The Second District Court in Washoe County has ruled that Nevada’s Foreclosure Mediation Program — the subject of a legal challenge by Deutsche Bank — is constitutional.

Whether or not the bank will appeal the ruling is not yet clear. After the decision, the Las Vegas law firm representing Deutsche Bank, Brooks Bauer, issued a bland statement saying it is reviewing the decision and looking at various options.

“Each branch of government is a separate, but not independent, arm of government. In the great enterprise of making democracy workable, all are partners,” opined Judge Patrick Flanagan.

“The Foreclosure Mediation Program,” he wrote, “is an example of all three branches of government, Legislative, Executive, and Judiciary, working to meet the needs of its citizens who face an unprecedented crisis of historic proportions.”

One of Deutsche Bank’s most cogent arguments against the program’s constitutionality had been Flanagan’s own ruling, in a May case.

The “Foreclosure Mediation Program,” wrote Flanagan in Nathan & Dorothy Kuhl v. Carrington Mortgage Services, LLC et.al., “is certainly an Administrative Agency.”

“If a party seeks to challenge the actions of the Foreclosure Mediation Program itself, then a Chapter 233B Petition would be the appropriate vehicle,” wrote the judge, referring to a chapter of Nevada law that specifies how unaccountable public agencies may be closed down.

“Judge Flanagan's recognition that the FMP is an Administrative Agency demonstrates the constitutional dilemma that the FMP has created,” wrote the bank’s attorneys, “as such an agency should be administered by the executive branch of the government.”

Thus Flanagan, to say that the mediation program was constitutional, had to repudiate his May ruling. And he did.

This Court had previously indicated that the Foreclosure Mediation Program was an administrative agency…. To the extent that this Court previously indicated that the Foreclosure Mediation Program was an administrative agency, that statement was incorrect.

Although the Foreclosure Mediation Program bears significant similarities to an administrative agency, in the State of Nevada an administrative agency pursuant to Chapter 233B is inherently part of the Executive Branch.

Were the Foreclosure Mediation Program an administrative agency pursuant to Chapter 233B, but delegated to the judiciary, that would be a likely violation of the separation of powers clause.

Flanagan noted that the Nevada Supreme Court, itself, “in an unreported order, dealing with the Foreclosure Mediation Program,” had “analogized to the procedures for service of pleadings in administrative actions under Chapter 233B.”

Nevertheless, now wrote the judge, while the program “bears significant similarities to an administrative agency,” it “is not an administrative agency within the definition of that term under Nevada law.”

Flanagan acknowledged that “[t]he mere fact that some entity with some authority does something does not make it right or lawful.

“However, this Court takes some guidance from the fact that the entirety of the government of the State of Nevada appears to believe that AB 149 [which established the mediation program] did not violate any constitutional mandates or provisions.”

While the judge upheld the FMP’s constitutionality, he spent much of his opinion discussing the program’s statutory inability to deal with violations of its processes by homeowners — an inequity legislatively built into the program by lawmakers that, the bank’s attorneys had argued, demonstrated the inherent unconstitutionality of the program.

“To hold lenders to a standard of strict or substantial compliance, while excusing violations of homeowners would be manifestly inequitable,” Flanagan wrote.

Flanagan’s solution, citing inherent powers of the courts, was to fine respondent John Truex, a Nevada homeowner seeking mediation, $250 for withholding information. He also fined Deutsche Bank $500 for failing to provide documents by a 10-day deadline. The fine amounts are, by the normal standards of Nevada courts, trifling.

The judge ordered a new mediation session, in front of a “randomly assigned mediator,” for which the parties would be responsible for the costs.

Truex’s attorney, Wayne Pressel, was pleased with Flanagan’s ruling, overall.

“If he had ruled the whole thing unconstitutional, there would’ve been nothing left to protect homeowners from banks, and we wouldn’t be able to do anything about it until the next [legislative] session,” said Pressel.

He added that the sanctions against his client and Deutsche Bank could become “live wire” issues should either side appeal.

“He [Flanagan] shouldn’t have sanctioned us for a mere technicality,” said Pressel. “The [FMP’s] constitutionality was the big ruling, but the sanctions seemed out of line.”

Kyle Gillis is an investigative reporter on Nevada Journal, a publication of the Nevada Policy Research Institute. For more information visit http://npri.org/.