U.S. Bank, N.A. v. Emerald Ridge Landscape Maintenance Association et al

Filing 53

ORDER Denying Defendant Emerald Ridge Landscape Association's 19 Motion to Dismiss. Signed by Judge Miranda M. Du on 03/31/2016. (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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***

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U.S. BANK, N.A., SUCCESSOR
TRUSTEE TO WACHOVIA BANK, N.A.,
AS TRUSTEE FOR THE CERTIFICATE
HOLDERS OF BANC OF
AMERICA FUNDING CORPORATION,
MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 2004-C

Case No. 2:15-cv-00117-MMD-PAL
( Def’s Motion to Dismiss
– dkt. no. 19)

Plaintiff,

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v.
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EMERALD RIDGE LANDSCAPE
MAINTENANCE ASSOCIATION; SFR
INVESTMENTS POOL I, LLC; DOE
INDIVIDUALS I-X, inclusive, and ROE
CORPORATIONS I-X, inclusive,

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Defendants.
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I.

SUMMARY

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Before the Court is Defendant Emerald Ridge Landscape Association’s (“HOA”)

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motion to dismiss (“Motion”). (Dkt. no. 19.) Plaintiff U.S. Bank, N.A. (“U.S. Bank”) has

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filed a response (dkt. no. 25) and HOA has filed a reply (dkt. no. 31). For the reasons

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discussed below, the Motion is denied.

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II.

BACKGROUND

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The following facts are taken from the Complaint. Ernie Alcaraz (“Borrower”)

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obtained a loan (“the Loan”) secured by a first deed of trust (First DOT”) on his property

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(“the Property”). (Dkt. no. 1 at 4.) The First DOT was subsequently assigned to U.S.

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Bank. (Id.) The Borrower defaulted on the Loan and U.S. Bank began the process of

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foreclosure and intends to foreclose under the First DOT. (Id.)

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In the meantime, Borrower failed to pay HOA’s fees due to it. (Id.) On February 4,

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2011, HOA recorded a notice of delinquent assessment, followed by a notice of default

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and election to sale, and a notice of trustee’s sale. (Id.) The various notices state the

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amount due to HOA, including fees, interests and costs, but not the amount of the

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purported superpriority lien amount. (Id. at 4-5.) On March 25, 2011, Bank of America,

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N.A. (“Servicer”), the service of the Loan, attempted to obtain the superpriority lien

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amount and tendered what it calculated to be the superpriority lien amount to HOA, who

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refused Servicer’s tender. (Id. at 5-6.)

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HOA foreclosed on the Property on August 21, 2014. (Id.) SFR Investments Pool

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I (“SFR”) purchased the Property. (Id.) U.S. Bank initiates this action against HOA and

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SFR. U.S. Bank asserts a claim for declaratory relief seeking to quiet title against both

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HOA and SFR. HOA moves for dismissal.

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III.

DISCUSSION

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A.

Legal Standard

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A court may dismiss a plaintiff’s complaint for “failure to state a claim upon which

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relief can be granted.” Fed. R. Civ. P. 12(b)(6). A properly pleaded complaint must

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provide “a short and plain statement of the claim showing that the pleader is entitled to

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relief.” Fed. R. Civ. P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

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While Rule 8 does not require detailed factual allegations, it demands more than “labels

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and conclusions” or a “formulaic recitation of the elements of a cause of action.” Ashcroft

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v. Iqbal, 556 US 662, 678 (2009) (quoting Twombly, 550 U.S. at 555) (internal quotation

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marks omitted). “Factual allegations must be enough to raise a right to relief above the

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speculative level.” Twombly, 550 U.S. at 555. Thus, to survive a motion to dismiss, a

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complaint must contain sufficient factual matter to “state a claim to relief that is plausible

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on its face.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570) (internal

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quotation marks omitted).
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In Iqbal, the Supreme Court clarified the two-step approach district courts are to

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apply when considering motions to dismiss. First, a district court must accept as true all

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well-pleaded factual allegations in the complaint; however, legal conclusions are not

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entitled to the assumption of truth. Id. at 679. Mere recitals of the elements of a cause of

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action, supported only by conclusory statements, do not suffice. Id. at 678. Second, a

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district court must consider whether the factual allegations in the complaint allege a

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plausible claim for relief. Id. at 679. A claim is facially plausible when the plaintiff’s

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complaint alleges facts that allow a court to draw a reasonable inference that the

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defendant is liable for the alleged misconduct. Id. at 678.

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B.

Analysis

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HOA argues that the Complaint fails to state a claim for declaratory relief because

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of a lack of justiciable controversy between the parties, the parties’ positions are not

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adverse and the foreclosure sale has rendered any issue moot.1 (Dkt. no. 19.) U.S. Bank

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argues that HOA conflates justiciability with the merits, the parties’ positions are adverse

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and the issue is ripe. (Dkt. no. 25.) The parties also dispute whether U.S. Bank has

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stated a claim for quiet title.

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The parties’ arguments must be viewed in the context of recent developments in

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Nevada law relating to homeowners’ association liens. Under NRS § 116.3116, a

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homeowners’ association can establish a “lien on a unit for . . . any assessment levied

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against that unit or any fines imposed against the unit’s owner from the time . . . the

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assessment or fine becomes due.” NRS § 116.3116(1). Section 116.3116 further

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provides that such a lien “is prior to all other liens and encumbrances on a unit except,”

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among other categories of liens, “[a] first security interest on the unit recorded before the

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date on which the assessment sought to be enforced became delinquent.” NRS §

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116.3116(2)(b). The statute, however, contains an exception to this exception, allowing a

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HOA also argues that declaratory relief is a remedy. (Dkt. no. 19 at 5-6.) The
Court agrees with U.S. Bank that it has stated a valid claim for declaratory relief, and not
just asserting declaratory relief as a remedy.
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homeowners’ association to establish a lien that takes priority over a first security

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interest for unpaid assessments over a 9 months period preceding the enforcement of

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the lien. NRS § 116.3116.2

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In 2014, the Nevada Supreme Court ruled that NRS § 116.3116 creates a “true

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superpriority lien” for 9 months of unpaid homeowners’ association assessments and

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certain charges. SFR Invs. Pool 1, LLC v. U.S. Bank, N.A., 334 P.3d 408, 419 (Nev.

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2014) (en banc). Accordingly, the court further held, a nonjudicial foreclosure of a

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homeowners’ association lien under NRS § 116.3116 would extinguish any first deed of

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trust, so long as certain statutory notice requirements are followed. See id. at 411-17.

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Under Nevada law, a party asserting a declaratory relief claim must satisfy the

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following conditions: (1) a justiciable controversy exists between two parties with adverse

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interests, (3) the party seeking declaratory relief must have an interest in the

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controversy, and (4) the issue in the case must be ripe for judicial determination. County

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of Clark, ex. Rel., Univ. Med. Ctr. v. Upchurch, 961 P.2d 754, 757 (Nev. 1998). U.S.

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Bank’s Complaint satisfies these conditions.

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First, U.S. Bank claims that Servicer tendered 9 months of assessment, which

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HOA refused presumably because the amount did not satisfy its lien. This dispute

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creates a justiciable controversy between the parties in that U.S. Bank claims, which

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HOA disputes, that U.S. Bank satisfied its obligation to protect against HOA’s foreclosure

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but HOA improperly proceeded with foreclosure. The dispute as to the amount of

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assessment to be paid to satisfy HOA’s lien to avoid extinguishment of the First DOT ―

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the 9 months of unpaid assessment (superpriority portion of the lien) as U.S. Bank

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claims or the amount of assessments that HOA asserted were due — shows the parties’

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interests are adverse. Finally, HOA’s foreclosure does not render the issue moot. U.S.

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Bank’s claim is premised on the foreclosure being improper because HOA refused to

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identify the amount of the superpriority portion of the lien, failed to comply with other

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Section 116.3116 was amended and reorganized in 2015. See 2015 Nev. Stat.
1331, 1334. The statute retains the exceptions described above, but creates a separate
subsection (NRS § 116.3116(3)). NRS § 116.3116(3).
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notice requirements and ignored Servicer’s tender of the 9 months of unpaid

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assessments. Accepting these allegations as true, U.S. Bank has demonstrated that the

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issue is ripe for judicial determination.

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The Court also agrees with U.S. Bank that the issue presented in its quiet title

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action claim is whether the HOA foreclosure sale extinguished U.S. Bank’s First DOT.

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Again, accepting U.S. Bank’s allegations as true, HOA improperly foreclosed to

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extinguish U.S. Bank’s First DOT without complying with Nevada’s notice requirements

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and allowing U.S. Bank to tender 9 months of assessments.

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IV.

CONCLUSION

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The Court notes that the parties made several arguments and cited to several

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cases not discussed above. The Court has reviewed these arguments and cases and

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determines that they do not warrant discussion as they do not affect the outcome of the

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Motion.

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It is therefore ordered that Defendant Emerald Ridge Landscape Association’s
motion to dismiss (dkt. no. 19) is denied.
DATED THIS 31st day of March 2016.

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MIRANDA M. DU
UNITED STATES DISTRICT JUDGE

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