The Bank of New York Mellon v. SFR Investments Pool 1, LLC

Filing 25

ORDER Granting Defendant's 15 Motion to Dismiss. The 1 Complaint is Dismissed without prejudice. Signed by Judge James C. Mahan on 11/8/17. (Copies have been distributed pursuant to the NEF - SLD)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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THE BANK OF NEW YORK MELLON,

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Case No. 2:17-CV-479 JCM (NJK)

Plaintiff(s),

ORDER

v.
SFR INVESTMENTS POOL 1, LLC,
Defendant(s).

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Presently before the court is defendant SFR Investments Pool 1, LLC’s motion to dismiss

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the complaint under Federal Rule of Civil Procedure 12(b)(7) for failure to join an indispensable

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party. (ECF No. 15). Plaintiff The Bank of New York Mellon (BNYM) responded. (ECF No.

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16; see also ECF No. 17). SFR replied. (ECF No. 18).

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BNYM complaint alleges that an HOA foreclosure sale did not extinguish its deed of trust

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on the property. (ECF No. 1). BNYM did not name the HOA—the party who collected the

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proceeds from the HOA sale—as a defendant to this action. Id.

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Under Federal Rule of Civil Procedure 12(b)(7), failure to join an indispensable party under

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Federal Rule of Civil Procedure 19 is grounds to dismiss the action. Federal Rule of Civil

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Procedure 19(a)(1) states the following:

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A person who is subject to service of process and whose joinder will not deprive
the court of subject-matter jurisdiction must be joined as a party if: . . . (B) that
person claims an interest relating to the subject of the action and is so situated that
disposing of the action in the person’s absence may: (i) as a practical matter impair
or impede the person's ability to protect the interest; or (ii) leave an existing party
subject to a substantial risk of incurring double, multiple, or otherwise inconsistent
obligations because of the interest.

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Fed. R. Civ. P. 19; see also U.S. Bank, N.A. v. Ascente Homeowners Ass’n, No. 2:15-cv-00302-

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JAD-VCF, 2015 WL 8780157, at *2 (D. Nev. Dec. 15, 2015).

James C. Mahan
U.S. District Judge

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SFR argues that the HOA must be part of this litigation because BNYM is seeking a ruling

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that the HOA sale itself is invalid. (ECF Nos. 15, 18). The complaint seeks to set aside the HOA

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foreclosure sale; it alleges that the sale was commercially unreasonable and seeks quiet title in its

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favor as a result. (See ECF No. 1 at 4 ¶ 31; 5 ¶¶ 32–38; 6 ¶ 44). NRS 116.3116 codifies the

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Uniform Common Interest Ownership Act (“UCIOA”) in Nevada. See Nev. Rev. Stat. § 116.001.

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Numerous courts have interpreted the UCIOA and NRS 116.3116 as imposing a commercial

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reasonableness standard on foreclosure of association liens.1

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In Shadow Wood HOA v. N.Y. Cmty. Bancorp, the Nevada Supreme Court held that an

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HOA’s foreclosure sale may be set aside under a court’s equitable powers notwithstanding any

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recitals on the foreclosure deed where there is a “grossly inadequate” sales price and “fraud,

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unfairness, or oppression.” 366 P.3d 1105, 1110 (Nev. 2016). In other words, “demonstrating that

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an association sold a property at its foreclosure sale for an inadequate price is not enough to set

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aside that sale; there must also be a showing of fraud, unfairness, or oppression.” Id. at 1112.

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Here, the HOA is a necessary party to this action based on the current allegations and relief

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sought. The HOA has a present interest in this action because BNYM challenges the validity of

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the foreclosure sale or seeks to equitably set aside the sale. See, e.g., U.S. Bank, N.A. v. Ascente

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Homeowners Ass'n, No. 2:15–cv–00302–JAD–VCF, 2015 WL 8780157, at *2 (D. Nev. Dec. 15,

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2015). If the foreclosure sale is invalidated or set aside, the HOA's superpriority lien might be

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James C. Mahan
U.S. District Judge

See, e.g., Bayview Loan Servicing, LLC v. Alessi & Koenig, LLC, 962 F. Supp. 2d 1222,
1229 (D. Nev. 2013) (“[T]he sale for $10,000 of a Property that was worth $176,000 in 2004, and
which was probably worth somewhat more than half as much when sold at the foreclosure sale,
raises serious doubts as to commercial reasonableness.”); SFR Investments Pool 1 v. U.S. Bank,
130 Nev. Adv. Op. 75, 334 P.3d 408, 418 n.6 (2014), holding modified by Saticoy Bay LLC Series
350 Durango 104 v. Wells Fargo Home Mortg., a Div. of Wells Fargo Bank, N.A., 388 P.3d 970
(Nev. 2017) (noting bank’s argument that purchase at association foreclosure sale was not
commercially reasonable); Thunder Props., Inc. v. Wood, No. 3:14-cv-00068-RCJ-WGC, 2014
WL 6608836, at *2 (D. Nev. Nov. 19, 2014) (concluding that purchase price of “less than 2% of
the amounts of the deed of trust” established commercial unreasonableness “almost
conclusively”); Rainbow Bend Homeowners Ass'n v. Wilder, No. 3:13-cv-00007-RCJ-VPC, 2014
WL 132439, at *2 (D. Nev. Jan. 10, 2014) (deciding case on other grounds but noting that “the
purchase of a residential property free and clear of all encumbrances for the price of delinquent
HOA dues would raise grave doubts as to the commercial reasonableness of the sale under Nevada
law”); Will v. Mill Condo. Owners' Ass'n, 848 A.2d 336, 340 (Vt. 2004) (discussing commercial
reasonableness standard and concluding that “the UCIOA does provide for this additional layer of
protection”).
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reinstated as an encumbrance against the property, and the HOA could be liable to return the

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proceeds of the sale to the buyer.

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“The disposition of this action in the HOA's absence may impair or impede its ability to

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protect its interests.” U.S. Bank, N.A., 2015 WL 8780157, at *2. In particular, if BNYM “succeeds

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in invalidating the sale without the HOA being a party to this suit, separate litigation to further

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settle the priority of the parties' respective liens and rights may be necessary.” Id. Thus, if the

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HOA is not a party, the HOA would not be able to protect its interests in the subject matter of this

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litigation, the court’s ruling may leave BNYM or SFR subject to a substantial risk of incurring

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double, multiple, or otherwise inconsistent obligations because of the HOA’s interest, and SFR

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(and BNYM) would not be able to secure the complete relief sought. See Deutsche Bank Nat'l Tr.

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Co. for Ameriquest Mortg. Sec. Inc. v. SFR Investments Pool 1 LLC, No. 216CV01827JCMPAL,

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2017 WL 776113, at *2 (D. Nev. Feb. 28, 2017) (addressing this issue in a similar case). The

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motion will be granted.

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Accordingly,

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IT IS HEREBY ORDERED that defendant’s motion to dismiss (ECF No. 15) is

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GRANTED.
IT IS FURTHER ORDERED that the complaint (ECF No. 1) is DISMISSED without
prejudice.
DATED November 8, 2017.
__________________________________________
UNITED STATES DISTRICT JUDGE

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James C. Mahan
U.S. District Judge

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