The Richard And Sheila J. McKnight 2000 Family Tust, Richard McKnight Trustee

Filing 437

ORDER Granting 410 Motion for Default Judgment. Movants shall submit a proposed form of judgment. Signed by Judge Robert C. Jones on 03/08/2016. (Copies have been distributed pursuant to the NEF - NEV)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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THE RICHARD AND SHEILA J. MCKNIGHT
2000 FAMILY TRUST et al.,

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Plaintiffs,
vs.
WILLIAM J. BARKETT et al.,
Defendants.

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2:10-cv-01617-RCJ-GWF
ORDER

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This is a complex breach of guaranty case related to the USA Commercial bankruptcy.

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The procedural history of the case is complex, and the Court will only recount it in relevant part.

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Plaintiff sued Defendants Castaic III and William J. Barkett in this Court on two claims: (1)

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Breach of Guaranty (Barkett only); and (2) Declaratory Judgment. The Court dismissed the

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second cause of action for declaratory judgment, granted offensive summary judgment on the

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first cause of action for breach of guaranty, and permitted 260 other direct lenders to intervene as

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Plaintiffs against Barkett and Castaic III and to add claims against Castaic Partners, LLC

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(“Castaic” or “Tapia Ranch”) and Castaic II Partners, LLC (“Castaic II”). One group of

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intervenors (the “Rasmussen Intervenors”) filed a complaint in intervention (the “Rasmussen

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CI”) against Barkett, Castaic, Castaic II, and Castaic III for breach of contract, breach of

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guaranty, and declaratory judgment. (See Rasmussen CI, Aug. 8, 2011, ECF No. 61). The

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Rasmussen CI alleges the amount each Rasmussen Intervenor loaned the Castaic entities. (See id.

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¶¶ 5, 67–69). In 2013, the Court struck Barkett’s answer to the Rasmussen CI, and the Clerk

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entered default. Rasmussen Intervenors have now asked the Court for a default judgment against

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Barkett on the breach of guaranty claims totaling $2,738,000. The Court has reviewed the

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attached evidence, i.e., the guaranties Barkett signed as to the Castaic, Castaic II , and Castaic III

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loans and the exhibits to those guaranties listing the fractional interests of the respective direct

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lenders, and the evidence appears to support the requested judgment.

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In opposition, Barkett argues that such a judgment will not settle the claims of all direct

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lenders or even the claims of all Rasmussen Intervenors. He also makes arguments as to his

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Rasmussen Intervenors’ entitlement to payment under the Guaranties. Specifically, he argues

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that more than 51% of the direct lender interests voted to transfer their interests in the Loans to

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another entity, who then foreclosed. He argues that it is not clear the non-consenting direct

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lenders retain any interest. But the Court has been clear—and it reiterates now—that non-

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consenting beneficiaries cannot be forced to transfer their interests in a loan or security therefore,

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and they retain their fractional interests in notes and security instruments upon a transfer of other

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parties’ interests to a new party. The 51% rule has nothing to do with forcing a transfer of

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anyone’s interest in a loan; it simply requires 51% ownership to make decisions as to the

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disposition of the property itself or modification of the loan. See Nev. Rev. Stat. § 645B.340(1).

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Non-consenting fractional owners retain their interests except to the extent all owners’ interests

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may be affected pro rata upon some event determined by the 51%, e.g., foreclosure, transfer or

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encumbrance, trade of a loan obligation for equity, or loan modification. See id. §

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645B.340(1)(b)–(e). Upon a foreclosure, as here, minority direct lenders of course lose their

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security interest in the property just as the majority does, but they still have a right to payment of

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a pro rata amount of the foreclosure proceeds in accordance with their fractional interests in the

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note, and they also retain their fractional interests in any guaranties, which naturally exist for the

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purpose of making the direct lenders whole should the borrower default and a subsequent

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foreclosure fail to make the direct lenders whole. There has never been any serious question that
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non-consenting direct lenders retained their interests in the Loans and Guaranties whether or not

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the majority interest was transferred to Castaic Investors, LP, DACA Castaic, or any other entity.

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In essence, Barkett argues, “What is left undecided is what interest those Direct Lenders

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who did not affirmatively vote in favor of the ‘Agreement to Purchase Loan Interests’ or those

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Direct Lenders who did not vote at all retained.” (Opp’n 3:21–23 (citing Order, ECF No. 324)).

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That is not left undecided. As noted, supra, the Court has been clear on this question. Nor does

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the cited order leave any doubt. In that Order, the Court dismissed Barkett’s counterclaims

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because he no longer owned them. In doing so, the Court simply noted that Barkett’s argument

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in opposition that the issue of non-consenting direct lenders’ interests had not yet been

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determined was irrelevant to the motion before it. Barkett adduces no evidence here that any of

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the direct lenders now seeking a default judgment in fact transferred their interests in the Loans

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to any other entity.
CONCLUSION

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IT IS HEREBY ORDERED that the Motion for Default Judgment (ECF No. 410) is
GRANTED, and Movants shall SUBMIT a proposed form of judgment.
IT IS SO ORDERED.
DATED: 15th th day February,
Dated thisThis 8day of of March, 2016.

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_____________________________________
_________________________________
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ROBERT C. JONES
ROBERT C.
E T
United States District Judge
s District
D

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