Court Opinion

ID: 4023913
Source: CourtListenerOpinion
Date Created: 2016-08-12 17:01:05.575211+00
Date Added: 2024-06-11T14:02:59.433745
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

BOURNE VALLEY COURT                  No. 15-15233
TRUST,
       Plaintiff-Appellee,             D.C. No.
                               2:13-cv-00649-PMP-NJK
            v.

WELLS FARGO BANK, NA,                  OPINION
    Defendant-Appellant.

      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
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.

    Judge Wallace 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.
      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.
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
     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.
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.
       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 immediately preceding 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.”).
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 “opt-
in” 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).
     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 “opt-
in” 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
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 Valley argues that 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
       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.
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
     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 VACATE the
14   BOURNE VALLEY COURT TRUST V. WELLS FARGO

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,
     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 by Bourne 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.
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).
     BOURNE VALLEY COURT TRUST V. WELLS FARGO             17

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
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 extensively regulated secondary mortgage
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
     BOURNE VALLEY COURT TRUST V. WELLS FARGO               19

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.
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
     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 expressly incorporates 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
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
majority does 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
     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
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.