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Penrose v. First Magnus Financial Corp.

United States District Court, D. Nevada

July 24, 2018




         This is an action to prevent the nonjudicial foreclosure of residential property. Now pending before the Court are Plaintiffs motions for temporary restraining order and preliminary injunction (ECF Nos. 3, 4), and Defendants' motion to dismiss, (ECF No. 8). For the reasons given herein, the Court denies Plaintiffs motions and grants the motion to dismiss.


         In May 2005, non-party Randall G. Sotke purchased the subject property, located at 3285 Lymbery Street in Reno, Nevada ("the Property"), taking a $180, 000 loan secured by a deed of trust ("the DOT"). First Magnus Financial Corporation was the lender, First Centennial Title was the trustee, and MERS was the beneficiary. (Deed, ECF No. 8-1.) In July 2007, Sotke sold the property to Plaintiff Herbert Penrose. (Sale Deed, ECF No. 8-4; see also Mot. Dismiss 3, ECF No. 8.) The sale was subject to a separate agreement, recorded the same day. (See Affirmation Agreement, ECF No. 8-5.) Under that agreement, Penrose accepted the obligation to perform all the terms of Sotke's original promissory note and DOT. The agreement provided that Sotke would remain liable on the note and DOT, and also provided for liquidated damages to be paid to Sotke in the event that Penrose's failure to make the monthly mortgage payments resulted in a notice of default being recorded against the Property. This provision was triggered on October 27, 2008, when the first of several notices of default was recorded.

         On October 3, 2011, Penrose filed a lawsuit in Nevada state court against First Magnus, MERS, and several other defendants, asserting allegations of predatory lending and fraud. Penrose v. First Magnus Fin. Corp., No. CV11-02907 (Nev. 2nd Jud. Dist. Ct.).[1] The case was dismissed for lack of standing because Penrose was not a party to the original loan transaction. (See Dismissal Order 3, ECF No. 8-22.) The state court's order also observed that "no payment has been made towards [Sotke's] debt since 2008." (Id.)

         On March 27, 2015, Penrose filed a quiet title action in state court against Nationstar Mortgage, LLC, and five other defendants not named here. Penrose v. Quality Loan Serv. Corp., No. CV15-00566 (Nev. 2nd Jud. Dist. Ct.). This case was also dismissed, with the court stating:

Penrose is hereby precluded from filing any new legal action related to the Subject Property without approval of this Court. The Clerk of Court is hereby directed to forward any new legal pleadings related to 3285 Lymberry [sic] Street, Reno, Nevada, to this Court prior to being accepted for filing.

(Dismissal Order 2, ECF No. 8-25.) Penrose appealed the dismissal to the Nevada Supreme Court, which affirmed. Penrose v. Quality Loan Serv. Corp., No. 68946, 2016 WL 1567517, at *1 (Nev. Apr. 15, 2016). In its order, the Supreme Court addressed two primary arguments. First, the Court found there was "no set of facts that [Penrose] could have established under which Nationstar Mortgage would have been time-barred from foreclosing on the subject property." Second, the Court rejected Penrose's lack-of-standing argument based on a "broken" chain of title. In reality, there was no break in the chain; at most, there was a superfluous assignment which did not threaten Nationstar's interest. However, the Supreme Court did vacate mat portion of the dismissal order which imposed a filing restriction, because the lower court had not made "substantive findings as to the frivolous or harassing nature of the litigant's actions." Id. (quoting Jordan v. State ex rel. Dep't of Motor Vehicles & Pub. Safety, 110 P.3d 30, 43-44 (Nev. 2005)).

         On May 21, 2018, a notice of trustee's sale was recorded, indicating the Property would be sold at auction at 11:00 AM on June 14, 2018. Penrose filed the instant action on June 12, alleging ten causes of action: (1) lack of standing to foreclose; (2) fraud in the concealment; (3) fraud in the inducement; (4) intentional infliction of emotional distress; (5) quiet title; (6) slander of title; (7) declaratory relief; (8) violations of the Truth in Lending Act ("TILA"); (9) violations of the Real Estate Settlement Procedures Act ("RESPA"); and (10) rescission. On June 13, Penrose filed motions for temporary restraining order and preliminary injunction. On the morning of June 14, he recorded a notice of lis pendens in the chain of title. The Court promptly reviewed Penrose's Complaint and motions, and concluded there was no basis to grant the request for temporary restraining order. See infra pp. 5-7. Accordingly, the Court opted to permit Defendants to respond to the motion for preliminary injunction and calendar a date for oral argument. On June 27, 2018, Defendants filed their response. On July 3, 2018, Defendants filed their motion to dismiss. On July 24, 2018, the Court heard oral arguments.


         a. Motion for Preliminary Injunction

         Temporary restraining orders and preliminary injunctions are governed by the same standard. See Cal. Indep. Sys. Operator Corp. v. Reliant Energy Servs., Inc., 181 F.Supp.2d 1111, 1126 (E.D. Cal. 2001) ("The standard for issuing a preliminary injunction is the same as the standard for issuing a temporary restraining order."). To obtain the "extraordinary remedy" of preliminary injunctive relief, a movant must show "that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Stormans, Inc. v. Selecky, 586 F.3d 1109, 1127 (9th Cir. 2009) (citing Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 129 S.Ct. 365, 374, 172 L.Ed.2d 249 (2008)).

         b. Motion to Dismiss

         Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief in order to "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Conley v. Gibson,355 U.S. 41, 47 (1957). Federal Rule of Civil Procedure 12(b)(6) mandates that a court dismiss a cause of action that fails to state a claim upon which relief can be granted. A motion to dismiss under Rule 12(b)(6) tests the complaint's sufficiency. See N. Star Int'l v. Ariz. Corp. Comm 'n,720 F.2d 578, 581 (9th Cir. 1983). When considering a motion to dismiss under Rule 12(b)(6) for failure to state a claim, dismissal is appropriate only when the complaint does not give the defendant fan-notice of a legally cognizable claim and the grounds on which it rests. See Bell Atl. Corp. v. Twombly,550 U.S. 544, 555 (2007). In considering whether the complaint is sufficient to state a claim, the court will take all material allegations as true and construe them in the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan,7 ...

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