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U.S. Bank National Association v. Saticoy Bay LLC Series 3930 Swenson

United States District Court, D. Nevada

July 2, 2018

U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR GSAA HOME EQUITY TRUST 2007-3 ASSET-BACKED CERTIFICATES SERIES 2007-3, Plaintiff
v.
SATICOY BAY LLC SERIES 3930 SWENSON; WIMBLEDON TENNIS CLUB HOMEOWNERS ASSOCIATION; and HOMEOWNER ASSOCIATION SERVICES, INC., Defendants

          ORDER GRANTING IN PART THE MOTION TO DISMISS [ECF NO. 17]

          ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE

         Plaintiff U.S. Bank National Association, as Trustee for GSAA Home Equity Trust 2007-3 Asset-Backed Certificates Series 2007-3 (U.S. Bank), sues to determine whether a non-judicial foreclosure sale conducted by defendant Wimbledon Tennis Club Homeowners Association (Wimbledon) extinguished U.S. Bank's deed of trust. Defendant Saticoy Bay LLC Series 3930 Swenson (Saticoy) purchased the property at the homeowners association (HOA) foreclosure sale. Saticoy moves to dismiss, arguing (among other things) that it is a bona fide purchaser for value and U.S. Bank has not alleged any defects that would warrant setting aside the sale. I grant the motion in part.

         I. BACKGROUND

         This is a dispute over property located at 3930 Swenson Street #903 in Las Vegas. ECF No. 1 at 24. In 2006, the prior owner of the property, David Reyna, obtained a loan from Greenpoint Mortgage Funding, Inc., and the loan was secured by a deed of trust encumbering the property. Id. at 22. The deed of trust was assigned to U.S. Bank in April 2013. Id. at 50-52.

         In 2011, defendant Wimbledon recorded a notice of delinquent HOA assessment lien through its agent, defendant Homeowner Association Services, Inc. (HAS). Id. at 54-56. In August 2013, HAS recorded another notice of delinquent assessment lien. Id. at 58-60. About a year later, HAS recorded a notice of default and election to sell. Id. at 62-64. HAS then recorded a notice of sale, setting the sale for June 25, 2015. Id. at 67-69. The sale took place on that date, and defendant Saticoy purchased the property for $27, 051.00. Id. at 71-74.

         U.S. Bank brought this lawsuit against Saticoy, Wimbledon, and HAS, asserting claims for quiet title and declaratory relief. U.S. Bank also asserts an unjust enrichment claim against Saticoy, arguing that if the sale is set aside, Saticoy has unjustly benefitted from using the property since the HOA sale. Alternatively, U.S. Bank alleges that if the sale is not set aside, then Saticoy has unjustly benefitted from U.S. Bank's payment of taxes, insurance, and HOA assessments since the time of the HOA sale.

         II. ANALYSIS

         In considering a motion to dismiss, “all well-pleaded allegations of material fact are taken as true and construed in a light most favorable to the non-moving party.” Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). However, I do not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations in the complaint. See Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994). A plaintiff must make sufficient factual allegations to establish a plausible entitlement to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). Such allegations must amount to “more than labels and conclusions, [or] a formulaic recitation of the elements of a cause of action.” Id. at 555.

         A. Quiet Title/Declaratory Relief

         Saticoy raises a series of arguments directed at the quiet title and related declaratory relief claims. Saticoy contends the sale is presumptively valid and the recitals in the deed upon sale are conclusive proof that the HOA properly gave all of the required notices. Saticoy asserts that U.S. Bank cannot overcome those presumptions because it has not alleged facts supporting its claim that the sale should be equitably set aside. As part of this argument, Saticoy contends: (1) U.S. Bank has unclean hands and failed to mitigate its damages when it did nothing prior to the sale to protect its interest; (2) the sale cannot be set aside because Saticoy is a bona fide purchaser; (3) U.S. Bank has an adequate remedy at law for damages against the HOA; (4) the HOA did not have to identify the superpriority amount in the notices; (5) the HOA sale did not violate due process; (6) the HOA sale was not a taking; (7) the HOA foreclosure statute is not unconstitutionally vague or ambiguous; (8) there is no requirement that the sale be commercially reasonable; and (9) the mortgage protection clause in the Covenants, Conditions, and Restrictions (CC&Rs) is not a basis to set aside the HOA sale.

         U.S. Bank responds that it has adequately alleged bases to set aside the sale, including (1) the notices improperly included collection fees and costs in the lien, did not indicate the HOA was foreclosing on a superpriority lien, and did not identify the superpriority amount or a right to cure; (2) the CC&Rs contain a mortgage protection clause; (3) Saticoy is not a bona fide purchaser; (4) the HOA sale was commercially unreasonable; (5) the sale violated U.S. Bank's due process rights; and (6) the sale constitutes a taking without just compensation.

         1. Unclean hands

         U.S. Bank's quiet title claim sounds in equity because it seeks to resolve competing claims to interests in property. See Shadow Wood HOA v. N.Y. Cmty. Bancorp, Inc., 366 P.3d 1105, 1111 (Nev. 2016) (en banc). “The unclean hands doctrine generally bars a party from receiving equitable relief because of that party's own inequitable conduct.” Las Vegas Fetish & Fantasy Halloween Ball, Inc. v. Ahern Rentals, Inc., 182 P.3d 764, 766 (Nev. 2008) (quotation omitted). The inequitable conduct must be connected to the subject matter or transaction at issue in the litigation and “unconscientious, unjust, or marked by the want of good faith.” Id. (quotation omitted).

         To determine whether the unclean hands doctrine applies, I consider two factors: “(1) the egregiousness of the misconduct at issue, and (2) the seriousness of the harm caused by the misconduct.” Id. at 767. The unclean hands doctrine will bar an equitable remedy “[o]nly when these factors weigh against granting the requested equitable relief.” Id. I have “broad discretion in applying these factors, ” but my determination must be supported by “substantial evidence.” Id.

         Saticoy's motion based on unclean hands is premature. Any determination of whether to apply the doctrine must be based on substantial evidence and a weighing of the misconduct versus the seriousness of the harm that misconduct caused. I have no evidence before me on these factors at the motion to dismiss stage. I therefore deny Saticoy's motion to dismiss based on unclean hands.

         2. Failure to mitigate

         A party generally “cannot recover damages for loss that he could have avoided by reasonable efforts.” Sheehan & Sheehan v. Nelson Malley & Co., 117 P.3d 219, 226 (Nev. 2005) (quotation omitted). Failure to mitigate damages is an affirmative defense for which Saticoy bears the burden of proof. Id.; see also Clark Cty. Sch. Dist. v. Richardson Const., Inc., 168 P.3d 87, 95 & n.20 (Nev. 2007). Saticoy has not presented evidence in support of this affirmative defense. I therefore deny the motion based on failure to mitigate.

         3. Adequate remedy at law

         Generally, a party cannot obtain an equitable remedy when it has an adequate remedy at law. Las Vegas Valley Water Dist. v. Curtis Park Manor Water Users Ass'n, 646 P.2d 549, 551 (Nev. 1982). However, Nevada Revised Statutes § 40.010, which allows for resolving disputes involving adverse interests in property, “essentially codified” Nevada's historical recognition “that courts retain the power to grant equitable relief from a defective foreclosure sale when appropriate . . . .” Shadow Wood HOA, 366 P.3d at 1111-12. Thus, while the availability of other remedies (both before and after the sale) may bear on the equities, [1] a claim to set aside an allegedly defective foreclosure sale is necessarily an equitable one that will impact the various interests in the property and their relative priority. U.S. Bank seeks not just repayment of its loan, but the right to resort to this particular property as security for repayment. No. remedy at law could overturn the foreclosure sale and reinstate U.S. Bank's lien on the property. See Bank of Am., N.A. v. Diamond Fin., LLC, 42 N.E.3d 1151, 1156-57 (Mass. 2015) (concluding a legal remedy was inadequate because “money damages would not restore the plaintiff to ...


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