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Wells Fargo Bank, N.A. v. Commonwealth Land Title Insurance Company

United States District Court, D. Nevada

May 9, 2019

WELLS FARGO BANK, N.A., Plaintiff
v.
COMMONWEALTH LAND TITLE INSURANCE COMPANY, Defendant

          ORDER (1) DENYING DEFENDANT'S MOTION TO DISMISS, (2) GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND (3) DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT [ECF NOS. 42, 43, 52]

          ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE

         Plaintiff Wells Fargo Bank, N.A. was the beneficiary under a deed of trust encumbering property in Las Vegas, Nevada to secure a loan. The deed of trust was extinguished by a non-judicial foreclosure sale conducted by the homeowners' association (HOA) covering the property. Wells Fargo filed a claim under its title insurance policy with its insurer Commonwealth Land Title Insurance Company. Commonwealth denied the claim on the grounds that it was filed too late and the policy did not cover this type of title defect. Wells Fargo then sued Commonwealth, alleging breach of contract, contractual and tortious breaches of the implied covenant of good faith and fair dealing, and breach of fiduciary duties. Both parties move for summary judgment, and Commonwealth also moves to dismiss Wells Fargo's first amended complaint for lack of subject matter jurisdiction.

         I. BACKGROUND

         In November 2006, Yanee Survivong and Bindit Songsunguen borrowed $299, 296 from Mylor Financial to purchase a home at 107 Manor House Avenue, Las Vegas, Nevada 89123.[1]The loan was secured by a deed of trust recorded against the property, which identified Mylor as the lender and Mortgage Electronic Registration Systems, Inc. (MERS) as beneficiary acting solely as a nominee for Mylor and its successors and assigns.[2] The deed of trust was insured by a title insurance policy issued by Commonwealth.[3] Mylor later assigned its interest in the loan to Wells Fargo, in its capacity as “Trustee for Structured Asset Mortgage Investments II Inc. Bear Stearns Mortgage Funding Trust 2007-AR1, Mortgage Pass-Through Certificates, Series 2007-AR1.”[4]

         The property is part of the Spinnaker Homes at Stone Haven Commons HOA.[5] The borrowers fell into arrears on their HOA assessments and the HOA recorded a notice of delinquent assessment and a notice of default and election to sell in 2009.[6] Two years later, the HOA recorded a notice of trustee's sale.[7] The property was then sold to Spinnaker at a non-judicial foreclosure sale.[8] Spinnaker transferred its interest in the property to LVDG, LLC by a quitclaim deed, which LVDG claims gives it an interest in the property superior to Wells Fargo's deed of trust.[9] In 2013, Wells Fargo sued the borrowers and LVDG in Nevada state court, [10] and LVDG counterclaimed, asserting that its interest in the property was superior to Wells Fargo's and that Wells Fargo's deed of trust was extinguished by the HOA sale.[11] That litigation was ongoing at the time Wells Fargo filed its complaint in this case.

         In early 2014, Wells Fargo informed Commonwealth in writing that LVDG was claiming a superior interest in the property and requested that Commonwealth indemnify Wells Fargo in the state-court litigation.[12] Commonwealth denied the claim because it did not fall within the scope of the policy.[13] Nearly a year later, Wells Fargo requested that Commonwealth reconsider its denial of coverage.[14] Commonwealth refused, citing the same reasons as before.[15]

         Wells Fargo sued Commonwealth for breach of contract, contractual and tortious breaches of the implied covenant of good faith and fair dealing, and breach of fiduciary duties. It moves for partial summary judgment on its claims for breach of contract, tortious breach of the implied covenant, and breach of fiduciary duties. Commonwealth moves for summary judgment on all claims. While the motions for summary judgment were pending, Commonwealth filed an additional motion to dismiss Wells Fargo's first amended complaint, arguing that this court lacks subject matter jurisdiction because the amount in controversy is below the jurisdictional minimum.

         II. ANALYSIS

         A. Commonwealth's Motion to Dismiss

         “Federal district courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute . . . .”[16] The court cannot reach the merits of any case until it confirms its own subject matter jurisdiction.[17]

         Wells Fargo asserts the court's diversity jurisdiction, which permits state-law claims in federal court if the value of the claim exceeds $75, 000 and the parties are citizens of different states.[18] When a plaintiff originally files the suit in federal court, the amount in controversy is determined from the face of the complaint as long as the sum claimed is made in good faith.[19]Dismissal is justified only where it appears to a legal certainty that the claim is for less than the jurisdictional amount.[20]

         Commonwealth argues that Wells Fargo could not claim damages in excess of $75, 000 at the time it filed its complaint because at that time it had not suffered an indemnifiable loss under the insurance policy.[21] Wells Fargo does not oppose this assertion in its response. As a result, Wells Fargo must rely on its claim for litigation expenses incurred in defending its interest in the property to meet the jurisdictional minimum.

         Commonwealth argues that Wells Fargo fails to meet the jurisdictional minimum because it had accrued only $19, 792.50 in attorneys' fees in the state-court action at the time it filed its complaint in this case.[22] However, Wells Fargo asserted in its complaint that its defense of its interest in the property was ongoing.[23] Wells Fargo's theory of recovery has always been that Commonwealth breached the insurance policy by refusing to defend Wells Fargo in the state-court litigation.[24] It argues that the amount in controversy in this case is the damages it has continued to sustain because of Commonwealth's breach of the policy.[25]

         Commonwealth argues that I cannot consider attorneys' fees Wells Fargo had not yet incurred because the amount in controversy is determined as of the date the complaint is filed.[26]But that “does not mean that the mere futurity of certain classes of damages precludes them from being part of the amount in controversy.”[27] In Chavez v. JPMorgan Chase & Co., the plaintiff sought past and future lost wages as the result of a wrongful termination.[28] The defendant removed the case to federal court and successfully moved for summary judgment.[29] On appeal, the plaintiff argued that the federal court lacked subject matter jurisdiction because the amount in controversy at the time of removal, which she argued was limited to her lost wages before removal, was less than $75, 000.[30] The Ninth Circuit clarified that “the amount in controversy is not limited to damages incurred prior to removal, ” but rather “encompasses all relief a court may grant” if the plaintiff's claims are successful.[31] “The amount in controversy is what is at stake in the litigation” at the time of filing, and when a plaintiff's complaint claims future losses, those losses can be included in the amount in controversy.[32]

         While Wells Fargo's claim is different from the one at issue in Chavez, its complaint presents similar amount-in-controversy issues. The complaint asserts continued losses resulting from the alleged breach of contract, including ongoing litigation expenses incurred to defend Wells Fargo's interest in the property. These allegations and prayer for relief place the future litigation expenses at stake at the time of the complaint and allow me to consider them in calculating the amount in controversy.

         Commonwealth has therefore not shown that it is a legal certainty that Wells Fargo cannot reach the jurisdictional minimum to establish diversity jurisdiction. I therefore deny Commonwealth's motion to dismiss for lack of subject matter jurisdiction.

         B. Motions for Summary Judgment and Partial Summary Judgment

         Summary judgment is appropriate when the pleadings and evidence “show there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.”[33] When considering summary judgment, I view all facts and draws all inferences in the light most favorable to the nonmoving party.[34] If reasonable minds could differ on material facts, summary judgment is inappropriate because its purpose is to avoid unnecessary trials when the facts are undisputed.[35] If the moving party demonstrates the absence of any genuine issue of material fact, the burden shifts to the party resisting summary judgment to “set forth specific facts showing that there is a genuine issue for trial.”[36] “To defeat summary judgment, the nonmoving party must produce evidence of a genuine dispute of material fact that could satisfy its burden at trial.”[37] “When simultaneous cross-motions for summary judgment on the same claim are before the court, the court must consider the appropriate evidentiary material identified and submitted in support of”-and against-“both motions before ruling on each of them.”[38]

         1. Breach of Contract

         Wells Fargo alleges that Commonwealth denied its claim in violation of the policy. Both parties move for summary judgment on this claim. Commonwealth argues that Wells Fargo did not promptly tender its claim and that when the claim was tendered it was unclear whether it was on Wells Fargo's behalf. Commonwealth also argues that the claim is not covered under the policy, so denying the claim was not a breach of contract. I need not address the issues regarding tender of the claim because the claim is not covered under the policy.

         The policy specifically excludes from coverage any losses arising because of “[d]efects, liens, encumbrances, adverse claims or other matters . . . attaching or created subsequent to” the date of the policy, November 29, 2006.[39] Also, Schedule B contains 17 exceptions from coverage. Exception 17 states that the policy “does not insure against loss or damage . . . which arise by reason of” the CC&Rs; it also states: “Said covenants, conditions and restrictions provide that a violation thereof shall not defeat the lien of any . . . Deed of Trust . . . .”[40]

         Commonwealth argues that Wells Fargo's claim is excluded under exception 17 because the claim arose as a result of an HOA lien provided for in the CC&Rs. Wells Fargo responds that even if that is correct, two endorsements to the policy bring the claim back within coverage. Endorsement 100 paragraph 1(a) provides for coverage

against loss which the insured shall sustain by reason of . . . [a]ny incorrectness in the assurance which the Company hereby gives: . . . [t]hat there are no covenants, conditions, or restrictions under which the lien of the mortgage referred to in Schedule A can be cut off, subordinated, or otherwise impaired.[41]

         Wells Fargo argues this applies because Commonwealth, in exception 17, assured that a violation of the CC&Rs would not defeat Wells Fargo's deed of trust. Wells Fargo also relies on endorsement 115.2, which provides coverage for “loss or damage sustained by reason of . . . [t]he priority of any lien for charges and assessments at Date of Policy in favor of any [HOA] which are provided for in” the CC&Rs.[42] Wells Fargo argues that, under Nevada law, the HOA lien was perfected as of the date of the recording of the CC&Rs, so the HOA lien existed as of the date of the policy even though no amount was owing at that time.

         Wells Fargo's claim is excluded under exception 17, and the endorsements do not revive it. Contrary to Wells Fargo's argument, exception 17 is not an assurance that the CC&Rs cannot subordinate or cut off Wells Fargo's deed of trust. Rather, Commonwealth merely summarized what the CC&Rs said: that the CC&Rs contain a provision that an HOA assessment lien would not negatively affect Wells Fargo's deed of trust. While that statement in the CC&Rs may have been incorrect as a matter of law, the HOA's lien extinguished the deed of trust as a function of Nevada law and not of the CC&Rs themselves. Commonwealth gave no assurance that the statement in the CC&Rs was correct, it merely gave notice of what the CC&Rs said. Thus, endorsement 100 does not bring this claim back into the policy's coverage.

         Wells Fargo's reliance on endorsement 115.2 is similarly misplaced because there was no HOA lien at the date of the policy; it arose later.[43] Under Nevada Revised Statutes § 116.3116(9), the HOA lien was perfected automatically as of the date of the CC&Rs' recording. But no lien existed until the amount became due later. So, there was no HOA assessment lien as of the date of the policy and endorsement 115.2 does not provide coverage for Wells Fargo's claim.

         Because Wells Fargo's claim was not covered by the policy, Commonwealth did not breach the contract when it denied coverage. I therefore grant summary judgment in Commonwealth's favor on this claim.

         2. Breach of Implied Covenant of Good Faith and Fair Dealing

         Under Nevada law, “[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and execution.”[44] “The implied covenants of good faith and fair dealing impose a burden that requires each party to a contract to refrain from doing anything to injure the right of the other to receive the benefits of the agreement.”[45]

         To establish a claim for breach of the implied covenant, a plaintiff must prove: (1) the existence of a contract between the parties; (2) that the defendant breached its duty of good faith and fair dealing by acting in a manner unfaithful to the purpose of the contract; and (3) the plaintiff's justified expectations under the contract were denied.[46] Generally, the remedy for a breach of the implied ...


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