Editor: David Reiss
Brooklyn Law School

March 11, 2013

Hawaii District Court Dismisses Homeowner Plaintiffs Claims Against Defendants, But Breach of Fiduciary Duty Claims Against Brokers Survives

By Jeffrey Lederman

In Mier v. Lordsman Inc., 2011 U.S. Dist. LEXIS 8484 (D. Haw. Jan. 26, 2011), Plaintiffs Carmelita and Clarence Mier sought in their complaint filed on October 6, 2010, declaratory and injunctive relief, damages, and rescission of their mortgage transaction. Lending Tree filed a motion to dismiss all counts on November 11, 2010. The court granted Lending Tree’s motion to dismiss with leave to amend and applied its decision to claims against all Defendants (excepting a breach of fiduciary duty claim against Lordsman and Fidelity).

Plaintiffs signed two mortgages relating to their Waipahu, Hawaii property, the first on March 14, 2006 for $412,500 from Lending Tree and the second from IndyMac on Feb 27, 2007 for $85,500.

Specifically, Plaintiffs alleged twelve separate counts against the various defendants, rarely distinguishing between them in their complaint. The court took a liberal approach to the Plaintiffs’ pleadings, as they were pro se.

The court ruled that Plaintiffs’ first two claims, for declaratory relief and injunctive relief, both failed to state a claim upon which relief can be granted because such “claims are remedies, not independent causes of action.” The court dismissed these claims against all defendants without leave to amend.

Plaintiffs’ third claim, asserted a contractual breach of the implied covenant of good faith and fair dealing, for withholding loan disclosures and offering a loan Plaintiffs were not qualified for. The court, following Best Place v. Penn Am. Ins. Co., 82 Haw. 120 (Haw. 1996), noted that while Hawaii recognizes bad faith torts in insurance contracts because they “require a contractual relationship between an insurer and an insured,” Hawaii has yet to recognize such a tort in mortgage loan agreements. The court added that a party cannot breach a covenant of good faith and fair dealing before a contract is formed. As the relevant claims pertain to pre-contract activity, the court dismissed these claims for all defendants without leave to amend.

Plaintiffs’ fourth claim alleges that the defendants were in violation of the Truth in Lending Act   (TILA) 15 U.S.C. § 1601 et seq.. Plaintiffs’ TILA claim for damages, under 15 U.S.C. § 1640(e) were time barred against all defendants. The court dismissed all claims against the defendants with leave to amend to submit evidence for equitable tolling. Plaintiff’s rescission claims under 15 U.S.C. § 1635(a) and 15 U.S.C. § 1635(f) were time barred and dismissed with respect to all defendants without leave to amend.

Plaintiffs’ fifth claim under RESPA alleges that the defendants’ loan fees were excessive and that hidden fees existed under 12 U.S.C. § 2607.  The court ruled that § 2607 does not prohibit gross billing for services performed. Furthermore, the court agreed with the defendant in suggesting claims may be time barred. The court dismissed Plaintiffs’ RESPA claims without leave to amend for claims under § 2607, as well as any claims under §2603 or §2604, but is otherwise free to amend

The court ruled that Plaintiffs’ sixth claim, rescission, was not an independent cause of action and it was dismissed with respect to all defendants without leave to amend.

Plaintiffs’ seventh claim alleges defendants are liable for Unfair and Deceptive Acts and Practices for their allegedly fraudulent business practices, under HRS § 480-2(a). The court noted that lenders owed no duty of care to borrower in standard loan transactions.  The court dismissed all charges and granted Plaintiffs leave to amend, but stated that Plaintiffs should consider statute of limitations concerns prior to refilling.

Plaintiffs’ eighth claim, for breach of fiduciary duty, claims that all defendants failed to advise Plaintiffs of their likelihood of default. While the court dismissed claims against the lenders, who owed no fiduciary duty to their borrowers, brokers and escrow depositories owe a fiduciary duty to their clients. All claims against defendants were dismissed with leave to amend, except as to Lordsman (a broker) and Fidelity (title and escrow company).

Plaintiffs’ ninth claim, for unconscionability under UCC-2-3202 (sic 2-302), was dismissed with respect to all defendants with leave to amend. A “stand alone” claim of unconscionability is improper and specific terms of the contract need to be identified.

Plaintiffs’ tenth claim alleged “predatory lending” violations, but as Hawaii has no common law claim for “predatory lending” the courts dismissed with leave to amend to all parties to state a cause of action based on specific illegal activities.

Plaintiff’s eleventh cause of action, to quiet title under HRS § 669-1(a), failed to allege sufficient facts about the interest of the parties involved. The court dismissed claims with respect to all parties with leave to amend.

Plaintiff’s twelfth and final cause of action, claimed MERS lacks standing as an “improper fictitious entity.” The court ruled that a claim stating a defendant lacks standing does not make sense, and dismissed the claim with leave to amend, as perhaps the Plaintiffs are claiming MERS could not foreclose because it is not a holder of the note.

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