Court Opinion

ID: 1032648
Source: CourtListenerOpinion
Date Created: 2013-07-09 18:54:29.402789+00
Date Added: 2024-06-11T11:21:49.569916
License: Public Domain

million and hold it for a year. During that time, Centex could exercise its
                purchase option and buy the Property from St. Rose for $54 million.
                             St. Rose's acquisition money came from three sources: (1) a
                promissory note payable to Colonial Bank, N.A. (Colonial) in the amount
                of $29 million secured by a first-priority deed of trust against the Property
                (the Purchase Loan); (2) nonrefundable deposits in the amount of $8
                million from Centex; and (3) a promissory note payable to R&S Lenders in
                the amount of $12 million secured by a deed of trust against the Property
                that was recorded after the Colonial Bank deed of trust (R&S Lenders
                Deed of Trust).
                             Rad and Nourafchan obtained the financial backing for R&S
                Lenders by soliciting funds from private investors, including Eckley M.
                Keach and Robert E. Murdock. Keach agreed to loan $500,000, and
                Murdock agreed to loan $100,000. Keach and Murdock obtained
                individual promissory notes to secure their loans. Both promissory notes
                required St. Rose to pay monthly interest on the principal amounts at a
                rate of 12.5% per annum, due on the first day of each month, and
                contained late-fee provisions. However, these notes were not secured by a
                beneficial interest in a deed of trust.'
                             When Centex decided not to exercise its purchase option, St.
                Rose needed additional money to hold and develop the Property. In 2007,
                St. Rose obtained an additional loan from Colonial not exceeding $43
                million (the Construction Loan). The Construction Loan was intended to
                pay off the Purchase Loan and provide funding for improvements on the

                      1 Keach
                            and Murdock subsequently assigned their judgment against
                R&S Lenders to respondent Commonwealth Title Insurance Company.

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                Property. A deed of trust in favor of Colonial secured the Construction
                Loan (the 2007 Deed of Trust). As part of the Construction Loan
                transaction, Nevada Title Company issued Colonial a title insurance
                policy for $44 million. This title policy insured that the 2007 Deed of
                Trust was in first priority position against the Property and that the R&S
                Lenders Deed of Trust was removed as an exception to marketable title.
                Funds from the Construction Loan were used to pay off the amount due
                under the Purchase Loan. However, Nevada Title did not obtain a release,
                reconveyance, or a subordination agreement for the R&S Lenders Deed of
                Trust.
                            When St. Rose defaulted on the Construction Loan and
                stopped making payments to R&S Lenders, Colonial and R&S Lenders
                recorded notices of default. Both foreclosure proceedings were enjoined
                pending the outcome of this dispute between R&S Lenders and Colonial
                regarding the priority of the deeds of trust. During the litigation, the
                Alabama State Banking Department closed Colonial and named the
                Federal Deposit Insurance Corporation (FDIC) as receiver. The same day,
                Branch Banking and Trust (BB&T) and the FDIC entered into a
                "Purchase and Assumption Agreement, Whole Bank All Deposits" (the
                PAA) to transfer Colonial's assets to BB&T.
                            R&S Lenders appeals from a district court order granting
                summary judgment in favor of Murdock and Keach on their claims for
                breach of the promissory notes. R&S Lenders alleges that the district
                court erred when it calculated the interest due under Murdock and
                Keach's promissory notes. BB&T appeals the district court's
                determination that the R&S Lenders Deed of Trust had priority over the
                2007 Deed of Trust because BB&T did not prove that it received a valid

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                assignment of the Construction Loan from the FDIC. BB &T alleges that
                the district court improperly analyzed its ownership of the Construction
                Loan.
                The district court did not err in its interest calculations on Murdock and
                Keach's promissory notes
                            We review an order granting a motion for summary judgment
                de novo.   Wood v. Safeway, Inc., 121 Nev. 724, 729, 121 P.3d 1026, 1029
                (2005). Prejudgment interest awards are reviewed for error.        Schiff v.

                Winchell, 126 Nev. „ 237 P.3d 99, 100 (2010).
                            On appeal, R&S Lenders challenges the district court's
                calculation of interest in its order granting Murdock and Keach's motion
                for summary judgment. Specifically, R&S Lenders argues that allowing a
                5% monthly late fee to accrue on the total amount owed after the maturity
                date was not provided for in the notes and is contrary to law. R&S
                Lenders also argues that the imposition of the 25% default rate on the
                entire prejudgment amount owed to Murdock and Keach is improper
                compound interest.
                            We conclude that the district court did not err when it
                determined that the calculations attached to Murdock and Keach's motion
                for summary judgment accurately set forth the amount owed by R&S
                Lenders under the promissory notes. The plain language of the
                promissory notes allows a 5% monthly charge as liquidated damages in
                two amounts: first, on delinquent monthly interest payments, and second,
                on the entire amount due under the promissory notes if not paid by the
                maturity date. Further, we conclude that the district court's provision for
                a 25% default rate does not equate with ordering compound interest
                because the interest is not being added back into the principal.   See 44B
                Am. Jur. 3d Interest and Usury § 54 (2007) (compound interest occurs
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                when "accrued interest is added periodically to the principal, and interest
                is then computed upon the new principal thus formed," and is not the
                mere "allowance of interest on overdue installments of interest").
                The district court's conclusion that BB&T did not prove ownership of the
                loan was supported by substantial evidence
                            On cross-appeal, BB&T challenges the district court's rulings
                relating to its claims against St. Rose for failure to pay under the
                Construction Loan and the respective priorities of the 2007 Deed of Trust
                and the R&S Lenders Deed of Trust. Specifically, BB&T argues that the
                district court erred in determining that it lacked standing to assert the
                claims it raised in its complaint. BB&T further contends that the district
                court should not have concluded that the R&S Lenders Deed of Trust had
                priority over the 2007 Deed of Trust. R&S Lenders responds that the
                district court properly granted its NRCP 52(c) motion because BB&T
                failed to prove that it owned the Construction Loan, which was an implied
                element of its claim.
                            We will not set aside a district court's findings of fact and
                conclusions of law unless clearly erroneous. Sheehan & Sheehan v. Nelson
                Malley & Co., 121 Nev. 481, 486, 117 P.3d 219, 223 (2005). Generally, a
                merger transfers all assets and liabilities, while in an asset purchase,
                assets and liabilities are not assumed unless otherwise specified.   See Viii.
                Builders 96, L.P. v. U.S. Labs., Inc., 121 Nev. 261, 268, 112 P.3d 1082,
                1087 (2005); Caires v. JP Morgan Chase Bank, 745 F. Supp. 2d 40, 48-49
                (D. Conn. 2010) ("the FDIC [has the] ability to designate specific assets
                and liabilities for purchase and assumption . . . [and] a Court should look
                to the purchase and assumption agreement governing the transfer of
                assets between the FDIC and a subsequent purchaser of assets of a failed

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                bank to determine which assets and corresponding liabilities are being
                assumed").
                               The PAA was an asset purchase and therefore the district
                court looked to its language in order to determine which assets and
                corresponding liabilities were transferred to BB&T. However, due to the
                omission of the schedules of assets, the district court found that PAA did
                not transfer the Construction Loan to BB&T. We agree, and therefore
                conclude that the district court's decision to grant R&S Lenders' NRCP
                52(c) motion after BB&T failed to carry its evidentiary burden to prove its
                ownership of the Construction Loan was not clearly erroneous. 2
                               Further, we conclude that the district court's decision to
                exclude two documents relating to BB&T's interest in the Construction
                Loan was not an abuse of discretion because the documents were not
                properly produced in accordance with the disclosure requirements of
                NRCP 16.1(a)(1) or NRCP 26(3)(a).         See MC. Multi-Family Dev. v.
                Crestdale Assocs., 124 Nev. 901, 913, 193 P.3d 536, 544 (2008) (we review
                a district court's decision to deny admission of evidence for abuse of
                discretion).

                      2 BB&T   urges us to adopt the reasoning in Branch Banking & Trust
                Co. v. Navarre 33, Inc., No. 3:10CV10/MCR/EMT, 2012 WL 2377851 (N.D.
                Fla. May 21, 2012), but we conclude the reasoning of that case is
                unpersuasive. Although Navarre involved the same PAA between the
                FDIC and BB&T, the case concerned a breach of contract relating to a
                promissory note. Id. at *1. The Federal District Court for the Northern
                District of Florida concluded that the no genuine issues of material fact
                existed regarding whether the PAA excluded the promissory note at issue.
                Id. at *5-6. Therefore, not only did Navarre deal with a different
                procedural posture, it also involved the negotiation of a promissory note,
                not the assignment of a deed of trust.

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                           We have considered the parties' remaining arguments and
                conclude they are without merit. Accordingly, we
                           ORDER the judgment of the district court AFFIRMED.

                                                                            J.
                                                  Gibbons

                                                  1,;;Dz       kla_         J.
                                                  Douglas

                                                                            J.
                                                  Saitta

                cc: Elizabeth Goff Gonzalez, District Court Judge
                      Larry J. Cohen, Settlement Judge
                      David J. Merrill, P.C.
                      Early Sullivan Wright Gizer & McRae, LLP
                      Gerrard Cox & Larsen
                      Meier & Fine, LLC
                      Eighth District Court Clerk

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