Linear Mortgage, LLC v. Williams

          AMENDED ^[1] ORDER (1) GRANTING DEFENDANT LEACH JOHNSON SONG & GRUCHOW, LTD.'S MOTION TO DISMISS, (2) GRANTING IN PART DEFENDANT SIERRA RANCH HOMEOWNERS ASSOCIATION'S MOTION TO DISMISS, AND (3) DENYING MOTION FOR SANCTIONS [ECF NOS. 51, 52, 53]

          ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE

         This is a dispute over property located at 5841 Feral Garden Street, North Las Vegas, Nevada. Plaintiff Linear Mortgage, LLC (Linear) holds a deed of trust that encumbered the property. Defendant Sierra Ranch Homeowners Association (Sierra) foreclosed on the property after the former owner did not pay homeowners association (HOA) assessments. Defendant Saticoy Bay LLC Series 5841 Feral Garden (Saticoy) purchased the property at the HOA foreclosure sale. The parties dispute whether the HOA foreclosure sale extinguished the deed of trust and, if so, whether Sierra and its foreclosure agent, defendant Leach Johnson Song & Gruchow, Ltd. (Leach), owe damages to Linear.

         In count one of its complaint, Linear seeks to determine adverse interests in the property, contending that the HOA foreclosure sale did not extinguish its deed of trust. Linear also asserts against Sierra and Leach claims for breach of Nevada Revised Statutes § 116.1113, wrongful foreclosure, and deceptive trade practices. Sierra and Leach move to dismiss. Leach separately moves for sanctions under Federal Rule of Civil Procedure 11 and for attorney's fees under Nevada Revised Statutes § 18.010.

         The parties are familiar with the facts, and I will not repeat them here except where necessary to resolve the motions. I grant Leach's motion to dismiss and I grant in part Sierra's motion to dismiss, with leave for Linear to amend. I deny Leach's motion for sanctions.

         I. MOTIONS TO DISMISS

         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 assume the truth of legal conclusions merely because they are cast in the form of factual allegations. 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. Timeliness

         Leach and Sierra argue Linear's claims are untimely. They contend that claims challenging a non-judicial foreclosure sale should have been brought within 45 or 60 days of the sale under Nevada Revised Statutes §§ 107.080(5)-(6). Linear responds that its declaratory relief claim is timely because no statute of limitations applies to such a claim, it is a defense to a future wrongful foreclosure claim by Saticoy, or it is subject to a ten-year limitation period in Nevada Revised Statutes § 106.240. Linear argues its damages claims are timely because they have not yet accrued, as Linear has not yet suffered damages. Alternatively, Linear argues these claims are timely because it brought suit within three years of the HOA foreclosure sale. Finally, Linear argues that to the extent a limitation period has run, it should be equitably tolled.

         Leach and Sierra provide no authority for the proposition that the timeliness of a challenge to an HOA foreclosure sale under Chapter 116 is governed by the time limits in § 107.080. That section refers to foreclosures of deeds of trust, not HOA liens. Nev. Rev. Stat. § 107.080(1). All of the claims in Linear's complaint are timely because Linear filed suit within three years of the HOA foreclosure sale.^[2] I therefore deny Leach and Sierra's motions to dismiss on the basis of untimeliness.

         B. Determine Adverse Interests in Property

         Count one of Linear's complaint seeks to determine whether the HOA sale extinguished the deed of trust. This is a claim to determine adverse interests in property under Nevada Revised Statutes § 40.010. That statute provides that “[a]n action may be brought by any person against another who claims an estate or interest in real property, adverse to the person bringing the action, for the purpose of determining such adverse claim.”

         Leach and Sierra contend this claim should be dismissed against them because they do not claim an interest in the property. Sierra also argues this claim fails in terms of its due process allegations.

         Linear responds that Leach and Sierra are proper parties to this claim because if the HOA sale is unwound, Sierra's superpriority lien will be reinstated on the property and Leach will have to refund money it collected from the sale. Linear contends that if Leach and Sierra are not parties, then additional litigation would be necessary to settle the parties' respective rights. It also argues Nevada Revised Statutes § 116.3116 (as it existed at the time of this sale) violated the lienholder's due process rights because it was an unconstitutional opt-in scheme under the reasoning in Bourne Valley Court Trust v. Wells Fargo Bank, N.A., 832 F.3d 1154 (9th Cir. 2016). Alternatively, Linear argues its predecessor's due process rights were violated as applied because it attempted to determine and pay the superpriority amount but was rebuffed.

         1. Proper Parties

         The complaint seeks, among other things, a declaration that the HOA foreclosure sale was void. ECF No. 1 at 18. If the HOA foreclosure sale is invalidated, Sierra's superpriority lien might be reinstated as an encumbrance against the property. Further, the existence and priority of that lien might still be in doubt because Linear alleges its predecessor tendered payment of that lien. “The disposition of this action in the HOA's absence may impair or impede its ability to protect its interests.” U.S. Bank, N.A. v. Ascente Homeowners Ass'n, No. 2:15-cv-00302-JAD-VCF, 2015 WL 8780157, at *2 (D. Nev. Dec. 15, 2015). Additionally, if Linear “succeeds in invalidating the sale without the HOA being a party to this suit, separate litigation to further settle the priority of the parties' respective liens and rights may be necessary.” Id. Thus, if Sierra is dismissed, Linear would not be able to secure the complete relief it seeks. See id.; Fed.R.Civ.P. 19(a). Accordingly, Sierra is a proper party to Linear's quiet title claim, and its motion to dismiss on this basis is denied.

         However, Leach does not assert an interest in the property and there are no plausible allegations that it could or would even if the sale is set aside. There is no allegation that Leach had a lien on the property. Additionally, although Linear contends Leach may have to return funds if the sale is unwound, Leach would not have to return funds to Linear, because Linear did not pay for the property at the HOA foreclosure sale. Linear has no standing to invoke another ...