HSBC Bank USA National Association v. Fidelity National Title Group, Inc

• Court: District Court, D. Nevada
• Decided: October 30, 2019
• Docket: 2:18-cv-02162
• Status: Unknown

Opinion

2 UNITED STATES DISTRICT COURT 3 DISTRICT OF NEVADA 4 * * * 5 HSBC BANK USA, NATIONAL Case No. 2:18-cv-02162-MMD-DJA ASSOCIATION, AS TRUSTEE FOR THE 6 HOLDERS OF DEUTSCHE ALT-A ORDER SECURITIES, INC., MORTGAGE LOAN 7 TRUST PASS-THROUGH CERTIFICATES SERIES 2007-OA3, a 8 National Banking Association, 9 Plaintiffs, v. 10 FIDELITY NATIONAL TITLE GROUP, 11 INC. and CHICAGO TITLE INSURANCE COMPANY, 12 Defendants. 13 14 I. SUMMARY 15 This is a dispute about title insurance coverage that relates to a foreclosure sale 16 by a homeowners association (“HOA”). Before the Court are Defendants Fidelity National 17 Title Group (“Fidelity”) and Chicago Title Insurance Company’s (“Chicago”) motion to 18 strike Plaintiff HSBC Bank USA, National Association, as Trustee for the Holders of 19 Deutsche Alt-A Securities, Inc., Mortgage Loan Trust Pass-Through Certificates Series 20 2007-OA3’s (“Bank”) claim for punitive damages (ECF No. 13), as well as Defendants’ 21 motion to dismiss the Bank’s Complaint (ECF No. 14; ECF No. 16 (errata)).1 For the 22 following reasons, the Court grants Defendants’ motion to dismiss and denies 23 Defendants’ motion to strike as moot. 24 /// 25 /// 26 1The Court has reviewed the responses (ECF Nos. 18, 19) and replies (ECF No. 27 22, 23) to Defendants’ motion to strike and motion to dismiss. The Court also has considered the authority cited in Defendants’ supplemental brief (ECF No. 31), and the 28 Bank’s errata to the Complaint (ECF No. 17). The Court has reviewed the related response (ECF No. 36) and reply (ECF No. 37) to Defendants’ supplement. The Court 2 The following facts are taken from the Complaint (ECF No. 1) unless otherwise 3 indicated. 4 Howard E. Neel and Elinor L. Neel (“Borrowers”) purchased real property2 5 (“Property”) on April 19, 2002, with a loan in the amount of $202,000 secured by a first 6 deed of trust (“DOT”). (Id. at 2-3.) The DOT identified Countrywide Bank, FSB as the 7 lender, Servicelink as the trustee, and Mortgage Electronic Registration Systems, Inc. 8 (“MERS”) as beneficiary acting solely as a nominee for the lender and the lender’s 9 successors and assigns. (Id. at 3.) The Bank is the assigned beneficiary under the DOT. 10 (Id.) 11 Chicago issued an insurance policy (“Policy”) in connection with the recording of 12 the DOT that named Countrywide Bank, FSB and its successors and/or assigns, as the 13 insured. (Id.) 14 The Property is located within an HOA, and the HOA recorded a lien against the 15 Property on December 27, 2012 (“HOA Lien”). (ECF No. 1 at 4.) The HOA ultimately sold 16 the Property to Nevada New Builds, LLC (“Buyer”) at a foreclosure sale (“HOA Sale”) on 17 August 30, 2013. (Id. at 5.) 18 The Buyer filed a complaint for quiet title against the Bank and others in state court 19 in December 2013. (Id. at 5.) The Bank filed counterclaims, and the litigation is ongoing. 20 (Id.) The Bank has incurred significant attorneys’ fees and costs defending its interest in 21 the Property. (Id.) 22 The Bank asserts the following claims against Fidelity and Chicago: (1) breach of 23 contract; (2) contractual breach of the implied covenant of good faith and fair dealing; (3) 24 tortious breach of the implied covenant of good faith and fair dealing; (4) breach of 25 fiduciary duties; and (5) violation of NRS § 686A.310. (Id. at 7-11.) 26 /// 27 /// 28 23929 Pebble Creek Avenue, Las Vegas, NV 89147. 2 A court may dismiss a plaintiff’s complaint for “failure to state a claim upon which 3 relief can be granted.” Fed. R. Civ. P. 12(b)(6). A properly pleaded complaint must provide 4 “a short and plain statement of the claim showing that the pleader is entitled to relief.” 5 Fed. R. Civ. P. 8(a)(2); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 6 8 does not require detailed factual allegations, it demands more than “labels and 7 conclusions” or a “formulaic recitation of the elements of a cause of action.” Ashcroft v. 8 Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). “Factual allegations 9 must be enough to rise above the speculative level.” Twombly, 550 U.S. at 555. Thus, to 10 survive a motion to dismiss, a complaint must contain sufficient factual matter to “state a 11 claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 12 U.S. at 570). 13 In Iqbal, the Supreme Court clarified the two-step approach district courts are to 14 apply when considering motions to dismiss. First, a district court must accept as true all 15 well-pleaded factual allegations in the complaint; however, legal conclusions are not 16 entitled to the assumption of truth. Id. at 678. Mere recitals of the elements of a cause of 17 action, supported only by conclusory statements, do not suffice. Id. at 678. Second, a 18 district court must consider whether the factual allegations in the complaint allege a 19 plausible claim for relief. Id. at 679. A claim is facially plausible when the plaintiff’s 20 complaint alleges facts that allow a court to draw a reasonable inference that the 21 defendant is liable for the alleged misconduct. Id. at 678. Where the complaint does not 22 permit the court to infer more than the mere possibility of misconduct, the complaint has 23 “alleged—but it has not show[n]—that the pleader is entitled to relief.” Id. at 679 (alteration 24 in original) (internal quotation marks omitted). When the claims in a complaint have not 25 crossed the line from conceivable to plausible, the complaint must be dismissed. See 26 Twombly, 550 U.S. at 570. 27 In ruling on a motion to dismiss, a court may “consider certain materials— 28 documents attached to the complaint, documents incorporated by reference in the 2 for summary judgment.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). 3 IV. DISCUSSION 4 The Court dismisses the Bank’s claims against Fidelity before considering whether 5 the Bank has stated claims against Chicago. 6 A. Claims Against Fidelity 7 Defendants argue that the Bank’s claims against Fidelity fail because the Bank 8 cannot demonstrate that it has standing to sue Fidelity under the Policy. (ECF No. 14 at 9 8.) Defendants rely primarily on the Policy itself, which states that it was issued by 10 Chicago—not Fidelity. (Id.; see also ECF No. 17-1 at 2.) 11 The Bank argues that Fidelity is properly named as a defendant because “Fidelity 12 played a pivotal role in the claim investigation, handling, and ultimate denial of [the Bank’s 13 claim].” (ECF No. 18 at 9.) In support of this argument, the Bank contends that the claim 14 handling attorney for Chicago who ultimately denied the Bank’s claim is an employee of 15 Fidelity. (Id.) 16 The Court finds the Bank’s argument unpersuasive. Even if the claim handling 17 attorney were an employee of Fidelity, the Policy unambiguously states that it was issued 18 by Chicago—not Fidelity. (See ECF No. 17-1 at 2.) The Bank has not cited any legal 19 authority to support its position that it can sue anyone besides the other party to the 20 insurance contract—here, Chicago. (See ECF No. 18 at 9-11.) The allegations in the 21 Complaint and the exhibits attached thereto do not support any legal relationship between 22 the Bank and Fidelity to give rise to the Bank’s claims against Fidelity. 23 Accordingly, the Court dismisses the Bank’s claims to the extent that they are 24 asserted against Fidelity. 25 B. Breach of Contract 26 Defendants argue that the Bank’s breach of contract claim fails because the Policy 27 does not cover the Bank’s insurance claim. (ECF No. 14 at 9-16.) Defendants rely on 28 /// 2 3(d) of the Exclusions from Coverage—because it obviously bars coverage. 3 Paragraph 3(d) bars coverage for liens created after the “Date of Policy”—here, 4 April 26, 2007. (See ECF No. 17-1 at 7.) Defendants argue that the HOA Lien was created 5 on December 27, 2012—the date that the HOA Lien was recorded against the Property. 6 (ECF No. 14 at 11.) The Bank argues that the HOA Lien was created on November 30, 7 1990—the date the HOA’s Declarations of Covenants, Conditions and Restrictions 8 (“Declaration”) were recorded. (ECF No. 18 at 14.) 9 The Court finds the Bank’s argument unpersuasive. The Bank relies on the version 10 of NRS § 116.3116(5)3 in effect at the time of the foreclosure sale, which transforms 11 “recording of the declaration” into “record notice and perfection of the lien.” NRS § 12 116.3116(5) (2013). According to the Bank, this means that all HOA liens are created on 13 the date the Declaration was recorded, even if the related delinquency occurs decades 14 later. This interpretation is unreasonable because the statute plainly states that the lien 15 is created at the time of delinquency: “[t]he association has a lien . . . from the time the 16 construction penalty, assessment or fine becomes due.” NRS § 116.3116(1) (2013). 17 Subsection 5 simply relieves the lienholder of the obligation of recording the lien to perfect 18 it. See also Wells Fargo Bank, N.A. v. Commonwealth Land Title Ins. Co., No. 2:18-cv- 19 00494-APG-BNW, 2019 WL 2062947, at *4 (D. Nev. May 9, 2019). 20 Having found that the first exclusion bars coverage, the Court declines to consider 21 whether the remaining exclusions bar coverage. Nevertheless, the Court will consider 22 whether provisions of Endorsement 100.2 creates coverage despite the exclusion in 23 Paragraph 3(d). The Court concludes that Endorsement 100.2 does not create coverage. 24 Endorsement 100.2(1) insures the Bank against loss or damages “sustained by 25 reason of . . . [t]he existence at Date of Policy of . . . [c]ovenants, conditions or restrictions 26 under which the lien of the mortgage . . . can be divested, subordinated or extinguished, 27 or its validity, priority or enforceability impaired.” (ECF No. 17-1 at 5.) This provision does 28 3NRS § 116.3116(9) in the current version of the statute. 2 CC&Rs expressly disclaimed the priority of the HOA Lien. (ECF No. 18-5 at 29.) A change 3 in controlling law—not the CC&Rs—caused the Bank to risk extinguishment of its DOT. 4 See SFR Invs. Pool 1 v. U.S. Bank, 334 P.3d 408, 414 (2014) (finding that an HOA lien 5 constituted a true superpriority lien). 6 Endorsement 100.2(2) provides coverage for loss or damage sustained as a result 7 of future violations “on the land” of the CC&Rs: 8 “[a]ny future violation on the land of any existing covenants, conditions or restrictions occurring prior to acquisition of title to the estate or interest in 9 the land by the Insured, provided the violation results in: (a) [i]nvalidity, loss of priority, or unenforceability of the lien of the insured mortgage; or (b) loss 10 of title to the estate or interest in the land.” 11 (ECF No. 17-1 at 5.) Chicago argues that “on the land” restricts the kind of violations that 12 are covered to physical violations, such as building an unauthorized improvement.4 (ECF 13 No. 22 at 13.) The Bank responds that “on the land” is ambiguous and could apply to 14 nonpayment of HOA assessments. (ECF No. 18 at 14 n.28; see also ECF No. 40.) The 15 Court finds that Endorsement 100.2(2) unambiguously applies only to physical violations. 16 When interpreting a contract, every word must be given effect if at all possible. Bielar v. 17 Washoe Health Sys., Inc., 306 P.3d 360, 364 (Nev. 2013) (quoting Musser v. Bank of 18 Am., 964 P.2d 51, 54 (Nev. 1998)). The Bank’s proposed interpretation of Endorsement 19 100.2(2) would make the paragraph applicable to any future violation of any existing 20 CC&Rs and would therefore render the phrase “on the land” superfluous, with no 21 restrictive effect. Moreover, the endorsement as a whole only uses “on the land” with 22 reference to physical violations. For example, section 100.2(1)(b)(1) creates coverage for 23 loss based on “[p]resent violations on the land of any enforceable covenants, conditions 24 or restrictions, and any existing improvements on the land.” (ECF No. 17-1 at 5.) And 25 finally, to the extent that a layperson might understand “on the land” to encompass 26 nonpayment of HOA assessments, Chicago asserted at the Hearing that Endorsement 27 /// 28 4Counsel for Defendants reiterated and expounded on this contention at the Hearing. 2 lenders are sophisticated parties who can be expected to disentangle complex 3 contractual terms. 4 Accordingly, the Court agrees with Defendants that the Policy does not provide for 5 coverage of the Bank’s dispute relating to the HOA Sale. The Bank thus cannot state a 6 claim for breach of contract. 7 C. Breach of Implied Covenants 8 The Bank’s claims for breach of the implied covenant are expressly predicated on 9 Defendants’ purported breach of contract. (See ECF No. 1 at 8-9.) For example, the Bank 10 alleges that “Fidelity’s and Chicago’s breaches of contract [constitute] a self-serving effort 11 to avoid having to incur what is otherwise likely to be substantial expense.” (Id. at 8.) Even 12 though plaintiffs may sometimes recover damages for breach of the implied covenant in 13 the absence of a breach of contract, see Sonoma Springs Ltd. P’ship v. Fid. & Deposit 14 Co. of Maryland, No. 3:18-cv-00021-LRH-CBC, 2019 WL 3848790, at *7 (D. Nev. Aug. 15 14, 2019), the Bank cannot do so here because its claims for breach of the implied 16 covenant are expressly predicated on Defendants’ purported breach of contract. 17 Accordingly, the Court will dismiss the Bank’s claims for breach of the implied 18 covenant without prejudice. 19 D. Breach of Fiduciary Duties 20 The Bank’s claim for breach of fiduciary duties must be dismissed because the 21 Nevada Supreme Court has held that a breach of fiduciary duty in the insurance context 22 is not an independent cause of action. See Commonwealth, 2019 WL 2062947, at *6 23 (quoting Powers v. U.S. Auto Ass’n, 962 P. 2d 596, 602 (Nev. 1998)). Rather, “breach of 24 the fiduciary nature of the insurer-insured relationship is part of the duty of good faith and 25 fair dealing.” Id. (quoting Powers, 962 P.2d at 603). 26 Accordingly, the Court will dismiss the Bank’s claim for breach of fiduciary duties. 27 /// 28 /// 1 E. Violation of NRS § 686A.310 2 The Bank’s allegations regarding Defendants’ purported violation of NRS § 3 || 686A.310 are conclusory and devoid of factual support. (See ECF No. 1 at 10-11.) The 4 || Bank “merely recites the pertinent statutory language of [NRS § 686A.310] without 5 || presenting any” supporting factual allegations. Patel v. Am. Nat'l Prop. & Cas. Co., 367 6 || F. Supp. 3d 1186, 1193 (D. Nev. 2019). These allegations are insufficient to permit the 7 || Court to infer more than a possibility of misconduct. /d. 8 Accordingly, the Court will dismiss the Bank’s claim for violation of NRS § 9 || 686A.310 without prejudice. 10 || V. CONCLUSION 11 The Court notes that the parties made several arguments and cited to several 12 || cases not discussed above. The Court has reviewed these arguments and cases and 13 || determines that they do not warrant discussion as they do not affect the outcome of the 14 || motions before the Court. 15 It is therefore ordered that Defendants’ motion to dismiss (ECF No. 14) is granted. 16 It is further ordered that Defendants’ motion to strike (ECF No. 13) is denied as 17 |} moot. 18 The Clerk of the Court is instructed to enter judgment accordingly and close this 19 || case. 20 DATED THIS 30" day of October 2019. 21 ff ( A _ IRANDA M. DU 23 CHIEF UNITED STATES DISTRICT JUDGE 24 25 26 27 28