ROBERT C. JONES, District Judge.
This case arises out of a completed homeowners' association ("HOA") foreclosure sale and an impending HOA foreclosure sale of the same property by a different HOA. Pending before the Court are two Motions to Dismiss the Complaint (ECF Nos. 24, 27), a Motion to Dismiss the Counterclaim (ECF No. 42), and a Motion for a Preliminary Injunction (ECF No. 46). For the reasons given herein, the Court denies the motions to dismiss the Complaint, grants the motion to dismiss the Counterclaim, with leave to amend, and consolidates the motion for a preliminary junction with a trial on the merits of Plaintiff's second claim.
Plaintiff U.S. Bank, N.A. became the successor beneficiary of a $236,000 promissory note and first deed of trust encumbering real property at 2546 Napoli Dr., Sparks, NV 89434 (the "Property") on October 7, 2013. (Compl. ¶¶ 2, 6-19, ECF No. 1). On June 6, 2013, Defendants had conducted a non-judicial HOA foreclosure sale of the Property at which Defendant SFR Investments Pool 1, LLC ("SFR") purchased the Property for $9,000. (Id. ¶¶ 31-32). Prior to the sale, however, counsel for Plaintiff's predecessor-in-interest had tendered the $288 super-priority amount of the HOA lien to Defendant Alessi & Koenig, LLC ("Alessi"), counsel for Defendant D'Andrea HOA, but Alessi had rejected the tender. (Id. ¶¶ 24-30).
Plaintiff sued SFR, D'Andrea HOA, Alessi, Siena HOA, and The Clarkson Law Group, P.C. ("Clarkson") for: (1) quiet title (SFR, D'Andrea HOA, and Siena HOA); (2) a preliminary injunction (SFR, Siena HOA, and Clarkson); (3) wrongful foreclosure (D'Andrea HOA and Alessi); (4) Negligence (D'Andrea HOA and Alessi); (5) Negligence Per Se (D'Andrea HOA and Alessi); (6) Breach of Contract (D'Andrea HOA and Alessi); (7) Misrepresentation (D'Andrea HOA); (8) Unjust Enrichment (SFR, D'Andrea HOA, and Alessi); and (9) Breach of the Covenant of Good Faith and Fair Dealing (D'Andrea HOA and Alessi). SFR answered and filed a Counterclaim for declaratory relief that the June 6, 2013 foreclosure sale at which it purchased the Property extinguished U.S. Bank's deed of trust against the Property under Nevada Revised Statutes section ("NRS") 116.3116. Clarkson has moved to dismiss the single claim against it in the Complaint for a preliminary injunction. Siena HOA has separately moved to dismiss the quiet title and preliminary injunction claims for failure to state a claim. US Bank has moved to dismiss the Counterclaim and has moved for a preliminary injunction preventing Siena HOA and its agents (including Clarkson) from conducting a sale of the Property.
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, 78 S.Ct. 99, 2 L.Ed.2d 80 (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 fair notice of a legally cognizable claim and the grounds on which it rests. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (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, 792 F.2d 896, 898 (9th Cir.1986). The court, however, is not required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences. See Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.2001).
"Generally, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion. However, material which is properly submitted as part of the complaint may be considered on a motion to dismiss." Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n. 19 (9th Cir.1990) (citation omitted). Similarly, "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss" without converting the motion to dismiss into a motion for summary judgment. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994). Moreover, under Federal Rule of Evidence 201, a court may take judicial notice of "matters of public record." Mack v. S. Bay Beer Distribs., Inc., 798 F.2d 1279, 1282 (9th Cir.1986). Otherwise, if the district court considers materials outside of the pleadings, the motion to dismiss is converted into a motion for summary judgment. See Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir.2001).
The Court of Appeals in the past set forth two alternative sets of criteria for determining whether to grant preliminary injunctive relief:
Ranchers Cattlemen Action Legal Fund United Stockgrowers of Am. v. U.S. Dep't of Agric., 415 F.3d 1078, 1092-93 (9th Cir. 2005) (quoting Save Our Sonoran, Inc. v. Flowers, 408 F.3d 1113, 1120 (9th Cir. 2005)) (citations and internal quotation marks omitted). The Supreme Court later ruled, however, that a plaintiff seeking an injunction must demonstrate that irreparable
A Court of Appeals ruling relying largely on the dissenting opinion in Winter parsed the language of Winter and subsequent Court of Appeals rulings and determined that the sliding scale test remained viable when there was a lesser showing of likelihood of success on the merits amounting to "serious questions," but not when there is a lesser showing of likelihood of irreparable harm. See Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134 (9th Cir.2011). This case presents some difficulty in light of Winter and prior Court of Appeals cases. To the extent Cottrell's interpretation of Winter is inconsistent with Selecky, Selecky controls. See Miller v. Gammie, 335 F.3d 889, 899 (9th Cir.2003) (en banc) (holding that, in the absence of an intervening Supreme Court decision, only the en banc court may overrule a decision by a three-judge panel). The Supreme Court stated in Winter that "[a] plaintiff seeking a preliminary injunction must establish 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." Winter, 555 U.S. at 20, 129 S.Ct. 365 (citing Munaf v. Geren, 553 U.S. 674, 128 S.Ct. 2207, 2218-19, 171 L.Ed.2d 1 (2008); Amoco Prod. Co. v. Gambell, 480 U.S. 531, 542, 107 S.Ct. 1396, 94 L.Ed.2d 542 (1987); Weinberger v. Romero-Barcelo, 456 U.S. 305, 311-12, 102 S.Ct. 1798, 72 L.Ed.2d 91 (1982)) (emphases added). The test is presented as a four-part conjunctive test, not as a four-factor balancing test, and the word "likely" modifies the success-on-the-merits prong in exactly the same way it separately modifies the irreparable-harm prong. In rejecting the sliding-scale test as to the irreparable-injury prong of the test, the Winter Court emphasized the fact that the word "likely" modifies the irreparable-injury prong. See id. at 22, 129 S.Ct. 365. The word "likely" modifies the success-on-the-merits prong the same way. See id. at 20, 129 S.Ct. 365.
In summary, to satisfy Winter, a movant must show that he is "likely" to succeed on the merits. According to a layman's dictionary, "likely" means "having a high probability of occurring or being true." Merriam-Webster Dictionary, http://www.merriam-webster.com/dictionary/likely. Black's defines the "likelihood-of-success-on-the-merits test" more leniently as "[t]he rule that a litigant who seeks [preliminary relief] must show a reasonable probability of success...." Black's Law Dictionary 1012 (9th ed.2009). The Court must reconcile the cases by interpreting the Cottrell "serious questions" requirement to be in harmony with the Winter/Selecky "likelihood" standard, not as being in competition with it. "Serious questions going to the merits" must therefore mean that there is at least a reasonable probability of success on the merits.
Clarkson notes that a preliminary injunction is not a separate cause of action but a remedy. But although Plaintiff appears to seek a preliminary injunction in the Complaint (and has separately sought one via the present motion), the claim can also fairly be perceived as requesting permanent injunctive relief under 28 U.S.C. § 2202 based on a favorable ruling on the first cause of action under § 2201. Such a claim for "further relief" attendant to a potential declaration under § 2201 is appropriate. Clarkson also argues, however, that it is not a proper party to the Complaint at all because it is simply alleged to have recorded a Notice of Delinquent Assessment Lien ("NDAL") on behalf of Siena HOA
The Court agrees there will be no ripe quiet title controversy as between Siena HOA, Clarkson, and Plaintiff unless and until Siena HOA causes Clarkson to conduct a foreclosure sale that could affect Plaintiff's lien. There is a ripe quiet title claim against D'Andrea HOA, Alessi, and SFR based on the 2013 foreclosure, of course. As to the 2013 foreclosure, Plaintiff alleges D'Andrea HOA's agent, Alessi, wrongfully rejected tender of the superpriority amount before selling the Property to SFR. But Clarkson, like Siena HOA, is not alleged to have had anything to do with the 2013 foreclosure. Still, the Court can fairly interpret Plaintiff's claim against Siena HOA and Clarkson as a claim for a declaration of the superpriority amount of Siena HOA's current lien under NRS 116.3116 and for potential further relief. See 28 U.S.C. § 2201, 2202. Siena HOA has recorded the NDAL such that Plaintiff must now pay the superpriority amount to Siena HOA or its agent before the impending foreclosure in order to protect its own lien. There is a ripe controversy over the correct superpriority amount, because Clarkson has allegedly refused to identify that amount despite a request by Plaintiff. Rather, Clarkson has responded essentially that Plaintiff can take its chances by paying a lesser amount than the full HOA lien if it wishes. Forcing Plaintiff to make
US Bank argues against SFR's Counterclaim on five bases: (1) NRS 116.3116 et seq. are unconstitutional under the Due Process Clause for lack of notice; (2) NRS 116.3116 is unconstitutional under the Takings Clause; (3) the interpretation of NRS 116.3116 by the Nevada Supreme Court in SFR Invs. Pool 1, LLC v. U.S. Bank, N.A., ___ Nev. ___, 334 P.3d 408 (2014) is contrary to public policy; (4) the sale was commercially unreasonable under Nevada law; and (5) SFR Invs. Pool I, LLC should be applied only prospectively, i.e., only to HOA foreclosures occurring after the announcement of that opinion. SFR has not timely responded even within the two-week extension of time granted. This is enough to grant the motion. See Local R. 7-2(d). However, the Court will address the motion on the merits, as well.
A federal court must honor state law in diversity cases, Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), as authoritatively interpreted by the state's own courts, Comm'r v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967) (citing id.). A federal court may not under Erie countermand a state court's authoritative interpretation of a state statute based upon the federal court's own sense of public policy under state law. A state's own public policy is inherent in its statutes and the authoritative judicial opinions interpreting them. A pronouncement by a federal court that a state's own public policy requires a different interpretation or application of a statute than the state's highest court has given it would run afoul of Erie, because a state's highest court presumably considers public policy when it interprets state statutes and implicitly rejects any public policy arguments against the interpretation it adopts. Only if a state supreme court were to announce a public policy in a later case after having previously interpreted a statute would it arguably be appropriate for a federal court sitting in diversity to anticipate that the state supreme court would alter its previous interpretation of the statute based on its later pronouncement of the state's public policy. US Bank does not allege such a pattern of events.
On the other hand, a federal court may strike down a state statute under the "substantive due process" component of the Due Process Clause of the Fourteenth Amendment where a law deprives a person of a right to life, liberty, or property that a court in its "reasoned judgment" believes is "fundamental," even if the proffered right is not specifically listed in the Constitution, so long as the right can be perceived from history, tradition, or "new insight." Obergefell v. Hodges, ___ U.S. ___, 135 S.Ct. 2584, 2597-98, 2605-06 (2015) (liberty interest) ("[T]he Constitution contemplates that democracy is the appropriate process for change, so long as that process does not abridge fundamental rights. [But] when the rights of persons are violated, the Constitution requires redress by the courts, notwithstanding the more general value of democratic decisionmaking." (citations and internal quotation marks omitted)); see also Lochner v. New York, 198 U.S. 45, 56-57, 25 S.Ct. 539, 49 L.Ed. 937 (1905) (liberty and property interests) ("This is not a question of substituting the judgment of the court for that of the legislature.... It is a question of which of two powers or rights shall prevail, the power of the state to legislate or the right of the individual to liberty of person and freedom of contract."). A court should only exercise its reasoned
The doctrine of substantive due process is the closest thing of which the Court is aware to a federal judicial power to strike down a state law based on a federal court's own notions of good policy. US Bank has not made a substantive due process argument, but Obergefell was decided after the present motion was filed, and the theory of substantive due process reinvigorated therein had been long discredited before that opinion was announced. Normally, the Court would permit U.S. Bank to make such an argument in a subsequent motion to dismiss if it wished to do so, because the defense was not available when U.S. Bank filed the present motion, see Fed.R.Civ.P. 12(g)(2), but the issue is moot because the Court dismisses the Counterclaim for another reason, see infra, with leave to amend. US Bank may attack any amended complaint on the bases noted here and may amend the Complaint to plead a substantive due process theory if it wishes.
US Bank argues that SFR Investments Pool 1's interpretation of NRS 116.3116 should not apply retroactively, i.e., that it should only apply to HOA foreclosure sales occurring after the date SFR Invs. Pool 1, LLC was decided. The Court is compelled to reject the argument under Erie. The SFR Investments Pool 1 Court itself applied NRS 116.3116 retroactively in the way U.S. Bank argues against. The HOA foreclosure sale had already occurred in that case, as well, and the Nevada Supreme Court gave no indication that its ruling was not to apply in the case before it but only to future HOA foreclosure sales.
Both the United States and Nevada Constitutions prohibit the taking of private property by a governmental entity for public use without just compensation. See U.S. Const. amend. V, Nev. Const. art. I, § 8, cl. 6. When the government destroys a lien under state law and itself receives the value of the destroyed lien, there is a Fifth Amendment taking, even if the lien remains technically valid but unenforceable because of the United States' sovereign immunity:
Armstrong v. United States, 364 U.S. 40, 46-49, 80 S.Ct. 1563, 4 L.Ed.2d 1554 (1960) (holding that the inability of a subcontractor to enforce an otherwise valid materialmen's
The Court is compelled to reject the takings argument in this case. The destruction of an undersecured junior lien via the foreclosure of a senior lien under priority rules published before the junior lienor took his lien has never been held to implicate the Takings Clause to this Court's knowledge. The Court has searched for such a case to no avail, and U.S. Bank has cited to none. The announcement by the Nevada Supreme Court of its interpretation of NRS 116.3116's priority rules that were at best previously unclear and at worst previously to the contrary raises colorable arguments under the Contract Clause, the Ex Post Facto Clause, the substantive due process component of the Due Process Clause, and perhaps the "synergy" between the rights against retroactive lawmaking and the fundamental right to property emanating from those clauses. Cf. Obergefell, 135 S.Ct. at 2602-03. That is, the federal fundamental rights against a state's use of retroactive laws and the deprivation of property without due process may indeed protect a lienholder from the application of a state judicial opinion applying lien priority rules in a way that a reasonable lienholder would not have anticipated under the state of the law when he gave his lien. US Bank may amend the Complaint to plead those issues if it wishes and may attack any amended complaint on those bases, but the Court perceives no takings problem.
Levers v. Rio King Land & Inv. Co., 93 Nev. 95, 560 P.2d 917, 919-20 (1977) (citations omitted). Under the facts of the case as pled, U.S. Bank would survive a motion to dismiss on its own claim for a declaratory judgment that the sale in this case was commercially unreasonable. But U.S. Bank is not entitled to dismissal of SFR's Counterclaim for a declaration that it was not. Whether the sale here was commercially reasonable is a question of fact for summary judgment or trial. The Court will not rule purely on the (albeit undisputed) "wide discrepancy between the sale price and the value of the collateral" because the Court (or a jury) must consider any competent evidence proffered as to other relevant factors. There could be some factual circumstance accounting for the extremely low sale price that alleviates the concerns of commercial unreasonableness created thereby. There is currently no evidence before the Court under which the Court could transform the present motion into one for summary judgment.
US Bank argues that because the statutes do not require junior lienors to be given notice of an impending HOA foreclosure sale that might extinguish their liens, junior lienors in such circumstances are deprived of the fundamental right to notice protected by the Due Process Clause of the Fourteenth Amendment. The Court finds that the statutes do not provide sufficient process but grants the motion based on the Due Process Clause of the Fifth Amendment, not based on the Due Process Clause of the Fourteenth Amendment.
"An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950). The Mullane Court ruled that under this standard notice by publication of an action to settle the accounts of a common trust fund was constitutionally insufficient to inform those beneficiaries whose names and addresses were known. Id. at 315, 70 S.Ct. 652; see also, e.g., Walker v. City of Hutchinson, 352 U.S. 112, 77 S.Ct. 200, 1 L.Ed.2d 178 (1956) (ruling that publication was insufficient under the Due Process Clause to provide reasonable notice of condemnation proceedings to a landowner whose name was known). Likewise, a governmental body conducting a tax sale must provide notice to junior lienors under the standards of Mullane. Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 798, 103 S.Ct. 2706, 77 L.Ed.2d 180 (1983). An HOA foreclosure sale under NRS 116.3116 can be seen to be analogous to the tax sale in Mennonite Board of Missions by simply inserting "HOA" for "tax" in the relevant passage:
Id. at 798-99, 103 S.Ct. 2706 (citations omitted). Mennonite Board of Missions makes clear that junior lienors must be given notice via personal service or mail (or perhaps via some other constitutionally reasonable method) where they stand to lose a security interest in a property via a tax sale, and that publication alone is not constitutionally sufficient.
There is, of course, a critical distinction between Mennonite Board of Missions and the present case. Notice under the Due Process Clause is only a requirement as to government action, because the Fourteenth Amendment does not govern private action. Civil Rights Cases, 109 U.S. 3, 10-11, 3 S.Ct. 18, 27 L.Ed. 835 (1883). A government conducting a tax sale to execute upon its own lien is clearly subject to Mullane, but a homeowner's association is not necessarily an arm of the government simply because it conducts a non judicial sale under state law.
When a state permits a private actor to use the machinery of government to deprive another private actor of his constitutional rights, the first actor may in some cases be treated as a state actor for the purposes of the Fourteenth Amendment. In Shelley v. Kraemer, 334 U.S. 1, 68 S.Ct. 836, 92 L.Ed. 1161 (1948), the Supreme Court ruled that the judicial enforcement of a racially restrictive covenant by a homeowner's association constituted state action. The Court first noted that the Equal Protection Clause of the Fourteenth Amendment spoke to the constitutional issue of race discrimination. See id. at 10, 68 S.Ct. 836. Similarly here, the Due Process Clause of the Fifth Amendment speaks to the constitutional issue of notice. Second, the Court noted that the private rule at issue would have been unconstitutional
The Court of Appeals has ruled that a state's creation of non-judicial foreclosure statutes alone does not sufficiently involve a state in a non-judicial foreclosure to implicate state action unless some state actor such as a sheriff or court clerk has some direct involvement in the sale, which is not alleged here. See Apao v. Bank of N.Y., 324 F.3d 1091, 1093-94 (9th Cir.2003); Charmicor v. Deaner, 572 F.2d 694, 695-96 (9th Cir.1978). But the present situation is distinguishable from Apao in a way essential to the rule of Shelley, at least as to the Counterclaim.
In Apao, the mortgagor herself had brought the action against the foreclosing mortgagee after the foreclosure sale. See Apao, 324 F.3d at 1092. There, neither the mortgagee nor any other party sought a judicial declaration of the validity of the foreclosure sale as against the mortgagor, so no party had invoked the power of the United States (or any state) to enforce the relevant statutes against the mortgagor. To the contrary, it was the complaining mortgagor who had attempted to invoke the judicial power of the United States to void the sale. See id. There was therefore no Shelley problem in Apao because the district court was not being asked to enforce a constitutionally problematic statute via judicial foreclosure or to declare the validity of a non-judicial foreclosure, but rather to void a completed non-judicial foreclosure. The same is true of U.S. Bank's quiet title claim here. Although U.S. Bank is a junior lienor and not a mortgagor, it is similarly situated to the mortgagor in Apao for the purposes of the rule of Shelley. As in Apao, U.S. Bank's own quiet title claim cannot implicate state action under the rule of Shelley, because it is U.S. Bank itself, not SFR, who asks the Court to adjudicate the validity of the potentially constitutionally problematic statutes. For reasons of standing, ripeness, estoppel, waiver, equity, and probably several other jurisprudential doctrines, U.S. Bank cannot complain of the threat of impending judicial action that it has itself demanded. It therefore cannot invoke the rule of Shelley to turn this Court's impending ruling on its own quiet title claim into government action against it. Otherwise, the rule of Shelley could be combined with a declaratory judgment action by any plaintiff to avoid the state-action requirement under the Fifth or Fourteenth
The result is different with respect to SFR's Counterclaim, however. In the context of SFR's Counterclaim, U.S. Bank may under the rule of Shelley invoke the Fifth Amendment against this Court's potential declaration that SFR owns the Property free and clear of U.S. Bank's interest based on SFR's compliance with certain state statutes governing the notice process if those statutes do not comport with due process. As to SFR's Counterclaim, SFR has invoked the power of the Court to enforce potentially constitutionally problematic state statutes against U.S. Bank just as the neighboring homeowners in Shelley sought to invoke the power of the state courts to enforce the constitutionally problematic covenants against the Shelleys. See Shelley, 334 U.S. at 6, 68 S.Ct. 836. Because this Court's enforcement of the state statutes via a declaration in accordance with the Counterclaim would constitute government action under the Fifth Amendment, see id. at 14-15 & n. 14, 68 S.Ct. 836 (collecting cases), the Court must address the underlying due process issue in determining the motion to dismiss the Counterclaim, regardless of whether the non-judicial foreclosure action itself constituted state action under the Fourteenth Amendment.
With respect to notifying U.S. Bank of the sale, SFR plausibly alleges only having complied with the statutes, not having gone beyond them, except as a possibility. (See Countercl. ¶ 9, ECF No. 25 ("As recited in the Association Foreclosure Deed, the Association foreclosure sale complied with all requirements of law, including but not limited to, recording and mailing of copies of Notice of Delinquent Assessments and Notice of Default, and the recording, posting and publication of the Notice of Sale.")). Nevada's statutes governing which parties must receive notices of default ("NOD") and NOSs in HOA foreclosures are complex. First, NRS 116.31162 governs notice of a NDAL and NOD to unit owners. See Nev.Rev.Stat. § 116.31162. That statute is not implicated here. Second, NRS 116.31163 requires notice of a NOD by first class mail within 10 days of recordation of the NOD to: (1) those who have requested notice under NRS 116.31168 or 107.090; (2) any holder of a recorded security interest who has notified the foreclosing HOA 30 days prior to the recordation of the NOD of the existence of its security interest; and (3) certain purchasers of the unit. See id. § 116.31163. As to lienors of record like U.S. Bank, NRS 116.31163 therefore operates as an opt-in system requiring affirmative action by the lienor of record to obtain notice of a NOD with respect to an HOA sale. Third, NRS 116.311635 requires notice of a NOS by certified or registered mail, return receipt requested, to: (1) the owner; (2) those entitled to notice of the NOD under NRS 116.31163, i.e., those who have opted in under that section; (3) certain purchasers and any holder of a recorded security interest who has notified the foreclosing HOA of the existence of its security interest prior to the mailing of the NOS; and (4) the Ombudsman for Owners in Common-Interest Communities and Condominium Hotels. See id. § 116.311635. As to lienors of record like U.S. Bank, NRS 116.311635 therefore also operates as an opt-in system requiring affirmative action by the lienor of record to obtain notice of a NOS
NRS 116.31168's incorporation of NRS 107.090 would therefore appear to prevent a facial due process attack on the notice procedures governing HOA sales in Nevada, despite the opt-in provisions of NRS 116.31163 and 116.311635.
The Nevada Supreme Court itself has noted that the Nevada Legislature had declined to adopt the Uniform Common Interest Ownership Act's ("UCIOA") recommendation of "reasonable notice ... to all lien holders of the unit whose interest would be affected," UCIOA 3-116(j)(4), in favor of its own particularized notice provisions under Chapter 116. see SFR Invs. Pool 1, 334 P.3d at 411. Critically, although the Nevada Supreme Court noted that NRS 107.090 is incorporated by section 116.31168(1), in the very same paragraph, and even when specifically citing to
The question then is whether notice only by publication of the time and place of sale is constitutionally reasonable. The Court is compelled to find that it is not. "Notice by mail or other means as certain to ensure actual notice is a minimum constitutional precondition to a proceeding which will adversely affect the liberty or property interests of any party, whether unlettered or well versed in commercial practice, if its name and address are reasonably ascertainable." Mennonite Board of Missions, 462 U.S. at 800, 103 S.Ct. 2706 (first emphasis added). US Bank's security interest in the Property was not adversely affected by the declaration or notice of default but by the sale itself. That is the event that foreclosed the right of redemption and vested title in SFR free of U.S. Bank's lien, see Nev.Rev. Stat. § 116.31166(3), and that is therefore the event of which U.S. Bank was constitutionally entitled to reasonable notice, see Mullane, 339 U.S. at 314, 70 S.Ct. 652 ("An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections."). Notice is constitutionally reasonable when it is attempted in a manner such as a person who actually wants the recipient to receive notice might attempt it:
Id. at 315, 70 S.Ct. 652 (citations omitted).
Where U.S. Bank's identity and address were readily obtainable — an issue that is not genuinely disputed — publication alone of the NOS was not a means such as one actually desirous of informing U.S. Bank of the sale might reasonably have adopted. It is not constitutionally reasonable to require an interested party to monitor the public records for a NOS or to proactively request notice of a potential future NOS. The constitutional standard is whether the person giving the notification made reasonable efforts to apprise the interested party of the proceeding under all the circumstances as if he actually wanted to notify him. That standard is not satisfied by the statutes at issue here. A person actually desirous of informing an interested party of a foreclosure sale would not rely on publication alone where the interested party's address is readily obtainable or even obtainable with some reasonable amount of
In summary, the relevant statutes do not satisfy due process where a sale can be characterized as government action. SFR's Counterclaim for a declaration by this Court of the extinguishment of U.S. Bank's interest via the HOA foreclosure sale implicates government action under the rule of Shelley and the Due Process Clause of the Fifth Amendment. The Court therefore dismisses SFR's Counterclaim, with leave to amend. If SFR can affirmatively allege that it or its agent gave U.S. Bank constitutionally sufficient notice, i.e., personal or mailed notice, the Counterclaim should be permitted to proceed to summary judgment. As the Court has explained, supra, U.S. Bank's own quiet title claim cannot succeed on the due process issue without a showing of state action in the non-judicial foreclosure sale itself, but that issue is not now before the Court.
US Bank asks the Court to enjoin Siena HOA's sale of the Property. As noted, supra, there is a ripe controversy over the superpriority amount of the lien because Siena HOA and its agents intend to sell the Property, and the sale of the Property under state law will destroy U.S. Bank's lien unless U.S. Bank tenders the superpriority amount of the lien before the sale. Siena HOA and its agents, however, refuse to identify the superpriority amount, such that U.S. Bank must satisfy the entire HOA lien to avoid the sale, and much, if not most, of that amount is not in fact in priority to U.S. Bank's lien. Also, U.S. Bank argues that D'Andrea HOA's 2013 HOA sale itself did not extinguish U.S. Bank's lien because U.S. Bank tendered the superpriority amount to D'Andrea HOA's agent, Alessi, before the sale.
US Bank has not shown via competent evidence that it has a reasonable probability of success on its quiet title claim against D'Andrea HOA because it adduces no affidavit, declaration, or other evidence tending to show that it in fact tendered or attempted to tender the superpriority amount to D'Andrea HOA, Alessi, or any other entity before D'Andrea HOA's 2013 HOA sale. US Bank has however shown a reasonable probability of success on its declaratory judgment claim against Siena HOA and Clarkson. US Bank has adduced three exhibits to its motion: (1) the September 2014 NDAL filed by Clarkson on behalf of Siena HOA indicating that SFR was delinquent on its assessments to Siena HOA in the amount of $4,590.68; (2) the NOD recorded contemporaneously with the NDAL; and (3) the March 2015 Escrow Demand sent from Clarkson to U.S. Bank's counsel indicating that $3292.18 would be required to stop the foreclosure, with no explicit indication of the superpriority amount. The Escrow Demand contains an itemization indicating seven unpaid assessment fees totaling $430 and no charges for maintenance of the exterior of the Property or abatement of nuisances therefrom, which are the only three kinds of charges giving rise to the
A likelihood of irreparable harm has also been shown. If U.S. Bank were to tender $430 (or whatever the superpriority amount is) and the purchaser at Siena HOA's sale were to deny that the full superpriority amount had been paid, U.S. Bank could irretrievably lose its security interest in the Property.
The equities tip sharply in U.S. Bank's favor. It stands to lose a security interest in real property on the order of hundreds of thousands of dollars, depending on the sale price. Even if the Property is undersecured (which is unknown), Siena HOA stands to lose only the subpriority amount of its lien, which is no more than a few thousand dollars. Clarkson stands to lose nothing. It has no direct interest in the Property, and its right to payment from Siena HOA for collection services will not be affected by the sale or non-sale of the Property.
The public interest also favors a preliminary injunction. As the present controversy between U.S. Bank and D'Andrea HOA illustrates, a second sale by Siena HOA without a prior judicial declaration of the superpriority amount would further cloud the title to the Property and cause additional litigation over whether U.S. Bank's lien had been extinguished. Not only would that cause needless litigation as to the Property at issue here, but the aggregate effect of hundreds or thousands of similar controversies could have a significant effect on the real estate market in this state by reducing the inventory available to homebuyers due to clouded titles of homes previously sold at HOA sales, thereby artificially increasing the prices homebuyers must pay. It is better to prevent the sale until the Court can declare the superpriority amount, so that U.S. Bank may pay it before a sale and avoid the additional controversy.
In order to both minimize any delay of a sale and avoid the additional controversy that would arise from a sale before a declaration of the superpriority amount, the Court will consolidate a hearing on the preliminary injunction motion with a trial on the merits (as to the second cause of action only) under Rule 65(a)(2). The Court need not enjoin a sale at this time. There is no indication of a NOS having been recorded. If Siena HOA records a NOS in the interim, U.S. Bank may ask the Court to enjoin the sale until after trial.
IT IS HEREBY ORDERED that the Motions to Dismiss (ECF Nos. 24, 27) are DENIED. IT IS FURTHER ORDERED that the Motion to Dismiss (ECF No. 42) is GRANTED, with leave to amend.
IT IS FURTHER ORDERED that the Motion for a Preliminary Injunction (ECF No. 46) is CONSOLIDATED WITH A TRIAL ON THE MERITS. Siena HOA's answer is due within seven (7) days of the entry of this Order into the electronic docket. The parties shall contact the Court as to a mutually agreeable time for trial, whether Siena HOA or Clarkson intend to demand a jury trial (U.S. Bank appears to have made no timely jury demand), and the expected length of the trial. The trial will concern the single question of the superpriority amount of
IT IS SO ORDERED.