Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-15-15233/USCOURTS-ca9-15-15233-0/pdf.json

Parties Involved:
Bourne Valley Court Trust
Appellee
Wells Fargo Bank, NA
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BOURNE VALLEY COURT

TRUST,

Plaintiff-Appellee,

v.

WELLS FARGO BANK, NA,

Defendant-Appellant.

No. 15-15233

D.C. No.

2:13-cv-00649-PMP-NJK

OPINION

Appeal from the United States District Court

for the District of Nevada

Philip M. Pro, Senior District Judge, Presiding

Argued and Submitted June 13, 2016

San Francisco, California

Filed August 12, 2016

Before: J. Clifford Wallace, Dorothy W. Nelson,

and John B. Owens, Circuit Judges.

Opinion by Judge D.W. Nelson;

Dissent by Judge Wallace

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2 BOURNE VALLEY COURT TRUST V. WELLS FARGO

SUMMARY*

Nevada Foreclosures

The panel vacated the district court’s summary judgment

entered in favor of Bourne Valley Court Trust in the Trust’s

action to quiet title on real property that it had acquired after

the property had been foreclosed by a homeowners’

association.

Nevada Revised Statutes section 116.3116 et seq. strips

a mortgage lender of its first deed of trust when a

homeowners’ association (“HOA”) forecloses on the property

based on delinquent HOA fees.

The panel held that the Statute’s “opt-in” notice scheme,

which required a HOA to alert a mortgage lender that it

intended to foreclose only if the lender had affirmatively

requested notice, facially violated the lender’s constitutional

due process rights under the Fourteenth Amendment to the

Federal Constitution. The panel held that the “state action”

requirement for purposes of constitutional due process was

met by the Nevada Legislature’s enactment of the Statute,

which unconstitutionally degraded the mortgage lender’s

interest in the property. The panel remanded for further

proceedings.

JudgeWallace dissented because he would hold there was

no state action, and because the Statute satisfied due process

by incorporating another provision in the Nevada Revised

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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BOURNE VALLEY COURT TRUST V. WELLS FARGO 3

Statues that required HOAs to provide written notice to a

mortgage lender.

COUNSEL

Andrew M. Jacobs (argued), Snell & Wilmer L.L.P., Tucson,

Arizona; Amy F. Sorenson, Snell & Wilmer L.L.P., Salt Lake

City, Utah; Kelly H. Dove, Snell & Wilmer L.L.P., Las

Vegas, Nevada; for Defendant-Appellant.

Michael F. Bohn (argued), Law Offices of Michael F. Bohn,

Esq., Ltd., Las Vegas, Nevada, for Plaintiff-Appellee.

OPINION

D.W. NELSON, Circuit Judge:

Nevada Revised Statutes section 116.3116 et seq. (the

Statute)

1

strips a mortgage lender of its first deed of trust

when a homeowners’ association forecloses on the property

based on delinquent HOA dues. Before it was amended, it

did so without regard for whether the first deed of trust was

recorded before the HOA dues became delinquent, and

critically, without requiring actual notice to the lender that the

homeowners’ association intends to foreclose.

1 As discussed below, the Nevada Legislature recently amended the

Statute. See infra footnote 4. Unless otherwise stated, all references to

the Statute are to the unamended version, which all parties agree applies

to this action.

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4 BOURNE VALLEY COURT TRUST V. WELLS FARGO

We hold that the Statute’s “opt-in” notice scheme, which

required a homeowners’ association to alert a mortgage

lender that it intended to foreclose only if the lender had

affirmatively requested notice, facially violated the lender’s

constitutional due process rights under the Fourteenth

Amendment to the Federal Constitution. We therefore vacate

the district court’s judgment and remand for proceedings

consistent with this opinion.

BACKGROUND

This case arises out of an action to quiet title to real

property located at 410 Horse Pointe Avenue (the Property)

purchased at a homeowners’ association foreclosure auction

in North Las Vegas, Nevada.

Renee Johnson, the original homeowner, purchased the

Property in 2001 with a loan for $174,000 from Plaza Home

Mortgage, Inc. (Plaza). The Property is part of a planned

development governed by the Parks Homeowners’

Association (Parks). Plaza recorded a deed of trust securing

a note on the property, and Appellant Wells Fargo was

assigned all beneficial interest in the note and deed of trust in

February 2011.

Johnson fell behind on payments for her HOA dues, and

Parks recorded a Notice of Delinquent Assessment Lien on

August 30, 2011. The total amount due was $1,298.57. On

October 12, 2011, Parks recorded a Notice of Default and

Election to Sell. On April 9, 2012, Parks recorded a Notice

of Trustee/Foreclosure Sale against the Property.

On May 22, 2012, a Trustee’s Deed Upon Sale was

recorded, reflecting that Horse Pointe Avenue Trust paid

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BOURNE VALLEY COURT TRUST V. WELLS FARGO 5

$4,145 at the homeowners’ association foreclosure sale. 

Horse Pointe Avenue Trust conveyed its interest in the

Property to Appellee Bourne Valley Court Trust (Bourne

Valley).

Bourne Valley filed an action to quiet title in Nevada state

court. The action was removed to the federal district court for

the District of Nevada pursuant to 28 U.S.C. § 1441. The

district court granted summary judgment for Bourne Valley.

The district court’s ruling was based largely on the

Nevada Supreme Court’s decision in SFR Investments Pool

1 v. U.S. Bank, 334 P.3d 408 (Nev. 2014). There, the Nevada

Supreme Court interpreted the Statute to give a homeowners’

association a “super priority” lien on an individual

homeowner’s property for up to nine months of unpaid HOA

dues. 334 P.3d at 419. As the Nevada Supreme Court

interpreted the Statute, the foreclosure of a homeowners’

association “super priority” lien extinguished all junior

interests in the property, including even a mortgage lender’s

first deed of trust. Thus, following the Nevada Supreme

Court’s interpretation of the Statute, the district court held

that Parks’s foreclosure extinguished Wells Fargo’s interest

in the Property.

Wells Fargo timely appealed.

JURISDICTION AND STANDARD OF REVIEW

The district court had jurisdiction pursuant to 28 U.S.C.

§ 1332. We have jurisdiction pursuant to 28 U.S.C. § 1291.

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6 BOURNE VALLEY COURT TRUST V. WELLS FARGO

We review a district court’s order granting summary

judgment de novo. Fed. Deposit Ins. Corp. v. New

Hampshire Ins. Co, 953 F.2d 478, 485 (9th Cir. 1991).

ANALYSIS

I. The Statute was facially unconstitutional.

Before explaining why the Statute’s notice scheme

rendered the Statute unconstitutional, we first review how the

Statute would have otherwise permitted a homeowners’

association lien foreclosure to extinguish a mortgage lender’s

first deed of trust.

Section 116.3116(2) set forth the priority of the

homeowners’ association lien with respect to other liens. 

Pursuant to that section, a homeowners’ association lien took

priority over all other liens except:

(a) Liens and encumbrances recorded

before the recordation of the declaration and,

in a cooperative, liens and encumbrances

which the association creates, assumes or

takes subject to;

(b) A first security interest on the unit

recorded before the date on which the

assessment sought to be enforced became

delinquent . . . ; and

(c) Liens for real estate taxes and other

governmental assessments or charges against

the unit or cooperative.

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BOURNE VALLEY COURT TRUST V. WELLS FARGO 7

Thus, section 116.3116(2)(b) ordinarily made a first deed

of trust superior to a homeowners’ association lien. 

However, section 116.3116(2) gave “super priority” to the

portion of a homeowners’ association’s lien for dues owed in

the 9 months immediately proceeding an action to enforce the

lien:

The lien is also prior to all security

interests described in paragraph (b) to the

extent of any charges incurred by the

association on a unit pursuant to NRS

116.310312 and to the extent of the

assessments . . . which would have become

due in the absence of acceleration during the

9 months immediatelypreceding institution of

an action to enforce the lien . . . .

N.R.S. section 116.3112(2)(c).

In SFR Investments, the Nevada Supreme Court held that

foreclosure of a “super priority” lien under § 116.3116(2)

extinguished all junior interests, including a first deed of

trust. 334 P.3d at 410–14. As noted, the district court relied

on SFR Investments in concluding that Parks’s lien

foreclosure extinguished Wells Fargo’s interest in the

Property. The district court explained that because Bourne

Valley had shown that the required statutory notices were

sent, and because Wells Fargo did not present evidence that

it did not receive notice,2 Wells Fargo’s due process

2 We note the practical difficulty Wells Fargo or any mortgage lender

faces in trying to prove that it did not receive notice. See Elkins v. United

States, 364 U.S. 206, 218 (1960) (“[A]s a practical matter it is never easy

to prove a negative.”).

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8 BOURNE VALLEY COURT TRUST V. WELLS FARGO

challenge failed. The district court did not address whether

the Statute’s notice scheme was facially unconstitutional.3

We turn to that question now.

A. The Statute impermissibly shifted the burden

to mortgage lenders, requiring them to

affirmatively request notice.

Before its amendment, the Statute employed a peculiar

scheme for providing mortgage lenders with notice that a

homeowners’ association intended to foreclose on a lien. 

Even though such foreclosure forever extinguished the

mortgage lenders’ property rights, the Statute contained “optin” provisions requiring that notice be given only when it had

already been requested. See, e.g., N.R.S. section

116.31163(2) (requiring notice of default and election to sell

be mailed to “any holder of a security interest encumbering

the unit’s owner’s interest who has notified the association,

30 days before the recordation of the notice of default, of the

security interest”). Thus, despite that only the homeowners’

association knew when and to what extent a homeowner had

defaulted on her dues, the burden was on the mortgage lender

to ask the homeowners’ association to please keep it in the

loop regarding the homeowners’ association’s foreclosure

plans. How the mortgage lender, which likely had no

relationship with the homeowners’ association, should have

known to ask is anybody’s guess, and indeed Bourne Valley

3 We do not fault the district court for this omission. Wells Fargo’s due

process challenge has evolved in this case. While it apparently made only

an as-applied challenge before the district court, it raises a facial challenge

on appeal. Nevertheless, Bourne Valley does not argue that Wells Fargo

waived any facial challenge, and it is “well-established that a party can

waive waiver.” Norwood v. Vance, 591 F.3d 1062, 1068 (9th Cir. 2009)

(internal quotation marks and citations omitted).

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BOURNE VALLEY COURT TRUST V. WELLS FARGO 9

offers no arguments here. But this system was not just

strange; in our view, it was also unconstitutional.

Before it takes an action that will adversely “affect an

interest in life, liberty, or property . . . , a State must provide

‘notice reasonably calculated, under all circumstances, to

apprise interested parties of the pendency of the action and

afford them an opportunity to present their objections.’”

Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 795

(1983) (quoting Mullane v. Central Hanover Bank & Trust

Co., 339 U.S. 306, 314 (1950)). Moreover, “[n]otice by mail

or other means as certain to ensure actual notice is a

minimum constitutional precondition to a proceeding which

will adversely affect the liberty or property interests of any

party, whether unlettered or well versed in commercial

practice, if its name and address are reasonably

ascertainable.” Id. at 800 (emphasis in original).

We have never addressed the constitutionality of an “optin” notice scheme like the one provided for in the Statute. 

Another court of appeals has, finding that “opt-in” notice

does not pass muster.

In Small Engine Shop, Inc. v. Cascio, the Fifth Circuit

Court of Appeals concluded that an “opt-in” notice clause

contained in Louisiana’s real property foreclosure statute

could not satisfy due process requirements. 878 F.2d 883

(5th Cir. 1989). The clause at issue provided that actual

notice of seizure of real property was required for only those

who requested it. Citing Mennonite, the court explained that

it would be unconstitutional for the state by statute to

“prospectively shift the entire burden of ensuring adequate

notice to an interested property owner regardless of the

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10 BOURNE VALLEY COURT TRUST V. WELLS FARGO

circumstances.” Id. at 884 (citing Mennonite, 462 U.S. at

797).

The Statute we address here is similar. Like the provision

at issue in Small Engine Shop, the Statute shifted the burden

of ensuring adequate notice from the foreclosing

homeowners’ association to a mortgage lender. It did so

without regard for: (1) whether the mortgage lender was

aware that the homeowner had defaulted on her dues to the

homeowners’ association, (2) whether the mortgage lender’s

interest had been recorded such that it would have been easily

discoverable through a title search, or (3) whether the

homeowners’ association had made any effort whatsoever to

contact the mortgage lender. In our view, such a scheme was

not constitutional.

Bourne Valley argues that Nevada Revised Statutes

section 107.090 should be read into the Statute and that its

provisions cure the deficiency we have identified. We

disagree.

Section 107.090 governs the notice required for the

default and sale of a deed of trust. Subsection 107.090(3)

requires the trustee or person authorized to record the notice

of default to send a copy of the notice by registered or

certified mail to each “person with an interest whose interest

or claimed interest is subordinate to the deed of trust.” 

N.R.S. section 107.090(3)(b).

Bourne Valleyarguesthat Nevada Revised Statute section

116.31168(1), which incorporated section 107.090, mandated

actual notice to mortgage lenders whose rights are

subordinate to a homeowners’ association super priority lien. 

Section 116.31168(1) stated, “[t]he provisions of NRS

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BOURNE VALLEY COURT TRUST V. WELLS FARGO 11

107.090 apply to the foreclosure of an association’s lien as if

a deed of trust were being foreclosed.” According to Bourne

Valley, this incorporation of section 107.090 means that

foreclosing homeowners’ associations were required to

provide notice to mortgage lenders even absent a request.

Bourne Valley’s preferred reading would impermissibly

render the express notice provisions of Chapter 116 entirely

superfluous. See S. Nev. Homebuilders Ass’n v. Clark

County, 117 P.3d 171, 173 (Nev. 2005) (a statute must be

interpreted “in a way that would not render words or phrases

superfluous or make a provision nugatory”) (internal

quotation marks omitted). In particular, section 116.31163

and section 116.31165 required any secured creditor to

request notice of default from a homeowners’ association

before the homeowners’ association had any obligation to

provide such notice. If section 116.31168(1)’s incorporation

of section 107.090 were to have required homeowners’

associations to provide notice of default to mortgage lenders

even absent a request, section 116.31163 and section

116.31165 would have been meaningless. We reject Bourne

Valley’s argument.4

4 The Nevada Legislature recently amended the Statute, requiring

homeowners’ associations to provide holders of first deeds of trust (and

all others with recorded interests) with notice of default and notice of sale

even when notice has not been requested. S.B. 306 (Nev. 2015). Such

amendment provides further evidence that the version of the Statute

applicable in this action did not require notice unless it was requested. If

the Statute already required homeowners’ associations affirmatively to

provide notice, there would have been no need for the amendment.

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12 BOURNE VALLEY COURT TRUST V. WELLS FARGO

B. The “state action” requirement is satisfied.

Bourne Valley’s strongest argument is that there has been

no “state action” for purposes of constitutional due process.

We think the “state action” requirement has been met. A

“state action requires both an alleged constitutional

deprivation caused by the exercise of some right or privilege

created by the State or by a rule of conduct imposed by the

State or by a person for whom the State is responsible, and

that the party charged with the deprivation must be a person

who may fairly be said to be a state actor.” Am. Mfrs. Mut.

Ins. Co. v. Sullivan, 526 U.S. 40, 50 (1999) (internal

quotation marks and citation omitted).

In this context, where the mortgage lender and the

homeowners’ association had no preexisting relationship, the

Nevada Legislature’s enactment of the Statute is a “state

action.” It is true, as Bourne Valley contends, that the

foreclosure sale itself is a private action. And we

acknowledge that there is no state action here that

“encourages” or “compels” a homeowners’ association to

foreclose on a property. Apao v. Bank of New York, 324 F.3d

1091, 1094 (9th Cir. 2003).

But that the foreclosure sale itself is a private action is

irrelevant to Wells Fargo’s due process argument. Rather

than complaining about the foreclosure specifically, Wells

Fargo contends—and we agree—that the enactment of the

Statute unconstitutionally degraded its interest in the

Property. Absent operation of the Statute, Wells Fargo would

have had a fully secured interest in the Property. A

foreclosure by a homeowners’ association would not have

extinguished Wells Fargo’s interest. But with the Statute in

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BOURNE VALLEY COURT TRUST V. WELLS FARGO 13

place, Wells Fargo’s interest was not secured. Instead, if a

homeowners’ association foreclosed on a lien for unpaid

dues, Wells Fargo would forfeit all of its rights in the

Property. In our view, the “state action” requirement is

satisfied.

Bourne Valley’s reliance on Flagg Brothers, Inc. v.

Brooks, 436 U.S. 149 (1978) and Charmicor, Inc. v. Deaner,

572 F.2d 694 (9th Cir. 1978) is misplaced. Both of those

cases addressed the “state action” requirement and found that

it was not met where a private creditor enforced its

contractual rights. But unlike in this case, in each of those

cases, the parties had a preexisting contractual relationship as

creditor and debtor. See Flagg Bros., Inc., 436 U.S. at 153

(noting parties’ contractual relationship); Charmicor,

572 F.2d at 695 (noting that nonjudicial foreclosure statute

conferred power of sale to trustee after breach of the

“underlying obligation” by the debtor). The creditors’

authority to extinguish the debtors’ property rights arose out

of the parties’ contractual relationships. Here, Wells Fargo

and the foreclosing homeowners’ association had no

preexisting relationship, contractual or otherwise. Indeed, it

is unclear if they were even aware of each other’s existence. 

Thus, in contrast to the creditors in Flagg Brothers and

Charmicor, the homeowners’ association’s ability to

extinguish Wells Fargo’s interest in the Property arose

directly and exclusively from the Statute.

CONCLUSION

Nevada Revised Statutes section 116.3116’s “opt-in”

notice scheme facially violated mortgage lenders’

constitutional due process rights. We therefore VACATEthe

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district court’s judgment and remand for proceedings

consistent with this opinion.

VACATED and REMANDED.

WALLACE, J., dissenting

The majority holds that section 116.3116 et seq. of the

Nevada Revised Statutes (HOA Statute) is facially

unconstitutional because it fails to satisfy the Fourteenth

Amendment’s Due Process Clause. I dissent for two reasons.

First, both the Supreme Court’s case law and our own

precedent make it clear that for a due process challenge to

succeed, the challenger must show that there has been “overt

official involvement,” or, in other words, state action.

Because there has been no state action here, I would hold that

Wells Fargo’s challenge necessarily fails. Second, even were

there sufficient state action to implicate the Due Process

Clause, the HOA Statute satisfies due process because it

incorporates another provision in the Nevada Revised

Statutes that requires the homeowners’ association (HOA) to

provide written notice to a mortgage lender.

I.

A foundational principle for all constitutional law is that

“most rights secured by the Constitution are protected only

against infringement by governments.” Flagg Bros., Inc. v.

Brooks, 436 U.S. 149, 156 (1978). Thus, “[w]hile as a factual

matter any person with sufficient physical power may deprive

a person of his property, only a State or a private person

whose action may be fairly treated as that of the State itself,

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BOURNE VALLEY COURT TRUST V. WELLS FARGO 15

may deprive him of an interest encompassed within the

Fourteenth Amendment’s protection.” Id. at 157 (internal

quotation marks omitted). This understanding has led to what

is commonly termed the state action requirement. To

determine whether there has been state action, the Supreme

Court has “insisted that the conduct allegedly causing the

deprivation of a federal right be fairly attributable to the

State.” Lugar v. Edmondson Oil Co., 457 U.S. 922, 937

(1982). The fair-attribution test has two parts: (1) “the

deprivation must be caused by the exercise of some right or

privilege created by the State or by a rule of conduct imposed

by the state or by a person for whom the State is responsible,”

and (2) “the party charged with the deprivation must be a

person who may fairly be said to be a state actor.” Id.

Here, only the second part of the fair-attribution test is at

issue, since there is no doubt that the deprivation Wells Fargo

has alleged was caused byBourne Valley’s exercise of “some

right or privilege” created by Nevada’s HOA Statute. Id. But

that still leaves the second part of the test, that is, whether

Bourne Valley “may fairly be said to be a state actor.” Id. The

answer to that question is no.

The majority concedes, as it must, that the nonjudicial

foreclosure sale that resulted in Bourne Valley obtaining title

to the property does not count as state action. This makes

common sense: an HOA is not a government actor and a

nonjudicial foreclosure by definition takes place without

government involvement. So, if the foreclosure itself does not

constitute state action, how then does the majority reach the

merits of the Due Process issue? It does so by holding “that

the enactment of the [HOA] Statute unconstitutionally

degraded its interest in the Property.” This holding is faulty

in several respects.

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16 BOURNE VALLEY COURT TRUST V. WELLS FARGO

First, it is wrong as a matter of timing. The HOA Statute

cannot possibly have “degraded” Wells Fargo’s interest in the

property because it was passed long before the bank acquired

its interest. The Nevada legislature passed the HOA Statute

in 1991; Wells Fargo’s mortgage interest was created in

2006.1 Given this timing, how can the majority claim that the

“enactment” of the HOA Statute “degraded” Wells Fargo’s

interest?

The second, and more critical, problem with the

majority’s holding is that it misapplies the case law. In Apao

v. Bank of New York, we dealt with a due process challenge

to a Hawaii statute that authorized a lender to exercise a

contractual right to nonjudicial foreclosure if the borrower

defaulted on the loan. 324 F.3d 1091, 1092–93 (9th Cir.

2003). In rejecting that argument, we reviewed the Supreme

Court’s cases involving foreclosures or seizures of property

to satisfy a debt, and we concluded that “the Supreme Court

has held that the procedures implicate the Fourteenth

Amendment only where there is at least some direct state

involvement in the execution of the foreclosure or seizure.”

Id. at 1093.

To illustrate how the Court has applied that rule, we cited

several cases where the Court concluded there was state

action. In one case, the Court held there was state action

where a clerk of court issued a writ of replevin authorizing a

sheriff to seize property. Fuentes v. Shevin, 407 U.S. 67,

70–71 (1972). In another, the Court held there was sufficient

1 The HOA Statute has been amended multiple times since 1991.

However, since the beginning it has provided that an HOA lien is prior to

a first security interest “to the extent of the assessments for common

expenses.” NEV. REV. STAT. § 116.3116(2) (1991).

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state involvement where a clerk of court issued a summons at

the request of a creditor, which allowed the creditor to

garnish an individual’s wages. Sniadach v. Family Fin. Corp.

of Bay View, 395 U.S. 337, 338–40 (1969). Last, in Lugar,

the Court held there was state action where a sheriff

sequestered property upon executing a creditor’s petition for

a writ of prejudgment attachment. 457 U.S. at 924–25. The

common thread among these three cases is that each involved

a government actor taking some official action.

By contrast, the Court had concluded there was

insufficient state involvement to support satisfaction of the

state action requirement where a creditor enforced a lien

through a nonjudicial sale. Flagg Bros., Inc., 436 U.S. at

152–53. Importantly for the case before us, the Court reached

its holding even though the creditor derived its power to

conduct the sale from a state statute that delegated “to the

[creditor] a portion of its sovereign monopoly power.” Id. at

155 (internal quotation marks omitted). We described the

Court’s reasoning in Flagg Brothers as follows:

Flagg Bros. further held that the state’s

statutory authorization of self-help provisions

is not sufficient to convert private conduct

into state action. The statute neither

encourages nor compels the procedure, but

merely recognizes its legal effect. The state

has not compelled the sale of a [debtor’s

property], but has merely announced the

circumstances under which its courts will not

interfere with a private sale.

Apao, 324 F.3d at 1094 (internal quotation marks and

citations omitted). In short, Flagg Brothers came out the way

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18 BOURNE VALLEY COURT TRUST V. WELLS FARGO

it did because there was no “overt official involvement.”

Apao, 324 F.3d at 1095 (internal quotation marks omitted).

Returning to our decision in Apao, after tracing the

Supreme Court’s case law, we then applied it to the Hawaii

statute. We concluded that the facts were analogous to Flagg

Brothers because nonjudicial foreclosure procedures lack any

“overt official involvement.” Id. (quoting Flagg Bros., Inc.,

436 U.S. at 157).

Apao is also important because we rejected a broader

theory of state action that the borrower proposed. The

borrower in Apao made an argument similar to the one Wells

Fargo has made here: that government regulation of the

mortgage business converted any action by a lender into state

action. Id. We rejected that argument, holding that “the

development of the extensivelyregulated secondarymortgage

market does not convert the private foreclosure procedures at

issue here into state action.” Id. We explained that “‘[s]tatutes

and laws regulate many forms of purely private activity, such

as contractual relations and gifts, and subjecting all behavior

that conforms to state law to the Fourteenth Amendment

would emasculate the state action concept.’” Id. (quoting

Adams v. S. Cal. First Nat’l Bank, 492 F.2d 324, 330–31 (9th

Cir. 1974)).

The Supreme Court’s decisions in Fuentes, Sniadach,

Lugar, and Flagg Brothers, dictate that we conclude there has

been no state action in this case. There has been no “overt

official involvement”: no government actor was in any way

involved in the nonjudicial foreclosure that resulted in Bourne

Valley holding title to the property. The majority attempts to

distinguish this line of cases by observing that in Flagg

Brothers, the parties had a preexisting contractual

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relationship. But the Court’s holding focuses on “overt

official involvement,” not preexisting relationships.

Nor can the operation of the HOA Statute alone provide

a basis for finding sufficient state action. Adams so holds and

there is no basis—and the majority offers none—on which we

might either distinguish that case or depart from its rule.

Because there has been no “overt official involvement” in

this case, I would hold that Wells Fargo has failed to

demonstrate the necessary state action that is needed for it to

succeed on its Due Process Clause argument.

II.

Even if there were any state action, Wells Fargo’s due

process challenge fails because the HOA Statute requires an

HOA to provide a mortgage lender with a notice of default,

satisfying due process.

Due process demands that “in any proceeding which is to

be accorded finality,” interested parties must receive “notice

reasonably calculated, under all the circumstances, to apprise

[them] of the pendency of the action and afford them an

opportunity to present their objections.” Mullane v. Cent.

Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950). The

Supreme Court has held that a lender’s mortgage interest is

protected as “property” under the Due Process Clause.

Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 798

(1983). In that same case, the Court also held that

“constructive notice alone does not satisfy” the demand of

due process. Id. The issue we confront here is whether the

HOA Statute meets these demands.

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20 BOURNE VALLEY COURT TRUST V. WELLS FARGO

As the majority points out, most of the notice provisions

in the HOA Statute create an opt-in framework, meaning that

interested parties will receive notice only if they affirmatively

request it. But one of its notice provisions, found in section

116.31168(1) (2005), departs from that framework. That

subsection provides that “[t]he provisions of NRS 107.090

apply to the foreclosure of an association’s lien as if the deed

of trust were being foreclosed.” NEV. REV. STAT.

§ 116.31168(1). In turn, section 107.090(3) provides as

follows:

The trustee or person authorized to record the

notice of default shall, within 10 days after the

notice of default is recorded and mailed

pursuant to NRS 107.080, cause to be

deposited in the United States mail an

envelope, registered or certified, return receipt

requested and with postage prepaid,

containing a copy of the notice, addressed to:

(a) Each person who has recorded a

request for a copy of the notice; and

(b) Each other person with an interest

whose interest or claimed interest is

subordinate to the deed of trust.

Thus, in relevant part, the statute requires the “person

authorized to record the notice of default” (here, the HOA) to

mail a copy of the notice of default to “[e]ach other person

with an interest whose interest or claimed interest is

subordinate to the deed of trust.” A lender like Wells Fargo

clearly has an “interest” in the soon-to-be foreclosed property

since it has a recorded security interest in it. The lender’s

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BOURNE VALLEY COURT TRUST V. WELLS FARGO 21

security interest is also “subordinate” to the HOA’s lien by

virtue of the HOA Statute’s superpriority provision. This is

the case even though the lender’s security interest was

recorded first, since the superpriority provision provides that

an HOA lien “is . . . prior to all security interests.” NEV.REV.

STAT. § 116.3116(c) (2005). Further, we must read the term

“deed of trust” in section 107.090 to mean an HOA lien since

section 116.31168 provides that “[t]he provisions of [section]

107.090 apply to the foreclosure of an association’s lien as if

a deed of trust were being foreclosed.”

In essence, while section 107.090 does not by itself apply

to HOA liens, the HOA Statute expresslyincorporates section

107.090 so that it applies to HOA liens. And section

107.090’s notice provisions require an HOA to send a notice

of default to “[e]ach other person” with a subordinate interest.

Thus, under the HOA Statute, due process is satisfied because

“[e]ach other person with an interest . . . [that] is subordinate

to the [HOA lien]” receives “notice, reasonably calculated, to

apprise [them] of the pendency of the action.” Mullane,

339 U.S. at 314.

The majority disagrees with this reading of the statutes. It

does so because, according to it, “Bourne Valley’s preferred

reading would impermissibly render the express notice

provisions of Chapter 116 entirely superfluous.” In essence,

the majority rejects the most obvious reading of the statute by

relying on a single canon of construction—the surplusage

canon.

The surplusage canon has deep roots in statutory

interpretation and arises out of the recognition that “words

cannot be meaningless, else they would not have been used.”

United States v. Butler, 297 U.S. 1, 65 (1936). But the canon

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22 BOURNE VALLEY COURT TRUST V. WELLS FARGO

is not without limitations. Most importantly here, the

surplusage canon cannot overcome straightforward textual

meaning. See ANTONIN SCALIA & BRYAN A. GARNER,

READING LAW 176 (“Put to a choice, however, a court may

well prefer ordinary meaning to an unusual meaning that will

avoid surplusage”). That limitation precludes use of the canon

here because there is no reasonable way to interpret sections

116.31168 and 107.090 other than to conclude that they

mandate that an HOA provide a mortgage lender with the

notice of default. The majority tacitly acknowledges this

conclusion by offering no contrary reading of those statutes.

Instead, the majority applies the surplusage canon without

even attempting to provide a reading of the statutes that is

contrary to the one I have provided. This use of the

surplusage canon is backwards; courts should not apply the

canon without first deciding that there are at least two

potential readings of the statute (one that renders parts

superfluous and one that does not).

Ironically, the surplusage canon could also work against

the majority’s position. Reading section 116.31168 as the

majoritydoes renders the HOA Statute’s command that “[t]he

provisions of [section] 107.090 apply to the foreclosure of an

association’s lien as if a deed of trust were being foreclosed”

mere surplusage since refusing to heed section 116.31168’s

incorporation of section 107.090 renders both sections

irrelevant for purposes of the HOA Statute.

A larger problem with the majority’s analysis is that it

ignores another canon of construction that is at least on a par

with the surplusage canon, namely the constitutional doubt

canon. The Supreme Court has explained that under the

constitutional doubt canon, “[w]hen the validity of an act of

the [legislature] is drawn in question, and even if a serious

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BOURNE VALLEY COURT TRUST V. WELLS FARGO 23

doubt of constitutionality is raised, it is a cardinal principle

that this Court will first ascertain whether a construction of

the statute is fairly possible by which the question may be

avoided.” Crowell v. Benson, 285 U.S. 22, 62 (1932).

As an example of how the constitutional doubt canon

works, take the Supreme Court’s decision in National

Federation of Independent Business v. Sebelius, 132 S. Ct.

2566 (2012). There, five justices concluded that the

Commerce Clause could not support Congress’s enacting of

the individual mandate imposed by the Patient Protection and

Affordable Care Act of 2010. Id. at 2591 (opinion of Roberts,

C.J.); id. at 2643 (dissenting opinion of Justices Scalia,

Kennedy, Thomas, and Alito). But, rather than strike the

statute down, the Court found the statute constitutional under

Congress’s power to tax. Id. at 2595–96. The Court explained

its rationale for reaching the taxing power issue as follows:

The question is not whether [reading the

statute as being within Congress’s power to

tax] is the most natural interpretation of the

mandate, but only whether it is a “fairly

possible” one. As we have explained, every

reasonable construction must be resorted to,

in order to save a statute from

unconstitutionality.

Id. at 2594 (internal quotation marks and citations

omitted).

While sections 116.31168 and 107.090 of the Nevada

Revised Statutes seem to me to be sufficiently

straightforward that I would not rely on the constitutional

doubt canon in the first instance (again, the majority offers no

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24 BOURNE VALLEY COURT TRUST V. WELLS FARGO

interpretation of them that contradicts mine), even if there

were a reasonable reading of them that would raise due

process concerns, I would apply the constitutional doubt

canon and conclude that the constitutional reading is “fairly

possible.” Id. Because it is “fairly possible” to find a

reasonable reading of the HOA Statute that renders it

constitutional, that construction “must be resorted to.” Id.

By resorting to a faulty application of the surplusage

canon without even applying the constitutional doubt canon,

the majority selectively picks and chooses among tools of

statutory interpretation so that it can reach its desired

outcome. That is not the role of judges. Our role is not to

decide whether the HOA Statute was good policy. Indeed, it

appears that it was not, as the Nevada legislature has

reworked the statute so that the concerns articulated by Wells

Fargo are no longer at issue. See S.B. 306 (Nev. 2015). But

none of that should concern us. We are tasked only with

deciding whether the HOA Statute required HOAs to send

lenders actual notice. Because its terms leave no doubt that

they were required to, we should uphold it.

III.

Wells Fargo’s due process challenge fails in multiple

respects. First, because there has been no “overt official

involvement,” there is no state action that would justify

reaching the merits of the due process argument. Second,

even were there state action, the HOA Statute satisfies due

process by requiring HOAs to send lenders a notice of

default. Accordingly, I would reject Well Fargo’s arguments

and affirm the district court’s judgment.

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