Bank of America v. Behringer Harvard Lake Tahoe et al
Filing
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ORDERED that Defendant Bank of America, N.A.'s Motion to Transfer Venue to the United States District Court for the Northern District of Texas, Dallas Division (dkt. no. 3 in Base Case 3:13-cv-00057) is GRANTED. The Clerk of the Court is ordered to transfer these two actions to the Northern District of Texas, Dallas Division for further proceedings. Signed by Judge Miranda M. Du on 8/5/2013. (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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BEHRINGER HARVARD LAKE TAHOE,
LLC,
Case No. 3:13-cv-00057-MMD-PAL
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Plaintiff,
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ORDER
(Def.’s Motion to Transfer – dkt. no. 3)
v.
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BANK OF AMERICA, N.A, et al.,
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Defendants.
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I.
SUMMARY
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Before the Court is Defendant Bank of America, N.A.’s (“BOA”) Motion to Transfer
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Venue to the United States District Court for the Northern District of Texas, Dallas
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Division. (Dkt. no. 3.) For the reasons set forth below, BOA’s Motion is granted.
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II.
BACKGROUND
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On January 4, 2013, Plaintiff Behringer Harvard Lake Tahoe, LLC (“BHLT”)
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brought this action against BOA in state court arising out of BOA’s foreclosure of a
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property in possession of BHLT. (See Compl., dkt. no. 1-1 (“the Nevada Action”).) In its
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Complaint, BHLT alleges that in March 2007, it entered into a loan agreement with BOA
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to secure a $9.4 million loan to purchase certain property located in Douglas County,
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Nevada (“the Property”). (Compl. at ¶ 5.) BHLT defaulted on its loan obligations, and
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BOA purchased the Property in March 2012 in a foreclosure sale for $5,518,171.
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(Compl. at ¶ 7.) Although NRS § 40.455 prevents a lender from bringing an action for a
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deficiency judgment after 6 months of a foreclosure sale, BHLT alleges that BOA sought
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a plan to resolve the deficiency on October 30, 2012, more than seven months after the
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foreclosure sale. (Compl. at ¶ 9.) BHLT now asserts a declaratory relief claim against
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BOA seeking to declare that BOA is not entitled to collect on a deficiency judgment
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against it. (Id. at ¶ 13.)
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On January 24, 2013, BHLT filed its First Amended Complaint (“FAC”) in state
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court, adding various additional allegations as well as claims for breach of contract and
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tortious interference with prospective business relations. (See FAC, dkt. no. 1-2.)
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Specifically, BHLT explained that pursuant to a Seventh Loan Amendment Agreement
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(the “Seventh Amendment”), dated June 2, 2010, BHLT was obligated to provide BOA
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with evidence as of June 2, 2011, that, based on a new appraisal, the outstanding
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balance of its loan obligations were not greater than 85% of the Property’s value. (See
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id. at ¶ 7.) The Seventh Amendment required that BOA engage a third party appraiser to
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prepare the appraisal. (Id. at ¶ 8.) If the appraisal determined that the outstanding
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principal value exceeded 85% of the Property, BHLT would be obligated to immediately
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repay enough of its obligations to ensure that its principal balance fell below 85% of the
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Property’s value. (Id. at ¶ 9.) BHLT alleges that BOA secured an “incredibly” low
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appraisal in 2011 that placed the value of the property at 70% lower than its valuation
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just two years earlier, thereby forcing BHLT into premature payments of its loan
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obligations. (Id. at ¶¶ 10–11.) BOA then failed to turn over the appraisal, instituted
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foreclosure proceedings, and then sought a deficiency judgment against BHLT for the
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remainder of the unpaid balance. (See id. at ¶¶ 18–20.)
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On February 5, 2013, BOA timely removed the suit to this Court pursuant to 28
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U.S.C. § 1332. (See dkt. no. 1.) A day earlier, on February 4, 2013, BOA filed suit
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against BHLT and the Guarantors of BHLT’s loan, Behringer Harvard Strategic
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Opportunity Fund I, LP (“STRAT I”) and Behringer Harvard Strategic Opportunity Fund II,
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LP (“STRAT II”), in the Northern District of Texas seeking a deficiency from these
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defendants for the same loan on the Property. (See Compl., Bank of Am. v. Behringer
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Harvard Lake Tahoe, No. 3:13-cv-316-MMD-VPC (D. Nev. filed Feb. 4, 2013), ECF. No.
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1 (“the Texas Action”).) BHLT’s Guarantors are both Texas entities.
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On the same day that it initiated the Texas Action, BOA moved this Court to
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transfer the Nevada Action to the Northern District of Texas pursuant to 28 U.S.C.
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§ 1404(a), arguing that the proper venue for hearing this suit is in Texas. BHLT opposed
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the transfer on March 8, 2013 (dkt. no. 14), and filed its Second Amended Complaint
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concurrently with its opposition to the Motion, adding a number of additional defendants
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and allegations. (Second Amended Compl. (“SAC”), dkt. no. 13.) The SAC added
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Defendants Cushman & Wakefield of Colorado, Inc. (“Cushman”) and Christopher R.
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Donaldson (collectively “the Appraiser Defendants”) to the suit, the parties it alleges
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were responsible for the fraudulently low appraisal of the Property that triggered the
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Seventh Amendment’s immediate payment obligation. (SAC at ¶¶ 14–15, 25–27.) The
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SAC added as causes of action civil conspiracy, wrongful foreclosure, and breach of
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good faith and fair dealing. (See SAC at ¶¶ 39–70.)
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On June 12, 2013, Judge A. Joe Fish of the Northern District of Texas ordered the
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Texas Action transferred to the District of Nevada pursuant to the first-to-file rule, which
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provides that a case with substantial overlap to an another earlier-filed case be
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transferred to that court for adjudication. The parties noted in a joint status report that
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this transfer does not materially affect the pending Motion to Transfer, which the Court
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now addresses. (See dkt. no. 56.)
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III.
LEGAL STANDARD
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28 U.S.C. § 1404(a) provides that “[f]or the convenience of parties and witnesses,
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in the interest of justice a district court may transfer any civil action to any other district or
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division where it might have been brought.” Amazon.com v. Cendant Corp., 404 F. Supp.
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2d 1256, 1259 (W.D. Wash. 2005). “The purpose of this section is to prevent the waste
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of time, energy, and money and to protect litigants, witnesses and the public against
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unnecessary inconvenience and expense.” Id. (citations and quotation marks omitted).
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Motions to transfer venue are considered on “an individualized, case-by-case
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consideration of convenience and fairness.” Jones v. GNC Franchising, Inc., 211 F.3d
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495, 498 (9th Cir. 2000) (internal quotation marks omitted). “The statute has two
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requirements on its face: (1) that the district to which defendants seek to have the action
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transferred is one in which the action might have been brought, and (2) that the transfer
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be for the convenience of parties and witnesses, and in the interest of justice.” Amazon,
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404 F. Supp. 2d at 1259 (citation and quotation marks omitted). The burden of proof is
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on the moving party. Amini Innovation Corp. v. JS Imports, Inc., 497 F. Supp. 2d 1093,
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1109 (C.D. Cal. 2007).
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Further, “[a] motion to transfer venue under § 1404(a) requires the court to weigh
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multiple factors in its determination whether transfer is appropriate in a particular case.”
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Jones, 211 F.3d at 498. “For example, the court may consider: (1) the location where
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the relevant agreements were negotiated and executed, (2) the state that is most familiar
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with the governing law, (3) the plaintiff’s choice of forum, (4) the respective parties’
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contacts with the forum, (5) the contacts relating to the plaintiff’s cause of action in the
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chosen forum, (6) the differences in the costs of litigation in the two forums, (7) the
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availability of compulsory process to compel attendance of unwilling non-party
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witnesses, and (8) the ease of access to sources of proof.” Id. at 498-99.
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IV.
DISCUSSION
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A.
Amendment of the Complaint
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BHLT’s primary argument against transfer relates to its SAC. It argues that a
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transfer to Texas would eliminate its ability to proceed against the Appraiser Defendants
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because the Texas court lacks personal jurisdiction over these newly added defendants.
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However, the Court notes at the outset that in order to transfer venue to the Northern
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District of Texas, “it must appear that the conditions necessary to satisfy this special
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venue provision existed on the date the action was commenced.” Illinois Scientific
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Developments, Inc. v. Sirica, 410 F.2d 237, 238 (D.C. Cir. 1968) (emphasis added)
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(citing Hoffman v. Blaski, 363 U.S. 335 (1960)). Therefore, the lack of contacts with
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Texas are irrelevant to the inquiry before the Court, since BOA’s Motion to Transfer
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concerns the Texas courts’ ability to receive this action as originally commenced.
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Nevertheless, a district court is “not required to confine its venue consideration to
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the facts as they existed at the time of the complaint.” In re Fine Paper Antitrust Litig.,
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685 F.2d 810, 819 (3d Cir. 1982) (holding that venue was proper in the receiving state
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notwithstanding the presence of various out-of-state defendants over whom the exercise
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of jurisdiction would have been improper, because those defendants settled before the
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transfer to the state was effectuated). Unlike the situation in In re Fine Paper Antitrust
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Litigation, where “the action ‘might have been brought’ in the [receiving state] as to all of
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the parties remaining in the case,” the action here cannot be brought as to all of the
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parties due to the Appraiser Defendants’ apparent lack of contacts with Texas that would
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support in personam jurisdiction. However, this fact is not dispositive of BOA’s Motion,
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as the Complaint’s amendment appears to have been a tactic by BHLT to shield this suit
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from transfer to Texas. The SAC was filed on the same day that BHLT responded to
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BOA’s Motion to Transfer, and adds defendants and allegations that it likely knew about
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before the case’s removal.
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viability of BHLT’s claims against the newly added Appraiser Defendants, the
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circumstances of their addition coupled with BHLT’s early-filed declaratory relief action
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raise suspicions of potential forum-shopping.
Although the Court does not now speculate about the
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B.
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Turning to the eight factors that govern motions to transfer, a recounting of the
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Choice of Law
main facts that BOA in support of its Motion is warranted:
1. All relevant agreements giving rise to this dispute were negotiated and executed
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in Texas, at BOA’s Dallas offices.
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2. The parties have few contacts with Nevada, except for BHLT’s incorporation in
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Nevada.
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3. The Note and Guaranty Agreements specify that Texas law governs all disputes
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between the parties, and that BHLT and its guarantors must submit to Texas
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jurisdiction.
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4. BHLT’s guarantors are Texas entities.
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Under the circumstances present here, where many of the venue factors are
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inconclusive, the Court considers the choice of law to be the most important
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consideration in determining the merits of BOA’s Motion. A federal court applies the
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choice-of-law rules of the state courts in the district where it sits. Klaxon Co. v. Stentor
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Elec. Mfg., 313 U.S. 487, 496 (1941). Nevada’s choice-of-law principles permit parties
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“within broad limits to choose the law that will determine the validity and effect of their
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contract.” Sievers v. Diversified Mtg. Investors, 95 Nev. 811, 815 (1979). So long as the
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agreement has a substantial relation with the transaction, and is not contrary to the
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public policy of the forum, than that choice is valid. Id.
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The Note entered into and executed between BHLT and BOA provided that BHLT
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would “submit (and waive all rights to object) to non-exclusive personal jurisdiction of any
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state or federal court sitting in Dallas, Texas, and venue in the city or county in which
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payment is to be made as specified in Section 1 of this Note.” (Dkt. no. 3, exh. 2 at § 11.)
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The Note further provided, in all capital letters, that “[t]his Note, and its validity,
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enforcement and interpretation, shall be governed by Texas law (without regard to any
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conflict of laws principles) and applicable United States federal law.” (Id.) BHLT’s loan
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was supported by a deed of trust (“Deed of Trust”), which stated that BHLT “hereby
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irrevocably submits generally and unconditionally. . . to the non-exclusive jurisdiction of
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any state court, or any United States federal court, sitting in Dallas, Texas, and to the
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non-exclusive jurisdiction of any state court or any United States federal court sitting in
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the state in which any of the Property is located . . . .” (Dkt. no. 15, exh. B-2 at § 6.8).
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The parties’ dispute as to which of these documents controls the choice-of-law inquiry is
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answered by Key Bank of Alaska v. Donnels, 787 P.2d 383, 384 (Nev. 1990). There, the
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Nevada Supreme Court ruled that “an action for a deficiency after partial satisfaction
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through sale of the security is an action on the debt” that arises out of the promissory
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note, not the deed of trust that secures the debt obligation. Id. For that reason, it ruled
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that the choice-of-law clause embodied in the promissory note of a loan controlled. The
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same principle applies here.
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BHLT argues that Donnels is inapplicable, because the Nevada Supreme Court
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failed to consider that applying the choice-of-law clause would be inimical to Nevada
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public policy as outlined in NRS § 40.453.1 Since § 40.453 expressly forbids as against
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public policy waiver of any rights relating to the sale of real property, the choice of Texas
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law cannot be sustained under the exception to Nevada’s choice-of-law rules discussed
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above. But this argument cannot stand. BHLT argues that because Texas limits
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deficiency judgment actions with a two-year statute of limitations, instead of Nevada’s
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six-month statute of limitations, Texas in effect has waived a right guaranteed to
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borrowers in Nevada. First, it is not clear what right Texas waives that is afforded to
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borrowers like BHLT under Nevada law. Is it the right to be free from deficiency
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judgments after six months? Or the right to have some reasonable statute of limitations
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imposed on deficiency judgments? Section 40.453 would bar a choice-of-law clause that
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selects a forum that waives the former, but not on the latter. Second, BHLT’s expansive
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interpretation of § 40.453 ─ an interpretation that the Donnels Court conspicuously failed
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to mention or cite to ─ “would lead to an absurd result,” namely that “such things as
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arbitration agreements, forum selection clauses and choice-of-law provisions would be
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unenforceable.” Lowe Enterprises Residential Partners, L.P. v. Eighth Judicial Dist.
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Court ex rel. Cnty. of Clark, 40 P.3d 405, 412 (Nev. 2002). It cannot be a proper reading
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of § 40.453 that a choice-of-law provision that selects for a state whose deficiency
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judgment laws are identical to Nevada’s in all but one slightly weaker respect would be
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NRS § 40.453 states as follows: “It is hereby declared by the Legislature to be
against public policy for any document relating to the sale of real property to contain any
provision whereby a mortgagor or the grantor of a deed of trust or a guarantor or surety
of the indebtedness secured thereby, waives any right secured to the person by the laws
of this state.”
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invalidated. Were it so, then only a state’s laws which were exactly identical to Nevada’s
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could be selected by a choice-of-law clause. Third, in an analogous case involving NRS
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§ 40.430, which requires the holder of a secured note to first exhaust the security before
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instituting an action on the note, the Nevada Supreme Court recognized that § 40.453
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does not preclude a waiver of the rights secured in § 40.430, lending support to this
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Court’s conclusion that the dictates of § 40.453 cannot be so tightly construed. See
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Nevada Wholesale Lumber Co. v. Myers Realty, Inc., 544 P.2d 1204, 1207 (Nev. 1976).
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As a result, the Court holds that the Texas choice-of-law clause governs, and Texas law
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applies to this action. The second transfer factor, which favors the state most familiar
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with the governing law of the dispute, weighs in favor of transfer to Texas.
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C.
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The remaining factors are, save one, either inconclusive on the issue or support
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Remaining Venue Factors
transfer to the Northern District of Texas.
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First, it is not straightforward where the relevant agreements were negotiated and
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executed. The Note is a Texas instrument, and provides explicitly for suit and jurisdiction
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in Texas. As this is the primary agreement that gives rise to this suit, this factor supports
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transferring the actions to Texas. BHLT also sues on account of allegedly fraudulent
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appraisals conducted in Nevada, and seeks recovery for torts in connection to scuttled
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business relationships it had with California entities. These are ancillary relationships,
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and do not constitute the “heart” of the parties’ dispute, which arises out of the
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foreclosure and the deficiency judgment sought by BOA.
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Second, the parties have nontrivial contacts with both fora. As mentioned earlier,
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the Property is located in Nevada, and foreclosure was conducted pursuant to Nevada
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law. BHLT’s suit against the Appraiser Defendants adds additional connections to
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Colorado (where Cushman is a registered) and Utah (where Donaldson is a citizen). At
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the same time, BOA’s primary place of business is in Texas, but BOA does maintain
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business in Nevada as evidenced by the presence of its branches in the state, BHLT has
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significant Texas contacts, and BHLT’s guarantors are Texas entities. On balance, this
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factor is inconclusive.
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Third, the Court finds no substantial difference in the costs of litigating this case
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either in Nevada or in Texas, or the relative ease of access to sources of proof in either.
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While the Property is located in Nevada, the evidence that resolves the claims at issue in
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this litigation are scattered between Nevada, Texas, Utah, and Colorado. In addition,
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the parties have not made a compelling presentation demonstrating that one venue is
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more preferable than the other with respect to the availability of compulsory process to
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compel attendance of unwilling non-party witnesses.
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However, Plaintiff’s choice of forum favors maintaining this suit in Nevada. The
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Court notes that this is a declaratory judgment action brought preemptively by BHLT
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before BOA brought a deficiency action. Nevertheless, the posture of this case weighs
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in favor of keeping the suit here.
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In sum, the factors favor transferring this case to Texas. The most important
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factor, the controlling case law, weighs heavily in the Court’s decision to transfer the
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case. With the exception of one factor (BHLT’s choice of forum), which weighs only
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slightly in favor of Nevada, all other factors are either inconclusive or favor Texas. The
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Court therefore concludes that transfer to Texas is appropriate under the circumstances.
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The Court is mindful that a transfer to the Northern District of Texas may result in
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a challenge to that court’s jurisdiction over the newly added Appraiser Defendants.
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However, this fact does not, on its own, counsel against the more important choice-of-
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law factor that controls the Court’s venue determination. As explained above, the heart
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of this dispute concerns the allegations between BHLT and BOA, not the newly added
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Defendants. Further, venue in Texas was appropriate at the time the suit was brought,
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and it is unclear whether BHLT added the Appraiser Defendants only as an attempt to
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protect against transfer. Lastly, to the extent that BHLT is found to state valid claims for
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relief against the Appraiser Defendants and jurisdiction over those defendants cannot lie
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in Texas, BHLT is free to pursue a second action in Nevada, should that be necessary.
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See Wyndham Assocs. v. Bintliff, 398 F.2d 614, 618–619 (2d Cir. 1968) (permitting
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severance of claims where transfer would prevent exercise of personal jurisdiction over a
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party “peripherally involved in the wrongdoing”).
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V.
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 Bank of America, N.A.’s Motion to
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Transfer Venue to the United States District Court for the Northern District of Texas,
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Dallas Division (dkt. no. 3) is GRANTED. The Clerk of the Court is ordered to transfer
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these two actions to the Northern District of Texas, Dallas Division for further
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proceedings.
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DATED THIS 5th day of August 2013.
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MIRANDA M. DU
UNITED STATES DISTRICT JUDGE
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