Western Highland Mortgage Fund I, LLC v. Tahoe Regional Planning Agency et al

Filing 63

ORDERED that the TRPA's # 38 Motion for Judgment on the Pleadings is GRANTED IN PART AND DENIED IN PART: Merkelbachs # 24 Cross-claim is dismissed, but WHMF-I's claims for declaratory relief are not dismissed. FURTHER ORDERED that CitiMortgage's # 40 Motion to Dismiss is DENIED. Signed by Judge Edward C. Reed, Jr on 8/7/2012. (Copies have been distributed pursuant to the NEF - DRM)

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UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA

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7 WESTERN HIGHLAND MORTGAGE FUND I,
LLC,
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Plaintiff,
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vs.
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TAHOE REGIONAL PLANNING AGENCY,
11 et al.,
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Defendants.

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3:11-cv-00444-ECR-WGC

Order

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I. Background
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This matter involves real property located at 2190 Lands End
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Road, Glenbrook, Douglas County, Nevada (“Parcel 009") and 2204
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Lands End Road, Glenbrook, Douglas County, Nevada (“Parcel 008").
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(Compl. ¶ 1 (#1-1).)

Parcel 009 and Parcel 008 are referred to

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collectively as the “Property.” (Id.)

Plaintiff Western Highland

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Mortgage Fund I, LLC (“WHMF-I”) is a lender doing business in
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Douglas County, Nevada.

(Id. ¶ 2.)

Defendant Tahoe Regional

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Planning Agency (“TRPA”) is an agency that manages and controls land
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use and development in the Lake Tahoe area, including portions of
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Douglas County, Nevada.

(Id. ¶ 3.) Defendant CitiMortgage, Inc. is

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a lender doing business in Douglas County, Nevada.

(Id. ¶ 4.)

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Defendants Chad Smittkamp and Jean Merkelbach, individually and as
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Trustees of the Rockwell 1997 Trust, Jean Merkelbach as Trustee of
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1 the SES Trust, Rockwell Lot, LLC, are either present owners of all
2 or a portion of the Property or have an interest in an entity that
3 is a present or former owner of all or a portion of the Property.
4 (Id. ¶ 5.)

In September 2000, Defendants Smittkamp and Merkelbach,

5 or Smittkamp and Merkelbach as Trustees of the Rockwell Trust, were
6 owners of the Property.
7

(Id. ¶ 7.)

On September 19, 2000, in a lawsuit identified as Case No. 99-

8 CV-00305-DC and captioned as Harvey v. Smittkamp, et. al., the Ninth
9 Judicial District Court entered a Stipulation and Order in
10 accordance with the parties’ agreement to create Parcel 008 (or
11 fourth parcel, “Fourth Parcel”).

(Id. ¶¶ 7-8.)

Prior to the Harvey

12 v. Smittkamp Order, Parcel 008 was a part of Parcel 009.

(Id. ¶ 9.)

13 The Harvey v. Smittkamp Order split the Property into two parcels:
14 (1) Parcel 008; and (2) Parcel 009.

(Id.)

The Harvey v. Smittkamp

15 Order and record of survey attached thereto were recorded in the
16 Official Records of the Douglas County Recorder on December 19,
17 2000.

(Id.)

Following the recordation, the Douglas County Assessor

18 identified Parcel 008 as APN: 1418-03-301-008 and continued to
19 identify the remaining portion of Parcel 009 as APN: 1418-03-30120 009.

(Id. ¶ 11.)

The Douglas County Assessor also assessed Parcel

21 008 and Parcel 009 to collect taxes for the Douglas County
22 Treasurer.
23

(Id. ¶ 12.)

In November 2003, title to Parcel 008 and Parcel 009 was vested

24 in Smittkamp and Merkelbach as Trustees of the Rockwell Trust. (Id.
25 ¶ 13.)

On or about November 12, 2003, Smittkamp and Merkelbach as

26 Trustees of the Rockwell Trust obtained a loan from Novasel &
27 Schwarte Investments, Inc. d/b/a Western Highland Mortgage Company
28

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1 (“WHM”) in the original principal amount of $252,000 (the “WHM
2 Loan”). (Id.)

The WHM Loan was secured by a deed of trust against

3 Parcel 008, which was recorded in the Official Records of the
4 Douglas County Recorder on November 14, 2003, in book 1103 on page
5 06825 as document 0596838 (the “WHM 008 Deed of Trust”). (Id. ¶ 14.)
6 The WHM Loan was also secured by a deed of trust against Parcel 009,
7 which was recorded in the Official Records of the Douglas County
8 Recorder on November 14, 2003, in book 1103 on page 06823 as
9 document 0596837 (the “WHM 009 Deed of Trust”).
10

(Id. ¶ 15.)

WHM and Defendants Smittkamp and Merkelbach as Trustees of the

11 Rockwell Trust entered into a release agreement under the terms of
12 which WHM agreed to release the WHM Deed of Trust as a lien against
13 Parcel 009 when the WHM Loan was secured by a first deed of trust
14 against Parcel 008 (the “Release Agreement”). (Id. ¶ 17.)

A copy of

15 the Release Agreement was recorded as an attachment to the recorded
16 WHM 009 Deed of Trust. (Id.)
17

On March 9, 2004, Smittkamp and Merkelbach as Trustees of the

18 Rockwell Trust obtained a mortgage loan from Washington Mutual Bank
19 (“WAMU”) in the principal amount of $2,500,000 plus interest per
20 annum (the “2004 WAMU Loan”).

(Id. ¶ 18.)

The 2004 WAMU Loan was

21 secured by a deed of trust against Parcel 009, which was recorded in
22 the Official Records of the Douglas County Recorder on March 16,
23 2004, in book 0304 on page 07479 as document 0607343 (the “2004 WAMU
24 Deed of Trust”).

(Id.)

The 2004 WAMU Deed of Trust was recorded in

25 a priority position junior and subordinate to the WHM 009 Deed of
26 Trust, which was recorded several months earlier.
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(Id.)

1

On March 24, 2004, a partial reconveyance of the WHM 009 Deed

2 of Trust was recorded in the Official Records of the Douglas County
3 Recorder (the “Partial Reconveyance”).

(Id. ¶ 20.)

The Partial

4 Reconveyance was recorded based on the belief that the recordation
5 of the Harvey v. Smittkamp Order created a legal parcel (Parcel
6 008), and that the WHM Loan was secured by a first deed of trust
7 against Parcel 008.

(Id.)

Plaintiff alleges that WHM recorded the

8 Partial Reconveyance (instead of a full reconveyance) with the
9 intent that if the Harvey v. Smittkamp Order did not create a legal
10 parcel, Parcel 008 would revert back to being a part of Parcel 009
11 and the WHM 009 Deed of Trust would continue (or be reinstated) as a
12 lien on Parcel 009 with the same priority that it had prior to
13 recordation of the Partial Reconveyance.
14

(Id.)

On January 27, 2005, Defendants Smittkamp and Merkelbach

15 obtained a loan (the “CitiMortgage 1/27/05 Loan”) from Defendant
16 CitiMortgage, and executed a deed of trust in favor of CitiMortgage,
17 which recorded against Parcel 009 on February 1, 2005 (the
18 “CitiMortgage 2/1/05 Deed of Trust”). (Id. ¶ 21.)

On April 20,

19 2005, Smittkamp and Merkelbach obtained a second loan from
20 CitiMortgage (the “CitiMortgage 4/20/05 Loan”).

(Id. ¶ 22.) A deed

21 of trust in favor of CitiMortgage was recorded against Parcel 009 on
22 April 29, 2005 (the “CitiMortgage 4/29/05 Deed of Trust”). (Id.)
23 The CitiMortgage 2/1/05 Deed of Trust was subsequently replaced by a
24 deed of trust recorded against Parcel 009 on December 6, 2005 (the
25 “CitiMortgage 12/6/05 Deed of Trust”). (Id. ¶ 23.)

A subordination

26 agreement was subsequently recorded against Parcel 009, which
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1 subordinated the CitiMortgage 4/29/05 Deed of Trust to the
2 CitiMortgage 12/6/05 Deed of Trust.
3

(Id.)

On October 30, 2006, Smittkamp and Merkelbach as Trustees of

4 the Rockwell Trust obtained a loan from Plaintiff WHMF-I in the
5 original principal amount of $500,000 (the “WHMF-I Loan”).

(Id. ¶

6 24.) The WHMF-I Loan was secured by a deed of trust executed by
7 Smittkamp and Merkelbach as Trustees of the Rockwell Trust in favor
8 of WHMF-I (the “WHMF-I Deed of Trust”), which was recorded in the
9 Official Records of the Douglas County Recorder on or about November
10 2, 2006.

(Id.)

One of the primary purposes of the WHMF-I Loan was

11 to refinance the WHM Loan.

(Id. ¶ 26.)

Proceeds from the WHMF-I

12 Loan paid off the entire unpaid balance of the WHM Loan, and
13 discharged the deeds of trust which secured the WHM Loan.

(Id.)

14 Plaintiff WHMF-I alleges that Smittkamp and Merkelbach represented
15 that Parcel 008 was a legal parcel, and WHMF-I relied on this
16 representation based on the recordation of the Harvey v.
17 Smittkamp Order.
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(Id. ¶ 28.)

The WHMF-I Loan closed on November 2, 2006.

Several years

19 later, WHMF-I discovered that while the Douglas County Assessor
20 recognizes Parcel 008 as a legal parcel, Defendant TRPA does not
21 recognize Parcel 008 as a legal parcel.

(Id. ¶ 28.)

As a result, a

22 controversy exists regarding the creation of Parcel 008 and whether
23 recordation of the Harvey v. Smittkamp Order created a legal parcel.
24 (Id.) Plaintiff requests resolution of this issue, and asks that if
25 Parcel 008 is not a legal parcel, the Court rescind the Harvey v.
26 Smittkamp Order to restore the Property to its former state as one
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1 parcel instead of two and provide for attachment of liens against
2 Parcel 008 and Parcel 009 to the Property.
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(Id. ¶ 31.)

On May 17, 2011, WHMF-I filed this action in the Ninth Judicial

4 District Court for Douglas County, Nevada, alleging causes of action
5 for: (1) declaratory judgment/determination of property status; (2)
6 alternatively, declaratory relief/equitable subrogation.

On June

7 22, 2011, TRPA removed (#1) the action to this Court. On August 16,
8 2011, Merkelbach filed a Cross-Claim against TRPA alleging that the
9 construction of a single family residence on Parcel 008 will not
10 violate the intent and purpose of the TRPA’S regional plan nor harm
11 the environment.

(Cross-Claim ¶ 21 (#24).)

Merkelbach argues that

12 by its action and conduct in failing to recognize Parcel 008 as a
13 legal parcel of record, TRPA has caused Merkelbach to suffer damages
14 in excess of $50,000.

(Id. ¶ 22.)

Merkelbach requests that the

15 Court order TRPA to recognize Parcel 008 because the TRPA has acted
16 in such a form and fashion so as to be bound by the Harvey v.
17 Smittkamp Order.
18

(Id. ¶ 24.)

On October 12, 2011, TRPA filed its Motion for Judgment on the

19 Pleadings (#38).

On October 31, 2011, Merkelbach, individually, as

20 Trustee of the Rockwell 1997 Trust, as Trustee of the SES Trust and
21 Rockwell Lot, LLC, filed her response (#43).
22 WHMF-I filed its response (#46).

On October 31, 2011,

On October 10, 2011, TRPA filed

23 its Reply (#52) to Merkelbach’s Opposition (#43), and a second Reply
24 (#53) in response to WHMF-I’s Opposition (#46).
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On October 13, 2011, CitiMortgage filed its Motion to Dismiss

26 (#40).

On November 1, 2011, WHMF-I filed its response (#48).

27 November 14, 2011, CitiMortgage filed its reply (#55).
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On

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II. TRPA’s Motion for Judgment on the Pleadings (#38)

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A. Legal Standard

4

After the pleadings are closed but within such time as not to

5 delay the trial, any party may move for judgment on the pleadings.
6 FED. R. CIV. P. 12(c).

“A judgment on the pleadings is properly

7 granted when, taking all the allegations in the pleadings as true,
8 the moving party is entitled to judgment as a matter of law.”

Milne

9 ex rel. Coyne v. Stephen Slesinger, Inc., 430 F.3d 1036, 1042 (9th
10 Cir. 2005) (internal quotation marks omitted).
11

The standard applied on a Rule 12(c) motion is similar to that

12 standard which is applied on Rule 12(b)(6) motions.

See Dworkin v.

13 Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989).

As

14 with Rule 12(b)(6) motions, review on a motion pursuant to Rule
15 12(c) is normally limited to the pleadings.
16 L.A., 250 F.3d 668, 688 (9th Cir. 2001).

See Lee v. City of

The Court should assume

17 the allegations of the non-moving party to be true and construe them
18 in the light most favorable to the non-moving party, and the moving
19 party must clearly establish that no material issue of fact remains
20 to be resolved.

McGlinchey v. Shell Chem. Co., 845 F.2d 802, 810

21 (9th Cir. 1988).

Without more, “conclusory allegations . . . are

22 insufficient” to defeat a motion for judgment on the pleadings.
23

Id.

If the district court relies on materials outside the pleadings

24 in making its ruling, it must treat the motion to dismiss as one for
25 summary judgment and give the non-moving party an opportunity to
26 respond.

FED. R. CIV. P. 12(d); see United States v. Ritchie, 342

27 F.3d 903, 907 (9th Cir. 2003).
28

“A court may, however, consider
7

1 certain materials — documents attached to the complaint, documents
2 incorporated by reference in the complaint, or matters of judicial
3 notice — without converting the motion . . . into a motion for
4 summary judgment.”

Ritchie, 342 F.3d at 908.

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B. Discussion

8

TRPA requests that claims against it be dismissed because in

9 2004, TRPA denied an application submitted by Merkelbach to
10 subdivide the parcel, and the applicable 60-day statute of
11 limitations to appeal has passed.
12

TRPA is an interstate compact agency created by the States of

13 California and Nevada and approved by the U.S. Congress.

TRPA

14 Compact, PUB. L. NO. 95-551, 94 STAT . 3233 (1980); CAL . GOV . CODE §§
15 66800, 66901; NEV. REV. STAT . §§ 277.200 et seq.

The TRPA Compact

16 directs TRPA to establish environmental threshold carrying
17 capacities and to adopt and enforce a regional plan to achieve and
18 maintain those environmental standards. Compact, Article I(b). TRPA
19 promulgated a series of regulations, codified in TRPA’s Code of
20 Ordinances (“Code”), applicable to properties in the Tahoe Basin,
21 including the property at issue in this case.

Compact Art. II(a);

22 Art. V.
23

Chapter 41 of TRPA’s Code generally prohibits new subdivisions

24 of residential land and delineates specific limited circumstances in
25 which a property owner is permitted to subdivide a parcel and create
26 additional development potential. (TRPA Request for Judicial Notice,
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1 Ex. 21 (#38-4).) In order to subdivide a property within the Tahoe
2 Basin, property owners must apply to the TRPA so that it can review
3 the proposed division for compliance with TRPA’s Code.
4

(Id.)

On March 18, 2004, Merkelbach applied to TRPA for approval to

5 subdivide the Property into two distinct parcels with APNs 1418-036 301-009 and 1418-03-301-008.

(TRPA Request for Judicial Notice, Ex.

7 3 (#38-5).) The TRPA Staff evaluated Merkelbach’s application for
8 compliance with TRPA regulations, and denied the application on
9 March 26, 2004, after concluding that the request violated TRPA Code
10 pertaining to subdivisions.

(TRPA Request for Judicial Notice, Ex.

11 4 (#38-6).)
12

Pursuant to TRPA’s Rules of Procedure, Merkelbach formally

13 appealed TRPA’s Staff-level denial to TRPA’s Governing Board.

(TRPA

14 Rules of Procedure Art. XI; TRPA Request for Judicial Notice, Ex. 5
15 (#38-7).)

Merkelbach’s appeal was heard by the Governing Board in a

16 public hearing on July 28, 2004.
17 Ex. 6 (#38-8).)

(TRPA Request for Judicial Notice,

Merkelbach was represented by legal counsel and

18 presented written and oral argument to the Board.
19 Judicial Notice, Exs. 6-7 (##38-8, 38-9).)

(TRPA Request for

TRPA’s Governing Board

20 voted to uphold the Staff’s determination to deny the subdivision
21 application.

(TRPA Request for Judicial Notice, Ex. 8 at 3-4 (#38-

22 9).) Merkelbach did not seek judicial review of the Governing
23 Board’s denial as permitted by Article XI(j)(4) of TRPA’s Compact.
24 TRPA contends that since the appeal, it has repeatedly informed
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TRPA’s request for judicial notice of these public documents
is granted.

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1 Merkelbach that TRPA only recognizes the Property as one un2 subdivided parcel, not two.
3

TRPA’s Compact states that “[a] legal action arising out of ...

4 the granting or denial of any permit, shall be commenced within 60
5 days after final action by the agency.”

Compact Art. VI(j)(4).

6 TRPA claims that this statute of limitations bars WHMF-I’s complaint
7 and Merkelbach’s cross-claim because WHMF-I is a successor-in8 interest to the Property and takes title to the same defenses to
9 which the predecessor-in-interest was subjected.

TRPA requests that

10 the Court dismiss both claims because TRPA made a final
11 determination in 2004 that subdivision of the Property would violate
12 its regulations, and WHMF-I and Merkelbach should be barred from
13 circumventing the applicable time limitations to challenge final
14 Agency action.
15

Merkelbach contends that rather than appealing in court against

16 TRPA’s decision to reject the application to subdivide the Property,
17 Merkelbach moved forward with an administrative process for a Guest
18 House as allowed and prescribed by TRPA.

Merkelbach states that she

19 believes that the Court “could and should determine the creation of
20 the Fourth Parcel will not harm the Lake Tahoe environment” and
21 argues that the Fourth Parcel would meet and exceed all TRPA
22 requirements.
23

(Merkelbach Opposition at 7 (#43).)

As TRPA states, its statute of limitations bars Merkelbach from

24 pursuing a court action to revisit TRPA’s denial of her application
25 more than seven years after the initial decision.

Therefore,

26 Merkelbach’s cross-claim against TRPA requesting that TRPA be
27 ordered to recognize the Fourth Parcel as a legal parcel must be
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1 dismissed.

As Merkelbach mentions in her opposition, the settlement

2 agreement to subdivide the Property included a provision
3 acknowledging that TRPA may not recognize the subdivision.

A

4 private agreement, even if approved by a court by stipulation,
5 should not be grounds to order TRPA to subdivide a parcel after its
6 official determination that subdivision would violate its
7 regulations.
8

On the other hand, the Court is not convinced that the statute

9 of limitations bars WHMF-I’s declaratory relief claims.

As WHMF-I

10 alleged in its complaint, there exists a discrepancy between the
11 recorded Ninth Judicial District Court order and TRPA decision.
12 Because this discrepancy creates confusion in the status of WHMF-I’s
13 deed of trust against the Property and the rights of other lenders
14 in the Property, we decline to dismiss WHMF-I’s claims.
15

The requests for hearings are denied.

16
17

III. CitiMortgage’s Motion to Dismiss (#40)

18

A. Legal Standard

19

After the pleadings are closed but within such time as not to

20 delay the trial, any party may move for judgment on the pleadings.
21 FED. R. CIV. P. 12(c).

“A judgment on the pleadings is properly

22 granted when, taking all the allegations in the pleadings as true,
23 the moving party is entitled to judgment as a matter of law.”

Milne

24 ex rel. Coyne v. Stephen Slesinger, Inc., 430 F.3d 1036, 1042 (9th
25 Cir. 2005) (internal quotation marks omitted).
26

The standard applied on a Rule 12(c) motion is similar to that

27 standard which is applied on Rule 12(b)(6) motions.
28

11

See Dworkin v.

1 Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989).

As

2 with Rule 12(b)(6) motions, review on a motion pursuant to Rule
3 12(c) is normally limited to the pleadings.
4 L.A., 250 F.3d 668, 688 (9th Cir. 2001).

See Lee v. City of

The Court should assume

5 the allegations of the non-moving party to be true and construe them
6 in the light most favorable to the non-moving party, and the moving
7 party must clearly establish that no material issue of fact remains
8 to be resolved.

McGlinchey v. Shell Chem. Co., 845 F.2d 802, 810

9 (9th Cir. 1988).

Without more, “conclusory allegations . . . are

10 insufficient” to defeat a motion for judgment on the pleadings.
11

Id.

If the district court relies on materials outside the pleadings

12 in making its ruling, it must treat the motion to dismiss as one for
13 summary judgment and give the non-moving party an opportunity to
14 respond.

FED. R. CIV. P. 12(d); see United States v. Ritchie, 342

15 F.3d 903, 907 (9th Cir. 2003).

“A court may, however, consider

16 certain materials — documents attached to the complaint, documents
17 incorporated by reference in the complaint, or matters of judicial
18 notice — without converting the motion . . . into a motion for
19 summary judgment.”

Ritchie, 342 F.3d at 908.

20

B. Discussion

21

CitiMortgage contends that WHMF-I’s claim for equitable

22 subrogation against CitiMortgage’s deeds of trust fails as a matter
23 of law because WHMF-I’s deed of trust against Parcel 009 was
24 reconveyed prior to either of CitiMortgage’s loans and prior to the
25 Western Highland Loan.

CitiMortgage claims that because WHMF-I

26 should have known from the public record that the Parcel 008 deed of
27 trusts were only against Parcel 008, not 009, the equitable
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1 subrogation claim should be dismissed.

CitiMortgage also argues

2 that WHMF-I’s claim fails because it is barred by laches.
3

We decline to dismiss WHMF-I’s claims against CitiMortgage

4 under Rule 12(b)(6) because based on the pleadings and briefing, we
5 agree with WHMF-I that there exists a controversy that requires
6 resolution.

The status of the Property is in confusion due to the

7 Douglas County Assessor’s identification of two separate parcels,
8 Parcel 008, and Parcel 009, on the Property, and TRPA’s denial of
9 the application to subdivide the Property. At the very least, there
10 needs to be a determination of the status of the Property and the
11 status of the liens on the Property.
12

We also reject CitiMortgage’s argument that WHMF-I’s claim

13 against CitiMortgage is barred by laches.

The doctrine of laches

14 applies “when delay by one party works to the disadvantage of the
15 other, causing a change of circumstances which would make the grant
16 of relief to the delaying party inequitable.” Carson City v. Price,
17 934 P.2d 1042, 1043 (Nev. 1997) (quoting Building & Constr. Trades
18 v. Public Works, 836 P.2d 633, 636-37 (Nev. 1992)).

Laches is more

19 than a mere delay, it must cause disadvantage such that the party
20 asserting laches “must be come so changed that the party cannot be
21 restored to its former state.”

Id. (quoting Home Savings v.

22 Bigelow, 779 P.2d 85, 86 (Nev. 1989)).

The CitiMortgage loans were

23 entered into before WHMF-I claims to have discovered the confusion
24 of the status of the Property, and CitiMortgage has not shown that
25 the type of disadvantage or unfair delay that would justify
26 dismissing WHMF-I’s claim for reason of laches.
27
28

13

1

IV. Conclusion

2

IT IS, THEREFORE, HEREBY ORDERED that the TRPA’s Motion for

3 Judgment on the Pleadings (#38) is GRANTED IN PART AND DENIED IN
4 PART: Merkelbach’s cross-claim (#24) is dismissed, but WHMF-I’s
5 claims for declaratory relief are not dismissed.
6

IT IS FURTHER ORDERED that CitiMortgage’s Motion to Dismiss

7 (#40) is DENIED.
8
9 DATED: August 7, 2012.
10
____________________________
UNITED STATES DISTRICT JUDGE

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