceedings consistent
with our memorandum opinion. The judgment on appeal was entered
on September 8, 2016. No party petitioned for certiorari.
Proceedings on Remand
On remand, Indymac filed a motion for judgment on the
pleadings under HRCP Rule 12(c) or, in the alternative, for
summary judgment under HRCP Rule 56. The Khaleghis opposed the
motion. The motion was heard on December 1, 2016. The circuit
court granted the motion, stating in part:
Res judicata precludes this action. The Count [sic] finds
that there was a final judgment on the merits. Both parties
are the same or in privity with the parties in the original
suit, and the claims, defenses, and issues presented are
identical to the ones decided in the original suit or to a
claim or defense that might have been properly litigated in
the first action but was not litigated or decided.
(Emphasis added.) On January 11, 2017, the circuit court entered
a written order and the Final Judgment. This appeal followed.
POINTS OF ERROR
The Khaleghis' opening brief raises five points of
error:
1. "The Trial Court Erred by Accepting
[Indymac]'s Res Judicata Argument, because
[sic] They Did Not Establish the Right to
Assert Res Judicata in the First Place";
2. "The Trial Court's Grant of Dismissal based
[sic] on Res Judicata Was Error because [sic]
that Defense Did Not Apply and/or Had Been
Waived";
3. "The Trial Court Erred by Granting Dismissal
with Prejudice at such [sic] an Early Stage
of the Case, where [sic] No Factual Record
Had Been Developed regarding [sic] the Trial
Court's Ground for Dismissal and the
Khaleghis' Arguments";
4. "The Trial Court Erred by Wholly Ignoring the
Issue of Whether California Law Governed the
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Parties' Underlying Dispute, thereby [sic]
Inherently and Wrongly Holding that It Did
Not"; and
5. "The Trial Court Abused Its Discretion by Not
Allowing [the Khaleghis] the Opportunity to
Amend."
(Emphasis omitted.)
STANDARDS OF REVIEW
Judgment on the Pleadings
We review an order granting an HRCP Rule 12(c) motion
for judgment on the pleadings de novo using the same standard
applied by the circuit court. In re Off. of Info. Pracs. Op.
Letter No. F16-01, 147 Hawai#i 286, 294, 465 P.3d 733, 741
(2020).
Summary Judgment
We review an order granting summary judgment de novo
using the same standard applied by the circuit court. Nozawa v.
Operating Engineers Local Union No. 3, 142 Hawai#i 331, 338, 418
P.3d 1187, 1194 (2018).
Preclusive Doctrines
"Application of res judicata [(claim preclusion)] is a
question of law. Questions of law are reviewed de novo under the
right/wrong standard." PennyMac Corp. v. Godinez, 148 Hawai#i
323, 327, 474 P.3d 264, 268 (2020) (quoting E. Sav. Bank, FSB v.
Esteban, 129 Hawai#i 154, 157, 296 P.3d 1062, 1065 (2013)).
The applicability of collateral estoppel (issue
preclusion) is also a question of law reviewed de novo. See In
re Thomas H. Gentry Revocable Tr., 138 Hawai#i 158, 168, 378 P.3d
874, 884 (2016).
"The applicability of the collateral attack doctrine,
which shares similarities with other preclusive doctrines such as
collateral estoppel and res judicata, is a question of law which
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is reviewable de novo." In re Gentry Revocable Tr., 138 Hawai#i
at 168, 378 P.3d at 884 (citations omitted).
Amending Pleadings
The denial of leave to amend a complaint is reviewed
for abuse of discretion. Kealoha v. Machado, 131 Hawai#i 62, 74,
315 P.3d 213, 225 (2013).
DISCUSSION
Standard for Decision
We must first decide what standard applied to the
circuit court's decision-making on Indymac's dispositive motion.
The motion requested a judgment on the pleadings under HRCP
Rule 12(c) or, alternatively, a summary judgment under HRCP
Rule 56. A motion for judgment on the pleadings is (as the name
suggests) decided based upon the allegations contained in the
pleadings.7 However, if matters outside the pleadings are
presented and not excluded by the court, the motion is treated as
one for summary judgment and disposed of as provided by HRCP
Rule 56. See HRCP Rule 12(c).
Indymac's motion argued claim preclusion and was
supported by a number of exhibits: copies of pleadings, orders,
motions, memoranda, findings of fact and conclusions of law, and
other documents filed in the Foreclosure Action; and copies of
the Khaleghis' consolidated opening brief and our summary
disposition order in Khaleghi I. The Khaleghis' memorandum in
opposition to Indymac's motion was supported by an affidavit of
counsel, but presented no matters outside the pleadings. Under
similar circumstances we held:
[I]n ruling on a rule [sic] 12(c) motion, a court can also
take judicial notice of other facts. See Marsland v. Pang,
5 Haw. App. 463, 475, 701 P.2d 175, 186 (1985) (citing 5C
Charles Alan Wright & Arthur R. Miller, Federal Practice and
7
For purposes of HRCP Rule 12(c), "pleadings" are the complaint,
answer, counterclaim and answer thereto, cross-claim and answer thereto, and
third-party complaint and answer thereto. See HRCP Rule 7(a).
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Procedure § 1367 (1969)) ("A Rule 12(c) motion is designed
to provide a means of disposing of cases when the material
facts are not in dispute and a judgment on the merits can be
achieved by focusing on the content of the pleadings and any
facts of which the court will take judicial notice.").
Where collateral estoppel is used as a defense in an
HRCP Rule 12(b)(6) motion, judicial notice extends to prior
related proceedings. See Ellis v. Crockett, 51 Haw. 45, 55,
451 P.2d 814, 821 (1969). Because a Rule 12(c) motion
serves "much the same purpose" as a Rule 12(b)(6) motion,
except that it comes after the conclusion of the pleadings,
the same rule applies. Marsland, 5 Haw. [App.] at 474, 701
P.2d at 186. Judicial notice of the prior proceedings
extends to "the truth of facts asserted in documents such as
orders, judgments[,] and findings of fact and conclusions of
law because of the principles of collateral estoppel, res
judicata, and the law of the case." State v. Kotis, 91
Hawai#i 319, 342, 984 P.2d 78, 101 (1999) (citation
omitted).
Here, Appellees raised the defenses of res judicata,
collateral estoppel, qualified immunity, and statute of
limitations in their Rule 12(c) motion. Thus, the Circuit
Court properly took judicial notice of the [previous federal
court] proceeding and its relevant orders and judgments in
determining whether the claims in [the subsequent circuit
court action between the same parties] are precluded or
barred. Therefore, we conclude that the Circuit court [sic]
did not err when it considered the orders and judgment from
[the previous federal court action], but did not treat the
motion [for judgment on the pleadings] as a motion for
summary judgment under HRCP Rule 56.
Motoyama v. State, No. CAAP-XX-XXXXXXX, 2016 WL 6879553, at *2
(Haw. App. Nov. 22, 2016), reconsideration denied, No. CAAP-13-
0000168, 2016 WL 7330562 (Haw. App. Dec. 16, 2016), cert. denied,
SCWC-XX-XXXXXXX, 2017 WL 1075483 (Haw. Mar. 22, 2017), cert.
denied sub nom. Montoyama [sic] v. Hawai#i Dep't of Transp.,
No. 16-1544, 138 S. Ct. 300 (Mem), 199 L. Ed. 2d 42 (U.S. Oct. 2,
2017).
All of the matters outside the pleadings presented by
Indymac were subject to judicial notice by the circuit court, and
by this court on appeal, under Rule 201 of the Hawaii Rules of
Evidence.8 Thus, in our de novo review of the circuit court's
8
The Hawaii Rules of Evidence provide, in relevant part:
Rule 201 Judicial notice of adjudicative facts.
(a) Scope of rule. This rule governs only judicial notice
of adjudicative facts.
(b) Kinds of facts. A judicially noticed fact must be
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decision, we apply the standard applicable to an HRCP Rule 12(c)
motion for judgment on the pleadings.
In a motion for judgment on the pleadings under HRCP Rule
12(c), the movant must clearly establish that no material
issue of fact remains to be resolved and that they are
entitled to judgment as a matter of law. In considering a
motion for judgment on the pleadings, the trial court is
required to view the facts presented in the pleadings and
the inferences to be drawn therefrom in the light most
favorable to the nonmoving party.
Our task on appeal is to determine whether the circuit
court's order supports its conclusion that the movant is
entitled to judgment as a matter of law and, by implication,
that it appears beyond a doubt that the nonmoving party can
prove no set of facts in support of its claim that would
entitle it to relief under any alternative theory.
In re Off. of Info. Pracs., 147 Hawai#i at 294, 465 P.3d at 741
(citing Ruf v. Honolulu Police Dep't, 89 Hawai#i 315, 319, 972
P.2d 1081, 1085 (1999)) (cleaned up). We are not, however,
required to accept conclusory allegations on the legal effect of
the facts alleged. Cf. Kealoha, 131 Hawai#i at 74, 315 P.3d at
225 (noting on HRCP 12(b)(6) motion to dismiss, court is not
required to accept conclusory allegations on legal effect of
events alleged).
Within this framework we examine each of the Khaleghis'
points of error and arguments.
1. Indymac established a foundation for
applying the preclusive doctrines.
The Khaleghis contend that Indymac "did not establish
the right to assert res judicata in the first instance." They
argue that Indymac's motion for judgment on the pleadings cited
one not subject to reasonable dispute in that it is either
(1) generally known within the territorial jurisdiction of
the trial court, or (2) capable of accurate and ready
determination by resort to sources whose accuracy cannot
reasonably be questioned.
. . . .
(d) When mandatory. A court shall take judicial
notice if requested by a party and supplied with the
necessary information.
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section 24 of the Restatement (Second) of Judgments, which deals
with merger and bar, not claim preclusion. But Indymac's motion
also cited Esteban and argued that claim preclusion applied when:
(1) there was a final judgment on the merits, (2) both
parties are the same or in privity with the parties in the
original suit, and (3) the claim presented in the action in
question is identical to the one decided in the original
suit, or to a claim or defense that might have been properly
litigated in the first action but was not litigated or
decided.
Esteban, 129 Hawai#i at 160, 296 P.3d at 1068 (emphasis added).
Indymac satisfied the first element by presenting
copies of the Foreclosure Judgment, the Judgment Confirming Sale,
the Deficiency Judgment, and our summary disposition order in
Khaleghi I. It was appropriate for the circuit court to take
judicial notice of the judgments entered in the Foreclosure
Action, and of the appellate disposition of Khaleghi I.
Indymac satisfied the second element because the
Khaleghis' corrected amended complaint alleged, and Indymac did
not dispute, that the Khaleghis and Indymac Venture were the
parties to the Foreclosure Action, and that OneWest Bank was
Indymac Venture's successor-in-interest to the Khaleghis' note
and mortgage and the Deficiency Judgment.
Indymac satisfied the third element by providing copies
of the Khaleghis' HRCP Rule 60(b)(4) motion for relief from the
Foreclosure Judgment and the order denying the motion; the
Khaleghis' motion to set aside their defaults and the order
denying that motion; the Khaleghis' opposition to Indymac's
motion to confirm the foreclosure sale and the order confirming
the sale; and the Deficiency Judgment.
Indymac's motion also provided a foundation for
application of issue preclusion (collateral estoppel).
Collateral estoppel is an aspect of res judicata which
precludes the relitigation of a fact or issue which was
previously determined in a prior suit on a different claim
between the same parties or their privies. Collateral
estoppel also precludes relitigation of facts or issues
previously determined when it is raised defensively by one
not a party in a prior suit against one who was a party in
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that suit and who [them]self raised and litigated the fact
or issue.
To establish collateral estoppel and thereby bar the
relitigation of the issue, four requirements must be met:
(1) the issue decided in the prior adjudication is identical
to the one presented in the action in question; (2) there is
a final judgment on the merits; (3) the issue decided in the
prior adjudication was essential to the final judgment; and
(4) the party against whom collateral estoppel is asserted
was a party or in privity with a party to the prior
adjudication.
Kaho#ohanohano v. Dep't of Hum. Servs., 117 Hawai#i 262, 302, 178
P.3d 538, 578 (2008) (cleaned up) (emphasis omitted)
(reformatted).
And Indymac's motion provided a foundation for
application of the collateral attack doctrine. "A collateral
attack is an attempt to impeach a judgment or decree in a
proceeding not instituted for the express purpose of annulling,
correcting or modifying such judgment or decree." In re Gentry
Revocable Tr., 138 Hawai#i at 168–69, 378 P.3d at 884-85 (cleaned
up).
The party asserting that an action constitutes an
impermissible collateral attack on a judgment must establish
that: (1) a party in the present action seeks to avoid,
defeat, evade, or deny the force and effect of the prior
final judgment, order, or decree in some manner other than a
direct post-judgment motion, writ, or appeal; (2) the
present action has an independent purpose and contemplates
some other relief or result than the prior adjudication;
(3) there was a final judgment on the merits in the prior
adjudication; and (4) the party against whom the collateral
attack doctrine is raised was a party or is in privity with
a party in the prior action.
Id. at 169, 378 P.3d at 885 (citation omitted).
It was appropriate for the circuit court to take
judicial notice of the documents proffered by Indymac, and to
determine the nature of the various claims and issues that were
litigated and decided, or that might have been litigated and
decided, in the Foreclosure Action.
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2. The circuit court could properly have
applied any of the preclusive doctrines
to the Khaleghis' UDAP and unjust
enrichment claims.
The Khaleghis' corrected amended complaint alleged:
45. While [Indymac's motion for summary judgment and
interlocutory decree of foreclosure] was pending, in early-
December 2010, a bona fide offer was made on the Property by
a third-party would-be purchaser in the amount of
$3,400,000.00.
46. [The Khaleghis] requested that [Indymac] approve
a short-sale of the Property in this amount, which [Indymac]
rejected. This discussion provided [Indymac] with notice of
the market value of the Property at that time.
. . . .
49. [Indymac], after rejecting the $3.4 million
offer, proceeded with the Motion for Summary Judgment. . . .
50. On or about February 16, 2011, the Court issued
its Findings of Fact and Conclusions of Law and an Order
awarding Summary Judgment to INDYMAC VENTURE in [the
Khaleghis'] absence and calculating the total amounts owed
by [the Khaleghis] to INDYMAC VENTURE as being $5,057,982.83
with interest accruing at $516.27 per day, other late
charges and attorneys' fees.
51. The Court also ordered that INDYMAC VENTURE was
entitled to a deficiency judgment against [the Khaleghis]
for any difference between the amount owed under the Loan
and the proceeds of the sale of the Property.
. . . .
63. Here, [Indymac] rejected the December 2010
$3.4 million offer made at fair market value, allowed
interest, penalties and chargeable costs to accrue, took
steps to dampen competitive bidding, and then bid a fraction
of the fair market value of the Property (26% to be
precise), only because [Indymac] knew that [the Khaleghis]
would be required to make up any short fall by means of a
deficiency judgment and had the means to do so.
. . . .
66. [Indymac], therefore, circumvented the
mechanisms built into the judicial foreclosure process to
protect debtors by: (i) obfuscating and failing to
adequately disclose to [the Khaleghis] the potential for a
deficiency judgment; (ii) failing to properly serve process
on [the Khaleghis] in a manner that would have provided
notice of the action and the relief [Indymac was] seeking;
and (iii) proceeding thereafter in a manner ensured [sic]
the sale of the Property at below market value and below
reasonable value at the direct expense of [the Khaleghis].
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67. [The Khaleghis] were never given a fair
opportunity to protect themselves from the foregoing unfair
and deceptive conduct, and the lack of such opportunity
itself arose from [Indymac's] abuse of judicial process,
unfair and deceptive lending practices and unfair and
deceptive servicing practices.
We first address the Khaleghis' allegation that Indymac
failed "to adequately disclose to [them] the potential for a
deficiency judgment[.]" Paragraph 2.f. of Indymac's Foreclosure
Action complaint prayed:
if the proceeds of the [foreclosure] sale shall be
insufficient to pay the aforesaid sums to [Indymac] and it
shall appear that a deficiency exists, deficiency judgment
shall then be entered against Defendants KHALEGHI, jointly
and severally, and that [Indymac] have execution thereof.
The Khaleghis each submitted a declaration in support of their
HRCP Rule 60(b)(4) motion for relief from the Foreclosure
Judgment that stated: "I did not file a motion to set aside the
default because IndyMac had attempted service under HRS §§ 634-23
and 634-24, indicating an intention not to seek deficiency
judgment against me." The Khaleghis cite no evidence that
IndyMac made any representation to them inconsistent with the
prayer for a deficiency judgment made in the Foreclosure Action
complaint. We find none in the record. The Khaleghis'
subjective belief that they would not be personally liable for
any deficiency was induced by their mistaken interpretation of
the law, not by any act or omission of Indymac.
The Khaleghis make five other arguments about why claim
preclusion should not have been applied. First, the Khaleghis
contend that claim preclusion is a common law defense that cannot
defeat a statutory UDAP claim, citing Davis v. Wholesale Motors,
Inc., 86 Hawai#i 405, 949 P.2d 1026 (App. 1997).
Davis is inapposite. In that case the plaintiff sued
Wholesale Motors for, among other things, UDAP under HRS § 480–2
in connection with the sale of a car. Wholesale Motors
counterclaimed, alleging fraud, breach of contract, negligence,
and malicious conduct by Davis. After a bench trial the court
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found that Davis: made material misrepresentations on his credit
application with the intent to deceive Wholesale Motors; wrote a
check for the down payment that was dishonored for insufficient
funds; and falsely stated that he owned his trade-in vehicle free
and clear of any liens. The trial court also found that Davis
and Wholesale Motors "deceived each other into entering into the
transaction." Id. at 413, 949 P.2d at 1034. The trial court
concluded, in relevant part:
5. The conduct of Wholesale Motors through its
employees, agents and representatives and the conduct of
[Davis] were reprehensible, grossly unfair, and deceptive.
Essentially, they were attempting to "cheat" each
other. . . .
Wholesale Motors may not be held liable to [Davis] on a
claim of unfair or deceptive trade practice; i.e., HRS
§ 480–2. [Davis] was not an "innocent" consumer. He too
engaged in unfair and deceptive acts, representations, and
practices with respect to the transaction.
Id. (cleaned up). In Davis the defendant argued that the
plaintiff's unclean hands barred the plaintiff from maintaining a
statutory UDAP claim. We disagreed, holding that the equitable
"unclean hands" defense is not an affirmative defense to a
statutory UDAP claim. Id. at 418, 949 P.2d at 1039.
Claim preclusion and issue preclusion are legal, not
equitable, defenses.
[U]nlike equitable estoppel, res judicata is a rule not only
"of fundamental and substantial justice" and "private peace"
but of "public policy." Some courts have classified this as
the doctrine's primary purpose. See Buromin Co. v. Nat'l
Aluminate Corp., 70 F.Supp. 214, 217 (D. Del. 1947) ("The
doctrine of res judicata is primarily one of public policy
and only secondarily of private benefit to the individual
litigants. It has its roots in the maxim that it concerns
the public that there be an end to litigation when one party
has had a full and free opportunity of presenting all the
facts pertinent to the controversy.")[.] Some commentators
argue this distinction is significant enough that "in
contemporary practice, [claim and issue preclusion] are not
considered estoppels at all in spite of their nomenclature."
Brown, supra, at 376.
Priceline.com, Inc. v. Dir. of Tax'n, 144 Hawai#i 72, 85, 436
P.3d 1155, 1168 (2019) (cleaned up) (emphasis added) (citing
Christopher Brown, A Comparative and Critical Assessment of
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Estoppel in International Law, 50 U. Miami L. Rev. 369, 376
(1996)). The collateral attack doctrine is also a legal, not an
equitable, concept. In re Gentry Revocable Tr., 138 Hawai#i at
168, 378 P.3d at 884 (applying de novo standard of review to
applicability of collateral attack doctrine).
We have applied claim preclusion to preclude
relitigation of a plaintiff's UDAP claim which was based upon
allegations "substantively similar to claims found in its
counterclaim" in a prior action. Aloha Unlimited, Inc. v.
Coughlin, 79 Hawai#i 527, 536-37, 904 P.2d 541, 550-51 (App.
1995). The supreme court has applied claim preclusion to
preclude relitigation of other consumer protection statutes.
Esteban, 129 Hawai#i at 160-62, 296 P.3d at 1068-70 (applying
claim preclusion to federal Truth in Lending Act claim).
Here, Indymac does not contend that the Khalegis'
unclean hands bar them from maintaining their statutory UDAP
claim; it is the Khalegis who contend that Indymac's unclean
hands bar Indymac and OneWest from relying on the legal defense
of claim preclusion. The Khalegis are collaterally attacking the
Deficiency Judgment; that contravenes the policy behind claim
preclusion by encouraging, instead of preventing, a multiplicity
of suits and limitless litigation. See Esteban, 129 Hawai#i at
159, 296 P.3d at 1067. The Khaleghis have cited no case law
equitably barring a defendant from asserting claim preclusion to
defend against a collateral attack on a final judgment.
The Khaleghis' potential remedies for Indymac's
allegedly inequitable conduct in the Foreclosure Action would
have been to oppose confirmation of the foreclosure sale, to
oppose entry of the Deficiency Judgment, or to seek relief from
the Deficiency Judgment under HRCP Rule 60(b)(3) ("(3) fraud
. . . , misrepresentation, or other misconduct of an adverse
party."). Claim preclusion, issue preclusion, and the collateral
attack doctrine would not have applied to those remedies. See
Godinez, 148 Hawai#i at 327-28, 474 P.3d at 268-69 (noting that
claim preclusion and issue preclusion do not apply to an HRCP
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Rule 60(b) motion, because "an HRCP Rule 60(b) motion is a
continuation of the original action.").
Second, the Khaleghis contend that claim preclusion is
an equitable defense that should not have been available to
Indymac, which had unclean hands. As stated above, claim
preclusion, issue preclusion, and the collateral attack doctrine
are legal, not equitable, defenses. Priceline.com, 144 Hawai#i
at 85, 436 P.3d at 1168; In re Gentry Revocable Tr., 138 Hawai#i
at 168, 378 P.3d at 884.
Third, the Khaleghis contend that their UDAP and unjust
enrichment claims should not have been precluded because the
Foreclosure Judgment, the Judgment Confirming Sale, and the
Deficiency Judgment were procured by fraud. But the Khaleghis
never moved to set aside any of the judgments because of fraud
pursuant to HRCP Rule 60(b)(3), under which claim and issue
preclusion would not have applied. See Godinez, 148 Hawai#i at
327-28, 474 P.3d at 268-69. Rather, the Khaleghis' corrected
amended complaint sought equitable relief and treble damages
based on alleged misconduct that was, or could have been, alleged
in the Foreclosure Action, and that were, or could have been,
finally decided in Khaleghi I.
Fourth, the Khaleghis contend that their UDAP and
unjust enrichment claims are based upon Indymac's conduct after
the foreclosure complaint was filed. That is true. But they
then argue that their UDAP and unjust enrichment claims should
not have been precluded because they had no opportunity to
actually litigate those claims in the Foreclosure Action. That
is only partly true.
Indymac's allegedly unfair and deceptive refusal to
consent to the $3.4 million third-party offer and to seek an
allegedly inflated deficiency judgment was presented to the
circuit court in the Foreclosure Action (in the Khaleghis'
opposition to Indymac's motion to confirm the foreclosure sale,
in their motion to set aside their defaults, and in their HRCP
Rule 60(b)(4) motion). The facts upon which the Khaleghis' UDAP
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and unjust enrichment claims are based were at issue in the
Foreclosure Action; they formed the basis for entry of the
Confirmation of Sale Judgment and calculation of the Deficiency
Judgment. The UDAP claim, being based upon Indymac's alleged
misconduct during the Foreclosure Action before entry of the
Deficiency Judgment, could have been asserted as a counterclaim
in the Foreclosure Action (had the Khaleghis not defaulted). Cf.
Bank of Am., N.A. v. Reyes-Toledo, 143 Hawai#i 249, 263, 428 P.3d
761, 775 (2018) (holding that a foreclosure defendant may bring a
counterclaim for wrongful foreclosure before the foreclosure
actually occurs).
Issue preclusion precludes "the relitigation of a fact
or issue that was previously determined in a prior action on a
different claim or cause of action between the same parties or
their privies" and only applies "if the particular issue in
question was actually litigated, finally decided, and essential
to the earlier valid and final judgment." Uyeda v. Schermer, 144
Hawai#i 163, 173, 439 P.3d 115, 125 (2019) (citing Dannenberg v.
State, 139 Hawai#i 39, 59-60, 383 P.3d 1177, 1197-98 (2016))
(other citation omitted). Under such circumstances the Khaleghis
are precluded from relitigating the issues which were presented
to the circuit court in the Foreclosure Action: whether Indymac's
failure to consent to the $3.4 million offer was unreasonable
under the circumstances; whether the high bid of $2.788 million
at the re-opened foreclosure auction was reasonable; and whether
the resultant $2.5 million Deficiency Judgment was legally
invalid. The Khaleghis are also precluded from collaterally
attacking the Foreclosure Judgment, the Confirmation of Sale
Judgment, and the Deficiency Judgment in this action alleging
UDAP and unjust enrichment.
Fifth, the Khaleghis contend that res judicata should
not apply because had they not defaulted in the Foreclosure
Action, "the unfair and deceptive acts of [Indymac] could have
been developed through discovery and used to defend against the
deficiency[.]" The Khaleghis moved to set aside their defaults
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in the Foreclosure Action. Their motion was denied. They did
not appeal from the order denying their motion to set aside their
defaults. They cite no legal authority for the proposition that
judgment debtors can collaterally attack a default judgment by
contending, in a subsequent lawsuit, that their defaults should
have been set aside. Khaleghi I precludes the Khaleghis from
pursuing claims that the Foreclosure Judgment, the Judgment
Confirming Sale, and/or the Deficiency Judgment resulted from
unfair or deceptive acts or practices by Indymac, or that Indymac
was unjustly enriched by the Deficiency Judgment. That is the
case under claim preclusion, issue preclusion, and the collateral
attack doctrine. The circuit court acknowledged this when it
stated:
[S]uccessful prosecution of [the Khaleghis'] claims would
effectively nullify . . . : One [sic], foreclosure judgment;
two, the order denying [the Khaleghis'] motion for relief;
three, the order denying [the Khaleghis'] motion to set
aside default; four, the order denying [the Khaleghis']
motion to stay proceedings; five, the confirmation [of sale]
order; and six, the deficiency judgment; and seven, the ICA
decision [in Khaleghi I].
[The Khaleghis] agree that the essence of their claim
is that the bank wrongfully rejected a higher offer on the
property in October 2010 and that they were lulled into
nonaction in the foreclosure matter. [The Khaleghis']
argument is that the bank depressed the value of the home
. . . in the foreclosure matter. The same is true for the
arguments that the borrowers were wrongfully lulled into
believing that there would be no deficiency judgment. The
same factual basis on the foreclosure matter is even used to
support these arguments [in the corrected amended
complaint].
If the Court were to change its mind now, it would
effectively nullify the Court's prior rulings. Moreover,
the Court cannot provide the borrowers their requested
relief without effectively reversing the deficiency judgment
and the rulings that gave rise to the deficiency judgment.
The Court is not going to do that.
The circuit court did not err by granting Indymac's motion for
judgment on the pleadings.
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3. The circuit court did not err by
dismissing the Khaleghis' corrected
amended complaint with prejudice.
The Khaleghis contend that their UDAP and unjust
enrichment claims should not have been dismissed, but rather,
"discovery should have been allowed into those areas where the
[corrected amended complaint] and [Indymac] disputed [sic] the
facts applicable to the latter's right to assert res judicata."
But Indymac's motion was decided under HRCP Rule 12; the
Khaleghis introduced no evidence outside the pleadings to convert
the motion to one under HRCP 56. Moreover, the Khaleghis did not
submit to the circuit court the affidavit or declaration required
by HRCP Rule 56(f).9 Finally, the Khaleghis do not explain what
facts they hoped to discover that would affect the applicability
of claim preclusion, issue preclusion, or the collateral attack
doctrine. The circuit court did not err by dismissing the
Khaleghis' corrected amended complaint with prejudice.
4. The circuit court did not err by failing
to rule on the choice of law issue.
The Khaleghis contend that the circuit court erred by
failing to apply California law, under which the Khaleghis could
only be liable to Indymac up to the value of the foreclosed
property. The Khaleghis raised the choice of law issue in their
HRCP Rule 60(b)(4) motion for relief from the Foreclosure
Judgment. The circuit court applied Hawai#i law and eventually
entered the Deficiency Judgment. The Khaleghis could and should
9
HRCP Rule 56 provides, in relevant part:
(f) When affidavits are unavailable. Should it appear
from the affidavits of a party opposing the motion [for
summary judgment] that the party cannot for reasons stated
present by affidavit facts essential to justify the party's
opposition, the court may refuse the application for
judgment or may order a continuance to permit affidavits to
be obtained or depositions to be taken or discovery to be
had or may make such other order as is just.
The affidavit of the Khaleghis' counsel attached to their memorandum in
opposition to Indymac's motion was conclusory and did not contain the
information required by HRCP Rule 56(f).
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have raised the choice of law issue in the appeals that resulted
in Khaleghi I. Their attempt to collaterally attack the
Deficiency Judgment in this case is without merit.
5. The circuit court did not err by not
granting the Khaleghis leave to amend
their corrected, already-amended
complaint.
The Khaleghis contend that the circuit court should
have granted them leave to amend their corrected, already-amended
complaint "to set forth in more detail the grounds on which they
contended that res judicata did not apply[.]" Further amendment
would have been futile because the alleged misconduct forming the
basis for the Khaleghis' UDAP and unjust enrichment claims
occurred before entry of the Deficiency Judgment; the Khaleghis
have not argued that anything Indymac did, or failed to do, after
entry of the Deficiency Judgment could form the factual basis for
their UDAP or unjust enrichment claims. See Off. of Hawaiian
Affs. v. State, 110 Hawai#i 338, 365, 133 P.3d 767, 794 (2006)
(noting that leave to amend complaint may be denied where
proposed amendments are futile).
CONCLUSION
For the foregoing reasons, the Final Judgment entered
by the circuit court on January 11, 2017, is affirmed.
DATED: Honolulu, Hawai#i, February 23, 2022.
On the briefs:
/s/ Katherine G. Leonard
James J. Bickerton, Presiding Judge
Stephen M. Tannenbaum,
for Plaintiffs-Appellants. /s/ Keith K. Hiraoka
Associate Judge
Jesse W. Schiel,
Nicholas R. Monlux, /s/ Sonja M.P. McCullen
Gabriele V. Provenza, Associate Judge
for Defendants-Appellees.
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