Mortgage Electronic Registration Systems, Inc. v. Wise

***FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER***

Electronically Filed
Supreme Court
SCWC-11-0000444
10-JUL-2013
10:06 AM

IN THE SUPREME COURT OF THE STATE OF HAWAI#I

---o0o---

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,
solely as nominee, Respondent/Plaintiff-Appellee,

vs.

SHARON KEHAULANI WISE and BLOSSOM ILIMA NIHIPALI,
Petitioners/Defendants-Appellants,

and

EWA BY GENTRY COMMUNITY ASSOCIATION,
Respondent/Defendant-Appellee.

SCWC-11-0000444

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-11-0000444; CIVIL NO. 09-1-1064)

July 10, 2013

NAKAYAMA, ACTING C.J., ACOBA, MCKENNA, AND POLLACK, JJ., AND
CIRCUIT JUDGE NISHIMURA, IN PLACE OF RECKTENWALD, C.J., RECUSED

AMENDED OPINION OF THE COURT BY ACOBA, J.

We hold that Petitioners/Defendants-Appellants Sharon

Kehaulani Wise (Wise) and Blossom Ilima Nihipali (Nihipali)
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(collectively Petitioners), mortgagors under the mortgage herein,

are precluded from raising the standing of Respondent/Plaintiff-

Appellee Mortgage Electronic Registration Systems, Inc. (MERS, or

Respondent) to bring the foreclosure action herein inasmuch as

(1) a standing objection is not “unique” to a confirmation of

sale proceeding, see Security Pacific Mortg. Corp. v. Miller, 71

Haw. 65, 70, 783 P.2d 855, 858 (1989), from which Petitioners

appeal, and (2) Petitioners’ failure to appeal the foreclosure

judgment barred challenges to Respondent’s standing under the

doctrine of res judicata. In consonance with these holdings, the

April 29, 2011 judgment of the Circuit Court of the First Circuit

(the court)1, and the January 2, 2013 judgment of the

Intermediate Court of Appeals (ICA) are affirmed, but for the

reasons set forth herein.

I.

On September 8, 2006, Petitioners executed a promissory

note (Note) secured on a mortgage (Mortgage) on their residence

located in Ewa Beach, Hawai#i, in the amount of $416,250.00 from

Flexpoint Funding Corporation (Flexpoint) a California

corporation. The Mortgage stated that it “secured to

[Flexpoint],” inter alia, “the repayment of the loan.”

1
The Honorable Bert I. Ayabe presided.

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Respondent was listed in the mortgage as “mortgagee”2 and

“nominee.”3 The Mortgage provided that “[Respondent] holds only

legal title to the interests granted by [Petitioners] in this

Mortgage; but, if necessary to comply with law or custom,

[Respondent], (as nominee for Lender and Lender’s successors and

assigns), has the right: to exercise any and all of those

interests, including, but not limited to, the right to foreclose

and sell the Property.”

On May 6, 2009, Respondent, as Plaintiff and acting

“solely as nominee,” filed a Complaint against Petitioners,

alleging that Petitioners had failed to make payments pursuant to

the terms of the Note and that Respondent sought foreclosure of

the mortgage, sale of the property, and a deficiency judgment if

the proceeds of the sale did not satisfy Petitioners’ debt.

Copies of the Note and Mortgage were attached to the Complaint.

On July 8, 2009, Respondent filed a Motion for Summary

Judgment as Against All Defendants and for Interlocutory Decree

of Foreclosure. Respondent attached a Declaration of Barbara

2
A “mortgagee” is defined as “[o]ne to whom property is mortgaged;
the mortgage creditor, or lender.” Black’s Law Dictionary 1104 (9th ed.
2009). Because Flexpoint was the “creditor or lender,” it does not appear
that Respondent was the “mortgagee.” See Mortgage Electronic Registration
Systems, Inc. v. Saunders, 2 A. 3d 289, 295-96 (Me. 2010).

3
“Nominee” is defined as “[a] person designed to act in place of
another, usu[ally] in a very limited way,” or “[a] party who holds bare legal
title for the benefit of others or who receives and distributes funds for he
benefit of others.” Black’s Law Dictionary 1076 (8th ed. 2004).

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Huidmer, an “officer, collection officer, or employee,” of JP

Morgan Chase Bank National Association (Chase), a “servicing

agent” for Respondent. The Declaration stated that Chase was in

possession of the Note and that Petitioners had failed to make

payments “as required” under the Note. The Note, Mortgage, and

records establishing that Petitioners had failed to make timely

payments were attached as exhibits to the motion.

On July 13, 2009, Respondent secured a clerk’s entry of

default against Petitioners for failing to respond to the

Complaint.

On July 27, 2009, Wise, proceeding pro se, filed

Petitioners’ Answer to Respondent’s Motion for Summary Judgment

as Against All Defendants and for Interlocutory Decree of

Foreclosure (“Answer”),4 stating, inter alia, that Respondent

lacked standing to file the Complaint.

On August 5, 2009, a hearing was held on Respondent’s

Motion for Summary Judgment. Wise was apparently present at the

hearing. A transcript of the hearing is not a part of the

record.

On May 12, 2010, the court granted Respondent’s Motion

for Summary Judgment and filed Findings of Fact, Conclusions of

4
Wise titled the “Answer” as an “Answer to Plaintiff’s Motion for
Summary Judgment.” However, the substance of the Answer, which appears to
deny allegations stated in the complaint, appears to be an Answer to the
complaint. In its reply before this court, Petitioners characterized this
document as an “answer to the Complaint.”

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Law (conclusions), and an Order Granting Motion for Summary

Judgment as Against All Defendants and for Interlocutory Decree

of Foreclosure. The court’s conclusions provided, inter alia,

that “[Respondent] is entitled to have its first mortgage

foreclosed upon the Mortgaged Property and to have the property

sold in a manner subscribed by law.” The Order stated that the

mortgage “shall be and is hereby foreclosed as prayed, and the

Mortgaged Property shall be sold at public auction . . . . The

sale shall not be final until approved and confirmed by the

court.” A foreclosure judgment was also entered on May 12 and

incorporated the court’s order.

The ultimate time to appeal the foreclosure judgment

expired on July 12, 2010, assuming Petitioners would have sought

an extension of time to appeal. See Hawai#i Rules of Appellate

Procedure Rule 4 (stating that a notice of appeal “shall be filed

within 30 days of the judgment” and that an extension may be

obtained but that “no such extension shall exceed 30 days past

the prescribed time”). Petitioners did not appeal.

On September 23, 2010, the commissioner issued his

report stating that Petitioners’ property was sold to Respondent

for $329,986.80. On the same day, Respondent filed a Motion for

Confirmation of Sale, for Writ of Possession and for Disposal of

Personal Property (Motion for Confirmation). The Motion for

Confirmation was heard on October 14, 2010. At the hearing,

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Petitioners apparently “objected to confirmation on the grounds

that Respondent was acting as a nominee for an undisclosed

principal and had no standing to foreclose in the first place.”

The hearing on the Motion for Confirmation was continued to March

10, 2011.

On February 8, 2011, Respondent filed an Amended Notice

of Hearing of its Motion for Confirmation (Amended Motion).

Respondent attached to the Amended Motion a Declaration (Mikell

Declaration) from a Lora A. Mikell, “Senior Lead Operations

Specialist,” who was also with Chase. The Mikell Declaration

stated that Chase “as holder of the [N]ote and [M]ortgage

securing the [N]ote, confirms the actions taken to date,” and

“specifically authorized [Respondent] . . . to bring and to

continue proceeding in this foreclosure action and any related

legal action in connection with the [N]ote and the [M]ortgage.”

The court interpreted this statement as “ratification” under

Hawai#i Rules of Civil Procedure (HRCP) Rule 17.5 Neither party

5
HRCP Rule 17(a) provide in relevant part as follows:

(a) Real party in interest. Every action shall be
prosecuted in the name of the real party in interest. An
executor, administrator, guardian, bailee, trustee of an
express trust, a party with whom or in whose name a contract
has been made for the benefit of another, or a party
authorized by statute may sue in its own name without
joining with it the party for whose benefit the action is
brought. No action shall be dismissed on the ground that it
is not prosecuted in the name of the real party in interest
until a reasonable time has been allowed after objection for
ratification of commencement of the action by, or joinder or
substitution of, the real party in interest; and such
(continued...)

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has challenged this interpretation.

Copies of the Note and Mortgage were attached to the

Declaration. Appended to a copy of the Note was an endorsement

transferring the Mortgage from Flexpoint to Washington Mutual

Bank, which was entitled an “allonge,6” and an endorsement in

blank7 signed by a Robin B. Tango, a Vice President at Washington

Mutual Bank. The Declaration explained that the Note and a copy

of the Mortgage had been “kept by Chase in the ordinary course of

business under [the declarant’s] custody and control” and that

the Note contained endorsements.

Petitioners’ counsel filed an Opposition to

Respondent’s Amended Motion on March 3, 2011, challenging

Respondent’s standing to foreclose and Chase’s ability to

retroactively ratify Respondent’s standing pursuant to HRCP Rule

5
(...continued)
ratification, joinder, or substitution shall have the same
effect as if the action had been commenced in the name of
the real party in interest.

Id. (emphases added).

6
An “allonge” is defined as “[a] slip of paper sometimes attached
to a negotiable instrument for the purpose of receiving further indorsements
when the original paper is filled with indorsements.” Black’s Law Dictionary
88 (9th ed. 2009).

7
Hawai#i Revised Statutes (H.R.S.) § 490:3-205(b) provides as
follows:

(b) If an indorsement is made by the holder of an instrument
and it is not a special indorsement, it is a “blank
indorsement.” When indorsed in blank, an instrument becomes
payable to the bearer and may be negotiated by transfer of
possession alone until specially indorsed.

Id. (emphasis added).

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17. Petitioners also asserted that Chase could not establish

that “the underlying promissory note was assigned from

[Flexpoint] by allonge to [Washington Mutual] and then assigned

in blank by [Washington Mutual]” because, inter alia, the Mikell

Declaration “fails to provide any foundation for his assertions

as to the actions and the record keeping of either MERS or

Washington Mutual Bank, which he purports nevertheless to testify

about.”

On March 7, 2011, Respondent filed a reply memorandum,

arguing that Respondent had standing to foreclose, that Chase’s

ratification cured any standing defect, and that the endorsement

in blank attached to the Note rendered Chase the holder of the

Note and Mortgage.

On March 10, 2011, Petitioners filed a Motion to Set

Aside Clerk’s Entry of Defaults pursuant to HRCP Rule 55(c).8 In

a Declaration of Counsel attached to the motion to set aside

defaults, Petitioners’ counsel stated that “the summary judgment

in this case was clearly procured by false representations to

[the] court under oath, as a result of which [Respondent] lacks

standing to proceed in this case, and [the] court consequently

8
HRCP Rule 55(c) provides as follows:

(c) Setting Aside Default. For good cause shown the court
may set aside an entry of default and, if a judgment by
default has been entered, may likewise set it aside in
accordance with Rule 60(b).

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lacks jurisdiction to confirm the sale.” The declaration of

counsel incorporated by reference the March 3, 2011 opposition

memorandum, which was attached as an exhibit.

On April 29, 2011, the court made the following

findings in its Order Confirming Sale.9
1. Although the Court acknowledges [Petitioners’] arguments regarding
[Respondent’s] lack of standing, Haw. R. Civ. P. 17(a) allows for
ratification of commencement of the action by the real party in
interest. The real party in interest, JP Morgan Chase Bank,
National Association (“Chase”), has confirmed the actions taken to
date and has authorized [Respondent] to bring and to continue
proceeding in this foreclosure action. Therefore, Chase’s
ratification has effectively corrected any issue regarding
[Respondent’s] lack of standing and Chase has agreed to be bound
for the decision of this Court, which eliminates any risk of
multiple liability.

2. In addition, Chase is the holder of the note, with both the
endorsement from Flexpoint Funding Corporation in favor of
Washington Mutual Bank, and the blank endorsement signed by
Washington Mutual Bank. In accordance with Hawai#i Revised
Statutes Section 490:3-205(b), when an instrument is indorsed in
blank, it becomes payable to bearer and may be negotiated by
transfer of possession alone until specially indorsed.

(Emphases added). On April 29, 2011, the court entered judgment

confirming the sale of Petitioners’ residence. On May 10, 2011,

the court issued an Order Denying Petitioners’ motion to set

aside defaults. The property was sold on May 12, 2011.

II.

On May 31, 2011, Petitioners appealed to the ICA.

Petitioners’ notice of appeal stated that they were appealing

from the April 29, 2011 Order Confirming Sale, the April 29, 2011

9
The full title of the order confirming sale is “Order Approving
Report of Commissioner, Confirming Commissioner’s Sale of Property at Public
Sale, Directing Distribution of Proceeds, for Writ of Possession and for
Disposal of Personal Property.”

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Judgment, and the April 29, 2011 writ of possession. Petitioners

argued (1) that “Respondent’s lack of standing was irrevocable,”

because Respondent did not have ownership of the underlying

promissory note, (2) that “[HRCP] Rule 17(a) is not available to

a plaintiff [i.e., Respondent] unless that plaintiff had standing

to invoke the jurisdiction of the court in the first place,” (3)

“[HRCP] Rule 17(a)’s ‘ratification provision’ . . . cannot be

taken advantage of by a purported real party in interest when

there is no showing of ‘honest and understandable mistake,’” and

(4) the court “committed reversible error” in “finding that Chase

was the holder of the Note and therefore the real party in

interest.”

The ICA affirmed the court’s denial of the motion to

set aside the entry of default judgment. As to Petitioners’

first three arguments, the ICA noted that “the [] court

acknowledged [Petitioners’] contention that Respondent lacked

standing, but found that Chase addressed those concerns by

ratification of the proceedings.” Mortgage Electronic

Registration Systems, Inc. v. Wise, No. CAAP-11-0000444, 2012 WL

5971062 at *1 (App. Nov. 29, 2012) (SDO). The ICA held that “the

[] court properly allowed the ratification where such

ratification was formal and did not prejudice the defendants.”

Id.

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As to the fourth argument, the ICA stated that

“Respondent submitted a copy of the Note as Exhibit A attached to

their [sic] motion to confirm the sale,” and “[t]he Sr. Lead

Operations Specialist for Chase declared the Note to be a true

and accurate copy of the Note in Chase’s possession, satisfying

Hawai#i Revised Statutes (HRS) § 490:3-205(b) . . . .” Id. The

ICA concluded that “the [] court did not err in finding Chase to

be the holder of the note where Chase bore the Note endorsed by

[Flexpoint] to Washington Mutual Bank and the blank endorsement

by Washington Mutual Bank establishes Chase as the holder of the

Note.” Id.

III.

In their Application, Petitioners ask if the ICA erred

by holding that Chase could ratify Respondent’s standing,10

because Chase could not demonstrate that it was the holder of the

Mortgage and Note at the commencement of the suit and therefore

could not establish that it was the real party in interest HRCP

Rule 17(a). Petitioners contend (1) that “[HRCP] Rule 17(a) []

10
In this jurisdiction, “[t]he crucial inquiry with regard to
standing is whether the plaintiff has alleged such a personal stake in the
controversy as to warrant his or her invocation of the court’s jurisdiction
and to justify exercise of the court’s remedial powers on his or her behalf.”
Kaho#ohanohano v. State, 114 Hawai#i 302, 318, 162 P.3d 696, 712 (2007)
(internal quotation marks removed) (emphasis in original). “[I]n deciding
whether the plaintiff has a requisite interest in the outcome of the
litigation, we employ a three part test: (1) has the plaintiff suffered an
actual or threatened injury as a result of the defendant’s wrongful conduct;
(2) is the injury fairly traceable to the defendant’s actions; and (3) would a
favorable decision likely provide relief for [the] plaintiff’s injury.” Id.
(internal quotation marks removed).

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is not available to ratify commencement of an action unless the

ratifying party [i.e., Chase] had standing to invoke the

jurisdiction of the court in the first place at the time the

complaint was filed,” and (2) “there is no evidence in the record

to prove that Chase had suffered any injury at the time

Respondent commenced this foreclosure action.”

IV.

In its Response, Respondent raises several arguments

suggesting that Petitioners are procedurally barred from

challenging Respondent’s standing or Chase’s ratification of

Respondent’s standing. Respondent maintains, inter alia, (1)

that the challenges made by Petitioners to Respondent’s standing

are inappropriate in an appeal from the Order Confirming Sale,

and (2) that the challenges by Petitioners to Respondent’s

standing are barred by res judicata. In their Reply, Petitioners

maintain that they are not barred from challenging Respondent’s

standing because “[a] plaintiff’s lack of standing may be

disputed at any stage of a proceeding, even on appeal.”11

V.

A.

Respondent’s arguments are dispositive. As to

11
Supplemental briefing was ordered on the issues of whether
ratification pursuant to HRCP Rule 17(a) cures a defect in standing and
whether the Mortgage and Note were self-authenticating pursuant to Hawai#i
Rules of Evidence (HRE) Rule 902(9).

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Respondent’s first contention, this court has explained that a

judgment of foreclosure “finally determines the merits of the

controversy.” MDG Supply, Inc. v. Diversified Investments, Inc.,

51 Haw. 375, 380, 463 P.2d 525, 528 (1969) (internal citations

omitted). Subsequent proceedings “are simply incidents to its

enforcement.” Id. (internal citations omitted.) Thus,

“foreclosure cases are bifurcated into two separately appealable

parts: (1) the decree of foreclosure and the order of sale, if

the order of sale is incorporated within the decree, and (2) all

other orders.” Miller, 71 Haw. at 70, 783 P.2d at 858. It is

evident that orders confirming sale are separately appealable

from the decree of foreclosure, and therefore fall within the

second part of the bifurcated proceedings. See id. (treating an

appeal from an order confirming sale and for deficiency judgment

as separate from an appeal from the foreclosure judgment); see

also Eastern Savings Bank, FSB v. Esteban, 129 Hawai#i 154, 296

P.3d 1062 (2013) (treating an appeal from the judgment confirming

the foreclosure sale as a separate matter from the judgment of

foreclosure).

In Miller, the defendant did not appeal from the

court’s order granting summary judgment and a decree of

foreclosure, but did appeal from an Order Confirming

Commissioner’s Sale of Property at Public Sale, Directing

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Distribution of Proceeds, and for Deficiency Judgment. 71 Haw.

at 67, 783 P.2d at 856. The defendants apparently challenged the

plaintiff’s right to seek a deficiency judgment. Id. at 70, 783

P.2d at 858.

This court held that the defendants “timely appeal from

the Deficiency Judgments would entitle it to challenge errors

unique to it, such as an erroneous upset price or miscalculation

of deficiency.” Id. at 71, 783 P.2d at 858 (emphasis added)

(internal quotation marks removed); see also Independence Mortg.

Trust v. Dolphin, Inc., 57 Haw. 554, 556, 560 P.2d 488, 490

(1977) (stating that “this court has jurisdiction to consider

errors unique to those post-judgment orders which have been

timely appealed”); Powers v. Ellis, 55 Haw. 414, 418, 520 P.2d

431, 434 (1974) (explaining that “to the extent that an order of

sale merely implements matters contained in a decree of

foreclosure, there is no need to take a separate appeal from it,”

but an appellate court can review the order of sale for “errors

unique to it”). However, the plaintiff’s “right to recover

deficiency judgments was completely and finally adjudicated” by

the court’s order granting summary judgment on the foreclosure.

Id. Therefore, this court held that “where an appellant

challenges the right of a party to obtain a deficiency judgment

in a foreclosure case, he must take his appeal in a timely

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fashion from the order which finally determined the right to a

deficiency,” i.e., the order granting summary judgment. Id.

Because the defendant’s appeal was not from the deficiency

judgment, the court dismissed the appeal for lack of appellate

jurisdiction. Id. at 67, 783 P.2d at 856.

Similarly, in Citicorp Mortgage, Inc. v. Bartolome, 94

Hawai#i 422, 16 P.3d 827 (App. 2000), the plaintiffs appealed,

inter alia, from the court’s deficiency judgment, arguing that

the defendant committed Truth in Lending Act (TILA) violations or

unfair and deceptive practices. The ICA found that these issues

were “defenses against [the plaintiff’s] right to the

foreclosure, to be properly brought in the trial court against

[the plaintiff’s] motion for summary judgment.” Id. at 433, 16

P.3d at 838. Hence, those issues were “properly brought on

appeal from the final judgment on that motion.” Id. However,

the plaintiffs “appealed instead from the [] deficiency

judgment.” Id. The ICA dismissed the appeal from the deficiency

judgment because the plaintiffs “ma[de] no argument on appeal

regarding the amount of the deficiency judgment,” and thus

“fail[ed] to raise any cognizable issues with respect to the

deficiency judgment.” Id. at 429 n.3, 16 P.3d at 835 n.3.

(citing Miller, 71 Haw. at 71–72, 783 P.2d at 858).

B.

In the instant case, Petitioners have never legally

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challenged the court’s entry of the May 12, 2010 judgment of

foreclosure made pursuant to the order granting Respondent’s

motion for summary judgment. As discussed supra, Petitioners’

ultimate deadline to appeal that judgment was July 12, 2010.

However, they did not appeal from that judgment. Hence, the May

12, 2010 judgment became final and binding. As stated before,

the foreclosure judgment “determined the merits of the

controversy,” rendering subsequent proceedings “incident[] to its

enforcement.” MDG Supply, 51 Haw. at 380, 463 P.2d at 528.

The issue of whether or not Respondent had standing to

bring suit is not “unique” to the confirmation of sale. Miller,

71 Haw. at 71, 783 P.2d at 858. A lack of standing could have

been raised at any time. See Keahole Defense Coalition, Inc. v.

Board of Land and Natural Resources, 110 Hawai#i 419, 427, 134

P.3d 585, 593 (2006) (“[S]tanding is a jurisdictional issue that

may be addressed at any stage of a case.”) As in Citicorp,

Petitioner’s lack of standing could have been brought as a

defense to Respondent’s motion for summary judgment. See Miller,

71 Haw. at 71, 783 P.2d at 858; see also MDG Supply, 51 Haw. at

380, 463 P.2d at 528.

Because the time for appealing the judgment of

foreclosure passed without an appeal being taken, that judgment

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became final and Respondent’s right to foreclose was finally

decided in its favor. As related, the court’s foreclosure

judgment entitled Respondent to foreclose on the mortgage, to

have the property sold, and to a distribution of the proceeds.

By virtue of the finality of the foreclosure judgment, Respondent

was authorized to procure the sale of the property.

VI.

As to Respondent’s second contention in this case, we

observe that none of the foregoing cases involved an objection to

standing. See Miller, 71 Haw. at 71, 783 P.2d at 858. However,

we conclude that res judicata would preclude Petitioners from

challenging Respondent’s standing in their appeal from the order

confirming sale, despite the general proposition that a lack of

standing may be raised at any time. Under the doctrine of res

judicata, challenges to Respondent’s standing were subsumed under

the foreclosure judgment, which had became final and binding.

A.

“Res judicata . . . limit[s] a litigant to one

opportunity to litigate aspects of the case to prevent

inconsistent results and multiplicity of suits and to promote

finality and judicial economy.” Esteban, 129 Hawai#i at 158, 296

P.3d at 1067. The doctrine prohibits parties from “relitigating

a previously adjudicated cause of action.” Id. at 159, 296 P.3d

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at 1067 (quoting Bremer v. Weeks, 104 Hawai#i 43, 54, 85 P.3d 150,

161 (2004)).

As explained supra, foreclosure cases are bifurcated

into two appealable parts. Due to their bifurcated nature,

mortgage foreclosure proceedings may be treated as analogous to

two separate proceedings for res judicata purposes.

Esteban is instructive in this regard. In Esteban, the

defendants did not appeal the court’s order foreclosing on their

property. Id. at 155, 296 P.3d at 1063. However, prior to a

hearing on the motion for confirmation of sale, the defendants

filed TILA claims against the plaintiff in federal court, arguing

that they were exercising their right to rescind their mortgage.

Id. at 156, 296 P.3d at 1064. The defendants then submitted a

brief opposing the confirmation of sale on the basis of their

federal TILA claims against the plaintiff. Id.

This court held that, pursuant to Miller, the

foreclosure judgment was a final judgment that allowed the

plaintiff to assert the defense of res judicata. Id. at 160, 296

P.3d at 1069. Res judicata prevented the defendants from raising

their TILA claims because the claims could have been raised as

defenses in the foreclosure action, but were not. Id. at 160-61,

296 P.3d 1069-70. Thus, this court affirmed the court’s judgment

confirming the sale of the plaintiff’s property. Id. at 161-62,

296 P.3d 1069-70.

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Hence, in Esteban, this court held that, in the context

of proceedings to confirm the sale of foreclosed property, the

judgment of foreclosure has a preclusive effect. As in Esteban,

in this case Petitioners raised a defense during the confirmation

proceedings that was potentially subject to the res judicata

effect of the foreclosure judgment.

B.

However, Respondent apparently did not raise the

affirmative defense of res judicata against Petitioners’ standing

objection in the confirmation of sale proceedings. A res

judicata defense is subject to waiver. State ex rel. Office of

Consumer Protection v. Honolulu University of Arts, Sciences, and

Humanities, 110 Hawai#i 504, 516, 135 P.3d 113, 125 (2006). (“In

this case, Honolulu University did not plead res judicata as an

affirmative defense in its answer nor did it raise the doctrine

of res judicata during the circuit court proceedings.

Consequently, Honolulu University has waived the affirmative

defense of res judicata.”)(emphasis added).

Nevertheless, “preclusion [i.e., res judicata] even can

be raised by an appellate court for the first time on appeal.”

Wright and Miller, Federal Practice and Procedure § 4405; cf.

Clements v. Airport Authority of Washoe County, 69 F.3d 321, 330

(9th Cir. 1995) (noting that because the court has “the ability

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to overlook waiver and raise the res judicata issue sua sponte,”

“we [also] may do so with respect to issue preclusion”).

Further, “just as the court of appeals can raise a res judicata

defense on its own, it can entertain a party’s [res judicata]

argument” raised for the first time on appeal. Wright and

Miller, Federal Practice and Procedure § 4405. This is because

courts are concerned with “avoiding the burdens of relitigation”

and “avoiding inconsistent decisions.” Id. Consequently, “[t]he

waiver principle need not sacrifice the judicial interests in

enforcing res judicata principles.” Id.

Although Respondent raised the issue of res judicata

for the first time before this court, the “public interest” in

“avoiding inconsistent results,” see Clements, 69 F.3d at 330, is

strong. By virtue of the foreclosure judgment Respondent already

had the right to have Petitioners’ property sold. A serious

inconsistency would result if Respondent were held not to have

the right to procure confirmation of the sale. Absent an

objection unique to the sale of the property, such as a grossly

inadequate sale price, see, e.g., Hoge v. Kane, 4 Haw. App. 533,

540, 670 P.2d 36, 40 (1983), a ruling abrogating the sale would

“impair or destroy the rights” granted by the foreclosure

judgment, since an adverse ruling could prevent Respondent from

receiving the proceeds of the action. Sure-Snap Corp. v. State

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Street Bank and Trust Co., 948 F.2d 869, 875 (2d Cir. 1991).

Therefore, in the limited circumstances of foreclosure

proceedings, we consider the merits of the res judicata defense,

even if impliedly waived.

C.

As explained in Esteban, “res judicata precludes not

only the relitigation of claims or defenses that were litigated

in a previous lawsuit, but also of all claims and defenses that

might have been properly litigated, but were not litigated or

decided.” 129 Hawai#i at 159, 296 P.3d at 1067. Further, “[w]hen

a valid and final personal judgment is rendered in favor of the

plaintiff . . . [i]n an action upon the judgment, the defendant

cannot avail himself of defenses he might have interposed, or did

interpose, in the first action.” Id. (quoting Restatement

(Second) of Judgments § 18) (emphasis in original).

“[T]he doctrine that a judgment creates its own cause

of action [i.e., an ‘action upon the judgment’] is an entirely

practical legal device, the purpose of which is to facilitate the

goal of securing satisfaction of the original cause of action.”12

12
To reiterate, “foreclosure cases are bifurcated into two
separately appealable parts: (1) the decree of foreclosure and the order of
sale, if the order of sale is incorporated within the decree, and (2) all
other orders.” Miller, 71 Haw. at 70, 783 P.2d at 858. As discussed infra,
by filing a motion for confirmation of sale, Respondent may be understood to
have in effect filed a separate action upon the judgment in a foreclosure
action.

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National Union Fire Ins. Co. of Pittsburgh v. Owenby, 42 Fed.

Appx. 59, 63 (9th Cir. 2002) (emphasis added). Traditionally, an

action upon a judgment was an action to secure enforcement of an

out of state judgment. See id. (citing Restatement(Second) of

Judgments § 18 cmt. f). However, courts have held that other

actions similar to such proceedings also qualify as an action on

the judgment for the purposes of res judicata. See In re Wright,

194 B.R. 715, 718 n.6 (Bankr. D. Conn. 1996) (Wright II).

For example, in Wright, the plaintiff brought a

“dischargability action” to have a debt declared to be non-

dischargable in a pending bankruptcy case. In re Wright, 187

B.R. 826, 828 (Bankr. D. Conn. 1995) (Wright I). The original

debt was the result of a district court action against the

plaintiff. Id. at 829. In response to a motion for

reconsideration, Wright I explained that the “dischargability

action” was the “same claim” as the prior district court action.

Wright II, 194 B.R. at 718. The federal bankruptcy court further

stated that characterization of the action as an action on the

judgment was appropriate, because “both seek to preserve the

creditor's ability to execute upon the prior judgment.” Id. at

718 n.6. Therefore, Wright I noted that “the Defendant would

appear to be precluded under principles of res judicata from

presently offering any defenses which were available to him in

the District Court Action.” Id.

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Proceedings to confirm the sale of a foreclosed

property are similar to a traditional “action upon the judgment,”

inasmuch as both are proceedings to “facilitate the goal of

securing satisfaction of the original cause of action.” See

Owenby, 42 Fed. Appx. at 63. This court has explained that, “[a]

judgment of foreclosure of mortgage or other lien and sale of

foreclosed property is final, although it contains a direction to

commissioners to make a report of sale and to bring the proceeds

into court for an order regarding their disposition.” MDG

Supply, 51 Haw. at 379, 463 P.2d at 528 (citations omitted).

“Subsequent proceedings” are treated as incidental to enforcement

of the foreclosure judgment. Id. Thus, as in a traditional

action upon the judgment, confirmation of the commissioner’s sale

serves to facilitate the satisfaction of the original judgment.

Hence, a proceeding for confirmation of sale is analogous to an

“action on the judgment.” See Wright II, 194 B.R. at 718 n.6.

As stated previously, in an action on the judgment a

defendant is barred by res judicata from availing himself of

“defenses he might have interposed, or did interpose, in the

first action.” Restatement (Second) of Judgments § 18.

Petitioners raised Respondent’s alleged lack of standing as a

defense to the foreclosure proceeding, but did not appeal from

the foreclosure judgment, which became final. In view of the

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functional similarity between the confirmation of sale proceeding

and an action on the judgment, we conclude that Petitioners

cannot again raise the standing objection previously asserted in

the foreclosure proceeding in the subsequent confirmation of sale

proceedings.13 Id. This promotes the finality of the foreclosure

judgment and prevents inconsistent results between the

foreclosure judgment and the order confirming sale or other

similar proceedings.14

VII.

For the foregoing reasons, the April 29, 2011 judgment

13
Contrary to Petitioners’ contention, it has been held that “the
doctrine of res judicata has application to questions of jurisdiction as well
as other issues and it ordinarily precludes a subsequent challenge to a
finding that jurisdiction does exist.” Cutler v. Hayes, 818 F.2d 879, 888
(D.C. Cir. 1987) (internal citations omitted) (holding that “[s]tanding ranks
amongst those questions of jurisdiction . . . whose disposition . . . may
preclude, or collaterally estop, relitigation of the precise issues of
jurisdiction adjudicated”).

14
In its Opening Brief before the ICA, Petitioners contended that
their challenges to Respondent’s standing could also be raised as a part of
their appeal from the court’s Order Denying Petitioners’ Motion to Set Aside
Entry of Defaults. However, this court has explained that “a motion to set
aside a default entry or a default judgment may and should be granted whenever
the court finds (1) that the nondefaulting party will not be prejudiced by the
reopening, (2) that the defaulting party has a meritorious defense, and (3)
that the default was not the result of inexcusable neglect or a wilful act.”
BDM, Inc. v. Sageco, Inc., 57 Haw. 73, 76, 549 P.2d 1147, 1150 (1976).
Petitioners have raised no cognizable argument regarding prongs
(1) or (3) of Sageco. Hence, Petitioners’ contentions regarding the court’s
Order Denying Petitioners’ Motion to Set Aside Entry of Defaults are not
addressed further. Cf. Aames Funding Corp v. Mores, 107 Hawai#i 95, 105 n.10,
110 P.3d 1042, 1052 n.10 (2005) (“Because the Moreses do not provide any
discernible legal argument as to their contention that the court had no
subject matter jurisdiction because the Moreses did not receive the requisite
copies of the TILA ‘Notice of Right to Cancel,’ we do not address this
contention further.”).

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of the court and the January 2, 2013 judgment of the ICA are

affirmed, but for the reasons set forth herein.15

Gary Victor Dubin, /s/ Paula A. Nakayama
Frederick J. Arensmeyer,
and Zeina Jafar, /s/ Simeon R. Acoba, Jr.
for petitioners
/s/ Sabrina S. McKenna
David B. Rosen,
and David McAllister, /s/ Richard W. Pollack
for respondent
/s/ Rhonda A. Nishimura

15
Therefore, we do not decide the merits of Petitioners’ appeal
regarding Respondent’s standing, Chase’s ratification, and Chase’s status as
the real party in interest under HRCP Rule 17.

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