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Houys Delaware Series, LLC v. Key Bank National Association

United States District Court, W.D. Washington, Seattle

January 6, 2015

HOUYS DELAWARE SERIES, LLC, Plaintiff,
v.
KEY BANK NATIONAL ASSOCIATION, Defendants.

ORDER GRANTING MOTION TO DISMISS

ROBERT S. LASNIK, District Judge.

This matter comes before the Court on defendant's "Motion To Dismiss." Dkt. # 7. Having reviewed the memoranda and exhibits submitted by the parties, the Court finds as follows.

I. BACKGROUND

This action concerns real property in Lynnwood, WA ("Lynnwood Property") formerly owned by Hrag and Shoushan Salibian. Dkt. # 1-2 (Am. Compl.) ¶ 3.2. The Salibians' company, Taseda, LLC, entered a loan agreement ("Agreement") with defendant to finance the acquisition and development of land in Sumner, WA ("Sumner Property"). Id . ¶ 3.4. Under this Agreement, the Salibians would encumber the Lynnwood Property with deeds of trust ("DOTs") in favor of defendant in exchange for an $8.25 million loan from defendant, which would include funds for construction on the Sumner Property. Id . The DOTs, which were recorded in August 2007, included a DOT securing an $8.25 million loan to Taseda, LLC ("First DOT"), and a DOT securing lines of credit extended to Nver Enterprises, Inc., in the total amount of $16.5 million ("Second DOT"). Dkt. # 8-1 (Exh. B, C). Defendant ultimately failed to provide the promised funding for the Sumner Property construction. Dkt. # 1-2 ¶ 3.7.[1]

In March 2009, the Salibians executed and recorded a quitclaim deed conveying the Lynnwood Property to plaintiff. Dkt. # 8-1 (Exh. A). This deed gave plaintiff the Salibians' interest in the Lynnwood Property, "SUBJECT TO:... deeds of trusts, mortgages, liens... and encumbrances of record, if any." Id.

Plaintiff brought this action in state court in September 2014 seeking to quiet title to the Lynnwood Property; the case was removed to this Court in October 2014. Dkt. # 1 (Notice of Removal). Plaintiff alleges that the DOTs are invalid and should be extinguished for failure of consideration. Dkt. # 1-2 ¶ 4.1; Dkt. # 12 (Pl. Resp.) at 1.[2] Specifically, plaintiff alleges that defendant's failure to provide the Sumner construction funding to the Salibians, as per the Agreement between defendant and the Salibians, renders the DOTs invalid for failure of consideration. Dkt. # 1-2 ¶ 3.7. Defendant has moved to dismiss. Dkt. # 7.

II. LEGAL STANDARD

Although a complaint need not provide detailed factual allegations, it must offer more than "labels and conclusions" or a "formulaic recitation of the elements of a cause of action." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). To survive a motion to dismiss brought under Fed.R.Civ.P. 12(b)(6), a complaint "must contain sufficient factual mater, accepted as true, to state a claim to relief that is plausible on its face, '" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555); plaintiff's allegations must "raise a right to relief above the speculative level, " Twombly, 550 U.S. at 555. In ruling on such a motion, the Court must assume the truth of a plaintiff's well-pled facts and draw all reasonable inferences in its favor. Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 663 (9th Cir. 1998).

A complaint may be found deficient for failing to assert (a) a cognizable legal theory or (b) sufficient facts to support a cognizable legal theory. Zixiang v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013). If the Court dismisses a complaint or portions thereof, it must grant the plaintiff leave to amend under Fed.R.Civ.P. 15(a)(2), "unless it is clear that the complaint could not be saved by any amendment." Jackson v. Carey, 353 F.3d 750, 758 (9th Cir. 2003).

The Court generally may not consider material beyond the pleadings in ruling on a motion to dismiss. Dunn v. Castro, 621 F.3d 1196, 1205 n.6 (9th Cir. 2010). However, the Court may consider material properly submitted as part of a complaint, may consider documents whose contents are alleged in the complaint and whose authenticity is not questioned, and may take judicial notice of matters of public record without converting the motion to dismiss into a motion for summary judgment. Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010).

III. DISCUSSION

A. The Parties' Arguments

Defendant's argument for dismissal is threefold. First, defendant argues that plaintiff may not challenge the validity of the DOTs given that the quitclaim deed expressly stated that plaintiff would take the Lynnwood Property subject to recorded deeds of trust. Dkt. # 7 at 2. Second, defendant argues that plaintiff may not challenge the validity of the DOTs before the loan obligations underlying the DOTs have been satisfied, citing Washington and District Court precedent. Id. at 4-5 (citing Evans v. BAC Home Loans Servicing LP, 2010 WL 5138394, at *3 (W.D. Wash. 2010) ("Plaintiffs cannot assert an action to quiet title against a purported lender without demonstrating they have satisfied their obligations under the Deed of Trust.")). Defendant emphasizes that it is undisputed that defendant leant money to Taseda, LLC and Nver Enterprises, Inc. that has not been repaid. Dkt. # 13 at 2-3. Finally, defendant argues that plaintiff's claim is improperly focused on a "supposed contractual defect" between defendant and the Salibians; defendant cites the settled Washington law rule that a plaintiff "in an action to quiet title must succeed on the strength of his own title and not on the weakness of his adversary." Dkt. # 7 at 5 (quoting Bavand v. OneWest Bank, F.S.B., 176 Wn.App. 475, 502 (2013)).

Plaintiff argues in response that it acquired the ability to challenge the validity of the DOTs when it acquired the Salibians' interest in the Lynnwood Property. Dkt. # 12 at 3. Plaintiff emphasizes that because defendant never provided the promised construction funding to the Salibians, the DOTs (which were premised on this loan) are invalid for failure of ...


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