Opinion ID: 6112311
Heading Depth: 1
Heading Rank: 2

Heading: Dismissal of Anderson’s SAC

Text: We review de novo the district court’s dismissal for failure to state a claim under governing state law, taking the facts alleged in the SAC as true and drawing all reasonable inferences in Anderson’s favor. See Nelson Auto Ctr., Inc. v. Multimedia Holdings Corp., 951 F.3d 952, 955 (8th Cir. 2020). “In applying state law, we are bound to apply the law of the state as articulated by the state’s highest court.” Travelers Prop. Cas. Ins. Co. of Am. v. Nat’l Union Ins. Co. of Pittsburgh, 621 F.3d 697, 707 (8th Cir. 2010). Here, no party contests the district court’s conclusion that the Supreme Court of Nebraska’s decision in Ryberg is controlling authority on the 2 United States v. Bank of Am. Corp., 1:12-cv-00361 (D.D.C. Apr. 4, 2012). -3- critical question -- when should a court of equity “set aside a foreclosure sale conducted under a power of sale in a trust deed.” 667 N.W.2d at 550. The Nebraska Trust Deeds Act,3 first enacted in 1965, “altered the landscape of real estate financing” by permitting foreclosure sales without the necessity of judicial proceedings, a change that “provide[d] lenders with a remedy for recovering collateral that is quicker and less expensive than judicial foreclosure.” Ryberg, 667 N.W.2d at 552-53. In Ryberg, consistent with this purpose, the Court rejected a contention “that the use of the power of sale in a trust deed must strictly adhere to both the requirements of the Act and the trust deed’s terms,” because such a rule “would render that remedy unworkable [as] any error by the trustee, no matter how trivial, would void the sale.” Id. at 553. Instead, consistent with decisions in other jurisdictions, the Court “recognized three categories of defects in a trustee’s sale conducted under a power of sale in a trust deed: (1) those that render the sale void, (2) those that render the sale voidable, and (3) those that are inconsequential.” Id. at 553. On appeal, Anderson argues the SAC stated a claim for relief because he alleged lender violations of federal requirements that rendered the Trustee’s Sale voidable. When a defect renders a completed trustee’s sale voidable, “bare legal title” passes to the purchaser, but an injured party “can have the sale set aside so long as the legal title has not moved to a bona fide purchaser.” Id. at 554 (cleaned up). The issue on appeal is whether the violations Anderson alleged, if proved, were defects that rendered the Trustee’s Sale voidable and therefore form the basis for equitable relief from the underlying foreclosure sale. The Court in Ryberg addressed whether plaintiff Gilroy, who was an obligor on the foreclosed promissory note at issue, “established a defect in the [trustee’s] sale that warrants setting the sale aside.” Id. at 555. The Court concluded that the notice of default and a nine-day delay in the purchaser completing his foreclosure payment 3 Neb. Rev. Stat. § 76-1001 et seq. -4- complied with the Act, and that his payment by personal check, though contrary to the terms of the trust deed, did not prejudice Gilroy. Accordingly, the Court held that Gilroy “failed to establish a prejudicial defect in the trustee’s sale.” Id. at 560. Here, Anderson asserts that he is relying on Federal regulations that “require[] those servicing home loans to affirmatively undertake foreclosure avoidance protocols before going forward with foreclosures.” Reply Brief of the Appellant at 6. He argues that Manard v. Williams, 952 S.W.2d 387 (Mo. App. 1997), a case cited in Ryberg, recognized that “relatively minor errors in the processes” can be “irregularities” that justify setting aside a trustee’s sale. Brief of the Appellant at 20. Therefore, non-judicial foreclosures may be set aside if, as he alleged, the foreclosing lender failed to “observe each condition precedent” to foreclosure. Like the district court, we disagree. As the district court recognized, the flaw in this argument is that Anderson’s SAC does not allege that U.S. Bank lacked a right to exercise the trustee’s power of sale, or that there was a defect in the sale itself. Rather, the alleged Federal law violations as alleged in the SAC all occurred “prior to the institution and maintenance of any foreclosure activity.” Therefore, they were not “defects in the trustee’s sale” within the meaning of Ryberg. Anderson misstates the decision in Manard, where the court in declining to set aside the foreclosure sale at issue, expressly stated that voidable defects are substantial irregularities that occur in the “execution of a foreclosure sale.” 952 S.W.2d. at 392 (emphasis added). In Ryberg, the controlling authority, the Supreme Court of Nebraska quoted that specific passage, 667 N.W.2d at 554, and then crafted its own guidance for when a court of equity should set aside a completed foreclosure sale. We conclude the district court’s resolution of this issue is consistent with that guidance: Broadly construing every potentially related contractual, statutory, and regulatory requirement as a “condition precedent” to an effective -5- foreclosure, as Anderson suggests, largely ignores Ryberg’s materiality and prejudice requirements and would render non-judicial foreclosure “unworkable” as “a remedy for recovering collateral that is quicker and less expensive than judicial foreclosure.” As the Ryberg Court put it, “[t]he resulting uncertainty and increased chance of litigation would deter bidders from participating at sales and lead lenders to choose judicial foreclosure.” Anderson v. Bank of the West, No. 8:20CV114, Mem. & Order, at 7-8 (D. Neb. July 22, 2020) (citations omitted).