The Bank of New York Mellon Trust Company, N.A. v. Bass Dr. Trust, No. 2:2015cv01167 - Document 39 (D. Nev. 2016)

Court Description: ORDER denying ECF No. 29 Motion to Dismiss; denying as moot ECF No. 9 Motion to Dismiss. Signed by Judge Robert C. Jones on 8/24/2016. (Copies have been distributed pursuant to the NEF - KR)
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The Bank of New York Mellon Trust Company, N.A. v. Bass Dr. Trust Doc. 39 1 2 3 UNITED STATES DISTRICT COURT 4 DISTRICT OF NEVADA 5 6 7 8 9 10 11 ______________________________________ ) ) THE BANK OF NEW YORK MELLON ) TRUST COMPANY, N.A., ) ) Plaintiff, ) ) vs. ) ) JON L. JENTZ et al., ) ) Defendants. ) 2:15-cv-01167-RCJ-CWH ORDER 12 13 This case arises out of a foreclosure sale by a homeowners association. Pending before 14 the Court is a Motion to Dismiss (ECF No. 29). For the reasons given herein, the Court grants 15 the motion in part and denies it in part. 16 I. 17 FACTS AND PROCEDURAL HISTORY In 2005, non-party Ronald Olsen gave non-party National City Mortgage a promissory 18 note for $144,400 (the “Note”) to purchase real property at 111 Bass Drive, Unit C, Henderson, 19 Nevada 89002 (the “Property”), secured by a deed of trust (the “DOT”). (2nd Am. Compl. ¶¶ 8, 20 12, ECF No. 17). Olsen also obtained a second loan of $36,100, secured by a second position 21 deed of trust. (Id. ¶ 13). On September 28, 2011, Defendant Newport Cove Condominium Unit- 22 Owners Association (“the HOA”) recorded a Notice of Delinquent Assessment Lien with $1,475 23 due. (Id. ¶¶ 17–18). On February 7, 2012, the HOA recorded a Notice of Default and Election to 24 1 of 10 1 Sell Under Homeowners Association Lien with $4,444 due. (Id. ¶¶ 19–20). On October 31, 2 2012, the HOA recorded a Notice of Trustee’s Sale, which stated that the total unpaid balance of 3 the obligation secured by the property, including reasonable estimated costs, expenses, and 4 advances, was $6,564. (Id. ¶¶ 21–22). On January 24, 2013, a Trustee’s Deed Upon Sale was 5 recorded, stating that Bass Dr. Trust (“Bass”) had prevailed at an HOA lien foreclosure sale with 6 a sales price of $9,500. (Id. ¶¶ 27–28). On March 4, 2013, non-party PNC Bank, N.A., successor 7 in interest to National City Mortgage, assigned the DOT to Plaintiff Bank of New York Mellon 8 Trust Company, N.A. (“BNY Mellon”). (Id. ¶ 14). BNY Mellon alleges that at the time of the 9 HOA sale the amount outstanding on the first loan exceeded $138,000, and the fair market value 10 11 of the Property exceeded $61,000. (Id. ¶¶ 38–39). BNY Mellon argues that its due process rights were violated by defects in the notices 12 related to the HOA sale and, thus, the sale is invalid and could not have extinguished BNY 13 Mellon’s secured interest in the Property. (Id. ¶¶ 23–32). It also argues that the sale was 14 commercially unreasonable. (Id. ¶¶ 33, 41–45). BNY Mellon originally sued both Bass and 15 Defendant Jon L. Jentz, trustee for Bass, in this Court. (See Compl., ECF No. 1). In its Amended 16 Complaint, BNY Mellon omitted Bass as a defendant, leaving Jentz as the only remaining 17 Defendant. (See Am. Compl., ECF No. 7). On November 23, 2015, Jentz filed a motion to 18 dismiss, arguing that the HOA is a necessary party to the case. The Court agreed and held the 19 motion to dismiss in abeyance, giving Plaintiff an opportunity to amend its complaint by striking 20 any claim that the HOA foreclosure sale is invalid; otherwise, the Court would join the HOA as a 21 defendant. (See Order, ECF No. 16). Plaintiff responded by filing a Second Amended Complaint 22 (“SAC”) that added the HOA as a defendant. (See SAC, ECF No. 17). 23 24 2 of 10 1 BNY Mellon brings the following claims against Defendants: (1) quiet title; (2) a 2 declaration that the HOA sale did not extinguish BNY Mellon’s rights and interest in the 3 Property or, alternatively, that the sale is invalid and conveyed no legitimate interest to Bass; and 4 (3) Nevada’s HOA foreclosure statute violates the Due Process Clauses of the Nevada and U.S. 5 Constitutions. The HOA moves the Court to dismiss the SAC. Jentz joined the HOA’s motion to 6 dismiss, (see ECF No. 32), but because Jentz has already filed an Answer to the SAC, (see ECF 7 No. 18), the Court must treat his motion as a motion for judgment on the pleadings. Elvig v. 8 Calvin Presbyterian Church, 375 F.3d 951, 954 (9th Cir. 2004). 9 II. LEGAL STANDARDS 10 Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the 11 claim showing that the pleader is entitled to relief” in order to “give the defendant fair notice of 12 what the . . . claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47 13 (1957). Federal Rule of Civil Procedure 12(b)(6) mandates that a court dismiss a cause of action 14 that fails to state a claim upon which relief can be granted. When considering a motion to dismiss 15 under Rule 12(b)(6) for failure to state a claim, dismissal is appropriate only when the complaint 16 does not give the defendant fair notice of a legally cognizable claim and the grounds on which it 17 rests. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering whether the 18 complaint is sufficient to state a claim, the court will take all material allegations as true and 19 construe them in the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan, 792 F.2d 20 896, 898 (9th Cir. 1986). The court, however, is not required to accept as true allegations that are 21 merely conclusory, unwarranted deductions of fact, or unreasonable inferences. See Sprewell v. 22 Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). 23 24 3 of 10 1 A formulaic recitation of a cause of action with conclusory allegations is not sufficient; a 2 plaintiff must plead facts pertaining to his own case making a violation “plausible,” not just 3 “possible.” Ashcroft v. Iqbal, 556 U.S. 662, 677–79 (2009) (citing Twombly, 550 U.S. at 556) 4 (“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to 5 draw the reasonable inference that the defendant is liable for the misconduct alleged.”). That is, a 6 plaintiff must not only specify or imply a cognizable legal theory, but also must allege the facts 7 of the plaintiff’s case so that the court can determine whether the plaintiff has any basis for relief 8 under the legal theory the plaintiff has specified or implied, assuming the facts are as the plaintiff 9 alleges (Twombly-Iqbal review). 10 “After the pleadings are closed—but early enough not to delay trial—a party may move 11 for judgment on the pleadings.” Fed. R. Civ. P. 12(c). The standards governing a Rule 12(c) 12 motion are the same as those governing a Rule 12(b)(6) motion. See Dworkin v. Hustler 13 Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989) (“The principal difference . . . is the time of 14 filing. . . . [T]he motions are functionally identical . . . .”). 15 A defendant may challenge the court’s subject-matter jurisdiction over a case or certain 16 claims pursuant to Federal Rule of Civil Procedure 12(b)(1). The plaintiff, as the party seeking to 17 invoke the court’s jurisdiction, bears the burden of proving that the case is properly in federal 18 court. Wright v. Incline Vill. Gen. Imp. Dist., 597 F. Supp. 2d 1191, 1198 (D. Nev. 2009) (citing 19 McCauley v. Ford Motor Co., 264 F.3d 952, 957 (9th Cir. 2001)). A challenge to subject-matter 20 jurisdiction may be either facial or factual. Thornhill Publ’g Co. v. Gen. Tel. & Elec. Corp., 594 21 F.2d 730, 733 (9th Cir. 1979). 22 23 A facial challenge asserts that the allegations contained in the complaint “are insufficient on their face to invoke federal jurisdiction.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 24 4 of 10 1 1039 (9th Cir. 2004). To determine whether the facts are sufficient to establish subject-matter 2 jurisdiction, the court must “consider the allegations of the complaint to be true and construe 3 them in the light most favorable to the plaintiff.” Nevada ex rel. Colo. River Comm’n of Nev. v. 4 Pioneer Cos., 245 F. Supp. 2d 1120, 1124 (D. Nev. 2003) (citing Love v. United States, 915 F.2d 5 1242, 1245 (9th Cir. 1989)). 6 III. ANALYSIS 7 A. Statute of Limitations 8 The HOA argues that Plaintiff’s claims are barred by the statute of limitations. It argues 9 that the claims are “action[s] upon a liability created by statute,” which have a limitations period 10 of three years. Nev. Rev. Stat. § 11.190(3)(a). Ultimately, the purpose of Plaintiff’s claims is to 11 quiet title to the Property. Plaintiff asks the Court to declare that the foreclosure sale did not 12 extinguish its deed of trust and that its deed of trust is superior to any other interest in the 13 property. It challenges the validity of Nevada’s foreclosure statute for the same purposes. 1 In Nevada, the statute of limitations for quiet title claims is five years. See Nev. Rev. Stat. 14 15 §§ 11.070, 11.080. On January 24, 2013, a Trustee’s Deed Upon Sale was recorded, stating that 16 Bass had prevailed at an HOA lien foreclosure sale. Plaintiff filed its claims against Jentz on 17 October 19, 2015 and against the HOA on February 22, 2016. Five years did not pass from the 18 date the actions giving rise to the claims occurred and the date when Plaintiff filed its claims. 19 Plaintiff’s claims related to quieting title are not barred by the statute of limitations. The SAC also briefly claims that Defendants violated NRS 116.1113, which states that 20 21 “[e]very contract or duty governed by this chapter imposes an obligation of good faith in its 22 performance or enforcement.” This claim is based “upon a liability created by statute,” Nev. Rev. 23 24 1 Also, this claim is clearly not based upon a liability created by statute; it challenges the validity of the statute itself. 5 of 10 1 Stat. § 11.190(3)(a); thus, the three year statute of limitations applies. This claim appears to 2 apply only to the HOA, and more than three years passed from the date of the foreclosure sale to 3 the addition of the HOA as a defendant. As a result, Plaintiff’s claim of breach of the duty of 4 good faith against the HOA is time-barred. A claim against Jentz would not be time-barred, but 5 even if Plaintiff alleges that Jentz was a party to the CC&Rs, the Complaint does not identify any 6 provision of the CC&Rs that Defendants allegedly violated. Thus, the Court would dismiss the 7 claim against Jentz as insufficiently pleaded. 8 B. 9 The HOA argues that the case must be dismissed because Plaintiff failed to mediate its 10 11 12 13 Failure to Mediate claims under NRS 38.310. The statute states the following: No civil action based upon a claim relating to . . . [t]he interpretation, application or enforcement of any covenants, conditions or restrictions applicable to residential property or any bylaws, rules or regulations adopted by an association . . . may be commenced in any court in [Nevada] unless the action has been submitted to mediation . . . [.] A court shall dismiss any civil action which is commenced in violation of [this provision]. 14 Nev. Rev. Stat. § 38.310. 15 The HOA argues that Plaintiff’s claims implicate provisions of the CC&Rs 16 governing liens and priority of liens over first security interests because the HOA acted 17 pursuant to its authority under the CC&Rs when it foreclosed on the Property. Plaintiff 18 argues that its claims do not require the interpretation, application, or enforcement of the 19 CC&Rs. Instead, they argue, their claims require the Court to determine whether the 20 HOA complied with Nevada law when it conducted the HOA sale. 21 The statutory scheme embodied in NRS 38.310 generally does not require beneficiaries 22 of deeds of trust to mediate claims, such as the ones presently before the Court, prior to filing a 23 lawsuit. The statute clearly applies to homeowners who are in disagreement with their HOAs 24 6 of 10 1 regarding the interpretation and effect of applicable CC&Rs. See Hamm v. Arrowcreek 2 Homeowners’ Ass’n, 183 P.3d 895, 900 (Nev. 2008). And there is no indication from the text of 3 the statute that it should be applied beyond this scope. A possible exception, however, when 4 NRS 38.310 might be applicable to a party such as Plaintiff is when the beneficiary is standing in 5 the shoes of the homeowner after foreclosure, but that is not the posture of this case. 2 Moreover, a plaintiff must submit its claims to mediation or some other approved 6 7 program pursuant to NRS 38.310 only if the cause of action actually falls within the statute’s 8 coverage. The term “civil action” as used in the statute explicitly excludes “an action in equity 9 for injunctive relief in which there is an immediate threat of irreparable harm, or an action 10 relating to the title to residential property.” Nev. Rev. Stat. § 38.300(3). And the Nevada 11 Supreme Court has held that causes of action to quiet title are exempt from NRS 38.310 because 12 such a claim requires the court to determine who holds superior title to a particular parcel of 13 land. McKnight Family, L.L.P. v. Adept Mgmt., 310 P.3d 555, 559 (Nev. 2013). This case ultimately seeks to quiet title to the Property. Plaintiff is pursuing the various 14 15 claims contained in the SAC for the purpose of determining who the lawful owner is of the home 16 at issue. Accordingly, the statute does not require that Plaintiff pursue mediation or its equivalent 17 before the instant case may go forward. See id. at 558 (“An action is exempt from the NRS 18 38.310 requirements if the action relates to an individual’s right to possess and use his or her 19 property.”). This case is not based upon an interpretation of the HOA’s CC&Rs, and any 20 interpretation thereof required to resolve the dispute between Plaintiff and Defendants is 21 ancillary to the issue of paramount concern: was Plaintiff’s deed of trust extinguished by the 22 23 24 2 If Plaintiff is attempting to claim that Defendant Jentz violated NRS 116.1113, then Plaintiff would need to show it attempted to mediate the claim before filing suit, assuming it cures the deficiencies in the claim as described above. 7 of 10 1 HOA’s foreclosure sale. For this reason, the Court finds that NRS 38.310 does not apply in this 2 case. 3 C. Due Process 4 The HOA asks the Court to dismiss Plaintiff’s claim that Nevada’s foreclosure statute 5 violates the Due Process Clauses of the Nevada and U.S. Constitutions. This Court, like other 6 courts in the District, had previously rejected Fourteenth Amendment due process claims in the 7 present context. See U.S. Bank, N.A. v. SFR Investments Pool 1, LLC, 124 F. Supp. 3d 1063, 8 1075–81 (D. Nev. 2015). In summary, although due process is required for state foreclosures, 9 see Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 798–99 (1983), non-judicial 10 foreclosures in Nevada (under Chapter 107, anyway) do not involve state action sufficient to 11 implicate the Due Process Clause of the Fourteenth Amendment absent direct state involvement 12 in the foreclosure sale itself, Charmicor v. Deanor, 572 F.2d 694, 695–96 (9th Cir. 1978). Nor 13 does the rule of Shelley v. Kraemer, 334 U.S. 1 (1948) apply to Plaintiff’s own claims under the 14 Due Process Clause of the Fifth Amendment, because Plaintiff seeks to invoke the power of the 15 Court, not any Defendant. See US Bank, N.A., 124 F. Supp. 3d at 1076–78. The Court of 16 Appeals has recently ruled, however, that the pre-2015 statutory notice procedures for HOA 17 foreclosures under Chapter 116 are facially unconstitutional under the Due Process Clause of 18 the Fourteenth Amendment, finding that the Nevada Legislature’s enactment of the relevant 19 statutes sufficiently implicates state action without additional state involvement in a foreclosure 20 sale itself. See generally Bourne Valley Ct. Trust v. Wells Fargo Bank, N.A., No. 15-15233, 21 2016 WL 4254983 (9th Cir. 2016). Unless and until that ruling is vacated or reversed, pre-2015 22 HOA foreclosures under Chapter 116 cannot be found to have extinguished first deeds of trust 23 in Nevada. The Court therefore cannot dismiss the due process aspect of the quiet title claim. 24 8 of 10 1 D. 2 As part of its quiet title claim, Plaintiff argues that the HOA foreclosure sale was 3 commercially unreasonable because the sales price was well below the fair market value of the 4 Property. The HOA asks the Court to dismiss Plaintiff’s argument that the sale was 5 commercially unreasonable. 6 7 8 9 Commercial Unreasonableness In addition to giving reasonable notice, a secured party must, after default, proceed in a commercially reasonable manner to dispose of collateral. Every aspect of the disposition, including the method, manner, time, place, and terms, must be commercially reasonable. Although the price obtained at the sale is not the sole determinative factor, nevertheless, it is one of the relevant factors in determining whether the sale was commercially reasonable. A wide discrepancy between the sale price and the value of the collateral compels close scrutiny into the commercial reasonableness of the sale. 10 Levers v. Rio King Land & Inv. Co., 560 P.2d 917, 919–20 (Nev. 1977) (citations omitted). 11 Additionally, the Nevada Supreme Court has ruled that an association’s foreclosure sale may be 12 set aside under a court’s equitable powers notwithstanding any recitals on the foreclosure deed 13 where there is a “grossly inadequate” sales price and “fraud, unfairness, or oppression.” Shadow 14 Wood HOA v. N.Y. Cmty. Bancorp., 132 Nev. Adv. Op. 5, 366 P.3d 1105, 1109–12 (2016). The 15 Shadow Wood rule is concerned with the treatment of junior lienors in particular, whereas the 16 Levers rule is concerned with the circumstances of the sale generally. Under Shadow Wood, 17 “gross inadequacy” in price plus “fraud, unfairness, or oppression” to the junior lienor are two 18 elements of a conjunctive test. By contrast, under Levers a discrepancy between the sale price 19 and the value of the collateral is only one factor in a totality-of-the-circumstances-type test, 20 although a “wide” discrepancy triggers closer scrutiny of the reasonableness of other aspects of 21 the sale. 22 Under the facts of the case as pleaded, BNY Mellon’s claim for a declaratory judgment 23 that the sale was commercially unreasonable survives a motion to dismiss. Whether the sale 24 9 of 10 1 here was commercially unreasonable is a factual matter for summary judgment or trial. The 2 Court will not rule purely on the (albeit undisputed) “wide discrepancy between the sale price 3 and the value of the collateral” because the Court (or a jury) must consider any competent 4 evidence proffered as to the other factors. There could be some factual circumstance accounting 5 for the extremely low sale price that alleviates the concerns of commercial unreasonableness 6 created thereby. No evidence currently before the Court would allow the Court to transform the 7 present motion into one for summary judgment. 8 CONCLUSION 9 IT IS HEREBY ORDERED that the Motion to Dismiss (ECF No. 29) is DENIED. IT IS FURTHER ORDERED that the Motion to Dismiss (ECF No. 9) is DENIED as 10 11 moot. 12 IT IS SO ORDERED. 13 Dated this 24th day of August, 2016. 14 15 16 _____________________________________ ROBERT C. JONES United States District Judge 17 18 19 20 21 22 23 24 10 of 10