Weeping Hollow Avenue Trust v. Ashley Spencer
2016 U.S. App. LEXIS 14006
| 9th Cir. | 2016Background
- Ashley Spencer bought a Las Vegas home in 2008 secured by a deed of trust later owned by Wells Fargo.
- Spencer fell behind on mortgage and HOA dues; the HOA recorded a lien and foreclosed, selling the property in October 2012 to Weeping Hollow Avenue Trust for $3,004.
- Two months after the HOA sale, Wells Fargo sought to foreclose under its 2008 deed of trust; Weeping Hollow filed a Nevada quiet-title and declaratory action naming Spencer and Wells Fargo.
- Wells Fargo removed to federal court asserting diversity jurisdiction and argued Spencer was fraudulently joined (both plaintiff and Spencer are Nevada citizens).
- The federal district court accepted fraudulent-joinder, dismissed Weeping Hollow’s claims, and held the HOA sale did not extinguish Wells Fargo’s deed of trust; subsequently the Nevada Supreme Court issued SFR Investments holding HOA foreclosure can extinguish prior deeds of trust.
- The Ninth Circuit reversed, concluding fraudulent joinder was not shown because Spencer could plausibly assert equitable challenges to the HOA sale; thus federal diversity jurisdiction was lacking and the case must be remanded to state court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district court properly exercised diversity jurisdiction by finding Spencer fraudulently joined | Weeping Hollow joined Spencer legitimately to quiet title and avoid future equitable challenges by the former owner | Wells Fargo: Spencer was fraudulently joined to defeat diversity; removal valid | Spencer was not fraudulently joined; her presence destroys complete diversity and federal court lacked jurisdiction; remand ordered |
| Whether a homeowner can challenge an HOA foreclosure sale on equitable grounds | Weeping Hollow: former owner could still assert equitable claims, so joining Spencer was reasonable | Wells Fargo: homeowner had no redemption/right to challenge; no colorable claim | Nevada law permits equitable challenges to set aside HOA sales (Shadow Wood, Long); plausible basis to join Spencer |
| Whether the appellate court should resolve Wells Fargo’s constitutional and commercial-unreasonableness challenges to the HOA statute/sale | Weeping Hollow: jurisdictional defect precludes federal adjudication of merits | Wells Fargo: merits (due process, takings, commercial unreasonableness) warrant affirmance | Court declined to reach merits because lack of subject-matter jurisdiction required remand |
Key Cases Cited
- Strawbridge v. Curtiss, 3 U.S. (3 Cranch) 267 (establishing complete diversity requirement)
- Caterpillar Inc. v. Lewis, 519 U.S. 61 (complete diversity required for §1332 jurisdiction)
- Morris v. Princess Cruises, Inc., 236 F.3d 1061 (9th Cir.) (fraudulent-joinder doctrine explained)
- Hunter v. Philip Morris USA, 582 F.3d 1039 (9th Cir.) (heavy burden and presumption against fraudulent joinder)
- Chapman v. Deutsche Bank Nat’l Trust Co., 302 P.3d 1103 (Nev. 2013) (quiet title elements and in rem/quasi in rem character)
- Long v. Towne, 639 P.2d 528 (Nev. 1982) (former homeowner may challenge HOA sale for fraud, unfairness, or oppression)
- Shadow Wood HOA v. N.Y. Cmty. Bancorp., 366 P.3d 1105 (Nev. 2016) (reaffirming courts may grant equitable relief from defective HOA foreclosure sale)
- SFR Invs. Pool 1, LLC v. U.S. Bank, N.A., 334 P.3d 408 (Nev. 2014) (HOA foreclosure can extinguish earlier-recorded security interests)