Branch Banking and Trust Co. v. D.M.S.I., LLC

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BRANCH BANKING AND TRUST No. 15-16933
COMPANY, as successor in interest
on behalf of Colonial Bank, N.A., D.C. No.
Plaintiff-Appellee, 2:11-cv-01778
APG-VCF
v.
D.M.S.I., LLC; NOAM SCHWARTZ;
NST HOLDING, INC., Trustee; YOEL
INY, Individually and as Trustee on
behalf of Y & T Iny Family Trust,
Defendants-Appellants.
BRANCH BANKING AND TRUST No. 15-16934
COMPANY,
Plaintiff-Appellee, D.C. No.
2:12-cv-00451
v. APG-GWF
REGENA HOMES, LLC; YOEL INY;
NOAM SCHWARTZ; Y & T INY
FAMILY TRUST DATED JUNE 8, 1994;
NOAM SCHWARTZ TRUST DATED
AUGUST 19, 1999; D.M.S.I., LLC;
GREAT AMERICAN CAPITAL,
Defendants-Appellants.
2 BRANCH BANKING & TRUST V. D.M.S.I.
BRANCH BANKING AND TRUST No. 15-16935
COMPANY,
Plaintiff-Appellee, D.C. No.
2:12-cv-00453
v. APG-NJK
SMOKE RANCH DEVELOPMENT, LLC;
YOEL INY, an individual and as OPINION
Trustee on behalf of Y&T Iny
Family Trust dated June 8, 1994, as
amended; NOAM SCHWARTZ,
individually and as Trustee on behalf
of Noam Schwartz Trust Dated
August 19, 1999; D.M.S.I., LLC,
Defendants-Appellants.
Appeals from the United States District Court
for the District of Nevada
Andrew P. Gordon, District Judge, Presiding
Argued and Submitted April 21, 2017
San Francisco, California
Filed September 11, 2017
Before: A. Wallace Tashima and Richard A. Paez, Circuit
Judges, Carol Bagley Amon,* District Judge.
Opinion by Judge Tashima
*
The Honorable Carol Bagley Amon, United States District Judge for
the Eastern District of New York, sitting by designation.
BRANCH BANKING & TRUST V. D.M.S.I. 3
SUMMARY**
Standing / Preemption / Loans
The panel affirmed the district court’s judgments in three
actions against defendant debtors who failed to repay loans
held by Branch Banking and Trust Company, arising from
loans secured by real property in Nevada.
The panel rejected defendants’ contention that Branch
Banking lacked standing to bring the instant actions because
it did not have the right to enforce the loans at the time it filed
its complaints. The panel also held that Branch Banking was
not barred by issue preclusion under Nevada law.
The panel held that Nev. Rev. Stat. § 40.459(1)(c) –
which limited the ability of a third party to profit by
purchasing real estate debt at a discount and foreclosing at
full price – was preempted by federal law, the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989,
as applied to transferees of the Federal Deposit Insurance
Corporation (“FDIC”). The panel noted that it would be
more difficult for the FDIC to dispose of the assets of failed
banks if transferees, such as Branch Banking, could not turn
a profit on those assets. The panel rejected defendants’ claim
that Branch Banking had failed to prove each element of its
deficiency action.
The panel rejected the affirmative defenses under Nevada
law asserted by defendants based on alleged work-out
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4 BRANCH BANKING & TRUST V. D.M.S.I.
agreements with Branch Banking. Specifically, the panel
rejected defendants’ argument that the alleged work-out
agreements constituted contracts with implied covenants of
good faith and fair dealing because under Nevada law, the
agreements did not constitute contracts. The panel also held
that all the elements of promissory estoppel were not met.
The panel further held that no oral work-out agreement could
have modified the loans or operated to waive Branch
Banking’s rights. The panel held that the defendants did not
identify any circumstances that made the application of
laches appropriate. Finally, the panel held that Branch
Banking owed no duty to mitigate defendants’ deficiency by
the timing of the foreclosure proceedings.
The panel held that the district court did not abuse its
discretion in denying defendants’ late-filed motion to amend
pleadings because defendants demonstrated neither good
cause nor excusable neglect.
The panel held that defendants were not entitled to a jury
trial on the fair market value of the property. The panel also
held that Branch Banking did not violate Nev. Rev. Stat.
§ 163.120(2) concerning notice to trust beneficiaries.
COUNSEL
Bart K. Larsen (argued), Kolesar & Leatham, Las Vegas,
Nevada, for Defendants-Appellants.
Jeremy Nork (argued), Holland & Hart LLP, Las Vegas,
Nevada, for Plaintiff-Appellee.
BRANCH BANKING & TRUST V. D.M.S.I. 5
OPINION
TASHIMA, Circuit Judge:
Defendants in these three actions are debtors who have
failed to repay loans held by Branch Banking and Trust
Company (“BB&T”). They appeal the respective judgments
of the district court against them. We have jurisdiction under
28 U.S.C. § 1291 and we affirm.
I. BACKGROUND
A. The D.M.S.I. Action, No. 15-16933
On February 27, 2004, D.M.S.I., LLC, Yoel Iny, and
Noam Schwartz executed and delivered a Promissory Note to
Colonial Bank, N.A., for $2,000,000 (“D.M.S.I. Loan”). On
the same date, Yoel Iny, acting as Trustee of the Y & T Iny
Family Trust, and Ronnie Schwartz, as a Trustee of the NS
1998 Family Trust, executed and delivered guarantees of the
payment of the D.M.S.I. Loan. The D.M.S.I. Promissory
Note was amended in 2006, increasing the principal amount
of the loan to $3,500,000. After an additional amendment in
March 2009, the D.M.S.I. Loan was set to be paid in full by
June 1, 2009. It is undisputed that Defendants failed to repay
the D.M.S.I. Loan.
Colonial Bank, N.A., was succeeded by Colonial Bank, an
Alabama banking corporation. On August 14, 2009, Colonial
Bank was closed, and the Federal Deposit Insurance
Corporation (“FDIC”) was named as its receiver.
On the same day, the FDIC executed an agreement titled
“Purchase and Assumption Agreement Whole Bank All
6 BRANCH BANKING & TRUST V. D.M.S.I.
Deposits Among Federal Deposit Insurance Corporation,
Receiver of Colonial Bank, Montgomery, Alabama Federal
Deposit Insurance Corporation and Branch Banking and Trust
Company Winston-Salem, North Carolina” (“PAA”). The
PAA assigns “all right, title, and interest of the Receiver in
and to all of the assets . . . of the Failed Bank [Colonial
Bank]” to BB&T. The PAA goes on to state that “Schedules
3.1 and 3.1a attached hereto and incorporated herein sets
forth certain categories of Assets purchased hereunder. Such
schedule is based upon the best information available to the
Receiver and may be adjusted as provided in Article VIII.”
Schedules 3.1 and 3.1a to the PAA are both blank, containing
only the legend “SEE ATTACHED LIST.” No “attached
list” was included with the PAA.
At the same time it entered the PAA, BB&T also entered
a loss sharing agreement with the FDIC “for reimbursement
of loss sharing expenses on certain loans and other assets.”
The loss sharing agreement applies “when the Assuming
Bank [BB&T] purchases Shared-Loss Assets.” Schedule
4.15b lists the assets subject to the loss sharing agreement.
The D.M.S.I. Loan is listed in Schedule 4.15b.
On October 23, 2009, the FDIC executed an “Assignment
of Security Instruments and Other Loan Documents” (“Bulk
Assignment”). The Bulk Assignment assigns to BB&T
all of Assignor’s [FDIC’s] rights, title and
interests in and to all those certain Mortgages,
Security Deeds, Deeds to Secure Debt, Deeds
of Trust, Assignments of Rents and Leases,
UCC-1 financing statements, judgment liens,
and all such other instruments and security
agreements securing loans owned by Colonial
BRANCH BANKING & TRUST V. D.M.S.I. 7
Bank . . . and all modifications, extensions,
amendments and renewals thereto
(collectively the “Security Instruments”).
The Bulk Assignment also assigns “all of Assignor’s
[FDIC’s] rights, title and interests in and to the promissory
notes, loan documents and all other Indebtedness secured by
the Security Instruments.” The Bulk Assignment thus
appears to apply only to security instruments and to secured
debt.
The FDIC also produced an undated allonge1 purporting
to endorse the D.M.S.I. Loan to BB&T effective August 14,
2009.
In 2009 and 2010, BB&T engaged in discussions with
Defendants about restructuring the D.M.S.I. Loan.
Notwithstanding discussions over this “work-out agreement,”
on August 18, 2010, Defendants signed an
“Acknowledgment” stating that any such discussions “are
without any prejudice to the Lender [BB&T] in the exercise
of its rights and remedies with respect to the Loans.
Furthermore, Lender reserves the right in its sole discretion
to terminate discussions at any time and thereafter exercise its
right and remedies.”
On November 4, 2011, BB&T filed the D.M.S.I. Action
against Defendants. The district court issued a Discovery
1
An “allonge” is a “slip of paper sometimes attached to a negotiable
instrument for the purpose of receiving further [e]ndorsements when the
original paper is filled with [e]ndorsements.” Edelstein v. Bank of N.Y.
Mellon, 286 P.3d 249, 252 n.2 (Nev. 2012) (alterations in original)
(quoting Black’s Law Dictionary 1859 (9th ed. 2009)).
8 BRANCH BANKING & TRUST V. D.M.S.I.
Plan and Scheduling Order on May 2, 2012. The Scheduling
Order established November 2, 2012, as the deadline to file
motions to amend the pleadings. The operative Second
Amended Complaint was filed on June 29, 2012. It alleges
breach of promissory note, breach of guaranty, and breach of
the covenant of good faith and fair dealing. Defendants filed
their answers to the Second Amended Complaint in July
2012. On January 14, 2013, Defendants moved to extend the
deadline to amend their pleadings, which BB&T did not
oppose and which the district court granted. On March 6,
2013, Defendants filed amended answers. On March 13,
2013, five days before the close of discovery and well after
the deadline to amend had passed, Defendants filed a second
motion to again extend the deadline to amend their pleadings
for the purpose of adding several new defenses and a
counterclaim against BB&T. This motion was denied.
After the close of discovery, the parties filed cross-
motions for summary judgment. The district court granted
BB&T’s motion and denied Defendants’ motion. The district
court’s order does not address the affirmative defenses raised
by Defendants regarding the alleged work-out agreement. On
August 27, 2015, the district court entered judgment against
Defendants for $7,171,197.99. Defendants timely appealed.
B. The Regena Action, No. 15-16934
On September 7, 2005, Regena Homes, LLC, executed
and delivered a promissory note secured by a deed of trust to
Colonial Bank, N.A., in the amount of $3,377,000 (“Regena
Loan”). The Regena Loan was secured by a deed of trust for
real property in Clark County, Nevada (“Regena Property”).
On the same date the Regena Loan was executed, Yoel Iny as
an individual and as a Trustee of the Y & T Iny Family Trust,
BRANCH BANKING & TRUST V. D.M.S.I. 9
Noam Schwartz as an individual and as a Trustee of the
Noam Schwartz Trust, D.M.S.I., LLC, and Great American
Capital executed and delivered guarantees of the payment of
the Regena Loan. After subsequent amendments, the Regena
Loan was due to be paid in full by December 8, 2009. It is
undisputed that Defendants failed to repay the Regena Loan.
Colonial Bank, N.A., was succeeded by Colonial Bank,
which subsequently failed and went into receivership. The
FDIC, as receiver, executed the PAA and loss sharing
agreement described above. The Regena Loan is listed on
Schedule 4.15b to the loss sharing agreement. The Bulk
Assignment is as described above. Finally, the FDIC
produced an undated allonge purporting to endorse the
Regena Loan to BB&T, effective August 14, 2009.
Just as with the D.M.S.I. Loan, BB&T engaged in
discussions with Defendants about a work-out agreement
regarding the Regena Loan. Defendants executed an
Acknowledgment preserving BB&T’s rights and remedies.
BB&T had the Regena Property assessed each year from
2009 to 2011. These assessments revealed that the value of
the Regena Property was rapidly declining.
On February 29, 2012, the Regena Property was sold at a
non-judicial trustee’s sale to partially satisfy the Regena
Loan. BB&T filed the Regena Action against Defendants on
March 16, 2012. On June 8, 2012, BB&T filed the operative
Amended Complaint, alleging breach of guaranty, breach of
the implied covenant of good faith and fair dealing, and for a
deficiency judgment.
After discovery, the parties filed cross-motions for
summary judgment. The district court denied Defendants’
10 BRANCH BANKING & TRUST V. D.M.S.I.
motion and granted summary judgment to BB&T as to
liability. The only remaining issue was the amount of the
deficiency owed to BB&T. Defendants requested a jury to
hear all issues relating to the deficiency. After briefing, the
district court ruled that the fair market value of the Regena
Property should be determined by the court, and the
remaining issues would be left for the jury. The district court
subsequently granted BB&T’s motion in limine excluding all
evidence of the alleged work-out agreement.
The parties stipulated to the sale price of the Regena
Property. On April 13, 2015, a jury determined that the
amount of debt on the Regena Loan on the date of the
trustee’s sale was $2,069,845.78. On May 11, 2015, the
parties stipulated to the fair market value of the Regena
Property on the date of the trustee’s sale. The district court
then entered judgment against Defendants for $1,975,766.24.
Defendants timely appealed.
C. The Smoke Ranch Action, No. 15-16935
On September 26, 2005, Smoke Ranch Development,
LLC, executed and delivered a promissory note in the amount
of $800,000 to Colonial Bank, N.A. (“Smoke Ranch Loan”).
The promissory note was secured by a Deed of Trust for
certain real property in Clark County, Nevada (“Smoke
Ranch Property”). On the same date, Yoel Iny, both as an
individual and as Trustee of the Y & T Iny Family Trust,
Noam Schwartz, as an individual and as a Trustee of the
Noam Schwartz Trust, and D.M.S.I., LLC, executed a
guarantee of the payment of the Smoke Ranch Loan. After
subsequent amendments, the Smoke Ranch Loan was due to
be paid in full by April 1, 2010. It is undisputed that
Defendants failed to repay the Smoke Ranch Loan.
BRANCH BANKING & TRUST V. D.M.S.I. 11
Colonial Bank, N.A., was succeeded by Colonial Bank,
which subsequently failed and went into receivership. The
FDIC, as receiver, executed the PAA and loss sharing
agreement, which are described above. The Smoke Ranch
Loan is listed on Schedule 4.15b to the loss sharing
agreement. The Bulk Assignment is as described above.
Finally, the FDIC produced an undated allonge purporting to
endorse the Smoke Ranch Loan to BB&T, effective August
14, 2009.
Just as with the D.M.S.I. and Regena Loans, BB&T
engaged in discussions with Defendants about a work-out
agreement regarding the Smoke Ranch Loan. Defendants
executed an Acknowledgment preserving BB&T’s rights and
remedies. BB&T had the Smoke Ranch Property assessed
twice, in 2009 and 2010. These assessments revealed that the
value of the Regena Property was rapidly declining.
On February 29, 2012, the Smoke Ranch Property was
sold at a non-judicial trustee’s sale to partially satisfy the
Smoke Ranch Loan. On March 16, 2012, BB&T filed the
Smoke Ranch Action against Defendants. The operative
Amended Complaint was filed on June 8, 2012. It alleges
claims for breach of guaranty, breach of the implied covenant
of good faith and fair dealing, and for a deficiency judgment.
After discovery, the parties filed cross-motions for
summary judgment. On September 26, 2014, the district
court entered summary judgment for BB&T on liability and
denied Defendants’ motions for summary judgment.
The only issue left was a determination of the amount of
the deficiency. Just as in the Regena Action, Defendants
requested a jury trial on all elements of this issue, but the
12 BRANCH BANKING & TRUST V. D.M.S.I.
district court determined that the fair market value of the
Smoke Ranch Property would be determined by the court.
The fair market value of the Smoke Ranch Property was
determined at an evidentiary hearing. The parties stipulated
to the sale price of the Smoke Ranch Property at the trustee’s
sale.
Prior to trial, the district court granted BB&T’s motion in
limine to exclude all evidence of the alleged work-out
agreement.
On June 8, 2015, the parties agreed to stipulate to the
amount of the debt remaining on the Smoke Ranch Loan.
This obviated the need for a jury trial. After the relevant
stipulations were made, the district court entered judgment
against Defendants for $630,401.15. Defendants timely
appealed.
II. STANDARDS OF REVIEW
We review the district court’s grant of summary judgment
de novo. Kraus v. Presidio Tr. Facilities Div./Residential
Mgt. Branch, 572 F.3d 1039, 1042 (9th Cir. 2009). Our
review of denials of summary judgment is also de novo.
Brewster v. Shasta Cty., 275 F.3d 803, 806 (9th Cir. 2001).
Constitutional questions are reviewed de novo. Servin-
Espinoza v. Ashcroft, 309 F.3d 1193, 1196 (9th Cir. 2002).
This includes the question of whether there is a right to a jury
trial under the Seventh Amendment. Kulas v. Flores,
255 F.3d 780, 783 (9th Cir. 2001).
Ordinarily, rulings on motions in limine are reviewed for
an abuse of discretion. Masson v. New Yorker Magazine,
BRANCH BANKING & TRUST V. D.M.S.I. 13
Inc., 85 F.3d 1394, 1399 (9th Cir. 1996). However, when a
ruling on a motion in limine is used to “preclude[]
presentation of a defense,” we review the ruling de novo.
United States v. Ross, 206 F.3d 896, 898–99 (9th Cir. 2000).
Denial of a motion to amend pleadings is reviewed for an
abuse of discretion. Johnson v. Mammoth Recreations, Inc.,
975 F.2d 604, 607 (9th Cir. 1992).
III. STANDING
Defendants argue that BB&T lacked standing to bring the
instant actions because it did not have the right to enforce the
loans at the time it filed its complaints. We disagree.
A. The Bulk Assignment
The Bulk Assignment transferred to BB&T all security
instruments previously owned by Colonial Bank, as well as
all loans and promissory notes secured by those instruments.
The Regena and Smoke Ranch Loans were secured, and they
therefore fall within the scope of the Bulk Assignment.
Citing Nevada’s statute of frauds, Nev. Rev. Stat.
§ 111.205(1), Defendants contend that the Bulk Assignment
is invalid because it does not describe the property securing
the loans with particularity. However, there can be no debate
that the Regena and Smoke Ranch properties are adequately
described in their respective Deeds of Trust, which are
referenced in the Loan Documents. There is thus no merit to
Defendants’ contention that the Bulk Assignment does not
describe the property with particularity.
14 BRANCH BANKING & TRUST V. D.M.S.I.
B. The PAA
Section 3.1 of the PAA transferred to BB&T “all right,
title, and interest of the Receiver [FDIC] in and to all of the
assets . . . of the Failed Bank.” On its face, all three loans are
encompassed by this language. Section 3.1 goes on to state
that “Schedules 3.1 and 3.1a attached hereto and incorporated
herein sets forth certain categories of Assets purchased
hereunder.” The attached schedules are blank.
However, there is other evidence that the parties to the
PAA intended to transfer the three loans at issue. At the same
time that they entered into the PAA, the FDIC and BB&T
entered into a loss sharing agreement to “reimburs[e ] loss
sharing expenses on certain loans and other assets . . . when
the Assuming Bank purchases” such assets. The loss sharing
agreement therefore applies to “loans and other assets” that
were transferred to BB&T. The loss sharing agreement lists
the assets to which it applies in Schedule 4.15b. All three
loans at issue were listed on this schedule. It is therefore
apparent that the parties intended for the PAA to transfer all
three loans, even if the loans were never listed in the correct
schedule.
All three loans were therefore transferred by the PAA.
C. Issue Preclusion
Under Nevada law, issue preclusion requires four
elements:
“(1) the issue decided in the prior litigation
must be identical to the issue presented in the
current action; (2) the initial ruling must have
BRANCH BANKING & TRUST V. D.M.S.I. 15
been on the merits and have become final; . . .
(3) the party against whom the judgment is
asserted must have been a party or in privity
with a party to the prior litigation;” and (4) the
issue was actually and necessarily litigated.
Five Star Capital Corp. v. Ruby, 194 P.3d 709, 713 (Nev.
2008) (footnote omitted) (quoting Univ. of Nev. v. Tarkanian,
879 P.2d 1180, 1191 (Nev. 1994)).
In 2013, the Nevada Supreme Court affirmed a lower
court ruling that BB&T could not rely on the PAA to show
assignment of a loan. R & S St. Rose Lenders, LLC v. Branch
Banking & Tr. Co., No. 56640, 2013 WL 3357064, *3 (Nev.
May 31, 2013) (affirming Murdock v. Rad, No. 08A574852,
2010 WL 9564700 (Nev. Dist. Ct. June 18, 2010)). The loan
at issue in R & S and Murdock was not one of the loans at
issue in the instant cases. Further, the R & S and Murdock
courts’ reasoning was not that BB&T lacked standing, but
rather that it had failed to produce schedules to the PAA
listing assets excluded from the transfer. There was thus no
evidence that the loan at issue there was not excluded from
the PAA by one of those schedules. See R & S, 2013 WL
3357064, at *3.
The issue in R & S and Murdock was not “identical” to
the issue in the instant cases. Those previous cases dealt with
a different loan and a different evidentiary record. In the
instant cases, BB&T has produced not only the PAA, but also
the attendant schedules showing that the loans at issue were
not excluded from the terms of the PAA. As the district court
noted, “BB&T may have learned its evidentiary lesson from
Murdock.” Branch Banking & Tr. Co. v. D.M.S.I. L.L.C., No.
2:11-cv-01778-APG-VCF, 2014 WL 4840770, at *6 (D. Nev.
16 BRANCH BANKING & TRUST V. D.M.S.I.
Sept. 26, 2014). BB&T is therefore not issue-precluded from
relying on the PAA to show that the loans were transferred to
it.
Defendants also argue that BB&T is issue-precluded from
relying on the Bulk Assignment because that agreement was
excluded from evidence in the Murdock case. This argument
lacks merit. The Bulk Assignment was excluded in Murdock,
not because of any deficiency in the document itself, but
because it was not timely disclosed by BB&T. R & S, 2013
WL 3357064, at *3. The validity of the Bulk Assignment
was never litigated in the state court, and BB&T is therefore
not issue-precluded from relying on it.
IV. FEDERAL PREEMPTION
In the Regena and Smoke Ranch Actions, BB&T brought
claims for deficiency. At the time this action was brought,
Nev. Rev. Stat. § 40.459(1)(c) (repealed May 25, 2015)
(“Subsection (1)(c)”) provided that the court in a deficiency
action
shall not render judgment for more than: . . .
the amount by which the amount of the
consideration paid for that right exceeds the
fair market value of the property sold at the
time of sale or the amount for which the
property was actually sold, whichever is
greater . . . .
There is no dispute that BB&T has not shown the
consideration that it paid for the Regena and Smoke Ranch
Loans. Defendants argue that BB&T has therefore failed to
prove each element of its deficiency action. BB&T counters
BRANCH BANKING & TRUST V. D.M.S.I. 17
that Subsection (1)(c) is unconstitutional as applied in these
cases under the Supremacy Clause and the Contracts Clause
of the U.S. Constitution. We hold that Subsection (1)(c) is
preempted by federal law.2
Prior to 2011, Nev. Rev. Stat. § 40.459 limited the
amount recoverable in a deficiency action to the lesser of
(1) the difference between the amount of the debt and the fair
market value of the property at the time of sale; or (2) the
difference between the amount of the debt and the actual sale
price of the property. Nev. Rev. Stat. § 40.459(1)–(2) (1993).
In 2011, § 40.459 was amended to add Subsection (1)(c).
2011 Nev. Stat. ch. 311 § 5 at 1743. The purpose of
Subsection (1)(c) was to “reduce foreclosures in favor of
alternatives by eliminating the ability of a third party to profit
by purchasing real estate debt at a discount and foreclosing at
full price.” Eagle SPE NV I, Inc. v. Kiley Ranch Cmtys., 5 F.
Supp. 3d 1238, 1246 (D. Nev. 2014).
The Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (“FIRREA”) is one of the statutes
that govern the FDIC. See Pub. L. 101-73, 103 Stat. 183,
codified as amended in various sections of Title 12, U.S.C.
The underlying purpose of FIRREA as a whole is “to enable
the federal government to respond swiftly and effectively to
the declining financial condition of the nation’s banks and
savings institutions.” Henderson v. Bank of New Eng.,
986 F.2d 319, 320 (9th Cir. 1993).
In Munoz v. Branch Banking & Tr. Co., 348 P.3d 689
(Nev. 2015), the Nevada Supreme Court held that Subsection
2
Because we affirm on that basis, we do not address Defendants’
Contracts Clause argument.
18 BRANCH BANKING & TRUST V. D.M.S.I.
(1)(c) is preempted by FIRREA to the extent that it would
limit recovery on loans transferred by the FDIC. Id. at 690.
The court reasoned that applying Subsection (1)(c) to
transferees of loans from the FDIC would frustrate the
purpose of FIRREA by making it more difficult for the FDIC
to dispose of the assets of failed banks. Id. State law is
preempted when it “frustrates the purpose of the national
legislation, or impairs the efficiencies of these agencies of the
Federal government to discharge the duties for the
performance of which they were created.” McClellan v.
Chipman, 164 U.S. 347, 357 (1896) (quoting Davis v. Elmira
Sav. Bank, 162 U.S. 275, 283 (1896); see also Malone v.
White Motor Corp., 435 U.S. 497, 504 (1978) (observing that
state and local laws that frustrate federal law are preempted).
The reasoning in Munoz is persuasive. It would be more
difficult for the FDIC to dispose of the assets of failed banks
if the transferee could not turn a profit on those assets.
BB&T would likely never have accepted the Regena and
Smoke Ranch Loans if it believed that Subsection (1)(c)
would limit its ability to recover on those loans in a
deficiency action. We adopt the reasoning of Munoz and hold
that Subsection (1)(c) is preempted by federal law as applied
to transferees of the FDIC.
V. AFFIRMATIVE DEFENSES
In each of these three cases, Defendants assert affirmative
defenses based on an alleged work-out agreement with
BB&T. According to Defendants, BB&T promised
Defendants “adequate time to implement a real estate
property action plan regarding various loans it had” with
Defendants in exchange for writing off or writing down the
loans at issue. The district court did not err in granting
BRANCH BANKING & TRUST V. D.M.S.I. 19
summary judgment to BB&T in spite of Defendants’
defenses.
A. Breach of Covenant of Good Faith and Fair Dealing
Defendants argue that the alleged work-out agreements
constituted contracts, and, as with all contracts, came with
implied covenants of good faith and fair dealing. Hilton
Hotels Corp. v. Butch Lewis Prods., Inc., 862 P.2d 1207,
1209 (Nev. 1993). Under Nevada law, this covenant is
breached when “one party performs a contract in a manner
that is unfaithful to the purpose of the contract and the
justified expectations of the other party are thus denied.”
Perry v. Jordan, 900 P.2d 335, 338 (Nev. 1995) (quoting
Hilton Hotels Corp v. Butch Lewis Prods., Inc., 808 P.2d 919,
913 (Nev. 1991). Defendants contend that BB&T violated
the covenant of good faith and fair dealing when it filed the
instant actions without giving Defendants time to execute a
work-out plan.
This defense fails because the alleged work-out
agreements did not constitute contracts. Rather, it appears
that BB&T orally promised Defendants time to come up with
a way to work out their debt. Such a promise, with no
consideration, is not a contract. Pink v. Busch, 691 P.2d 456,
459 (Nev. 1984). Absent a contract, there can be no implied
covenant of good faith and fair dealing.
Further, any oral work-out agreement between BB&T and
Defendants would be void or unenforceable. The Loan
Documents specifically provide that they can only be
modified by written agreement. The alleged oral work-out
agreements could not, therefore, have modified the Loan
Documents or released Defendants from liability.
20 BRANCH BANKING & TRUST V. D.M.S.I.
Defendants also entered into written Acknowledgments
that any discussions regarding a work-out agreement would
not prejudice BB&T with respect to its “rights and remedies.”
Defendants in each action were thus parties to the Loan
Documents and the Acknowledgments, both of which made
them aware that BB&T could collect on its loan,
notwithstanding any oral discussions about a work-out.
B. Estoppel
Estoppel can apply to a promise for which there was no
consideration paid. In such a case, reliance is a substitute for
consideration. Id. The elements of promissory estoppel are:
(1) the party to be estopped must be apprised
of the true facts; (2) he must intend that his
conduct shall be acted upon, or must so act
that the party asserting estoppel has the right
to believe it was so intended; (3) the party
asserting the estoppel must be ignorant of the
true state of facts; (4) he must have relied to
his detriment on the conduct of the party to be
estopped.
Id. (quoting Chequer, Inc. v. Painters & Decorators Joint
Comm., Inc., 655 P.2d 996, 998–99 (Nev. 1982)). In this
case, the third element is absent. Defendants were not
ignorant that BB&T could commence a lawsuit to collect on
the loans at any time. Defendants knew that 1) the Loan
Documents could only be modified by written agreement, and
2) the Acknowledgments reserved BB&T’s rights and
remedies under the Loan Documents. They could not have
reasonably believed that BB&T would give them infinite time
BRANCH BANKING & TRUST V. D.M.S.I. 21
to put their affairs in order. The defense of estoppel therefore
fails.
C. Modification and Waiver
Defendants argue that the alleged oral work-out
agreements modified the terms of their loans and that by
entering the work-out agreement, BB&T waived its right to
collect on the loan in a lawsuit. However, as noted above, the
Loan Documents could only be modified by written
agreement. No oral work-out agreement could have modified
the loans or operated to waive BB&T’s rights.
D. Laches
Defendants argue that BB&T is subject to the doctrine of
laches because it waited too long before foreclosing on the
Regena and Smoke Ranch Properties, thereby allowing the
prices to drop with the market. “Especially strong
circumstances must exist . . . to sustain a defense of laches
when the statute of limitations has not run.” Bldg. & Constr.
Trades Council of N. Nev. v. State ex rel. Pub. Works Bd.,
836 P.2d 633, 637 (Nev. 1992) (citation omitted). BB&T
brought the Regena and Smoke Ranch Actions within the
statute of limitations, and Defendants have not identified any
circumstances that make the application of laches
appropriate.
E. Failure to Mitigate Damages
In the Regena and Smoke Ranch Actions, Defendants
asserted the defense of failure to mitigate damages. The basis
for this defense is that BB&T strung Defendants along with
promises of a work-out agreement, all the while intending to
22 BRANCH BANKING & TRUST V. D.M.S.I.
foreclose on the properties when the market bottomed out.
However, Defendants have not cited any precedent showing
that BB&T thereby breached a duty to them.
Although there is no Nevada case directly on point, in at
least one other jurisdiction that has addressed the issue, the
court held that there is no duty for a secured creditor to time
a foreclosure sale so as to minimize a deficiency. FDIC v.
Coleman, 795 S.W.2d 706, 709–710 (Tex. 1990). In
Coleman, the Texas Supreme Court reasoned:
If a creditor were obliged to hasten to
liquidate security in a declining market,
logically it would also be required to wait to
liquidate security in a climbing market. The
FDIC assumed no such obligation under the
guaranties in this case, and none should be
imposed by law. It is difficult enough to
determine when it is best to foreclose to
protect one’s own interests; it is virtually
impossible to know when it is best to protect
others’ interests.
Id. at 710. In addition, the court noted that the secured debtor
always had the option to sell the property itself if it believed
the market to be favorable, rather than waiting for the secured
creditor to foreclose. Id. at 709.
We find the reasoning of the Coleman court persuasive.
BB&T owed no duty to mitigate Defendants’ deficiency by
BRANCH BANKING & TRUST V. D.M.S.I. 23
the timing of its foreclosure proceedings; the mitigation of
damages defense therefore fails.3
VI. LATE-FILED MOTION TO AMEND
PLEADINGS
In the D.M.S.I. Action, after the deadline to amend had
already passed, Defendants requested leave to again extend
the deadline. Defendants sought to amend their pleading to
add four new defenses and a counterclaim based on the
alleged work-out agreement.
Under Federal Rule of Civil Procedure 16, “[a] schedule
may be modified only for good cause and with the judge’s
consent.” Fed. R. Civ. P. 16(b)(4). “Once the district court
had filed a pretrial scheduling order pursuant to Federal Rule
of Civil Procedure 16 which established a timetable for
amending pleadings that rule’s standards controlled.”
Johnson, 975 F.2d at 607–08. The good cause standard of
Rule 16(b) “primarily considers the diligence of the party
seeking the amendment.” Id. at 609. “If that party was not
diligent, the inquiry should end.” Id.
Extension of deadlines in this case was also governed by
District of Nevada Local Rule 26-4, which provides that a
“motion or stipulation to extend any date set by the discovery
plan, scheduling order, or other order must . . . be supported
3
We note in passing without commenting further that this argument,
as well as Defendants’ laches defense, is predicated on BB&T’s “waiting
too long” before commencing foreclosure proceedings. This is directly
contrary to Defendants’ argument under Part V.A, above, that BB&T
breached the covenant of good faith and fair dealing in the work-out
agreements by commencing foreclosure proceedings too early without
giving Defendants time to execute a work-out plan.
24 BRANCH BANKING & TRUST V. D.M.S.I.
by a showing of good cause for the extension.” D. Nev. LR
26-4. If the request to extend a deadline is made “after the
expiration of the subject deadline,” the movant must also
demonstrate “that the failure to act was the result of
excusable neglect.” Id. The case law does not discuss the
definition of excusable neglect in this context, but in the
context of a motion under Rule 60(b)(1) of the Federal Rules
of Civil Procedure, “whether neglect is excusable . . . depends
on at least four factors: (1) the danger of prejudice to the
opposing party; (2) the length of the delay and its potential
impact on the proceedings; (3) the reason for the delay; and
(4) whether the movant acted in good faith.” Bateman v. U.S.
Postal Serv., 231 F.3d 1220, 1223–24 (9th Cir. 2000).
Defendants have demonstrated neither good cause nor
excusable neglect. The defenses and counterclaim they
sought to add were based on the work-out agreement, which
Defendants knew about long before the deadline to amend
had passed. Defendants were thus not diligent. The district
court did not abuse its discretion in concluding that
Defendants did not demonstrate good cause. That, on its
own, was a sufficient reason to deny Defendants’ motion.
With regard to excusable neglect, Defendants go on at
length in their briefs about why their proposed amendment
would not prejudice BB&T. They argue that because the
amendments were based on the same facts as affirmative
defenses that had already been pled, no additional discovery
would be required. Whether or not this is true, Defendants
provide no explanation at all for their delay. The “reason for
the delay” factor of excusable neglect has thus not been
addressed at all. Absent any explanation for the delay, the
district court acted within its discretion in concluding that
BRANCH BANKING & TRUST V. D.M.S.I. 25
Defendants’ neglect was not excusable and thus in denying
the motion to extend the deadline.
VII. RIGHT TO JURY TRIAL
In the Regena and Smoke Ranch Actions, the district court
granted summary judgment on liability to BB&T and left the
amount of damages (the deficiency) for trial. The district
court decided to determine the fair market value of the
Regena and Smoke Ranch properties itself rather than
submitting the issue to a jury, as Defendants demanded.
Defendants contend that the district court violated their
Seventh Amendment right to a jury trial by not submitting the
fair market value issue to a jury.4
Under the Seventh Amendment, the right to a jury trial
exists in “Suits at common law.” U.S. CONST. amend. VII.
This means that the right applies to actions analogous to those
historically tried in courts of law as opposed to courts of
equity. Tull v. United States, 481 U.S. 412, 417 (1987). To
determine whether the right applies to a statutory action,
courts first “compare the statutory action to 18th-century
actions brought in the courts of England prior to the merger
of the courts of law and equity.” Granfinanciera, S.A. v.
Nordberg, 492 U.S. 33, 42 (1989) (quoting Tull, 481 U.S. at
417). Second, courts “examine the remedy sought and
4
Prior to the deficiency trial, Defendants in the Regena Action
stipulated to the fair market value of the Regena property, the very issue
on which they had demanded a jury trial, and the amount of the deficiency
was determined on that basis. Parties are bound by their stipulations.
Payne v. Norwest Corp., 185 F.3d 1068, 1071–72 (9th Cir. 1999).
Defendants’ stipulation of fair market value rendered trial of that issue,
whether by jury or otherwise, moot in the Regena Action. We therefore
address this issue only as it relates to the Smoke Ranch Action.
26 BRANCH BANKING & TRUST V. D.M.S.I.
determine whether it is legal or equitable in nature.” Id.
(quoting Tull, 481 U.S. at 417–18). “The second stage of this
analysis is more important than the first.” Id.
Nevada law allows the holder of a secured debt to
institute a deficiency action for the lesser of (1) the difference
between the amount of the debt and the fair market value of
the property at the time of sale; or (2) the difference between
the amount of the debt and the actual amount for which the
property was sold. Nev. Rev. Stat. § 40.459(2). Nevada law
appears to contemplate that fair market value in deficiency
actions will be determined by the court, not by a jury. Nev.
Rev. Stat. § 40.457(1) (“Before awarding a deficiency
judgment under NRS 40.455, the court shall hold a hearing
and shall take evidence presented by either party concerning
the fair market value of the property sold as of the date of
foreclosure sale.”). The Seventh Amendment analysis
confirms that this is the appropriate procedure.
At common law, the holder of a secured debt could
pursue an action by selling the property at a trustee’s sale.
McMillan v. United Mortg. Co., 412 P.2d 604, 605 (Nev.
1966). After the sale, the lender could bring a deficiency
action for the difference between the balance due on the note
and the sales price at the trustee’s sale. See, e.g., Restatement
(Third) of Property: Mortgages § 8.4, Reporters’ Note to cmt.
a (“Several states continue to adhere to the common-law rule
that when a foreclosure sale does not yield at least the amount
of the mortgage obligation, the mortgagee is entitled to a
deficiency judgment measured by the difference between the
foreclosure price and the mortgage obligation.”). The
concept of measuring deficiency by the difference between
the debt and the fair market value of the property has no place
at common law. Although there is no Nevada law on the
BRANCH BANKING & TRUST V. D.M.S.I. 27
subject, in other states the fair market value of the property
was a consideration in equitable actions. See, e.g., M & I
Marshall & Ilsley Bank v. Sunrise Farms Dev., LLC, 737 F.3d
1198, 1200 (8th Cir. 2013).
Thus, while the nature of the action may be legal, the
nature of the remedy calculated based on fair market value is
equitable. As the nature of the remedy is the more important
consideration under the Seventh Amendment, Defendants
were not entitled to a jury trial on the fair market value of the
property.
VIII. NOTICE TO TRUST BENEFICIARIES
Nev. Rev. Stat. § 163.120(2) provides:
A judgment may not be entered in favor of the
plaintiff in the action unless the plaintiff
proves that within 30 days after filing the
action, or within 30 days after the filing of a
report of an early case conference if one is
required, whichever is longer, or within such
other time as the court may fix, and more than
30 days before obtaining the judgment, the
plaintiff notified each of the beneficiaries
known to the trustee . . . of the existence and
nature of the action.
(emphasis added). Defendants contend that in the D.M.S.I.
and Smoke Ranch Actions, BB&T failed to provide notice to
the beneficiaries of the defendant trusts, and that the claims
against the trusts should therefore have been dismissed.
28 BRANCH BANKING & TRUST V. D.M.S.I.
As BB&T correctly notes, Nev. Rev. Stat. § 163.120
permits the court to set the time for notice. The district court
in these cases determined that the notice requirement was met
by the service of the complaint and by a letter of August 29,
2013. Judgment in the cases was not entered until
approximately two years after this letter, well before the 30-
day limit in the statute. BB&T therefore did not violate
§ 163.120 in the D.M.S.I. or Smoke Ranch Actions.
IX. CONCLUSION
For the reasons explained herein, the judgments of the
District Court in each of these actions is AFFIRMED.