Bank of Las Vegas v. Cole et al

Filing 21

ORDER Denying 6 and 9 Motions to Dismiss. Amended Complaint due within 5 days. Signed by Judge Miranda M. Du on 11/7/2012. (Copies have been distributed pursuant to the NEF - SLR)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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BANK OF LAS VEGAS, A NEVADA
CORPORATION, AS SUCCESSOR BY
STATUTORY MERGER TO DESERT
COMMUNITY BANK,
Plaintiff,
v.

***
Case No. 2:12-cv-00940-MMD-VCF

ORDER
(Def.’s Motion to Dismiss – dkt. no. 6;
Def.’s Motion to Dismiss – dkt. no. 9)

STEVEN R. COLE, SUZANNE
WHITTAKER, DAN R. RICHARDS AND
SOUTHWEST APPRAISAL ASSOCIATES
INC.,
Defendants.

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I.

SUMMARY

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Before the Court are Defendant Dan R. Richards’ Motion to Dismiss (dkt. no. 6),

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and Defendants Steven R. Cole and Southwest Appraisal Associates Inc.’s Motion to

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Dismiss (dkt. no. 9). For the reasons discussed below, the Motions are denied.

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II.

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BACKGROUND
This is a professional malpractice and negligence action brought by a bank

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against a real estate appraisal company.

According to the Complaint, Defendants

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Steven R. Cole, and Dan R. Richards1 controlled Defendant Southwest Appraisal

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Associates (collectively “Defendants”) as an alter ego of themselves.

Defendants

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The Complaint also listed Suzanne Whittaker as a defendant, but Plaintiff has
since voluntarily dismissed all claims against her.

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conducted an appraisal of a parcel of real property, but allegedly failed to accurately

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appraise the property and made other material errors in the appraisal. In reliance upon

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the allegedly faulty appraisal, Plaintiff Bank of Las Vegas (“Plaintiff”) extended a loan to

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borrowers. Plaintiff alleges that it would not have extended the loan if the appraisals had

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been accurate.

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After default, foreclosure, and presumably a deficiency, Plaintiff brought this

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action to recover expenses associated with the foreclosure against Defendants alleging

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negligence, professional malpractice, breach of statutory duty, and negligent

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misrepresentation. Defendant Dan R. Richards, through his counsel, brought a Motion

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to Dismiss on June 25, 2012. Defendants Steven R. Cole and Southwest Appraisal

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Associates, through the same counsel, brought a separate and essentially identical

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Motion to Dismiss ten days later. Both Motions sought dismissal only of the breach of

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statutory duty and negligent misrepresentation claims.

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Plaintiff filed Responses to both Motions acquiescing to Defendants’ arguments

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and requesting leave to amend. Plaintiff attached a Proposed First Amended Complaint

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(the “PFAC”) in accordance with Local Rule 15-1. All Defendants jointly filed two replies,

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one urging the Court to not grant Plaintiff leave to amend and the other requesting

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sanctions for “improper discovery tactics.” Although none of the parties properly brought

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their requests in the form of a motion, in the interest of judicial efficiency, the Court will

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address the request for leave to amend as it is connected to the Motions to Dismiss.

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The Court will consider Plaintiff’s Responses as a motion for leave to amend and

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Defendants’ Reply as the opposition to that motion.

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address the request for sanctions as this issue is unrelated to the Motions before the

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Court and was already addressed by the Magistrate Judge in the Order on the Motion to

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Compel (dkt. no. 20).

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The Court will not, however,

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III.

DISCUSSION

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A.

Legal Standard

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After the time for amendment as a matter of course has expired, a party may

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amend its complaint only by leave of the court or by the adverse party’s written consent.

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Fed. R. Civ. P. 15(a)(2). The court has discretion to grant leave and should freely do so

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“when justice so requires.” Id.; see also Allen v. City of Beverly Hills, 911 F.2d 367, 373

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(9th Cir. 1990). A district court should grant leave to amend unless “the allegation of

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other facts consistent with the challenged pleading could not possibly cure the

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deficiency.” Bananno v. Thomas, 309 F.2d 320, 322 (9th Cir. 1962).

Nonetheless,

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courts may deny leave to amend if it will cause: (1) undue delay; (2) undue prejudice to

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the opposing party; (3) the request is made in bad faith; (4) the party has repeatedly

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failed to cure deficiencies; or (5) the amendment would be futile. Leadsinger, Inc. v.

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BMG Music Publ’g, 512 F.3d 522, 532 (9th Cir. 2008).

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When seeking leave to amend a pleading, Local Rule 15-1 requires the moving

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party to “attach the proposed amended pleading to any motion to amend so that it will be

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complete in itself without reference to the superseding pleading.”

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amendment is futile if no set of facts can be proved under the amendment that would

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constitute a valid claim or defense. Farina v. Compuware Corp., 256 F.Supp.2d 1033,

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1061 (9th Cir. 2003) (quoting Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir.

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1988)). The standard of review is akin to that undertaken by a court in determining the

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sufficiency of a pleading challenged in a Rule 12(b)(6) motion to dismiss. Id. (quoting

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Miller, 845 F.2d at 214). Under this standard, a district court must accept as true all well-

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pled factual allegations in the complaint; however, legal conclusions are not entitled to

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the assumption of truth. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). When the claims in

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a complaint have not crossed the line from conceivable to plausible, plaintiff’s complaint

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must be dismissed. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

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A proposed

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B.

Discussion

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Defendants’ Motions to Dismiss seek dismissal of Plaintiff’s breach of statutory

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duty claim and negligent misrepresentation claim arguing that NRS 645C.470, the

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allegedly violated statute, does not provide a private cause of action, and that negligent

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misrepresentation must be plead with particularity under Fed. R. Civ. P. 9(b).

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Defendants additionally seek to strike references to fictitious parties arguing that the

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Federal Rules of Civil Procedure do not provide for naming fictitious parties in a

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complaint. In the Responses, Plaintiff acquiesces to all of Defendants’ arguments and

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requests leave to amend, attaching the PFAC, which changes the breach of statutory

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duty claim to a negligence per se claim, adds significantly more facts to the negligent

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misrepresentation claim, and eliminates all fictitious parties. Thus, Plaintiff seems to

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agree that dismissal of the original complaint is proper. However, if the Court grants the

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desired leave to amend, the pending Motions to Dismiss are moot. Consequently, the

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question before the Court on this Motion is whether or not leave to amend is warranted.

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Defendants argue that leave to amend should not be granted because the PFAC

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does not cure the deficiencies of the former Complaint and is therefore futile.

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Specifically, Defendants argue that the substitution of a negligence per se claim for

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breach of statutory duty is simply an attempt to circumvent the fact that the statute does

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not authorize a private right of action. Notably, Defendants do not argue that the PFAC’s

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claim for negligent misrepresentation is inadequate. Thus, the Court must assume that

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Defendants

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misrepresentation. Consequently, the Court will only analyze the negligence per se

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claim.

view

the

PFAC

as

adequately

stating

a

claim

for

negligent

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Plaintiff alleges negligence per se based on the violation of NRS 645C.470, which

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makes licensed appraisers guilty of unprofessional conduct if they, among other things,

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fail to disclose material information that they know or should know through reasonable

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care. NRS 645C.470(3). Defendants argue that because only the State Commission

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may enforce the statute, it is administrative in nature and does not set a standard of care
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for appraisers. Defendants urge the Court to adopt the 4th Circuit’s interpretation of

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Virginia law articulated in Talley v. Danek Medical, Inc., 179 F.3d 154 (4th Cir. 1999),

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which holds that statutory requirements administrative in nature, such as licensing and

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reporting requirements, do not impose a standard of care for purposes of negligence per

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se claims. In this manner, the negligence per se doctrine does not become “a magic

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transforming formula that automatically creates a private right of action for the civil

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enforcement in tort law, of every statute.” Id. at 158.

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The Court need not look to the law in foreign jurisdictions because Nevada courts

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limit negligence per se claims in a different manner. Under Nevada law, violation of a

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statute constitutes negligence per se where 1) the injured party belongs to the class of

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persons that the statute was intended to protect, and 2) the injury suffered is of the type

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the statute was intended to prevent. Vega v. Eastern Courtyard Associates, 24 P.3d

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219, 221 (Nev. 2001). Additionally, a plaintiff must still show that the violation of the

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statute was the proximate cause of his injury. See Paso Builders, Inc. v. Hebard, 426

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P.2d 731, 736 (Nev. 1967). These limitations prevent the negligence per se doctrine

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from becoming a civil enforcement mechanism for every statutory violation as violations

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of statutes more administrative in nature lack at least one of the above requirements

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and, consequently, do not result in tort duties. See e.g. Sanchez ex rel. Sanchez v. Wal-

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Mart Stores, Inc., 221 P.3d 1276, 1283 (Nev. 2009) (statute that regulates

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communication of information regarding the administration of prescription drugs was not

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intended to protect unidentifiable third parties); Sagebrush Ltd. v. Carson City, 660 P.2d

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1013, 1014 (Nev. 1983) (statute requiring local government to forward copies of tentative

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subdivision maps to Division of Water Resources was not meant to protect developers

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from monetary loss); Van Cleave v. Kietz-Mill Minit Mart, 633 P.2d 1220, 1221 (Nev.

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1981) (sale of alcohol to a minor was not the proximate cause of a traffic accident).

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Here, NRS 645C.470(3) seeks to protect parties involved in the purchase of real

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estate who rely on the information provided by licensed appraisers. A bank lending

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money to a developer would certainly be within this class of persons.
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Further, the

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statute seeks to protect those persons from the financial consequences of decisions

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resulting from incomplete or inaccurate information provided by the appraiser. The harm

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articulated in the PFAC is this type of injury. Finally, the PFAC alleges that had full and

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accurate disclosure taken place, Plaintiff would not have extended the loan.

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establishes causation. The limitations on the negligence per se doctrine under Nevada

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law do not apply.

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negligence per se doctrine, NRS 645C.470(3) is not similar to a statute requiring a

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license or report to be made but, rather, it imposes substantive obligations on

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professional appraisers regarding their disclosures. Thus, under both constructions, the

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This

Furthermore, even under the 4th Circuit’s construction of the

terms of NRS 645C.470(3) do not automatically preclude a claim for negligence per se.

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Plaintiff has sufficiently pled facts that allow the Court to draw an inference that

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Defendants are liable. As such, the PFAC is not futile, and the Court grants leave to

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amend. Because Plaintiff’s PFAC adequately resolves the deficiencies complained of in

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the Motions to Dismiss, both Motions are denied.

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III.

IT IS THEREFORE ORDERED that Defendant Dan R. Richard’s Motion to

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Dismiss is DENIED.
IT IS FURTHER ORDERED that Defendants Steven R. Cole and Southwest

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CONCLUSION

Appraisal Associates, Inc.’s Motion to Dismiss is DENIED.

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IT IS FURTHER ORDERED that Plaintiff is granted leave to amend its Complaint.

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Plaintiff is instructed to file the Proposed First Amended Complaint within 5 days of this

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Order.

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DATED THIS 7th day of November, 2012.

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MIRANDA M. DU
UNITED STATES DISTRICT JUDGE

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