Vegas Diamond Properties, LLC, et al v. La Jolla Bank FSB, et al

Filing

FILED OPINION (DOROTHY W. NELSON, SANDRA S. IKUTA and LAWRENCE L. PIERSOL) DISMISSED. Judge: LLP Authoring. FILED AND ENTERED JUDGMENT. [8021688]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
VEGAS DIAMOND PROPERTIES, LLC,
and JOHNSON INVESTMENTS, LLC,
Plaintiffs-Appellants,
v.
FEDERAL DEPOSIT
INSURANCE CORPORATION AS
RECEIVER FOR LA JOLLA BANK,
FSB, and ACTION FORECLOSURE
SERVICES, INC.,
Defendants-Appelleees.




No. 10-56720
D.C. No.
3:10-cv-01205-WQH
(BGS)
OPINION



Appeal from the United States District Court
for the Southern District of California
William Q. Hayes, District Judge, Presiding
Argued and Submitted
June 7, 2011—Pasadena, California
Filed January 6, 2012
Before: Dorothy W. Nelson and Sandra S. Ikuta,
Circuit Judges, and Lawrence L. Piersol,* District Judge.
Opinion by Judge Piersol

*The Honorable Lawrence L. Piersol, United States District Judge for
the District of South Dakota, sitting by designation.

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COUNSEL
Gus W. Flangas, Kim D. Price, Flangas McMillan Law
Group, Las Vegas, Nevada, for the plaintiffs/appellants.
Joseph L. Oliva, Thomas E. Ladegaard, Oliva & Associations,
ALC, San Diego, California, for the defendant/appellee FDIC.
J. Scott Watson, Counsel, Federal Insurance Deposition Corporation, Arlington, Virginia, for the defendant/appellee
FDIC.

OPINION
PIERSOL, District Judge:
Vegas Diamond Properties, LLC, (Vegas Diamond) and
Johnson Investments, LLC, (Johnson Investments) appeal
from the district court’s Order granting the Ex Parte Motion
to Dissolve Temporary Restraining Order filed by the Federal
Deposit Insurance Corporation (FDIC) as receiver for La Jolla
Bank. The temporary restraining order, which was issued by
a Nevada state court judge, enjoined La Jolla Bank and

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Action Foreclosure Services, Inc., from proceeding with a
trustee’s sale of real properties owned by Vegas Diamond and
Johnson Investments. The district court determined that 12
U.S.C. § 1821(j), the anti-injunction provision of the Financial Institutions Reform, Recovery and Enforcement Act of
1989 (FIRREA) precluded a court from enjoining the FDIC
from conducting a trustee’s sale of the real properties. Since
the real properties were sold during the pendency of this
appeal, the appeal is dismissed as moot.
BACKGROUND
La Jolla Bank is a federally chartered savings bank. Robert
Dyson, an owner of various real estate entities in Southern
California and Las Vegas, Nevada, obtained a series of loans
from La Jolla Bank. Dyson and an entity controlled by Dyson
purchased land for development in Anza, California. La Jolla
Bank lent Dyson money in connection with the Anza property, but required Dyson, when he sought another loan, to find
a partner or investor so as to meet equity requirements.
Vegas Diamond owned approximately 8.96 acres of real
property located near Barbara Street and Las Vegas Boulevard in Las Vegas, Nevada. Johnson Investments also owned
real properties of approximately 4.19 and 2.5 acres located
near Barbara Street and Las Vegas Boulevard in Las Vegas,
Nevada. Dyson contacted and allegedly painted a strong but
inaccurate financial picture of the Anza project to the principals of Johnson Investments and Vegas Diamond.
The principals of Johnson Investments and Vegas Diamond
agreed to take out loans from La Jolla Bank which were
secured against the Johnson Investments properties and the
Vegas Diamond property in Las Vegas, and also agreed to
loan the proceeds to Dyson so the Anza project could proceed. Johnson Investments received a $10,933,125 loan and
Vegas Diamond received a $14,568,750 loan from La Jolla
Bank.

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Vegas Diamond and Johnson Investments allege that La
Jolla Bank and Dyson knew but did not disclose that the Anza
project was worth around $15 million, when the project was
securing loans in the amount of $32.5 million. Vegas Diamond and Johnson Investments also allege that unbeknownst
to their principals, money from the loans made by La Jolla
Bank to Johnson Investments and Vegas Diamond was used
to pay off other loans Dyson had with La Jolla Bank and to
pay Dyson’s accountant.
Less than a month after the closing on the loans made by
La Jolla Bank to Johnson Investments and Vegas Diamond,
Dyson defaulted on his first interest payment. On February
19, 2010, the Office of Thrift Supervision appointed the FDIC
as receiver of La Jolla Bank after finding that La Jolla Bank
was in an unsafe and unsound condition to transact business.
Dyson filed for bankruptcy on October 31, 2009, and the
Vegas Diamond and Johnson Investments properties ended up
in foreclosure.
A month before the FDIC was appointed receiver of La
Jolla Bank, Vegas Diamond and Johnson Investments filed an
Emergency Ex Parte Application for Temporary Restraining
Order and Motion for Preliminary Injunction in Nevada state
court seeking to enjoin La Jolla Bank and Action Foreclosure
Services, Inc., from proceeding with a Trustee’s sale of the
Vegas Diamond and Johnson Investments properties. The
underlying complaint pleaded causes of action against La
Jolla Bank for fraudulent concealment, negligence, civil conspiracy, breach of the covenant of good faith and fair dealing,
and aiding and abetting deceit. On January 11, 2010, the
Nevada state court granted the Temporary Restraining Order.
Two days later La Jolla Bank removed the action to the
Nevada district court which accepted the parties’ stipulation
to continue the Temporary Restraining Order.
On April 21, 2010, the FDIC moved to substitute the FDIC
as receiver for La Jolla Bank and venue was changed to the

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Southern District of California. The FDIC successfully moved
to dissolve the Temporary Restraining Order on the basis that
injunctive relief is not allowed under 12 U.S.C. § 1821(j).1
Vegas Diamond and Johnson Investments have continuously
maintained that the Temporary Restraining Order should not
be dissolved since there has been no adjudication of the issue
of whether the alleged fraud precluded the real properties
from being a part of La Jolla Bank’s estate and subject to
administration by the FDIC. On May 18, 2011, the FDIC submitted a letter requesting that this appeal should be dismissed
as moot because the properties in issue had been sold in
March of 2011. In a June 3, 2011 letter, the FDIC urged that
this appeal was not moot.
MOOTNESS
Although the FDIC has wavered in its position on whether
this appeal is moot, as a prerequisite to our exercise of jurisdiction, we must satisfy ourselves that a case is not moot.
Cole v. Oroville Union High Sch. Dist., 228 F.3d 1092, 1098
(9th Cir. 2000). “To qualify as a case fit for federal-court
adjudication, ‘an actual controversy must be extant at all
stages of review, not merely at the time the complaint is
filed.’ ” Arizonans for Official English v. Arizona, 520 U.S.
43, 67 (1997) (quoting Preiser v. Newkirk, 422 U.S. 395, 401
(1975)). An appeal is moot if no present controversy exists as
to which an appellate court can grant effective relief. W.
Coast Seafood Processors Ass’n v. Natural Res. Def. Council,
643 F.3d 701, 704 (9th Cir. 2011); Vill. of Gambell v. Babbitt,
999 F.2d 403, 406 (9th Cir. 1993).
[1] The Johnson Investments properties were purchased by
a bona fide third party purchaser, but the Vegas Diamond
1

12 U.S.C. § 1821(j) provides: “Except as provided in this section, no
court may take any action, except at the request of the Board of Directors
by regulation or order, to restrain or affect the exercise of powers or functions of the Corporation as a conservator or a receiver.”

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properties were purchased by the FDIC, as the receiver of La
Jolla Bank. Johnson Investments and Vegas Diamond contend
that the sale of the Vegas Diamond property to the FDIC does
not moot this appeal because this Court has the power to
unwind the sale to the FDIC. This argument overlooks the
nature and scope of the appeal in this case. In this appeal,
brought under 28 U.S.C. § 1292(a) from an interlocutory
order dissolving a temporary restraining order and denying a
motion for preliminary injunction, Johnson Investments and
Vegas Diamond sought the relief of reinstating the order prohibiting the FDIC from conducting a trustee’s sale of the real
properties. No stay of the order of dissolution of the temporary restraining order was obtained, and thus the sale of the
real properties prevents this Court from granting the requested
relief and accordingly renders this appeal moot. See Sharpe v.
FDIC, 126 F.3d 1147, 1154-55 (9th Cir. 1997) (the FDIC
having recorded a reconveyance rendered moot the claim for
injunctive relief seeking to enjoin the FDIC from recording
the instruments in issue). This action is moot because the
activities sought to be enjoined have already occurred and can
no longer be prevented. Friends of the Earth, Inc. v. Bergland, 576 F.2d 1377 (9th Cir. 1978).
[2] We are unpersuaded that this case meets the requirements of the “capable of repetition, yet evading review”
exception to the general principles of mootness, which exception was recognized in S. Pac. Terminal Co. v. ICC, 219 U.S.
498, 515 (1911). “[T]he capable-of-repetition doctrine applies
only in exceptional situations, and generally only where the
named plaintiff can make a reasonable showing that he will
again be subjected to the alleged illegality.” Los Angeles v.
Lyons, 461 U.S. 95, 109 (1983). This case does not present
the special circumstance contemplated in the “capable of repetition, yet evading review” exception. In addition, since
Vegas Diamond and Johnson Investments are allowed to
bring damages actions for the alleged unlawful conduct associated with the foreclosures, this conduct does not “evade
review.” See Alvarez v. Smith, 130 S.Ct. 576, 581 (2009).

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Vegas Diamond and Johnson Investments had the right to
exhaust the administrative claims procedure and then seek
relief in the federal district court for claims involving the
failed financial institution. See 12 U.S.C. § 1821(d). Their initial complaint set forth claims for damages against La Jolla
Bank as well as a cause of action for injunctive relief. At the
time of oral argument in this appeal a motion to amend the
complaint was pending in the district court which added
defendants and causes of action requesting equitable relief in
the form of cancellation of the Trustee’s sale of the properties
and damages for alleged negligence in failing to follow
Nevada law with regard to the Trustee’s sale of the properties.
A review of the district court’s docket sheet discloses that the
motion to amend was granted. Although Vegas Diamond and
Johnson Investments predict that any monetary damages they
may recover will be inadequate, they have not demonstrated
that their claims evade review.
[3] Vegas Diamond and Johnson Investments cite to
numerous state court decisions in which a moot issue was
ruled on when it raised issues of substantial public interest,
and argue that such an approach is allowable in the case at
hand based on the “flexible character of the Art. III mootness
doctrine.” See United States Parole Comm’n v. Geraghty, 445
U.S. 388, 400 (1980). “[P]urely practical considerations,”
such as the public interest, standing alone, however, are not
controlling in the federal courts on the issue of mootness. See
Richardson v. Ramirez, 418 U.S. 24, 36 (1974)(“While the
Supreme Court of California may choose to adjudicate a controversy simply because of its public importance, and the
desirability of a statewide decision, we are limited by the
case-or-controversy requirement of Art. III to adjudication of
actual disputes between adverse parties.”); Williams v. Alioto,
549 F.2d 136, 144-45 (9th Cir. 1977).
[4] For all of the above reasons, we dismiss the appeal as
moot and vacate2 the orders granting, continuing and dissolv2

See Lewis v. Continental Bank Corp., 494 U.S. 472, 482 (1990).

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ing the injunction prohibiting a trustee’s sale of real properties
owned by Vegas Diamond and Johnson Investments.
DISMISSED.