Phillips et al v. First Horizon Home Loan Corp et al

Filing 87

ORDERED that the # 86 Motion to Amend is DENIED. FURTHER ORDERED that Plaintiffs shall show cause by 1/24/2014 why judgment should not be entered in favor of Defendants on the remaining claim for quiet title. Signed by Judge Robert C. Jones on 1/10/2014. (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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MARK PHILLIPS et al.,
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Plaintiffs,
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vs.
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FIRST HORIZON HOME LOAN CORP et al.,
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Defendants.
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3:12-cv-00013-RCJ-WGC
ORDER

This is a residential foreclosure avoidance case removed in diversity from state court.

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The Complaint listed causes of action for quiet title and intentional interference with prospective

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economic advantage. Defendants moved to dismiss, and Plaintiffs responded by moving to

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amend and for offensive summary judgment on the proposed amended complaint. The Court

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granted leave to amend, denied the motion to dismiss as moot, and denied the motion for

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offensive summary judgment because the proposed amended complaint had not yet been served

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upon Defendants. Plaintiffs then filed the First Amended Complaint (“FAC”), which lists causes

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of action for wrongful foreclosure, quiet title, negligence, and fraud. The Court denied cross

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motions for summary judgment on the FAC, noting that there was a genuine issue of material

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fact as to the statutory propriety of the foreclosure such that the quiet title claim could not be

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summarily adjudicated, but also noting that no common law claim for wrongful foreclosure could

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lie because there was no genuine issue of material fact as to default.

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The Court denied a motion to reconsider its denial of Plaintiffs’ motion for summary

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judgment. The Court also denied Defendants’ motion for an order voiding the Trustee’s Deed

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Upon Sale. The Court noted that the state statute did not require a court order for a party to

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rescind a trustee’s sale on its own volition, and that insofar as Defendants appeared to offer to

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enter into a consent judgment to the effect that the foreclosure was statutorily improper, such a

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finding would require additional remedies beyond the mere rescission to which Defendants

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appeared to consent, additional rulings that the Court under state law could only avoid if the

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parties entered into a settlement agreement so stipulating. There was no evidence Plaintiffs had

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agreed to withdraw the section 107.080 claim, which provides for statutory damages and

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injunctive relief.
Defendants then moved for summary judgment, noting that the additional statutory

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remedies do not apply in this case because the Notice of Default was filed before October 1,

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2011. The Court agreed and therefore granted summary judgment but has not yet entered

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judgment. In granting summary judgment, the Court explicitly noted that it would not enter

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judgment in favor of Defendants “unless and until they file proof that the Trustee’s Deed has

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been reconveyed to the trustee in trust for Plaintiffs, subject, of course, to the Deed of Trust, or

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that the purchaser has quitclaimed any interest in the Property.” The Court put this condition

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upon the entry of judgment because although the statutory penalties are not available in this case,

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statutory avoidance of the potentially improper foreclosure is available, although that remedy will

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be moot if Defendants get the purchaser to reconvey the Trustee’s Deed or quitclaim the Property

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to Plaintiffs, which they appear to be willing to do. But unless and until this happens, Plaintiffs

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may continue to prosecute the quiet title claim to trial. Plaintiffs indicated that Defendants had

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promised to reconvey the title and that they would be willing to dismiss the remaining claim if

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Defendants did so, but the Court refused to order Defendants to do so, noting that Plaintiffs could

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either settle with Defendants, if they could, or continue to prosecute the quiet title claim by
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proceeding to trial, and that Defendants could either reconvey the title or choose to defend at

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trial. The Court also noted that discovery had closed in June 2013, that dispositive motions were

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due in July 2013, that no party had filed the proposed joint pretrial order that was due in August

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2013, and that Plaintiffs risked a dismissal for failure to prosecute if they did not press the

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remaining claim to trial.

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Plaintiffs asked the Court to reconsider the order granting partial summary judgment.

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Plaintiffs argued that the foreclosure was statutorily improper, because, as the Court had noted, it

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appeared that the party who filed the notice of default had not yet been substituted as the trustee.

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The Court denied the motion, because there was nothing to reconsider. The Court had never

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granted summary judgment as to the quiet title claim, which remains for trial.
Plaintiffs then associated counsel and moved to amend again, attaching an eighty-eight-

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page proposed second amended complaint. The Court denied the motion because discovery had

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closed, the case was (an remains) ripe for trial, and the motion suggested no supplementary

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claims but only an additional reason why the statutory foreclosure claim should succeed, a reason

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that Plaintiffs may not argue in the present civil case. More specifically, the motion recounted

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that the primary disputed issue remains the statutory propriety of the foreclosure, i.e., whether the

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foreclosure was improper because the foreclosing trustee had not yet been substituted as trustee.

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The motion noted only one additional issue: an alleged irregularity in the Bankruptcy Court as to

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the lift of the automatic stay on the Property. The Court ruled that amendment to add those

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allegations would be futile. Plaintiffs’ argument was that because Defendants had attached a

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copy of the deed of trust containing a scrivener’s error to their motion to lift the automatic stay in

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the Bankruptcy Court, that the Bankruptcy Court’s lift of the stay based thereupon was void ab

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initio. The Court noted that it had no jurisdiction to rule in the present case based upon any

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perception of error in the Bankruptcy Court. The present case is here on removal in diversity, not

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on appeal from the bankruptcy court, and the district court has no original jurisdiction to hear
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claims under 11 U.S.C. § 362(k). The Court noted that Plaintiffs were collaterally estopped from

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relitigating the propriety of the lift-stay order here. Plaintiffs would have to obtain relief from

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judgment in the bankruptcy court if they wished to argue here that the lift-stay order was

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ineffective, and presumably such a ruling would require reopening the bankruptcy estate for

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further proceedings. Unless and until the bankruptcy court (or an appropriate appellate court)

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relieves Plaintiffs from that order, however, the issue is precluded from relitigation in any other

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court.

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Plaintiffs have now filed another motion to amend, this time simply to add as a defendant
Seterus, Inc. Plaintiffs argue that Seterus is a necessary party under Rule 19(a) because is was

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the attorney-in-fact for Fannie Mae who executed the Substitution of trustee that substituted Max

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Default as trustee. Plaintiffs note that the alleged statutory impropriety of the foreclosure may

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turn upon the timing of that Substitution. The Court denies the motion. Seterus is not a

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necessary party because it is not alleged to claim any interest in the subject matter of the lawsuit,

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i.e., the Property, and the Court can afford complete relief in this case without the joinder of

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Seterus. At most, Seterus might have been an appropriate target of a claim under Chapter 107,

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along with other Defendants, if monetary damages were available thereunder in this case.

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Finally, Defendants have asked the Court to enter judgment because they have provided

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proof that the trustee’s deed upon sale has been rescinded. (See Notice of Rescission of Trustee’s

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Deed, Oct. 17, 2013, ECF No. 85-1, at 3). The Court will therefore order Plaintiffs to show

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cause why judgment should not be entered in favor of Defendants.

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CONCLUSION

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IT IS HEREBY ORDERED that the Motion to Amend (ECF No. 86) is DENIED.

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IT IS FURTHER ORDERED that Plaintiffs shall show cause within fourteen (14) days of

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the entry of this Order into the electronic docket why judgment should not be entered in favor of

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Defendants on the remaining claim for quiet title.

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IT IS SO ORDERED.

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Dated this 2ndthday of January, 2014.
Dated this 10 day of January, 2014.

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_____________________________________
ROBERT C. JONES
United States District Judge

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