Wetsel v. Ass'n of Apartment Owners of One Waterfront Towers

1

BRUCE B. WETSEL and SHERRY L. WETSEL, Plaintiffs, v. ASSOCIATION OF APARTMENT OWNERS OF ONE WATERFRONT TOWERS, by and through its Board of Directors, Defendant.

Civ. No. 22-00041 DKW-WRP

United States District Court, D. Hawaii

November 7, 2022

FINDINGS AND RECOMMENDATION TO DENY DEFENDANT'S MOTION FOR ATTORNEYS' FEES AND COSTS

WES REBER PORTER UNITED STATES MAGISTRATE JUDGE

Before the Court is Defendant's Motion for Attorneys' Fees and Costs (Motion). See ECF No. 26. The parties' “Local Rule 54.2(E) Joint Statement re: Fee Motion” was filed on September 9, 2022. See ECF No. 27. Plaintiffs filed their Opposition on September 23, 2022. See ECF No. 33. Defendant filed its Reply on October 5, 2022. See ECF No. 36. This matter is suitable for disposition without a hearing pursuant to Rule 54.2(g) of the Local Rules of Practice of the United States District Court for the District of Hawaii (Local Rules). After careful consideration of the record in this action and the relevant legal authority, the Court FINDS AND RECOMMENDS that Defendant's Motion be DENIED.^[1]

BACKGROUND

This action arises from events occurring over a decade ago when according to Plaintiffs, Defendant allegedly misused Hawaii Revised Statute (“HRS”) Sections 667-5 through 667-10 (“Part I”) to wrongfully acquire and sell Plaintiffs' property. See ECF No. 1 ¶¶ 17-26.

According to the Complaint, Plaintiffs purchased an apartment at One Waterfront Towers condominium project on June 23, 2006 (“Apartment”), see Id. ¶¶ 7 12, financed in part with loans secured by mortgages. See id. ¶ 12. Plaintiffs were required to pay their portion of the common expenses associated with their ownership. See id. ¶ 10.

At some point before March 2012, Plaintiffs became delinquent in paying their mortgages and common expenses. See id. ¶ 13. Defendant's attorney recorded a lien on the Apartment for the unpaid common expenses. See id. ¶ at 17. The Complaint alleges that while Plaintiffs' mortgage lender was not aggressively pursuing foreclosure, see id. ¶ 14, Defendant, on the other hand, viewed the mortgage lender's delay as an “opportunity” to “quickly acquire” the Apartment and its potential rental income. See Id. ¶¶ 28, 29. To do this, Defendant allegedly used Part I to foreclose on its lien for common expenses by fraudulently misrepresenting to Plaintiffs that it had statutory authority to foreclose when it did not possess such authority. See id. ¶ 26.

On or about March 30, 2012, Defendant sold the Apartment via public sale to itself. See id. ¶ 20. Defendant then executed a quitclaim deed for the Apartment as grantor and grantee, recorded the quitclaim deed on April 23, 2012, and evicted Plaintiffs from the Apartment. See id. ¶¶ 21, 22.

Plaintiffs did not challenge Defendant's foreclosure or sale for more than eight years. See ECF No. 22 at 4. Plaintiffs decided to bring this action, however, after learning of the Hawai'i Supreme Court's decision in Malabe v. Ass'n of Apartment Owners of Exec. Ctr., 465 P.3d 777 (Haw. 2020). According to Plaintiffs, the Malabe Court held that associations of apartment owners (AOAOs), including Defendant, were not authorized to use Part I to compel foreclosure because Part I only authorizes public sale by a creditor in possession of a power of sale, such as a mortgage lender. See ECF No. 22 at 4.

On January 24, 2022, Plaintiffs filed their Complaint against Defendant alleging six causes of action: conversion /wrongful foreclosure, negligent misrepresentation, negligent supervision, wrongful eviction, unfair and deceptive acts or practices, and fraud. See ECF No. 1.

Defendant moved to dismiss the Complaint in its entirety asserting that all claims were barred by the applicable statutes of limitations. See ECF No. 11. The District Court granted Defendant's Motion to Dismiss on July 22, 2022. See ECF No. 22 (Order). The Clerk entered judgment in favor of Defendant based on the District Court's Order. See ECF No. 23. Defendant now moves for an award of attorneys' fees and costs in the amount of $11,421.80. See ECF No. 26-1 at 11.

DISCUSSION

A federal court sitting in diversity applies state law in determining whether the prevailing party is entitled to attorneys' fees. See Farmers Ins. Exch. v. Law Offs of Conrado Joe Sayas, Jr., 250 F.3d 1234, 1236 (9th Cir. 2001). Under Hawai'i law, “[o]rdinarily, attorneys' fees cannot be awarded as damages or costs unless so provided by statute, stipulation, or agreement.” Stanford Carr Dev. Corp. v. Unity House, Inc., 141 P.3d 459, 478 (Haw. 2006) (citation omitted).

In its Motion, Defendant argues that it is entitled to fees and costs under four, Hawaii state law provisions: (i) HRS Section 514B-157(a); (ii) HRS Section 514B-157(b); (iii) HRS Section 607-14; and (iv) HRS Section 607-9. Alternatively, Defendant argues it is entitled to its fees and costs under the Court's inherent power. See ECF No. 26-1. Plaintiffs argue that Defendant is not entitled fees and costs under any authority. See ECF Nos. 33, 27. The Court addresses each basis for awarding fees and costs below.

I. HRS Section 514B-157(a)(2)

First, Defendant argues that it is entitled to fees under Section 514B-157(a)(2) “because this action would not have arisen but for” Defendant's 2012 foreclosure of its lien. See ECF No. 36 at 2, 4. Section 514B-157(a)(2) provides that attorneys' fees incurred by an AOAO for foreclosing on a lien shall be “promptly” paid by the owner to the AOAO following a foreclosure. See Haw. Rev. Stat. § 514B-157(a)(2) (emphasis added) (“(a) All costs and expenses, including reasonable attorneys' fees, incurred by or on behalf of the association for. . . (2) Foreclosing any lien thereon. . . against an owner. . . shall be promptly paid . . . to the association by such person or persons”). “[T]he fundamental starting point for statutory interpretation is the language of the statute itself.... [W]here the statutory language is plain and unambiguous, our sole duty is to give effect to its plain and obvious meaning.” Schmidt v. Bd. of Dirs. of Ass'n of Apartment Owners of Marco Polo Apartments, 836 P.2d 479, 482 (Haw. 1992) (citation omitted). Black's Law Dictionary defines the word “prompt” as: “to incite, esp. to immediate action.” Black's Law Dictionary (11th ed. 2019). Defendant provides no authority to support its assertion that Section 514B-157(a)(2) can be used so tenuously to collect attorneys' fees on a foreclosure that occurred over a decade ago.

In interpreting similar language, other courts have held that a statute awarding fees to an AOAO for “foreclosing” on a lien should be limited to actions where the AOAO takes affirmative action against the owner or the property. See In re Faitalia, 561 B.R. 767, 774 (B.A.P. 9th Cir. 2016), affd, 736 Fed.Appx. 693 (9th Cir. 2018) (“HRS § 421J-10(a) permits fees and expenses incurred by the Association only if the Association was ‘collecting' delinquent assessments, ‘foreclosing' on its lien, or ‘enforcing' its covenants. While these terms are not defined in HRS Chapter 421J, the use of these active verbs denotes some type of affirmative conduct relating to those described acts.”). Similarly, here, the term “foreclosing” is not defined in Chapter 514B. Plaintiffs initiated this lawsuit eight years after Defendant's foreclosure. The only “affirmative conduct” of Defendant was its defense of this litigation. The Court finds that Defendant is not entitled to an award of attorneys' fees under a statute that awards fees in actions for foreclosing on a lien when no foreclosure occurred in this litigation.

Accordingly, the Court FINDS that Defendant is not entitled to fees under to Section 514B-157(a)(2).

II. HRS Section 514B-157(b)

Defendant next argues that it is entitled to fees under Section 514B-157(b), which awards attorneys' fees and costs to an AOAO if an owner brings a claim against the AOAO “to enforce any provision of the declaration, bylaws, house rules, or [Chapter 514B],” and the claim is not substantiated. See Haw. Rev. Stat. § 514B-157(b). Defendant's Motion is silent as to which provision in its governing documents or Chapter 514B Plaintiffs attempted to enforce in this litigation. See ECF No. 26-1 at 6. While the Court could end its analysis there,^[2]the Court notes that, in its Reply, Defendant appears to argue that Plaintiffs' reference to Section 514B-146(a) in its Opposition constitutes an effort by Plaintiffs to enforce Section 514B-146(a). See ECF No. 36 at 5. Although the dismissal of Plaintiffs' Complaint may satisfy the “unsubstantiated” prerequisite in the statute, Defendant has not shown that Plaintiffs sought affirmative relief in this action to “enforce” a provision of Chapter 514B.

In interpreting a similar statue, the Hawai'i Supreme Court held that the word “enforce” meant that the owner must have been seeking an affirmative course of action from the AOAO or seeking to compel the AOAO's obedience to a provision of the statute. See Schmidt, 836 P.2d at 482-83. Here, Plaintiffs did not seek to enforce any provision of Section 514B. Compare ECF No. 1 (where Plaintiffs seek to hold Defendant liable for its misinterpretation of Part I of HRS Section 667 and its alleged associated intentional or negligent conduct), with Schmidt, 836 P.2d at 481 (where the Hawai'i Supreme Court held that plaintiffs were not enforcing any affirmative action on the part of the AOAO to comply with the AOAO's declaration, by-laws, house rules, or HRS Chapter 514A even when plaintiffs' complaint sought damages for the AOAO's failure to comply with bylaws and its declaration.).

Defendant has not shown that Plaintiffs' mention of Section 514B-146(a) in their briefing constitutes an effort to enforce Section 514B-146(a), which aids AOAOs in their...