Schleining v. Cap One, Inc.

130 Nev., Advance Opinion 5(0
IN THE SUPREME COURT OF THE STATE OF NEVADA
JOHN SCHLEINING, A MARRIED No. 57934
MAN; AND DECAL NEVADA, INC., AN
OREGON CORPORATION,
Appellants,
vs.
FILED
CAP ONE, INC., A NEVADA MAY 29 2014
CORPORATION; PERRY M. DI
. LIN mE
CLEMEsKin ED EM_ AN
LORETO, TRUSTEE OF THE PERRY
M. DI LORETO AND PATRICIA E. DI BY
LORETO FAMILY TRUST (U/T/D
10/16/81); ROGER B. PRIMM, TRUSTEE
OF THE ROGER B. PRIMM FAMILY
TRUST (U/T/D 1/30/90); AND
DAMONTE FAMILY LIMITED
PARTNERSHIP, A NEVADA LIMITED
PARTNERSHIP,
Respondents.
Appeal from a district court judgment entered after a bench
trial in a deficiency action. Second Judicial District Court, Washoe
County; Jerome Polaha, Judge.
Affirmed.
Molof & Vohl and Lee Molof and Robert C. Vohl, Reno,
for Appellants.
McDonald Carano Wilson, LLP, and Paul J. Georgeson and Kerry S.
Doyle, Reno,
for Respondents.
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BEFORE THE COURT EN BANC.'
OPINION
By the Court, HARDESTY, J.:
In this appeal, we consider the application of NRS 40.453 and
NRS 107.095 in the context of a lender's claim for a deficiency judgment
against a guarantor. First, we are asked to determine whether NRS
40.453, which generally prohibits borrowers and guarantors from
contractually "waiv[ing] any right secured to thlatl person by the laws of
this state," invalidates a guarantor's waiver of the statutory right to be
mailed a notice of default. Because the Legislature afforded guarantors a
statutory right to be mailed a notice of default in the same bill in which
NRS 40.453 was enacted, we conclude that the Legislature intended for
NRS 40.453 to invalidate a guarantor's purported waiver of the right to be
mailed a notice of default.
We next consider whether the statute guaranteeing the right
to be mailed a notice of default, NRS 107.095, requires strict or
substantial compliance on the part of a lender, and if substantial
compliance is sufficient, whether there was substantial compliance in this
case. We conclude that substantial compliance can satisfy NRS 107.095's
notice requirements, and, here, the district court did not abuse its
discretion in concluding that the lender substantially complied with NRS
'The Honorable Mark R. Denton, District Judge in the Eighth
Judicial District Court, was designated by the Governor to sit in place of
the Honorable Ron Parraguirre, Justice, who voluntarily recused himself
from participation in the decision of this matter. Nev. Const. art. 6, § 4.
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107.095's notice requirement. Therefore, we affirm the judgment of the
district court.
FACTS AND PROCEDURAL HISTORY
In 2007, while acting as a principal and sole owner of Decal
Nevada, Inc., appellant John Schleining arranged for Decal's purchase of
an undeveloped parcel of real property along the Truckee River in Reno,
Nevada, to improve and later sell to a developer. In May 2007, Decal
obtained a loan in the amount of $2.5 million from respondent lenders,
whom we collectively refer to as Cap One, to help pay the purchase price
for the property. The loan required repayment in full by December 2007
and was secured by a deed of trust on the property. Schleining signed a
personal guaranty of the loan, which included a waiver of his right to
receive notice of any default of the loan.
By late 2007, Decal had failed to secure a buyer to purchase
the property, and Schleining personally sent a letter seeking an extension
of the loan. When Cap One declined to extend the loan, Schleining made
an offer to pay the December interest payment in exchange for a release of
his personal guaranty. Cap One again declined the offer and refused to
release him from his personal guaranty. Decal defaulted on the loan in
December 2007, and on January 30, 2008, Cap One recorded a notice of
default and election to sell. On February 9, 2008, Cap One mailed a copy
of the notice of default to Decal at various addresses, including Decal's
office in St. Helens, Oregon. At that time, Schleining and Decal shared
the St. Helens, Oregon, address, but Schleining was working in a separate
office in Medford, Oregon, with forwarding instructions for his mail. Cap
One did not mail a separate copy of the notice of default to Schleining as
guarantor, as set forth in NRS 107.095, to any address. The notice of
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trustee's sale was also mailed to Decal and Schleining's St. Helens,
Oregon, address, but again a copy was not separately mailed to
Schleining. On June 11, 2008, a trustee's sale was held at which Cap One
was the only bidder on the property, purchasing it for $100,000.
Cap One then filed a complaint seeking a deficiency judgment
against Schleining as guarantor. Schleining raised Cap One's failure to
mail the notice of default to him separately under NRS 107.095 as an
affirmative defense in his answer and moved for summary judgment. In
response, Cap One argued that Schleining expressly waived his right to
receive a notice of default in his guaranty. The district court ruled that
the waiver was invalid pursuant to NRS 40.453. The district court further
determined that issues of material fact remained, and the case proceeded
to trial.
At trial, Schleining testified that although he was not mailed a
copy of the notice of default or notice of trustee's sale, he was nevertheless
aware of the default and that Cap One would likely foreclose. He also
acknowledged that he knew of the trustee's sale prior to its
commencement. He testified that, upon learning of the pending trustee's
sale, he made no effort to contact Cap One to attempt to prevent or delay
the sale. Following the trial, the district court concluded that the notice
requirements of NRS 107.095 could be satisfied by substantial compliance.
Thus, because Schleining had actual notice of the default and foreclosure
sale and was not prejudiced by the lack of formal notice, the district court
held that Cap One had substantially complied with NRS 107.095.
Accordingly, the district court awarded a deficiency judgment against
Schleining in favor of Cap One, and Schleining appealed.
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DISCUSSION
On appeal, Schleining asserts that the district court erred in
concluding that strict compliance with NRS 107.095's notice of default
provisions is not required and that, regardless, Cap One failed to afford
him adequate notice under a substantial-compliance standard, such that
he should be released from his obligation as guarantor. Cap One, on the
other hand, disagrees and counters that these issues need not even be
addressed because Schleining validly waived NRS 107.095 notice and,
thus, the district court reached the right result.
Pursuant to NRS 40.453, Schleining could not waive the right to be mailed
the notice of default
Cap One argues that Schleining validly waived any right to
notice of Decal's default. The district court, however, concluded that NRS
40.453 invalidated Schleining's waiver of his right to be mailed the notice
of default. This court reviews determinations of statutory construction de
novo. Estate of Smith v. Mahoney's Silver Nugget, Inc., 127 Nev. ,
265 P.3d 688, 690 (2011).
NRS 40.453(1) states as follows:
It is hereby declared by the Legislature to be
against public policy for any document relating to
the sale of real property to contain any provision
whereby a mortgagor or the grantor of a deed of
trust or a guarantor or surety of the indebtedness
secured thereby, waives any right secured to the
person by the laws of this state. 2
2NRS 40.453 expressly excludes any waivers allowed by NRS 40.495,
but that exclusion is not at issue here.
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(Emphases added.) Cap One argues that this court has already held that
NRS 40.453 only applies to waivers of rights conferred in Nevada's
antideficiency statutes, citing to Lowe Enterprises Residential Partners v.
Eighth Judicial District Court, 118 Nev. 92, 102-04, 40 P.3d 405, 411-12
(2002), and that the right to notice of default is not one of those
antideficiency rights to which the prohibition applies. 3 In Lowe, the real
parties in interest argued that a waiver of their right to a jury trial in
their loan documents and guaranty was invalid under NRS 40.453. 118
Nev. at 95, 40 P.3d at 407. This court disagreed, holding that the right to
a jury trial did not fall under the scope of NRS 40.453. Id. at 104, 40 P.3d
at 413. In doing so, this court first noted that NRS 40.453's plain
language prohibited the waiver of 'any right secured to [the person] by
the laws of this state." Id. at 102, 40 P.3d at 411 (quoting MRS 40.453
(1993)). We then recognized, however, that a literal application of this
blanket prohibition would render unenforceable "such things as
arbitration agreements, forum selection clauses and choice-of-law
provisions." Id. at 102-03, 40 P.3d at 412 (footnotes omitted). Because of
the potential for such absurd results, we determined that such a literal
application of MRS 40.453 was not the Legislature's intent. We therefore
3 Cap OneS also cites McDonald v. D.P. Alexander & Las Vegas
Boulevard, L.L.C., 121 Nev. 812, 123 P.3d 748 (2005), for the proposition
that this court has already held that a guarantor may validly waive the
right to be mailed a notice of default. But McDonald is inapposite, as this
court did not address the validity of the waiver itself, much less the
potential effect of NRS 40.453. Rather, we merely concluded that the
applicability of an exception under NRS 40.430 (Nevada's one-action rule)
did not depend on whether the guarantor waived notice under NRS
107.095. 121 Nev. at 818, 123 P.3d at 751-52.
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concluded that NRS 40.453 was ambiguous, and we went on to determine
the actual scope of NRS 40.453 through analysis of its legislative history.
Id. at 102-03, 40 P.3d at 412. In concluding that NRS 40.453 does not
apply to the right to a jury trial, this court stated that
the comments solicited by the [L]egislature during
the hearing on the amendment to NRS 40.453
highlight the intent of the [L]egislature to protect
the rights created by Nevada's anti-deficiency
legislation, not to protect the right to a jury trial.
This conclusion is consistent with the fact that
NRS 40.453 is codified in Chapter 40 of the
Nevada Revised Statutes under the subheading
"Foreclosure Sales and Deficiency Judgments."
Id. at 103-04, 40 P.3d at 412.
Cap One argues that Lowe restricts the scope of NRS 40.453 to
the statutes dealing with deficiency judgments, NRS 40.451 through
40.459, which would preclude its application to NRS 107.095 in this case.
While MRS 107.095 is not codified in the same subchapter that this court
explicitly mentioned in Lowe, NRS 107.095 relates to the same subject
matter and was enacted as part of the same bill that enacted NRS 40.453• 4
1987 Nev. Stat., ch. 685, §§ 6, 8, at 1643-45. Additionally, the legislative
hearing minutes that this court relied on in Lowe to determine the scope of
NRS 40.453 included a discussion of the need to provide notice to
guarantors in deficiency proceedings codified in NRS 107.080, which
would later be separated into NRS 107.095, as part of that legislative
4When enacted in 1987, MRS 107.095 was codified as MRS
107.080(5). See 1987 Nev. Stat., ch. 685, § 8, at 1645 (enacting the
majority of NRS 107.095's language in NRS 107.080(5)). A 1989
amendment separated that language into MRS 107.095. 1989 Nev. Stat.,
ch. 750, § 11, at 1770.
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scheme. See Hearing on S.B. 359 Before the Assembly Judiciary Comm.,
64th Leg. Ex. D (Nev., June 10, 1987) (Memorandum from Michael K.
Wall, Deputy Supervising Staff Attorney, Nevada Supreme Court to Chief
Justice E.M. Gunderson, Nevada Supreme Court (June 9, 1987)); see also
Lowe, 118 Nev. at 103-04, 40 P.3d at 412 (concluding that the
memorandum distributed at the hearing illustrated the intent of the
Legislature in enacting NRS 40.453).
Unlike the right to a trial by jury, the statute providing for a
guarantor's right to be mailed a notice of default was enacted together
with NRS 40.453 and relates directly to the policy underlying the
statutory scheme of which NRS 40.453 is a part. Therefore, we conclude
that NRS 107.095 falls within the scope of NRS 40.453's prohibited
waivers. Accordingly, the district court properly invalidated Schleining's
waiver of his right to be mailed the notice of default, and we must go on to
address Schleining's arguments concerning Cap One's compliance with
NRS 107.095. 5
The district court did not abuse its discretion in determining that Cap One
substantially complied with the notice requirement in NRS 107.095
In determining whether strict or substantial compliance with
a statute is required, "we examine whether the purpose of the statute or
rule can be adequately served in a manner other than by technical
Cap One further argues that NRS 40.453 is inapplicable because it
5
applies only to "document[s] relating to the sale of real property" and,
according to Cap One, a guaranty agreement is not a document "relating
to the sale of real property." (quoting NRS 40.453). We reject this
argument, as the plain language of NRS 40.453 explicitly applies to
guarantors of notes secured by deeds of trust.
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compliance with the statutory or rule language." Leyva v. Nat? Default
Servicing Corp., 127 Nev. „ 255 P.3d 1275, 1278 (2011). Here, we
find it significant that at the time of the underlying events in this case,
the Legislature had expressly imposed a substantial-compliance standard
with regard to a lender's duty to provide a borrower with notice of a loan's
default and the lender's election to foreclose. See NRS 107.080(5) (2007)
(indicating that a trustee's sale may be declared void if, among other
things, the entity conducting the sale "does not substantially comply with"
the provisions of NRS 107.080). 6 In other words, the Legislature
specifically envisioned that the purposes behind NRS 107.080's notice and
timing requirements could be achieved even if these requirements were
not strictly adhered to. Cf. Leyva, 127 Nev. at , 255 P.3d at 1278(recognizing that strict compliance with a statute's requirements may not
be necessary when strict compliance is not required to serve the statute's
purpose). Given that the Legislature intended for a substantial-
compliance standard to apply with regard to Cap One's duty to provide
notice to Decal under NRS 107.080, we see no reason why the Legislature
would intend for a strict-compliance standard to apply when providing the
same notice directly to Schleining under NRS 107.095.
6 We note that, in 2011, the Legislature added a new subsection to
NRS 107.080. See 2011 Nev. Stat., ch. 81, § 9, at 335. This subsection,
now NRS 107.080(7), sets forth specific penalties against an entity who
"did not comply with" certain requirements in NRS 107.080. See NRS
107.080(7) (2011). Although the Legislature indicated that subsection 7's
remedy "is in addition to the remedy provided in subsection 5," the
Legislature did not change the substantial-compliance standard in
subsection 5. Because the underlying events in this case took place before
subsection 7's enactment, we need not consider what effect, if any,
subsection 7 may have on subsection 5's substantial-compliance standard.
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Moreover, this court has already addressed the applicability of
substantial compliance in the context of notice requirements. In
considering the notice requirements for mechanics' liens, this court held
that substantial compliance is sufficient where actual notice occurs and
there is no prejudice to the party entitled to notice. Las Vegas Plywood St
Lumber, Inc. v. D & D Enters., 98 Nev. 378, 380, 649 P.2d 1367, 1368
(1982). Similar to the notice requirements for mechanics' liens discussed
in Las Vegas Plywood, the purpose of NRS 107.095 is simply to notify the
guarantor that the loan is in default and that the lender has elected to
foreclose on the secured property. Thus, we conclude that the notice
requirements of NRS 107.095 can be fulfilled through substantial
compliance. We must now determine whether the district court properly
concluded that there was substantial compliance in this case.
This court reviews substantial-compliance determinations for
an abuse of discretion. Redl v. Heller, 120 Nev. 75, 81, 85 P.3d 797, 800-01
(2004); Las Vegas Plywood, 98 Nev. at 380, 649 P.2d at 1368. Applying
the first prong of the rule articulated in Las Vegas Plywood to the facts of
this case, we conclude that the district court properly found that
Schleining had actual knowledge of the default and the pending
foreclosure sale despite the lack of statutory notice. A review of the trial
record clearly demonstrates that Schleining knew Decal would not be able
to pay the loan when it became due. He first attempted to get an
extension of the loan's due date, which Cap One rejected. Thereafter, he
asked Cap One to release his personal guaranty in exchange for payment
of one month's interest, which Cap One also rejected. Moreover,
Schleining admitted at trial that he had actual knowledge of the default
and the date of the foreclosure sale prior to its commencement.
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Applying the second prong of the rule articulated in Las Vegas
Plywood, we conclude that the district court properly determined that
Schleining was not prejudiced by the lack of statutory notice. Although
Schleining claimed that his failure to act to save the property at issue was
because he did not receive the appropriate notice, there was no evidence
presented that Schleining attempted to refinance the property but failed
due to time constraints. Nor did Schleining testify about any additional
actions he could have or would have taken to save the property and avoid
a deficiency judgment if he had personally received the notice of default.
Accordingly, and in light of the notice that Cap One sent to Decal at the
address provided in Schleining's guaranty agreement, we conclude that
the district court did not abuse its discretion in determining that Cap One
substantially complied with the notice requirements of NRS 107.095.
Although the dissenting justices cite to the substantial-
compliance rule, they refuse to apply the rule or review the discretion
exercised by the district court. Instead, they conclude as a matter of law
that substantial compliance did not occur, citing to Las Vegas Convention
& Visitors Authority v. Miller for the proposition that the "failure to even
attempt to comply with a statutory requirement will result in a lack of
substantial compliance." 124 Nev. 669, 684, 191 P.3d 1138, 1148 (2008).
However, this statement from Las Vegas Convention was not a holding of
the court; rather, it was a comment on the fact that "typically" this court
has found no substantial compliance when no attempt is made to comply
with statutory requirements. Id. In fact, the court actually held that
there was no substantial compliance with a ballot-initiative statute
because the reasonable purpose of the statute was not met when the
ballot-initiative proponents failed to include certain statutorily required
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information on their affidavits and the proponents could not point to facts
that would have otherwise demonstrated substantial compliance with the
statute. Id. at 686, 191 P.3d at 1149.
In this regard, Las Vegas Convention was factually different from
this case, as the purpose of the statute in that case was to prevent voter
fraud, and the ballot initiative's proponents failed altogether to
demonstrate that the statute's purpose had been achieved. Id. at 688-89,
191 P.3d at 1150-51. This is important because the purpose of the
substantial-compliance rule is to identify a factual situation in a case
whereby the reasonable purpose of the statute is met by the offending
party's actions without requiring "technical compliance with the
statutory. . . language." See Leyva, 127 Nev. at , 255 P.3d at 1278.
The dissent also argues that we have ignored Las Vegas
Convention's reliance upon Schofield v. Copeland Lumber Yards, Inc., 101
Nev. 83, 692 P.2d 519 (1985). However, Schofield does not undermine our
decision in this case. In Schofield, the lienholder gave notice of the lien
but failed to include certain statutorily required information in the notice,
namely the terms and conditions of the lienholder's contract. 101 Nev. at
84, 692 P.2d at 519-20. This court determined that without that
information, the notice did not adequately advise the property owners
about the contract's terms and "placed them at a considerable
disadvantage in defending against the motion for summary judgment." Id.
at 85, 692 P.2d at 520. Thus, this court concluded that there was no
substantial compliance because the purposes of the statutory notice
requirements were not fulfilled Id. at 85-86, 692 P.2d 520-21.
We conclude that the district court did not abuse its discretion
when it determined that Schleining's actual notice of the default and
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foreclosure sale, coupled with the lack of prejudice, satisfied the purpose of
NRS 107.095. Accordingly, we affirm the judgment of the district court.
tiaw-t 1
L , J.
Hardesty
We concur:
J.
Pickering
1114--
Saitta
J.
D.J.
Denton
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DOUGLAS, J., with whom GIBBONS, C.J., and CHERRY, J., agree,
concurring in part and dissenting in part:
While I concur with the majority's determination that a
guarantor cannot waive the right to a notice of default, I dissent from the
majority's application of substantial compliance to the notice requirement
of NRS 107.095.
Cap One did not substantially comply with NRS 107.095
I agree that in determining whether strict or substantial
compliance with a statute is required, "we examine whether the purpose of
the statute or rule can be adequately served in a manner other than by
technical compliance with the statutory or rule language." Leyva v. Nat'l
Default Servicing Corp., 127 Nev. „ 255 P.3d 1275, 1278 (2011)
(citing Leven v. Frey, 123 Nev. 399, 407 n.27, 168 P.3d 712, 717-18 n.27
(2007)). In the context of notice requirements for mechanics' liens, this
court has held that substantial compliance is sufficient where actual
notice occurs and there is no prejudice to the party entitled to notice. Las
Vegas Plywood & Lumber, Inc. v. D & D Enters., 98 Nev. 378, 380, 649
P.2d 1367, 1368 (1982). Thus, applying that standard here, the district
court incorrectly held that Cap One substantially complied with NRS
107.095.
This court reviews substantial-compliance determinations for
an abuse of discretion. Redl v. Heller, 120 Nev. 75, 81, 85 P.3d 797, 800-01
(2004). "Courts have defined substantial compliance as compliance with
essential matters necessary to ensure that every reasonable objective of
the statute is met." Williams v. Clark Cnty. Dist. Attorney, 118 Nev. 473,
480, 50 P.3d 536, 541 (2002). "[Manure to even attempt to comply with a
statutory requirement will result in a lack of substantial compliance." Las
Vegas Convention & Visitors Auth. v. Miller, 124 Nev. 669, 684, 191 P.3d
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1138, 1148 (2008); Schofield v. Copeland Lumber Yards, Inc., 101 Nev. 83,
85, 692 P.2d 519, 520 (1985) ("Me do not think that a notice of lien may
be so liberally construed as to condone the total elimination of a specific
requirement of the statute.").
The majority notes that Las Vegas Convention involves
substantial compliance in a factually different context, an election statute,
but ignores this court's reliance on Schofield in reaching its conclusion. In
Schofield, the failure to give notice of a lien as required in a mechanic's
lien statute could not be satisfied without at least an attempt to comply
with the statute. Schofield, 101 Nev. at 85, 692 P.2d at 520. The
reasoning in Schofield and Las Vegas Convention that substantial
compliance in the face of a failure to attempt compliance would negate the
particular statutory provision in question is the better approach.
Schofield, 101Nev . at 85, 692 P.2d at 520; Las Vegas Convention, 124 Nev.
at 686, 191 P.3d at 1149.
Here, Cap One concedes that it gave no notice to Schleining,
either in a form required by NRS 107.095 and NRS 107.080 or otherwise.'
Schleining conceded that he had become aware of the foreclosure sale two
or three days prior, but neither Schleining nor Cap One alleges that it was
Cap One who gave Schleining notice. Because Cap One took no action to
give Schleining notice, Cap One's actions do not constitute "compliance
with essential matters." Williams, 118 Nev. at 480, 50 P.3d at 541.
"The majority points out that Cap One mailed a notice of default to
Decal Nevada and that Decal Nevada's address was identical to
Schleining's address as listed in the written guaranty. This notice was not
addressed to Schleining specifically, and Cap One does not argue that the
notice mailed to Decal Nevada was also intended to provide notice to
Schleining. Accordingly, this fact should not alter the conclusion that Cap
One failed entirely to comply with the requirement to provide notice.
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Furthermore, the rule articulated in Las Vegas Plywood &
Lumber v. D & D Enterprises, 98 Nev. 378, 649 P.2d 1367 (1982), requires
the court to review prejudice as to Schleining. The majority believes
Schleining was not prejudiced; however, the district court, by finding that
actual notice two or three days before the foreclosure sale was sufficient
where the statute provides that such notice be effected over three months
before the foreclosure sale, abused its discretion. Additionally, it must be
noted that having two or three days to cure the $3 million default
constitutes prejudice when Cap One took no action to give Schleining the
required notice.
I dissent because I believe the test was not properly applied as
to substantial compliance (notice and prejudice). I therefore, would reverse
this judgement for failure to comply with NRS 107.095.
Douglas
)
gig- J.
We concur:
C.J.
Gibbons
Chsut. J.
Cherry
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