Plaza Bank v. Green et al
Filing
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ORDER Declining to Grant Summary Judgment on Remaining Claims and Granting 31 Motion to Dismiss Counterclaims without leave to amend. Signed by Chief Judge Robert C. Jones on 12/7/11. (Copies have been distributed pursuant to the NEF - ASB)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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PLAZA BANK, a California Corp.,
Plaintiff,
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v.
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ALAN GREEN FAMILY TRUST, a Nevada
trust; ALAN GREEN an individual,
Defendants.
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2:11-cv-130-RCJ-RJJ
ORDER
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Currently before the Court are Defendants’ Response to Order Regarding Appraisal of
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Properties (#27) and Plaintiff’s Motion to Dismiss Counterclaims (#31). The Court heard oral
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argument on November 8, 2011.
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BACKGROUND
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In January 2011, Plaintiff Plaza Bank (“Plaintiff” or the “Bank”), an assignee of
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SouthwestUSA Bank filed a complaint against Defendants Alan Green Family Trust (“Green
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Trust” or “Trust”) and Alan Green (“Green”) (collectively “Defendants”) and alleged the
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following. (Compl. (#1) at 1). The Federal Deposit Insurance Corporation (“FDIC”) assigned
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SouthwestUSA Bank’s loan documents to Plaintiff, a California banking corporation. (Id. at
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2). The Green Trust executed a Credit Agreement and Disclosure with SouthwestUSA
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whereby SouthwestUSA agreed to loan the Green Trust $400,000. (Id.). As security for
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repayment of the Credit Agreement, the Green Trust executed a Revolving Credit Deed of
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Trust, Security Agreement and Assignment of Rent (“Deed of Trust”) with SouthwestUSA,
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whereby the Green Trust irrevocably granted all of its rights, title, and interest in real property
located at 1900 S. 16th Street, Las Vegas, Nevada (the “Vegas Property”). (Id. at 2-3). The
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Vegas Property declined in value and no longer adequately secured repayment of the amount
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owed on the Credit Agreement. (Id. at 3). On December 25, 2010, the Green Trust defaulted
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on the Credit Agreement and Deed of Trust (collectively “Loan Agreement”) by failing to make
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the payments due and owing.
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$398,126.77.
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described as 2122 Golf Links Drive, Prescott, Arizona, and 2201 Resort Way, Prescott,
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Arizona, from the Green Trust to Green without any reasonable equivalent value to the Green
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Trust, or any value whatsoever. (Id.). On December 16, 2010, the Green Trust transferred
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real property described as 1608 Coyote Road, Prescott, Arizona, from the Green Trust to a
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Linda Smith in which all consideration and proceeds were transferred from the Green Trust
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to Green without any reasonably equivalent value or value whatsoever to the Green Trust.
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(Id.).
(Id.).
The Green Trust owed the Bank an excess of
(Id.). On December 3, 2010, the Green Trust transferred real property
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The complaint alleged three causes of action. In the first cause of action, Plaintiff
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sought declaratory relief that it was entitled to pursue claims for fraudulent transfer, pursuant
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to NRS §§ 112.180, 112.190, against Defendants without violating Nevada’s one-action rule,
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NRS § 40.430. (Id. at 3-4). In the second cause of action, Plaintiff alleged that the Green
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Trust had made fraudulent transfers of property in violation of NRS § 112.180 (actual
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fraudulent transfer). (Id. at 4). In the third cause of action, Plaintiff alleged that the Green
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Trust had made fraudulent transfers of property in violation of NRS § 112.190 (constructive
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fraudulent transfer). (Id.).
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Plaintiff filed a motion for summary judgment on all causes of action. (Mot. for Summ.
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J. (#13) at 1). In response, Defendants argued that the transfers did not make the Green Trust
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insolvent because they had transferred debt out of the Green Trust. (Opp’n to Mot. for Summ.
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J. (#15) at 10). Green’s exhibits demonstrated that the 2122 Golf Links Drive property had
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$475,000 worth of debt and the 2201 Resort Way property had $325,000 worth of debt.
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(Green Aff. (#15-1) at 4; Account Statement (#16-5) at 1).
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On July 26, 2011, this Court issued an order granting in part and denying in part
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Plaintiff’s motion for summary judgment. (Order (#21) at 15). Specifically, the Court granted
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summary judgment on Plaintiff’s first cause of action in its entirety and third cause of action
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with respect to the cash sale of the 1608 Coyote property. (Id.). The Court denied summary
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judgment on Plaintiff’s second cause of action and preserved that claim for trial. (Id. at 13,
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15). The Court denied summary judgment on the third cause of action, without prejudice, as
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to the 2122 Golf Links and 2201 Resort Way properties. (Id. at 15). With respect to those two
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properties, the Court found that because Plaintiff had demonstrated indicia of fraud
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Defendants had the burden to demonstrate that the Green Trust was solvent at the time of the
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transfers, was not rendered insolvent after the transfers, and the transfers were supported by
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fair consideration. (Id. at 14-15). The Court gave Defendants 90 days to obtain an appraisal
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of the two real properties in Green’s possession. (Id. at 15). At oral argument, the Court told
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the parties that, after Defendants had submitted an appraisal of the properties, the parties
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could re-file their motions for summary judgment or, after obtaining the appraisal, Defendants
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could concede that the two properties had been transferred out of the trust with values that
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had exceeded the debt.
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In the July 2011 order the Court directed Plaintiff to amend its complaint to state
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whether it was waiving the collateral and asking for judgment on the note or foreclosing on the
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Vegas Property and seeking a deficiency. (Order (#21) at 12). On August 9, 2011, Plaintiff
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filed an amended and supplemental complaint. (Amended Compl. (#24)). The amended
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complaint alleged that, on July 5, 2011, the Green Trust owed Plaintiff a total of $451,890.56,
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including $398,126.77 in principal, $25,327.41 in accrued but unpaid interest, and $28,436.38
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in fees and charges. (Id. at 4). On July 5, 2011, Plaintiff completed its foreclosure of the
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Vegas Property and obtained a credit bid in the amount of $155,970.64. (Id. at 3-4). Plaintiff
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sought a deficiency in the balance due. (Id. at 5). Plaintiff’s amended causes of action
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included: (1) breach of the loan documents against the Green Trust; (2) application for
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deficiency and request for hearing, pursuant to NRS § 40.457, against the Green Trust; (3)
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actual fraudulent transfer, pursuant to NRS § 112.180, against all Defendants; (4) constructive
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fraudulent transfer, pursuant to NRS § 112.190(1) against all Defendants; and (5) constructive
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fraudulent transfer, pursuant to NRS § 112.190(2) against all Defendants. (Id. at 5-7).
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Defendants filed an answer and counterclaimed. (Counterclaims (#25) at 4). The
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counterclaim alleged the following. (Id. at 6). The Bank obtained the rights to the loan
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agreement with the Trust at a “discount and/or reduced price and/or other reduction” such that
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the Bank did not invest, purchase, or otherwise obtain the rights to the underlying loan
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agreement by paying $400,000 as part of the receivership sale of SouthwestUSA Bank to the
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Bank by the FDIC. (Id.). In December 2010, the Bank unilaterally charged off in excess of
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$240,000 of the approximate $400,000 loan balance for the loan agreement with the Trust,
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leaving a balance due in excess of $160,000. (Id.). In July 2011, Plaza Bank completed the
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foreclosure sale of the Vegas Property. (Id.).
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Defendants alleged the following causes of action. (Id. at 7). In the first cause of
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action, Defendants alleged breach of contract against Plaintiff because it had proceeded with
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the foreclosure despite the fact that it had charged off the underlying loan for a sum in excess
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of $240,000 and failed to disclose and/or offset any money received from the United States
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that was applied to the loan agreement. (Id. at 7-8). In the second cause of action,
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Defendants alleged breach of the implied covenant of good faith and fair dealing against
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Plaintiff for initiating foreclosure despite the charge off of the underlying obligation and/or
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despite receiving other compensation and satisfaction for the alleged debt at issue. (Id. at 8).1
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LEGAL STANDARD
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When considering a Rule 12(b)(6) motion to dismiss for failure to state a claim, the
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court must accept as true all factual allegations in the complaint as well as all reasonable
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inferences that may be drawn from such allegations. LSO, Ltd. v. Stroh, 205 F.3d 1146, 1150
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n.2 (9th Cir. 2000). Such allegations must be construed in the light most favorable to the
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nonmoving party. Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). In general, the
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court should only look to the contents of the complaint during its review of a Rule 12(b)(6)
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motion to dismiss. However, the court may consider documents attached to the complaint or
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Defendants voluntarily dismissed their third, fourth, and fifth causes of actions for
unjust enrichment, specific performance, and breach of contract based on wrongful
foreclosure. (Opp’n to Mot. to Dismiss (#32) at 9; see also Counterclaims (#25) at 9-10).
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referred to in the complaint whose authenticity no party questions. Id.; see Durning v. First
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Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987).
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The analysis and purpose of a Rule 12(b)(6) motion to dismiss for failure to state a
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claim is to test the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th
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Cir. 2001). The issue is not whether a plaintiff will ultimately prevail but whether the claimant
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is entitled to offer evidence to support the claims. Gilligan v. Jamco Dev. Corp., 108 F.3d 246,
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249 (9th Cir. 1997) (quotations omitted). To avoid a Rule 12(b)(6) dismissal, a complaint does
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not need detailed factual allegations; rather, it must plead “enough facts to state a claim to
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relief that is plausible on its face.” Clemens v. Daimler Chrysler Corp., 534 F.3d 1017, 1022
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(9th Cir. 2008) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955,
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1964, 167 L.Ed.2d 929 (2007)); Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173
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L.Ed.2d 868 (2009) (stating that a “claim has facial plausibility when the plaintiff pleads factual
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content that allows the court to draw the reasonable inference that the defendant is liable for
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the misconduct alleged”).
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allegations” to pass muster under 12(b)(6) consideration, the factual allegations “must be
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enough to raise a right to relief above the speculative level . . . on the assumption that all the
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allegations in the complaint are true (even if doubtful in fact).” Twombly, 550 U.S. at 555, 127
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S.Ct. at 1965. “A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the
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elements of a cause of action will not do.” Iqbal, ___ U.S. at ___, 129 S.Ct. at 1949. “Nor
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does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual
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enhancements.’” Id. (quoting Twombly, 550 U.S. at 557, 127 S.Ct. at 1966).
Even though a complaint does not need “detailed factual
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If the court grants a motion to dismiss a complaint, it must then decide whether to grant
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leave to amend. The court should “freely give” leave to amend when there is no “undue delay,
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bad faith or dilatory motive on the part of the movant . . . undue prejudice to the opposing party
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by virtue of allowance of the amendment, [or] futility of amendment.” Fed. R. Civ. P. 15(a)(2);
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Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). Generally,
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leave to amend is only denied when it is clear that the deficiencies of the complaint cannot be
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cured by amendment. See DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir.
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1992).
DISCUSSION
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I.
Defendants’ Response to Order Re: Appraisal of Properties (#27)
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On August 18, 2011, Defendants filed the appraisal on the two properties. (Appraisal
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(#27) at 1). The final appraisal stated that, as of July 21, 2011, the 2122 Golf Links Drive
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property was valued at $430,000. (Golf Links Appraisal (#27-1) at 4). The final appraisal also
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stated that, as of August 2, 2011, the 2201 Resort Way property was valued at $300,000.
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(Resort Way Appraisal (#27-2) at 4). Defendants argue that, at oral argument, this Court
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indicated that “if the appraisals showed that the properties were transferred and had no value
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due to their respective indebtedness, the Court would not find that they were fraudulent
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transfers by the Defendants.” (Request for Hearing (#36) at 2).
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In response, Plaintiff files a limited objection to the appraisal. (Limited Objection (#28)
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at 1). Plaintiff argues that the appraisal is irrelevant to the issue at hand because the appraisal
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values the two properties as of July and August 2011. (Id. at 2-3). Plaintiff asserts that the
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issue is what the value of the properties were at the time of transfer, i.e. December 2010. (Id.
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at 2). Plaintiff asserts that the property values may have been higher a few months ago and
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that the value may have exceeded the alleged debt that encumbers the properties. (Id.).
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Plaintiff also contends that the appraisal is hearsay because the appraiser, Ronald Sands, has
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not been identified as an expert. (Id. at 3).
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Pursuant to NRS § 112.190, a “transfer made . . . by a debtor is fraudulent as to a
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creditor whose claim arose before the transfer was made . . . if the debtor made the
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transfer . . . without receiving a reasonably equivalent value in exchange for the transfer . . .
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and the debtor was insolvent at that time or the debtor became insolvent as a result of the
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transfer . . . .” Nev. Rev. Stat. § 112.190(1). “Generally, the creditor bears the burden of proof
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both with respect to the insolvency of the debtor and the inadequacy of consideration.”
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Sportsco Enter. v. Morris, 917 P.2d 934, 938 (Nev. 1996). “However, where the creditor
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establishes the existence of certain indicia or badges of fraud, the burden shifts to the
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defendant to come forward with rebuttal evidence that a transfer was not made to defraud the
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creditor.” Id. “The defendant must show either that the debtor was solvent at the time of the
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transfer and not rendered insolvent thereby or that the transfer was supported by fair
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consideration.” Id. (emphasis added).
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In this case, Defendants allege that the 2122 Golf Links Drive property is encumbered
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with $475,000 of debt and that the 2201 Resort Way property is encumbered with $325,000
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of debt. If the Court were to consider the values of the properties in July and August 2011, the
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debt exceeds the value of the properties. However, Plaintiff is correct that the Court looks to
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the value of the property at the time of the transfer, in this case December 2010. Neither party
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has come forward with evidence demonstrating that, in December 2010, the values of the
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properties were either higher or lower than the debt accumulated on the two properties. As
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such, the Court declines to grant either party summary judgment on the third cause of action
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with respect to the two remaining properties until one of the parties establishes what the
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values of the two properties were in December 2010.
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II.
Motion to Dismiss Counterclaims (#31)
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The Bank filed a motion to dismiss all counterclaims. (Mot. to Dismiss (#31) at 1). The
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Bank argues that charging off is an internal banking term that does not affect the Trust’s
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liabilities under the loan. (Id. at 8). The Bank also notes that Defendants have not identified
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any provision in the loan agreement that the Bank allegedly breached. (Id. at 8-9). The Bank
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argues that it has done nothing to deprive the Trust of any benefit that it was entitled to expect
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under the contract. (Id. at 10).
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In response, Defendants argue that the Bank breached the loan agreements because
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the Bank charged off the loan and are attempting to collect on it. (See Opp’n to Mot. to
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Dismiss (#32) at 7-8). Defendants appear to argue that they do not have to repay the loan
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because of the charge off. (Id.). Defendants also assert that the Bank breached the covenant
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of good faith and fair dealing because it is proceeding with a deficiency claim for a loan that
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it charged off. (Id. at 8).
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In reply, the Bank asserts that Defendants’ “charge-off” arguments are affirmative
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defenses and are not causes of actions for breach of contract or breach of the implied
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covenant of good faith and fair dealing. (Reply to Mot. to Dismiss (#33) at 2).
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In this case, Defendants fail to state a counterclaim for breach of contract and breach
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of the implied covenant of good faith and fair dealing. Defendants do not identify any provision
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in the loan agreements that prevents the Bank from initiating foreclosure proceedings in the
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event of a default and does not identify any provision in the loan agreements that prevents the
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Bank from charging off a loan for tax purposes. (See Counterclaims (#25) at 7-11). As such,
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the complaint fails to plead enough facts to state a claim that relief is plausible on its face.
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Therefore, the Court grants the motion to dismiss the counterclaims.
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Moreover, the Court denies leave to amend because Defendants have not provided any
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authority which states that when a bank charges off a loan the legal obligation to repay the
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loan is extinguished. The Ninth Circuit case that Defendants cite to does not support their
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argument. In Santa Monica Mountain Park Co. v. United States, 99 F.2d 450 (9th Cir. 1938),
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the Ninth Circuit only stated that if a taxpayer considered a debt uncollective for income tax
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purposes, the taxpayer could not use the same uncollectible debt as assets for tax purposes.
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Id. at 455. The Ninth Circuit did not hold that a charge off extinguished legal liability for the
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debt. In fact other courts who have addressed this issue have found that a charge off does
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not extinguish liability for the debt. See In re Zilka, 407 B.R. 684, 687 (Bankr. W.D. Pa. 2009)
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(finding that, as a matter of law, when a lender issues an account statement to its borrower
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indicating that an outstanding loan balance equals $0.00 because such loan has been charged
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off, it is not the legal equivalent of forgiving (i.e. discharging liability on) a debt). Accordingly,
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the Court grants the motion to dismiss counterclaims (#31) without leave to amend.
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CONCLUSION
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For the foregoing reasons, IT IS ORDERED that in light of Defendants’ Response to
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Order Re: Appraisal of Properties (#27) the Court DECLINES to grant summary judgment on
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the remaining claims.
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IT IS FURTHER ORDERED that the Motion to Dismiss Counterclaims (#31) is
GRANTED without leave to amend.
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DATED: This _____ day December, 2011.
7th day of of November, 2011.
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_________________________________
United States District Judge
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