HSBC BANK USA, N.A., as Trustee, In Trust for the Registered Holders of Ace… v. Suzannah R. Noonan Ira, LLC

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
HSBC BANK USA, N.A., as Trustee, In
Trust for the Registered Holders of Ace
Securities Corp., Home Equity Loan Trust,
Series 2006-FM2, Asset Backed Pass-
Through Certificates,
Plaintiff-Appellee,
v.
SUZANNAH R. NOONAN IRA, LLC,
Defendant-Appellant,
and
SUNRISE BAY OWNERS’
ASSOCIATION; NEVADA
ASSOCIATION SERVICES, INC.,
Defendants.
No. 19-17181
D.C. No.
2:16-cv-01216-KJD-NJK
MEMORANDUM*
Appeal from the United States District Court
for the District of Nevada
Kent J. Dawson, District Judge, Presiding
Argued and Submitted March 12, 2021
San Francisco, California
Before: WALLACE, GOULD, and FRIEDLAND, Circuit Judges.
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
FILED
APR 6 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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Suzannah R. Noonan IRA, LLC (Noonan) appeals from the district court’s
summary judgment for HSBC Bank USA, N.A. (HSBC) in an action for quiet title.
We have jurisdiction under 28 U.S.C. § 1291. We vacate and remand.
In 2006, a homeowner acquired title to property in Nevada. To finance the
acquisition, the homeowner obtained a $150,300 loan from Fremont Investment &
Loan (Fremont) that was secured by a deed of trust. The deed listed Fremont as
the lender, Old Republic Title as the trustee, and Mortgage Electronic Registration
Systems, Inc. (MERS) as the beneficiary. The property was subject to monthly
homeowners’ association fees assessed by Sunrise Bay Owners Association
(HOA).
In 2012, the HOA’s agent, Nevada Association Services, recorded a notice
of delinquent assessment lien against the property for unpaid HOA fees and other
charges. After the homeowner defaulted on the lien, Nevada Association Services
recorded a notice of foreclosure sale against the property, and the property was
sold at auction to Noonan in 2014.
Shortly thereafter, Noonan filed a quiet title action in Nevada state court,
naming the former homeowner and Fremont as defendants. Neither defendant
appeared or answered in that suit, and so on October 3, 2014, the state court
entered a default judgment against them in Noonan’s favor. On March 3, 2015, a
corporate assignment of deed of trust was recorded in which MERS, as nominee

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for Fremont (and its successors and assigns), assigned its beneficial interest under
the deed of trust to HSBC.
In 2016, HSBC brought this action for quiet title against Noonan, the HOA,
and Nevada Association Services. After discovery, HSBC and Noonan filed
competing motions for summary judgment. Noonan argued that the state court’s
default judgment against Fremont—which Noonan characterized as HSBC’s
predecessor in interest—precluded HSBC from bringing this action. The district
court denied Noonan’s motion and granted HSBC’s, holding that HSBC’s deed of
trust survived the HOA’s foreclosure sale and that claim preclusion did not apply.
This appeal followed.
The only question before us is whether the district court erred when it held
that claim preclusion did not bar HSBC from bringing a quiet title action against
Noonan.1 The district court concluded that the state court default judgment was
“insufficient to show that the issues were actually litigated” and thus had no
preclusive effect. But whether an issue was “actually and necessarily litigated” is
an element of the test for issue preclusion, not claim preclusion. Five Star Cap.
Corp. v. Ruby, 194 P.3d 709, 713 (Nev. 2008) (en banc). This question therefore
should not have been part of the analysis of whether claim preclusion applies here.
1 Noonan has not appealed from the district court’s ruling on the merits of
HSBC’s claims in this action.

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Rather, under Nevada law, claim preclusion applies when “(1) the parties or
their privies are the same, (2) the final judgment is valid, and (3) the subsequent
action is based on the same claims or any part of them that were or could have
been brought in the first case.” Id. (footnote omitted). At oral argument, the parties
agreed that this case hinges on the first element—and, more specifically, whether
HSBC was in privity with Fremont. Privity “encompass[es] a relationship in
which ‘there is substantial identity between parties, that is, when there is sufficient
commonality of interest.’” Mendenhall v. Tassinari, 403 P.3d 364, 369 (Nev.
2017) (quoting Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Plan. Agency, 322
F.3d 1064, 1081 (9th Cir. 2003)).
Noonan contends that there is sufficient commonality of interest between
Fremont and HSBC because, when Noonan filed its state court action for quiet title
in 2014, publicly available records listed Fremont as the originator of the deed of
trust. But this evidence is insufficient to demonstrate conclusively that Fremont
maintained any interest in the property at the time of the state court action roughly
eight years after the deed’s origination. If Fremont had no interest in the property
in 2014, then it could not have represented HSBC’s interest in the state court
action, and claim preclusion would not bar HSBC’s action in federal court. By
contrast, if Fremont did still have an interest in the property in 2014, HSBC would
be its successor in interest, and the two would be in privity. See Mendenhall, 403

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P.3d at 369. Because we cannot tell from the record before us whether Fremont
had an interest in the property in 2014, we remand to the district court to consider
this issue in the first instance.
We observe that, if Fremont no longer had an interest in the property in
2014, Noonan could not have discovered this fact from publicly available records
due to Fremont’s decision to use the MERS system. In Nevada, MERS is typically
designated as a deed of trust’s “beneficiary” so that noteholders may “eliminat[e]
the need to prepare and record assignments when trading loans.” Edelstein v. Bank
of N.Y. Mellon, 286 P.3d 249, 256 (Nev. 2012) (quoting Jackson v. Mortg. Elec.
Registration Sys., Inc., 770 N.W.2d 487, 490 (Minn. 2009)). A “side effect” of this
system “is that a transfer of an interest in a mortgage loan between two MERS
members is unknown to those outside the MERS system.” Id. (quoting Jackson,
770 N.W.2d at 491). It is possible that Fremont took advantage of the MERS
system by transferring its interest to another MERS member at some point after
2006, and the transfer was never recorded because MERS continued to act as
“nominee” for Fremont’s “successors and assigns,” thereby eliminating the need to
record any activities.2
2 Such a transfer may have become likely after Fremont filed for bankruptcy
in June 2008.

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Despite the uncertainty created by Fremont’s use of the MERS system, we
decline to assume that Fremont maintained an interest in the property in 2014 on
the sole basis that no public records indicated otherwise. Noonan appears to
suggest that we should resolve the uncertainty in its favor because there would be
no practical way for an entity in its position to otherwise quiet title against a
noteholder that benefits from the opacity of the MERS system. But there is a
straightforward solution: An entity in Noonan’s position could name MERS in the
quiet title action.3 If MERS had been a defendant, it would have ensured—as the
nominee for the lender, its successors, and its assigns—that the noteholder’s
interests were represented even if the noteholder’s identity was unknowable from
public documents. And here, MERS is clearly listed as the designated beneficiary
in the deed, in addition to being named as the nominee for the lender, so Noonan
cannot claim that it lacked knowledge of MERS’s interest or its role with respect to
the deed.
3 HSBC argues that the state court judgment is invalid because Noonan was
required to name MERS in its quiet title action. We do not consider whether the
state court wrongly entered default judgment in Noonan’s favor, however, because
“whether a decision is correct does not affect its preclusive effect.” Five Star Cap.
Corp., 194 P.3d at 714 n.41. Our inquiry is confined to whether HSBC’s interest
was represented in the state court action.

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Because the record does not contain enough information to determine
whether HSBC was in privity with Fremont, we vacate the summary judgment and
remand for further consideration.
VACATED and REMANDED. Each party shall bear their own costs.

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