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Federal Deposit Insurance Corporation v. Nevada Title Co.

United States District Court, D. Nevada

September 25, 2014

FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for COMMUNITY BANK OF NEVADA, Plaintiff,
v.
NEVADA TITLE COMPANY, a Nevada corporation; DOE INDIVIDUALS 1 through 10; and ROE CORPORATIONS 1 through 10, Defendants.

ORDER

GLORIA M. NAVARRO, Chief District Judge.

Pending before the Court is the Motion to Dismiss (ECF No. 18) filed by Defendant Nevada Title Company ("Nevada Title") on January 28, 2014. Plaintiff Federal Deposit Insurance Corporation (the "FDIC") filed its Response (ECF No. 20) on February 13, 2014, and Nevada Title filed its Reply (ECF No. 23) on February 21, 2014. The FDIC then filed a Motion to Strike Nevada Title's Reply (ECF No. 25) on February 25, 2014, to which Nevada Title filed a Response (ECF No. 30) on March 12, 2014.

Also pending before the Court are the Motion to Substitute Plaintiff (ECF No. 17) and Motion to Amend Complaint (ECF No. 19) filed by the FDIC on January 28, 2014 and January 29, 2014 respectively. On February 21, 2014, Nevada Title filed its Response (ECF No. 24) to both motions, and the FDIC filed its Reply (ECF No. 26) on March 3, 2014.

I. BACKGROUND

The FDIC initiated this action seeking to obtain contractual or equitable indemnification from Nevada Title for any of the FDIC's costs, attorney's fees, and damages that resulted from a declaratory relief action. (Complaint, ECF No. 1). The relevant facts are as follows:

On October 11, 2005, nonparties Dynasty Towers, LLC ("Dynasty") and Outback Steakhouse of Florida, LLC ("Outback") entered into an "Agreement of Purchase and Sale" ("APS"), which set forth certain obligations between the two entities relating to Dynasty's purchasing of property from Outback located at 3695 West Flamingo Road, Las Vegas, NV 89103 (the "Property"). ( Id. ¶¶ 4-6). To assist in financing the purchase, Dynasty obtained a $6, 600, 000 purchase money loan from Community Bank of Nevada ("Community Bank"). ( Id. ¶ 8). The loan was secured by a Deed of Trust executed on March 10, 2008 that encumbered the Property in the first priority position. ( Id. ¶¶ 7, 9; First Deed of Trust, ECF No. 1-1). This First Deed of Trust was recorded with the Clark County Recorder's Office on April 4, 2008. (First Deed of Trust, ECF No. 1-1).

On April 4, 2008, the day escrow closed for the purchase of the Property, Dynasty granted Outback a Deed of Trust securing Dynasty's performance of its obligations to Outback under the APS. (Complaint ¶¶ 9-10, ECF No. 1, Second Deed of Trust, ECF No. 1-2). This Second Deed of Trust was also recorded on April 4, 2008. (Second Deed of Trust, ECF No. 1-2).

Nevada Title served as the escrow agent for the closing of the April 4, 2008 transaction. (Complaint ¶ 13, ECF No. 1). In the Escrow Instructions, Nevada Title was instructed to record the documents memorializing the transaction "only when [Nevada Title was] assured that the enclosed [First] deed of trust will be afforded a first lien priority status." ( Id. ¶ 15; Escrow Instructions, ECF No. 1-3). Escrow closed on April 4, 2008, and Outback conveyed the Property to Dynasty via a Grant, Bargain, Sale Deed recorded that day. (Complaint ¶ 16, ECF No. 1; Sale Deed, ECF No. 1-4). The Sale Deed states that the Property is being conveyed subject to the APS, creating a "covenant running with the land." (Sale Deed at 2, ECF No. 1-4).

On October 8, 2008, Dynasty defaulted under the First Deed of Trust, which led to the FDIC being appointed receiver of Community Bank and ultimately acquiring the Property via a Trustee's Deed upon Sale on February 2, 2010. (Complaint ¶¶ 18-23, ECF No. 1). In its Complaint, FDIC asserts that the February 2, 2010 Trustee's Sale memorialized by the Trustee's Deed extinguished all junior liens, including the Second Deed of Trust and the APS covenant. ( Id. ¶ 25).

On June 6, 2011, 26 Outback executed an "Assignment of Interests, " under which it conveyed "all right, title and interest, if any, " on the Property to Flamingo, LLC ("Flamingo"). (Assignment of Interest, ECF No. 1-5). The Assignment of Interests lists the APS covenant and Second Deed of Trust as interests that Outback may be conveying through the assignment. ( Id. ). Following the assignment, Flamingo asserted that the APS covenant had not been extinguished by the February 2, 2010 Trustee's Sale and demanded $4, 000, 000 in payment from the FDIC based upon its interest under the covenant. (Complaint ¶ 28, ECF No. 1).

Subsequently, on December 5, 2011, the FDIC filed a declaratory relief action in Federal District Court against Flamingo seeking a declaration from the court on the relative priority of the First Deed of Trust and APS covenant. ( Id. ¶ 29; Dec. Action Compl. Ex. 1-1 to MTD, ECF No. 18). On April 9, 2013, during the pendency of the declaratory relief action, the FDIC filed the Complaint in the present action. (Complaint, ECF No. 1). In this action, the FDIC seeks contractual and equitable indemnity from Nevada Title for failing to follow the Escrow Instructions should the FDIC incur damages in the declaratory relief action based on Nevada Title's failure to properly place the First Deed of Trust in first priority. (Complaint ¶¶ 30-39, ECF No. 1).

On October 18, 2013, the FDIC and Flamingo settled the declaratory relief action and entered a Stipulation and Order dismissing the case. (Stip. and Order, Ex. 1-2 to MTD, ECF No. 18). In their settlement, the FDIC agreed to sell the Property to Flamingo for the purchase price of $1, 600, 000 and both parties would release their claims against each other and dismiss the suit. (Mutual Settlement Agreement and Release, Ex. 1-3 to MTD ¶¶ 5-8, ECF No. 18). As part of the settlement, FDIC's insurer, Commonwealth Land Title Insurance Company ("Commonwealth"), paid $400, 000 to "facilitate settlement."[1] (McCall Affidavit ¶¶ 3-6, ECF No. 20-2). Under the Insurance Policy, Commonwealth was subrogated and assumed all the rights, claims, and remedies of the FDIC relating to the claim paid out by Commonwealth. (Insurance Policy ¶ 12, ECF No. 20-1).

The parties subsequently filed the current pending motions in which Nevada Title seeks to dismiss the FDIC's claims and the FDIC seeks to substitute Commonwealth for itself as the real party in interest following the FDIC's assignment of ...


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