Mortgage Electronic Registration Systems, Inc. v. Wise ( 2013 )

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Electronically Filed
Supreme Court
SCWC-11-0000444
10-JUL-2013
10:06 AM
IN THE SUPREME COURT OF THE STATE OF HAWAI#I
---o0o---
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,
solely as nominee, Respondent/Plaintiff-Appellee,
vs.
SHARON KEHAULANI WISE and BLOSSOM ILIMA NIHIPALI,
Petitioners/Defendants-Appellants,
and
EWA BY GENTRY COMMUNITY ASSOCIATION,
Respondent/Defendant-Appellee.
SCWC-11-0000444
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-11-0000444; CIVIL NO. 09-1-1064)
July 10, 2013
NAKAYAMA, ACTING C.J., ACOBA, MCKENNA, AND POLLACK, JJ., AND
CIRCUIT JUDGE NISHIMURA, IN PLACE OF RECKTENWALD, C.J., RECUSED
AMENDED OPINION OF THE COURT BY ACOBA, J.
We hold that Petitioners/Defendants-Appellants Sharon
Kehaulani Wise (Wise) and Blossom Ilima Nihipali (Nihipali)
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(collectively Petitioners), mortgagors under the mortgage herein,
are precluded from raising the standing of Respondent/Plaintiff-
Appellee Mortgage Electronic Registration Systems, Inc. (MERS, or
Respondent) to bring the foreclosure action herein inasmuch as
(1) a standing objection is not “unique” to a confirmation of
sale proceeding, see Security Pacific Mortg. Corp. v. Miller, 71
Haw. 65, 70, 783 P.2d 855, 858 (1989), from which Petitioners
appeal, and (2) Petitioners’ failure to appeal the foreclosure
judgment barred challenges to Respondent’s standing under the
doctrine of res judicata. In consonance with these holdings, the
April 29, 2011 judgment of the Circuit Court of the First Circuit
(the court)1, and the January 2, 2013 judgment of the
Intermediate Court of Appeals (ICA) are affirmed, but for the
reasons set forth herein.
I.
On September 8, 2006, Petitioners executed a promissory
note (Note) secured on a mortgage (Mortgage) on their residence
located in Ewa Beach, Hawai#i, in the amount of $416,250.00 from
Flexpoint Funding Corporation (Flexpoint) a California
corporation. The Mortgage stated that it “secured to
[Flexpoint],” inter alia, “the repayment of the loan.”
1
The Honorable Bert I. Ayabe presided.
2
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Respondent was listed in the mortgage as “mortgagee”2 and
“nominee.”3 The Mortgage provided that “[Respondent] holds only
legal title to the interests granted by [Petitioners] in this
Mortgage; but, if necessary to comply with law or custom,
[Respondent], (as nominee for Lender and Lender’s successors and
assigns), has the right: to exercise any and all of those
interests, including, but not limited to, the right to foreclose
and sell the Property.”
On May 6, 2009, Respondent, as Plaintiff and acting
“solely as nominee,” filed a Complaint against Petitioners,
alleging that Petitioners had failed to make payments pursuant to
the terms of the Note and that Respondent sought foreclosure of
the mortgage, sale of the property, and a deficiency judgment if
the proceeds of the sale did not satisfy Petitioners’ debt.
Copies of the Note and Mortgage were attached to the Complaint.
On July 8, 2009, Respondent filed a Motion for Summary
Judgment as Against All Defendants and for Interlocutory Decree
of Foreclosure. Respondent attached a Declaration of Barbara
2
A “mortgagee” is defined as “[o]ne to whom property is mortgaged;
the mortgage creditor, or lender.” Black’s Law Dictionary 1104 (9th ed.
2009). Because Flexpoint was the “creditor or lender,” it does not appear
that Respondent was the “mortgagee.” See Mortgage Electronic Registration
Systems, Inc. v. Saunders, 2 A.3d 289, 295-96 (Me. 2010).
3
“Nominee” is defined as “[a] person designed to act in place of
another, usu[ally] in a very limited way,” or “[a] party who holds bare legal
title for the benefit of others or who receives and distributes funds for he
benefit of others.” Black’s Law Dictionary 1076 (8th ed. 2004).
3
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Huidmer, an “officer, collection officer, or employee,” of JP
Morgan Chase Bank National Association (Chase), a “servicing
agent” for Respondent. The Declaration stated that Chase was in
possession of the Note and that Petitioners had failed to make
payments “as required” under the Note. The Note, Mortgage, and
records establishing that Petitioners had failed to make timely
payments were attached as exhibits to the motion.
On July 13, 2009, Respondent secured a clerk’s entry of
default against Petitioners for failing to respond to the
Complaint.
On July 27, 2009, Wise, proceeding pro se, filed
Petitioners’ Answer to Respondent’s Motion for Summary Judgment
as Against All Defendants and for Interlocutory Decree of
Foreclosure (“Answer”),4 stating, inter alia, that Respondent
lacked standing to file the Complaint.
On August 5, 2009, a hearing was held on Respondent’s
Motion for Summary Judgment. Wise was apparently present at the
hearing. A transcript of the hearing is not a part of the
record.
On May 12, 2010, the court granted Respondent’s Motion
for Summary Judgment and filed Findings of Fact, Conclusions of
4
Wise titled the “Answer” as an “Answer to Plaintiff’s Motion for
Summary Judgment.” However, the substance of the Answer, which appears to
deny allegations stated in the complaint, appears to be an Answer to the
complaint. In its reply before this court, Petitioners characterized this
document as an “answer to the Complaint.”
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Law (conclusions), and an Order Granting Motion for Summary
Judgment as Against All Defendants and for Interlocutory Decree
of Foreclosure. The court’s conclusions provided, inter alia,
that “[Respondent] is entitled to have its first mortgage
foreclosed upon the Mortgaged Property and to have the property
sold in a manner subscribed by law.” The Order stated that the
mortgage “shall be and is hereby foreclosed as prayed, and the
Mortgaged Property shall be sold at public auction . . . . The
sale shall not be final until approved and confirmed by the
court.” A foreclosure judgment was also entered on May 12 and
incorporated the court’s order.
The ultimate time to appeal the foreclosure judgment
expired on July 12, 2010, assuming Petitioners would have sought
an extension of time to appeal. See Hawai#i Rules of Appellate
Procedure Rule 4 (stating that a notice of appeal “shall be filed
within 30 days of the judgment” and that an extension may be
obtained but that “no such extension shall exceed 30 days past
the prescribed time”). Petitioners did not appeal.
On September 23, 2010, the commissioner issued his
report stating that Petitioners’ property was sold to Respondent
for $329,986.80. On the same day, Respondent filed a Motion for
Confirmation of Sale, for Writ of Possession and for Disposal of
Personal Property (Motion for Confirmation). The Motion for
Confirmation was heard on October 14, 2010. At the hearing,
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Petitioners apparently “objected to confirmation on the grounds
that Respondent was acting as a nominee for an undisclosed
principal and had no standing to foreclose in the first place.”
The hearing on the Motion for Confirmation was continued to March
10, 2011.
On February 8, 2011, Respondent filed an Amended Notice
of Hearing of its Motion for Confirmation (Amended Motion).
Respondent attached to the Amended Motion a Declaration (Mikell
Declaration) from a Lora A. Mikell, “Senior Lead Operations
Specialist,” who was also with Chase. The Mikell Declaration
stated that Chase “as holder of the [N]ote and [M]ortgage
securing the [N]ote, confirms the actions taken to date,” and
“specifically authorized [Respondent] . . . to bring and to
continue proceeding in this foreclosure action and any related
legal action in connection with the [N]ote and the [M]ortgage.”
The court interpreted this statement as “ratification” under
Hawai#i Rules of Civil Procedure (HRCP) Rule 17.5 Neither party
5
HRCP Rule 17(a) provide in relevant part as follows:
(a) Real party in interest. Every action shall be
prosecuted in the name of the real party in interest. An
executor, administrator, guardian, bailee, trustee of an
express trust, a party with whom or in whose name a contract
has been made for the benefit of another, or a party
authorized by statute may sue in its own name without
joining with it the party for whose benefit the action is
brought. No action shall be dismissed on the ground that it
is not prosecuted in the name of the real party in interest
until a reasonable time has been allowed after objection for
ratification of commencement of the action by, or joinder or
substitution of, the real party in interest; and such
(continued...)
6
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has challenged this interpretation.
Copies of the Note and Mortgage were attached to the
Declaration. Appended to a copy of the Note was an endorsement
transferring the Mortgage from Flexpoint to Washington Mutual
Bank, which was entitled an “allonge,6” and an endorsement in
blank7 signed by a Robin B. Tango, a Vice President at Washington
Mutual Bank. The Declaration explained that the Note and a copy
of the Mortgage had been “kept by Chase in the ordinary course of
business under [the declarant’s] custody and control” and that
the Note contained endorsements.
Petitioners’ counsel filed an Opposition to
Respondent’s Amended Motion on March 3, 2011, challenging
Respondent’s standing to foreclose and Chase’s ability to
retroactively ratify Respondent’s standing pursuant to HRCP Rule
5
(...continued)
ratification, joinder, or substitution shall have the same
effect as if the action had been commenced in the name of
the real party in interest.
Id. (emphases added).
6
An “allonge” is defined as “[a] slip of paper sometimes attached
to a negotiable instrument for the purpose of receiving further indorsements
when the original paper is filled with indorsements.” Black’s Law Dictionary
88 (9th ed. 2009).
7
Hawai#i Revised Statutes (H.R.S.) § 490:3-205(b) provides as
follows:
(b) If an indorsement is made by the holder of an instrument
and it is not a special indorsement, it is a “blank
indorsement.” When indorsed in blank, an instrument becomes
payable to the bearer and may be negotiated by transfer of
possession alone until specially indorsed.
Id. (emphasis added).
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17. Petitioners also asserted that Chase could not establish
that “the underlying promissory note was assigned from
[Flexpoint] by allonge to [Washington Mutual] and then assigned
in blank by [Washington Mutual]” because, inter alia, the Mikell
Declaration “fails to provide any foundation for his assertions
as to the actions and the record keeping of either MERS or
Washington Mutual Bank, which he purports nevertheless to testify
about.”
On March 7, 2011, Respondent filed a reply memorandum,
arguing that Respondent had standing to foreclose, that Chase’s
ratification cured any standing defect, and that the endorsement
in blank attached to the Note rendered Chase the holder of the
Note and Mortgage.
On March 10, 2011, Petitioners filed a Motion to Set
Aside Clerk’s Entry of Defaults pursuant to HRCP Rule 55(c).8 In
a Declaration of Counsel attached to the motion to set aside
defaults, Petitioners’ counsel stated that “the summary judgment
in this case was clearly procured by false representations to
[the] court under oath, as a result of which [Respondent] lacks
standing to proceed in this case, and [the] court consequently
8
HRCP Rule 55(c) provides as follows:
(c) Setting Aside Default. For good cause shown the court
may set aside an entry of default and, if a judgment by
default has been entered, may likewise set it aside in
accordance with Rule 60(b).
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lacks jurisdiction to confirm the sale.” The declaration of
counsel incorporated by reference the March 3, 2011 opposition
memorandum, which was attached as an exhibit.
On April 29, 2011, the court made the following
findings in its Order Confirming Sale.9
1. Although the Court acknowledges [Petitioners’] arguments regarding
[Respondent’s] lack of standing, Haw. R. Civ. P. 17(a) allows for
ratification of commencement of the action by the real party in
interest. The real party in interest, JP Morgan Chase Bank,
National Association (“Chase”), has confirmed the actions taken to
date and has authorized [Respondent] to bring and to continue
proceeding in this foreclosure action. Therefore, Chase’s
ratification has effectively corrected any issue regarding
[Respondent’s] lack of standing and Chase has agreed to be bound
for the decision of this Court, which eliminates any risk of
multiple liability.
2. In addition, Chase is the holder of the note, with both the
endorsement from Flexpoint Funding Corporation in favor of
Washington Mutual Bank, and the blank endorsement signed by
Washington Mutual Bank. In accordance with Hawai#i Revised
Statutes Section 490:3-205(b), when an instrument is indorsed in
blank, it becomes payable to bearer and may be negotiated by
transfer of possession alone until specially indorsed.
(Emphases added). On April 29, 2011, the court entered judgment
confirming the sale of Petitioners’ residence. On May 10, 2011,
the court issued an Order Denying Petitioners’ motion to set
aside defaults. The property was sold on May 12, 2011.
II.
On May 31, 2011, Petitioners appealed to the ICA.
Petitioners’ notice of appeal stated that they were appealing
from the April 29, 2011 Order Confirming Sale, the April 29, 2011
9
The full title of the order confirming sale is “Order Approving
Report of Commissioner, Confirming Commissioner’s Sale of Property at Public
Sale, Directing Distribution of Proceeds, for Writ of Possession and for
Disposal of Personal Property.”
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Judgment, and the April 29, 2011 writ of possession. Petitioners
argued (1) that “Respondent’s lack of standing was irrevocable,”
because Respondent did not have ownership of the underlying
promissory note, (2) that “[HRCP] Rule 17(a) is not available to
a plaintiff [i.e., Respondent] unless that plaintiff had standing
to invoke the jurisdiction of the court in the first place,” (3)
“[HRCP] Rule 17(a)’s ‘ratification provision’ . . . cannot be
taken advantage of by a purported real party in interest when
there is no showing of ‘honest and understandable mistake,’” and
(4) the court “committed reversible error” in “finding that Chase
was the holder of the Note and therefore the real party in
interest.”
The ICA affirmed the court’s denial of the motion to
set aside the entry of default judgment. As to Petitioners’
first three arguments, the ICA noted that “the [] court
acknowledged [Petitioners’] contention that Respondent lacked
standing, but found that Chase addressed those concerns by
ratification of the proceedings.” Mortgage Electronic
Registration Systems, Inc. v. Wise, No. CAAP-11-0000444, 2012 WL
5971062 at *1 (App. Nov. 29, 2012) (SDO). The ICA held that “the
[] court properly allowed the ratification where such
ratification was formal and did not prejudice the defendants.”
Id.
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As to the fourth argument, the ICA stated that
“Respondent submitted a copy of the Note as Exhibit A attached to
their [sic] motion to confirm the sale,” and “[t]he Sr. Lead
Operations Specialist for Chase declared the Note to be a true
and accurate copy of the Note in Chase’s possession, satisfying
Hawai#i Revised Statutes (HRS) § 490:3-205(b) . . . .” Id. The
ICA concluded that “the [] court did not err in finding Chase to
be the holder of the note where Chase bore the Note endorsed by
[Flexpoint] to Washington Mutual Bank and the blank endorsement
by Washington Mutual Bank establishes Chase as the holder of the
Note.” Id.
III.
In their Application, Petitioners ask if the ICA erred
by holding that Chase could ratify Respondent’s standing,10
because Chase could not demonstrate that it was the holder of the
Mortgage and Note at the commencement of the suit and therefore
could not establish that it was the real party in interest HRCP
Rule 17(a). Petitioners contend (1) that “[HRCP] Rule 17(a) []
10
In this jurisdiction, “[t]he crucial inquiry with regard to
standing is whether the plaintiff has alleged such a personal stake in the
controversy as to warrant his or her invocation of the court’s jurisdiction
and to justify exercise of the court’s remedial powers on his or her behalf.”
Kaho#ohanohano v. State, 114 Hawai#i 302, 318, 162 P.3d 696, 712 (2007)
(internal quotation marks removed) (emphasis in original). “[I]n deciding
whether the plaintiff has a requisite interest in the outcome of the
litigation, we employ a three part test: (1) has the plaintiff suffered an
actual or threatened injury as a result of the defendant’s wrongful conduct;
(2) is the injury fairly traceable to the defendant’s actions; and (3) would a
favorable decision likely provide relief for [the] plaintiff’s injury.” Id.
(internal quotation marks removed).
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is not available to ratify commencement of an action unless the
ratifying party [i.e., Chase] had standing to invoke the
jurisdiction of the court in the first place at the time the
complaint was filed,” and (2) “there is no evidence in the record
to prove that Chase had suffered any injury at the time
Respondent commenced this foreclosure action.”
IV.
In its Response, Respondent raises several arguments
suggesting that Petitioners are procedurally barred from
challenging Respondent’s standing or Chase’s ratification of
Respondent’s standing. Respondent maintains, inter alia, (1)
that the challenges made by Petitioners to Respondent’s standing
are inappropriate in an appeal from the Order Confirming Sale,
and (2) that the challenges by Petitioners to Respondent’s
standing are barred by res judicata. In their Reply, Petitioners
maintain that they are not barred from challenging Respondent’s
standing because “[a] plaintiff’s lack of standing may be
disputed at any stage of a proceeding, even on appeal.”11
V.
A.
Respondent’s arguments are dispositive. As to
11
Supplemental briefing was ordered on the issues of whether
ratification pursuant to HRCP Rule 17(a) cures a defect in standing and
whether the Mortgage and Note were self-authenticating pursuant to Hawai#i
Rules of Evidence (HRE) Rule 902(9).
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Respondent’s first contention, this court has explained that a
judgment of foreclosure “finally determines the merits of the
controversy.” MDG Supply, Inc. v. Diversified Investments, Inc.,
51 Haw. 375, 380, 463 P.2d 525, 528 (1969) (internal citations
omitted). Subsequent proceedings “are simply incidents to its
enforcement.” Id. (internal citations omitted.) Thus,
“foreclosure cases are bifurcated into two separately appealable
parts: (1) the decree of foreclosure and the order of sale, if
the order of sale is incorporated within the decree, and (2) all
other orders.” Miller, 71 Haw. at 70, 783 P.2d at 858. It is
evident that orders confirming sale are separately appealable
from the decree of foreclosure, and therefore fall within the
second part of the bifurcated proceedings. See id. (treating an
appeal from an order confirming sale and for deficiency judgment
as separate from an appeal from the foreclosure judgment); see
also Eastern Savings Bank, FSB v. Esteban, 129 Hawai#i 154, 296
P.3d 1062 (2013) (treating an appeal from the judgment confirming
the foreclosure sale as a separate matter from the judgment of
foreclosure).
In Miller, the defendant did not appeal from the
court’s order granting summary judgment and a decree of
foreclosure, but did appeal from an Order Confirming
Commissioner’s Sale of Property at Public Sale, Directing
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Distribution of Proceeds, and for Deficiency Judgment. 71 Haw.
at 67, 783 P.2d at 856. The defendants apparently challenged the
plaintiff’s right to seek a deficiency judgment. Id. at 70, 783
P.2d at 858.
This court held that the defendants “timely appeal from
the Deficiency Judgments would entitle it to challenge errors
unique to it, such as an erroneous upset price or miscalculation
of deficiency.” Id. at 71, 783 P.2d at 858 (emphasis added)
(internal quotation marks removed); see also Independence Mortg.
Trust v. Dolphin, Inc., 57 Haw. 554, 556, 560 P.2d 488, 490
(1977) (stating that “this court has jurisdiction to consider
errors unique to those post-judgment orders which have been
timely appealed”); Powers v. Ellis, 55 Haw. 414, 418, 520 P.2d
431, 434 (1974) (explaining that “to the extent that an order of
sale merely implements matters contained in a decree of
foreclosure, there is no need to take a separate appeal from it,”
but an appellate court can review the order of sale for “errors
unique to it”). However, the plaintiff’s “right to recover
deficiency judgments was completely and finally adjudicated” by
the court’s order granting summary judgment on the foreclosure.
Id. Therefore, this court held that “where an appellant
challenges the right of a party to obtain a deficiency judgment
in a foreclosure case, he must take his appeal in a timely
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fashion from the order which finally determined the right to a
deficiency,” i.e., the order granting summary judgment. Id.
Because the defendant’s appeal was not from the deficiency
judgment, the court dismissed the appeal for lack of appellate
jurisdiction. Id. at 67, 783 P.2d at 856.
Similarly, in Citicorp Mortgage, Inc. v. Bartolome, 94
Hawai#i 422, 16 P.3d 827 (App. 2000), the plaintiffs appealed,
inter alia, from the court’s deficiency judgment, arguing that
the defendant committed Truth in Lending Act (TILA) violations or
unfair and deceptive practices. The ICA found that these issues
were “defenses against [the plaintiff’s] right to the
foreclosure, to be properly brought in the trial court against
[the plaintiff’s] motion for summary judgment.” Id. at 433, 16
P.3d at 838. Hence, those issues were “properly brought on
appeal from the final judgment on that motion.” Id. However,
the plaintiffs “appealed instead from the [] deficiency
judgment.” Id. The ICA dismissed the appeal from the deficiency
judgment because the plaintiffs “ma[de] no argument on appeal
regarding the amount of the deficiency judgment,” and thus
“fail[ed] to raise any cognizable issues with respect to the
deficiency judgment.” Id. at 429 n.3, 16 P.3d at 835 n.3.
(citing Miller, 71 Haw. at 71–72, 783 P.2d at 858).
B.
In the instant case, Petitioners have never legally
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challenged the court’s entry of the May 12, 2010 judgment of
foreclosure made pursuant to the order granting Respondent’s
motion for summary judgment. As discussed supra, Petitioners’
ultimate deadline to appeal that judgment was July 12, 2010.
However, they did not appeal from that judgment. Hence, the May
12, 2010 judgment became final and binding. As stated before,
the foreclosure judgment “determined the merits of the
controversy,” rendering subsequent proceedings “incident[] to its
enforcement.” MDG Supply, 51 Haw. at 380, 463 P.2d at 528.
The issue of whether or not Respondent had standing to
bring suit is not “unique” to the confirmation of sale. Miller,
71 Haw. at 71, 783 P.2d at 858. A lack of standing could have
been raised at any time. See Keahole Defense Coalition, Inc. v.
Board of Land and Natural Resources, 110 Hawai#i 419, 427, 134
P.3d 585, 593 (2006) (“[S]tanding is a jurisdictional issue that
may be addressed at any stage of a case.”) As in Citicorp,
Petitioner’s lack of standing could have been brought as a
defense to Respondent’s motion for summary judgment. See Miller,
71 Haw. at 71, 783 P.2d at 858; see also MDG Supply, 51 Haw. at
380, 463 P.2d at 528.
Because the time for appealing the judgment of
foreclosure passed without an appeal being taken, that judgment
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became final and Respondent’s right to foreclose was finally
decided in its favor. As related, the court’s foreclosure
judgment entitled Respondent to foreclose on the mortgage, to
have the property sold, and to a distribution of the proceeds.
By virtue of the finality of the foreclosure judgment, Respondent
was authorized to procure the sale of the property.
VI.
As to Respondent’s second contention in this case, we
observe that none of the foregoing cases involved an objection to
standing. See Miller, 71 Haw. at 71, 783 P.2d at 858. However,
we conclude that res judicata would preclude Petitioners from
challenging Respondent’s standing in their appeal from the order
confirming sale, despite the general proposition that a lack of
standing may be raised at any time. Under the doctrine of res
judicata, challenges to Respondent’s standing were subsumed under
the foreclosure judgment, which had became final and binding.
A.
“Res judicata . . . limit[s] a litigant to one
opportunity to litigate aspects of the case to prevent
inconsistent results and multiplicity of suits and to promote
finality and judicial economy.” Esteban, 129 Hawai#i at 158, 296
P.3d at 1067. The doctrine prohibits parties from “relitigating
a previously adjudicated cause of action.” Id. at 159, 296 P.3d
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at 1067 (quoting Bremer v. Weeks, 104 Hawai#i 43, 54, 85 P.3d 150,
161 (2004)).
As explained supra, foreclosure cases are bifurcated
into two appealable parts. Due to their bifurcated nature,
mortgage foreclosure proceedings may be treated as analogous to
two separate proceedings for res judicata purposes.
Esteban is instructive in this regard. In Esteban, the
defendants did not appeal the court’s order foreclosing on their
property. Id. at 155, 296 P.3d at 1063. However, prior to a
hearing on the motion for confirmation of sale, the defendants
filed TILA claims against the plaintiff in federal court, arguing
that they were exercising their right to rescind their mortgage.
Id. at 156, 296 P.3d at 1064. The defendants then submitted a
brief opposing the confirmation of sale on the basis of their
federal TILA claims against the plaintiff. Id.
This court held that, pursuant to Miller, the
foreclosure judgment was a final judgment that allowed the
plaintiff to assert the defense of res judicata. Id. at 160, 296
P.3d at 1069. Res judicata prevented the defendants from raising
their TILA claims because the claims could have been raised as
defenses in the foreclosure action, but were not. Id. at 160-61,
296 P.3d 1069-70. Thus, this court affirmed the court’s judgment
confirming the sale of the plaintiff’s property. Id. at 161-62,
296 P.3d 1069-70.
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Hence, in Esteban, this court held that, in the context
of proceedings to confirm the sale of foreclosed property, the
judgment of foreclosure has a preclusive effect. As in Esteban,
in this case Petitioners raised a defense during the confirmation
proceedings that was potentially subject to the res judicata
effect of the foreclosure judgment.
B.
However, Respondent apparently did not raise the
affirmative defense of res judicata against Petitioners’ standing
objection in the confirmation of sale proceedings. A res
judicata defense is subject to waiver. State ex rel. Office of
Consumer Protection v. Honolulu University of Arts, Sciences, and
Humanities, 110 Hawai#i 504, 516, 135 P.3d 113, 125 (2006). (“In
this case, Honolulu University did not plead res judicata as an
affirmative defense in its answer nor did it raise the doctrine
of res judicata during the circuit court proceedings.
Consequently, Honolulu University has waived the affirmative
defense of res judicata.”)(emphasis added).
Nevertheless, “preclusion [i.e., res judicata] even can
be raised by an appellate court for the first time on appeal.”
Wright and Miller, Federal Practice and Procedure § 4405; cf.
Clements v. Airport Authority of Washoe County, 69 F.3d 321, 330
(9th Cir. 1995) (noting that because the court has “the ability
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to overlook waiver and raise the res judicata issue sua sponte,”
“we [also] may do so with respect to issue preclusion”).
Further, “just as the court of appeals can raise a res judicata
defense on its own, it can entertain a party’s [res judicata]
argument” raised for the first time on appeal. Wright and
Miller, Federal Practice and Procedure § 4405. This is because
courts are concerned with “avoiding the burdens of relitigation”
and “avoiding inconsistent decisions.” Id. Consequently, “[t]he
waiver principle need not sacrifice the judicial interests in
enforcing res judicata principles.” Id.
Although Respondent raised the issue of res judicata
for the first time before this court, the “public interest” in
“avoiding inconsistent results,” see Clements, 69 F.3d at 330, is
strong. By virtue of the foreclosure judgment Respondent already
had the right to have Petitioners’ property sold. A serious
inconsistency would result if Respondent were held not to have
the right to procure confirmation of the sale. Absent an
objection unique to the sale of the property, such as a grossly
inadequate sale price, see, e.g., Hoge v. Kane, 4 Haw. App. 533,
540, 670 P.2d 36, 40 (1983), a ruling abrogating the sale would
“impair or destroy the rights” granted by the foreclosure
judgment, since an adverse ruling could prevent Respondent from
receiving the proceeds of the action. Sure-Snap Corp. v. State
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Street Bank and Trust Co., 948 F.2d 869, 875 (2d Cir. 1991).
Therefore, in the limited circumstances of foreclosure
proceedings, we consider the merits of the res judicata defense,
even if impliedly waived.
C.
As explained in Esteban, “res judicata precludes not
only the relitigation of claims or defenses that were litigated
in a previous lawsuit, but also of all claims and defenses that
might have been properly litigated, but were not litigated or
decided.” 129 Hawai#i at 159, 296 P.3d at 1067. Further, “[w]hen
a valid and final personal judgment is rendered in favor of the
plaintiff . . . [i]n an action upon the judgment, the defendant
cannot avail himself of defenses he might have interposed, or did
interpose, in the first action.” Id. (quoting Restatement
(Second) of Judgments § 18) (emphasis in original).
“[T]he doctrine that a judgment creates its own cause
of action [i.e., an ‘action upon the judgment’] is an entirely
practical legal device, the purpose of which is to facilitate the
goal of securing satisfaction of the original cause of action.”12
12
To reiterate, “foreclosure cases are bifurcated into two
separately appealable parts: (1) the decree of foreclosure and the order of
sale, if the order of sale is incorporated within the decree, and (2) all
other orders.” Miller, 71 Haw. at 70, 783 P.2d at 858. As discussed infra,
by filing a motion for confirmation of sale, Respondent may be understood to
have in effect filed a separate action upon the judgment in a foreclosure
action.
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National Union Fire Ins. Co. of Pittsburgh v. Owenby, 42 Fed.
Appx. 59, 63 (9th Cir. 2002) (emphasis added). Traditionally, an
action upon a judgment was an action to secure enforcement of an
out of state judgment. See id. (citing Restatement(Second) of
Judgments § 18 cmt. f). However, courts have held that other
actions similar to such proceedings also qualify as an action on
the judgment for the purposes of res judicata. See In re Wright,
194 B.R. 715, 718 n.6 (Bankr. D. Conn. 1996) (Wright II).
For example, in Wright, the plaintiff brought a
“dischargability action” to have a debt declared to be non-
dischargable in a pending bankruptcy case. In re Wright, 187
B.R. 826, 828 (Bankr. D. Conn. 1995) (Wright I). The original
debt was the result of a district court action against the
plaintiff. Id. at 829. In response to a motion for
reconsideration, Wright I explained that the “dischargability
action” was the “same claim” as the prior district court action.
Wright II, 194 B.R. at 718. The federal bankruptcy court further
stated that characterization of the action as an action on the
judgment was appropriate, because “both seek to preserve the
creditor's ability to execute upon the prior judgment.” Id. at
718 n.6. Therefore, Wright I noted that “the Defendant would
appear to be precluded under principles of res judicata from
presently offering any defenses which were available to him in
the District Court Action.” Id.
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Proceedings to confirm the sale of a foreclosed
property are similar to a traditional “action upon the judgment,”
inasmuch as both are proceedings to “facilitate the goal of
securing satisfaction of the original cause of action.” See
Owenby, 42 Fed. Appx. at 63. This court has explained that, “[a]
judgment of foreclosure of mortgage or other lien and sale of
foreclosed property is final, although it contains a direction to
commissioners to make a report of sale and to bring the proceeds
into court for an order regarding their disposition.” MDG
Supply, 51 Haw. at 379, 463 P.2d at 528 (citations omitted).
“Subsequent proceedings” are treated as incidental to enforcement
of the foreclosure judgment. Id. Thus, as in a traditional
action upon the judgment, confirmation of the commissioner’s sale
serves to facilitate the satisfaction of the original judgment.
Hence, a proceeding for confirmation of sale is analogous to an
“action on the judgment.” See Wright II, 194 B.R. at 718 n.6.
As stated previously, in an action on the judgment a
defendant is barred by res judicata from availing himself of
“defenses he might have interposed, or did interpose, in the
first action.” Restatement (Second) of Judgments § 18.
Petitioners raised Respondent’s alleged lack of standing as a
defense to the foreclosure proceeding, but did not appeal from
the foreclosure judgment, which became final. In view of the
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functional similarity between the confirmation of sale proceeding
and an action on the judgment, we conclude that Petitioners
cannot again raise the standing objection previously asserted in
the foreclosure proceeding in the subsequent confirmation of sale
proceedings.13 Id. This promotes the finality of the foreclosure
judgment and prevents inconsistent results between the
foreclosure judgment and the order confirming sale or other
similar proceedings.14
VII.
For the foregoing reasons, the April 29, 2011 judgment
13
Contrary to Petitioners’ contention, it has been held that “the
doctrine of res judicata has application to questions of jurisdiction as well
as other issues and it ordinarily precludes a subsequent challenge to a
finding that jurisdiction does exist.” Cutler v. Hayes, 818 F.2d 879, 888
(D.C. Cir. 1987) (internal citations omitted) (holding that “[s]tanding ranks
amongst those questions of jurisdiction . . . whose disposition . . . may
preclude, or collaterally estop, relitigation of the precise issues of
jurisdiction adjudicated”).
14
In its Opening Brief before the ICA, Petitioners contended that
their challenges to Respondent’s standing could also be raised as a part of
their appeal from the court’s Order Denying Petitioners’ Motion to Set Aside
Entry of Defaults. However, this court has explained that “a motion to set
aside a default entry or a default judgment may and should be granted whenever
the court finds (1) that the nondefaulting party will not be prejudiced by the
reopening, (2) that the defaulting party has a meritorious defense, and (3)
that the default was not the result of inexcusable neglect or a wilful act.”
BDM, Inc. v. Sageco, Inc., 57 Haw. 73, 76, 549 P.2d 1147, 1150 (1976).
Petitioners have raised no cognizable argument regarding prongs
(1) or (3) of Sageco. Hence, Petitioners’ contentions regarding the court’s
Order Denying Petitioners’ Motion to Set Aside Entry of Defaults are not
addressed further. Cf. Aames Funding Corp v. Mores, 107 Hawai#i 95, 105 n.10,
110 P.3d 1042, 1052 n.10 (2005) (“Because the Moreses do not provide any
discernible legal argument as to their contention that the court had no
subject matter jurisdiction because the Moreses did not receive the requisite
copies of the TILA ‘Notice of Right to Cancel,’ we do not address this
contention further.”).
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of the court and the January 2, 2013 judgment of the ICA are
affirmed, but for the reasons set forth herein.15
Gary Victor Dubin, /s/ Paula A. Nakayama
Frederick J. Arensmeyer,
and Zeina Jafar, /s/ Simeon R. Acoba, Jr.
for petitioners
/s/ Sabrina S. McKenna
David B. Rosen,
and David McAllister, /s/ Richard W. Pollack
for respondent
/s/ Rhonda A. Nishimura
15
Therefore, we do not decide the merits of Petitioners’ appeal
regarding Respondent’s standing, Chase’s ratification, and Chase’s status as
the real party in interest under HRCP Rule 17.
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