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Meritage Homes of Nevada, Inc. v. FNBN-Rescon I, LLC

United States District Court, D. Nevada

February 4, 2015

MERITAGE HOMES OF NEVADA, INC., Plaintiff,
v.
FNBN-RESCON I, LLC AND STEARNS BANK N.A., Defendants

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[Copyrighted Material Omitted]

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For Meritage Homes of Nevada, Inc., formerly known as MTH-Homes Nevada, Inc., Brenoch R. Wirthlin, Christopher H. Byrd, LEAD ATTORNEYS, Fennemore Craig Jones Vargas, Las Vegas, NV.

For FNBN-Rescon I, LLC, Stearns Bank N.A., Defendants: Jeffrey R Sylvester, LEAD ATTORNEY, Matthew T Kneeland, Sylvester & Polednak, Ltd., Las Vegas, NV; Lawrence E. Butler, Robin M. Cleary, LEAD ATTORNEYS, Seyfarth Shaw LLP, San Francisco, CA.

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ORDER

RICHARD F. BOULWARE, II, UNITED STATES DISTRICT JUDGE.

I. INTRODUCTION

Before this Court are FNBN-RESCON I, LLC and Stearns Bank N.A.'s (" Defendants" ) Motion to Dismiss, ECF No. 18, and Meritage Homes of Nevada's (" Plaintiff" ) Motion for Summary Judgment, ECF No. 22. For the reasons described below, Defendants' Motion to Dismiss is granted, and Plaintiff's Motion for Summary Judgment is consequently denied as moot.

II. FACTUAL HISTORY

The Court finds that the following facts are undisputed.

A. The Initial Agreement Between Meritage, Inca And First National Bank

In January 2005, Meritage Homes of Nevada (" Meritage" ) and Inca Capital (" Inca" ) entered in an option agreement (" Option Agreement" ). ECF No. 2-1. This Option Agreement entitled Meritage to the option to purchase certain subdivided, residential lots in Clark County, Nevada (the " Property" ). Id. At that time, Meritage also entered into a construction agreement (" Construction Agreement" ) with Inca, later amended in May 2006 and again in April 2007, whereby Meritage agreed to build certain improvements on the Property, and Inca agreed to compensate Meritage for the construction of these improvements. ECF No. 2-3. The Construction Agreement provided that, in the event of non-payment by Inca, Meritage could offset the purchase price of the lots by the amount of the missed payments. Construction Agreement ¶ 15.

First National Bank of Arizona and its successor-in-interest First National Bank

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of Nevada (" First National Bank" ), was Inca's primary lender in connection with the acquisition and development of the Property, and agreed to lend Inca up to about ten million dollars. This loan was secured by a deed of trust on the Property. Deed of Trust, Meritage Homes of Nevada Inc v FDIC et al, 2:09-cv-01950-PMP-RJJ, ECF No. 25-4. First National Bank and Inca entered into an agreement assigning Inca's rights under the Option Agreement to First National Bank, through which First National Bank agreed to satisfy Inca's obligations to Meritage under the Option Agreement and Construction Agreement. Assignment and Subordination of Option Agreement, ECF No. 2-4. Subsequently, Meritage and First National Bank entered into a Consent to Assignment Subordination and Estoppel Certificate and Agreement. ECF No. 2-5. Under these agreements (collectively, " First National Bank Agreements" ), if First National Bank enforced the Deed of Trust or if it became owner of any part of the Property, and Meritage was not in default, then First National Bank would perform Inca's unfulfilled payment obligations to Meritage under the Option Agreement and Construction Agreement. These agreements provided for Meritage's interest to survive foreclosure by First National Bank in the event that First National Bank foreclosed on the Property. Assignment and Subordination of Option Agreement ¶ 2; Consent to Assignment Subordination and Estoppel Certificate and Agreement ¶ 2.

Pursuant to the Option Agreement and Construction Agreement, Meritage purchased and developed certain lots at the Property. Between July 11, 2007 and June 3, 2008, Meritage submitted eight draws or invoices for payment to Inca for payments totaling $436,357.12 for completed construction work at the Property pursuant to the Construction Agreement. Inca did not pay these invoices. On June 20, 2008, Meritage notified First National Bank and Inca of the default. Neither Inca nor First National Bank paid the invoices.

B. FDIC Creates RESCON And Sells Beneficial Interest To Stearns

On July 25, 2008, First National Bank was closed by the Office of the Comptroller and the Federal Deposit Insurance Corporation (" FDIC" ) was appointed receiver. Through a series of interconnected agreements (collectively, the " Structured Transaction" ), the FDIC transferred First National Bank assets (and obligations associated with those assets) to a few entities. While these transactions follow a sequence in terms of the progression from the creation of an interest in the assets (primarily a portfolio of loans) to the final transfer of those assets to a private purchaser, the documents related to these transactions were signed within a day or two of each other in February 2009. The progression occurred as follows. First, the FDIC created FNBN-RESCON I, LLC (" RESCON" ), a Delaware limited liability company. Limited Liability Operating Agreement, ECF No. 2-8. The FDIC was essentially the only signatory to this agreement (the same attorney signed for both FDIC and RESCON) and the FDIC owned all the interests in the company. The FDIC then conveyed a number of First National Bank's assets--including the Inca loan--to RESCON and entered into an agreement regarding the servicing and management of the loan portfolio.[1]

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Loan Contribution and Assignment Agreement, ECF No. 2-9, Participation and Servicing Agreement, ECF No. 2-10. The FDIC--including the FDIC as owner of the controlling interest in the limited liability company RESCON--was again essentially the only signatory to these agreements. The FDIC then as owner of and through RESCON sold the beneficial interest in RESCON to Stearns SPV I, LLC through a public auction. Limited Liability Company Interest Sale and Assignment Agreement, ECF No. 2-11. Stearns SPV I, LLC was created and owned by Stearns Bank, N.A. who guaranteed payment for the beneficial interest in RESCON by Stearns SPV I, LLC. Id.; Guaranty, ECF No. 2-12. The signatories to the Sale and Assignment Agreement were FDIC, RESCON and Stearns SPV I. The sole signatory to the Guaranty was Stearns Bank. Guaranty 10. Stearns Bank and RESCON reached an agreement about the servicing and management of RESCON and its assets and obligations. Servicing Agreement, ECF No. 2-13.

Importantly, with the exception of the Loan Contribution and Assignment Agreement, all of these contracts contained an explicit " no third-party beneficiary" clause which disavowed the formation of any third-party beneficiary rights under the contracts.

C. Meritage Files Claim Then Sues FDIC

In December 2008, Meritage learned of the FDIC's appointment as receiver of First National Bank, and, on January 14, 2009, Meritage submitted a timely Proof of Claim to the FDIC seeking payment of the $436,357.12 in invoices related to their improvements made to the Property. On August 13, 2009, the FDIC disallowed Meritage's claim because, " [t]he documentation does not provide proof of a guarantee or promise to fulfill the obligations of the borrower." Notice of Disallowance of Claim, ECF No. 2-6. Meritage was informed it had sixty days to file a lawsuit or lose its claim forever. Id.

Consequently, on October 8, 2009, Meritage filed suit, in a predecessor action to the instant case, against Inca and the FDIC. See Meritage Homes of Nevada Inc v FDIC et al, 2:09-cv-01950-PMP-RJJ [hereinafter FDIC Case]. Meritage claimed Breach of Contract, Breach of the Covenant of Good Faith and Fair Dealing, and Unjust Enrichment. Compl. 4-7, FDIC Case (No. 1). Neither Inca nor the FDIC answered or otherwise responded to

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the Complaint, and on April 22, 2010, a default was entered against both Inca and the FDIC. Entry of Default, FDIC Case (No. 13). On July 2010, the court entered judgment against the FDIC and Inca. Default Judgment, FDIC Case (No. 17). Meritage was ultimately awarded the claim, interest, and costs. See FDIC Case (Nos. 17, 18, 22, 24). On October 14, 2010, the FDIC moved to set aside the default and vacate the judgment. The court denied that motion on November 19, 2010. Order, FDIC Case (No. 29).

After the denial of its motion to set aside the default, FDIC changed its initial determination and allowed Meritage's claim. On April 18, 2011, the FDIC issued to Meritage a receivership certificate in the amount of $680,300.23. Notice of Allowance of Claim, ECF No. 2-7. On April 27, 2011, the FDIC filed a Satisfaction of Judgment with the Court. FDIC Case (No. 33). Claiming that the certificate, as opposed to an actual cash or monetary payment, did not satisfy the judgment, on November 23, 2011, Meritage filed a Motion to Strike Satisfaction of Judgment, Impose Cash Liability, or, in the Alternative, Issue Summons for Joint Obligors RESCON and Stearns. FDIC Case (No. 39) [" Motion to Strike" ]. The court, " finding that the Receivership Certificate on June 6, 1022 effectively satisfies the Judgment entered in this case," denied this Motion to Strike. Order 1:19-20, FDIC Case (No. 44). The court subsequently also denied Meritage's Motion for Reconsideration. Order, FDIC Case (No. 48). On March 26, 2012, Meritage appealed the court's order denying the Motion to Strike to the United States Court of Appeals for the Ninth Circuit. Notice of Appeal, FDIC Case (No. 49).

On April 15, 2014, the Ninth Circuit filed its opinion in the FDIC Case, affirming the district court's decision. Meritage, 753 F.3d 819, 821 (9th Cir. 2014). Specifically, the Ninth Circuit held that the district court did not abuse its discretion in ruling that the receiver's certificate satisfied the judgment and that the district court did not commit clear error in declining to issue the summons to RESCON and Stearns. Id. at 826.

III. PROCEDURAL HISTORY

On August 10, 2012, while the FDIC Case appeal was still pending, Meritage filed the present action against RESCON and Stearns Bank. Compl. ECF No. 1. In its Complaint, Meritage alleged six causes of action. First, Meritage claims Breach of Contract by RESCON of the First National Bank Agreements. Compl. 10-11. Meritage states that it had binding agreements with First National Bank and that RESCON assumed this contractual relationship pursuant to the FDIC's assignment of the Loan and acquisition of the Property by foreclosure.

Second, Meritage claims Breach of Contract by RESCON and Stearns pursuant to the six Structured Transaction agreements between the FDIC, RESCON, and Stearns: the Limited Liability Company Operating Agreement between RESCON and the FDIC, the Loan Contribution and Assignment Agreement between RESCON and the FDIC, the Participation and Servicing Agreement between RESCON and the FDIC, the Limited Liability Company Interest Sale and Assignment Agreement between Stearns SPV I, LLC and the FDIC, the Guaranty by Stearns Bank, and the Servicing Agreement between RESCON and Stearns Bank. Compl. 12.

Third, Meritage claims Breach of the Covenant of Good Faith and Fair Dealing on the part of RESCON and Stearns. Compl. 13. Meritage claims that the Defendants breached this doctrine in the context

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of the First National Bank agreements.

Fourth, against Stearns Bank only, Meritage claims Breach of Guaranty for failure to pay the full amount of the Judgment in cash to Meritage, or reimburse Meritage for its work, as required by Meritage's agreements with First National Bank. Compl. 13-14.

Fifth, Meritage seeks equitable relief against RESCON and Stearns Bank regarding Meritage's alleged security interest in and lien against the Property. Compl. 14. Finally, Meritage alleges Unjust Enrichment on the part of RESCON and Stearns Bank due to non-payment by First National Bank for Meritage's construction work. Compl. 15-16. Meritage claims first the FDIC and then RESCON and Stearns Bank became liable for the unpaid construction work after foreclosure and have been enriched unjustly by the improvements to the Property.

On October 25, 2012, RESCON and Stearns Bank moved to dismiss all claims for lack of subject matter jurisdiction and failure to state a claim. Mot. to Dismiss 1:2-6, ECF No. 18. On December 21, 2012, Meritage moved for summary judgment on its contract claim, the first cause of action. Mot. for Summ. J. 6:17-18, ECF No. 22. On September 17, 2013, this Court stayed the current lawsuit and dismissed without prejudice the outstanding Motion to Dismiss and Motion for Summary Judgment pending resolution of the appeal. Order, ECF No. 32. On May 13, 2014, these motions were reinstated. Though the instant Motion to Dismiss was originally filed on October 25, 2012--well before the appeal was decided--the parties opted not to file supplemental briefing on the matter. Mins. of Proceedings, ECF No. 39. Both Plaintiff and Defendants, however, filed Supplemental Briefs on the Motion for Summary Judgment. ECF Nos. 40, 41.

On October 20, 2014, this Court heard argument regarding Defendants' Motion to Dismiss and Plaintiff's Motion for Summary Judgment. During the hearing, the Court indicated its intention to convert the Defendants' Motion to Dismiss into a Motion for Summary Judgment; neither party objected. At the hearing, parties were instructed to file with the Court briefs addressing the issues raised by the Court at the hearing. On October 27, both parties filed their Second Supplemental ...


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