National Loan Acquisitions Co. v. Niswonger et al

Filing 35

ORDER signed by Chief District Judge Kimberly J. Mueller on 7/14/2021 ORDERING Because the other owners are not necessary parties who must be joined to this action, the Motion to Dismiss 11 is DENIED. (Reader, L)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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National Loan Acquisitions Company,

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Plaintiff,

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No. 2:20-cv-01113-KJM-DMC
ORDER

v.
Jerome W.H. Niswonger, et al.,

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Defendants.

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Plaintiff National Loan Acquisitions Company (NLAC) brought this action, seeking

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foreclosure on a promissory note and deed of trust executed by defendants Jerome W.H. and

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Brenda Niswonger. NLAC also alleges breach of contract. The Niswongers move to dismiss,

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arguing necessary and indispensable parties have not been joined. The court denies the motion.

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I.

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BACKGROUND
The Niswongers are indebted to NLAC under a promissory note. See generally

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Promissory Note, Compl. Ex. A, ECF No. 1. The note is secured by a deed of trust encumbering

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a trust’s interests in three office condominiums in Paradise, California, and the Niswongers are

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trustees of that trust. See generally Deed of Trust, Compl. Ex. D, ECF No. 1. The condominiums

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are part of the Paradise Medical Center Building Owners’ Association (Association), which

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includes thirteen other units. Mem. at 2, ECF No. 11-1 (citing Niswonger Decl. ¶ 3, ECF No. 11-

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3).
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All sixteen units are governed by a set of regulations described in a document the parties

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refer to as the “Covenants, Conditions and Restrictions” or “CC&Rs.” Niswonger Decl. ¶ 3.

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These CC&Rs regulate the common areas and require members of the Association to pay regular

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cash contributions to the Association’s common fund. Id. ¶ 4. The Niswongers contribute about

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27 percent of the common fund. Id. The CC&Rs also address the rights of lenders in the event of

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a default. If a lender “acquires title to a Parcel as a result of a default under a mortgage or deed of

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trust,” the lender is “obligated to perform all terms, covenants and conditions of the defaulting

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borrower-Owner.” CC&Rs at 13, Niswonger Decl. Ex. B, ECF No. 11-3.

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NLAC brought this action for breach of contract, alleging the Niswongers are in default,

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Compl. ¶ 48, ECF No. 1, and asserting NLAC is entitled to payment of the principal, interest and

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other amounts owing in full or, in the alternative, foreclosure of the three condominium units, id

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¶¶ 49 & 52. The Niswongers move to dismiss, claiming the owners of the other thirteen

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condominiums that are a part of the Association are “necessary” and “indispensable” parties

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under Federal Rule of Civil Procedure 19(a)–(b). Mot., ECF No. 11; Mem., ECF No. 11-1;

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Reply, ECF No. 34. NLAC opposes. Opp’n, EFC No. 30. The court submitted the matter

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without hearing. Min. Order, ECF No. 33.

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II.

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LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(7) allows a litigant to request dismissal for “failure

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to join a party under Rule 19.” Fed. R. Civ. P. 12(b)(7). “Federal Rule of Civil Procedure 19

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imposes a three-step inquiry.” Salt River Project Agr. Imp. & Power Dist. v. Lee, 672 F.3d 1176,

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1179 (9th Cir. 2012) (footnote and citation omitted). In the first step, the court asks if the absent

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party is “necessary . . . under Rule 19(a).” Id. A party may be necessary under Rule 19 if:

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(1)

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“in his absence, the court cannot accord complete relief among existing parties,”
id. (citing Fed. R. Civ. P. 19(a)(1)(A));

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(2)

“he has an interest in the action and resolving the action in his absence may as a

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practical matter impair or impede his ability to protect that interest,” id. (citing

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Fed. R. Civ. P. 19(a)(1)(B)(i)); or

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(3)

“he has an interest in the action and resolving the action in his absence may leave

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an existing party subject to inconsistent obligations because of that interest,” id.

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(citing Fed. R. Civ. P. 19(a)(1)(B)(ii)).

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The inquiry called for under Rule 19 is fact-specific and practical. N. Alaska Envt’l. Ctr. v.

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Hodel, 803 F.2d 466, 468 (9th Cir.1986); Camacho v. Major League Baseball, 297 F.R.D. 457,

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460–61 (S.D. Cal. 2013). For this reason, it may be necessary for the court to review evidence

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beyond the pleadings. Camacho, 297 F.R.D. at 461 (quoting McShan v. Sherrill, 283 F.2d 462,

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464 (9th Cir.1960)). The defendants, as the moving parties, “bear the burden in producing

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evidence in support of the motion.” Id. (quoting Biagro W. Sales Inc. v. Helena Chem. Co.,

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160 F. Supp. 2d 1136, 1141 (E.D. Cal. 2001)).

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III.

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ANALYSIS
A few details about the parties’ arguments are important to understand as a starting point.

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The Niswongers argue the owners of the other thirteen condominium units are necessary parties

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because they “all have an interest in the Association’s common fund” and because the

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Niswongers intend to reclaim the money they have paid into the fund. Mem. at 4. The

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Niswongers claim their reclaiming the funds as planned would create a dispute over rights to the

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common fund between them, the other owners and NLAC. Id. The Niswongers also claim “the

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court cannot accord complete relief” in the other owners’ absence and proceeding without them

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would leave the Niswongers “subject to a substantial risk of incurring double, multiple, or

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otherwise inconsistent obligations.” Id. at 4–5. They do not argue the absent owners have an

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interest in this action or that resolving this action in those owners’ absence will impair or impede

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their ability to protect their interests. See Fed. R. Civ. P. 19(a)(1)(B)(i).

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NLAC contends the other owners are not necessary parties because their interests are not

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affected by this litigation. NLAC insists “[t]he purchaser at the foreclosure sale will simply step

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into the Niswongers’ shoes as to the ownership interest in the Common Area,” Opp’n at 7, and

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“[w]hile the Niswongers and the Other Owners may have an interest in the Association Common

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Fund . . . , the Association Common Funds would appear to be in fact owned by the Association,”

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Id. at 8 (concluding as much based on association’s independent entity status and its actual

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possession of the funds).

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The Niswongers have not met their burden to show the other owners are necessary parties.

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First, the Niswongers have not shown “the court cannot accord complete relief” without the other

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owners. As NLAC correctly points out, the deed of trust is not secured by any interest in the

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common fund. Opp’n at 8; see generally Promissory Note; Deed of Trust. Whomever “acquires

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title [to the property] . . . shall be obligated to perform all terms, covenants and conditions of the

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defaulting borrower Owner,” CC&Rs at 13, including payments into the common fund, id at 7,

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13. Furthermore, no evidence shows any one party’s interest in the common fund would prevent

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a resolution of the contract claims here. There is, in other words, no evidence of any risk that a

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judgment in this case would effect only “hollow relief” without the other owners at the table or

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that their joinder is necessary to prevent “multiple lawsuits on the same cause of action.”

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Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1043 (9th Cir. 1983). If the

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Niswongers’ actions following the outcome of this case do give rise to conflicts between the

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Niswongers and the other owners, there is no indication those conflicts cannot be resolved in

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separate litigation. See Eldredge v. Carpenters 46 N. Cal. Counties Joint Apprenticeship and

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Training Comm., 662 F.2d 534, 537 (9th Cir. 1981) (“[Rule 19(a)(1)(A)] is concerned only with

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relief as between the persons already parties, not as between a party and the absent person whose

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joinder is sought.” (citations and quotation marks omitted)).

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Second, for similar reasons, the Niswongers have not established they are at “risk of

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incurring double, multiple, or otherwise inconsistent obligations,” Mem. at 4, if the other owners

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are not joined. Specifically, the Niswongers have not shown this court must address any other

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party’s obligations under the CC&Rs or any other party’s rights to the common fund in order to

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ultimately resolve the issues raised by this suit.

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Persuasive authority from within this circuit supports this conclusion. When owners’

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associations have been necessary parties in other actions, the absent parties’ interests were clearly

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and directly implicated. Compare Thunder Properties, Inc. v. Wood, No. 14-00068, 2015 WL

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1926768, at *4 (D. Nev. Apr. 28, 2015) (finding homeowner’s association was not necessary
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party in foreclosure action where “ultimate relief sought . . . is the quieting of title,” when HOA

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did not claim any interest in title and its absence did “not inhibit the [c]ourt’s ability to provide

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the requested relief”), with Royal Travel, Inc. v. Shell Mgmt. Hawaii, Inc., No. 08-00314, 2009

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WL 2448495, at *4 (D. Haw. Aug. 11, 2009) (holding plaintiff unit owners were necessary

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parties because requested relief required court “decide issues regarding the common finances,

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invalidate Board votes . . . , and define the boundaries of the house rules . . . necessarily

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affect[ing] the [party’s] interests as owners of the common elements”). Unlike in Royal Travel,

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the court here would not need to invalidate Board votes, define Association rules, or affect the

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interest of the other owners or the association in order to grant the relief sought by NLAC.

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IV.

CONCLUSION
Because the other owners are not necessary parties who must be joined to this action, the

motion is denied.

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This order resolves ECF No. 11.

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IT IS SO ORDERED.

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DATED: July 14, 2021.

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