Presently before the court is defendant Nevada Title Company's motion to dismiss, or in the alternative stay. (Doc. #10). Plaintiff Branch Banking and Trust Company (hereinafter "Branch Banking") filed an opposition. (Doc. # 22). Defendant Nevada Title filed a reply. (Doc. #31). Relevant Facts/Underlying State Action
The case before this court arises from a state action, where plaintiff Branch Banking's predecessor, Colonial Bank, filed a complaint seeking, among other things, declaratory judgment that its trust deed had priority over R&S St. Rose Lenders, LLC's (hereinafter "St. Rose Lenders") trust deed on the property in question. (Doc. #12 Exhibit A-2). Subsequently, plaintiff Branch Banking filed an amended complaint in the underlying action alleging that it succeeded to Colonial Bank's rights by purchasing them from the FDIC following Colonial Bank's failure. (Doc. #12 Exhibit A-5).
According to the present motion (doc. #10), Colonial Bank had loaned $29,305,250.00 to R&S St. Rose, LLC (hereinafter "St. Rose") to purchase 38 acres of real property in Henderson, NV. This loan was secured by a first-priority trust deed against the property. Id. Approximately one month later, St. Rose Lenders loaned St. Rose another $12 million, which was secured by a trust deed second in priority to Colonial Bank's trust deed. Following this, in 2007, St. Rose asked Colonial Bank for additional funding and to "take out" the previous loan. Colonial Bank loaned St. Rose an additional $43,980,000.00, which it secured through another trust deed against the property. St. Rose used the second loan to fully repay the first Colonial Bank loan. (Doc. #12 Exhibit A-5).
After a lengthy trial, the judge held that Branch Banking had failed to demonstrate that it actually purchased the 2007 Colonial Bank trust deed and related rights from the FDIC after Colonial Bank failed. The judge held that Branch Banking was not the real party in interest, which prevented it from advancing its claims and affirmative defenses that would have permitted it to establish that the 2007 Colonial Bank trust deed had priority over the 2005 St. Rose Lenders trust deed. Branch Banking filed an appeal with the Nevada Supreme Court on September 24, 2010 (doc. #12 Exhibit A-8).
Prior to the state court action and Branch Banking's alleged purchase of Colonial Bank's rights, on July 31, 2007, defendant Nevada Title, acting as co-defendant Commonwealth Land Title Insurance Company's (hereinafter "Commonwealth") agent, issued a loan policy of title insurance to Colonial Bank. (Doc. #14-1 Exhibit D-1). The policy was issued concurrently with the funding of the 2007 Colonial Bank loan, but did not disclose the existence of a 2005 St. Rose Lenders trust deed as an encumbrance on the property. The policy ensures the priority of the Colonial Bank trust deed against all encumbrances on the property that are not disclosed by the policy.
In the case before this court, plaintiff Branch Banking filed a complaint (doc. #1) against defendants Nevada Title and Commonwealth, seeking both compensatory and punitive damages, and declaratory relief. Plaintiff asserts several claims for relief against defendant Nevada Title, including (1) breach of contract for not "removing the [St. Rose Lenders trust deed] from the title to the property prior to distributing the 2007 [l]oan proceeds," (2) breach of the implied covenant of good faith and fair dealing regarding the escrow instructions, (3) detrimental reliance with regards to the escrow instructions, (4) declaratory relief, and (5) negligence. (Doc. #1).
Defendant Nevada Title asserts that all of plaintiff's claims depend upon whether Branch Banking is the successor in interest to Colonial Bank for the 2007 Colonial Bank trust deed and Colonial Bank's potential claims and actions against third parties.
Motion to Dismiss/Collateral Estoppel
In the present motion to dismiss (doc. #10), Nevada Title asserts that the collateral estoppel doctrine requires dismissal of the complaint against it (doc. #1). Specifically, Nevada Title asserts that the issue of whether Branch Banking was the successor in interest has been previously litigated in state court and, as such, Branch Banking is precluded from re-litigating the issue. Moreover, Nevada Title asserts that since the state court action determined as a matter of law that Branch Banking was not the successor in interest and could not bring law suits or claims against third parties on behalf of Colonial Bank, it cannot bring the present claims against Nevada Title.
Federal courts are "specifically required...to give preclusive effect to state court judgments whenever the courts of the state from which the judgment emerged would do so." In re Marshall, 600 F.3d 1037, 1037 (9th Cir. 2010). "[O]nce a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case." Id.
In order for a party to establish collateral estoppel under Nevada law, it must demonstrate that "(1) [t]he issue decided in the prior litigation [is] identical to the issue presented in the current action; (2) [t]he initial ruling [was] decided on the merits and [has] become final; (3) [t]he party against whom the judgment is asserted [was] a party or in privity with a party to the prior litigation; and (4) [t]he issue [was] actually and necessarily litigated." Five Star Capital Corp. v. Ruby, 194 P.3d 709, 713 (Nev. 2008) (citations omitted).
Nevada Title asserts that the first element of issue preclusion is satisfied because the court in the state action "already tried the exact issues and allegations which [Branch Banking] is asking this [c]court to decide." (Doc. #10). Nevada Title asserts that the issues of (1) whether Branch Banking is the successor in interest to Colonial regarding the 2007 Colonial trust deed and (2) whether Colonial assigned to Branch Banking Colonial's rights to ...