Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 1 of 31 PageID #: 440 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII

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1 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 1 of 31 PageID #: 440 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII EDWIN PASCUA CARAANG and EDNA GOROSPE CARAANG, vs. Plaintiffs, AURORA LOAN SERVICES LLC; LEHMAN BROTHERS BANK, FSH; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC.; CAL-WESTERN RECONVEYANCE CORPORATION; and DOES 1-50 inclusive, Defendants. CIVIL NO LEK-RLP ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS MOTION TO DISMISS On October 12, 2011, Defendants Lehman Brothers Bank, FSB ( Lehman, 1 Aurora Loan Services, LLC ( Aurora, and Mortgage Electronic Registration Systems Inc. ( MERS filed a Motion to Dismiss ( Lehman Motion, and Defendant Cal-Western Reconveyance Corporation ( Cal-Western filed a Motion to Dismiss Complaint for Failure to State a Claim upon Which Relief Can Be Granted, or, in the Alternative, for a More Definite Statement ( Cal-Western Motion. On January 9, 2012, pro se plaintiff Edwin Pascua Caraang filed an opposition which appeared 1 Lehman is now known as Aurora Bank, FSB. [Corporate Disclosure Statement, filed 10/12/11 (dkt. no. 12 at 2.]

2 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 2 of 31 PageID #: 441 to only address the Lehman Motion. 2 Lehman, Aurora, and MERS filed a reply on January 9, 2012, and a supplemental reply on January 16, These matters came on for hearing on January 23, Appearing on behalf of Lehman, Aurora, and MERS was Stephanie Thompson, Esq., and appearing on behalf of Cal-Western was David Rosen, Esq. Damon Senaha, Esq., appeared on behalf of Edwin Caraang and Edna Caraang ( Plaintiffs. 3 After careful consideration of the motions, supporting and opposing memoranda, and the arguments of counsel, the Lehman Motion and the Cal-Western Motion are HEREBY GRANTED IN PART AND DENIED IN PART for the reasons set forth below. BACKGROUND Plaintiffs, who were proceeding pro se at the time, filed the instant action on May 19, 2011 against Aurora, Lehman, MERS, and Cal-Western (all collectively Defendants. Plaintiffs purchased Kamiki Street, Waipahu, HI ( the Property on or about November 14, 2005 with an Adjustable Rate Note for $216, ( the Note from Lehman. The Note is secured by a Mortgage which identifies Plaintiffs and 2 Pro se Plaintiff Edna Gorospe Caraang did not sign the opposition filed by Edwin Caraang, who is not an attorney. 3 Mr. Senaha stated that Plaintiffs retained him less than twenty-four hours prior to the hearing. In light of the fact that Plaintiffs have known about the pending motions since October 2011, but failed to retain counsel until the day before the hearing, the Court denied Mr. Senaha s oral request to continue the hearing. 2

3 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 3 of 31 PageID #: 442 Jocelyn Caraang as the borrowers. [Complaint at 5, 12.] The Mortgage identifies MERS as the mortgagee and the nominee for Lehman and its successors and assigns. According to the Complaint, Defendants claimed on or about January 14, 2010 that Plaintiffs were in default on the loan. Defendants recorded a Notice of Mortgagee s Intention to Foreclose Under Power of Sale on or about June 29, On or about January 14, 2011, a document evidencing the foreclosure sale of the Property was filed. Cal-Western granted the Property to Aurora. [Complaint at ] Plaintiffs allege that the loan was unconscionable because Lehman s employees and/or agents knew the loan payments were more than Plaintiffs could afford, and Lehman s employees and/or agents neither disclosed the terms and conditions of the loan nor explained the loan documents to Plaintiffs. They also allege that Defendants charged improper fees because the loan was a sub-prime loan. Plaintiffs stress that the loan was a contract of adhesion and that the parties had unequal bargaining power. [Id. at ] Plaintiffs claim that Defendants fraudulently induced them to enter into the loan by falsely representing that Plaintiffs could not qualify for other financing on better terms. [Id. at 24.] Plaintiffs also allege that their loan was sold on multiple occasions, using MERS s role as the lender s nominee to 3

4 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 4 of 31 PageID #: 443 hide the identity of successive beneficiaries of the loan. Plaintiffs assert that none of the Defendants is the true beneficiary of the loan because none was the holder of the Note, and therefore none had the right to declare default and foreclose. [Id. at 13, 25.] Plaintiffs point out that, on September 8, 2009 and June 8, 2010, MERS purportedly assigned the loan to Aurora, but Plaintiffs argue that MERS never transferred the original Note to Aurora. Further, they claim that the MERS vice presidents who signed the assignments were employees of Aurora who were robosigners, signing documents without actual knowledge of the underlying facts. [Id. at ] Further, Plaintiffs allege that the foreclosure sale did not comply with various provisions of the Hawai`i Revised Statutes. In particular, the Notice of Default was not valid, and the trustee that conducted the sale was not in possession of the original Note. [Id. at ] The Complaint alleges that the foregoing conduct is the basis for the following claims: 1 violation of Haw. Rev. Stat against all Defendants ( Count I, alleging that Defendants policies and practices constitute unfair methods of competition ( UMOCs and unfair and deceptive acts or practices ( UDAPs ; 2 breach of the covenant of good faith and fair dealing against Lehman ( Count II ; 3 a claim for injunctive relief against Lehman and MERS determining the parties legal status as to the Note and Mortgage, requiring Defendants to produce the original Note and the appropriate endorsements, and excusing Plaintiffs 4

5 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 5 of 31 PageID #: 444 from making payments on the Note until Defendants provide those documents ( Count III ; 4 violation of Haw. Rev. Stat. Chapter 480 against Lehman and MERS ( Count IV, alleging that their misrepresentations, failure to investigate, and failure to disclose information in connection with the loan origination constitute UDAPs; 5 fraud against Lehman and MERS relating the loan origination and the foreclosure sale of the Property ( Count V ; 4 6 a claim for declaratory relief against all Defendants as to the parties duties and obligations with regard to the loan and/or the foreclosure ( Count VI ; 7 intentional misrepresentation against all Defendants regarding the foreclosure process and what entity was entitled to payments on the Note ( Count VII ; and 8 a claim against all Defendants to set aside the foreclosure sale as defective, wrongful, fraudulent, and in violation of, inter alia, Haw. Rev. Stat , , 502-3, , , and ( Count VIII. Plaintiffs seek: exemplary and punitive damages; actual economic and non-economic damages; statutory damages; attorneys fees and costs recoverable under federal or state law; declaratory relief, including a declaration that Defendants and their successors have no enforceable lien against the Property; injunctive relief prohibiting the foreclosure and foreclosure sale of the Property and preventing Defendants from violating the laws identified in the Complaint; cancellation of the prior foreclosure sale; restitution; an order to reinstate Plaintiffs title to the Property; and any other appropriate relief. I. Lehman Motion The Lehman Motion contends that Plaintiffs claims are 4 The counts in the Complaint are misnumbered. Plaintiffs identify the fraud claim as the sixth cause of action because there is no fifth cause of action. Further, there are two eighth causes of action. 5

6 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 6 of 31 PageID #: 445 premised on legal arguments that courts have repeatedly rejected. As to MERS s ability to assign Lehman s interest in the loan, the Lehman Motion emphasizes that, although the Mortgage provided that MERS held only legal title, the Mortgage also provided that MERS had the right to exercise any or all of those interest, (sic including but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender[.] [Mem. in Supp. of Lehman Motion at 9 (quoting RJN, Ex. 1, at 3 (emphasis and alteration in Mem. in Supp..] This Court and others have previously ruled that, under such language, MERS had the authority to assign the lender s interest under the subject mortgage. [Id. at 8-9 (citing Cooper v. Bank of New York Mellon, 2011 WL , *13 (D. Haw. Aug. 23, 2011; Sakala v. BAC Home Loans Servicing, CV No DAE-LEK, dated Oct. 3, ] Insofar as the Complaint alleges that the individuals who executed the June 2010 Assignment lacked the authority to do so, Plaintiffs have not pled sufficient facts to support this conclusory allegation. Moreover, Plaintiffs do not have standing to contest the validity of the assignment. [Id. at 10.] The Lehman Motion also notes that courts have rejected the argument regarding the splitting of a note from a mortgage. [Id. at (citing Cervantes v. Countrywide Home Loans, Inc., 5 The Sakala order is attached to the Lehman Motion as Exhibit 8 to the Declaration of Stephanie E.W. Thompson. [Dkt. no. 9-3.] 6

7 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 7 of 31 PageID #: WL *7 (9th Cir. Sept. 7, 2011; In re Mortgage Electronic Registration Systems (MERS Litigation, 2011 WL , *4 (D. Ariz. Oct. 3, 2011.] Similarly, courts have also rejected the presentment argument that Plaintiffs pose here. [Id. at (some citations omitted (citing Brenner v. Indymac Bank, F.S.B., 2010 WL , at *7 (D. Haw. Nov. 9, 2010; Mansour v. Cal-Western Reconveyance Corp., 618 F. Supp. 2d 1178, 1181 (D. Ariz ] The Lehman Motion contends that, even without these three arguments, the claims in the Complaint fail. The Lehman Motion argues that the UMOC and UDAP claims are untimely to the extent that they are based on the loan origination because Plaintiffs did not file suit within four years of obtaining the loan. Specifically as to the UMOC claim, the Complaint does not allege any facts that support the conclusory allegation that Defendants policies and practices constitute UMOCs, and the Complaint does not specify which defendant allegedly committed which act. As to the UDAP claim, to the extent it is based on the loan origination, lenders do not owe a duty of care to borrowers unless their role in the transactions exceed a lender s traditional role. [Id. at 16 (citing Pugal v. ASC (America s Servicing Company, 2011 WL , *8 (D. Haw. Sept. 21, 2011 (citing Nymark v. Heart Fed. Sav. & Loan Ass n, 283 Cal. Rptr. 53, 56 (Cal. App ] 7

8 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 8 of 31 PageID #: 447 Nor do lenders have a duty to disclose facts outside of the discloses required by law or a duty to place borrowers in loans they can afford. [Id. (citing Gonzales v. First Franklin Loan Services, 2010 WL , *9 (E.D. Cal. 2010; McCarty v. GCP Management, LLC, 2010 WL , *6 (D. Haw. Nov. 17, 2010.] The Complaint in this case does not allege that Defendants exceed a lender s conventional role with respect to Plaintiffs loan. In addition, the UDAP claim is not supported by sufficient factual allegations, and it does not identify which defendant allegedly committed which fraudulent act. The Lehman Motion urges the Court to dismiss Count I against MERS and Aurora with prejudice because they did not participate in the loan origination process. [Id. at ] Count II alleges that Lehman breached the covenant of good faith and fair dealing by instituting the foreclosure action without properly demonstrating its right to foreclose. Lehman, however, did not participate in the foreclosure, and Plaintiffs cannot rely on the previously rejected presentment theory. To the extent that Count II is based on Lehman s conduct during the origination of the loan, the claim fails because Hawai`i law does not recognize a claim for breach of the covenant of good faith and fair dealing based on pre-consummation conduct. [Id. at 20 (citing Mier v. Lordsman Inc., 2011 WL , *5 (D. Haw. Jan. 27, 2011; Young v. Allstate Ins. Co., 119 Hawai`i 403, 428, 198 8

9 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 9 of 31 PageID #: 448 P.3d 666, 690 (2008.] Similarly, there is no claim for breach of the covenant of good faith and fair dealing where a lender exercises its contractual right to foreclose. [Id. at 21 (citing Pugal, 2011 WL , at *5 (quoting Davenport v. Litton Loan Servicing, LP, 725 F. Supp. 2d 862, 884 (N.D. Cal ] The Lehman Motion asserts that Count III and Count VI fail because there is no independent action for injunctive relief or declaratory relief. Further, Plaintiffs have not alleged any cognizable claims that would entitle them to obtain injunctive or declaratory relief. [Id. at ] Count V, Plaintiffs fraud claim, alleges that Lehman and MERS, inter alia, made false representations and failed to make required disclosures during the loan origination process in order to induce Plaintiffs to enter into the loan. Plaintiffs also allege that Defendants falsely represented in the Notice of Default that they were authorized to foreclose. First, MERS did not participate in the loan origination process. As noted previously, Lehman did not have a duty to opine about Plaintiffs ability to repay the loan or about whether other loan products were available. The Complaint does not allege that Defendants violated any of the federal statutes governing mortgage disclosures, and lenders have no duty to make disclosures beyond what is required by law. [Id. at ] Moreover, Count V does not satisfy the particularity requirements of Fed. R. Civ. P. 9

10 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 10 of 31 PageID #: 449 9(b. Count VII (intentional misrepresentation is also a claim sounding in fraud, and Plaintiffs failed to plead it with the required specificity. Further, the allegations of Count VII do not state a viable claim. [Id. at ] Finally, as to Count VIII (wrongful foreclosure, the Lehman Motion points out that, although the Complaint lists a series of Hawai`i statutes which Defendants allegedly violated, the Complaint does not state which defendant allegedly violated which provision and how. Further, some of the statutes are not relevant to the foreclosure and would not entitle Plaintiffs to the relief they seek. [Id. at ] II. Cal-Western Motion The Cal-Western states that it assisted Aurora in the non-judicial foreclosure of the Property. According to Cal- Western, the Complaint s allegations regarding Cal-Western are: the Foreclosure Notice did not have a Declaration of Due Diligence signed by someone with actual knowledge; the Notice of Default was not signed by someone with personal knowledge; and the foreclosure sale did not comply with the applicable state law. [Mem. in Supp. of Cal-Western Motion at 2-3.] Cal-Western emphasizes that it did not execute the documents that Plaintiffs complain of. Further, Hawai`i law regarding non-judicial foreclosures does not require the filing 10

11 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 11 of 31 PageID #: 450 of a declaration of due diligence or the recording of a notice of default prior to foreclosure. Cal-Western also argues that the Complaint does not provide any factual allegations supporting Plaintiffs claim that the foreclosure proceedings violated state law. [Id. at 3.] Specifically as to Count I (the claim, it is insufficiently pled because it does not state how or when Cal- Western allegedly engaged in practices and/or enforced policies that were likely to mislead Plaintiffs. Count VI (declaratory relief fails because the Complaint does not allege an actual controversy between Plaintiffs and Cal-Western regarding the ownership of the Property and the commencement of the foreclosure process. [Id. at 9-10.] Count VII (intentional misrepresentation fails because a notice of default is not required under Hawai`i law, and the Complaint does not contain any other factual allegations supporting the intentional misrepresentation claim against Cal- Western. Moreover, this claim must be pled with particularity pursuant to Rule 9(b, but Plaintiffs failed to do so. [Id. at ] Count VIII, the wrongful foreclosure claim seeking to set aside the foreclosure sale, fails because it is a request for relief, not a cause of action. Further, Plaintiffs other claims do not entitle them to set aside the foreclosure sale and to have their title restored. [Id. at ] 11

12 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 12 of 31 PageID #: 451 Cal-Western argues that Plaintiffs cannot cure the defects in the claims against Cal-Western. Cal-Western therefore urges the Court to: dismiss the Complaint as to Cal-Western with prejudice; award Cal-Western its attorneys fees and costs; award any other appropriate relief; or, if the Court is not inclined to dismiss, require Plaintiffs to file a more definite statement of the allegations against Cal-Western. [Id. at 15.] III. Opposition Edwin Caraang s pro se opposition to the Lehman Motion merely summarizes the allegations in the Complaint. It states that Plaintiffs only recently discovered Defendants alleged fraudulent misrepresentations and violations of state law. Further, to the extent that the Complaint is insufficiently pled, Plaintiffs are willing to file an amended complaint to comply with the necessary requirements and to allege more specific facts. [Opposition at 3-4.] IV. Replies The reply that Lehman, MERS, and Aurora filed on January 9, 2012 ( Lehman Reply noted that any opposition to the motions was due by January 2, 2012, but Plaintiffs did not file an opposition by the filing of the Lehman Reply. The Lehman Reply therefore asks the Court to grant the Lehman Motion and dismiss the Complaint with prejudice. 12

13 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 13 of 31 PageID #: 452 Lehman, MERS, and Aurora learned of the Opposition after filing the Lehman Reply. This Court granted their ex parte motion for leave to file a supplemental reply. [Dkt. nos. 27 (ex parte motion, 28 (EO granting.] The Supplemental Reply argues that the Opposition does not address the deficiencies in the Complaint and does not refute the legal arguments presented in the Lehman Motion. The Supplemental Reply urges the Court to limit any leave to amend to the cognizable claims which are not based on previously rejected legal theories. The Supplemental Reply, however, argues that all of Plaintiffs claims should be dismissed with prejudice. I. Judicial Notice DISCUSSION Also on October 12, 2011, Lehman, MERS, and Aurora filed a request for judicial notice in support of the Lehman Motion ( Lehman RJN, and Cal-Western filed a Request for Judicial Notice in support of the Cal-Western Motion ( Cal- Western RJN. The Lehman RJN asks this Court to take judicial notice of the following exhibits: 1 the Mortgage, recorded on December 2, 2005 as document number in the State of Hawaii Bureau of Conveyances ( BOC ; 2 the Mortgagee s Affidavit of Foreclosure Sale under Power of Sale, recorded on February 9, 2011 as document number in the BOC; 3 the Assignment of Mortgage from MERS to Aurora, recorded on June 29, 2010 as document number in the BOC ( June 2010 Assignment ; 4 the Notice of Mortgagee s Intention to Foreclosure under Power 13

14 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 14 of 31 PageID #: 453 of Sale, recorded on July 22, 2010 as document number in the BOC ( Foreclosure Notice ; 5 the Mortgagee s Grant Deed Pursuant to Power of Sale by Aurora to Mark N. Chin and Jeanie C. Chin, recorded on March 31, 2011 as document number in the BOC; 6 the Federal Stock Charter for Lehman, with documents regarding Aurora s status as a subsidiary of Lehman and regarding changing Lehman s name to Aurora Bank FSB; and 7 certified copies of various corporate documents by Aurora. The Cal-Western RJN asks this Court to take judicial notice of many of the same documents as the Lehman RJN. The only additional document is Exhibit D, letters dated September 11, 2009 to Plaintiffs and Jocelyn Caraang providing them with notice of the default and the intent to accelerate the amount due. This Court may take judicial notice of any fact not subject to reasonable dispute in that it is... capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned. Fed. R. Evid. 201(b. This Court may take judicial notice at any stage of a case, and the Court must take judicial notice when a party makes a request and supplies the necessary information. Fed. R. Evid. 201(d, (f. The contents of the documents that Defendants have presented can be readily determined through public records, the accuracy of which cannot reasonably be questioned. For example, mortgage agreements are public records and therefore may be the subject of judicial notice. See, e.g., Duarte v. Bank of Am., Civil No JMS/BMK, 2011 WL , at *1 n.1 (D. Hawai`i Apr. 12, 2011 (citation omitted. The Lehman RJN and 14

15 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 15 of 31 PageID #: 454 the Cal-Western RJN are therefore GRANTED. II. Counts I and IV (Violations of Chapter 480 Count I alleges that unspecified policies and practices by Defendants, as described in the Complaint, constitute UMOCs and UDAPs. [Complaint at ] Count IV alleges that Lehman s and MERS s actions with regard to the loan origination constitute UDAPs. [Id. at ] First, all of Plaintiff s Chapter 480 claims based on events in the course of the loan origination are time-barred. See Haw. Rev. Stat (a ( Any action to enforce a cause of action arising under this chapter shall be barred unless commenced within four years after the cause of action accrues[.]. Plaintiffs obtained the loan in December 2005, and they did not file this action until May Thus, Count IV, which is based on the loan origination, and the portion of Count I based on the loan origination fail as a matter of law, and Plaintiffs cannot cure the defects in these claims by amendment. Count I does not identify what specific actions by which specific Defendants Plaintiffs allege constitute UDAPs and UMOCs. Count I merely refers generally to the acts and practices set forth in preceding paragraphs of the Complaint. [Complaint at 39.] In addition to Plaintiffs allegations regarding the loan origination, Plaintiffs also challenge the propriety of the June 2010 Assignment and the foreclosure process. Plaintiffs 15

16 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 16 of 31 PageID #: 455 were not parties to the June 2010 Assignment, and they have not alleged any facts indicating that they were intended beneficiaries of that assignment. Plaintiffs therefore do not have standing to object to the June 2010 Assignment. See Velasco v. Sec. Nat l Mortg. Co., CV. No DAE KSC, 2011 WL , at *4 (D. Hawai`i Oct. 14, 2011 (citing Livonia Property Holdings, L.L.C. v Farmington Road Holdings, LLC, 717 F. Supp. 2d 724, 737 (E.D. Mich (holding that a plaintiff who was not and is not a party to any assignments or Pooling and Servicing Agreement at issue lacks standing to challenge their validity or the parties compliance with those contracts.. Thus, the portion of Count I challenging the June 2010 Assignment fails as a matter of law, and Plaintiffs cannot cure the defects in this claim by amendment. See Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir ( dismissal without leave to amend is improper unless it is clear that the complaint could not be saved by any amendment (citation and quotation marks omitted. Finally, Lehman and MERS were not involved in the foreclosure process. Thus, the portion of Count I challenging the foreclosure process fails as a matter of law against Lehman and MERS, and Plaintiffs cannot cure the defects in this claim by amendment. Although Cal-Western and Aurora did play a part in the foreclosure process, the Complaint does not set forth 16

17 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 17 of 31 PageID #: 456 sufficient factual allegations to state a claim to relief that is plausible on its face. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007; see also Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009 ( A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.. It is, however, arguably possible for Plaintiffs to cure the defects in that portion of Count I by amendment. The Cal-Western Motion is therefore GRANTED insofar as: the portions of Count I based on the loan origination and the June 2010 Assignment are DISMISSED WITH PREJUDICE against Cal- Western. The Cal-Western Motion GRANTED IN PART AND DENIED IN PART insofar as the portion of Count I based on the foreclosure process is DISMISSED WITHOUT PREJUDICE against Cal-Western. The Lehman Motion is GRANTED to the extent that: Count IV is DISMISSED WITH PREJUDICE; Count I is DISMISSED WITH PREJUDICE as to Lehman and MERS; and the portion of Count I based on the loan origination and the June 2010 Assignment are DISMISSED WITH PREJUDICE as to Aurora. The Lehman Motion is GRANTED IN PART AND DENIED IN PART to the extent that the portion of Count I based on the foreclosure process is DISMISSED WITHOUT PREJUDICE as to Aurora. 17

18 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 18 of 31 PageID #: 457 III. Count II (Good Faith & Fair Dealing Count II alleges a claim against Lehman for breach of the covenant of good faith and fair dealing, apparently based on both loan origination and foreclosure activities. [Complaint at ] This district court has characterized similar claims as alleging the tort of bad faith. See, e.g., Phillips v. Bank of Am., Civil No JMS-KSC, 2011 WL , at *5 (D. Hawai`i Jan. 21, 2011 (citing Best Place v. Penn Am. Ins. Co., 82 Haw. 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. In that case, this district court stated: In Best Place, the Hawaii Supreme Court noted that although Hawaii law imposes a duty of good faith and fair dealing in all contracts, whether a breach of this duty will give rise to a bad faith tort cause of action depends on the duties inherent in a particular type of contract. Jou v. Nat l Interstate Ins. Co. of Haw., 114 Haw. 122, 129, 157 P.3d 561, 568 (Haw. App (citing Best Place, 82 Haw. at 129, 920 P.2d at 334. The court concluded that special characteristics distinguished insurance contracts from other contracts and justified the recognition of a bad faith tort cause of action for the insured in the context of first- and third-party insurance contracts. Id. (citing Best Place, 82 Haw. at , 920 P.2d at Indeed, 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. Id. (citing Simmons v. Puu, 105 Haw. 112, 120, 94 P.3d 667, 675 (2004. Moreover, although commercial contracts for sale of goods also contain an obligation of good faith in their performance and enforcement, this 18

19 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 19 of 31 PageID #: 458 obligation does not create an independent cause of action. See Stoebner Motors, Inc. v. Automobili Lamborghini S.P.A., 459 F. Supp. 2d 1028, (D. Haw And Hawaii 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 Haw. 234, 238, 971 P.2d 707, 711 (1999. It is thus unlikely that Plaintiffs could recover for bad faith as alleged in Count III. Importantly, even assuming a bad faith tort exists outside the insurance context, it is well-settled that [a] party cannot breach the covenant of good faith and fair dealing before a contract is formed. Contreras v. Master Fin., Inc., 2011 WL 32513, at *3 (D. Nev. Jan. 4, 2011 (citing Indep. Order of Foresters v. Donald, Lufkin & Jenrette, Inc., 157 F.3d 933, 941 (2d Cir ( [A]n implied covenant relates only to the performance under an extant contract, and not to any pre-contract conduct.. Hawaii follows this distinction. See Young v. Allstate Ins. Co., 119 Haw. 403, 427, 198 P.3d 666, 690 (2008 (indicating the covenant of good faith does not extend to activities occurring before consummation of an insurance contract. Thus, because all of Count III s allegations concern pre-contract activities (failing to disclosure terms, failing to conduct proper underwriting, making an improper loan to Plaintiffs, Defendants cannot be liable for bad faith. See id.; see also Larson v. Homecomings Fin., LLC, 680 F. Supp. 2d 1230, 1237 (D. Nev ( Because Plaintiffs claim revolves entirely around alleged misrepresentations made before the [mortgage loan] contract was entered into, [the bad faith claim] fails as a matter of law.. And, even if Plaintiffs are attempting to assert bad faith in the performance of a contractual right to foreclose, a court should not conclude that a foreclosure conducted in accordance with the terms of a deed of trust constitutes a breach of the implied covenant of 19

20 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 20 of 31 PageID #: 459 good faith and fair dealing. Davenport v. Litton Loan Servicing, LP, 725 F. Supp. 2d 862, 884 (N.D. Cal (citation omitted. The covenant [of good faith] does not impose any affirmative duty of moderation in the enforcement of legal rights. Id. (quoting Price v. Wells Fargo Bank, 213 Cal. App. 3d 465, , 261 Cal. Rptr. 735, 742 (1989. Id. at *5-6 (alterations in original. For the same reasons, to the extent that Count II is based on Lehman s actions during the loan origination process, the claim fails as a matter of law. As previously stated, Lehman was not involved in the foreclosure process, and the portion of Count II based on the foreclosure process fails against Lehman for that reason. Further, for the reasons stated in Phillips, it would be futile for Plaintiffs to amend Count II to name Aurora and/or Cal-Western as the defendant, or defendants, for foreclosure activities. Thus, Plaintiffs cannot cure the defects in Count II by any amendment. The Court therefore GRANTS the Lehman Motion as to Count II, and DISMISSES Count II WITH PREJUDICE. IV. Count III (Injunctive Relief Count III alleges a claim for injunctive relief against Lehman and MERS. [Complaint at ] The court follows the well-settled rule that a claim for injunctive relief standing alone is not a cause of action. Dowkin v. Honolulu Police Dep t, Civil No SOM/LEK, 2011 WL , at *14 (D. Hawai`i Sept. 2, 2011 (citing Henke v. Arco Midcon, L.L.C., 20

21 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 21 of 31 PageID #: F. Supp. 2d 1052, (E.D. Mo ( Injunctive relief, however, is a remedy, not an independent cause of action. ; Jensen v. Quality Loan Serv. Corp., 702 F. Supp. 2d 1183, 1201 (E.D. Cal ( A request for injunctive relief by itself does not state a cause of action (quotation marks and citation omitted; Plan Pros, Inc. v. Zych, 2009 WL , at *2 (D. Neb. Mar. 31, 2009 ( no independent cause of action for injunction exists ; Motley v. Homecomings Fin., LLC, 557 F. Supp. 2d 1005, 1014 (D. Minn (same. Plaintiffs request for injunctive relief, as a free-standing claim, fails to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b(6. Further, Plaintiffs cannot cure the defects in Count III by amendment. The Court therefore GRANTS the Lehman Motion to the extent that Count III is DISMISSED WITH PREJUDICE. The Court, however, emphasizes that Plaintiffs still have the opportunity to seek the remedy of injunctive relief, if Plaintiffs prevail on one of their substantive claims and such relief is warranted under the facts as proven. V. Counts V (Fraud & VII (Intentional Misrepresentation Count V alleges a fraud claim against Lehman and MERS, [Complaint at ,] and Count VII alleges an intentional, i.e. fraudulent, misrepresentation claim against all Defendants [id. at ]. The fraud claim is based on Lehman and MERS s alleged actions in connection with the loan origination, 21

22 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 22 of 31 PageID #: 461 the assignment, and the foreclosure process. Count VII refers to aspects of the Notice of Default, and thus appears to challenge only the foreclosure process. First, as previously stated, Plaintiffs do not have standing to challenge the June 2010 Assignment. The Lehman Motion is therefore GRANTED as to the portion of Count V challenging the June 2010 Assignment. That portion of Count V is DISMISSED WITH PREJUDICE. Second, unlike the Chapter 480 claims based on loan origination activities, the fraud claim based on loan origination activities is not time-barred. A six-year statute of limitations under Haw. Rev. Stat (4 6 applies to claims of fraud. Eastman v. McGowan, 86 Hawai`i 21, 27, 946 P.2d 1317, 1322 (1997; Au v. Au, 63 Haw. 210, 217, 626 P.2d 173, 179 (1981; Mroz v. Hoaloha Na Eha, Inc., 360 F. Supp. 2d 1122, 1135 (D. Hawai`i Third, Aurora and Cal-Western were not involved in the loan origination process, and Lehman and MERS were not involved in the foreclosure process. Thus, Plaintiffs have not pled, and 6 Section states, in pertinent part: The following actions shall be commenced within six years next after the cause of action accrued, and not after:.... (4 Personal actions of any nature whatsoever not specifically covered by the laws of the State. 22

23 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 23 of 31 PageID #: 462 cannot amend their Complaint to plead, plausible claims for fraud or intentional/fraudulent misrepresentation against Lehman and MERS based on the foreclosure process, and Plaintiffs cannot plead a plausible intentional/fraudulent misrepresentation claim against Aurora and Cal-Western for loan origination activities. The Lehman Motion is therefore GRANTED as to the portion of Count V and the portion of Count VII challenging the foreclosure process. The Cal-Western Motion is GRANTED as to the portion of Count VII based on loan origination activities. Those portions of Count V and Count VII are DISMISSED WITH PREJUDICE. To the extent that Count V and Count VII are based on loan origination activities or the foreclosure process and are alleged against the proper defendants, the Complaint does not meet the pleading standards for fraud, and fraud-based, claims. Federal Rule of Civil Procedure 9(b requires that [i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Rule 9(b requires that a party make particularized allegations of the circumstances constituting fraud. See Sanford v. MemberWorks, Inc., 625 F.3d 550, (9th Cir In a pleadings alleging a fraud claim, the plaintiff must allege the time, place, and content of the fraudulent representation; conclusory allegations do not suffice. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1042 (9th 23

24 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 24 of 31 PageID #: 463 Cir (citation omitted. Malice, intent, knowledge, and other conditions of a person s mind may be alleged generally. Fed. R. Civ. P. 9(b; see also Odom v. Microsoft Corp., 486 F.3d 541, 554 (9th Cir (en banc ( [T]he state of mind - or scienter - of the defendants may be alleged generally. (citation omitted; Walling v. Beverly Enters., 476 F.2d 393, 397 (9th Cir (stating that Rule 9(b only requires the identification of the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations (citations omitted. When there are multiple defendants, Rule 9(b does not allow a complaint to merely lump multiple defendants together but require[s] plaintiffs to differentiate their allegations when suing more than one defendant... and inform each defendant separately of the allegations surrounding his alleged participation in fraud. In the context of a fraud suit involving multiple defendants, a plaintiff must, at a minimum, identif[y] the role of [each] defendant[] in the alleged fraudulent scheme. Swartz v. KPMG LLP, 476 F.3d 756, (9th Cir (internal quotation marks and citations omitted; see also Meridian Project Sys., Inc. v. Hardin Constr. Co., 404 F. Supp. 2d 1214, 1226 (E.D. Cal ( When fraud claims involve multiple defendants, the complaint must satisfy Rule 9(b particularity requirements for each defendant.. Count V and Count VII do not state specific allegations, including what each defendant did that was allegedly 24

25 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 25 of 31 PageID #: 464 fraudulent or constituted an intentional/fraudulent misrepresentation. Plaintiffs have therefore failed to allege plausible claims for fraud and intentional/fraudulent misrepresentation, but it is arguably possible for Plaintiffs to cure the defects in those claims by amendment. The Lehman Motion is therefore GRANTED IN PART AND DENIED IN PART as to the portion of Count V and the portion of Count VII based on loan origination activities against Lehman and MERS, and as to the portion of Count VII challenging the foreclosure process against Aurora. The Cal-Western Motion is GRANTED IN PART AND DENIED IN PART as to the portion of Count VII challenging the foreclosure process. Those portions of Count V and Count VII are DISMISSED WITHOUT PREJUDICE. VI. Count VI (Declaratory Relief Count VI alleges a claim for declaratory relief against all Defendants. [Complaint at ] The instant case is before the Court based on diversity jurisdiction. 7 [Id. at 2.] Haw. Rev. Stat states, in pertinent part: Relief by declaratory judgment may be granted in civil cases where an actual controversy exists between contending parties, or where the court is satisfied that antagonistic claims are present between the parties involved which indicate imminent and inevitable litigation, or where in any such case the court is satisfied that a party 7 The Complaint also alleges federal question jurisdiction based on various federal statutes. [Complaint at 1.] All of these statutes are in applicable to the instant case. 25

26 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 26 of 31 PageID #: 465 asserts a legal relation, status, right, or privilege in which the party has a concrete interest and that there is a challenge or denial of the asserted relation, status, right, or privilege by an adversary party who also has or asserts a concrete interest therein, and the court is satisfied also that a declaratory judgment will serve to terminate the uncertainty or controversy giving rise to the proceeding.... In a case addressing a similar declaratory relief claim under federal law, this district court ruled that the plaintiff s declaratory relief claim was not cognizable as an independent cause of action because it merely duplicated the plaintiff s other causes of action. Caniadido v. MortgageIT, LLC, Civil No JMS/BMK, 2011 WL , at *5 (D. Hawai`i Aug. 26, For the same reasons, in the instant case, this Court finds that Plaintiffs have failed to state a cognizable claim for declaratory relief under Plaintiffs request for declaratory relief, as a free-standing claim, fails to state a claim upon which relief can be granted. Further, Plaintiffs cannot cure the defects in Count VI by amendment. The Court therefore GRANTS the Lehman Motion and the Cal-Western Motion to the extent that Count VI is DISMISSED WITH PREJUDICE. The Court, however, emphasizes that Plaintiffs still have the opportunity to seek the remedy of declaratory relief, if Plaintiffs prevail on one of their substantive claims and such relief is warranted under the facts as proven. 26

27 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 27 of 31 PageID #: 466 VII. Count VIII (Wrongful Foreclosure Count VIII alleges a wrongful foreclosure claim against all Defendants. [Complaint at ] As previously noted, Lehman and MERS were not involved in the foreclosure process. Thus, Plaintiffs have not pled, and cannot amend their Complaint to plead, a plausible wrongful foreclosure claim against Lehman and MERS. The Lehman Motion is therefore GRANTED as to the portion of Count VIII challenging the foreclosure process against Lehman and MERS. That portion of Count VIII is DISMISSED WITH PREJUDICE. The Ninth Circuit has recognized that [s]ubstantive wrongful foreclosure claims... typically are available after foreclosure and are premised on allegations that the borrower was not in default, or on procedural issues that resulted in damages to the borrower. Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1043 (9th Cir (citations omitted. Other cases in this district have analyzed wrongful foreclosure claims pursuant to Haw. Rev. Stat. Chapter 667. See, e.g., Rundgren v. Bank of New York Mellon, Civil No JMS/LEK, 2011 WL , at *9 (D. Hawai`i Feb. 28, Plaintiffs have not identified any part of Chapter 667 that Defendants allegedly violated in the foreclosure process, and Aurora and Cal-Western have argued that the foreclosure process complied with all aspects of the relevant law. 27

28 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 28 of 31 PageID #: 467 Plaintiffs cited other statutes in Count VIII that they allege Defendants violated in the foreclosure process, but those statutes do not apply in this case. [Complaint at 113.] The only potentially relevant statute is Haw. Rev. Stat , which requires documents recorded in the BOC to be acknowledged according the statute s requirements. The lack of a proper acknowledgment, however, does not invalidate the instrument between the parties; it only affects the instrument s ability to be recorded. Schmidt v. Pac. Benefit Servs., Inc., 113 Hawai`i 161, 169, 150 P.3d 810, 818 (2006. Plaintiffs have therefore failed to allege a plausible wrongful foreclosure claim against Aurora and Cal-Western, but it is arguably possible for Plaintiffs to cure the defects in this claims by amendment. The Lehman Motion and the Cal-Western Motion are therefore GRANTED IN PART AND DENIED IN PART as to the portion of Count VIII against Aurora and Cal-Western challenging the foreclosure process. That portion of Count VIII is DISMISSED WITHOUT PREJUDICE. VIII. Leave to Amend This Court has dismissed portions of Count I ( claim, Count V (fraud, Count VII (intentional misrepresentation, and Count VIII (wrongful foreclosure without prejudice. Plaintiffs are given leave to file a First Amended Complaint, which may only include those four claims, but only if 28

29 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 29 of 31 PageID #: 468 Plaintiffs can cure the defects in those claims which this Court has identified in this Order. In particular, the Court emphasizes that the First Amendment Complaint must plead Plaintiffs fraud, and fraud based, claims with particularity pursuant to the standard set forth in Fed. R. Civ. P. 9(b and the relevant case law. Plaintiff s First Amended Complaint shall be filed by no later than February 15, The Court CAUTIONS Plaintiffs that, if they fail to timely file a First Amended Complaint, the claims which this Court has dismissed without prejudice will be automatically dismissed with prejudice. Further, if the First Amended Complaint fails to address the defects identified in this Order, the Court may dismiss those claims with prejudice. The Court emphasizes that Plaintiffs are not granted leave to add new parties, claims or theories of liability, and the First Amended Complaint must address the deficiencies noted in this Order. If Plaintiffs wish to add new parties, claims or theories of liability, Plaintiffs must either obtain a stipulation from all parties or move for leave to amend according to the deadlines in the Rule 16 Scheduling Order. The magistrate judge will rule upon such a motion in the normal course. The Court CAUTIONS Plaintiffs that, if they include new parties, claims or theories of liability in the First Amended Complaint without obtaining either a stipulation or an order from the 29

30 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 30 of 31 PageID #: 469 magistrate judge granting leave to amend, the new parties, claims, or theories of liability may be dismissed with prejudice. CONCLUSION On the basis of the foregoing, the Motion to Dismiss filed by Lehman, Aurora, and MERS on October 12, 2011, and the Motion to Dismiss Complaint for Failure to State a Claim upon Which Relief Can Be Granted, or, in the Alternative, for a More Definite Statement, filed by Cal-Western on October 12, 2011, are HEREBY GRANTED IN PART AND DENIED IN PART. The motions are GRANTED insofar as: the portions of Count I based on the loan origination and the June 2010 Assignment are DISMISSED WITH PREJUDICE against Aurora and Cal-Western, and Count I, in its entirety, is DISMISSED WITH PREJUDICE as to Lehman and MERS; Counts II, III, and IV are DISMISSED WITH PREJUDICE; the portions of Count V challenging the June 2010 Assignment and the foreclosure process are DISMISSED WITH PREJUDICE as to Lehman and MERS; Count VI is DISMISSED WITH PREJUDICE; the portion of Count VII challenging the foreclosure process is DISMISSED WITH PREJUDICE against Lehman and MERS, and the portion of Count VII based on loan origination activities is DISMISSED WITH PREJUDICE as to Aurora and Cal-Western; and the portion of Count VIII challenging the foreclosure process is DISMISSED WITH PREJUDICE as to Lehman and MERS. insofar as: The motions are GRANTED IN PART AND DENIED IN PART the portion of Count I based on the foreclosure process is DISMISSED WITHOUT PREJUDICE against Aurora and Cal-Western; the portion of Count V based on loan origination activities is DISMISSED WITHOUT PREJUDICE against Lehman and MERS, the portion of Count VII challenging the foreclosure process is DISMISSED WITHOUT PREJUDICE against Aurora and Cal-Western; and the portion of Count VIII challenging the foreclosure process is 30

31 Case 1:11-cv LEK -RLP Document 31 Filed 01/27/12 Page 31 of 31 PageID #: 470 DISMISSED WITHOUT PREJUDICE against Aurora and Cal-Western. The Court GRANTS Plaintiffs leave to file a First Amended Complaint consistent with the terms of this Order. Plaintiffs must file their First Amended Complaint by no later than February 15, The Court CAUTIONS Plaintiffs that, if they fail to file their First Amended Complaint by February 15, 2012, the claims which this Order dismissed without prejudice will be automatically dismissed with prejudice. Further, if Plaintiffs First Amended Complaint fails to cure the defects identified in this Order or adds new parties, claims, or theories of liability, this Court may dismiss those claims with prejudice. Any other requests in the Lehman Motion or the Cal- Western Motion not specifically addressed in this Order are HEREBY DENIED. IT IS SO ORDERED. DATED AT HONOLULU, HAWAII, January 27, /S/ Leslie E. Kobayashi Leslie E. Kobayashi United States District Judge EDWIN PASCUA CARAANG, ET AL. V. AURORA LOAN SERVICES LLC, ET AL; CIVIL NO LEK-RLP; ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS MOTION TO DISMISS 31