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Sterling Savings Bank v. Ralston

April 13, 2010


The opinion of the court was delivered by: Honorable B. Lynn Winmill Chief U. S. District Judge


Before the Court is Plaintiff Sterling Savings Bank's Third Motion to Amend/Correct (Docket No. 19) against Defendants Larry W. Ralston, Katrina Ralston, John McBride, Kasey McBride, and Capitol Building Company, LLC. Defendants oppose Sterling's motion, contending that the proposed amended complaint does not cure a jurisdictional defect inherent in Sterling's prior complaints. The Court grants Plaintiff's Third Motion to Amend, finding that it has jurisdiction to hear this case because all interests for which Idaho law requires notice of the foreclosure sale are ascertainable and do not destroy diversity.


On June 30, 2009, Plaintiff filed a complaint against Defendants.

Defendants Larry Ralston and John McBride are co-owners of Capitol Building Company, LLC. Katrina Ralston and Kasey McBride are their wives. The Complaint asserts jurisdiction based on diversity of citizenship, under 28 U.S.C. § 1332. Plaintiff is incorporated and has its principal place of business in Washington. All Defendants are Idaho citizens.

In the first Complaint, Plaintiff alleged that Defendant Larry Ralston fraudulently conveyed the Ralston residence to his wife Defendant Katrina Ralston on October 18, 2008. Plaintiff also alleged that Katrina Ralston reconveyed the property to Larry Ralston, at Plaintiff's "insistence," but that Larry Ralston again conveyed the residence to Katrina Ralston on February 26, 2009. Plaintiff contends that these transfers qualify as insider transfers, as defined in Idaho Code § 55-901. Plaintiff further alleges that Defendants Larry Ralston and Capitol Building Company owed Plaintiff approximately 6.8 million dollars on multiple defaulted loans; that Larry Ralston did not receive an equivalent value in exchange for the transfer of the residence; and that Larry Ralston transferred the residence with actual intent to hinder, delay, or defraud Plaintiff, in violation of Idaho Code § 55-913(a).

Plaintiff filed first and second motions to amend the complaint, both of which Plaintiff subsequently withdrew. On February 25, 2010, the Plaintiff filed a third motion to amend the complaint, which is the subject of this order. In the current proposed complaint, Plaintiff details each of the four allegedly defaulted loans and provides documentation as to each of these loans. For each loan, Plaintiff seeks judicial foreclosure of the trust deed and alleges a breach of warranty. As to its ninth claim, Plaintiff alleges the same fraudulent conveyance claim described in the originally filed complaint.

Regarding the first eight claims, Plaintiff seeks the following relief from this court: (1) a judgment against Defendants for the principal loan amounts, plus interest accrued; (2) a declaration that if Defendants do not pay the judgment amount immediately, that the loans' Trust Deeds constitute valid liens against Defendants' real property (i.e., the real property collateral described in the loan documents); (3) a deficiency judgment should the real property collateral prove insufficient; (4) a declaration that Defendants' rights in the real property collateral are forever foreclosed; (5) a declaration that Plaintiff is permitted to bid on Defendants' real property collateral at a foreclosure sale and that the foreclosure purchaser is entitled to immediate possession; and (6) an award of attorney's fees and costs.

Plaintiff requests, with respect to its ninth claim for fraudulent conveyance, that this court find that each transfer is void, pursuant to Idaho Code §§ 55-913 and 55-914. Plaintiff requests an injunction to enjoin the Ralstons from conveying their residence.

Defendants filed a response to Plaintiff's Third Motion to Amend. Defendants argue that granting Plaintiff's Motion to Amend would be futile because this court does not, and cannot, have diversity jurisdiction. This argument essentially boils down to whether this court's judgment will bind parties who may have an unknown or unrecorded interest in the real property collateral. Defendants argue that this court cannot determine this case without also determining the interests of the unknown parties, and that the possible existence of these unknown parties destroy diversity.

Plaintiff argues that Idaho law requires persons with an interest in property to record the interest in order to maintain it during foreclosure. Therefore, Plaintiff argues, all parties that could be affected by a judicial foreclosure are knowable. Plaintiff argues that any unrecorded, and therefore unknown, interests do not deprive this court of diversity jurisdiction. Plaintiff attached two affidavits to their reply brief, which indicate that Plaintiff has performed a title search and that recorded interests, other than those of the Plaintiff, do not exist.


I. Legal Standards Governing ...

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