Insights

Sometimes, after a foreclosure case you might find yourself entrenched in complicated litigation. Consider this scenario: You foreclose on a property, purchase the property at the sale, and then file an unlawful detainer action to recover possession. The occupants (former borrowers) file a separate action to quiet title, claiming that the foreclosure was not valid and seeking title to the property. The suits are pending in different courts, so you remove the case against you to federal court. When the federal court dismisses the former borrowers’ suit, the former borrowers complain that the court did not have jurisdiction over the suit and appeal all the way to the 9th Circuit Court of Appeals. This is what happened to Deutsche Bank National Trust Company.

Despite getting the action to quiet title dismissed, Deutsche Bank is now waiting for the Nevada Supreme Court to answer two certified questions from the 9th Circuit, which will determine whether the federal court that dismissed the action to quiet title had the authority to do so.

In the case of Chapman v Deutsche Bank, after Deutsche Bank filed its unlawful detainer action in a Nevada state court. In turn, the occupants/former borrowers filed a separate action to quiet title in a different Nevada state court, and requested that the first court transfer the unlawful detainer action to the second court. While that request was pending, Deutsche Bank removed the quiet title action to federal court and moved to dismiss. The former borrowers asked the federal court to remand the case to the state court, but the federal court denied the former borrowers’ request and granted Deutsche Bank’s motion to dismiss.

Because the unlawful detainer action was still pending in state court, the occupants/former borrowers used a judicial doctrine called “prior exclusive jurisdiction” to appeal the decision and to argue that the federal court did not have the authority to decide the case. Generally, a case pending in state court does not prevent a federal court that has jurisdiction from proceeding on the same matter. However, in overly simplified terms, the doctrine of “prior exclusive jurisdiction” prevents one court from assuming jurisdiction when the action is to determine the interest in property relative to everyone as opposed to an action against a person involving his or her personal rights. The first type of action is referred to as “in rem” (or “quasi in rem”) and the second action is referred to as being “in personam”. Although in rem and in personam are not new concepts, the 9th Circuit Court of Appeals determined, that with regard to actions for unlawful detainer and quiet title in Nevada, the true nature of these actions as being in rem, quasi in rem, or in personam is an open question.

Therefore, because this is ultimately a question of Nevada law, the 9th Circuit deferred to Nevada’s highest state court, the Nevada Supreme Court.

If the Nevada Supreme Court decides to accept and answer these questions, then another mystery regarding when and where to file a case for the greatest efficiency will be solved. Stay tuned! See Chapman v. Deutsche Bank, 2011 U.S. App. Lexis 12693 (9th Cir. June 23, 2011).

Lauren E. Ingersoll is an associate in the California office of Hudson Cook, LLP. Lauren can be reached at 714-263-0426 or by email at lingersoll@hudco.com.