In re: Armin Dirk Van Damme

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: April 12, 2023
• Docket: NV-22-1175-GCB
• Status: Unpublished

Opinion

FILED APR 12 2023 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. NV-22-1175-GCB ARMIN DIRK VAN DAMME, Debtor. Bk. No. 2:19-bk-14142-MKN

ARMIN DIRK VAN DAMME, Adv. No. 2:21-ap-01067-MKN Appellant, v. MEMORANDUM* WELLS FARGO BANK, N.A., Appellee.

Appeal from the United States Bankruptcy Court for the District of Nevada Mike K. Nakagawa, Bankruptcy Judge, Presiding

Before: GAN, CORBIT, and BRAND, Bankruptcy Judges.

INTRODUCTION

Chapter 131 debtor Armin Dirk Van Damme (“Debtor”) appeals the

bankruptcy court’s order dismissing his adversary complaint against Wells

Fargo Bank, N.A. (“Wells Fargo”). Debtor alleged that Wells Fargo lacked

* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure. standing to assert a secured claim, failed to provide adequate

documentation to support its claim, and committed fraud by asserting that

Debtor executed a loan modification in 2008. Debtor also claimed that the

lien was extinguished under Nevada’s “ancient lien statute,” Nevada

Revised Statutes (“NRS”) 106.240.

The bankruptcy court dismissed the complaint with prejudice under

Civil Rule 12(b)(6), made applicable by Rule 7012, because Debtor’s claims

of fraud and lack of standing were previously dismissed with prejudice by

the United States District Court for the District of Nevada (“District

Court”). The bankruptcy court held that Debtor’s claims were barred by

claim preclusion, issue preclusion, and Nevada’s statutes of limitations,

and Debtor failed to allege a cognizable theory for recovery under NRS

106.240. The court reasoned that even if the loan was accelerated by a

notice of default, and even if such acceleration was sufficient to trigger the

ancient lien statute, the loan modification effectively rescinded any

acceleration.

Debtor urges us to review documents which he believes prove Wells

Fargo’s lack of standing and fraud, but like the bankruptcy court, we are

bound by the prior decision of the District Court. Our review is limited to

whether the bankruptcy court erred by dismissing the claims. It did not,

and we AFFIRM.

2 FACTS 2

A. Prepetition events

In 2004, Debtor and his wife Geraldine Van Damme refinanced their

existing mortgages with a loan of $740,000 from BNC Mortgage, Inc

(“BNC”) secured by a deed of trust on their home in Las Vegas, Nevada

(the “Property”). In October 2007, National Default Servicing Corporation

(“NDSC”), the deed of trust trustee, recorded a notice of default indicating

a payment default of $37,401.44. In January 2008, NDSC rescinded the first

notice of default and recorded a second notice of default indicating a

payment default of $53,914.90 (the “Second Notice of Default”).

BNC subsequently assigned its interest in the deed of trust to LaSalle

Bank, N.A. (“LaSalle”), as trustee under the Trust Agreement for the

Structured Asset Investment Loan Trust Series 2004-11 (the “Trust”). Bank

of America, N.A. became successor by merger with LaSalle, and

subsequently assigned its interest to U.S. Bank, N.A. (“US Bank”).3 Wells

Fargo was the servicer for the Trust, which owned the note.

2 Debtor did not provide excerpts of the record relevant to the order on appeal. We exercise our discretion to take judicial notice of documents electronically filed in Debtor’s bankruptcy case and the related adversary proceeding. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). Debtor improperly included in his excerpts, and through several additional filings, documents which were not before the bankruptcy court at the time it decided the issue on appeal. We do not consider those documents. 3 Debtor disputes the validity and timing of these assignments, and he contests

Wells Fargo’s authority to modify the loan, but as discussed below, the District Court dismissed with prejudice Debtor’s claims involving these arguments. 3 In March 2008, Debtor agreed to a loan modification which added the

arrears to the principal balance, fixed the previously variable interest rate,

adjusted the monthly payment amount, and removed Geraldine Van

Damme as a borrower (the “2008 Loan Modification”). Wells Fargo

recorded the 2008 Loan Modification in April 2008.

Debtor failed to make payments under the 2008 Loan Modification,

and NDSC recorded a third notice of default in October 2008. NDSC

rescinded the third notice of default, and in July 2015, it recorded a fourth

notice of default. After a failed attempt at mediation, Debtor filed suit in

Nevada state court.

After the defendants removed the case to the District Court, Debtor

filed his third amended complaint in March 2017. He asserted several

claims against Wells Fargo, BNC, LaSalle, U.S. Bank, and others based on

alleged errors in the assignments and notices of default. He admitted that

he signed the 2008 Loan Modification but alleged that Wells Fargo did not

have authority to modify the loan because the loan and deed of trust had

not yet been assigned to the Trust. Debtor asserted claims for fraud, breach

of contract, and to quiet title to the Property.

The District Court dismissed Debtor’s complaint, holding that Debtor

failed to state cognizable claims for relief. The District Court further held

that Debtor’s claims, which were “premised on Defendants’ improper

securitization and assignment of instruments, which culminated in an

allegedly unauthorized loan modification agreement between Plaintiff and

4 Wells Fargo,” were barred by Nevada’s statutes of limitations. Because

leave to amend would be futile, the District Court dismissed the complaint

with prejudice.

After two further notices of default and a second failed mediation,

NDSC recorded a notice of trustee’s sale set for July 1, 2019.

B. The bankruptcy and adversary complaint

In June 2019, Debtor filed his chapter 13 petition. He scheduled his

interest in the Property and listed US Bank as a secured creditor with a

claim of $808,041. Wells Fargo filed a proof of claim on behalf of US Bank,

evidencing a secured claim of $1,492,802.87.

In May 2021, Debtor filed an adversary complaint asserting that

Wells Fargo lacked standing to enforce the deed of trust, committed fraud

involving the 2008 Loan Modification, and lacked authority to modify the

loan. Debtor filed an amended complaint, adding a claim to extinguish the

lien under NRS 106.240 4 and including a preemptive argument against

application of claim preclusion. He alleged that the Second Notice of

Default accelerated the debt and NDSC never rescinded it. Thus, under the

4 NRS 106.240 provides: The lien heretofore or hereafter created of any mortgage or deed of trust upon any real property, appearing of record, and not otherwise satisfied and discharged of record, shall at the expiration of 10 years after the debt secured by the mortgage or deed of trust according to the terms thereof or any recorded written extension thereof become wholly due, terminate, and it shall be conclusively presumed that the debt has been regularly satisfied and the lien discharged. 5 ancient lien statute, the debt was “wholly due” for more than ten years and

the lien was extinguished.

Wells Fargo filed a motion to dismiss the amended complaint and

argued that Debtor’s claim for fraud and his claim that Wells Fargo lacked

authority to foreclose or to modify the loan were barred by claim

preclusion, issue preclusion, and the statutes of limitations. Wells Fargo

further argued that Debtor failed to state a claim for relief under NRS

106.240 because: (1) the ancient lien statute does not apply to accelerated

loans, only to loans that become “wholly due” under the terms of a deed of

trust; (2) the notice of default did not accelerate the loan; and (3) even if the

loan was accelerated, the 2008 Loan Modification effectively rescinded the

Second Notice of Default. Wells Fargo filed a request for judicial notice of

recorded documents and documents filed in the District Court case.

In opposition, Debtor argued that his claims were distinct from those

decided by the District Court because in the adversary complaint he was

asserting that Wells Fargo lacked standing to file a proof of claim under the

holding of Veal v. American Home Mortgage Servicing, Inc. (In re Veal), 450

B.R. 897 (9th Cir. BAP 2011). He maintained that he alleged a colorable

claim for relief under NRS 106.240 because the Second Notice of Default

included language which accelerated the debt and NDSC did not file a

recission of that notice.

After a hearing on the motion to dismiss, the court entered a

comprehensive written order dismissing Debtor’s amended complaint with

6 prejudice. The court held that Debtor’s claims that Wells Fargo was not the

real party in interest and lacked authority to modify the loan were barred

by issue preclusion because the District Court necessarily decided those

issues by dismissing Debtor’s claim to quiet title. The bankruptcy court

determined that Debtor’s fraud claim was barred by claim preclusion and

both claims were barred by the statutes of limitations.

The court held that Debtor failed to state a claim for relief under

NRS 106.240 because Wells Fargo recorded the 2008 Loan Modification and

the conduct of the parties, including the subsequent notices of default and

recissions, confirmed that the 2008 Loan Modification effectively rescinded

the Second Notice of Default. Thus, the debt was not “wholly due” for

more than ten years as required by the statute. Debtor timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(B), (C), and (K). We have jurisdiction under 28 U.S.C. § 158.

ISSUES

Did the bankruptcy court err by granting Wells Fargo’s motion to

dismiss?

Did the bankruptcy court abuse its discretion by dismissing the

amended complaint with prejudice?

STANDARDS OF REVIEW

We review de novo the bankruptcy court’s order granting a motion

to dismiss under Civil Rule 12(b)(6). Movsesian v. Victoria Versicherung AG,

7 670 F.3d 1067, 1071 (9th Cir. 2012) (en banc). Under de novo review, we

look at the matter anew, giving no deference to the bankruptcy court’s

determinations. Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir.

BAP 2014).

We review the bankruptcy court’s decision to dismiss a complaint

with prejudice for abuse of discretion. Willard v. Lockhart-Johnson (In re

Lockhart-Johnson), 631 B.R. 38, 44 (9th Cir. BAP 2021). A bankruptcy court

abuses its discretion if it applies an incorrect legal standard or its factual

findings are illogical, implausible, or without support in the record.

TrafficSchool.com v. Edriver, Inc., 653 F.3d 820, 832 (9th Cir. 2011). We may

affirm on any basis supported by the record. Bill v. Brewer, 799 F.3d 1295,

1299 (9th Cir. 2015).

DISCUSSION

Debtor’s sole argument on appeal is that the bankruptcy court erred

by considering facts outside of the record to dismiss the complaint. He

contends that the court should have treated the motion as a motion for

summary judgment and given Debtor an opportunity to submit facts and

affidavits which he claims prove Wells Fargo’s lack of authority and fraud.

A. Legal standards governing motions to dismiss

Civil Rule 12(b)(6) provides for dismissal if the plaintiff fails “to state

a claim upon which relief can be granted[.]” Fed. R. Civ. P. 12(b)(6).

Motions to dismiss under Civil Rule 12(b)(6) can challenge the legal

sufficiency of a complaint by testing whether it contains cognizable legal

8 theories or whether it includes sufficient factual allegations to support

those theories. Johnson v. Riverside Healthcare Sys., 534 F.3d 1116, 1121 (9th

Cir. 2008). To survive a motion to dismiss, “the non-conclusory ‘factual

content’ and reasonable inferences from that content, must be plausibly

suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret

Serv., 572 F.3d 962, 969 (9th Cir. 2009).

In reviewing a motion to dismiss, the court generally may not

consider any materials beyond the pleadings. Lee v. City of Los Angeles, 250

F.3d 668, 688 (9th Cir. 2001), overruled on other grounds by Galbraith v. Cnty.

of Santa Clara, 307 F.3d 1119 (9th Cir. 2002); see also Fed. R. Civ. P. 12(d) (“If,

on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are

presented to and not excluded by the court, the motion must be treated as

one for summary judgment under Rule 56.”). But the court may consider

documents attached to and referenced in the complaint. Lee, 250 F.3d at

688. And the court may consider documents which are properly subject to

judicial notice. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).

When allegations in the complaint contradict matters that are properly

subject to judicial notice, the court need not accept those allegations as true

when considering a motion to dismiss. Lazy Y Ranch Ltd. v. Behrens, 546

F.3d 580, 588 (9th Cir. 2008).

Here, the bankruptcy court properly considered the documents

attached to the amended complaint and those included in Wells Fargo’s

request for judicial notice; it was not required to treat the motion to dismiss

9 as a motion for summary judgment. Debtor offers no other argument why

the bankruptcy court erred in dismissing his complaint and we find no

error in the bankruptcy court’s decision.

B. The bankruptcy court did not err by granting the motion to dismiss.

The bankruptcy court properly dismissed Debtor’s claims that Wells

Fargo was not a real party in interest, lacked authority to modify or enforce

the loan, and committed fraud, under claim preclusion, issue preclusion,

and the statutes of limitations.

Claim preclusion prohibits relitigation of “any claims that were

raised or could have been raised” in a prior action between the same

parties or their privies. Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708,

713 (9th Cir. 2001) (citation omitted). The preclusive effect of the District

Court’s decision is governed by federal law, Taylor v. Sturgell, 553 U.S. 880,

891 (2008), which requires: “(1) an identity of claims; (2) a final judgment

on the merits; and (3) the same parties or privity between parties,” Owens,

244 F.3d at 713. To determine whether claims are identical, we consider

four criteria:

(1) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3) whether the two suits involve infringement of the same right; and (4) whether the two suits arise out of the same transactional nucleus of facts.

10 Harris v. Cnty. of Orange, 682 F.3d 1126, 1132 (9th Cir. 2012). Whether

the suits arise out of the same transactional nucleus of facts is the

most important criterion. Id.

Here, all of Debtor’s claims—except for his claim under

NRS 106.240—arise from the same transactional nucleus of facts at issue in

the District Court action: the allegedly improper or untimely assignments

which deprived Wells Fargo of authority to enforce the deed of trust or

modify the loan, and Wells Fargo’s alleged fraud in executing the 2008

Loan Modification. The District Court’s dismissal with prejudice is a final

judgment on the merits, Leon v. IDX Systems Corp., 464 F.3d 951, 962 (9th

Cir. 2006), and Debtor and Wells Fargo were both parties in that litigation.

Thus, all of Debtor’s claims other than his lien extinguishment claim are

barred by claim preclusion. 5

Additionally, Debtor offers no argument, nor do we perceive any,

why his claims involving Wells Fargo’s authority to enforce the note and

5 Though we affirm the bankruptcy court’s dismissal of Debtor’s claims against Wells Fargo under claim preclusion, we find no error in the court’s application of issue preclusion to dismiss some of those claims. Issue preclusion under federal law requires: (1) there was a full and fair opportunity to litigate the issue in the prior action; (2) the issue was actually litigated; (3) the issue was lost as a result of a final judgment in the prior action; and (4) the party against whom issue preclusion is asserted was a party or in privity with a party in the prior action. I.R.S. v. Palmer (In re Palmer), 207 F.3d 566, 568 (9th Cir. 2000). The validity of the assignments and Wells Fargo’s authority to enforce the note and deed of trust were actually litigated in the District Court action as part of Debtor’s claim to quiet title. Debtor was the plaintiff in that action, had a full and fair opportunity to litigate the issues, and lost those issues by virtue of the District Court’s dismissal with prejudice. 11 deed of trust, or his claim of fraud, are not barred by Nevada’s statutes of

limitations.6 The District Court alternatively relied on the statutes of

limitations to dismiss Debtor’s prior action. The claims were time-barred

when Debtor filed the District Court action in 2015, and they remained

time-barred when he filed his adversary complaint in 2021.

Finally, the bankruptcy court properly dismissed Debtor’s remaining

claim—to extinguish the lien under NRS 106.240—because Debtor did not

state a cognizable claim for relief. Debtor alleged only that the Second

Notice of Default accelerated the loan and NDSC never rescinded the

default notice. His allegations are insufficient to state a claim under the

statute because they are belied by the documents attached to his complaint

and judicially noticed by the bankruptcy court.

The Nevada Supreme Court has not definitively held that a loan

acceleration is sufficient to trigger NRS 106.240, but we need not resolve

the question because the 2008 Loan Modification unequivocally decelerated

any acceleration under the Second Notice of Default.

The 2008 Loan Modification restated the unpaid principal balance as

$796,930.46, fixed the interest rate, and provided for payment of the

6 NRS 11.190(1)(b) provides that: “An action upon a contract, obligation or liability founded upon an instrument in writing . . .” must be commenced within six years. NRS 106.330 defines “instrument” as “a mortgage, deed of trust or other instrument encumbering real party as security for the repayment of a debt.” As noted by the bankruptcy court, the 2008 Loan Modification meets this definition. NRS 11.190(3)(d) provides that fraud actions must be filed within three years of discovery. 12 balance through monthly payments of principal and interest beginning in

March 2008. It further provided that, if Debtor still owed amounts under

the note and deed of trust as amended, those amounts would be due on

October 1, 2034. Thus, even though Debtor disputes the validity of the 2008

Loan Modification, it is clear evidence that Wells Fargo no longer held the

amounts under the loan and deed of trust as “wholly due.” The subsequent

default notices and recissions further evidence that the Second Notice of

Default was rescinded by the 2008 Loan Modification.

The bankruptcy court properly considered the recorded and

judicially noticed documents in determining that Debtor failed to state a

cognizable claim for relief under NRS 106.240, and we discern no error.

C. Dismissal of the amended complaint with prejudice was warranted.

Pursuant to Civil Rule 15, made applicable by Rule 7015, leave to

amend a complaint should be freely given when justice so requires. The

Ninth Circuit has repeatedly held that a court “should grant leave to

amend even if no request to amend the pleading was made, unless it

determines that the pleading could not possibly be cured by the allegation

of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (citations

omitted).

Because the bankruptcy court correctly determined that Debtor’s

claims were barred by claim preclusion, issue preclusion, and the statutes

of limitations—and his claim under NRS 106.240 fails as a matter of law

13 based on the judicially noticed documents—amendment would be futile.

See, e.g., Censo, LLC v. NewRez, LLC (In re Censo, LLC), 638 B.R. 416, 426 (9th

Cir. BAP 2022) (affirming dismissal with prejudice where relief was barred

by claim preclusion). Accordingly, the court properly dismissed the

amended complaint with prejudice.

CONCLUSION

Based on the foregoing, we AFFIRM the bankruptcy court’s order

dismissing Debtor’s amended complaint with prejudice.