Zyzzx2 v. Dizon

• Decision Date: 25 March 2016
• Docket Number: Case No. 2:13-CV-1307 JCM (PAL)
• Parties: ZYZZX2, Plaintiff(s), v. ARLENE G. DIZON, et al., Defendant(s).
• Court: U.S. District Court — District of Nevada

ZYZZX2, Plaintiff(s), v. ARLENE G. DIZON, et al., Defendant(s).

Case No. 2:13-CV-1307 JCM (PAL)

UNITED STATES DISTRICT COURT DISTRICT OF NEVADA

March 25, 2016

ORDER

Presently before the court is a renewed motion for summary judgment filed by defendant Wells Fargo Bank, N.A. (hereinafter "Wells Fargo"). (Doc. #67). Plaintiff Zyzzx 2 (hereinafter "plaintiff") filed a response, (doc. #68), and Wells Fargo filed a reply. (Doc. #69).

I. Background

This case involves a dispute over property that was subject to an HOA "superpriority" lien. On May 29, 2001, Arlene Dizon ("Dizon") borrowed $150,000.00 from World Savings Bank, FSB ("World Savings"), secured by a note and deed of trust on her property located at 8246 Azure Shores Court, Las Vegas, Nevada 89117. The deed of trust lists World Savings as the lender or beneficiary and Golden West Savings Association ("Golden West") as the trustee. (Doc. #52, Exh. 1).

Wells Fargo is the current holder of the note and beneficiary of the deed of trust on the property. (Doc. #52). On July 11, 2012, National Default Servicing Corporation ("NDSC") recorded a substitution of trustee whereby NDSC formally substituted for Golden West as trustee for the deed of trust.

On January 3, 2012, Red Rock Financial Services ("RRFS"), on behalf of the Monaco Landscape Maintenance Association, Inc. (the "association"), recorded a notice of default and election to sell pursuant to the lien for delinquent homeowners assessments on the property. According to this notice of default, Dizon owed the association $1,595.80 as of December 27, 2011. (Doc. #52, Exh. 2).On April 8, 2013, NDSC also recorded a notice of default and election to sell under the deed of trust, based on $33,012.86 in arrears, and the unpaid principal amount due under the note was $153,062.62 as of March 19, 2013.

The same day, RRFS recorded a notice of foreclosure sale on behalf of the association, setting an auction date of May 2, 2013. This notice of sale indicated that Dizon owed the association $2,940.71 as of April 5, 2013. (Doc. #52). Pursuant to RRFS's certificate of sale, a non-judicial foreclosure sale was conducted on May 2, 2013, at which the property was sold to Iyad Haddad for $15,000.00 with title to vest in LN Management LLC Series 8246 Azure Shores ("LNM"). The declaration of value attached to the foreclosure deed valued the property at $210,863.00. (Doc. #52).

However, LNM then filed a complaint in Nevada state court for quiet title and declaratory relief. (Doc. #1-2). Thereafter, Wells Fargo removed the case to this court. (Doc. #1). On October 17, 2013, one day before Wells Fargo's scheduled foreclosure, LNM filed an emergency motion asking the court to enjoin Wells Fargo's foreclosure. (Doc. #14).

The court denied the motion on the grounds that LNM failed to show a likelihood of success on the merits. (Doc. #15). The court reasoned that "such an interpretation of Nev. Rev. Stat. 116.3116 would lead to the absurd result that a relatively small HOA lien recorded years after a deed of trust could extinguish the prior security interest that is, in this case, nearly one hundred times greater." (Doc. #15).

On October 18, 2013, the day of Wells Fargo's scheduled foreclosure, LNM's agent formed a new corporation, Zyzzx 2 ("Zyzzx"). LNM quitclaimed the property to Zyzzx. Zyzzx then filed for bankruptcy, triggering an automatic stay preventing the foreclosure. (Doc. #52). The parties stipulated to substitute Zyzzx as the plaintiff/counterdefendant in this case, in place of LNM. (Doc. #28).

Wells Fargo filed a motion for summary judgment on the grounds that that the association's foreclosure sale was commercially unreasonable and NRS 116.3116 is unconstitutional. (Doc.#52). This court entered an order (doc. #63) denying the motion without prejudice in accordance with Fed. R. Civ. P. 5.1 and directed Wells Fargo to give notice to the Attorney General of the State of Nevada of its constitutional challenge to NRS 116.3116. Wells Fargo did so and then filed the instant renewed motion for summary judgment, which asks the court to incorporate and rule on its prior motion for summary judgment. (Doc. #67).

II. Legal Standard

The Federal Rules of Civil Procedure allow summary judgment when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that "there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(a). A principal purpose of summary judgment is "to isolate and dispose of factually unsupported claims." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986).

For purposes of summary judgment, disputed factual issues should be construed in favor of the non-moving party. Lujan v. Nat'l Wildlife Fed., 497 U.S. 871, 888 (1990). However, to be entitled to a denial of summary judgment, the non-moving party must "set forth specific facts showing that there is a genuine issue for trial." Id.

In determining summary judgment, a court applies a burden-shifting analysis. "When the party moving for summary judgment would bear the burden of proof at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial. In such a case, the moving party has the initial burden of establishing the absence of a genuine issue of fact on each issue material to its case." C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (citations omitted).

By contrast, when the non-moving party bears the burden of proving the claim or defense, the moving party can meet its burden in two ways: (1) by presenting evidence to negate an essential element of the non-moving party's case; or (2) by demonstrating that the non-moving party failed to make a showing sufficient to establish an element essential to that party's case on which that party will bear the burden of proof at trial. See Celotex Corp., 477 U.S. at 323-24. If the moving party fails to meet its initial burden, summary judgment must be denied and the court need notconsider the non-moving party's evidence. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 159-60 (1970).

If the moving party satisfies its initial burden, the burden then shifts to the opposing party to establish that a genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). To establish the existence of a factual dispute, the opposing party need not establish a material issue of fact conclusively in its favor. It is sufficient that "the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial." T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 631 (9th Cir. 1987).

III. Discussion

In addition to making a number of arguments regarding the statute's constitutionality, Wells Fargo contends, "the Association's non-judicial foreclosure sale in this case is void as commercially unreasonable." (Doc. #52).

The court must address this issue before considering any constitutional claims. See Gulf Oil Co. v. Bernard, 452 U.S. 89, 99 (1981) ("[P]rior to reaching any constitutional questions, federal courts must consider nonconstitutional grounds for decision."); United States v. Index Newspapers LLC, 766 F.3d 1072, (9th Cir. 2014) ("[F]ederal courts generally do not reach constitutional questions if cases can be resolved on other grounds.").

As a threshold matter, NRS 116.3116 codifies the Uniform Common Interest Ownership Act ("UCIOA") in Nevada. See NRS 116.001 ("This chapter may be cited as the Uniform Common-Interest Ownership Act"); SFR Investments Pool 1, LLC v. U.S. Bank, N.A., 334 P.3d 408, 410 (Nev. 2014). NRS chapter 116 includes an obligation of good faith. See NRS 116.1113 ("Every contract or duty governed by this chapter imposes an obligation of good faith in its performance or enforcement."). Furthermore, numerous courts have interpreted the UCIOA and NRS 116.3116 as imposing a commercial reasonableness standard on foreclosure of association liens.¹

In the present case, Wells Fargo argues that the association's sale was commercially unreasonable for two reasons. First, Wells Fargo contends that based on the relevant case law, the difference between the purchase price and the value of the property makes the sale commercially unreasonable. Second, Wells Fargo notes that the association inaccurately represented its lien as subordinate to the first deed of trust, dissuading potential purchasers from bidding on the property, therefore resulting in an unreasonably low price. (Doc. #52).

Plaintiff responds that Wells Fargo fails to claim any improprieties in the sale, and that a mere low price does not establish commercial unreasonableness. (Doc. #57).

The recent Nevada Supreme Court decision, Shadow Wood Homeowners Association, Inc. v. New York Community Bancorp, Inc, provides guidance when applying the commercial reasonableness standard. 132 Nev. Adv. Op. 5 (2016). Shadow Wood relies on Long v. Towne's two-part test, which states that "demonstrating that an association sold a property at its foreclosure sale for an inadequate price is not enough to set aside that sale; there must also be a showing of fraud, unfairness, or oppression." Shadow Wood, 132 Nev. Adv. Op. at *6 (citing Long v. Towne, 639 P.2d 528, 530 (1982)). In this case, there is no showing of fraud or oppression. The parties disagree as to whether Wells Fargo has adequately demonstrated an element of "unfairness" to support setting aside the sale.

i. Inadequate price

In order to determine what constitutes an inadequate price, the court cites favorably to the Restatement of Property Mortgages Section §8.3 which states that "[g]ross inadequacy cannot be precisely defined in terms of specific percentage of fair market value [, g]enerally . . . a court is warranted in invalidating a sale where the price...