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Klein v. Alabama Housing Finance Authority

United States District Court, W.D. Washington, Seattle

September 12, 2019

MICHAEL KLEIN, as Trustee for the estate of Christine Tavares, DENNIS LEE BURMAN, as Trustee for the estate of Edward Anzaldua, Appellants/Plaintiffs,
ALABAMA HOUSING FINANCE AUTHORITY, doing business in Washington as SERVISOLUTIONS, Appellee/Defendant.


          Honorable Richard A. Jones, United States District Judge.

         This matter comes before the Court on Appellants' appeal from the bankruptcy court's dismissal of Plaintiff Christine Tavares' Second Amended Complaint. Dkt. # 6. For the reasons that follow, the Court DENIES Appellants' appeal and AFFIRMS the bankruptcy court's decision.

         I. BACKGROUND

         In March 2014, Plaintiff Christine Tavares (“Tavares” or “Ms. Tavares”) purchased a home with her former domestic partner, Edward Anzaldua (“Anzaldua”). DR # 13 at ¶ 11. The purchase was financed with a Federal Housing Administration (“FHA”) insured loan. DR # 13 at ¶ 13. Tavares and Anzaldua also executed a Deed of Trust against the property. DR # 13 at ¶ 12. In November 2015, Anzaldua and Tavares separated after allegations emerged that Anzaldua was sexually assaulting Tavares' daughter. DR # 13 at ¶17. Tavares and Anzaldua continued to make payments on the loan until April 2016, when Anzaldua stopped making payments in lieu of child support. DR # 13 at ¶ 19.

         After Anzaldua stopped making payments on the loan, Tavares approached Defendant/Appellee Alabama Housing Finance Authority (“Appellee” or “AHFA”) about a possible loan modification. DR # 13 at ¶ 22. AHFA told Tavares that in order to obtain a loan modification, she would need to default on the mortgage. DR # 13 at ¶ 21. After defaulting, Tavares again approached AHFA and was told that in order to apply for a loan modification both borrowers (Tavares and Anzaldua) would need to apply or Tavares would need Anzaldua to execute a quitclaim deed. DR # 13 at ¶ 22.

         On September 26, 2016, Tavares filed a voluntary petition for Chapter 7 bankruptcy. DR # 13 at ¶ 23. Tavares also engaged a housing counselor to help her apply for the loan modification. DR # 13 at ¶ 25. According to Tavares, AHFA tried to talk her out of hiring the housing counselor and told her that the quitclaim deed would no longer be helpful for the loan modification process. DR # 13 at ¶¶ 25-26. Tavares opted to continue using the housing counselor and submitted an application to AHFA for a HAMP loan modification with a partial claim in June 2017. DR # 13 at ¶ 27. According to Tavares, AHFA did not respond to her first application other than to deny the use of child support in her income calculation. DR # 13 at ¶ 27. Tavares submitted a second application in September 2017. DR # 13 at ¶ 30. AHFA denied Tavares' second loan modification application. DR # 13 at ¶ 31. In the denial letter, AHFA detailed the bases for its denial including, among other things, Tavares' failure to include detailed income information from both borrowers (Tavares and Anzaldua). DR # 22, Ex. 8.

         In November 2016, the bankruptcy court granted AHFA relief from the automatic stay and AHFA began nonjudicial foreclosure proceedings. DR # 26 at 8. In October 2017, Ms. Tavares brought this action in federal court, seeking an injunction to prohibit the sale of the property and damages (Tavares v. AHFA, No. 2:17-cv-01599-MJP (W.D. Wash.)). Dkt. # 6 at 13. AHFA filed a motion to dismiss and the Court granted Ms. Tavares' motion to amend the complaint. DR # 26 at 8. The Honorable Marsha J. Pechman also referred the action to bankruptcy court for pre-trial proceedings. Id. In February 2018, Ms. Tavares filed her first amended complaint. DR # 1. AHFA again filed a motion to dismiss and on June 7, 2018 the bankruptcy court granted the motion, with leave to amend. DR # 26 at 8. One month later, Ms. Tavares filed a second amended complaint, asserting a single claim under the Washington Consumer Protection Act. DR # 13. AHFA moved to dismiss for the third time (DR # 22) and the bankruptcy court granted the motion to dismiss, this time with prejudice. DR # 26. Appellants promptly appealed.[1] DR # 31.


         District courts have jurisdiction to hear appeals from a final judgment and order in a bankruptcy proceeding. See 28 U.S.C. § 158(a)(1). A district court reviews the bankruptcy court's conclusions of law de novo and reviews determinations of fact for clear error. See In re Crow Winthrop Operating P'ship, 241 F.3d 1121, 1123 (9th Cir. 2001); In re Olshan, 356 F.3d 1078, 1083 (9th Cir. 2004). A motion to dismiss for failure to state a claim will be denied unless it appears that the plaintiff can prove no set of facts which would entitle him to relief. Fidelity Fin. Corp. v. Federal Home Loan Bank of San Francisco, 792 F.2d 1432, 1435 (9th Cir. 1986). All material allegations in the complaint will be taken as true and construed in the light most favorable to the plaintiff. NL Indust., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).


         At issue is whether the second amended complaint (the “Complaint”) pled sufficient facts to state a claim under Washington's Consumer Protection Act (“CPA”). To prevail in a CPA action, the plaintiff must satisfy the following five elements: (1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) impacting the public interest, (4) causing injury to plaintiff's business or property, and (5) causation. Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531, 532 (Wash. 1986.

         Tavares' Complaint alleges five “unfair or deceptive acts” underlying her CPA claim: (1) AHFA failed to make a partial claim against FHA's Mutual Mortgage Insurance Fund” and failed to apply the proceeds to cure the default, (2) AHFA evaded a “real review” of Tavares' second loan modification application by “only mentioning the parameters of HAMP standalone modifications” and not applying the parameters to Tavares' income, (3) AHFA misled Tavares with conflicting directives regarding the necessity for a quitclaim deed, (4) AHFA discouraged the use of a housing counselor, and (5) AHFA misled Tavares regarding the exclusion of child support payments from her income calculation. DR # 13.

         The bankruptcy court dismissed the Complaint, holding that Tavares failed to plead sufficient facts to show: (1) AHFA's failure to apply for a partial claim constituted an unfair or deceptive act, (2) Plaintiff suffered an injury resulting from AHFA's conflicting directives regarding the quitclaim deed, (3) Plaintiff suffered an injury resulting from AHFA discouraging the use of a housing counselor, and (4) AHFA's denial of the loan modification constituted an unfair or deceptive act.[2] DR # 26. Appellants now seek review of the bankruptcy court's ruling that the Complaint failed to state a claim under the CPA and that further amendment would be futile. Dkt. # 6.

         A. Failure to ...

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