Recontrust Co. v. Zhang , 2014 NV 1 ( 2014 )

130 Nev., Advance Opinion
IN THE SUPREME COURT OF THE STATE OF NEVADA
RECONTRUST COMPANY, N.A.; No. 58602
COUNTRYWIDE HOME LOANS, INC.,
A NEW YORK CORPORATION;
NATIONAL TITLE CO., A NEVADA
CORPORATION; AND SILVER STATE
HLED
FINANCIAL SERVICES, INC., A JAN 3 0 2014
NEVADA CORPORATION,
Appellants/Cross-Respondents, CLETA\grAk°1- ATN
AN
BY
vs. DEPLI
LANLIN ZHANG,
Respondent/Cross-Appellant.
Appeal and cross-appeal from judgment and orders entered
following reversal and remand by la panel of this court in a real property
dispute. Eighth Judicial District Court, Clark County; Timothy C.
Williams, Judge.
Vacated and remanded.
Gerrard Cox & Larsen and Douglas D. Gerrard and Sheldon A. Herbert,
Henderson,
for Appellants/Cross-Respondents.
Marquis Aurbach Coffing and Scott A. Marquis, Micah S. Echols, and Tye
S. Hanseen, Las Vegas,
for Respondent/Cross-Appellant.
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BEFORE THE COURT EN BANC.'
OPINION
By the Court, PICKERING, J.:
This real property dispute returns to this court for the third
time. We vacate and remand for the district court to decide the lender's
equitable subrogation claim, which neither the trial nor the prior appeals
resolved.
I.
This dispute grows out of a contract giving respondent Lanlin
Zhang the right to buy Frank Sorichetti's house (the Property). Sorichetti
reneged, so Zhang sued him for specific performance and recorded a lis
pendens against the Property. Sorichetti moved to dismiss and to expunge
Zhang's us pendens; the district court granted his motions. Zhang
successfully petitioned this court for a writ of mandamus directing the
district court to reinstate Zhang's complaint and vacate its expungement
order. Zhang v. Eighth Judicial Dist. Court (Zhang 1), 120 Nev. 1037, 103
P.3d 20 (2004), abrogated in part by Buzz Stew, L.L.C. v. City of N. Las
Vegas, 124 Nev. 224, 228 n.6, 181 P.3d 670, 672 n.6 (2008). 2
Months later, someone (the parties suspect Sorichetti)
recorded the district court's nullified order of dismissal and expungement,
'The Honorable Ron D. Parraguirre, Justice, voluntarily recused
himself from participation in the decision of this matter.
2The case was assigned to and decided by a different district judge
than the judge who rendered the order underlying this appeal.
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giving the document a new title: "Release of Lis Pendens." Sorichetti then
applied to appellant Countrywide for a $705,000 loan 3 Before making the
loan, Countrywide conducted a title search, which revealed both the lis
pendens and the "Release." Countrywide accepted the "Release" as proof
that the Property was no longer in litigation and loaned Sorichetti
$705,000. Countrywide secured its loans by recording first and second
deeds of trust against the Property. Of the amount loaned, $281,090.12
went to retire the preexisting mortgage debt. Sorichetti pocketed the
balance and disappeared.
Sorichetti defaulted and Countrywide initiated foreclosure.
When Zhang learned about the pending foreclosure, she amended her
complaint to join Countrywide and add claims for declaratory judgment,
negligence, slander of title, and to quiet title. Eventually, the district
court entered default judgment against Sorichetti and ordered him to
convey the Property to Zhang for the agreed-upon purchase price
($532,500) less damages due Zhang from Sorichetti ($262,868.31). But
Zhang could not complete the purchase because of Countr3rwide's deeds of
trust.
The district court conducted a bench trial on the dispute
between Zhang and Countrywide. Before trial, the parties submitted a
joint pretrial memorandum. The memorandum identified the "principal
3 Refinancing
was provided by appellant Silver State Financial
Services, Inc., who assigned the notes and deeds of trust to its co-appellant
Countrywide Home Loans, Inc. The third appellant, National Title
Company, performed the title search. The parties do not differentiate
among the appellants/cross-respondents in addressing the issues
presented by this appeal and, for simplicity's sake, we refer to the
appellants/cross-respondents collectively as Countrywide.
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legal issue" as the validity and effect of Zhang's lis pendens. The parties
stipulated "that Countrywide paid off prior loans against the Property in
the amount of $230,864.29 and $50,225.83" and identified as an additional
legal issue "[w]hether Countrywide is entitled to equitable subrogation in
the amount of $281,090.12," the combined paid-off sum.
The district court ruled in Countrywide's favor without
reaching equitable subrogation. It held that the ostensibly released lis
pendens did not give Countrywide actual or constructive notice of Zhang's
specific performance claim against Sorichetti. Thus, Countrywide's deeds
of trust had priority for the full $705,000 they secured. Since the $705,000
included the $281,090.12 that retired the preexisting mortgage debt
against the Property—the object of Countrywide's equitable subrogation
claim—the district court did not need to decide that issue, and it didn't. It
struck the equitable-subrogation references in the draft findings of fact
and conclusions of law Countrywide submitted. It also denied Zhang's
claims for negligence, slander of title, and to quiet title and awarded costs
to Countrywide. 4
Zhang appealed, and her appeal was heard by a three-judge
panel of this court. The panel found no merit in Zhang's contention that
the district court erred in rejecting Zhang's negligence and slander-of-title
claims, but reversed as to Zhang's declaratory and quiet-title claims and
costs. Zhang v. Recontrust Co., N.A. (Zhang II), Docket Nos. 52326/52835
4 The district court rejected Zhang's negligence claim on the basis
that she failed to establish the standard of care required to perform a
"skillful and diligent title search and, further, whether a breach [of duty]
occurred." It rejected her slander-of-title claim because she did not prove
that Countryvvide's deeds of trust were maliciously recorded.
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(Order of Reversal and Remand, February 26, 2010). It held that Zhang's
us pendens put Countrywide on inquiry notice as to Zhang's suit against
Sorichetti. Thus, the panel accepted Zhang's argument that "the district
court erred in. . . concluding that Zhang's us pendens should not be given
priority over [Countrywide's] deeds of trust." Id. "Since it was error for
the district court to conclude that the deeds of trust had priority over the
lis pendens," the Zhang II panel wrote, "the district court's determination
that title could not be quieted in Zhang's name because of the priority of
the deeds of trust on the Property was also error." Id. The order and
remittitur in Zhang II state that we "ORDER the judgment of the district
court REVERSED and REMAND this matter to the district court for
proceedings consistent with this order." Id.
Both sides filed petitions for panel rehearing and, when these
were denied, for en banc reconsideration. Zhang challenged the panel's
rejection of her negligence and slander-of-title claims, while Countrywide
challenged the panel's decision that the lis pendens gave it constructive
notice of Zhang's specific performance claim against Sorichetti. The
parties questioned a footnote in Zhang II that stated, "Because we order
the district court's judgment reversed, we vacate the district court's award
of costs. We therefore remand to the district court to make a
determination of whether attorney fees and costs are appropriate pending
the outcome of the new trial." Id. (emphasis added). They asked the court
to clarify the "new trial" the footnote alluded to.
The en banc court denied reconsideration, over Justice
Hardesty's dissent. In doing so, it modified the questioned footnote to
delete the reference to a "new trial." As modified, the footnote read: "We
therefore remand this matter to the district court to determine whether
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attorney fees and costs are appropriate in light of this order." Zhang v.
Recontrust Co., N.A., Docket Nos. 52326/52835 (Order Denying En Banc
Reconsideration and Modifying Prior Order, November 17, 2010).
Otherwise, the en banc court left the panel order unchanged.
On remand, Countrywide asked the district court for a
decision on equitable subrogation. The district court acknowledged the
undecided equitable subrogation claim but stated that it did not "feel it
[could] award equitable subrogation [since] it was not given jurisdiction to
do so by the Supreme Court's Decision reversing and remanding this
matter." The district court then entered judgment as follows: "Upon
recordation of this Judgment, Lanlin Zhang shall be recognized in all
official records as the owner of [property address]." The court also
awarded most of what Zhang requested in fees and costs.
Countrywide filed a motion to alter or amend the judgment. It
argued that not granting equitable subrogation meant that Zhang
acquired the Property without paying off the debt to which it already was
subject when she agreed to buy it. The district court pondered why "a
person should get a free home." But it reiterated that, since the panel
order did not give "any guidance as to how to handle the equitable
subrogation issue whatsoever," it felt constrained to deny relief.
Countrywide appealed and Zhang cross-appealed. 5
5 Zhang argues that this court lacks jurisdiction because
Countrywide filed an untimely notice of appeal. This argument lacks
merit. As a motions panel of this court previously held, Countrywide filed
a timely NRCP 59 motion which tolled the time for filing its appeal. See
NRAP 4(a)(4). We also deny Countrywide's motion to strike Zhang's
supplemental authorities.
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IL
A.
Nevada recognizes the doctrine of equitable subrogation as
formulated in section 7.6 of the Restatement (Third) of Property:
Mortgages (1997). Am. Sterling Bank v. Johnny Mgmt. LV, Inc., 126 Nev.
„ 245 P.3d 535, 539 (2010). Equitable subrogation "permits 'a
person who pays off an encumbrance to assume the same priority position
as the holder of the previous encumbrance," Houston v. Bank of Am. Fed.
Say. Bank, 119 Nev. 485, 488, 78 P.3d 71, 73 (2003) (quoting Mort v.
United States, 86 F.3d 890, 893 (9th Cir. 1996)), so long as the payor (1)
"reasonably expected to receive a security interest in the real estate with
the priority of the mortgage being discharged, and [(2)1 subrogation [does]
not materially prejudice the holders of intervening interests in the real
estate." Restatement (Third) of Prop.: Mortgages § 7.6(b)(4). "The payor is
subrogated only to the extent that the funds disbursed are actually
applied toward payment of the prior lien. There is no right of subrogation
with respect to any excess funds." Id. cmt. e.
Applying these principles to this case, Countrywide had a
strong equitable subrogation position. It loaned Sorichetti $705,000, part
of which paid off preexisting debt against the Property in the stipulated
amount of $281,090.12. This left it to the district court to decide the other
equitable-subrogation factors—Countrywide's reasonable expectations and
the cognizable prejudice to Zhang of crediting Countrywide's position. See
Am. Sterling Bank, 126 Nev. at 245 P.3d at 539-41. But the district
court did not decide equitable subrogation because it resolved the case on
other, later-reversed grounds.
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Although Zhang argues otherwise, Countrywide adequately
raised equitable subrogation in the district court. The joint pretrial
memorandum, submitted before trial pursuant to NRCP 16 and EDCR
2.67, stipulated without qualification or objection from Zhang that
equitable subrogation was a legal issue in the case. See EDCR 2.67(b)(8)
(the joint pretrial memorandum shall include a statement "of each
principal issue of law which may be contested at the time of trial [and]
include with respect to each principal issue of law the position of each
party"); cf. Walters v. Nev. Title Guar, Co., 81 Nev. 231, 234, 401 P.2d 251,
253 (1965) ("As a general proposition a pretrial order. . . control[s] the
subsequent course of the trial and supersedes the pleadings."). Thus, as
the district court acknowledged, equitable subrogation was legitimately in
play, at least up until Zhang
B.
The question we must decide is Zhang ifs impact on
Countrywide's equitable subrogation claim. The district court took Zhang
II as, sub silentio, rejecting equitable subrogation in favor of granting
unencumbered title to Zhang. This reads more into the Zhang II
proceedings and our law-of-the-case doctrine than either can sustain.
The law-of-the-case doctrine "refers to a family of rules
embodying the general concept that a court involved in later phases of a
lawsuit should not re-open questions decided (i.e., established as law of
the case) by that court or a higher one in earlier phases." Crocker v.
Piedmont Aviation, Inc., 49 F.3d 735, 739 (D.C. Cir. 1995). Normally, "for
the law-of-the-case doctrine to apply, the appellate court must actually
address and decide the issue explicitly or by necessary implication."
Dictor v. Creative Mgmt. Servs., L.L.C., 126 Nev. , 223 P.3d 332,
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334 (2010); see Wheeler Springs Plaza, L.L.C. v. Beemon, 119 Nev. 260,
266, 71 P.3d 1258, 1262 (2003) ("The doctrine only applies to issues
previously determined, not to matters left open by the appellate court.").
"Subjects an appellate court does not discuss, because the parties did not
raise them, do not become the law of the case by default." Bone v. City of
Lafayette, Ind., 919 F.2d 64, 66 (7th Cir. 1990), quoted with approval in
Dictor, 126 Nev. at , 223 P.3d at 334.
Zhang II did not decide equitable subrogation explicitly or by
necessary implication. Zhang appealed the district court's conclusion that
her lis pendens did not give Countrywide notice of her suit against
Sorichetti, such that its deeds of trust had complete priority over her claim
to specific performance. She also appealed the district court's rejection of
her quiet title, negligence, and slander-of-title claims. Because the district
court did not reach much less resolve equitable subrogation, the Zhang II
briefs did not discuss it. And consistent with the general rule against
considering matters not raised in the briefs, see Fanders v. Riverside
Resort & Casino, Inc., 126 Nev. n.2, 245 P.3d 1159, 1163 n.2
(2010), the panel did not discuss equitable subrogation either.
Nor did Zhang II reject equitable subrogation by necessary
implication. To be sure, the panel in Zhang II discussed Zhang's quiet-
title claim in broad and expansive terms. But the panel assumed that, if
Zhang's lis pendens gave Countrywide constructive notice of her specific
performance claim, its deeds of trust would be wholly subordinate to her
right to purchase. "A position that has been assumed without decision for
purposes of resolving another issue is not the law of the case." 18B
Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal
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Practice and Procedure § 4478 (2d ed. 2002). The panel's reference to
quieting title in Zhang was a description of her claim, not a disposition of
the unmentioned equitable subrogation claim. See Snow-Erlin ex rel.
Estate of Erlin v. United States, 470 F.3d 804, 808 (9th Cir. 2006) (holding
that reference in the decision of a prior appeal in the same case to the
plaintiff s claim as being for negligence, not false imprisonment, was
descriptive not dispositive and did not establish law of the case for
purposes of a later challenge to subject matter jurisdiction under the
Federal Tort Claims Act, which waives the federal government's sovereign
immunity for negligence but not false imprisonment claims).
C.
Zhang next argues that Countrywide could and should have
asserted equitable subrogation defensively in its answering brief in Zhang
II and that Countrywide's omission supports the judgment in her favor. In
effect, she invokes the "common. . . rule that a question that could have
been but was not raised on one appeal cannot be resurrected on a later
appeal to the same court in the same case." Wright, Miller Sz Cooper,
supra, § 4478.6; see United States v. Parker, 101 F.3d 527, 528 (7th Cir.
1996) ("A party cannot use the accident of a remand to raise in a second
appeal an issue that he could just as well have raised in the first
appeal. . . ."). Certainly, it would have been prudent for Countrywide to
advise the Zhang II panel of its undecided equitable subrogation claim as
its fallback position, so the panel could make clear that it did not express
an opinion on that claim. But its failure to raise equitable subrogation in
Zhang II did not preclude it from doing so on remand to the district court
for two reasons.
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First, the district court did not rule on equitable subrogation
before Zhang IL Waiver in the law-of-the-case context "applies only when
the trial court has expressly or impliedly ruled on a question and there
has been an opportunity to challenge that ruling on a prior appeal."
Crocker, 49 F.3d at 740-41 n.2. Since the district court did not decide
equitable subrogation, there was no error for Countrywide to argue.
Second, Countrywide was the respondent or appellee in Zhang
II, not the appellant. "While there are clear adjudicative efficiencies
created by requiring appellants to bring all of their objections to a
judgment in a single appeal rather than seriatim . . . , forcing appellees to
put forth every conceivable alternative ground for affirmance might
increase the complexity and scope of appeals more than it would
streamline the progress of the litigation." Crocker, 49 F.3d at 740-41
(emphasis added) (also noting that an appellant seeking to persuade the
court to overturn a district court ruling "enjoys the offsetting procedural
benefit of filing both the opening and reply briefs," while an "appellee
presenting alternative grounds for affirmance and facing a potential
application of the waiver doctrine must also attack an adverse district
court ruling. . . without the offsetting advantage of being able to file a
reply brief'). For these reasons, courts hesitate to find waiver "where, as
here, the judgment from which an appeal is taken is entirely favorable to
the appellee and that party, after losing the appeal, then seeks to raise a
new issue during a later appeal of an unfavorable judgment." United
States v. Moran, 393 F.3d 1, 12 (1st Cir. 2004); see Eichorn v. AT&T Corp.,
484 F.3d 644, 657-58 (3d Cir. 2007); Laitram Corp. v. NEC Corp., 115 F.3d
947, 954 (Fed. Cir. 1997).
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The proceedings on rehearing and reconsideration in Zhang II
do not counsel a different result. When an appellate court "declines in its
discretion to rehear a case en banc after a panel orders a remand, the
court retains authority to rehear the matter en bane at a subsequent stage
of the proceedings." Cattier v. City of Martin, 604 F.3d 553, 556-57 (8th
Cir. 2010). Denial of en banc reconsideration signifies that the petition
does not qualify under the stringent requirements imposed by NRAP 40A,
nothing more. And the deletion of the "new trial" reference in footnote 3 of
Zhang II addressed both sides' concerns that the order seemingly required
a new trial when, in fact, trial of all issues already occurred. Resolving
equitable subrogation—an issue already tried to but not yet decided by the
district court—did not require a new trial. We thus do not find a fatal
inconsistency between Countrywide's positions on rehearing and later on
remand.
For these reasons, we vacate the district court's judgment in
favor of Zhang and remand with instructions to decide Countrywide's
equitable subrogation claim on the merits and to enter final judgment
accordingly. Vacating the judgment removes the predicate for the award
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of fees and costs contested on cross-appeal. We therefore vacate and
remand as to attorney fees and costs as well.
Gibbons
J.
Hardesty
J.
Ch24t.
Cherry
Saitta
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