Summary
In Natividad, the defendants argued that defendant Sage Point Lender Services, LLC was a nominal party, and therefore its presence did not defeat diversity jurisdiction, because it had filed a DNMS that the plaintiff had failed to oppose.
Summary of this case from Shears v. CitiMortgage, Inc.Opinion
No. 2:14-cv-01670-MCE-DAD
11-18-2014
JESUS NATIVIDAD, Plaintiff, v. OCWEN LOAN SERVICING, LLC; RESIDENTIAL CREDIT SOLUTIONS, INC.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; SAGE POINT LENDER SERVICES, LLC AND U.S. BANK NATIONAL ASSOCIATION, as Trustee, as Successor in Interest to DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee for MORTGAGEIT TRUST 2005-AR1, MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2005-AR1 and DOES 1-100 inclusive, Defendants.
MEMORANDUM AND ORDER
On June 16, 2014, Plaintiff Jesus Natividad ("Plaintiff") filed this lawsuit in San Joaquin County Superior Court against Ocwen Loan Servicing LLC, Residential Credit Solutions, Inc., Mortgage Electronic Registration Systems, Inc., Sage Point Lender Services, LLC, and U.S. Bank National Association, as Trustee, as Successor in Interest to Deutsche Bank National Trust Company, as Trustee for Mortgageit Trust 2005-AR1, Mortgage Pass-Through Certificates, Series 2005-AR1 (collectively "Defendants"). On July 15, 2014, Defendants removed the action to this Court pursuant to 28 U.S.C. § 1441(b) and subsequently filed a Motion to Dismiss (ECF No. 4). On August 14, 2014, Plaintiff filed a Motion to Remand, arguing that this Court lacks jurisdiction to hear the case. For the following reasons, Plaintiff's Motion to Remand (ECF No. 12) is GRANTED, and Defendants' Motion to Dismiss is DENIED as moot.
Because oral argument would not be of material assistance, the Court ordered this matter submitted on the briefs. E.D. Cal. Local Rule 230(g).
BACKGROUND
On June 16, 2014, Plaintiff initiated this lawsuit by filing a verified complaint in San Joaquin Superior Court. ECF No. 1-2. The Complaint asserts state law causes of action for declaratory relief, violation of Cal. Civil Code section 2923.6(c) and (d), violation of Cal. Civil Code section 2923.7, violation of Bus. & Profs. Code section 17200 et seq., negligence, fraud, unjust enrichment, and intentional/negligent infliction of emotional distress. Id. Plaintiff contends that none of the named Defendants have standing to sell his house in foreclosure or to collect monthly mortgage payments from him. Id. at 3. In addition, Plaintiff alleges that Defendants unlawfully participated in "dual-tracking" by pursuing loan modifications with Plaintiff and simultaneously pursuing foreclosure activity. Id.
On June 20, 2014, while the case was still pending in San Joaquin Superior Court, Defendant Sage Point Lender Services, LLC ("Sage Point") filed a Declaration of non-Monetary Status ("DNMS") pursuant to Cal. Civil Code section 2924l. See ECF No. 1-3. In the DNMS, Defendant Sage Point contended it had been named in the state court action solely in its capacity as Trustee. Id. at 3. On July 9, 2014, Plaintiff filed an Opposition to the DNMS. ECF No. 1-4. Subsequently, on July 15, 2014, Defendants removed the action to this Court pursuant to 28 U.S.C. § 1441(b), asserting diversity jurisdiction. Plaintiff filed his Motion to Remand on August 14, 2014, arguing that complete diversity does not exist because Defendant Sage Point and Plaintiff are both citizens of California. ECF No. 12 at 11. Plaintiff's Motion to Remand is GRANTED.
STANDARD
When a case "of which the district courts of the United States have original jurisdiction" is initially brought in state court, the defendant may remove it to federal court "embracing the place where such action is pending." 28 U.S.C. § 1441(a). There are two bases for federal subject matter jurisdiction: (1) federal question jurisdiction under 28 U.S.C. § 1331; and (2) diversity jurisdiction under 28 U.S.C. § 1332. A district court has federal question jurisdiction in "all civil actions arising under the Constitution, laws, or treaties of the United States." Id. § 1331. A district court has diversity jurisdiction "where the matter in controversy exceeds the sum or value of $75,000, . . . and is between citizens of different states, or citizens of a State and citizens or subjects of a foreign state . . . ." Id. § 1332(a)(1)-(2). Diversity jurisdiction requires complete diversity of citizenship, with each plaintiff being a citizen of a different state from each defendant. Id.; Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68 (1996) (stating that complete diversity of citizenship is required).
A defendant may remove any civil action from state court to federal district court if the district court has original jurisdiction over the matter. 28 U.S.C. § 1441(a). "The party invoking the removal statute bears the burden of establishing federal jurisdiction." Ethridge v. Harbor House Rest., 861 F.2d 1389, 1393 (9th Cir. 1988) (citing Williams v. Caterpillar Tractor Co., 786 F.2d 928, 940 (9th Cir. 1986)). Courts "strictly construe the removal statute against removal jurisdiction." Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (internal citations omitted). "[I]f there is any doubt as to the right of removal in the first instance," the motion for remand must be granted. Id. Therefore, "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded" to state court. 28 U.S.C. § 1447(c).
ANALYSIS
Plaintiff brings his motion to remand on the grounds that he and Defendant Sage Point are both citizens of California and that consequently diversity of citizenship is lacking. Defendants disagree, taking the position that Defendant Sage Point's filing of the DNMS in state court means that Sage Point's citizenship should be disregarded in determining diversity. Alternatively, according to Defendants, Sage Point was added as a sham or fraudulent defendant in any event, with its citizenship properly disregarded on that basis as well. In response, Plaintiff argues that Sage Point's DNMS should be ignored because, rather than being sued solely in its capacity as a trustee, Sage Point is instead being sued directly for its own misconduct. ECF No. 12 at 7. Plaintiff therefore contends that Sage Point's inclusion as a defendant was neither a sham nor fraudulent. As set forth below, Plaintiff offers the more persuasive argument.
A. DNMS
Under California Civil Code section 2924l, a party may file a DNMS in state court if the party is a trustee under a deed of trust, if the party has been named in an action in which the deed of trust is the subject, and if the party reasonably believes that it has been named solely in its capacity as trustee. Cal. Civ. Code § 2924l. Any party who opposes the declaration has 15 days to object, and if there is no timely objection, then the trustee shall be deemed a "nominal" party. Id. In assessing diversity, "federal court[s] must disregard "nominal" or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy." Kuntz v. Lamar Corp., 385 F.3d 1177, 1183 (9th Cir.2004) (quoting Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461, 100 S. Ct. 1779, 64 L. Ed. 2d 425 (1980)).
Plaintiff initially argues that, even apart from whether it confers nominal party status in state court, Sage Point's DNMS has no bearing on determining diversity in this matter because it was filed pursuant to a state procedural mechanism, not a substantive state law. ECF No. 12 at 5. Defendant, on the other hand, argues that, since Plaintiff did not timely file an opposition to the DNMS, Sage Point automatically became a nominal party in the superior court and so remains one here. ECF No. 14 at 17. Consequently, according to Defendants, Sage Point's citizenship should not be taken into account for the purpose of determining diversity jurisdiction. Id.
Because California Civil Code section 2924l's directive with regard to the impact of a DNMS on nominal party status is a state procedural mechanism for establishing nominal party status, approaches to its application by federal courts vary. Some federal courts have recognized nominal party status when a DNMA has been filed in state court by the party at issue and has not been opposed. See Pardo v. Sage Point Lender Servs. LLC, 14-CV-305, 2014 WL 3503095, at *2 (S.D. Cal. July 14, 2014) (explaining that "several district courts in California have disregarded a trustee defendant's citizenship as being that of a 'nominal' defendant when that trustee defendant has properly filed a Declaration of Non-Monetary Status in state court prior to removal"). However, when a party attempts to initially file a DNMS in federal court, district courts tend to refuse to automatically deem that defendant a nominal party. See Tran v. Washington Mut. Bank, No. CIV S-09-3277 LKK/DA, 2010 WL 520878, at *1 (E.D. Cal. Feb. 11, 2010). Other district courts have concluded that the filing of a DNMS, even in state court, is not dispositive of nonmonetary status and that an independent evaluation of the party's status is required. See Segura v. Wells Fargo Bank, N.A., CV-14-04195-MWF AJWX, 2014 WL 4798890 (C.D. Cal. Sept. 26, 2014); Lawrence v. Aurora Loan Servs. LLC, 109CV01598LJODLB, 2010 WL 449734 (E.D. Cal. Feb. 8, 2010); Hershcu v. Wells Fargo Bank, N.A., 12-CV-00096, 2012 WL 439698, at *2 (S.D. Cal. Feb.10, 2012) (refusing to view Cal-Western's DNMS as conclusive of nominal party status); Kendall v. Wells Fargo, No. CV 12-7229-DSF (PJWx), 2012 WL 10649162, at * 1 (C.D. Cal. Aug. 30, 2012) (denying trustees nominal party status on the basis of a DNMS because no actual showing had been made that they were nominal parties).
This Court agrees with the latter decisions, which evaluate a party's status under federal law as opposed to state procedural rules, and therefore finds that the filing of a DNMS is a state procedural requirement not controlling for purposes of determining diversity. Indeed, "[a] DNMS under California Civil Code section 2924l has no corollary in federal law, and does not result in a substantive finding by a court that a trustee is a nominal party. Filing a DNMS requires no showing by the filing party and only represents that the party has a 'reasonable belief' that it 'has been named in the action or proceeding solely in its capacity as trustee, and not arising out of any wrongful acts or omissions on its part in the performance of its duties as trustee.'" Segura, 2014 WL 4798890 at *3. This Court thus "understands a DNMS to be a California procedural device more than a matter of substantive California law" and "under Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), [t]is not bound by the mechanism." Id. Accordingly, Sage Point will not be considered a nominal Defendant based solely on the filing of a DNMS.
Since the Court will not consider the DNMS, it is irrelevant that Plaintiff's objections were untimely. Moreover, even if a Plaintiff fails to timely oppose a DNMS, the state procedural rules permit a Plaintiff to file a motion to force a defendant who has filed a declaration to nonetheless participate in the action. Cal. Civ. Code § 2924l(e). Accordingly, even assuming the state court rules governing non-monetary status applied here, Plaintiff should be given the chance to raise arguments as to why Sage Point is not a nominal party, which he has done in his Motion to Remand.
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B. Sage Point as Nominal and/or Fraudulently Joined Party
Defendants alternatively argue that, even aside from its DNMS argument set forth above, Sage Point must still be considered a sham and/or fraudulent defendant in this action because Plaintiff has not alleged any facts that demonstrate wrongdoing sufficient to support an actionable claim. ECF No. 14 at 7. Plaintiff, of course, disagrees and contends that the Complaint contains numerous allegations of wrongdoing by Sage Point. ECF No. 12 at 7.
As indicated above, "federal court[s] must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy." Kuntz v. Lamar Corp., 385 F.3d at 1183. Indeed, "[c]ircuit law teaches that courts should 'ignore the citizenship of nominal or formal parties who have no interest in the action, and are merely joined to perform the ministerial act of conveying the title if adjudged to the complainant.'" Silva v. v. Wells Fargo Bank, NA, 2011 WL 2437514, *3 (C.D. Cal.) (quoting Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc., 304 F.3d 867, 873 (9th Cir. 2000)). Removing Defendants bear the burden of proving a defendant is a nominal party. Id. (internal quotations and citations omitted). Defendants have not met their burden here.
Defendants first contend that Sage Point is a nominal defendant because it was simply the trustee on the DOT. ECF No. 14 at 8. However, Sage Point's status as a trustee is not itself sufficient to render it a nominal party. Couture v. Wells Fargo Bank., N.A., 2011 WL 3489955, *3 (S.D. Cal.).
Defendants next argue that Sage Point's statutory immunities provide a sufficient basis for finding that Sage Point is a nominal party. ECF No. 14 at 8-9. However, "such statutory immunity is not absolute; a finding of malice would permit Plaintiff's claims to proceed." Latino v. Wells Fargo Bank, N.A., 2:11-CV-02037-MCE, 2011 WL 4928880 (E.D. Cal. Oct. 17, 2011). In the complaint, Plaintiff alleges, among other things, that Sage Point "was notified that Plaintiff submitted a complete loan modification application to Ocwen before Sage Point filed the June 20, 2014 NOD . . . ." ECF No. 1-2 at 33. Such allegations, among others, support claims for wrongdoing against Sage Point such that its citizenship should not be disregarded.
Finally, Defendants contend that Sage Point has been fraudulently joined by Plaintiff solely to destroy diversity. "Joinder of a non-diverse defendant is deemed fraudulent, and the defendant's presence in the lawsuit is ignored for purposes of determining diversity, '[i]f the plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state.'" Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001) (quoting McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987)). In this circuit, there is a "general presumption against fraudulent joinder," and defendant's burden of proof is "heavy." Hunter v. Philip Morris USA, 582 F.3d 1039, 1046 (9th Cir. 2009). Simply alleging that Plaintiff has failed to state a claim pursuant to the Federal Rules of Civil Procedure is not enough. See Watson v. Gish, 2011 WL 2160924, *3 (N.D. Cal.). Instead, "[i]n the Ninth Circuit, a non-diverse defendant is deemed to be fraudulently joined [only] if, after all disputed questions of fact and all ambiguities in the controlling state law are resolved in the plaintiff's favor, the plaintiff could not possibly recover against the party whose joinder is questioned." Sun v. Bank of American Corp., 2010 WL 454720, *3 (C.D. Cal.) (citing Kruso v. Int'l Tel. & Tel. Corp., 872 F.2d 1416, 1426 (9th Cir. 1989)).
"A court may look beyond the pleadings to determine if a defendant is fraudulently joined, but a plaintiff need only have one potentially valid claim against a non-diverse defendant to survive a fraudulent joinder challenge." Id. (internal citations and quotations omitted). "Accordingly, a defendant seeking removal based on an alleged fraudulent joinder must do more than show that the complaint at the time of removal fails to state a claim against the non-diverse defendant." Id. To the contrary, "[r]emand must be granted unless the defendant shows that the plaintiff would not be afforded leave to amend his complaint to cure [the] purported deficiency." Id. (internal quotations and citations omitted).
Defendants in this case thus bear the burden of showing that it is "obvious" that Plaintiff cannot possibly state a claim against Sage Point. On balance, Defendants cannot meet this burden. Plaintiff's allegations that Sage Point was on notice of Plaintiff's loan modification process, and that Defendants acted "fraudulently" and knowingly, and "with oppression, fraud and malice" toward Plaintiff, support claims for wrongdoing against Sage Point. See ECF No. 1-2 at 28. Since Defendants have failed to meet their burden of showing there is no possibility Plaintiff could establish a cause of action against Sage Point, they have not shown that Sage Point's joinder was fraudulent. Accordingly, because Defendants have failed to show that Plaintiff and Sage Point are non-diverse, Plaintiff's Motion to Remand is GRANTED.
CONCLUSION
For the reasons just stated, Plaintiff's Motion to Remand (ECF No. 12) is GRANTED. Defendant's Motion to Dismiss (ECF No. 4) is DENIED as moot. The Clerk of the Court is directed to remand this case to the originating state court, the Superior Court of the State of California in and for the County of San Joaquin, for final adjudication and to close this case.
IT IS SO ORDERED. Dated: November 18, 2014
/s/_________
MORRISON C. ENGLAND, JR., CHIEF JUDGE
UNITED STATES DISTRICT COURT