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Bank of New York Mellon v. James Lutz Trust

United States District Court, D. Nevada

November 14, 2017

Bank of New York Mellon, Plaintiff
v.
James Lutz Trust, et al., Defendants

          ORDER STAYING AND DENYING ALL PENDING MOTIONS, [ECF NOS. 33, 34, 36]

          Jennifer A. Dorsey United States District Judge.

         Order Bank of New York Mellon filed this action to challenge a homeowners association's (HOA's) non-judicial foreclosure sale of a home on which the bank held a first deed of trust, after the Nevada Supreme Court held in SFR Investments Pool 1, LLC v. U.S. Bank that an HOA's proper foreclosure under Nevada's statutory scheme “will extinguish a first deed of trust.”[1] A federal-state split in the interpretation and effect of the statute has arisen, and the bank has moved to dismiss the purchaser's counterclaims, primarily arguing that the federal approach controls.[2] But because an impending answer to a question certified to the Nevada Supreme Court may soon resolve this split, I sua sponte stay this case pending that answer and deny all pending motions.

         Background

         In the decade since Las Vegas's real estate crash, lenders and investors have battled over the legal effect of an HOA's nonjudicial foreclosure of a superpriority lien on a lender's first trust deed. After the Nevada Supreme Court held in SFR that a properly conducted foreclosure sale extinguishes a first-trust-deed interest, the banks' emphasis shifted to their constitutional challenge-they contend that the statute on its face violated their due process rights before it was amended in 2015 because it did not require HOAs to give notice to first-trust-deed holders. The Ninth Circuit panel in Bourne Valley Court Trust v. Wells Fargo Bank agreed.[3] The lynchpin of that holding is the panel's interpretation of Chapter 116's notice requirements: it found that the statute's scheme was an opt-in one that required notice of the foreclosure “only if the lender had affirmatively requested notice, ” expressly rejecting the notion that NRS Chapter 116 incorporated the notice rules from NRS 107.090 so foreclosing HOAs “were required to provide notice to mortgage lenders even absent a request.”[4]

         The Nevada Supreme Court expressly “declined to follow” Bourne Valley in Saticoy Bay v. Wells Fargo and held that “the Due Process Clauses of the United States and Nevada Constitutions are not implicated in an HOA's nonjudicial foreclosure of a superpriority lien.”[5]But the Saticoy Bay decision turned on the absence of state action, so the court did “not determine whether NRS 116.3116 et seq. incorporates the notice requirements set forth in NRS 107.090.”[6]

         The Bourne Valley purchaser petitioned for a writ of certiorari in the United States Supreme Court to resolve the federal-state split, but cert was denied.[7] So, this court is now bound to follow Bourne Valley unless and until the Nevada Supreme Court indicates that the panel's interpretation of NRS 116.3116 was incorrect.[8]

         That indication may be on its way. In accepting a certified question from Judge Boulware from this district, the Nevada Supreme Court has agreed to address the issue it shelved in Saticoy Bay:

Whether NRS § 116.31168(1)'s incorporation of NRS § 107.090 required a homeowner's association to provide notices of default and/or sale to persons or entities holding a subordinate interest even when such persons or entities did not request notice, prior to the amendments that took effect on October 1, 2015?[9]

         Briefing is underway and is scheduled to be completed later this month. And if the footnotes in the Nevada Supreme Court's recent unpublished orders are any indication, the answer will likely be yes.[10] So, to save the parties from the need or inclination to invest resources further briefing the effect of Bourne Valley before the Nevada Supreme Court answers this certified question, I sua sponte stay this case pending the answer to the certified question and deny all pending motions[11] without prejudice to their refiling after the stay is lifted.

         Discussion

         A district court has the inherent power to stay cases to control its docket and promote the efficient use of judicial resources.[12] When determining whether a stay is appropriate pending the resolution of another case-often called a “Landis stay”-the district court must weigh: (1) the possible damage that may result from a stay, (2) any “hardship or inequity” that a party may suffer if required to go forward, (3) “and the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law” that a stay will engender.[13] I find that a Landis stay is appropriate here.

         A. A stay will promote the orderly course of justice.

         At the center of this case is an HOA-foreclosure sale under NRS Chapter 116 and the competing arguments that the foreclosure sale either extinguished the bank's security interest or had no legal effect because the statutory scheme violated the bank's due-process rights. When a federal right depends on the interpretation of state law as this due-process challenge does, the federal courts must apply the interpretation of that law ascribed by the state's highest court.[14]And when “the state's highest court has not adjudicated the issue, a federal court must make a reasonable determination of the result the highest state court would reach if it were deciding the case.”[15] But that determination is just an educated guess of how the state's highest court would interpret its law.[16] And a panel's prediction binds lower courts only “in the absence of any subsequent indication” from the state's highest court that the panel's “interpretation was incorrect.”[17]

         For Bourne Valley's interpretation of NRS 116.3116, that “subsequent indication” may be nigh. The Nevada Supreme Court's acceptance of a certified question about its foundational statutory interpretation leaves the continued viability of Bourne Valley uncertain. Because that answer-which may be dispositive of the central issues in this case-is imminent, it makes judicially economical sense to wait for it before making dispositive rulings in this case. Each time the jurisprudence in this area of unique Nevada law evolves, the parties in the scores of foreclosure-challenge actions pending in this courthouse file new motions or move to supplement the ones that they already have pending, often resulting in docket-clogging entries and an impossible-to-follow chain of briefs in which arguments are abandoned and replaced. Staying this case pending the answer to the certified question will ...


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