Bank of New York Mellon v. Legends Maintenance Corp.

Filing 40

ORDER - Defendant's motion to dismiss pursuant to NRS 38.310 (ECF No. 16 ) is granted. The second and third claim for reliefs are dismissed without prejudice. It is further ordered that Defendant's motion to dismiss pursuant to Rule 12(b)(6)(ECF No 14 ) is denied. Signed by Judge Miranda M. Du on 8/31/2017. (Copies have been distributed pursuant to the NEF - DRM)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***

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BANK OF NEW YORK MELLON,
Plaintiff,

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ORDER

v.
LEGENDS MAINTENANCE
CORPORATION, et al.,
Defendants.

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Case No. 2:16-cv-02567-MMD-GWF

I.

SUMMARY

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Defendant Legends Maintenance Corporation (“HOA”) foreclosed on its HOA lien.

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Plaintiff sued the HOA and other defendants to challenge the foreclosure sale’s

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extinguishment of its senior deed of trust. The HOA moves for dismissal under Fed. R.

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Civ. P. 12(b)(6) (“Rule 12(b)(6) Motion”) and under NRS § 38.310 (“NRS 38.310 Motion”).

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(ECF Nos. 14, 16.) The Court has reviewed Plaintiff’s responses (ECF Nos. 17, 19) and

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the HOA’s replies (ECF Nos. 19. 20). For the reasons discussed below, the Court grants

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the NRS § 38.310 Motion (ECF No. 16) and denies the Rule 12(b)(6) Motion (ECF No.

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14).

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II.

RELEVANT BACKGROUND

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The following facts are taken from the Complaint. (ECF No. 1.) Katie E. Wilson

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(“Borrower”) obtained a loan in the amount of $181,550.00 evidenced by a note and

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secured by a deed of trust (“DOT”) on property located in the HOA (“the Property”). The

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DOT was assigned to Plaintiff. Borrower failed to pay the HOA its assessment. As a result,

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the HOA recorded a notice of delinquent assessment on June 26, 2013. On August 30,

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2013, the HOA recorded a notice of default and election to sell to satisfy the delinquent

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assessment. On August 15, 2014, the HOA recorded a notice of foreclosure sale, which

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identified the amount due to the HOA to be $9,929.41. The foreclosure sale occurred on

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September 5, 2014, where the sale price was $27,100.00. A foreclosure deed in favor of

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Defendant BFP Investments was recorded on September 8, 2014. BFP Investments

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asserts an ownership interest in the Property free and clear of Plaintiff’s senior DOT.
Plaintiff asserts three claims against the HOA—quiet title/declaratory relief, breach

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of NRS § 116.1113 and wrongful foreclosure. (ECF No. 1.)
II.

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 provide

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“a short and plain statement of the claim showing that the pleader is entitled to relief.”

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

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

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

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Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555.) “Factual allegations

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must be enough to rise above the speculative level.” Twombly, 550 U.S. at 555. Thus, to

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survive a motion to dismiss, a complaint must contain sufficient factual matter to “state a

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claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678 (internal citation 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 678-79. Mere recitals of the elements of a cause

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of 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. Where the complaint does not

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permit the court to infer more than the mere possibility of misconduct, the complaint has

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“alleged—but it has not show[n]—that the pleader is entitled to relief.” Id. at 679 (internal

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quotation marks omitted). When the claims in a complaint have not crossed the line from

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conceivable to plausible, the complaint must be dismissed. Twombly, 550 U.S. at 570.

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III.

NRS § 38.310 MOTION (ECF No. 16)

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The HOA argues that the Court lacks subject matter jurisdiction over Plaintiff’s

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second and third claims because these claims are subject to NRS § 38.310’s mandatory

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mediation. (ECF No. 16.) Plaintiff counters that NRS § 38.310 cannot affect this Court’s

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jurisdiction and does not apply to its claims against the HOA. (ECF No. 17.)

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NRS § 38.310(1) prohibits a party from commencing a civil action asserting a claim

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related to the interpretation, application, or enforcement of covenants, conditions, or

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restrictions (“CC&Rs”) for a residential property “unless the action has been submitted to

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mediation.” Plaintiff argues that NRS § 38.310 cannot affect this court's subject matter

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jurisdiction, but § 38.310 “is not a jurisdictional statute; it is an exhaustion statute that

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creates prerequisites for filing certain state-law claims.” Carrington Mortg. Servs., LLC, v.

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Absolute Bus. Sols., LLC, No. 2:15–cv–01862–JAD–PAL, 2016 WL 1465339, at *3

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(D.Nev. Apr. 14, 2016).

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The Nevada Supreme Court in McKnight Family, L.L.P. v. Adept Mgmt., 310 P.3d

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555 (Nev. 2013), offered a broad reading of NRS § 38.310. In that case, the court held

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that § 38.310 applies to not only the homeowners association’s CC&Rs but also to laws

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“contain[ing] conditions and restrictions applicable to residential property.” Id. at 559. The

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court further found that “[d]eciding a wrongful foreclosure claim against a homeowners'

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association involves interpreting covenants, conditions or restrictions applicable to

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residential property.” Id.

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Here, the claims for breach of NRS § 116.1113 and wrongful foreclosure are based

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on the HOA’s alleged failure to comply with its obligations and representations in the

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HOA’s CC&Rs that its lien would be subordinate to a senior deed of trust. (ECF No. at
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10-11.) These claims are covered under NRS § 38.310 and must be submitted to

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mediation.

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IV.

RULE 12(B)(6 MOTION (ECF NO. 14)

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The HOA advances the threshold argument that Plaintiff cannot bring a quiet title

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claim when its only interest in the Property is a security interest under the DOT, not a

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claim to good title. (ECF No. 14 at 5.) In Nevada, a quiet title action “may be brought by

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any person against another who claims an estate or interest in real property, adverse to

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the person bringing the action, for the purpose of determining such adverse claim.” NRS

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§ 40.010. “A plea to quiet title does not require any particular elements, but ‘each party

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must plead and prove his or her own claim to the property in question’ and a ‘plaintiff's

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right to relief therefore depends on superiority of title.’” Chapman v. Deutsche Bank Nat'l

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Trust Co., 302 P.3d 1103, 1106 (Nev. 2013) (quoting Yokeno v. Mafnas, 973 F.2d 803,

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808 (9th Cir. 1992)).

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The HOA has not provided any authority supporting its contention that Plaintiff’s

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security interest in the Property does not qualify as “an interest in real property” for the

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purposes of NRS § 40.010. Indeed, a number of courts in Nevada, including the Nevada

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Supreme Court, have entertained quiet title actions substantially similar to this one. See,

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e.g., Shadow Wood Homeowners Ass’n, Inc. v. N.Y. Cmty. Bancorp., Inc., 366 P.3d 1105

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(Nev. 2016).

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The HOA further insists Plaintiff’s declaratory relief claim fails because it does not

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go to a justiciable controversy. Under Nevada law, a party asserting a declaratory relief

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claim must satisfy the following conditions: (1) a justiciable controversy exists between

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two parties with adverse interests, (3) the party seeking declaratory relief must have an

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interest in the controversy, and (4) the issue in the case must be ripe for judicial

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determination. County of Clark, ex. Rel., Univ. Med. Ctr. v. Upchurch, 961 P.2d 754, 757

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(Nev. 1998).

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The Complaint satisfies these conditions. A live controversy exists between

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Plaintiff and the HOA because Plaintiff contends the foreclosure sale is either void or did
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not extinguish its DOT. The Court agrees with Plaintiff that under the circumstances here,

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the HOA is a necessary party.

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For these reasons, the HOA’s Rule 12(b)(6) Motion is denied with respect to the

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first claim. The HOA also seeks dismissal of the second and third claims for relief, but its

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motion is moot with respect to these two claims.

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V.

CONCLUSION

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It is therefore ordered that Defendant’s motion to dismiss pursuant to NRS 38.310

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(ECF No. 16) is granted. The second and third claim for reliefs are dismissed without

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prejudice.

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It is further ordered that Defendant’s motion to dismiss pursuant to Rule 12(b)(6)
(ECF No 14) is denied.
DATED THIS 31st day of August 2017.

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MIRANDA M. DU
UNITED STATES DISTRICT JUDGE

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