Opinion
Case No. 4:14-cv-02373-KAW
01-10-2017
KRISTINE BARNES, Plaintiff, v. RICK MORTELL, et al., Defendants.
ORDER GRANTING WELLS FARGO'S MOTION TO INTERVENE AND FILE MOTION TO EXPUNGE LIS PENDENS
Re: Dkt. No. 113
On May 22, 2014, Plaintiff Kristine Barnes recorded a notice of lis pendens on Defendants' real property located at 110 South Veilwood Circle, The Woodlands, Texas ("Subject Property"), in connection with this lawsuit. (Req. for Judicial Not., "RJN," Dkt. No. 114, Ex. A.)
Upon review of the moving papers, the Court finds this matter suitable for resolution without oral argument pursuant to Civil Local Rule 7-1(b), and, for the reasons set forth below, GRANTS Proposed Intervenor Wells Fargo's motion to intervene.
I. BACKGROUND
On May 22, 2014, Plaintiff Kristine Barnes filed this action for fraud and to void her contract in connection with her attempted purchase of two condominiums in Honduras that she claims were never built and was instead a scheme to defraud buyers. (Compl., Dkt. No. 1.) Plaintiff named Defendants Rick Mortell (a.k.a. Eric Mortell), Darlene Mortell, Erika Mortell, Bay Islands Enterprises Inc., and Bay Islands Enterprises Investments S.A. DE C.V. (a.k.a. Viva Roatan Resort and Viva Wyndham Resort). Id. Plaintiff claims that she learned of the alleged fraud and breach of contract in the summer of 2012, when she discovered that the title company she used to facilitate the purchase was not a legitimate title company. (Compl. ¶ 16.)
On May 22, 2014, Plaintiff recorded a notice of lis pendens on Defendants' real property located at 110 South Veilwood Circle, The Woodlands, Texas ("Subject Property"). (Req. for Judicial Not., "RJN," Dkt. No. 114, Ex. A.)
On September 28, 2015, Plaintiff filed a notice of settlement. On January 19, 2016, the parties filed a joint status report stating that they expected to file a dismissal within 120 days. (Dkt. No. 103.) No dismissal was filed. On September 27, 2016, Plaintiff filed a status report to notify the Court that the parties' attempts to perform the conditions of settlement, which required the sale of the subject property, had not occurred due to the collapse of the housing market in Houston, Texas. (Pl.'s Status Report, Dkt. 110 at 1.) Plaintiff also informed the undersigned that Wells Fargo was initiating foreclosure proceedings in Texas because Defendants had defaulted on their first lien mortgage. Id.
On November 21, 2016, Proposed Intervenor Wells Fargo Bank, N.A. filed a motion to intervene and to file a motion to expunge the lis pendens, which it contends was improperly recorded. (Mot., Dkt. No. 113-1.) On December 5, 2016, Plaintiff filed an opposition. (Pl.'s Opp'n, Dkt. No. 116.) On December 12, 2016, Wells Fargo filed a reply. (Reply, Dkt. No. 118.)
II. LEGAL STANDARD
A. Motion to Intervene
Federal Rule of Civil Procedure 24(a)(2) provides for intervention as a matter of right where the potential intervenor "claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest." The Ninth Circuit has summarized the requirements for intervention as of right under Rule 24(a)(2) as follows:
(1) [T]he [applicant's] motion must be timely; (2) the applicant must have a "significantly protectable" interest relating to the property or transaction which is the subject of the action; (3) the applicant must be so situated that the disposition of the action may as a practical matter impair or impede its ability to protect that interest; and (4) the applicant's interest must be inadequately represented by the parties to the action.Freedom from Religion Found., Inc. v. Geithner, 644 F.3d 836, 841 (9th Cir. 2011) (quoting California ex rel. Lockyer v. United States, 450 F.3d 436, 440 (9th Cir. 2006)). Proposed intervenors must satisfy all four criteria, and the "[f]ailure to satisfy any one of the requirements is fatal to the application." Perry v. Proposition 8 Official Proponents, 587 F.3d 947, 950 (9th Cir. 2009). In evaluating motions to intervene, "courts are guided primarily by practical and equitable considerations, and the requirements for intervention are broadly interpreted in favor of intervention." United States v. Alisal Water Corp., 370 F.3d 915, 919 (9th Cir. 2004). "Courts are to take all well-pleaded, nonconclusory allegations in the motion to intervene, the proposed complaint or answer in intervention, and declarations supporting the motion as true absent sham, frivolity or other objections." Sw. Ctr. for Biological Diversity v. Berg, 268 F.3d 810, 820 (9th Cir. 2001).
Alternatively, the court has discretion to grant an applicant's request for permissive intervention. Under Federal Rule of Civil Procedure 24(b), "on a timely motion, the court may permit anyone to intervene who . . . has a claim or defense that shares with the main action a common question of law or fact." Permissive intervention under Rule 24(b) requires an applicant to "prove that it meets three threshold requirements: (1) it shares a common question of law or fact with the main action; (2) its motion is timely; and (3) the court has an independent basis for jurisdiction." Donnelly v. Glickman, 159 F.3d 405, 412 (9th Cir. 1998). If these threshold requirements are all met, the court has discretion to permit or deny intervention under Rule 24(b). "[I]n exercising its discretion, the court is to consider 'whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties.'" Kootenai Tribe of Idaho v. Veneman, 313 F.3d 1094, 1128 n. 10 (9th Cir. 2002) (quoting Fed. R. Civ. P. 24(b)(2)).
B. Request for Judicial Notice
As a general rule, a district court may not consider any material beyond the pleadings in ruling on a motion. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). A district court may take notice of facts not subject to reasonable dispute that are "capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b); United States v. Bernal-Obeso, 989 F.2d 331, 333 (9th Cir. 1993). "[A] court may take judicial notice of 'matters of public record,'" Lee, 250 F.3d at 689 (citing Mack v. S. Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986)), and may also consider "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading." Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other grounds by Galbraith v. Cnty. of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). The court need not accept as true allegations that contradict facts which may be judicially noticed. See Mullis v. United States Bankruptcy Ct., 828 F.2d 1385, 1388 (9th Cir. 1987).
III. DISCUSSION
A. Request for Judicial Notice
As a preliminary matter, Wells Fargo asks that the Court take judicial notice of five documents in support of its motion to intervene: A) Notice of Lis Pendens, dated May 22, 2014, and recorded in the County of Montgomery, Texas, as document number 2014048714; B) General Warranty deed with third party vendor's lien, recorded on March 28, 2007, in the County of Montgomery, Texas, as document number 200741251; C) Deed of Trust in favor of World Savings Bank, recorded on April 23, 2007 in the County of Montgomery, Texas, as document number 2007041252; D) 2006 Federal Reserve order approving Wachovia's acquisition of Golden West Financial; and E) 2008 Federal Reserve order approving Wells Fargo's acquisition of Wachovia. (Req. for Judicial Notice, "RJN," Dkt. No. 114.)
Plaintiff does not oppose the request for judicial notice.
Exhibits A through E are true and correct copies of official public records, whose authenticity is capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned. See Fed. R. Evid. 201(b).
Accordingly, the Court GRANTS Wells Fargo's request for judicial notice.
B. Motion to Intervene
Wells Fargo seeks to intervene as a matter of right pursuant to Rule 24(a), so the Court need not address permissive intervention.
i. Timeliness
Plaintiff argues that Proposed Intervenor's motion is untimely. (Pl.'s Opp'n at 3). Specifically, Plaintiff argues that the case is settled, and the parties would be prejudiced because "the plaintiff[,] in any further negotiation[,] would demand greater security from the defendants if there was a perception that Wells Fargo Bank could be successful in attacking the plaintiff's claim of ownership and interest in the property." (Pl.'s Opp'n at 4.) Plaintiff argues that Wells Fargo's intervention, and presumably the expunging of the lis pendens, would force the case to be tried. Id. These arguments are unavailing.
The determination as to whether a motion to intervene is timely is left to the court's discretion. Dilks v. Aloha Airlines, 642 F.2d 1155, 1156 (9th Cir. 1981); Alisal, 370 F.3d at 921. Courts weigh three factors in determining whether a motion to intervene is timely: "(1) the stage of the proceeding at which an applicant seeks to intervene; (2) the prejudice to other parties; and (3) the reason for and length of the delay." Cal. Dep't of Toxic Substances Control v. Commercial Realty Projects, Inc., 309 F.3d 1113, 1119 (9th Cir. 2002).
First, while there is a pending settlement, more than a year has passed since the notice of settlement was filed. This discounts Plaintiff's argument that the proceedings are advanced, and, therefore, the Court assigns little weight to the existence of a settlement agreement. (See Pl.'s Opp'n at 4.) Indeed, Defendants have spent over a year attempting to sell the subject property to obtain the proceeds to pay the settlement, but have been unsuccessful. Plaintiff's previously reported that "[i]t [did] not appear possible to file a settlement without resulting in the discharge of the Lis Pendens," which would enable Wells Fargo to sell the home. (Pl.'s Status Report, Dkt. 110 at 1-2.)
Second, any claim of prejudice to the parties based on Plaintiff's demand for "greater security" from Defendants is not persuasive. While the settlement may not be finalized and the case disposed of due to the unavailability of sale proceeds or other guarantees is a function of Defendant's actions. The proposed intervention itself did not cause this situation nor did the timing thereof. Rather, the Mortells' decision to default on their mortgage is the source of any potential prejudice. Thus, the Court assigns little weight to this factor.
Third, Wells Fargo argues that the length of delay was reasonable under the circumstances. (Mot. at 8.) Wells Fargo discovered this lawsuit in May 2015 when it ran a title search in preparation for its foreclosure proceedings on the Subject Property. (Mot. at 8.) Wells Fargo retained counsel to intervene and discovered that the parties had entered into a settlement agreement wherein the property would be marketed and sold. Id. Wells Fargo expected the lien to be paid off in full from the sale, but the property did not sell and the mortgage continued to be in arrears. Id. In its reply, Wells Fargo contends that it is now clear that the parties will be unable to sell the property and that it can no longer rely on the purported terms of a settlement that it was never a party to. (Reply at 3.) The Court agrees that the delay was reasonable under the circumstances. Wells Fargo relied on the pending settlement, because the parties recognized it as priority lienholder, and it expected the lien to be satisfied upon the sale of the property. Since the property remains unsold and in the possession of the Mortells, who have defaulted on their mortgage loan, the Court finds that Wells Fargo's reliance on the settlement terms as a reason for delay was reasonable.
In light of the foregoing, the Court concludes that Proposed Intervenor's motion is timely under the circumstances.
ii. Protectable Interest
"Rule 24(a)(2) does not require a specific legal or equitable interest," and it is "generally enough that the interest is protectable under some law, and that there is a relationship between the legally protected interest and the claims at issue." Wilderness Soc'y v. U.S. Forest Serv., 630 F.3d 1173, 1179 (9th Cir. 2011) (citations omitted). The relationship requirement is met "if the resolution of the plaintiff's claims actually will affect the applicant." Donnelly, 159 F.3d at 410. The "interest" test is not a clear-cut or bright-line rule, because "[n]o specific legal or equitable interest need be established." Greene v. United States, 996 F.2d 973, 976 (9th Cir. 1993). Instead, the "interest" test directs courts to make a "practical, threshold inquiry," and "is primarily a practical guide to disposing of lawsuits by involving as many apparently concerned persons as is compatible with efficiency and due process." Id.; County of Fresno v. Andrus, 622 F.2d 436, 438 (9th Cir. 1980) (internal quotation marks and citation omitted).
Proposed Intervenor contends that it has a "legally protectable interests" as the successor in interest to a deed of trust on the Subject Property. (Mot. at 9.) Wells Fargo cites Sullivan v. Quality Loan Serv. Corp., which held that the bank, which had directed that the property be sold at a non-judicial foreclosure sale, had a significant protectable interest in the property that was protected by law and related to the plaintiff's claim. See Sullivan v. Quality Loan Serv. Corp., 2011 WL 124280, at *4 (D. Idaho Jan. 11, 2011)(citing United States v. City of Los Angeles, 288 F.3d 391, 398 (9th Cir. 2002)). Here, while Sullivan involved a borrower plaintiff seeking to dissolve of a lien by quitclaim, the resolution of Plaintiff's claims by settlement would affect Wells Fargo's interest in the property, as it would impedes the non-judicial foreclosure action pending in Texas.
Thus, Wells Fargo has a sufficient legally protectable interest to support intervention.
iii. Impairment of Interests
Rule 24(a)(2) requires that the party seeking intervention is "so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest." The Ninth Circuit has followed the guidance of Rule 24 advisory committee notes in holding that "[i]f an absentee would be substantially affected in a practical sense by the determination made in an action, he should, as a general rule, be entitled to intervene." Berg, 268 F.3d at 822.
Proposed Intervenor contends that the allegedly improper lis pendens clouds title to the subject property, which impedes its right and ability to sell the property at a rate that will satisfy the amount of Defendant's default. (Mot. at 9; Reply at 4.) In opposition, Plaintiff argues that Wells Fargo is not prejudiced, because there is sufficient equity in the property to pay off the mortgage. (Pl.'s Opp'n at 4.) Plaintiff's claim, however, that there is sufficient equity to satisfy the mortgage and the arrearage is merely speculative given that the property has been listed for sale for more than one year, and has had several price reductions.
Accordingly, the Court is persuaded that the disposition of this action may impair or impede Wells Fargo's ability to protect its rights, and finds that this requirement for intervention is satisfied.
iv. Interests Inadequately Represented by the Parties
"The burden of showing inadequacy of representation is 'minimal' and satisfied if the applicant can demonstrate that representation of its interests 'may be' inadequate." Citizens for Balanced Use v. Mont. Wilderness Ass'n, 647 F.3d 893, 898 (9th Cir. 2011) (quoting Arakaki v. Cayetano, 324 F.3d 1078, 1086 (9th Cir. 2003)). Three factors are examined to evaluate adequacy of representation: (1) whether the interest of a present party is such that it will "undoubtedly" make all of a proposed intervenor's arguments; (2) whether the present party is "capable and willing" to make such arguments; and (3) whether a proposed intervenor would offer any "necessary elements" to the proceeding that other parties would neglect. Id.
Wells Fargo contends that none of the existing parties will protect its lien rights. (Mot. at 11.) Specifically, Plaintiff has no interest in upholding Wells Fargo's liens on the Property, and Defendants are "purported fraudsters," who have no stake in protecting Wells Fargo's rights and have defaulted on their mortgage, and continue to live rent free on the Subject Property. Id.
Indeed, Wells Fargo's lien is ever increasing due to the Mortells' default, and the parties' actions, which included Plaintiff asking the Court to assist in finding "a way to file a settlement but retain the lis pendens" to prevent Wells Fargo from exercising their lien right to sell the home at foreclosure (Dkt. No. 110), make it clear that Wells Fargo's interests are not adequately represented by the parties.
Accordingly, the Court finds that the fourth element for intervention as of right is satisfied.
IV. CONCLUSION
In light of the foregoing, the Court finds that Wells Fargo has met the requirements for intervention as a matter of right, and GRANTS the motion to intervene, such that Wells Fargo may participate as an interested party. Wells Fargo is granted leave to file its motion to expunge lis pendens, and shall do so within 14 days of this order.
In light of the above, the Court recommends that the parties meet and confer regarding a possible informal resolution to this matter. The Court will set a case management conference after the forthcoming motion to expunge is resolved.
IT IS SO ORDERED. Dated: January 10, 2017
/s/_________
KANDIS A. WESTMORE
United States Magistrate Judge