Opinion
CIVIL NO. 12-00618 DKW-RLP
01-14-2014
EMMANUEL RAMELB and CYNTHIA RAMELB, Plaintiffs, v. NEWPORT LENDING CORPORATION, ET AL. Defendants.
ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND ORDER TO SHOW CAUSE
INTRODUCTION
Before the Court is Defendants Deutsche Bank National Trust Company ("Deutsche Bank") and IndyMac Mortgage Services, a division of OneWest Bank, FSB's ("OneWest") Motion for Summary Judgment ("Motion"). Pursuant to Local Rule 7.2(d), the Court finds this matter suitable for disposition without a hearing. After careful consideration of the supporting and opposing memoranda, and the relevant legal authority, the Court GRANTS the Motion.
The Court further ORDERS Plaintiffs to SHOW CAUSE why this action should not be dismissed without prejudice as to Defendant Newport Lending Corporation ("Newport Lending") for failure to serve the Complaint.
BACKGROUND
Plaintiffs Emmanuel and Cynthia Ramelb financed the purchase of their single family residential property, located at 361 Aalii Way, Lahaina, Hawaii 96761 (the "property"), through a loan issued by Newport Lending. The loan was secured by a mortgage on the property that was recorded as Document Number 2007-131625 on July 24, 2007. Complaint ¶ 2. Plaintiffs allege that Deutsche Bank is the current mortgagee, and that OneWest is the servicer of the loan. Complaint ¶¶ 3-4. According to Defendants, Plaintiffs have not made any payments on their mortgage since March 2011 and are approximately $300,000 in arrears. Boyle Decl. ¶¶ 18, 21; Defs.' Ex. 10 (Account Activity Statement); Defs.' Ex. 2 (Note). Although Plaintiffs were sent a notice of default in October 2011, they have failed to cure their default. Boyle Decl. ¶¶ 21-22. As a result, Defendants commenced a foreclosure action in state court, which Plaintiffs have alternatively attempted to stay and dismiss. Defs.' Replacement Exs. 1a & 1b (Motions to Dismiss and Stay Proceedings).
The mortgage requires Plaintiffs to maintain adequate hazard insurance, including hurricane insurance, on the property. Plaintiffs, however, failed to renew their hurricane insurance beginning in August 2008. Defs.' Ex. 3 (Mortgage) at 6-9; Defs.' Ex. 4 (Door Dep. Tr) at 31-60; Defs.' Ex. 9 (Notice of Cancellation). In this circumstance, the mortgage authorizes OneWest, as servicer, to obtain hurricane insurance on Plaintiffs' behalf by advancing the cost of the premiums and adding the costs to the loan balance. Defs.' Ex. 3 at 6, § 5. The mortgage also explains that coverage procured in this manner could be more expensive. Defs.' Ex. 3 at 6, § 5.
On January 22, 2011, OneWest sent a letter to Plaintiffs informing them that if they did not procure adequate hurricane insurance, OneWest would "place insurance coverage on the property to protect our interest[,]" and that "[t]his type of insurance is costly." Defs.' Ex. 12 (1/11 Letter). Plaintiffs did not respond to the letter. Thereafter, on February 19, 2011, OneWest sent a follow-up letter to Plaintiffs, again informing them that if they did not purchase adequate hurricane insurance, OneWest would acquire coverage for them by advancing the premiums and adding the cost to the loan balance. Defs.' Ex. 13 (2/11 Letter). On March 24, 2011, having once again received no response from Plaintiffs, OneWest placed hurricane insurance on the property. Peters Decl. ¶ 16; Defs.' Ex. 14 (4/11 Letter & 2010 Policy).
Before renewing the property's hurricane insurance policy, OneWest sent Plaintiffs yet another letter, suggesting they purchase their own coverage:
The comprehensive windstorm (hurricane) and hail policy which [OneWest] purchased on the above property will renew on 01/20/2012. Please be aware that there has been an increase in the annual premium. It may be in your best interest to replace this coverage with one of your own choosing.Defs.' Exhibit 16 (12/11 Letter). Having still received no response, on February 1, 2012, OneWest sent another letter to Plaintiffs informing them that it had acquired hurricane insurance for the property and that the rates for the hurricane insurance were "significantly higher than the rates you may qualify for if you purchased your own policy[.]" Defs.' Ex. 17 (2/1/12 Letter). Plaintiffs did not respond to the February 1, 2012 letter and did not obtain hurricane insurance on their own. Peters Decl. ¶¶ 20-23.
The rates for this lender-placed program are significantly higher than the rates you may qualify for if you purchased your own policy. . . .
You may replace this lender-placed insurance at any time. If you purchased other windstorm (hurricane) and hail coverage and provide us with proof of acceptable insurance, we will cancel this coverage and refund any unearned premium. . . .
Plaintiffs filed the instant action on November 19, 2012. They allege that OneWest and Deutsche Bank violated the implied covenant of good faith and fair dealing, Hawai'i Revised Statutes ("HRS") § 490:1-204, and HRS § 480-2 by purchasing hurricane insurance on the property (Counts I-IV), and committed unfair and deceptive acts or practices in violation of HRS § 480-2 (Count V). Plaintiffs also allege unfair and deceptive acts or practices by Newport Lending based on the loan origination (Count VI). OneWest and Deustche Bank seek summary judgment on each of the Counts alleged against them in the Complaint.
As discussed below, Newport Lending has neither been served nor made an appearance in this matter.
STANDARD OF REVIEW
Pursuant to Federal Rule of Civil Procedure 56(a), a party is entitled to summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Plaintiffs, who are represented by counsel, did not file a timely opposition to the Motion, and the Court therefore treats the motion as unopposed.
When a motion for summary judgment is unopposed, the motion should be granted only when the movant's papers are themselves sufficient to support the motion and they do not reveal a genuine issue of material fact. In re Rogstad, 126 F.3d
1224, 1227 (9th Cir. 1997) (noting that it is in error to grant a motion for summary judgment simply because the opponent failed to oppose the motion); Cristobal v. Siegel, 26 F.3d 1488, 1494-95 & n.4 (9th Cir. 1994) (noting that an unopposed motion may be granted only after the court determines that there are no material issues of fact).Aga v. Winter, 2009 WL 4406086, at *2-3 (D. Haw. Dec. 1, 2009) (some alterations in original). In the present matter, the facts set forth in Defendants' separate and concise statement of facts in support of their Motion are unopposed and therefore deemed admitted.
Additionally, in a motion for summary judgment, "material facts set forth in the moving party's concise statement will be deemed admitted unless controverted by a separate concise statement of the opposing party." L.R. 56.1(g) (effective Dec. 1, 2009). Thus, while this court is not permitted to grant an unopposed motion for summary judgment as a matter of right, Siegel, 26 F.3d at 1494-95, it must deem all facts proffered in [the defendant's] concise statement as admitted by [the plaintiff]. Therefore, the court must determine whether the facts, as asserted in [the defendant's] concise statement, warrant a grant of summary judgment.
DISCUSSION
I. Counts I , II, III & IV
Counts I and II are entitled "[Defendants'] Breach of Implied Covenant of Good Faith and Fair Dealing." Counts III and IV are entitled "Tort Liability for [Defendants'] Breach of Implied Covenant of Good Faith and Fair Dealing." The first two Counts allege that OneWest and Deutsche Bank "violated their duty under the Implied Covenant of Good Faith and Fair Dealing, Hawaii Revised Statutes § 490:1-304, and Hawaii Revised Statutes § 480-2 as it is not a reasonable expectation that [OneWest and Deutsche Bank] would purchase insurance at twenty-two (22) times the cost that an individual could have obtained." Complaint ¶¶ 77, 94. Counts III and IV (Complaint ¶¶ 111, 128) allege the same misconduct as the basis of Plaintiffs' assertion that Defendants "violated the Implied Covenant of Good Faith and Fair Dealing, Hawaii Revised Statutes § 490:1-304, and Hawaii Revised Statutes § 480-2 in their performance and enforcement." Complaint ¶¶ 116, 133.
Counts I and II are identical, except that Count I is against OneWest and Count II is against Deutsche Bank. Similarly, Count III alleges claims against OneWest that are identical to the claims alleged in Count IV against Deutsche Bank.
Each of these Counts attempts to assert the tort of "bad faith." See Best Place v. Penn Am. Ins. Co., 82 Hawai'i 120, 128, 920 P.2d 334, 342 (1996) (adopting tort of bad faith for breach of implied covenant of good faith and fair dealing in an insurance contract). This cause of action, however, has not been recognized in Hawai'i based upon a mortgage loan contract. See Jou v. Nat'l Interstate Ins. Co. of Haw., 114 Hawai'i 122, 129, 157 P.3d 561, 568 (App. 2007) (explaining that "the Hawaii Supreme Court emphasized that the tort of bad faith, as adopted in [Best Place,] requires a contractual relationship between an insurer and an insured" (citations omitted)). Plaintiffs fail to state a claim on this basis alone.
Moreover, although commercial contracts for the "sale of goods" also contain an obligation of good faith in their performance and enforcement, this obligation does not create an independent cause of action. See Stoebner Motors, Inc. v. Automobili Lamborghini S.P.A., 459 F. Supp. 2d 1028, 1037-38 (D. Haw. 2006). Hawai'i courts have noted that "[o]ther jurisdictions recognizing the tort of bad faith . . . limit such claims to the insurance context or situations involving special relationships characterized by elements of fiduciary responsibility, public interest, and adhesion." Id. at 1037 (quoting Francis v. Lee Enters., 89 Hawai'i 234, 238, 971 P.2d 707, 711 (1999)).
In this case, OneWest's uncontroverted conduct was entirely consistent with Plaintiffs' mortgage, and the implied covenant of good faith and fair dealing cannot be used to impose obligations that are contrary to the express terms of the agreement. Although Plaintiffs' mortgage unambiguously requires them to maintain adequate hazard insurance on the property, including hurricane insurance, Plaintiffs failed to do so beginning in August 2008. Defs.' Ex. 3 (Mortgage) at 6-9; Defs.' Ex. 4 (Door Dep. Tr.) at 31-60; Defs.' Ex. 9 (Notice of Cancellation). In this circumstance, the mortgage authorizes OneWest, as servicer, to obtain hurricane insurance by advancing the cost of the premiums and adding the costs to the loan balance. Defs.' Ex. 3 at 6, § 5. Plaintiffs' mortgage also clearly states that coverage procured on behalf of a borrower could be more expensive than the coverage a borrower could purchase on his/her own from an insurer:
If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender's option and Borrower's expense. Lender is under no obligation to purchase any particular type or amount of coverage. . . . Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained.Defs.' Ex. 3 at 6, § 5; see also id. at 7, § 9 (authorizing Lender to "do and pay for whatever is reasonable or appropriate to protect" its interest in the mortgaged property).
There is no dispute that Plaintiffs failed to obtain hurricane insurance and that Defendants were authorized to procure it on their behalf. Defendants notified Plaintiffs repeatedly of Defendants' intent to procure insurance on Plaintiffs' behalf and at Plaintiffs' expense, and that the cost of obtaining and renewing such insurance would likely be both considerable and considerably more costly than what Plaintiffs could likely procure on their own. In response, Plaintiffs did absolutely nothing. Under these circumstances, there is nothing unfair or in bad faith about Defendants' actions designed to protect their interest in the mortgaged property and, indeed, Plaintiffs' protestations to the contrary are specious at best.
There is no genuine issue of material fact that Defendants are entitled to judgment as a matter of law with respect to the claims based on breach of the implied covenant of good faith and fair dealing. For these reasons, the Motion is GRANTED with respect to Counts I, II, III and IV.
II. Count V
Plaintiffs allege similar claims in Count V as they relate to the servicing of their loan by OneWest. Count V alleges violations of HRS § 480-2, which makes it unlawful to engage in "unfair or deceptive acts or practices in the conduct of any trade or commerce." HRS § 480-2(a). The Hawai'i Supreme Court "has described a deceptive act or practice as having the capacity or tendency to mislead or deceive." Courbat v. Dahana Ranch, Inc., 111 Hawai'i 254, 261, 141 P.3d 427, 434 (2006) (citation and quotation marks omitted). More specifically, under Hawai'i law, "a deceptive act or practice is (1) a representation, omission, or practice that (2) is likely to mislead consumers acting reasonably under circumstances where (3) the representation, omission, or practice is material." Id. at 262, 141 P.3d at 435 (adopting three-part test set forth in In re Cliffdale Assocs., 103 F.T.C. 110, 165 (1984)) (quotation and alteration signals omitted). "A representation, omission, or practice is considered 'material' if it involves 'information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product.'" Id. (citing Novartis Corp. v. FTC, 223 F.3d 783, 786 (D.C. Cir. 2000)). Plaintiffs claim that Defendants' unfair and deceptive acts or practices caused them harm in the form of "payment of improper fees and charges and [the] threatened loss of [their] home." Complaint ¶ 152.
Plaintiffs' HRS § 480-2 claim fails as a matter of law because OneWest's purchase of the hurricane insurance, and the charges associated therewith, were contractually authorized and fully and repeatedly disclosed to Plaintiffs. Plaintiffs fail to establish any act or practice by Defendants "having the capacity or tendency to mislead or deceive," Courbat, 111 Hawai'i at 261, 141 P.3d at 434, or how Defendants' actions offended public policy, or were "immoral, unethical, oppressive, unscrupulous or substantially injurious" to them. Tokuhisa v. Cutter Mgmt. Co., 122 Hawai'i 181, 194, 223 P.3d 246, 259 (2009).
To the extent Plaintiffs allege that the insurance premiums and fees charged were "unconscionable," (see Complaint ¶¶ 141-142), they fail to state a claim. "Unconscionability" is generally a defense to the enforcement of a contract, not a proper claim for affirmative relief. See, e.g., Gaitan v. Mortg. Elec. Registration Sys., 2009 WL 3244729, at *13 (C.D. Cal. Oct. 5, 2009). Moreover, the mortgage provision at issue is not unconscionable. Section 5 of the mortgage makes Plaintiffs responsible for insuring the property and requires them to obtain insurance, which Plaintiffs failed to do. Had Plaintiffs fulfilled their obligation to insure the property, the lender's option to obtain alternative insurance would never have arisen in the first place. See Ragan v. Finance America, LLC, 2011 WL 2457656, *4 (D. Haw. June 15, 2011) ("The mortgage clearly explains that Plaintiff must maintain insurance on the subject property or Chase would obtain insurance at Plaintiff's expense. In other words, this clause only became an issue if and when Plaintiff failed to provide proof of insurance; Plaintiff was ultimately in control of whether Chase would ever need to insure the subject property.").
The Court finds that there is no genuine issue of material fact that Defendants are entitled to judgment as a matter of law with respect to Plaintiffs' claims alleging unfair and deceptive acts or practices. For these reasons, the Motion is GRANTED with respect to Count V.
Because the Court finds that Plaintiffs fail to state claims based on the implied covenant of good faith and fair dealing or on the basis of unfair and deceptive acts or practices, the Court does not reach Defendants' alternative argument regarding the effect of the Home Owners' Loan Act, 12 U.S.C. § 1464, et seq., on Plaintiffs' Chapter 480 claims. The Court notes, however, that at least one court in this district has found that state law claims for unfair and deceptive acts or practices are not generally preempted by federal law. See Kajitani v. Downey Sav. & Loan Ass'n, F.A., 647 F. Supp. 2d 1208, 1220 (D. Haw. 2008).
III. Order to Show Cause
Plaintiffs' remaining claim, Count VI, is directed solely at Newport Lending. On January 14, 2013, Plaintiff filed a Return of Non-Service as to Newport Lending, which has not appeared in this matter. As of the date of this order, Plaintiff has not served a copy of the Summons and Complaint on Newport Lending. Pursuant to Federal Rule of Civil Procedure 4(m), Plaintiff had 120 days from the filing of the Complaint on November 19, 2012 to complete service. Federal Rule of Civil Procedure 4(m) provides, in pertinent part:
If a defendant is not served within 120 days after the complaint is filed, the court—on motion or on its own after notice to the plaintiff—must dismiss the action without prejudice against that defendant or order that service be made within a specified time. But if the plaintiff shows good cause for the failure, the court must extend the time for service for an appropriate period.
More than 120 days have passed since Plaintiffs filed the Complaint. Under Rule 4(m), after providing notice to Plaintiffs, the Court must dismiss the action without prejudice unless good cause is shown for the failure to properly serve the Complaint.
Accordingly, the Court ORDERS Plaintiffs to SHOW CAUSE why this action should not be dismissed without prejudice as to Newport Lending for failure to serve the Complaint. Plaintiffs' Response to this Order to Show Cause is due on or before January 22, 2014. If no Response to this Order to Show Cause is filed by January 22, 2014, the action will be dismissed without prejudice as to Newport Lending.
CONCLUSION
On the basis of the foregoing, the Court GRANTS Defendants Deutsche Bank National Trust Company and IndyMac Mortgage Services, a division of OneWest Bank, FSB's Motion for Summary Judgment. If no Response to this Order to Show Cause is filed by January 22, 2014, the action will be dismissed without prejudice as to Newport Lending.
IT IS SO ORDERED.
DATED: January 14, 2014, at Honolulu, Hawai'i.
/s/_________
Derrick K. Watson
United States District Judge