LN Mgmt., LLC v. JPMorgan Chase Bank, N.A.

• Decision Date: 24 April 2020
• Docket Number: No. 18-15510,No. 18-15402,18-15402
• Citation: LN Mgmt., LLC v. JPMorgan Chase Bank, N.A., 957 F.3d 943 (9th Cir. 2020)
• Parties: LN MANAGEMENT, LLC Series 5664 Divot, Plaintiff-Appellant, v. JPMORGAN CHASE BANK, N.A., Defendant-Appellee, Federal National Mortgage Association; Federal Housing Finance Agency, Counter-Claimants-Appellees. LN Management, LLC Series 5664 Divot, Plaintiff-Appellee, v. Federal National Mortgage Association; Federal Housing Finance Agency, Counter-Claimants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

957 F.3d 943

LN MANAGEMENT, LLC Series 5664 Divot, Plaintiff-Appellant,

v.JPMORGAN CHASE BANK, N.A., Defendant-Appellee,Federal National Mortgage Association; Federal Housing Finance Agency, Counter-Claimants-Appellees.

LN Management, LLC Series 5664 Divot, Plaintiff-Appellee,

v.Federal National Mortgage Association; Federal Housing Finance Agency, Counter-Claimants-Appellants.

No. 18-15402

No. 18-15510

United States Court of Appeals, Ninth Circuit.

Submitted February 7, 2020^* Pasadena, California

Filed April 24, 2020

Kerry P. Faughnan, North Las Vegas, Nevada, for Plaintiff-Appellant/Cross-Appellee.

Howard N. Cayne, Asim Varma, Michael A.F. Johnson, Dirk C. Phillips, Lindsey D. Carson, and Omomah I. Abebe, Arnold & Porter Kaye Scholer LLP, Washington, D.C.; Abran Vigil, Bllard Spahr LLP, Las Vegas, Nevada; Leslie Bryan Hart and John Tennert, Fennemore Craig P.C., Reno, Nevada; for Defendants-Appellees/Cross-Appellants.

Before: Danny J. Boggs,^**Sandra S. Ikuta, and Kenneth K. Lee, Circuit Judges.

BOGGS, Circuit Judge:

There are a number of ways to accomplish litigation regarding interests once held by a dead person.One can institute or join probate proceedings, for instance, or sue the executor of an estate in courts of general jurisdiction, or in some circumstances proceed directly against the successors of the deceased.Rarely do we see efforts to actually engage the dead in litigation.This case turns on such a question, which is of first impression in this circuit: can you sue a dead person?¹

The answer may seem obvious.Yet strangely, in the 129-year history of this court, we have never been called upon to rule on this issue.We do so today, and we resolve the question in the negative.

I.Facts

This case is an appeal from yet another Homeowner’s Association(HOA) foreclosure in Nevada that is being challenged by the mortgagor, the Federal Housing Finance Agency(FHFA), and Fannie Mae.Nevada law allows a homeowners’ association to foreclose on a property that is more than a certain number of months in arrears, notwithstanding the interest of the holder of any lien that might otherwise have priority, such as a mortgage.SeeNev. Rev. Stat. § 116.3116(2);Berezovsky v. Moniz , 869 F.3d 923, 925(9th Cir.2017).Unsurprisingly, such procedures have led to much litigation, particularly when the priority lienholder is Fannie Mae or the FHFA, which currently holds Fannie Mae in conservatorship.In such cases, the Housing and Economic Recovery Act (HERA) imposes a bar (the Federal Foreclosure Bar) to a foreclosure that would extinguish the interest of Fannie Mae or the FHFA without the FHFA’s consent.See12 U.S.C. § 4617(j)(3);Fed. Home Loan Mortg. Corp. v. SFR Invs. Pool 1, LLC , 893 F.3d 1136, 1140–41(9th Cir.2018);Berezovsky , 869 F.3d at 926–27.

The case before us had its origins in March 2003, when Kit Dansker obtained an $83,000 home loan from Washington Mutual Bank, F.A. to purchase a home at 5664 Divot Place in Las Vegas, Nevada.In April of that year, Fannie Mae purchased the loan and took ownership of the note and Deed of Trust.Five years later, in July 2008, in response to the global financial crisis, Congress passed the Housing and Economic Recovery Act of 2008 (HERA), establishing the Federal Housing Finance Agency(FHFA).HERA contains a provision, the Federal Foreclosure bar, which mandates that "[n]o property of the agency shall be subject to ... foreclosure ... without the consent of the Agency."12 U.S.C. § 4617(j)(3).As authorized by HERA, the FHFA took Fannie Mae into conservatorship that September, where it remains to this day.

Meanwhile, on October 3, 2009, Dansker died.In 2011, the neighborhood HOA began foreclosure proceedings against 5664 Divot Place, and in March 2013 it sold the property at foreclosure sale to LN Management for $8,030.Neither the FHFA nor Fannie Mae ever consented to this HOA sale extinguishing the federal financial bodies’ interest in the property.

In May 2013, LN Management filed a quiet-title action in Nevada state court against Kit Dansker and JPMorgan Chase Bank, N.A., which in May 2013 had become the record beneficiary of the deed of trust as Fannie Mae’s loan servicer.Because of the sheer number of Nevada HOA foreclosure cases over the past decade, as well as the interplay between state and federal courts, the law in this area has evolved repeatedly and rapidly.As a result, this case, like many others, had a convoluted path through the courts.First, JP Morgan Chase removed the case to federal court on the basis of diversity, arguing that Dansker was fraudulently joined.On September 5, 2013, LN Management made a formal Suggestion of Death, through which it entered Dansker’s death certificate into the record, evidencing her death four years earlier.On October 30, LN Management moved to substitute "the Estate of Kit Dansker" as a defendant instead of Kit Dansker.LN Management stated that it "has also discovered that no one has effectuated any probate action, therefore this action should continue, but with the estate of Kit Dansker named as the property real party in interest."As the close-eyed reader can see, the very fact that no probate action had been initiated (through the correct state procedures) created an anomaly when it came to the proposed joinder of the estate: how was it to be joined?Through whom?The motion did not say, exactly.The attached memorandum of law stated that, "Plaintiff has not found ... [a probate] proceeding, but has located at least one person, a Lori Weber, who claims to be the daughter of the decedent, which [sic] would be a proper person to serve on behalf of the estate of Kit Dansker, if the estate is substituted in as the real party in interest in place of Kit Dansker.FRCP 17(a)(1)."

In November, the United States District Court for the District of Nevada ruled that Dansker was fraudulently joined, denied LN Management’s motion to remand, and granted JPMorgan Chase’s motion to dismiss.The court, while noting Dansker’s death, did not base its fraudulent-joinder ruling on these grounds; rather, it held that the joinder was fraudulent because the foreclosure had extinguished any possible right Dansker might have to the property.In a one-line comment, it also denied a motion to substitute the Estate of Kit Dansker, for the same reason.The district court then dismissed the action for failure to state a claim, holding under a then-current district court precedent that an HOA foreclosure under Nevada’s law did not extinguish the rights of the holder of a first mortgage.SeeBayview Loan Servicing, LLC v. Alessi & Koenig, LLC , 962 F. Supp. 2d 1222(D. Nev.2013).LN Management appealed.

While that appeal was pending, the Nevada Supreme Court ruled in SFR Investments Pool 1, LLC v. U.S. Bank , 130 Nev. 742, 334 P.3d 408(2014), that a HOA foreclosure did indeed extinguish the rights of the holder of a preexisting mortgage.Id. at 419.LN Management and JPMorgan Chase therefore jointly requested that the appeal be dismissed, following which the district court, at the agreement of both parties, vacated the dismissal that it had been previously entered.Now the case was back before the district court.At this point, Fannie Mae and the FHFA moved successfully to intervene.The federal parties then moved for summary judgment on the basis of the Federal Foreclosure Bar.The district court denied this motion in September 2015, ruling that the fact that Fannie Mae did not appear as the record beneficiary of the deed of trust "create[d] a genuine issue of material fact as to whether the FHFA or Fannie Mae owned the note and deed of trust at the time of [the HOA] sale."²

In April 2017, the district court granted "several months" for jurisdictional discovery because, as it later noted, "diversity depended on the citizenships of any successor(s)-in-interest of the deceased homeowner (Kit Dansker) ...."Then, on December 7, 2017, LN Management renewed its motion to substitute the estate of Kit Dansker as the real party in interest in place of Kit Dansker.Despite the jurisdictional discovery period, the renewed motion was not materially different than the previous one, because it still did not identify a representative of the estate.It stated (in slightly more definitive language than the first time around) that "Plaintiff had located a daughter of the decedent, who lives in Nevada, which [sic] would be a proper person to serve on behalf of the estate of Kit Dansker, if the estate is substituted in ...."LN Management further requested time to "serve Lori Weber, a beneficiary of the estate of the deceased, Kit Dansker."

In 2018, the district court entered a second summary-judgment ruling, which is the one that is on appeal today.First, the court noted that, notwithstanding the jurisdictional-discovery process, "the parties had not identified any [of Dansker’s] successors.""The dispositive fact was therefore that no non-diverse party had been joined."In the absence of identifiable successors, the court noted, "LN now argues that the Court should consider Dansker’s estate to be a defendant(and to substitute the estate for Dansker, if necessary), and that under § 1332 the citizenship of the estate is the same as Dansker’s citizenship at the time of her death, i.e., Nevada, which would destroy diversity."But LN had "neither identified any legal representative of Dansker’s estate nor, to the Court’s knowledge, made any effort to have one appointed" under state law in the five years (at the least) since learning of Dansker’s death.And "Dansker’s estate, like Dansker’s memory, is an abstract concept that cannot be sued except through a legal representative who can appear to defend the interests of the heirs (whether yet determined or not) in any remaining estate property."Since such a person had not been identified and joined, the court found, complete diversity existed.Moreover, the court also ruled that:

The Court denies the

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