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Bank of America N.A. v. Inspirada Community Association

United States District Court, D. Nevada

March 16, 2017

BANK OF AMERICA, N.A., Plaintiff,
v.
INSPIRADA COMMUNITY ASSOCIATION; and LEACH, JOHNSON, SONG & GRUCHOW, Defendants.

          ORDER

          Kent J. Dawson United Sates District Judge

         Presently, before the Court is Defendant's Motion to Dismiss (#18). Plaintiff filed a response in opposition (#22) to which Defendant replied (#32). Additionally, before the Court is Plaintiff's Motion to Stay (#35).

         I. Background

         This action arises out of a dispute over property purchased by Robert and Judy Colegrove (hereinafter referred to as the Colegroves) on or about October 22, 2008. The Colegroves financed the purchase with a $211, 654 loan from BAC Home Loans Servicing LP, a company which later merged with Plaintiff, Bank of America, N.A., (hereinafter referred to as BANA). The Colegroves' property was managed by a homeowners' association (HOA) run by Defendant, Inspirada Community Association (hereinafter referred to as Inspirada). By March 30, 2011, the Colegroves failed to pay their HOA dues resulting in a debt of $1, 608.56. As a result, Defendant law firm, Leach, Johnson, Song & Gruchow (hereinafter referred to as LEACH), who represented Inspirada during foreclosure proceedings, recorded a notice of delinquent assessment lien against the property on April 4, 2011. LEACH then recorded a delinquent assessment lien on June 2, 2011. The foreclosure sale occurred on or about August 22, 2013 and the property was sold to Defendant, LVDG LLC Series 128 (LVDG), for $8, 200.00. Pursuant to NRS 116.3116, Inspirada's lien was superior to the first deed of trust held by BANA which allowed Inspirada to collect the amount it was owed before any other interest holder, including BANA.

         BANA claims that the foreclosure price was unreasonably lower than the fair market value and less than four percent of the value of the unpaid principal on the senior deed of trust. On November 6, 2015, BANA submitted the dispute to the Nevada Real Estate Division (hereinafter referred to as NRED) for mediation pursuant to NRS 38.220(1). However, after more than five months passed without NRED scheduling the mediation, BANA proceeded with the present action. BANA now seeks declaratory judgment against all Defendants, and has sought damages from LEACH and Inspirada for wrongful foreclosure and violation of the good faith provisions of NRS 116.1113. LEACH has moved to dismiss Plaintiff's complaint.

         II. Legal Standard

         A court may dismiss a plaintiff's complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A properly pled complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” F.R.C.P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 8 does not require detailed factual allegations, it demands more than “labels and conclusions or a formulaic recitation of the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citations omitted). Factual allegations must be enough to raise a right to relief above the speculative level. Twombly, 550 U.S. at 555. Thus, “[to]survive a motion to dismiss, a complaint must contain sufficient factual matter to ‘state a claim for relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (citation omitted).

         In Iqbal, the Supreme Court clarified the two-step approach district courts are to apply when considering motions to dismiss. First, a district court must accept as true all well-pled factual allegations in the complaint; however, legal conclusions or mere recitals of the elements of a cause of action, supported only by conclusory statements, are not entitled to the assumption of truth. Id. at 678. Second, a district court must consider whether the factual allegations in the complaint allege a plausible claim for relief. Id. at 679. A claim is facially plausible when the plaintiff's complaint alleges facts that allow the court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Id. at 678. Further, where the complaint does not permit the court to infer more than the mere possibility of misconduct, the complaint has “alleged-but it has not show[n]-that the pleader is entitled to relief.” Id. at 679 (internal quotation marks omitted). Thus, when the claims in a complaint have not crossed the line from conceivable to plausible, the complaint must be dismissed. Twombly, 550 U.S. at 570. Moreover, “[a]ll allegations of material fact in the complaint are taken as true and construed in the light most favorable to the non-moving party.” In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1403 (9th Cir. 1996) (citation omitted).

         III. Discussion

         In its Motion to Dismiss, LEACH presents several arguments as to why this Court should dismiss BANA's claims. LEACH first argues that lawyers owe no duty to third parties when providing legal services to their clients, and therefore LEACH cannot be held liable for the legal services the firm provided to co-Defendant, Inspirada. See Shawmut Bank, N.A. v. Kress Associates, 33 F.3d 1477 (9th Cir. 1994) (holding that under California case law, lawyers owe no duty to third parties who are not the beneficiaries of the legal services provided).

         However, as BANA has pointed out, it is suing LEACH for conducting the allegedly wrongful foreclosure on behalf of Inspirada, which BANA argues is a collection service rather than a legal service. This distinction is important because lawyers are not exempt from all liability to third parties when acting to collect debt that is owed to their client. See Fox v. Citicorp Credit Servs, Inc., 15 F.3d 1507, 1513 (9th Cir. 1994) (holding that an attorney was not exempt from liability under the Fair Debt Collections Practices Act when that attorney filed an application for a writ of garnishment on behalf of his client). BANA asserts in its Complaint that LEACH facilitated a wrongful foreclosure on the disputed property on behalf of Inspirada. Though BANA does not claim that LEACH is liable under federal debt collection law, LEACH's involvement with the foreclosure is comparable to the actions taken by the attorneys in Fox. Additionally, LEACH has failed to provide any binding authority that would definitively extinguish the firm's liability to BANA in this situation. For these reasons, the Court disagrees with LEACH's argument that an attorney owes no duty to a third party in this context.

         LEACH also claims that BANA's complaint is barred because BANA failed to mediate the dispute, as required by NRS 38.310, before filing a claim with this Court. NRS 38.310 mandates that any civil action based on the interpretation, application, and enforcement of the governing documents of an HOA, must first be submitted to mediation. Unless the parties agree otherwise, the mediation must be completed within 60 days. NRS § 38.310. Cases that do not comply with these requirements must be dismissed. Id.

         BANA contends that it submitted this case to NRED thereby exhausting any administrative requirements that NRS 38.310 may impose. Additionally, BANA argues that NRS 38.310 does not apply because it is a beneficiary of a deed of trust, rather than a homeowner. See U.S. Bank Nat. Ass'n v. NV Eagles, LLC, Case No. 2:15-cv-00786-RCJ-PAL, 2015 WL 4475517, at *3 (D. Nev. July 21, 2015) (declining to extend section 38.310 beyond homeowners in disagreement with their HOAs); See also Nationstar v. Shadow Hills Master Ass'n, Case No. 2:15-cv- 1320-GMN- PAL, 2015 WL 9592498, at *2 (D. Nev. Dec. 31, 2015) (stating Section 38.310 does not apply to beneficiaries of deeds of trust). Other courts in this District have held that the language of NRS 38.310 does not limit its applicability to any particular type of party. See Nationstar Mortgage, LLc v. Sundance Homeowners Ass'n Inc., Case No. 2:15-cv- 01310- GWF-APG, 2016 WL 1259391, at *4 (D. Nev. Mar. 20, 2016) (finding the statute's plain language does not allow for any exceptions based on the identity of the parties to the suit); See also U.S. Bank, N.A. v. Woodchase Condominium Homeowners Association, Case No. 2:15-cv-01153-GWF-APG, 2016 WL 1734085, at *2 (D. Nev. May 2, 2016) (beneficiaries of deeds of trust are required to mediate under Section 38.310). The Supreme Court of Nevada has not yet ruled on the issue. See Nationstar Mortg., LLC v. Sundance Homeowners Ass'n, Inc., Case No. 2:15-cv-01310-APG-GWF, 2016 WL 1259391, at *4.

         Finally, LEACH argues that BANA's claim must be dismissed for failure to state a claim upon which relief may be granted. LEACH bases this claim on two arguments: first, that the firm is not a proper party to the Bank's claim for quiet title/declaratory relief because LEACH does not claim an interest in the property that is adverse to the bank; and second, that BANA's claims for breach of NRS 116.1113 and wrongful foreclosure fail as a matter of law.

         A. BANA's First Cause of Action: Quiet ...


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