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Electronically Filed
Supreme Court
SCWC-XX-XXXXXXX
17-JUN-2020
09:17 AM
IN THE SUPREME COURT OF THE STATE OF HAWAII
---o0o---
________________________________________________________________
GILBERT V. MALABE and DAISY D. MALABE,
Respondents/Plaintiffs-Appellants,
vs.
ASSOCIATION OF APARTMENT OWNERS OF EXECUTIVE CENTRE,
by and through its Board of Directors,
Petitioner/Defendant-Appellee.
SCWC-XX-XXXXXXX
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-XX-XXXXXXX; 1CC161002256)
JUNE 17, 2020
McKENNA, POLLACK, AND WILSON, JJ., WITH RECKTENWALD, C.J.,
CONCURRING AND DISSENTING, WITH WHOM NAKAYAMA, J., JOINS
OPINION OF THE COURT BY McKENNA, J.
I. Introduction
This certiorari proceeding arises out of a civil lawsuit
brought by condominium owners whose unit was nonjudicially
foreclosed by their association of apartment owners. The unit
was then sold by their association for substantially less than
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fair market value, leaving the owners not only without their
home, but also with mortgage liability.
On December 13, 2016, Gilbert V. Malabe and Daisy D. Malabe
(“Malabes”) then filed a complaint in the Circuit Court of the
First Circuit (“circuit court”) against the Association of
Apartment Owners of Executive Centre, by and through its Board
of Directors (“AOAO”). The complaint asserted claims for
wrongful foreclosure and unfair or deceptive acts or practices
(“UDAP”) based on the AOAO’s nonjudicial foreclosure and
December 17, 2010 public sale of the Malabes’ condominium
apartment due to unpaid assessment fees. On February 17, 2017,
the circuit court1 granted the AOAO’s Hawaiʻi Rules of Civil
Procedure (“HRCP”) Rule 12(b)(6) (1996) motion to dismiss the
complaint for “failure to state a claim upon which relief can be
granted,” and entered final judgment.
The Malabes appealed to the Intermediate Court of Appeals
(“ICA”). The ICA concluded that based on its decision in Sakal
v. Ass’n of Apartment Owners of Hawaiian Monarch, 143 Hawaiʻi
219, 426 P.3d 443 (App. 2018), cert. denied, 2018 WL 6818901
(Dec. 28, 2018), cert. granted, 2019 WL 245225 (Jan. 17, 2019),2
1
The Honorable Rhonda A. Nishimura presided.
2
In summary, the ICA held in Sakal that because no statutory power of
sale existed, “in order for [an] association to avail itself of the
nonjudicial power of sale foreclosure procedures set forth in Hawaiʻi Revised
Statutes [] chapter 667,” “a power of sale in favor of a foreclosing
(continued. . .)
2
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because the AOAO lacked a power of sale, the circuit court erred
in dismissing Count I, the Malabes’ wrongful foreclosure claim.
See Malabe v. Ass’n of Apartment Owners of Executive Ctr., CAAP-
XX-XXXXXXX, 2018 WL 6258564, at 7 (App. Nov. 29, 2018) (SDO).
The ICA affirmed the circuit court, however, with respect to its
dismissal of Count II, holding the Malabes’ UDAP claim time-
barred and equitable tolling for fraudulent concealment
inapplicable. See Malabe, SDO at 9–10.
On certiorari, the AOAO asserts the ICA erred in vacating
the circuit court’s dismissal of Count I, the wrongful
foreclosure claim. The Malabes assert the ICA erred in
affirming the circuit court’s dismissal of Count II, the UDAP
claim.
We hold the ICA did not err in reinstating Count I, the
Malabes’ wrongful foreclosure claim, based on its ruling in
Sakal, which correctly held that in order for an association to
utilize the nonjudicial power of sale foreclosure procedures
set forth in Hawaiʻi Revised Statutes (“HRS”) Chapter 667, a
power of sale in its favor must have existed in association
bylaws or in another enforceable agreement with unit
owners. 143 Hawaiʻi at 220-21, 426 P.3d 444-45.
(. . .continued)
association must otherwise exist in the association’s bylaws or another
enforceable agreement with its unit owners.” 143 Hawaiʻi at 220-21, 426 P.3d
at 444-45.
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We further hold Act 282 of 2019 (“Act 282”)3 does not affect
this holding, as the statutory changes therein do not affect the
Malabes’ claims, which are based on HRS § 667-5 repealed in
2012. We therefore do not address the Malabes’ constitutional
challenges to Act 282, as “[a] fundamental and longstanding
principle of judicial restraint requires that courts avoid
reaching constitutional questions in advance of the necessity of
deciding them.” Rees v. Carlise, 113 Hawaiʻi 446, 456, 153 P.3d
1131, 1141 (2007). We note, however, that on April 10, 2020,
the United States District Court for the District of Hawaiʻi held
Act 282 unconstitutional as violative of the Contracts Clause of
Article I, § 10 of the United States Constitution.4
We further hold the ICA erred in affirming the circuit
court’s dismissal of Count II by deeming the Malabes’ UDAP claim
time-barred. Based on “notice pleading” standards and the
principle that in ruling on HRCP 12(b)(6) motions to dismiss,
allegations within a complaint must be accepted as true, Bank of
America, N.A. v. Reyes-Toledo, 143 Hawaiʻi 249, 257, 428 P.3d
3
On July 10, 2019, Senate Bill 551, “A Bill for an Act Relating to
Condominiums,” was enacted as Act 282 without the Governor’s signature. See
2019 Haw. Sess. Laws Act 282, §§ 1-9, at 779-83; 2019 House Journal, at 734-
35 (Gov. Msg. No. 1402); S.B. 551, S.D. 1, H.D. 2, C.D. 1 (2019), available
at https://www.capitol.hawaii.gov/session2019/bills/GM1402_.PDF.
4
As explained by Judge Leslie Kobayashi in Galima v. Ass’n of Apartment
Owners of Palm Court, CIV. NO. 16-00023 LEK-RT, 2020 WL 1822599, at *13 (D.
Haw. Apr. 10, 2020), “[t]he Contracts Clause restricts the power of States to
disrupt contractual arrangements. It provides that ‘[n]o state shall . . .
pass any . . . Law impairing the Obligation of Contracts.’” (Second
alteration and ellipses in original).
4
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761, 769 (2018), the Malabes’ UDAP claim should not have been
dismissed.
We therefore remand this matter to the circuit court for
further proceedings consistent with this opinion.
II. Background
A. Factual and procedural background
1. Complaint
As this case was dismissed via a HRCP Rule 12(b)(6) (2000)5
motion to dismiss, the following allegations within the Malabes’
December 13, 2016 complaint must be accepted as true. Reyes-
Toledo, 143 Hawaiʻi at 257, 428 P.3d at 769. The following are
relevant allegations of the Malabes’ complaint.
In or around May 2005, the Malabes purchased Apartment 1907
in the Executive Centre condominium project located at 1088
Bishop Street, Honolulu, Hawaiʻi (“Apartment”). The purchase
price was $225,000, paid in part with a $180,000 loan secured by
5
HRCP Rule 12(b)(6) states:
Every defense, in law or fact, to a claim for relief in any
pleading, whether a claim, counterclaim, cross-claim, or
third-party claim, shall be asserted in the responsive
pleading thereto if one is required, except that the
following defenses may at the option of the pleader be made
by motion: . . . (6) failure to state a claim upon which
relief can be granted[.] . . . If, on a motion asserting
the defense numbered (6) to dismiss for failure of the
pleading to state a claim upon which relief can be granted,
matters outside the pleading are presented to and not
excluded by the court, the motion shall be treated as one
for summary judgment and disposed of as provided in Rule
56, and all parties shall be given reasonable opportunity
to present all material made pertinent to such a motion by
Rule 56.
5
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a mortgage on the Apartment. The AOAO is the homeowner
association for Executive Centre. The AOAO did not hold a
mortgage containing a power of sale on or secured by the
Apartment.
On or about December 17, 2010, without providing the
Malabes actual or adequate notice of default and an opportunity
to cure the default, acting on advice it received, the AOAO
published notice that it would sell the Apartment at a public
sale pursuant to HRS § 667-5 (repealed 2012)6 and HRS Chapters
514A and 514B.7 The AOAO pursued a nonjudicial foreclosure
6
As of the date of the Malabes’ nonjudicial foreclosure, HRS § 667-5
provided in relevant part as follows:
§667-5 Foreclosure under power of sale; notice; affidavit
after sale. (a) When a power of sale is contained in a
mortgage, and where the mortgagee, the mortgagee’s
successor in interest, or any person authorized by the
power to act in the premises, desires to foreclose under
power of sale upon breach of a condition of the mortgage,
the mortgagee, successor, or person shall be represented by
an attorney who is licensed to practice law in the State
and is physically located in the State. The attorney
shall:
(1) Give notice of the mortgagee’s, successor’s, or
person’s intention to foreclose the
mortgage . . . ; and
(2) Give any notices and do all acts as are
authorized or required by the power contained in
the mortgage.
(Emphasis added.)
As explained in Santiago v. Tanaka, 137 Hawaiʻi 137, 366 P.3d 612
(2016), “[p]rior to its repeal in 2012, HRS § 667-5 authorized the non-
judicial foreclosure of mortgaged property only ‘[w]hen a power of sale is
contained in a mortgage.’” 137 Hawaiʻi at 154, 366 P.3d at 629 (second
alteration in original).
(continued. . .)
6
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through HRS § 667-5 to circumvent the consumer protection
provisions contained in HRS §§ 667-21 through 667-42 (Supp.
2008).8 The AOAO had fraudulently concealed the wrongfulness of
the foreclosure proceedings by implying, stating, and
misrepresenting that it held a mortgage with a power of sale
when it did not, or that it was authorized to use HRS § 667-5
when it could not. The Malabes relied on the false statements
and representations of the AOAO concerning the AOAO’s right to
conduct a public sale pursuant to HRS § 667-5. The Malabes were
entitled to so rely because they were members of the AOAO,
because of the AOAO’s trustee-like relationship with the
(. . .continued)
This court examined HRS § 667-5 in Lee v. HSBC Bank USA,
121 Hawaiʻi 287, 218 P.3d 775 (2009), and found that it
authorized nonjudicial foreclosure under a power of sale
contained in a mortgage. In Lee, the plaintiffs argued,
and this court agreed, that no state statute creates a
right in mortgagees to proceed by non-judicial foreclosure;
the right is created by contract.
137 Hawaiʻi at 154-55, 366 P.3d at 629-30 (internal citations, emphases,
brackets, and quotation marks omitted).
7
HRS Chapter 514A, which was repealed effective January 1, 2019, was
titled, “Condominium Property Regimes.” HRS Chapter 514B is the Condominium
Property Act. See infra note 17.
8
These sections constitute Part II of HRS Chapter 667, an “Alternate
Power of Sale Foreclosure Process.” Part II of HRS Chapter 667 provides
protections exceeding that available in Part I of HRS Chapter 667, which
contained HRS § 667-5 until 2012, by, for example, outlining specific notice
requirements, including “[t]he date by which the default must be cured, which
deadline date shall be at least sixty days after the date of the notice of
default[.]” HRS § 667-22(a)(6) (Supp. 2010). Part II of HRS Chapter 667 was
at issue in Sakal. 143 Hawaiʻi at 221, 426 P.3d at 445. Therefore, pursuant
to Sakal, the AOAO would also not have been authorized to proceed under Part
II of HRS Chapter 667.
7
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Malabes, and because the AOAO was acting as an agent or attorney
on behalf of the Malabes pursuant to HRS § 667-10 (1993).9
At the sale, the AOAO successfully bid on the Apartment in
an amount that did not constitute adequate consideration, and on
January 4, 2011, the AOAO executed a quitclaim deed for the
Apartment as both the grantor and grantee. The quitclaim deed
was recorded on January 7, 2011. As a result of the public
sale, the Malabes lost the Apartment, but remain liable for the
amount secured by the mortgage. The Malabes did not discover
their claims against the AOAO until sometime in or around July
2016. On January 11, 2017, the AOAO filed a motion to dismiss
the Malabes’ complaint. With respect to Count I, the AOAO
argued that the Malabes’ wrongful foreclosure claim, based on
their allegations that the AOAO improperly relied on HRS § 667-5
as a basis for the foreclosure, failed as a matter of law
because (1) the Malabes’ claim should have been raised as a
defense to the foreclosure action, instead of belatedly raised
as an affirmative cause of action; (2) the AOAO properly
9
Power unaffected by transfer; surplus after sale. No
sale or transfer by the mortgagor shall impair or annul any
right or power of attorney given in the mortgage to the
mortgagee to sell or transfer the mortgaged property, as
attorney or agent of the mortgagor, except as otherwise
provided by chapters 501 and 502. . . .
HRS § 667-10.
8
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conducted the foreclosure pursuant to HRS § 514B-146 (2006)10 and
HRS § 667-5; and (3) Hawaiʻi had not recognized a cause of action
for wrongful foreclosure.11
With respect to Count II, the AOAO argued that the Malabes’
UDAP claim (1) was time-barred by the four-year limitations
period set forth in HRS § 480-24 (2008),12 which began to run “in
10
HRS § 514B-146 states in relevant part:
Association fiscal matters; lien for assessments. [Repeal
and reenactment on December 31, 2007. L 2005, c 93, § 7; L
2006, c 373, § 32.] (a) All sums assessed by the
association but unpaid for the share of the common expenses
chargeable to any unit shall constitute a lien on the unit
. . . . The lien of the association may be foreclosed by
action or by nonjudicial or power of sale foreclosure
procedures set forth in chapter 667, by the managing agent
or board, acting on behalf of the association, in like
manner as a mortgage of real property.
(Bracketed material in original.)
11
Santiago was decided on January 15, 2016, and stated “we conclude that
the Santiagos are entitled to restitution . . . from Tanaka’s wrongful
foreclosure of the Mortgage and subsequent sale of the Tavern.” 137 Hawaiʻi
at 158, 366 P.3d at 633. On November 16, 2016, this court ruled in another
case that “[u]pon remand, the circuit court is to apply Santiago to determine
an appropriate remedy for the wrongful foreclosure.” Mount v. Apao, 139
Hawaiʻi 167, 180, 383 P.3d 1268, 1281 (2016). Before that, Kondaur Capital
Corp. v. Matsuyoshi, 136 Hawaiʻi 227, 361 P.3d 454 (2015) discussed the
predecessor statute to HRS § 667-5, and held that duties set forth in Ulrich
v. Security Investment Co., 35 Haw. 158 (Haw. Terr. 1939), that a “mortgagee
seeking to enforce a non-judicial foreclosure sale bears the burden of
establishing that the sale was conducted in a manner that is fair, reasonably
diligent, and in good faith and that an adequate price was procured for the
property[,]” were applicable to HRS § 667-5. 136 Hawaiʻi at 229, 235-41, 361
P.3d at 456, 462-68. It appears that Hawaiʻi may have actually recognized a
wrongful foreclosure claim as early as 1883, in Johnson v. Tisdale, 4 Haw.
605 (Haw. Kingdom 1883).
12
HRS § 480-24 states in relevant part:
Limitation of actions. (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, except as otherwise provided in subsection (b) and
section 480-22. For the purpose of this section, a cause
(continued. . .)
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or around December 2010/January 2011,” and equitable tolling
under HRS § 657-20 (1993) did not apply; and (2) failed as a
matter of law because the AOAO did not conduct trade or commerce
and the Malabes are not consumers in an adversarial foreclosure
procedure.
In opposition, in summary, with respect to Count I, the
Malabes argued that (1) wrongful foreclosure is a valid and
recognized claim and is not required to be raised as a defense
to a nonjudicial foreclosure, and their claim was timely raised
within the applicable six-year statute of limitations period;
and (2) because the AOAO was not authorized to foreclose
pursuant to HRS § 667-5, the AOAO’s compliance with the statute
did not bar a claim of wrongful foreclosure.
Regarding Count II, the Malabes did not controvert the
AOAO’s assertion that the limitations period began in December
2010/January 2011, but instead argued that equitable tolling for
fraudulent concealment applied. The Malabes emphasized they
were not accusing the AOAO of concealing the law, but rather of
concealing a fact.
At the February 2, 2017 hearing on the motion to dismiss,
the AOAO summarized the issue as being “whether 514B-146
[(2006)] gives the Association authority for the purposes of
(. . .continued)
of action for a continuing violation is deemed to accrue at
any time during the period of the violation.
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utilizing nonjudicial foreclosure.” The AOAO argued that
HRS § 514B-146 gives broad authority to associations to use all
forms of foreclosure available in HRS Chapter 667. The Malabes
argued that even if the AOAO could foreclose “in like manner as
a mortgage,” the AOAO was required to use statutes that
explicitly allow their use because the AOAO did not have a power
of sale. The Malabes maintained that if the AOAO wanted to
conduct a nonjudicial foreclosure, it would have to have been
under Part II of HRS Chapter 667.13 They argued the AOAO could
not rely on HRS § 667-5 because it did not have a mortgage
containing a power of sale. The Malabes also argued that the
statute of limitations did not begin to run until they
discovered the violations in 2016, arguing that the discovery
rule is an equitable principle.
At the hearing, the circuit court indicated it was granting
the motion to dismiss, but did not state the grounds for its
ruling.
The circuit court granted the motion to dismiss in its
entirety by an order filed on February 17, 2017. Final judgment
in favor of the AOAO was entered the same day.
B. Appeal to the ICA
The Malabes appealed the dismissal of their complaint to
the ICA.
13
See supra note 8.
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The ICA agreed with the Malabes that Count I, the wrongful
foreclosure claim, should not have been dismissed. See Malabe,
SDO at 5–7. The ICA cited to Santiago, 137 Hawaiʻi at 154, 366
P.3d at 629, which held that “prior to its repeal in 2012,
HRS § 667-5 authorized the non-judicial foreclosure of mortgaged
property only when a power of sale is contained in a mortgage,”
as HRS § 667-5 “did not independently provide for a power of
sale.” Malabe, SDO at 3 (second emphasis added) (brackets,
quotation marks, and footnote omitted). The ICA explained it
had applied this holding in the context of apartment owner
associations in Sakal, 143 Hawaiʻi at 225, 426 P.3d at 449, in
which it held HRS § 667-5 “merely authorized a sale where such a
power is independently provided by an agreement between the
parties.” Malabe, SDO at 4 (brackets and quotation marks
omitted). The ICA observed “the AOAO did not argue that it had
a power of sale under a mortgage or pursuant to its bylaws or
some other agreement containing a power of sale.” Id.
Further, the ICA rejected the AOAO’s argument that
HRS § 514B-146 authorized the AOAO to conduct a nonjudicial
foreclosure on the Apartment pursuant to HRS § 667-5. Malabe,
SDO at 5. The ICA reasoned that based on its plain language and
legislative intent, HRS § 667-5 “did not grant a power of sale
but merely authorized use of certain nonjudicial procedures in
order to effect a foreclosure only when a power of sale was
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contained in mortgage.” Id. (internal quotation marks and
brackets omitted). “[T]he phrase ‘in like manner as a mortgage
of real property’ [contained in HRS §514B-146(a)] was intended
to clarify that associations could avail themselves of less
burdensome procedures, but was not a grant of heretofore non-
existent statutory powers of sale.” Malabe, SDO at 6 (footnote
omitted) (citing Sakal, 143 Hawaiʻi at 227, 426 P.3d at 451).
The ICA concluded that without a clear legislative act granting
the “power to extrajudicially sell another person’s property,”
it would not infer that one existed, and therefore the Malabes
“stated a cognizable claim for wrongful foreclosure against the
AOAO for which some relief may be granted.” Id.
With respect to the circuit court’s dismissal of Count II,
the UDAP claim, the ICA affirmed. The ICA concluded that this
claim was barred pursuant to the plain language of
HRS § 480-24(a)14 governing UDAP claims, which provides, “[a]ny
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.” Malabe, SDO at 8 (alteration in
original). Citing to federal case law that “a cause of action
for unlawful business practices accrues upon occurrence of
alleged violation, rather than when plaintiff discovers the
violation[,]” the ICA concluded the Malabes’ cause of action
14
See supra note 12.
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accrued on or about December 17, 2010, when the AOAO
“‘collect[ed] [the] debt,’ i.e., conducted the foreclosure sale
and submitted the winning bid to purchase the Apartment.”
Malabe, SDO at 8 (alterations in original) (citing McDevitt v.
Guenther, 522 F. Supp. 2d 1272, 1289 (D. Haw. 2007); Kersh v.
Manulife Fin. Corp., 792 F. Supp. 2d 1111, 1122 (D. Haw. 2011);
Heejoon Chung v. U.S. Bank, N.A., 250 F. Supp. 3d 658, 671–73
(D. Haw. 2017)). The ICA concluded the Malabes’ UDAP claim was
therefore time-barred by HRS § 480-24 because they filed their
complaint on December 13, 2016, nearly six years after the
public sale and outside the limitations period. See Malabe, SDO
at 8.
In addition, the ICA concluded that equitable tolling did
not apply to the Malabes’ claims. The Malabes had argued that
the AOAO fraudulently concealed their cause of action because it
had relied on HRS § 667-5 to conduct the public sale, i.e.,
because the AOAO implied, stated, and/or misrepresented that it
was authorized to use HS § 667-5 and/or that it held a mortgage
with a power of sale when it did not. Malabe, SDO at 9. The
ICA rejected this argument, reasoning the AOAO’s mere reliance
on HRS § 667-5 did not constitute fraudulent concealment:
As alleged in the Complaint, the AOAO “published notice
that they would sell the Apartment at a public sale
pursuant to Section 667-5.” The Malabes cite no authority
for the proposition that reliance on a statutory authority,
even if that reliance later proves to be wrong, constitutes
fraudulent concealment, and we find none. The Complaint
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contains no allegations that the AOAO concealed or
misrepresented its use of HRS § 667-5. We decline to
characterize the Malabes’ later-developed, but cognizable
and ultimately successful, legal theory as stating a claim
for fraudulent concealment by the AOAO at the time the AOAO
relied on HRS § 667-5. Therefore, we conclude that the
Malabes failed to allege fraudulent concealment sufficient
to state a claim to equitable tolling of the statute of
limitations on their UDAP claim.
Malabe, SDO at 9-10.
Thus, the ICA vacated in part the circuit court’s February
17, 2017 judgment with respect to its dismissal of Count I,
affirmed in part with respect to the circuit court’s dismissal
of Count II, and remanded the case to the circuit court for
further proceedings. See Malabe, SDO at 10.
C. Applications for writs of certiorari
The AOAO filed an application for certiorari, presenting
six questions:
[1]. Did the ICA commit grave errors of law and fact when
they analyzed a nonprofit AOAO’s participation in a non-
judicial foreclosure, the same as a for-profit financial
institution’s participation in a non-judicial foreclosure?
[2]. Did the ICA commit grave errors of law and fact when
they analyzed a for-profit financial institution’s
foreclosure of its contractual mortgage, and applied the
same analysis to that of the nonprofit AOAO’s foreclosure
of its statutory lien?
[3]. Did the ICA commit grave errors of law and fact by
applying a negotiated contractual “power of sale” analysis,
arising in the for-profit consumer context, to the
nonprofit AOAO, who conducts a statutory lien foreclosure
in accordance with the authority created by and the
instructions contained in HRS § 514B-146 as provided by the
[sic] Hawaii’s legislature?
[4]. Did the ICA commit grave errors of law and fact by
holding that the AOAO lacked authority to conduct a non-
judicial foreclosure absent an express written power of
sale despite the plain language of HRS § 514B-10 providing
that “the remedies provided by this chapter shall be
liberally administered . . . .” and HRS § 514B-146,
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providing that “[a]ll sums assessed by the association but
unpaid for the share of the common expenses chargeable to
any unit shall constitute a lien on the unit[,]” and that
“[t]he lien of the association may be foreclosed by action
or by nonjudicial or power of sale foreclosure procedures
set forth in chapter 667”?
[5]. Did the ICA commit grave errors of law and fact in
holding that Respondents had stated a cognizable claim for
wrongful foreclosure against the AOAO, based on the 2010
non-judicial foreclosure sale of the unit owned by
Respondents?
[6]. Did the ICA commit grave errors of law and fact in
light of S.B. 551, which has passed two committees in the
Senate and one committee in this House of Representatives,
recognizing that “this Act confirms the legislative intent
that associations should be able to use nonjudicial
foreclosure to collect delinquencies without having
specific authority to conduct nonjudicial foreclosures in
an agreement with a delinquent owner or in the
association’s declaration or bylaws . . . .”?
(Ellipses and some alterations in original.)
The first five questions raise issues addressed by the
circuit court and the ICA. The sixth question was based on
Senate Bill 551, which was then pending before the legislature.
As discussed below, we ordered supplemental briefing regarding
Act 282.
The Malabes also filed an application for certiorari,
presenting two questions:
1. Whether the ICA gravely erred in holding that
Petitioners’ claim for unfair or deceptive acts or
practices (hereafter “UDAP”) is time-barred under
HRS §480-24, by applying the occurrence rule rather than
the discovery rule.
2. Whether the ICA gravely erred in holding that
Petitioners failed to allege fraudulent concealment
sufficient to state a claim of equitable tolling of the
statute of limitations on their UDAP claim.
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III. Standards of review
A. Motions to dismiss
A complaint should not be dismissed for failure to
state a claim unless it appears beyond doubt that the
plaintiff can prove no set of facts in support of [their][15]
claim that would entitle them to relief. We must therefore
view a plaintiff’s complaint in a light most favorable to
[them] in order to determine whether the allegations
contained therein could warrant relief under any
alternative theory. For this reason, in reviewing a
circuit court’s order dismissing a complaint . . . our
consideration is strictly limited to the allegations of the
complaint, and we must deem those allegations to be true.
Ah Mook Sang v. Clark, 130 Hawaiʻi 282, 290, 308 P.3d 911, 919
(2013) (ellipsis in original).
B. Statutory interpretation
“Statutory interpretation ‘is a question of law
reviewable de novo.’” Citizens Against Reckless Dev. v. Zoning
Bd. of Appeals, 114 Hawaiʻi 184, 193, 159 P.3d 143, 152 (2007).
When construing statutes, the court is governed by the following
rules:
First, the fundamental starting point for statutory
interpretation is the language of the statute itself.
Second, where the statutory language is plain and
unambiguous, our sole duty is to give effect to its plain
and obvious meaning. Third, implicit in the task of
statutory construction is our foremost obligation to
ascertain and give effect to the intention of the
legislature, which is to be obtained primarily from the
language contained in the statute itself. Fourth, when
there is doubt, doubleness of meaning, or indistinctiveness
or uncertainty of an expression used in a statute, an
ambiguity exists.
When there is ambiguity in a statute, “the meaning of
the ambiguous words may be sought by examining the context,
with which the ambiguous words, phrases, and sentences may
be compared, in order to ascertain their true meaning.”
15
“They, them, and their” are used as singular pronouns when the gender
identity of the person referred to is unknown or immaterial.
17
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Moreover, the courts may resort to extrinsic aids in
determining legislative intent, such as legislative history,
or the reason and spirit of the law.
Id. (citations omitted).
IV. Discussion
A. As the AOAO did not have a power of sale to conduct a
nonjudicial foreclosure, the Malabes have stated a
wrongful foreclosure claim
The first five questions in the AOAO’s application can be
crystallized as asking whether the Malabes have stated a
wrongful foreclosure claim on the grounds the AOAO did not have
authority to conduct a nonjudicial foreclose, which it purported
to conduct pursuant to authority granted by HRS § 667-5, because
it lacked a power of sale. The ICA concluded the Malabes have
stated a wrongful foreclosure claim, relying on its decision in
Sakal to explain that HRS § 514B-146(a) did not “authorize an
association to conduct a nonjudicial or power of sale
foreclosure other than as provided in HRS chapter 667, which in
turn does not authorize a nonjudicial power of sale foreclosure
absent an otherwise existing power of sale.” Sakal, 143 Hawaiʻi
at 228, 426 P.3d at 452.
As stated by the ICA in Sakal, that case presented
difficult and consequential questions concerning whether an
association of apartment owners must have a power of sale
over its units in order to foreclose on a lien against a
unit through the nonjudicial power of sale foreclosure
procedures set forth in [HRS Chapter 667]. After an
exhaustive review, we have concluded that over a number of
years the Legislature has worked to craft workable,
nonjudicial foreclosure procedures, available to
associations as well as lenders, but at no point did the
18
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Legislature take up the issue of whether to enact a blanket
grant of powers of sale over all condominiumized properties
in Hawaiʻi. Accordingly, we conclude that a power of sale
in favor of a foreclosing association must otherwise exist,
in the association’s bylaws or another enforceable
agreement with its unit owners, in order for the
association to avail itself of the nonjudicial power of
sale foreclosure procedures set forth in [HRS Chapter
667].
143 Hawaiʻi at 220-21, 426 P.3d at 444-45. We do not repeat the
entire analysis of the ICA’s opinion. In summary, however, the
ICA held in Sakal that because no statutory power of sale
existed, for an association to avail itself of the nonjudicial
power of sale foreclosure procedures set forth in HRS Chapter
667, a power of sale in favor of a foreclosing association must
otherwise exist in the association’s bylaws or another
enforceable agreement with its unit owners.
The AOAO does not argue that any written document provided
it with a power of sale. Rather, it argues that it had a
statutory power of sale. In other words, the AOAO challenges
the ICA’s ruling in Sakal that the legislature did not by
statute grant to apartment associations a power of sale to
nonjudicially foreclose on liens against apartment owners
delinquent in paying their share of common expenses.
We hold the ICA did not err in reinstating Count I, the
Malabes’ wrongful foreclosure claim, for a nonjudicial
foreclosure sale unauthorized by HRS § 667-5 based on Sakal.
Sakal correctly held that in order for an association to utilize
the nonjudicial power of sale foreclosure procedures set forth
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in HRS Chapter 667, a power of sale in its favor must have
existed in association bylaws or in another enforceable
agreement with unit owners. 143 Hawaiʻi at 220-21, 426 P.3d 444-
45. Therefore, although the AOAO conducted its nonjudicial
foreclosure of the Malabes’ Apartment in this case pursuant to
HRS § 667-5, as compared to Part II of HRS Chapter 667 at issue
in Sakal, the result is the same. In addition, as discussed
below, Act 282 does not affect this holding.
1. The AOAO did not have authority to conduct a
nonjudicial foreclosure pursuant to HRS § 667-5
The AOAO’s notice to the Malabes stated that it would be
foreclosing pursuant to HRS § 667-5 and HRS Chapters 514A and
514B. The AOAO lacked a power of sale and was therefore not
authorized to conduct a nonjudicial foreclosure sale.16
As of the date of the Malabes’ nonjudicial foreclosure,
HRS § 667-5 provided in relevant part as follows:
§667-5 Foreclosure under power of sale; notice; affidavit
after sale. (a) When a power of sale is contained in a
mortgage, and where the mortgagee, the mortgagee’s
successor in interest, or any person authorized by the
power to act in the premises, desires to foreclose under
power of sale upon breach of a condition of the mortgage,
the mortgagee, successor, or person shall be represented by
an attorney who is licensed to practice law in the State
and is physically located in the State. The attorney
shall:
16
We also note that, after Sakal, and before this opinion, Judge Leslie
Kobayashi of the United States District Court for the District of Hawaiʻi had
also ruled that, as a matter of law, an association without a power of sale
was not authorized to utilize HRS § 667-5 to conduct a nonjudicial
foreclosure. Galima v. Ass’n of Apartment Owners of Palm Court, CIVIL 16-
00024 LEK-KSC, 2018 WL 6841818 (D. Haw. Dec. 31, 2018).
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(1) Give notice of the mortgagee’s, successor’s, or
person’s intention to foreclose the
mortgage . . . ; and
(2) Give any notices and do all acts as are
authorized or required by the power contained in
the mortgage.
(Emphasis added.)
“First, the fundamental starting point for statutory
interpretation is the language of the statute itself. Second,
where the statutory language is plain and unambiguous, our sole
duty is to give effect to its plain and obvious meaning.”
Citizens Against Reckless Dev., 114 Hawaiʻi at 193, 159 P.3d at
152. The language of the statute and its plain and obvious
meaning is that HRS § 667-5 allowed for a nonjudicial
foreclosure when a power of sale is contained in a mortgage.
The AOAO did not have a mortgage on the Malabes’ Apartment.
Thus, the AOAO could not conduct a nonjudicial foreclosure
pursuant to HRS § 667-5.17
2. HRS § 514B-146 did not provide the AOAO with
the power of sale required to conduct a
nonjudicial foreclosure
The AOAO’s notice of nonjudicial foreclosure also cited to
HRS Chapters 514A and 514B as authority for its action.18
17
The concurrence and dissent agrees that the AOAO in this case was not
authorized to conduct a nonjudicial foreclosure sale pursuant to HRS § 667-5.
18
As noted by the ICA in Sakal, HRS Chapter 514A applied to all
condominiums created before July 1, 2006, except as provided in sections
514B-22 and 514B-23, and with other inapplicable exceptions. 143 Hawaiʻi at
226, 426 P.3d at 450. HRS Chapter 514B applies to all condominiums created
after July 1, 2006, pursuant to HRS § 514B-21 (2006), and HRS § 514B-22
(continued. . .)
21
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Specifically, the AOAO argues that HRS § 514B-146(a), which is
identical to the former HRS § 514A-90(a) that governed
condominiums built before July 1, 2006 until January 1, 2019,
when HRS Chapter 514B became applicable to all condominiums,19
authorized it to use the nonjudicial foreclosure procedures set
forth in HRS § 667-5.20 As of the date of the AOAO’s nonjudicial
foreclosure of the Malabes’ Apartment, HRS § 514B-146(a)
provided in relevant part as follows:
[§514B-146] Association fiscal matters; lien for
assessments. . . . . (a) All sums assessed by the
association but unpaid for the share of the common expenses
chargeable to any unit shall constitute a lien on the unit
with priority over all other liens, except:
(1) Liens for taxes and assessments lawfully imposed
by governmental authority against the unit; and
(. . .continued)
provides that certain enumerated provisions in HRS Chapter
514B, including HRS § 514B-146, apply to all condominiums
created before July 1, 2006, but “only with respect to
events and circumstances occurring on or after July 1,
2006,” provided that their application does not “invalidate
existing provisions of the declaration, bylaws . . . or be
an unreasonable impairment of contract.” HRS § 514B-
22 (2006).
Id. (ellipsis in original).
HRS § 514B-22 was repealed by 2017 Haw. Sess. Laws Act 181, § 4,
effective January 1, 2019, and on January 1, 2019, HRS Chapter 514A was
repealed and HRS Chapter 514B now applies to all condominiums in Hawaiʻi
regardless of their creation date, “provided that such application shall not
invalidate existing provisions of the declaration, bylaws, condominium map,
or other constituent documents of those condominiums if to do so would
invalidate the reserved rights of a developer.” 143 Hawaiʻi at 226, n.12, 426
P.3d at 450, n.12 (quoting HRS § 514B-21 (Supp. 2017)).
19
See supra note 18.
20
In her December 31, 2018 Galima decision, supra note 16, Judge
Kobayashi also rejected this argument. 2018 WL 6841818, at *9.
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(2) All sums unpaid on any mortgage of record that
was recorded prior to the recordation of a notice of a lien
by the association, and costs and expenses including
attorneys’ fees provided in such mortgages.
The lien of the association may be foreclosed by
action or by nonjudicial or power of sale foreclosure
procedures set forth in chapter 667, by the managing agent
or board, acting on behalf of the association, in like
manner as a mortgage of real property.
(Emphases added.) The AOAO argues that, pursuant to this
language, it was authorized to conduct a nonjudicial foreclosure
pursuant to HRS § 667-5.
As noted by the ICA in Sakal, however, HRS § 514B-146(a),
which was identical to HRS § 514A-90(a), only provided
associations with access to nonjudicial power of sale
procedures, and “associations were not being granted heretofore
non-existent statutory powers of sale[.]” Sakal, 143 Hawaiʻi at
227, 426 P.3d at 451. The text of HRS §§ 514A-90(a) and/or
514B-146(a) refers to an association’s ability to conduct a
nonjudicial foreclosure in the context of the “procedures set
forth in chapter 667 . . . in like manner as a mortgage of real
property.” HRS § 541A-90(a) (emphasis added); HRS § 514B-146(a)
(emphasis added). There is no grant of a power of sale in
either statute. And as we held in Santiago, “no state statute[,
including Part II of HRS Chapter 667,] creates a right in
mortgagees to proceed by non-judicial foreclosure; the right is
created by contract.” 137 Hawaiʻi at 155, 366 P.3d at 630
(emphasis added).
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As explained by the ICA in Sakal, HRS § 514A-90(a) was
amended in 1999 to the version of HRS 514B-146(a) quoted above.
143 Hawaiʻi at 226, 426 P.3d at 450. Although from 1999,
pursuant to HRS §§ 514A-90(a) and 514B-146(a), associations
could avail themselves of HRS Chapter 667 nonjudicial or power
of sale procedures, like mortgagees, it is clear that mortgagees
could conduct a nonjudicial power of sale only if the subject
mortgage contained a power of sale. 143 Hawaiʻi at 227, 426 P.3d
at 451 (citing HRS § 667-5; Part II of HRS Chapter 667; Lee, 121
Hawaiʻi at 292, 218 P.3d at 780 (“no state statute creates a
right in mortgagees to proceed by non-judicial foreclosure; the
right is created by contract”)).
Thus, as noted by the ICA:
The 1999 amendment to HRS § 514A-90 did not purport to
enact a blanket grant of powers of sale to all associations
over all apartments/units within those associations. There
is nothing in the legislative history of Act 236 of 1999 to
suggest that a grant of powers of sale was even
contemplated. The text of Act 236 of 1999 specifically
states that this amendment was intended to clarify that
associations could avail themselves of less
burdensome procedures, i.e., the alternative power of sale
foreclosure procedures enacted the prior year. See 1999
Haw. Sess. Laws Act 236, § 1 at 723-24. As stated earlier,
we will not infer that the power to extrajudicially sell
another person’s property was granted, in the absence of a
clear legislative act doing so.[21]
21
As held by Sakal, the legislature’s 2012 amendments to the foreclosure
law also did not create a power of sale for associations. 143 Hawaiʻi at 225,
426 P.3d at 449. The 2012 amendments were based on recommendations of a
legislatively created foreclosure task force. Legislative Reference Bureau,
Final Report of the Mortgage Foreclosure Task Force to the Legislature for
the Regular Session of 2012 6 (2011), available at https://lrb.hawaii.gov/wp-
content/uploads/2011_FinalReportOfTheMortgageForeclosureTaskForce.pdf.
The task force recommendations included an amendment to “chapter 667 []
adding a new part to establish an alternate power of sale process
(continued. . .)
24
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Sakal, 143 Hawaiʻi at 227, 426 P.3d at 451.
As further explained by Sakal, in contrast to the Hawaiʻi
statutory scheme, other states have included a statutory grant
of the power of sale explicitly in the language of their
statutes. 143 Hawaiʻi at 228, 426 P.3d at 452 (citing D.C. Code
Ann. § 42-1903.13(c)(1) (West 2017) (“The unit owners’
association shall have the power of sale to enforce a lien for
an assessment against a condominium unit if an assessment is
past due.” (emphasis added.)); Minn. Stat. § 515B.3-116(h)(1)
(2017) (“[T]he association’s lien may be foreclosed in a like
manner as a mortgage containing a power of sale pursuant to
chapter 580, or by action pursuant to chapter 581. The
association shall have a power of sale to foreclose the lien
pursuant to chapter 580.” (emphasis added.)); Tex. Prop. Code
Ann. § 82.113(d) (West 2013) (“By acquiring a unit, a unit owner
grants to the association a power of sale in connection with the
association’s lien.” (emphasis added.)); N.C. Gen. Stat. Ann. §
47F-3-116(f) (West 2013) (“[T]he association, acting through the
(. . .continued)
specifically for condominium and other homeowner associations and modeled
after the process set forth in part II of chapter 667[.]” Id. at 36. The
new part was titled “Association Alternate Power of Sale Foreclosure Process”
and contained fourteen new sections outlining the procedures for a power of
sale foreclosure. Id. at 36-53. These sections comprise Part VI of HRS
chapter 667. The task force’s recommendations were adopted by the
legislature. See generally 2012 Haw. Sess. Laws Act 182. The 2012 amendment
to section 514A-90 did not grant associations a power of sale, but instead
codified procedures for associations to follow when conducting a nonjudicial
foreclosure under a power of sale.
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executive board, may foreclose a claim of lien in like manner as
a mortgage or deed of trust on real estate under power of sale,
as provided in Article 2A of Chapter 45 of the General
Statutes. . . . The association shall be deemed to have a power
of sale for purposes of enforcement of its claim of lien.”
(emphasis added.))).22
As noted by the ICA, the Hawaiʻi legislature did not use
language similar to that of the above-quoted state codes in
either HRS Chapter 514A or 514B, nor did the legislative history
of these chapters provide any indication that the legislature
provided “a blanket grant of powers of sale to all associations
over all apartments/units within those associations.” Sakal,
143 Hawaiʻi at 227, 426 P.3d at 451.23
22
As noted in Sakal, these statutes from other states clearly and
unequivocally provide associations with a power of sale to enforce their
liens. 143 Hawaiʻi at 228, 426 P.3d at 452. The dissent asserts that
HRS § 667-40 (2016) and HRS § 514B-146(a) constituted similar statutory
authority for associations to conduct nonjudicial foreclosures under Part II
of HRS Chapter 667. HRS § 667-40, which is within Part II of Chapter 667,
however, provided that Part II of HRS Chapter 667 procedures can be followed
if “a law . . . authorizes, permits, or provides for . . . a power of sale
foreclosure . . . or a nonjudicial foreclosure.” This statute obviously
requires another law that would allow an association to conduct a nonjudicial
foreclosure. The dissent asserts that HRS § 514B-146(a) is that law. That
statute, however, provided in 2010 (the time of the AOAO's nonjudicial
foreclosure of the Malabes’ Apartment) that “[t]he lien of the association of
apartment owners may be foreclosed by action or by nonjudicial or power of
sale foreclosure procedures set forth in chapter 667, by the managing agent
or board of directors, acting on behalf of the association of apartment
owners, in like manner as a mortgage on real property.” As correctly opined
by the ICA in Sakal, this statute, unlike those of other states, does not
provide a “power” of sale. Id.
23
As explained in supra note 8, Sakal addressed an association’s
nonjudicial foreclosures under Part II of HRS Chapter 667; the AOAO in this
(continued. . .)
26
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(. . .continued)
case asserted authority to conduct a nonjudicial foreclosure under the more
simple “process” of HRS § 667-5. As further explained in Sakal:
Part II of HRS chapter 667 was enacted through Act
122 of 1998, in order to address certain shortcomings
in HRS § 667-5 (repealed in 2012). HRS § 667-40, which is
applicable only to time share plans, condominium property
regimes, and agreements of sale, remain[ed] in effect as
enacted in 1998 (with subsequent amendments),
notwithstanding the addition of Part VI, as well as Part
IV, which pertains to the foreclosure of a time share
interest where a time share interest mortgage, loan,
agreement, or contract contains a power of sale.
143 Hawaiʻi at 224 n.8, 426 P.3d at 448 n.8
Part II of HRS Chapter 667’s “processes” include foreclosure notices,
notices of default, recordation of notices of default, cures of default,
places of public sale, cancellations of sale, authorized bidders,
conveyances, distributions of sale proceeds, affidavits after sale,
recordation of affidavits, and public notice. See HRS §§ 667-21.5 through
667-41. And although HRS § 667-40 provides that “[a] power of sale
foreclosure under [Part II of HRS Chapter 667] may be used in certain non-
mortgage situations where a law or a written document contains, authorizes,
permits, or provides for a power of sale, a power of sale foreclosure, a
power of sale remedy, or a nonjudicial foreclosure[,]” by its own language,
this statute requires that such a “law” or “written document” otherwise
exist. As further noted by the ICA with respect to HRS § 667-40:
If a law provided powers of sale to all associations, there
would be no need to reference other written documents;
however, the language suggests that such a law might exist,
but we found none. We note, however, that the nonjudicial
power of sale procedures in Part II of HRS chapter 667 are
expressly made available to associations through
HRS § 667-40, where such powers exist, but other parts of
Part II are an ill fit for associations. See, e.g.,
HRS § 667-32(a)(1) (requiring “the foreclosing mortgagee”
to file an affidavit under penalty of perjury
stating, inter alia, “that the power of sale foreclosure
was made pursuant to the power of sale provision in the
mortgage”). Especially in light of other aspects of Part
II of HRS chapter 667 that cannot be read literally as to
association foreclosures, we conclude that the ambiguous
references to “a law or written document” is too thin a
reed on which to support a statutory power of sale.
Nevertheless, we delved further into the history of
statutory lien rights of associations, from when they were
first enacted as part of the first Horizontal Property Act
in 1961, when they were amended in 1963, and through the
present. See 1961 Haw. Sess. Laws Act 180, § 15 at 276;
1963 Haw. Sess. Laws Act 101, § 22 at 88; HRS § 514-24(a)
(1968) (repealed in 1977); HRS §§ 514A-90 and 514B-146.
Nothing in the legislation or legislative history of Hawaiʻi
(continued. . .)
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For all of these reasons, and for the additional reasons
contained in the ICA opinion, we hold that Sakal was correctly
decided.24
(. . .continued)
condominium law supports a conclusion that, at any time,
the Legislature enacted or intended to enact a statute
granting powers of sale over all condominiums in the State
to their respective associations.
143 Hawaiʻi at 228 n.18, 426 P.3d at 452 n.18.
24
We also adopt the ICA’s analysis of relevant legislative history.
Sakal, 143 Hawaiʻi at 223-28, 426 P.3d at 448-53. We further address an
assertion not addressed by the ICA’s Sakal opinion. The dissent states:
[T]he differences between a nonjudicial and a judicial
foreclosure, and the advantages that the former confers,
are procedural:
[A foreclosure pursuant to HRS § 667-5 (Supp.
2010)] is relatively quick and inexpensive. It
does not require a lengthy time period between
the notice of default and foreclosure sale, and
does not require court costs and legal fees
associated with discovery and drafting of
pleadings.
Lee, 121 Hawaiʻi at 292, 218 P.3d at 780 (quoting Georgine
W. Kwan, Mortgagor Protection Laws: A Proposal for Mortgage
Foreclosure Reform in Hawaiʻi, 24 U. Haw. L. Rev. 245, 253
(2011)); see also Restatement (Third) of Property:
Mortgages § 8.2 (Am. Law Inst. 2020) (“The underlying
theory of power of sale foreclosure is that by complying
with the statutory requirements, the mortgagee accomplishes
the same purposes achieved by judicial foreclosure without
the substantial additional burdens that the latter type of
foreclosure entails.”).
(Second alteration in original.)
The “underlying theory” stated above does not comport with reality; the
differences between nonjudicial foreclosures pursuant to HRS § 667-5, at
issue in this case, as well as Part II of HRS Chapter 667 at issue in Sakal,
and judicial foreclosures are not merely “procedural,” as posited by the
dissent. The Malabes not only lost their home; they were left with liability
on the mortgage they had procured to buy their home. AOAOs that have
conducted nonjudicial foreclosures have been able to obtain title to
condominium units for much less than fair market value, while leaving the
homeowner responsible for the mortgage. Although judicial foreclosures may
take longer and require more expense, they are conducted under the
(continued. . .)
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3. Other arguments do not support a conclusion that
the AOAO had a power of sale
In its amicus brief, the Hawaii Council of Associations of
Apartment Owners d.b.a. Hawaii Council of Community Associations
(“Council”) raises additional arguments in support of the AOAO.
The Council submits that an interpretation of Hawaiʻi’s
condominium laws “must be imaginative and progressive rather
than restrictive[,]” quoting State Savings and Loan Ass’n v.
Kauaian Development Co., 50 Haw. 540, 552, 445 P.2d 109, 118-19
(. . .continued)
supervision of a judge who recognizes that “[m]ortgage foreclosure is a
proceeding equitable in nature and is thus governed by the rules of equity.”
HawaiiUSA Fed. Credit Union v. Monalim, No. SCWC-XX-XXXXXXX, at 18, 2020 WL
2079890 (Haw. April 30, 2020). Thus, although a judicial foreclosure can
also result in continuing mortgage liability, a judge has discretion to
disallow association foreclosure and instead require an owner to pay the
amount owed an association to avoid forfeiture of equity along with
continuing mortgage liability, and can suggest methods of obtaining such
funds. And in nonjudicial foreclosures, homeowners might lose the benefit of
our holding in Monalim, which adopted the majority rule and held that
“equitable considerations of foreclosure proceedings warrant affording
mortgagees the right to apply the fair market value of mortgaged property
towards the amount due on the mortgage[.]” Id. at 49.
Also, the dissent’s citation to HRS § 667-92 (2016)’s disallowance of
association deficiency judgments in certain situations is inapposite, as that
statute is within Part VI of HRS Chapter 667 and only applies to foreclosures
conducted pursuant to that part. HRS § 667-92(a) (“When a unit owner has
failed to pay an assessment, and when the association intends to conduct a
power of sale foreclosure under this part . . . .”). Also, even before Act
282, if an association had attempted to proceed with a nonjudicial
foreclosure under Part VI without court approval, the owner had a one year
right of redemption to reobtain the unit by paying the delinquency owed.
HRS § 667-92(f)(2). In addition, before Act 282, Part VI contained numerous
other protections for owners, such as the right to submit a payment plan
that, if reasonable, could not be rejected by the association, as well as a
sixty day right of cure. HRS § 667-92(c). According to the Malabes’
complaint, there were only 18 days between the AOAO's December 17, 2010
notice of publication of sale and the January 4, 2011 quitclaim deed the AOAO
executed with itself as grantor and grantee, through which the Malabes lost
title. This obviously never could have happened in a judicial foreclosure,
as an owner would have had twenty days after service of a foreclosure
complaint to respond. See HRCP Rule 12(a). Thus, the differences between
nonjudicial foreclosures in Parts I and II of HRS Chapter 667 and judicial
foreclosures are much more than procedural.
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(1968). It asserts that HRS § 514B-146(a) is a “remedial”
statute “because [it] provide[s] the remedy of nonjudicial or
power of sale foreclosures,” and as such, the remedy provided in
HRS Chapter 514B is to be “liberally administered” pursuant to
HRS § 514B-10 (2006).25
The Malabes argued below that the focus of HRS § 514B-10 is
on an owner who has been harmed by a violation of any provision
of HRS Chapter 514B, but based on its plain language,
HRS § 514B-10 applies to any “aggrieved party.” For the reasons
explained above, however, the “remedy” sought by the AOAO and
the Council simply do not exist as a matter of law.26
25
HRS § 514B-10 provides:
§514B-10 Remedies to be liberally administered.
(a) The remedies provided by this chapter shall be
liberally administered to the end that the aggrieved party
is put in as good a position as if the other party had
fully performed. Punitive damages may not be awarded,
however, except as specifically provided in this chapter or
by other rule of law.
(b) Any deed, declaration, bylaw, or condominium map
shall be liberally construed to facilitate the operation of
the condominium property regime.
(c) Any right or obligation declared by this chapter
is enforceable by judicial proceeding. . . .
The Council also argues that HRS §§ 514A-90 and 514A-82(b) are remedial
statutes, but the parties do not refer to HRS § 514A-90 or HRS § 514A-82(b)
as bases for the AOAO’s foreclosure upon the Apartment. These sections were
repealed in 2004.
26
Chapter 514B does contain some remedies for owners that could have been
implicated in this context of the assertions in the Malabes’ complaint. The
AOAO in this case does not argue that the declaration or the by-laws provided
a power of sale for any non-payment of association fees or assessment. Thus,
owners may not have known that their associations would later pursue
nonjudicial foreclosures pursuant to HRS § 667-5 for non-payment of
association fees. Owners could therefore have been denied possible remedies
under Chapter 514B if they were not provided notice that if they failed to
(continued. . .)
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The Council also asserts the ICA’s failure to address
HRS § 514A-82(b)(13) constitutes grave error. The Council
argues that this statute specifically incorporated into the
bylaws of all condominium projects existing as of January 1,
1988, and all condominium projects created after that date the
provision that “[a] lien created pursuant to section 514A-90 may
be enforced by the association in any manner permitted by law,
including nonjudicial or power of sale foreclosure procedures
authorized by chapter 667.” HRS § 514A-82(b)(13) (repealed
2004). Thus, according to the Council, HRS § 514A-82(b)(13)
provides the authority to an association to foreclose pursuant
to Part I of HRS Chapter 667.
HRS § 514A-82(b)(13), added by Act 236 of 1999, is within
Part V of Chapter 514A governing “Condominium Management.” The
provision states that an association’s bylaws “shall be
consistent with the following provisions: . . . (13) A lien
created pursuant to section 514A-90 may be enforced by the
(. . .continued)
pay fees or assessments due their association, the association could utilize
the expedited nonjudicial foreclosure process of HRS § 667-5. Without being
informed of that possibility, owners could then lose their homes and any
equity therein, and end up with liability on their mortgages. They would
thus be deprived of “likely [] the largest ‘investment’ a person in Hawaiʻi
may make in a lifetime[,]” Cieri v. Leticia Query Realty, Inc., 80 Hawaiʻi 54,
67, 905 P.2d 29, 42 (1995), which is in their home. Under these
circumstances, owners may have been deprived of statutory remedies of a
buyer’s thirty-day right to cancel pursuant to HRS § 514B-86 (2006) after
reviewing the declaration and bylaws, or of an owner’s right to require
compliance with the by-law amendment process of HRS § 514B-108 (2006), should
the association have sought to amend its by-laws to allow nonjudicial
foreclosures.
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association in any manner permitted by law, including
nonjudicial or power of sale foreclosure procedures authorized
by chapter 667[.]” The statute did not, however, create a power
of sale; rather, it stated that the lien “may be enforced” “by
nonjudicial or power of sale procedures authorized by chapter
667” where “permitted by law.” This ends up being a circular
argument, as a nonjudicial foreclosure was not “permitted by
law” for the reasons explained above.
The Council also argues that HRS §§ 514A-82(b)(13),
514A-90, and 514B-146 use language similar to an ordinance that
authorizes the County of Honolulu Honolulu to conduct
nonjudicial foreclosure on real property tax liens. The Council
asserts the legislature therefore must have granted associations
authority to conduct nonjudicial foreclosures. The Council
compares the language used in HRS §§ 514A-82 and 514A-90 to the
language of the Revised Ordinances of Honolulu (“ROH”) § 8-5.2
(1983). It argues that the phrase “may be sold by way of
foreclosure without suit” in ROH § 8-5.2 authorizes nonjudicial
foreclosures, and that the similar language in HRS Chapter 514A
likewise authorizes the use of nonjudicial foreclosures.
ROH § 8-5.2 provides in relevant part:
All real property on which a lien for taxes exists
may be sold by way of foreclosure without suit by the
director, and in case any lien, or any part thereof, has
existed thereon for three years, shall be sold by the
director at public auction to the highest bidder, for cash,
to satisfy the lien[.]
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We could find no appellate cases citing this ordinance.
HRS §§ 514A-82 and 514A-90 provide, however, that associations
may enforce liens by using “nonjudicial or power of sale
foreclosure procedures authorized by chapter 667” and
“nonjudicial or power of sale foreclosure procedures set forth
in chapter 667[.]” (Emphasis added.) Thus, the language of
ROH § 8-5.2 is not analogous to the language of HRS §§ 514A-82
and 514A-90.
In summary, Sakal was correctly decided. Thus, the ICA did
not err in reinstating Count I, the Malabes’ wrongful
foreclosure claim, based on its decision in Sakal.
4. Act 282 of 2019 does not impact the nonjudicial
foreclosure conducted by the AOAO on the Malabes’
Apartment
As noted earlier, Act 282 came into effect on July 10,
2019.27 We therefore ordered supplemental briefing on the
following issue: “What effect, if any, does SB551, CD1 of 2019
have on this case?”28
We hold that the statutory changes in Act 282 do not affect
the Malabes’ wrongful foreclosure claim against the AOAO, which
conducted its foreclosure pursuant to Part I of HRS Chapter 667.
27
See supra note 3.
28
Pursuant to Hawaiʻi Rules of Appellate Procedure (“HRAP”) Rule 44
(2016), the Malabes notified Attorney General Clare E. Connors that they
challenged the constitutionality of Act 282. The Attorney General did not
file a brief or indicate she wished to appear in this matter.
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For this reason, we need not address the constitutionality of
Act 282 with respect to Part VI of Chapter 667. We also discuss,
however, the United States District Court’s ruling in Galima.29
a. Act 282
Act 282 states in its entirety:
SECTION 1. The legislature finds that “Hawaii was
the first state to enact statutory provisions enabling the
creation of condominiums.” State Savings & Loan
Association v. Kauaian Development Company, 50 Haw. 540,
546, 445 P.2d 109, 115 n.8 (1968). Brought into being by
the legislature through Act 180, Session Laws of Hawaii
1961, condominiums are “creature[s] of statute,” State
Savings & Loan Association, 50 Haw. at 546, 445 P.2d at 115,
which are governed by statutes, as well as their governing
documents.
The legislature finds that condominiums provide a
valuable housing resource in Hawaii, especially with
limited space available for new development. The structure
of condominium ownership requires each owner to share in
the total cost of maintaining common areas such as building
exteriors, landscaping, pool, and recreation rooms, in
addition to paying insurance premiums. All owners pay for
such maintenance through fees or dues. The legislature
further finds that it is crucial that condominium
associations be able to secure timely payment of dues to
provide services to all residents of a condominium
community.
In 1999, the legislature noted “that more frequently
associations of apartment owners are having to increase
maintenance fee assessments due to increasing delinquencies
and related enforcement expenses. This places an unfair
burden on those non-delinquent apartment owners who must
bear an unfair share of common expenses . . . .” Moreover,
lengthy delays in the judicial foreclosure process
exacerbated the financial burden on association
owners. The legislature determined that associations
needed a more efficient alternative, such as power of sale
foreclosures, to provide a remedy for recurring
delinquencies.
Additionally, the legislature finds that condominium
associations, since 1999, have been authorized to conduct
nonjudicial foreclosures regardless of the presence or the
absence of power of sale language in an association’s
governing documents. Beginning in 1998 with the passage of
Act 122, Session Laws of Hawaii 1998, and codified in
29
Like the Malabes, the Galima plaintiffs’ condominium had been sold
through a nonjudicial foreclosure conducted pursuant to Part I of Chapter
667.
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section 667-40, Hawaii Revised Statutes, condominium
associations were authorized to conduct nonjudicial
foreclosures if a “law or written document contains,
authorizes, permits, or provides for a power of sale, a
power of sale foreclosure, a power of sale remedy, or a
nonjudicial foreclosure.” However, in 1999, the
legislature passed Act 236, Session Laws of Hawaii 1999,
“[c]larify[ing] that associations of apartment owners may
enforce liens for unpaid common expenses by non-judicial
power of sale foreclosure procedures, as an alternative to
legal action” by:
(1) Specifying that condominium associations may
foreclose liens by nonjudicial or power of sale
foreclosure within the statute governing the
priority of a condominium association lien
(section 514A-90, Hawaii Revised Statutes
(repealed January 1, 2019)); and
(2) Incorporating into the bylaws of all condominium
associations a provision authorizing condominium
associations to enforce liens by nonjudicial or power
of sale foreclosure pursuant to chapter 667, Hawaii
Revised Statutes (section 514A-82, Hawaii Revised
Statutes (repealed January 1, 2019)).
Thus, Act 236, Session Laws of Hawaii 1999, provided
a statutory grant of power and an incorporation into
written documents authorizing condominium associations to
utilize nonjudicial foreclosure under sections 667-5
(repealed June 28, 2012) and 667-40, Hawaii Revised
Statutes, to enforce their liens.
The legislature also finds that this intent was not
abrogated by the recodification of chapter 514A, Hawaii
Revised Statutes. First, through Act 164, Session Laws of
Hawaii 2004, the language of section 514A-90, Hawaii
Revised Statutes, was incorporated with limited amendments
while retaining the authorization that condominium
associations may foreclose liens by nonjudicial or power of
sale foreclosure. Second, while the new statute governing
bylaws no longer contained a provision authorizing
condominium associations to enforce liens by nonjudicial or
power of sale foreclosure, it was not removed out of an
intention to revoke this authority from condominium
associations but rather out of a desire to enhance the
clarity of the condominium law. As stated in the Final
Report to the Legislature: Recodification of Chapter 514A,
Hawaii Revised Statutes (Condominium Property Regimes), the
“statutory requirements for condominium governing documents
should be minimized while incorporating certain
provisions . . . in more appropriate statutory sections.”
Further, the legislature finds that the intent was not
abrogated by the creation of the nonjudicial foreclosure
process specifically for condominium associations, codified
as part VI of chapter 667, Hawaii Revised Statutes, through
Act 182, Session Laws of Hawaii 2012. This is evidenced by
the lack of a provision constricting its application
similar to the language in section 667-40, Hawaii Revised
Statutes.
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Since the enactment of part VI of chapter 667, Hawaii
Revised Statutes, associations have conducted nonjudicial
foreclosures as part of their efforts to collect
delinquencies and sustain their financial
operations. Associations have done so subject to the
restrictions on nonjudicial foreclosures and other
collection options imposed by the legislature, which
include:
(1) Prohibiting the use of nonjudicial foreclosure to
collect fines, penalties, legal fees, or late
fees;
(2) Requiring associations to give an owner sixty
days to cure a default before proceeding with the
nonjudicial foreclosure and to accept reasonable
payment plans of up to twelve months; and
(3) Requiring associations to provide owners with
contact information for approved housing
counselors and approved budget and credit
counselors.
However, the intermediate court of appeals in Sakal v.
Association of Apartment Owners of Hawaiian Monarch, 143
Haw. 219, 426 P.3d 443 (2018), held that the legislature
intended that associations can only conduct nonjudicial
foreclosures if they have specific authority to conduct
nonjudicial foreclosures in their declaration or bylaws or
in an agreement with the owner being foreclosed upon.
The legislative history indicates this was not the
intent of the legislature in 1999, nor in legislatures that
have made subsequent amendments. Therefore, this Act
confirms the legislative intent that condominium
associations should be able to use nonjudicial foreclosure
to collect delinquencies regardless of the presence or
absence of power of sale language in an association’s
governing documents.
This Act also provides an additional consumer
protection by requiring the foreclosing association to
offer mediation with any notice of default and intention to
foreclose and the procedures when mediation is chosen by
the consumer.
SECTION 2. Chapter 514B, Hawaii Revised Statutes, is
amended by adding a new section to be appropriately
designated and to read as follows:
Ӥ514B- Association fiscal matters; supplemental
nonjudicial foreclosure notices; restrictions on power of
sale. (a) Any notice of default and intention to
foreclose given by an association under section 667-92(a)
shall, in addition to the requirements of that section,
also include a statement that the unit owner may request
mediation by delivering a written request for mediation to
the association by certified mail, return receipt requested,
or hand delivery within thirty days after service of a
notice of default and intention to foreclose on the unit
owner.
If the association does not receive a request for
mediation within the thirty-day period, the association may
proceed with nonjudicial or power of sale foreclosure,
subject to all applicable provisions of this chapter and
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chapter 667. If the association receives a request for
mediation, as set forth in this subsection, from a unit
owner within thirty days after service of a notice of
default and intention to foreclose upon the unit owner, the
association shall agree to mediate and shall be prohibited
from proceeding with nonjudicial or power of sale
foreclosure until the association has participated in the
mediation or the time period for completion of the
mediation has elapsed. The mediation shall be completed
within sixty days of the date upon which the unit owner
delivers a request for mediation upon the association;
provided that if the mediation is not commenced or
completed within sixty days or the parties are unable to
resolve the dispute by mediation, the association may
proceed with nonjudicial or power of sale foreclosure,
subject to all applicable provisions of this chapter and
chapter 667.
(b) In addition to the wording required by section
667-92(b), any notice of default and intention to foreclose
given by an association under section 667-92(a) shall also
contain wording substantially similar to the following in
all capital letters and printed in not less than fourteen-
point font:
“THIS NOTICE PERTAINS TO AMOUNTS DUE AND OWING TO THE
ASSOCIATION FOR WHICH THE ASSOCIATION HAS A STATUTORY OR
RECORDED LIEN. THIS NOTICE DOES NOT PERTAIN TO OBLIGATIONS
OWED BY YOU TO OTHER CREDITORS, INCLUDING ANY OUTSTANDING
MORTGAGE DEBT. YOU SHOULD CONSULT YOUR OTHER CREDITORS,
INCLUDING YOUR MORTGAGEES, IF ANY, AS TO THE EFFECT THE
FORECLOSURE OF THE ASSOCIATION’S LIEN WILL HAVE ON YOUR
OTHER OUTSTANDING DEBTS.”
(c) The association’s power of sale provided in
section 514B-146(a) may not be exercised against:
(1) Any lien that arises solely from fines, penalties,
legal fees, or late fees, and the foreclosure of any such
lien shall be filed in court pursuant to part IA of chapter
667;
(2) Any unit owned by a person who is on military
deployment outside of the State of Hawaii as a result of
active duty military status with any branch of the United
States military. The foreclosure of any such lien shall be
filed in court pursuant to part IA of chapter 667, this
subsection shall not apply if the lien of the association
has been outstanding for a period of one year or longer; or
(3) Any unit while the nonjudicial or power of sale
foreclosure has been stayed pursuant to section 667-92(c).”
SECTION 3. Section 514B-146, Hawaii Revised Statutes,
is amended by amending subsection (a) to read as follows:
“(a) All sums assessed by the association but unpaid
for the share of the common expenses chargeable to any unit
shall constitute a lien on the unit with priority over all
other liens, except:
(1) Liens for real property taxes and assessments
lawfully imposed by governmental authority
against the unit; and
(2) Except as provided in subsection (j), all sums
unpaid on any mortgage of record that was
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recorded prior to the recordation of a notice of
a lien by the association, and costs and expenses
including attorneys’ fees provided in such
mortgages;
provided that a lien recorded by an association for unpaid
assessments shall expire six years from the date of
recordation unless proceedings to enforce the lien are
instituted prior to the expiration of the lien; provided
further that the expiration of a recorded lien shall in no
way affect the association’s automatic lien that arises
pursuant to this subsection or the declaration or
bylaws. Any proceedings to enforce an association’s lien
for any assessment shall be instituted within six years
after the assessment became due; provided that if the owner
of a unit subject to a lien of the association files a
petition for relief under the United States Bankruptcy Code
(11 U.S.C. §101 et seq.), the period of time for
instituting proceedings to enforce the association’s lien
shall be tolled until thirty days after the automatic stay
of proceedings under section 362 of the United States
Bankruptcy Code (11 U.S.C. §362) is lifted.
The lien of the association may be foreclosed by
action or by nonjudicial or power of sale foreclosure
[procedures set forth in chapter 667], regardless of the
presence or absence of power of sale language in an
association’s governing documents, by the managing agent or
board, acting on behalf of the association and in the name
of the association; provided that no association may
exercise the nonjudicial or power of sale remedies provided
in chapter 667 to foreclose a lien against any unit that
arises solely from fines, penalties, legal fees, or late
fees, and the foreclosure of any such lien shall be filed
in court pursuant to part IA of chapter 667.
In any such foreclosure, the unit owner shall be
required to pay a reasonable rental for the unit, if so
provided in the bylaws or the law, and the plaintiff in the
foreclosure shall be entitled to the appointment of a
receiver to collect the rental owed by the unit owner or
any tenant of the unit. If the association is the
plaintiff, it may request that its managing agent be
appointed as receiver to collect the rent from the
tenant. The managing agent or board, acting on behalf of
the association and in the name of the association, unless
prohibited by the declaration, may bid on the unit at
foreclosure sale, and acquire and hold, lease, mortgage,
and convey the unit. Action to recover a money judgment
for unpaid common expenses shall be maintainable without
foreclosing or waiving the lien securing the unpaid common
expenses owed.”
SECTION 4. Section 667-1, Hawaii Revised Statutes, is
amended by amending the definition of “power of sale” to
read as follows:
““Power of sale” or “power of sale foreclosure” means
a nonjudicial foreclosure when [the]:
(1) The mortgage contains, authorizes, permits, or
provides for a power of sale, a power of sale
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foreclosure, a power of sale remedy, or a
nonjudicial foreclosure[.]; or
(2) For the purposes of part VI, an association
enforces its claim of an association lien,
regardless of whether the association documents
provide for a power of sale, a power of sale
foreclosure, a power of sale remedy, or a
nonjudicial foreclosure.”
SECTION 5. Sections 3 and 4 of this Act shall be
applied retroactively to any case, action, proceeding, or
claim arising out of a nonjudicial foreclosure under
section 667-5 (repealed June 28, 2012), Hawaii Revised
Statutes, and parts II and VI of chapter 667, Hawaii
Revised Statutes, that arose before the effective date of
this Act and in which a final non-appealable judgment has
not yet been entered.
SECTION 6. This Act shall not be applied so as to
impair any contract existing as of the effective date of
this Act in a manner violative of either the Hawaii State
Constitution or Article I, section 10, of the United States
Constitution.
SECTION 7. If any provision of this Act, or the
application thereof to any person or circumstance, is held
invalid, the invalidity does not affect other provisions or
applications of the Act that can be given effect without
the invalid provision or application, and to this end the
provisions of this Act are severable.
SECTION 8. Statutory material to be repealed is
bracketed and stricken. New statutory material is
underscored.
SECTION 9. This Act shall take effect upon its
approval; provided that the amendments made to section
514B-146(a), Hawaii Revised Statutes, by section 3 of this
Act shall not be repealed when that section is reenacted on
June 30, 2020, pursuant to section 6 of Act 195, Session
Laws of Hawaii 2018.
(Footnote omitted.)
Act 282 became law without the Governor’s signature
effective July 10, 2019. 2019 Haw. Sess. Laws Act 282, §§ 1-9,
at 779-83; 2019 House Journal, at 734-35 (Gov. Msg. No. 1402).
b. Malabes’ supplemental briefing
The Malabes primarily argue that “while Act 282 writes into
an association’s governing documents an express power of sale,
it does not (and cannot) create a mortgage containing a power of
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sale for the association.” The Malabes point out that in its
preface, Act 282 states “that condominium associations should be
able to use nonjudicial foreclosure to collect delinquencies
regardless of the presence or absence of power of sale language
in an association’s governing documents[,]” and that in Section
2 of Act 282 (“Section 2”), HRS § 514B-146 has been amended to
state that an association’s lien “may be foreclosed by action or
by nonjudicial or power of sale foreclosure, regardless of the
presence or absence of power of sale language in an
association’s governing documents.”
The Malabes also argue that Section 4 of Act 282’s
(“Section 4”) amendment to the definition of “power of sale” or
“power of sale foreclosure” does not affect its wrongful
foreclosure case, as it did not change the mortgage requirements
of Part I of HRS Chapter 667. Instead, according to the
Malabes, by definition, Act 282 gives an association the right
to conduct a nonjudicial foreclosure, either through a mortgage
giving the association a power of sale, or under Parts II or VI
of HRS Chapter 667 with a statutory right to conduct that power
of sale. Thus, although Act 282 states that it shall be
“applied retroactively to any case, action, proceeding, or claim
arising out of a nonjudicial foreclosure under section 667-5
(repealed June 28, 2012) [in Part I of HRS Chapter 667] . . .
and parts II and VI of chapter 667 . . . that arose before the
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effective date of this Act and in which a final non-appealable
judgment has not yet been entered[,]” the Malabes argue nothing
in Act 282 amends HRS § 667-5 nor alters how that statute should
be construed.
The Malabes further contend that if Act 282 can be
construed to permit condominium associations to foreclose based
on Part I of HRS Chapter 667 and the now repealed HRS § 667-5 by
statutorily conferring a “mortgage that contains a power of
sale” on the association, Act 282 is unconstitutional as it
violates (1) the Contracts Clause of the United States
Constitution, (2) the separation of powers doctrine, (3) the
Malabes’ rights to due process and equal protection, and (4) the
Malabes’ rights under the Fifth Amendment to the United States
Constitution and article 1, section 20 of the Hawaiʻi
Constitution, which protect them from uncompensated takings.
Because the United States District Court ruled Act 282
unconstitutional based only on the Contracts Clause, we include
these parties’ arguments in that regard.
As to the Contracts Clause violation, the Malabes point out
that it is undisputed that the AOAO does not have a mortgage or
an agreement containing a power of sale. If Act 282 is
interpreted to create a mortgage with a power of sale between
the AOAO and the Malabes, the Malabes argue Act 282 constitutes
a “substantial impairment of a contractual relationship[]”
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because “[a] mortgage is a contract that transfers interests in
real property as security for the performance of a contractual
obligation for payment” and “cannot be created by statute.”
Additionally, the Malabes assert there is no legitimate public
purpose furthered by Act 282’s retroactive application to Part I
of HRS Chapter 667, as the only effect of such retroactive
application is “to eliminate AOAO’s and other associations’
liability in ongoing litigation to the detriment of homeowners
and for the benefit of those associations[,]” which is not a
legitimate purpose, citing Energy Reserves Group, Inc. v. Kansas
Power & Light Co., 459 U.S. 400, 411–12 (1983) and Anthony v.
Kualoa Ranch, 69 Haw. 112, 118–19, 736 P.2d 55, 60 (1987).
c. AOAO’s supplemental briefing
The AOAO asserts that “the plain language of SB 551 is a
‘clear legislative act’ that has the practical effect of
granting the AOAO ‘the power to extrajudicially sell another
person’s property,’ regardless of the presence or absence of
power of sale language in the AOAO’s governing documents.”
(Brackets omitted.) The AOAO also maintains Act 282 applies to
its appeal because it merely “clarifies” the legislature’s
intent and does not change existing law, citing Awakuni v.
Awana, 115 Hawaiʻi 126, 143, 165 P.3d 1027, 1044 (2007). The
AOAO argues that Act 282 “must be applied” to this case because
courts are to “apply the law in effect at the time it renders
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its decision,” Landgraf v. USI Film Prods., 511 U.S. 244, 264
(1994), and when so applied, this court should reverse the ICA’s
vacatur of Count I, the Malabes’ wrongful foreclosure claim.
(Emphasis added.)
With respect to the constitutionality of Act 282 based on
the Contracts Clause, the AOAO maintains there is no contractual
relationship between the AOAO and the Malabes as “this
proceeding is created and governed entirely by statute,” and
therefore Act 282 does not violate the Contracts Clause.
Further, the AOAO argues Act 282 “neither grants the AOAO a
mortgage, nor does it insert power of sale language in the
AOAO’s governing documents” because the AOAO “always had the
right to utilize the nonjudicial foreclosure procedures set
forth in HRS Chapter 667 in a like manner as a mortgage,
regardless of the presence or absence of power of sale language
in its governing documents,” as set forth in Act 282. According
to the AOAO, “[s]uch clarification of the statutory constructs,
which giving rise to [the] statutory relationship at issue, does
not violate the Contract Clause.”
The AOAO argues because the Malabes purchased the Apartment
subject to the statutorily governed property regime of the AOAO
that is subject to amendment, they cannot establish that there
was a substantial impairment on any possible contractual
relationship that may exist between them and the AOAO.
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Additionally, the AOAO contends Act 282 was enacted to further
the legitimate public purpose addressed in its preamble. The
AOAO quotes from the preamble to argue that the “public purpose”
is to provide “associations . . . a more efficient alternative,
such as power of sale foreclosure, to provide a remedy for
recurring delinquencies” as it is “crucial that condominium
associations be able to secure timely payment of dues to provide
services to all residents of a condominium community” given that
“condominiums provide a valuable housing resource in Hawaii,
especially with limited space available for new development.”
d. Analysis
With respect to the possible applicability of Act 282 to
this case, we examine three parts: its preamble, the statutory
amendments in Sections 3 of Act 282 (“Section 3”) and 4, and
provisions regarding its application or effectiveness (namely,
the retroactive application provision) in Section 5 of Act 282
(“Section 5”).
i. Retroactive application (Section 5)
Section 5 states:
Sections 3 and 4 of this Act shall be applied retroactively
to any case, action, proceeding, or claim arising out of a
nonjudicial foreclosure under section 667-5 (repealed June
28, 2012), Hawaii Revised Statutes, and parts II and VI of
chapter 667, Hawaii Revised Statutes, that arose before the
effective date of this Act and in which a final non-
appealable judgment has not yet been entered.
In other words, the legislature states that the statutory
revisions in Sections 3 and 4 “shall be applied retroactively”
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to cases where the nonjudicial foreclosure occurred pursuant to
Parts I (i.e., HRS § 667-5), II, or VI of HRS Chapter 667. As
previously noted, the AOAO had foreclosed on the Malabes’
Apartment pursuant to HRS § 667-5 in Part I of HRS Chapter 667.
ii. Statutory amendments (Sections 3 and 4)
HRS § 514B-146(a)(2), which creates the statutory lien for
condominium associations and provides for the foreclosure of
such liens, has been amended in Section 3 as follows: “The lien
of the association may be foreclosed by action or by nonjudicial
or power of sale foreclosure [procedures set forth in chapter
667], regardless of the presence or absence of power of sale
language in an association’s governing documents, by the
managing agent or board, acting on behalf of the association and
in the name of the association . . . .”
Section 4 modifies the definition of “power of sale” or
“power of sale foreclosure” in HRS § 667-1, which provides
definitions for the entire chapter, so that it reads:
““Power of sale” or “power of sale foreclosure” means
a nonjudicial foreclosure when [the]:
(1) The mortgage contains, authorizes, permits, or
provides for a power of sale, a power of sale foreclosure,
a power of sale remedy, or a nonjudicial foreclosure[.]; or
(2) For the purposes of part VI, an association enforces
its claim of an association lien, regardless of whether the
association documents provide for a power of sale, a power
of sale foreclosure, a power of sale remedy, or a
nonjudicial foreclosure.”
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Addressing Section 3 first, the plain language of the
revisions to HRS § 514B-146(a)(2) limits the means by which
condominium associations may foreclose on their liens to those:
(1) “by action,” (2) “by nonjudicial,” or (3) “power of sale
foreclosure, regardless of the presence or absence of power of
sale language in an association’s governing documents.” When
Section 3 is read together with the revisions to HRS § 667-1 in
Section 4,30 the result is the same, that there are three methods
by which condominium associations may foreclose their liens:
(1) by judicial action, (2) by nonjudicial foreclosure when the
mortgage contains a nonjudicial foreclosure or power of sale
provision, or (3) by power of sale foreclosure, regardless of
the presence or absence of power of sale language in an
association’s governing documents. With respect to the third
method, Section 4’s amendment to HRS § 667-1 specifically
contemplates that such “power of sale foreclosure” be conducted
under Part VI, which is distinct from Part I of HRS Chapter 667,
and subject to new consumer protection provisions in Section 2.
Thus, should Act 282 apply to this case, as urged by the
AOAO, the AOAO’s “authority” to nonjudicially foreclose upon the
Malabes under Part I of HRS Chapter 667 must fall into one of
30
Although the definitions contained in HRS § 667-1 do not expressly
apply to HRS § 514B-146, these amendments should be read together, because:
(1) Chapter 514B does not define “power of sale” or “power of sale
foreclosure,” and (2) Act 282’s amendments were meant to “clarify” the
condominium statutory scheme, and HRS § 514B-146 had previously referenced
Chapter 667.
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these three methods. It clearly does not fall under the first,
as the foreclosure was not a judicial action. It also clearly
does not fall under the third, as the foreclosure was not
conducted pursuant to Part VI. Thus, for the AOAO to have
appropriately foreclosed on the Malabes’ Apartment, its
“authority” must have fallen under the second method, i.e., by
nonjudicial foreclosure when the mortgage contains a nonjudicial
foreclosure or power of sale provision.
Given that Section 5 states that the revisions in Sections
3 and 4 are to apply retroactively to cases involving
nonjudicial foreclosures made under Part I of HRS Chapter 667,
i.e., HRS § 667-5, we return to the relevant text of that
section to examine the impact of Sections 3 and 4 and the second
method of foreclosure discussed above:
Foreclosure under power of sale; notice; affidavit
after sale. (a) When a power of sale is contained in a
mortgage, and where the mortgagee, the mortgagee’s
successor in interest, or any person authorized by the
power to act in the premises, desires to foreclose under
power of sale upon breach of a condition of the mortgage,
the mortgagee, successor, or person shall be represented by
an attorney who is licensed to practice law in the State
and is physically located in the State.
HRS § 667-5. Again, by the plain language of the statute, the
statute applies “[w]hen a power of sale is contained in a
mortgage,” which is the second means of foreclosure previously
discussed. Thus, the plain language of Act 282’s amendments
does not change the analysis above with respect to nonjudicial
foreclosures pursuant to Part I of HRS Chapter 667. In other
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words, nothing in HRS § 514B-146 nor its legislative history
provide any indication that the legislature provided “a blanket
grant of powers of sale to all associations over all
apartments/units within those associations.” Sakal, 143 Hawaiʻi
at 228, 426 P.3d at 452. Indeed, Act 282’s references to Part I
of HRS Chapter 667 nonjudicial foreclosures repeatedly
underscore that such foreclosures are those that occur “when a
power of sale is contained in a mortgage.” Thus, as the Malabes
argue, Act 282 did nothing to amend Part I of HRS Chapter 667’s
mortgage requirement.
Arguably, Section 5 would not have stated that Act 282
“shall” apply retroactively to condominium association
foreclosures made under Part I of HRS Chapter 667 if Act 282 has
no practical effect on such foreclosures. However, as
previously discussed, the statutory textual changes in Sections
3 and 4 are unambiguous and do not have any effect on
HRS § 667-5. Nevertheless, although “[o]ur statutory
construction is guided by the following well established
principles[,] our foremost obligation is to ascertain and give
effect to the intention of the legislature, which is to be
obtained primarily from the language contained in the statute
itself,” Lingle v. Hawaiʻi Gov’t Employees Ass’n, AFSCME, Local
152, AFL-CIO, 107 Hawaiʻi 178, 183, 111 P.3d 587, 592 (2005), to
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the extent there may be ambiguity when Section 5 is construed
alongside Sections 3 and 4, we next examine Act 282’s preamble.
iii. The preamble
With respect to reliance on subsequent legislative history,
we recently stated in an opinion construing HRS § 667-1.5:
[R]eliance on a subsequent legislative committee report
written 153 years after enactment of the statute
underscores the criticism this approach has repeatedly
garnered from the United States Supreme Court. United
States v. Texas, 507 U.S. 529, 535 n.4, 113 S.Ct. 1631, 123
L.Ed.2d 245 (1993) (“[S]ubsequent legislative history is a
‘hazardous basis for inferring the intent of an earlier’
Congress.” (quoting Pension Benefit Guar. Corp. v. LTV
Corp., 496 U.S. 633, 650, 110 S.Ct. 2668, 110 L.Ed.2d 579
(1990))); United States v. Price, 361 U.S. 304, 313, 80
S.Ct. 326, 4 L.Ed.2d 334 (1960).
Monalim, No. SCWC-XX-XXXXXXX, at 42-43. Similar to
HRS § 667-1.5 at issue in Monalim, the predecessor statute to
the nonjudicial foreclosure process in HRS § 667-5, repealed in
2012, had been in existence for at least 135 years, since at
least 1884. Silva v. Lopez, 5 Haw. 262, 264 (Haw. Kingdom 1884).
Subsequent legislative history is a hazardous basis for
inferring the intent of an earlier legislature after any passage
of time. The inherent flaws in the doctrine as a method of
ascertaining legislative intent is clearly manifested by its
application to a statute enacted more than 135 years ago.
In any event, Act 282 does not affect our analysis. The
preamble to Act 282 begins with an acknowledgement by the
legislature that condominiums provide a valuable housing
resource given limited land availability for development, that
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the timely collection of association fees is necessary to
provide services to all residents of a condominium community,
and that delinquencies and enforcement expenses were unfairly
burdening those condominium owners who did timely pay their
fees. See 2019 Haw. Sess. Laws Act 282, § 1 at 779. The
legislature then goes on to discuss the legislative intent of
amendments to the condominium statutory scheme since 1998 to
support its “find[ing] that condominium associations, since
1999, have been authorized to conduct nonjudicial foreclosures
regardless of the presence or the absence of power of sale
language in an association’s governing documents.” Id.
Specifically, the legislature states that “Act 236, Session
Laws of Hawaii 1999, provided a statutory grant of power and an
incorporation into written documents authorizing condominium
associations to utilize nonjudicial foreclosure under sections
667-5 (repealed June 28, 2012) [Part I of HRS Chapter 667] and
667-40 [Part II of HRS Chapter 667], Hawaii Revised Statutes, to
enforce their liens[,]” and that such “intent was not abrogated”
by subsequent amendments to the condominium statutory regime.
2019 Haw. Sess. Laws Act 282, § 1 at 779-80. (Emphasis added.)
This characterization of Act 236 differs from the analysis of
the same provision in Sakal, which interpreted Act 236’s
amendment to HRS § 514A-90 to mean that condominium associations
could avail themselves of the nonjudicial or power of sale
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procedures contained in HRS Chapter 667, but that HRS § 514A-90
did not grant a blanket statutory grant of power to condominiums
to foreclose nonjudicially. 143 Hawaiʻi at 226, 426 P.3d at 450.
Even if subsequent legislative history were to be applied,31
however, the differences in interpretation of the effect of Act
236 in Sakal and Act 282’s preamble do not affect our analysis.
This is because the reason why such legislative history is
included is elucidated further in the preamble:
Since the enactment of part VI of chapter 667, Hawaii
Revised Statutes, associations have conducted nonjudicial
foreclosures as part of their efforts to collect
delinquencies and sustain their financial operations.
Associations have done so subject to the restrictions on
nonjudicial foreclosures and other collection options
imposed by the legislature, which include:
(1) Prohibiting the use of nonjudicial foreclosure
to collect fines, penalties, legal fees, or
late fees;
(2) Requiring associations to give an owner sixty
days to cure a default before proceeding with
the nonjudicial foreclosure and to accept
reasonable payment plans of up to twelve
months; and
(3) Requiring associations to provide owners with
contact information for approved housing
counselors and approved budget and credit
counselors.
However, the intermediate court of appeals in Sakal
v. Association of Apartment Owners of Hawaiian Monarch, 143
Haw. 219, 426 P.3d 443 (2018), held that the legislature
intended that associations can only conduct nonjudicial
foreclosures if they have specific authority to conduct
nonjudicial foreclosures in their declaration or bylaws or
in an agreement with the owner being foreclosed upon.
31
Contrary to the dissent’s assertion, we do not use subsequent
legislative history in a limited fashion and our examination of the preamble,
the statutory amendments in Sections 3 and 4, and provisions regarding its
application or effectiveness regarding retroactive application in Section 5
was to ascertain the actual effect of Act 282. Subsequent legislative
history remains a hazardous basis for inferring the intent of an earlier
legislature, even of the 1999 legislature that passed Part II of HRS Chapter
667. See Pension Benefit Guar. Corp., 496 U.S. 633, 650 (1990).
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The legislative history indicates this was not the
intent of the legislature in 1999, nor in legislatures that
have made subsequent amendments. Therefore, this Act
confirms the legislative intent that condominium
associations should be able to use nonjudicial foreclosure
to collect delinquencies regardless of the presence or
absence of power of sale language in an association’s
governing documents.
This Act also provides an additional consumer
protection by requiring the foreclosing association to
offer mediation with any notice of default and intention to
foreclose and the procedures when mediation is chosen by
the consumer.
2019 Haw. Sess. Laws Act 282, § 1 at 780 (emphases added).
Thus, the purpose of Act 282 is to directly address Sakal’s
holding “that the legislature intended that associations can
only conduct nonjudicial foreclosures if they have specific
authority to conduct nonjudicial foreclosures in their
declaration or bylaws or in an agreement with the owner being
foreclosed on[,]” by ensuring that condominium associations may
conduct nonjudicial foreclosures under Part VI of HRS Chapter
667 regardless of the presence or absence of power of sale
language in an association’s governing documents. Indeed, based
on its statements in the preamble, it appears that the
legislature assumes that since Part VI was enacted in 2012,32
associations have conducted nonjudicial foreclosures “subject to
the restrictions on nonjudicial foreclosures and other
collection options imposed by the legislature.” The legislature
states that in addition to these restrictions, Act 282 would
32
“Part VI of HRS chapter 667, which provides an alternative power of
sale foreclosure procedure specifically tailored to associations, did not
exist prior to 2012.” Sakal, 143 Hawaiʻi at 224, 426 P.3d at 448.
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provide “an additional consumer protection” to require an offer
of any mediation with any notice of default, as detailed in
Section 2.
In sum, the purpose of the legislature in enacting Act 282,
as set forth in the Act’s preamble, is to ensure that
associations may conduct nonjudicial foreclosures under Part VI
of HRS Chapter 667 regardless of the presence or absence of
power of sale language in an association’s governing documents.
This interpretation is also supported by the Conference
Committee Report that accompanied the version of the bill that
was ultimately passed.33
33
[Y]our Committee on Conference notes that condominium
associations have relied for years on the remedy of
nonjudicial foreclosure as a way of collecting delinquent
maintenance fees, which are necessary for the basic
operations of associations. Your Committee on Conference
further finds that under the Sakal case, many associations
have lost the benefit of the nonjudicial foreclosure
process. As a result, there are concerns that an
association’s ability to conduct a nonjudicial foreclosure
will no longer depend on legislative intent, but whether
specific language in the declaration or bylaws was included
when the project was first created. Your Committee on
Conference notes that the extensive legislative history
indicates this was not the intent of the Legislature.
Accordingly, amendments to this measure are necessary
to clarify that condominium associations should be able to
use nonjudicial foreclosure to collect delinquencies
regardless of the presence or absence of power of sale
language in an association’s governing documents.
Conf. Comm. Rep. No. 65 (Apr. 25, 2019), available at
https://www.capitol.hawaii.gov/session2019/CommReports/SB551_CD1_CCR65_.pdf;
2019 House Journal, at 1566 (statement of Committee on Conference).
Again, the Malabes’ foreclosure was conducted pursuant to Part I of HRS
Chapter 667, and the Sakal foreclosure was conducted pursuant to Part II of
HRS Chapter 667. Thus, Act 282 affects neither.
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This supports the plain language statutory interpretation
of Sections 3 and 4 previously discussed. Nothing in Act 282’s
preamble or accompanying legislative history indicates that the
purpose of Act 282 was to ensure that condominium associations
may conduct foreclosures under Part I of HRS Chapter 667 without
a mortgage. Rather, it appears that the legislature found it
significant that associations’ power to nonjudicially foreclose
be tempered by specific statutory restrictions and requirements,
including a sixty-day opportunity to cure that is not available
under Part I of HRS Chapter 667, and even added protections in
Section 2. Thus, despite Act 282’s inclusion of the
legislature’s perspective of the legislative history behind
amendments permitting condominiums to nonjudicially foreclose in
certain circumstances, for the foregoing reasons, that
legislative history does not bear on how the statutory
amendments in Sections 3 and 4 are to be construed.
Based on the foregoing analysis, Act 282 simply does not
apply to this litigation. Accordingly, based on the doctrine of
constitutional avoidance, Rees, 113 Hawaiʻi at 456, 153 P.3d at
1141, we therefore do not address the Malabes’ constitutional
challenges to Act 282.
We also note, however, that although not binding on state
courts, the decision of the United States District Court for the
District of Hawaiʻi that Act 282 is unconstitutional as violative
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of the Contracts Clause would be entitled to respectful
consideration. State v. Gates, 576 P.2d 1357, 1359 (Ariz. 1978)
(citing State v. Norflett, 337 A.2d 609 (N.J. 1975); People v.
Bradley, 460 P.2d 129 (Cal. 1969).34
Despite ruling that there were no constitutional violations
based on separation of powers, due process, equal protection, or
takings without just compensation, Judge Kobayashi ruled as
follows with respect to the alleged violation of the Contracts
Clause:35
[]Contracts Clause
The Contracts Clause restricts the power of
States to disrupt contractual arrangements. It
provides that “[n]o state shall . . . pass any . . .
Law impairing the Obligation of Contracts.” U.S.
Const., Art. I, § 10, cl. 1. . . . [T]he Clause
applies to any kind of contract.
At the same time, not all laws affecting pre-
existing contracts violate the Clause. To determine
when such a law crosses the constitutional line, this
Court has long applied a two-step test. The
threshold issue is whether the state law has operated
as a substantial impairment of a contractual
relationship. In answering that question, the Court
has considered the extent to which the law undermines
the contractual bargain, interferes with a party’s
reasonable expectations, and prevents the party from
safeguarding or reinstating his rights. If such
factors show a substantial impairment, the inquiry
turns to the means and ends of the legislation. In
particular, the Court has asked whether the state law
34
As further noted in Gates:
Even with respect to federal constitutional issues, the
state and lower federal courts occupy comparable positions,
a sort of parallelism with each governed by the same
reviewing authority the United States Supreme Court. State
v. Coleman, 46 N.J. 16, 214 A.2d 393 (1965), cert.
den., 383 U.S. 950, 86 S.Ct. 1210, 16 L.Ed.2d 212 (1966).
576 P.2d at 1359.
35
See supra note 4.
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is drawn in an “appropriate” and “reasonable” way to
advance “a significant and legitimate public purpose.”
Sveen v. Melin, --- U.S. ---, 138 S.Ct. 1815, 1821-22, 201
L.Ed.2d 180 (2018) (some alterations in Sveen).
1) First Step
The first step has three components: whether there is
a contractual relationship, whether a change in law impairs
that contractual relationship, and whether the impairment
is substantial.
This Court previously recognized that a condominium’s
governing documents are contractual obligations between the
condominium association and a condominium owner. A
contractual relationship did exist between Plaintiffs and
the AOAO. Under that contract, Plaintiffs were obligated
to pay association fees and, when they failed to do so, the
AOAO had the ability to obtain a lien and seek satisfaction.
Implicit in the AOAO’s contractual right to lien recovery
is the obligation that the AOAO act in good faith and
pursue the recovery in a legally permissible manner.
As this case currently stands, the AOAO obtained
Plaintiffs’ unit as a result of a nonjudicial foreclosure
(a process to which the AOAO was not legally permitted to
use at the time the contract was entered) and Plaintiffs
sought damages resulting from this foreclosure by filing
the instant action. Act 282 became law and now
retroactively validates the AOAO’s nonjudicial foreclosure
of Plaintiffs’ unit and extinguishes Plaintiffs’ ability to
recover for their wrongful foreclosure claim. Thus, the
act does interfere with a party’s reasonable expectations,
and prevents the party from safeguarding or reinstating his
rights.
All three parts of the first step of the analysis
have therefore been met.
2) Second Step
The second step of the analysis - whether Act 282 is
a reasonable way to address a significant and legitimate
public purpose – requires scrutiny of the act’s purpose
which is to confirm the legislative intent that condominium
associations should be able to use nonjudicial foreclosure
to collect delinquencies regardless of the presence or
absence of power of sale language in an association’s
governing documents. 2019 Haw. Sess. Laws Act 282, § 1 at
780. Because Act 282 benefits a favored group and not a
basic societal interest, it does not appear to be enacted
for the public good. Most telling is that Act 282 serves
to revive the Part I process solely for condominium
associations and without the homeowner/consumer protections
enacted by legislatures in 2012 and in subsequent years.
The Court therefore finds Act 282 does not address a
significant and legitimate public purpose.
Act 282 therefore is unconstitutional because it
violates Plaintiffs’ rights under the Contracts Clause of
the United States Constitution.
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Galima, 2020 WL 1822599, at *13-*15 (case citations, some
quotation marks, and brackets omitted). Thus, Judge Kobayashi
has ruled Act 282 unconstitutional based on the Contracts
Clause.
In any event, as discussed above, Act 282 does not apply to
the Malabes’ claims based on Part I of HRS Chapter 667. It is
therefore unnecessary for us to consider the multiple
constitutional challenges that the Malabes present.
B. Based on standards applicable to HRCP Rule 12(b)(6) motions
to dismiss, the Malabes’ UDAP claim should not have been
dismissed
Finally, we turn to the Malabes’ certiorari application.
The issue is whether the ICA correctly affirmed the circuit
court’s dismissal of the UDAP count in the Malabes’ December 13,
2016 complaint based on the four-year statute of limitations for
UDAP claims based on its ruling that equitable tolling for
fraudulent concealment was inapplicable as a matter of law.
As repeatedly noted, this case comes to us from the circuit
court’s grant of a HRCP 12(b)(6) motion to dismiss. In Reyes-
Toledo, we reaffirmed the notice pleading standard, and noted
that
a complaint should not be dismissed for failure to
state a claim unless it appears beyond doubt that the
plaintiff can prove no set of facts in support of [their]
claim that would entitle [them] to relief. The appellate
court must therefore view a plaintiff’s complaint in a
light most favorable to [them] in order to determine
whether the allegations contained therein could warrant
relief under any alternative theory. For this reason, in
reviewing a circuit court’s order dismissing a complaint .
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. . the appellate court’s consideration is strictly limited
to the allegations of the complaint, and the appellate
court must deem those allegations to be true.
143 Hawaiʻi at 257, 428 P.3d at 769 (ellipsis in original).
Thus, courts must accept the Malabes’ complaint allegations
as true. According to the complaint, the AOAO published a
notice that it would sell the Malabes’ Apartment pursuant to
HRS § 667-5 and HRS Chapters 514A and/or 514B, including
HRS § 514B-146, on December 17, 2010. The complaint asserts
HRS § 667-5 was a nonjudicial foreclosure process that could
only be used by the holder of a mortgage containing a power of
sale, and that the AOAO did not hold a mortgage containing a
power of sale. The complaint further asserts that HRS § 667-5
did not contain consumer protection provisions contained in Part
II of Chapter 667, and that the AOAO conducted the sale under
HRS § 667-5 to circumvent such protections for its own gain, in
violation of fiduciary duties, executing a quitclaim deed to
itself as grantor and grantee on January 4, 2011, which was
recorded on January 7, 2011. The Malabes also note that
Santiago holds the duty to avoid misrepresentations so strong
that they, as plaintiffs, were under no duty to discover the
truth. 137 Hawaiʻi at 153, 366 P.3d at 628. They assert the
AOAO fraudulently concealed the wrong it was committing by
implying, stating, and/or misrepresenting that it was authorized
to use HRS § 667-5 and/or that it held a mortgage with a power
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of sale when it did not. Finally, they assert they did not
discover their claims until around July 2016.
The Malabes’ complaint was filed on December 13, 2016,
almost six years after the notice of sale and the quitclaim
deed. The Malabes assert the UDAP four-year statute of
limitations under HRS § 480-24 was equitably tolled by HRS §
657-20’s extension for fraudulent concealment.36
36
With respect to the UDAP claim, the basis for the circuit court’s
dismissal was unclear, but the ICA ruled the circuit court’s dismissal of
this claim was proper based solely on the statute of limitations. On
certiorari, the Malabes continue to assert the four-year statute of
limitations under HRS § 480-24 quoted below was tolled pursuant to
HRS § 657-20, which provides:
§657-20 Extension by fraudulent concealment. If any
person who is liable to any of the actions mentioned in
this part or section 663-3, fraudulently conceals the
existence of the cause of action or the identity of any
person who is liable for the claim from the knowledge of
the person entitled to bring the action, the action may be
commenced at any time within six years after the person who
is entitled to bring the same discovers or should have
discovered, the existence of the cause of action or the
identity of the person who is liable for the claim,
although the action would otherwise be barred by the period
of limitations.
The dissent points out that in Rundgren v. Bank of New York Mellon, 777
F. Supp. 2d 1224 (D. Haw. 2011), the United States District Court for the
District of Hawaiʻi determined that HRS § 657-20, which allows for the statute
of limitations to be tolled by reason of fraudulent concealment for claims
“mentioned in [Part I of HRS Chapter 657] or section 663-3,” did not apply
for UDAP claims, which arise under HRS Chapter 480. 777 F. Supp. 2d at 1228-
29.
With respect to the applicability of HRS § 657-20 to a HRS Chapter 480
UDAP claim, HRS § 657-10 (1985) provides that “[t]his part shall not extend
to any action which is, or shall be, limited by any statute to be brought
within a shorter time than is herein prescribed; but the action shall be
brought within the time limited by the statute.”
Based on the language of HRS § 480-24, see supra note 12, it appears
HRS § 657-20 would not apply to a HRS Chapter 480 claim.
This court has yet to determine, however, when a cause of action
“accrues” for purposes of the UDAP statute. This court has also yet to
determine whether the Santiago holding, that the duty to avoid
misrepresentations is so strong that plaintiffs are under no duty to discover
(continued. . .)
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(. . .continued)
the truth, 137 Hawaiʻi at 153, 366 P.3d at 645, would also apply to equitable
tolling of a UDAP claim.
In this regard, as the dissent also points out, Rundgren recognized
“equitable tolling” by reason of fraudulent concealment of the statute of
limitations governing a HRS § 480-2 claim. The dissent maintains, however,
that based on Au v. Au, 63 Haw. 210, 626 P.2d 173 (1981), equitable tolling
could not apply to the Malabes’ UDAP claim:
The fraudulent concealment which will postpone the
operation of the statute must be the concealment of the
fact that plaintiff has a cause of action. If there is a
known cause of action there can be no fraudulent
concealment. . . .
It is not necessary that a party should know the
details of the evidence by which to establish his cause of
action. It is enough that he knows that a cause of action
exists in his favor, and when he has this knowledge, it is
his own fault if he does not avail himself of those means
which the law provides for prosecuting or preserving his
claim.
63 Haw. at 215–16, 626 P.2d at 178 (ellipsis in original). The Malabes’
complaint pled that the AOAO had fraudulently concealed the wrongfulness of
the foreclosure proceedings by implying, stating, and/or misrepresenting that
it held a mortgage with a power of sale when it did not, or that it was
authorized to use HRS § 667-5 when it could not, that they relied on the
false statements and representations of the AOAO concerning the AOAO’s right
to conduct a public sale pursuant to HRS § 667-5, and that they were entitled
to so rely because they were members of the AOAO, because of the AOAO’s
trustee-like relationship with them, and because the AOAO was acting as an
agent or attorney on their behalf. Based on our notice pleading standards,
we therefore cannot say that “it appears beyond doubt that the [Malabes] can
prove no set of facts in support of [their] claim that would entitle [them]
to relief” with respect to equitable tolling by reason of fraudulent
concealment based on the Au standard.
We also strongly disagree with the dissent’s imposition of federal
court pleading standards for fraudulent concealment onto our state courts.
Rundgren explicitly states:
“To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173
L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007));
see also Weber v. Dep't of Veterans Affairs, 521 F.3d 1061,
1065 (9th Cir. 2008). This tenet—that the court must
accept as true all of the allegations contained in the
complaint—“is inapplicable to legal conclusions.” Iqbal,
129 S.Ct. at 1949. Accordingly, “[t]hreadbare recitals of
the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Id. (citing
Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Rather, “[a]
claim has facial plausibility when the plaintiff pleads
(continued. . .)
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The Malabes’ assertion that the AOAO “fraudulently
concealed the wrong [it was] committing by implying, stating
and/or misrepresenting that . . . [it] held a mortgage with a
power of sale when in fact [it] did not[,]” must be taken as
true.
In ruling on the AOAO’s HRCP Rule 12(b)(6) motion to
dismiss for failure to state a claim upon which relief can be
granted, a court must view the complaint in the light most
favorable to the Malabes. Based on the applicable notice
(. . .continued)
factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged.” Id. at 1949 (citing Twombly, 550 U.S.
at 556, 127 S.Ct. 1955). Factual allegations that only
permit the court to infer “the mere possibility of
misconduct” do not show that the pleader is entitled to
relief. Id. at 1950.
777 F. Supp. 2d at 1227. The pleading standard for “fraudulent concealment”
cited in Rundgren and applied by the dissent is consistent with such
“plausibility” standards:
To avoid the bar of limitation by invoking the
concept of fraudulent concealment, the plaintiff must
allege facts showing affirmative conduct upon the part of
the defendant which would, under the circumstances of the
case, lead a reasonable person to believe that he did not
have a claim for relief. Silence or passive conduct of the
defendant is not deemed fraudulent, unless the relationship
of the parties imposes a duty upon the defendant to make
disclosure.
777 F. Supp. 2d at 1230 (quoting Rutledge v. Boston Woven Hose & Rubber Co.,
576 F.2d 248, 250 (9th Cir. 1978)).
In Reyes-Toledo, we expressly rejected the Twombly/Iqbal “plausibility”
pleading standards, and reaffirmed that our courts are governed by “notice”
pleading standards. 143 Hawaiʻi at 252, 428 P.3d at 764. We have never
adopted the “plausibility” pleading standard for fraudulent concealment
stated above. Thus, the Malabes have satisfied our notice pleading standards,
and the Malabes’ allegations are not insufficient as a matter of law, as
maintained by the dissent.
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pleading standard, viewing the complaint in the light most
favorable to the Malabes, it cannot be said “[they] can prove no
set of facts in support of [their] claim that would entitle
[them] to relief.”37
V. Conclusion
For the reasons stated above, we affirm the ICA’s January
31, 2019 judgment on appeal to the extent it vacated the circuit
court’s final judgment with respect to its dismissal of Count I
of the complaint, we vacate the ICA’s judgment on appeal to the
extent it affirmed the circuit court’s February 17, 2017 final
judgment as to its dismissal of Count II of the complaint, we
vacate the circuit court’s February 17, 2017 final judgment as
to its dismissal of Count II of the complaint, and we remand
this matter to the circuit court for further proceedings
consistent with this opinion.
David R. Major and /s/ Sabrina S. McKenna
Jai W. Keep-Barnes,
for petitioner /s/ Richard W. Pollack
Steven K.S. Chung, /s/ Michael D. Wilson
Michael L. Iosua, and
Timothy E. Ho
for respondents
M. Anne Anderson,
Paul A. Ireland Koftinow, and
John A. Morris,
for amicus curiae
37
See supra note 36.
62