Eagle SPE NV1 Inc v Southern Highlands Development Corp et al

Filing 146

ORDER granting Defendants' ECF No. 133 Motion for Summary Judgment; denying Plaintiff's ECF No. 132 Motion for Summary Judgment on Liabilty; directing Clerk to enter judgment and close case. Signed by Judge Miranda M. Du on 3/22/2017. (Copies have been distributed pursuant to the NEF - KR)

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1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 DISTRICT OF NEVADA 8 *** 9 EAGLE SPE NV 1, INC., Case No. 2:12-cv-00550-MMD-PAL Plaintiff, 10 ORDER v. 11 12 SOUTHERN HIGHLANDS DEVELOPMENT CORP., et al., Defendants. 13 14 15 I. SUMMARY 16 This case involves application of a statutory provision formerly codified at NRS § 17 40.459(1)(c) (“Subsection (1)(c)”), which placed additional limitations upon the right of a 18 successor-creditor to recover on a deficiency. Before the Court are competing motions: 19 (1) Plaintiff Eagle SPE NV 1’s (“Eagle”) Motion for Summary Judgment as to Liability and 20 Application for Deficiency Judgment Hearing Pursuant to Nevada Revised Statute § 21 40.457 (“Plaintiff’s Motion”) (ECF No. 132); and (2) Defendants’ Motion for Summary 22 Judgment (“Defendant’s Motion”) (ECF No. 133).1 The Court has reviewed the parties’ 23 responses, replies and Eagle’s supplement to its reply in connection with these Motions. 24 (ECF Nos. 137, 142, 138, 143, 145.) For the reasons discussed below, Defendants’ 25 Motion is granted and Plaintiff’s Motion is denied. 26 27 28 1LR IA 10-3 addresses exhibits. LR IA 10-3(d) requires an index of exhibits. LR IA 10-3(e) provides that the cover sheet that references an exhibit “must include a descriptor of the exhibit.” Plaintiff did not provide an index of its exhibits or include a descriptor for each exhibit. 1 II. RELEVANT BACKGROUND 2 The relevant facts are undisputed. 3 On July 30, 2007, Southern Highland Development Corporation, Olympia Group, 4 L.L.C., and Olympia Land Corporation (collectively “Borrowers”) executed a Revolving 5 Line of Credit Promissory Note (“Note”) Secured by a Deed of Trust to Colonial Bank, 6 N.A. (“Colonial”)2 in the original principal amount of $25,000,000.00 (the “Note”). (ECF 7 No. 133-3.) The Note was secured by a Deed of Trust and Security Agreement and 8 Fixture Filing with Assignment of Rents dated July 30, 2007, and recorded August 15, 9 2007 (the “DOT”), encumbering certain real property located in Clark County, Nevada 10 (the “Property”). (Id.; ECF No. 133-5.) The same day, Garry Goett and Guy Inzalaco 11 (“Guarantors”), in their individual capacities and in their positions as trustees of their 12 respective trusts, executed a certain guarantee (“the Guarantee”) where they agreed to 13 guarantee payment under the Note. (ECF No. 133-6.) The Note was amended thrice 14 thereafter: in December 2007, September 2008, and December 2008. (ECF Nos. 132-5, 15 132-6 & 132-7.) 16 On August 14, 2009, Colonial was closed by the State Banking Department of the 17 State of Alabama, and the Federal Deposit Insurance Corporation (“FDIC”) was named 18 receiver. (ECF No. 132-1 at 5.) On the same day, the FDIC assigned a substantial 19 portion of Colonial’s assets, including the Note, DOT, and accompanying loan 20 documents, to Branch Banking and Trust Company (“BB&T”) through a Purchase and 21 Assumption Agreement (“the Agreement”). (Id.; ECF No. 132-8; ECF Nos. 133-8 & 133- 22 9.) The Note was made payable to BB&T. (ECF No. 132-8.) 23 On November 12, 2009, the maturity date of the Note, Borrowers failed to pay the 24 outstanding principal balance due under the Note. (ECF No. 132-1 at 5.) BB&T made a 25 written demand for payment in August 2010. (Id.; ECF No. 132-9.) Borrowers and 26 Guarantors failed to pay the balance owing under the Note. (ECF No. 132-1 at 5.) 27 28 2After December 19, 2007, Colonial Bank, an Alabama banking corporation, became the successor to Colonial Bank, N.A., converting Colonial Bank from a national banking association to a state-chartered bank. (ECF No. 132-1 at 4.) 2 1 On November 8, 2011, BB&T assigned its rights under the Note, DOT, the 2 Guarantee and other loan documents to Eagle via two assignment documents (“the 3 Assignments”). (Id. at 5-6; ECF No. 132-10.) On November 15, 2011, Eagle effectuated 4 the sale of the Property at a non-judicial foreclosure sale for a cash bid in the amount of 5 $5,340,001.00. (ECF No. 132-1 at 6; ECF No 133-16.) On November 17, 2011, Eagle 6 made a written demand on Borrowers and Guarantors to pay the deficiency. (ECF No. 7 132-13.) They refused. (ECF No. 132-1 at 6.) 8 After Eagle initiated this action, the Court dismissed the Complaint with leave to 9 amend. (ECF No. 66 (“First Dismissal Order”).) The Court subsequently dismissed the 10 claim for breach of the implied covenant of good faith and fair dealing in the Second 11 Amended Complaint (“SAC”), permitting Eagle to proceed on a claim for deficiency and 12 two claims for breach of contract. (ECF No. 93 (“Second Dismissal Order”).) 13 III. LEGAL STANDARD 14 “The purpose of summary judgment is to avoid unnecessary trials when there is 15 no dispute as to the facts before the court.” Nw. Motorcycle Ass’n v. U.S. Dep’t of Agric., 16 18 F.3d 1468, 1471 (9th Cir. 1994). Summary judgment is appropriate when the 17 pleadings, the discovery and disclosure materials on file, and any affidavits “show there 18 is no genuine issue as to any material fact and that the movant is entitled to judgment as 19 a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986). An issue is 20 “genuine” if there is a sufficient evidentiary basis on which a reasonable fact-finder could 21 find for the nonmoving party and a dispute is “material” if it could affect the outcome of 22 the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 23 (1986). Where reasonable minds could differ on the material facts at issue, however, 24 summary judgment is not appropriate. See id. at 250-51. “The amount of evidence 25 necessary to raise a genuine issue of material fact is enough ‘to require a jury or judge to 26 resolve the parties' differing versions of the truth at trial.’” Aydin Corp. v. Loral Corp., 718 27 F.2d 897, 902 (9th Cir. 1983) (quoting First Nat’l Bank v. Cities Service Co., 391 U.S. 28 253, 288-89 (1968)). In evaluating a summary judgment motion, a court views all facts 3 1 and draws all inferences in the light most favorable to the nonmoving party. Kaiser 2 Cement Corp. v. Fishbach & Moore, Inc., 793 F.2d 1100, 1103 (9th Cir. 1986). 3 The moving party bears the burden of showing that there are no genuine issues 4 of material fact. Zoslaw v. MCA Distrib. Corp., 693 F.2d 870, 883 (9th Cir. 1982). Once 5 the moving party satisfies Rule 56’s requirements, the burden shifts to the party resisting 6 the motion to “set forth specific facts showing that there is a genuine issue for trial.” 7 Anderson, 477 U.S. at 256. The nonmoving party “may not rely on denials in the 8 pleadings but must produce specific evidence, through affidavits or admissible discovery 9 material, to show that the dispute exists,” Bhan v. NME Hosps., Inc., 929 F.2d 1404, 10 1409 (9th Cir. 1991), and “must do more than simply show that there is some 11 metaphysical doubt as to the material facts.” Orr v. Bank of Am., 285 F.3d 764, 783 (9th 12 Cir. 2002) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 13 (1986)). “The mere existence of a scintilla of evidence in support of the plaintiff’s position 14 will be insufficient.” Anderson, 477 U.S. at 252. 15 IV. DISCUSSION Nevada’s Antideficiency Statute 16 A. 17 Under Nevada’s statutory scheme, a creditor is entitled to a deficiency judgment if 18 “there is a deficiency of the proceeds of the sale and a balance remaining due” to the 19 creditor or beneficiary of the deed of trust. NRS § 40.455(1). Before adoption of Section 20 (1)(c), NRS § 40.459 limited the amount of money that could be awarded against the 21 debtor, guarantor, or surety for their personal liability on a debt upon a foreclosure sale 22 to the lesser of two amounts: (1) the difference between the amount of the debt and the 23 fair market value of the property at the time of sale or (2) the difference between the 24 amount of the debt and the actual sale price of the property. NRS § 40.459(1)-(2) (1993). 25 On June 10, 2011, however, section 5 of Assembly Bill 273 amended NRS § 40.459 to 26 impose an additional limitation on the amount of deficiency judgment that a successor- 27 /// 28 /// 4 1 creditor may recover. Sandpointe Apartments, LLC v. Eighth Judicial Dist. Ct., 313 P.3d 2 849, 856 (Nev. 2013). Subsection (1)(c) then3 read: 3 4 5 6 If the person seeking the judgment acquired the right to obtain the judgment from a person who previously held that right, [a deficiency judgment could be limited to] the amount by which the amount of the consideration paid for that right exceeds the fair market value of the property sold at the time of sale or the amount for which the property was actually sold, whichever is greater. 7 2011 Nev. Stat. 1743. Under this provision, a successor-creditor could only recover the 8 difference between the consideration it paid for the right to a deficiency judgment and 9 the actual sale price or fair market value of a property. Thus, unless a successor-creditor 10 paid more for the right to obtain a deficiency judgment than a property’s fair market or 11 sale value, Subsection (1)(c) foreclosed the successor-creditor from recovering a 12 deficiency. The Court’s Prior Order 13 B. 14 In the First Dismissal Order, the Court found that Subsection (1)(c) applies to 15 Eagle’s deficiency claim. (ECF No. 66.) In doing so, the Court rejected Eagle’s argument 16 that the Court should focus on the assignment from the FDIC to BB&T and disregard the 17 assignment from BB&T to Eagle in light of Eagle’s parent-subsidiary relationship with 18 BB&T.4 (Id. at 7-12.) Thus, to prevail on its deficiency claim, Eagle must show that there 19 20 21 22 23 24 25 26 27 28 3Section 40.459 was amended and reorganized in May 2015. See 2015 Nev. Stat., Ch. 149, Sec. 1 (Westlaw) (codified as amended at NRS § 40.459). Subsection (1)(c) now appears in NRS § 40.459(3)(c), which limits a successor creditor’s recovery after obtaining a deficiency judgment on a “property upon which the debtor, guarantor or surety maintains his or her principal residence.” NRS § 40.459(3)(c). Defendants argue, and Plaintiff does not dispute, that this latest amendment does not have retroactive application here. (ECF No. 133 at 11-12.) The Court agrees. 4The Court expressly rejected Eagle’s preemption argument. (ECF No. 66 at 1012.) Eagle reiterates its preemption argument in its opposition to Defendants’ Motion. (ECF No. 138 at 30.) While the Court left open the possibility that Eagle may still raise constitutional challenges (id. at 12), it was not an invitation to reiterate arguments already raised. The Court declines to reconsider its earlier ruling that there is a distinction between the assignment from the FDIC to BB&T and the assignment from BB&T to Eagle. With respect to former assignment, it is worth noting that this Court found in another case that the Financial Institutions Reform, Recovery and Enforcement Act of 1989 preempts Subsection (1)(c) from applying to the deficiency action brought by BB&T in that case. See Branch Banking and Trust Co. v. Rossal, Case No. 2:12-cv01298-MMD-GWF (D. Nev. Sept. 29, 2015). 5 1 is a positive difference between the actual sale price of the Property and “the amount of 2 the consideration [Eagle] paid” to acquire the right to obtain the judgment pursuant to 3 Subsection (1)(c). 4 Defendants’ Motion argues that Eagle cannot make this showing and is barred 5 from recovering a deficiency. (ECF No. 133.) Eagle’s Motion seeks judgment on the 6 issue of liability on its breach of contract claims. Because a ruling on Defendant’s Motion 7 may be dispositive of Eagle’s breach of contract claims, the Court will address 8 Defendants’ Motion first. C. 9 Defendants’ Motion 10 Defendants contend that Plaintiff cannot show any deficiency because of the 11 Court’s March 14, 2016, ruling. There, the Court found that Plaintiff was unable to 12 present any evidence of consideration other than what it had already produced, i.e., the 13 Assignments and their recited consideration of $10.00 and “other value consideration.” 14 (ECF No. 133 at 12-14.) In response, Plaintiff does not dispute the Court’s March 14, 15 2016, ruling but argues that the consideration is evidenced in the nature of its 16 “arrangement” with BB&T, which “includes its obligation to transmit its recovery in this 17 case back to BB&T.” (ECF No. 138 at 16.) Eagle contends that Subsection (1)(c) “does 18 not cap Eagle’s recovery in this case because part of its consideration is the recovery in 19 this case.” Eagle’s argument, as Defendants have pointed out, is deficient in several 20 ways. 21 First, the Court agrees with Defendants that pursuant to the Court’s March 14, 22 2016, ruling Eagle cannot offer any evidence that it has failed to disclose in support of its 23 argument as to the amount of consideration paid. Eagle had objected to Defendants 24 interrogatories and requests for production on the subject of the consideration it paid to 25 BB&T to obtain the Note. (ECF No. 107 at 1; ECF No. 105 at 22-24.) At the March 14, 26 2016, hearing, Eagle’s counsel represented that “Eagle simply does not intend to 27 present any evidence of the consideration paid to obtain the property at issue in this 28 case other than the transfer document already produced, which recites consideration of 6 1 $10.00.” (ECF No. 107 at 3.) Based on such representation, the Court sustained Eagle’s 2 objections and imposed a preclusion order under Rule 37(c). (Id. at 4.) Defendants point 3 out that Eagle relies on two items of evidence produced after the March 14, 2016, ruling 4 to oppose Defendants’ Motion: (1) an email between Thomas Brent Hicks and the FDIC; 5 and (2) a wire transfer of the proceeds of the sale from Eagle to BB&T. (ECF No. 143 at 6 4.) The Court agrees with Defendants that Eagle is precluded from relying on such 7 evidence and will not consider them in deciding Defendants’ Motion. 8 Second, Defendants argue that the March 14, 2016, ruling applies to preclude 9 Eagle from relying on Mr. Hicks’ Declaration offered in support of Plaintiff’s opposition 10 (“Second Hicks Dec.”). The Court does not construe the March 14, 2016, ruling to 11 preclude Plaintiff from offering a declaration that had not been provided before March 12 14, 2016. However, as noted, Plaintiff is precluded from offering evidence as to the 13 amount of consideration it paid. In the Second Hicks Dec., Mr. Hicks stated that “BB&T 14 and Eagle have an arrangement whereby Eagle’s proceeds from the operation or sale of 15 OREO [‘other real estate asset’] assets are remitted to BB&T.” (ECF No. 138-1 at 5.) 16 This statement is evidence of the amount of consideration. Yet, Plaintiff objects to 17 Defendants’ interrogatories asking for information on the “amount of monetary 18 consideration” and “other good and valuable consideration” that Eagle provided to 19 BB&T. (ECF No. 107 at 1; ECF No. 105 at 22-24.) In sustaining Plaintiff’s objections, the 20 Court clearly warned Plaintiff that it would be precluded from offering additional evidence 21 of the amount of consideration. (ECF No 107.) The fact that this “arrangement” is not in 22 writing is of no import because the Court’s March 14, 2016, ruling is not limited to written 23 documents. Such a limitation would have permitted Plaintiff to have it both ways — 24 oppose discovery into the issue of the amount of consideration it paid by arguing in part 25 that the amount of consideration is not relevant and later offer evidence of a verbal 26 “arrangement” to support the amount of consideration. Thus, the Court agrees with 27 Defendants that Plaintiff is precluded from offering evidence of an “arrangement” with 28 BB&T for Eagle to transfer the proceeds it receives to BB&T. 7 1 Third, even if the Court considers Mr. Hicks’ statement about the arrangement 2 calling for Eagle to forward the proceeds from the sale of the Property to BB&T, the 3 Court agrees with Defendants that Plaintiff should not be permitted to raise this new 4 claim for the first time in opposing summary judgment. There is no question that the 5 consideration Eagle paid has been a contested issue in this case all along. In the First 6 Dismissal Order, the Court found that the Complaint failed to allege the “actual amount 7 of consideration paid or whether the amount paid exceeded the actual sale price (or fair 8 market value) of the Property.” (ECF No. 66 at 12.) While the Court found that the 9 allegations in the SAC — that “there is a deficiency balance remaining due to Plaintiff 10 under the Note that exceeds $75,000” — is sufficient to state a claim for relief, the 11 amount of consideration obviously remains an issue that Defendants seek to challenge. 12 Yet, Plaintiffs objected to discovery into the consideration issue and waited until 13 Defendants’ Motion to assert that the amount of consideration includes Plaintiff’s 14 “obligation to transmit its recovery in this case back to BB&T.” (ECF No. 138 at 14.) 15 Plaintiff could have easily responded to Defendants’ discovery requests in this way but 16 elected to accept the Court’s order precluding evidence of the amount of consideration 17 other than what it had produced in discovery. Under these circumstances, the Court will 18 not consider Eagle’s new argument.5 19 Disregarding Eagle’s argument that the amount of consideration it paid “includes 20 the obligation to transmit its recovery in this case back to BB&T,” Eagle has failed to 21 offer specific evidence to show that the amount of consideration it paid was more than 22 the sale price of the Property. Accordingly, Defendants have demonstrated that Eagle is 23 /// 24 25 26 27 28 5Plaintiff argues that “common sense dictates that a bank is not going to simply give away a $26.3 million loan for no more than $10.” (ECF No. 138 at 14.) However, accepting Defendants’ argument does not necessarily mean Eagle paid $10.00 as consideration; it just means there is no evidence that more consideration was provided based on what has been produced in the case. Moreover, common sense would also dictate that a company would not agree to pursue collection on a $26.3 million loan, assume any owner-related liability, turn the entire proceed over to the bank, and still be out $10.00. 8 1 not entitled to a deficiency under Subsection (1)(c). The Court will grant summary 2 judgment in favor of Defendants on the deficiency claim. 3 D. 4 Defendants insist that the damages Plaintiff is seeking for its two breach of 5 contract claims are subject to the same limitation as the deficiency claim. (ECF No. 133 6 at 14.) Plaintiff offers no response. In fact, Plaintiff essentially concedes this point. In 7 Plaintiff’s Motion, Plaintiff argues that it should prevail on its breach of contract claims 8 and the Court should set a hearing as required under NRS § 40.455 to determine the 9 award of a deficiency judgment. (ECF No. 132 at 9.) Thus, the Court will grant summary 10 Breach of Contract Claims judgment in favor of Defendants on Plaintiff’s breach of contract claims. Plaintiff’s Motion 11 E. 12 Because the Court grants summary judgment in favor of Defendants on Plaintiff’s 13 breach of contract claims, Plaintiff’s Motion for judgment on the issue of liability of these 14 two claims is denied. 15 V. CONCLUSION 16 The Court notes that the parties made several arguments and cited to several 17 cases not discussed above. The Court has reviewed these arguments and cases and 18 determines that they do not warrant discussion as they do not affect the outcome of their 19 Motions. It is ordered that Defendants’ motion for summary judgment (ECF No. 133) is 20 21 granted. Plaintiffs’ motion for summary judgment on liability (ECF No. 132) is denied. The Clerk is directed to enter judgment in favor of Defendants and close this 22 23 24 case. DATED THIS 22nd day of March 2017. 25 26 27 MIRANDA M. DU UNITED STATES DISTRICT JUDGE 28 9

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