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Allan v. Federal National Mortgage Association

United States District Court, E.D. Virginia, Richmond Division

October 25, 2016

WILLIAM S. ALLAN, et al., Plaintiffs,
v.
FEDERAL NATIONAL MORTGAGE ASSOCIATION, et al., Defendants.

          MEMORANDUM OPINION

          Robert E. Payne Senior United States District Judge

         This matter is before the Court on Plaintiffs' MOTION TO REMAND (Docket No. 7). For the reasons stated below, Plaintiff's MOTION TO REMAND will be granted.

         BACKGROUND

         On December 9, 2004, Plaintiffs William S. Allan and Susan J. Allan ("the Allans") borrowed $168, 400.00 from American Home Mortgage Corporation and signed an associated promissory note. (Def.'s Notice of Removal, Docket No. 1, 1).The Allans granted a Deed of Trust to Mortgage Electronic Systems, Inc., as American Home Mortgage Corporation, on the same day; the deed was recorded in the Circuit Court of Powhatan County. (Def.'s Notice of Removal 1) . American Home Mortgage Corporation assigned the note to Federal National Mortgage Association ("Fannie Mae"). (State Court Complaint, Docket No. 1-1, ¶ 12). Fannie Mae retained Green Tree Servicing, also known as Ditech Financial, LLC, as servicer on the loan. (State Court Complaint, ¶ 12) . Green Tree Servicing appointed Commonwealth Trustees LLC ("Commonwealth") as the Substitute Trustee on November 13, 2014. (Def.'s Notice of Removal 2). Rosenberg Associates, LLC ("Rosenberg") represents Commonwealth. (Def.'s Notice of Removal 2) . In 2014, Commonwealth initiated a foreclosure sale, and JCM III, LLC ("JCM") purchased the property. (Def.'s Notice of Removal 2).

         On November 9, 2015, the Allans filed a Complaint in the Circuit Court for Powhatan County against Fannie Mae, Commonwealth, JCM, and Rosenberg (collectively, "Defendants"). (Pl's Mem. in Supp. of Mtn. to Remand, Docket No. 8, 1) ("Pl's Remand Mem."). The Allans are Virginia residents, and Commonwealth, JCM, and Rosenberg are Virginia corporations for diversity purposes. (Pl's Remand Mem. 1; Def.'s Notice of Removal 3-4). Fannie Mae's counsel entered an appearance on November 23, 2015, and service was effective on Fannie Mae as of January 6, 2016. (Pl's Remand Mem. 1). Fannie Mae, Commonwealth, JCM, and Rosenberg filed demurrers. (Pl's Remand Mem. 1-2).

         The State Court Complaint asserted ten claims. Count One sought rescission of the foreclosure on the basis of Rosenberg and Commonwealth's requirement that the purchaser pay Rosenberg $445.00 for review of the settlement documents, allegedly in violation of Rosenberg and Commonwealth's duty against self-dealing. (State Court Complaint ¶¶ 13-36). Count Two sought rescission of the foreclosure on the basis that the legally questionable $445.00 fee dissuaded buyers who could tell that such legally questionable fee would leave the purchase open to a legal challenge such as this suit. (State Court Complaint ¶¶ 37-39) . Count Three sought compensatory damages related to the Allans' deprivation of the use of their home. (State Court Complaint ¶¶ 40-43). Count Four sought rescission on the grounds that Commonwealth was not properly appointed as a substitute trustee. (State Court Complaint ¶¶ 44-62). Court Five sought compensatory damages against Fannie Mae for breach of certain provisions of the deed of trust. (State Court Complaint ¶¶ 63-66). Count Six sought rescission based on the Defendants' collective failure to at any time notify the Allans of an opportunity to cure by paying the principal in full, as required by the mortgage documents. (State Court Complaint ¶¶ 67-72). Count Seven sought compensatory damages against Fannie Mae for damages related to the foreclosure. (State Court Complaint ¶¶ 73-75). Count Eight, like Count Six, sought rescission based on failure to notify the Allans of an opportunity to cure. (State Court Complaint ¶¶ 73-75) . Count Nine, like Counts Six and Seven, sought compensatory damages against Fannie Mae for damages related to the foreclosure. (State Court Complaint ¶¶ 81-83). Count Ten sought compensatory damages against Fannie Mae for implied covenant of good faith and fair dealing. (State Court Complaint ¶¶ 84-89). The Defendants filed demurrers as to all causes of action.

         On March 13, 2016, the Circuit Court issued a "Letter Opinion" (Letter Opinion, Docket No. 3, Ex. C) ("Letter Opinion") sustaining the demurrers as to some, but not all, of the counts. (Pl's Remand Mem. 2; Def.'s Notice of Remand 3). In particular, the Letter Opinion sustained the demurrers as to Count One, Count Two, Count Three, Count Four, Count Five, Count Six, Count Eight, and Count Ten. (Letter Opinion 1-3). The Court did not sustain the demurrers as to Count Seven (noting a factual dispute about whether a cure notice was sent) and Count Nine (same). (Letter Opinion 2-3). This had the effect of sustaining the demurrers against all non-diverse defendants, leaving only claims against the diverse defendant, Fannie Mae. (Pl's Remand Mem. 2; Def.'s Notice of Removal 2-3L[1]

         On April 13, 2016, Fannie Mae filed this notice of removal. When Fannie Mae removed the case, the Circuit Court had not entered an order effectuating its opinion. (Pl's Remand Mem. 2) . At the same time that Fannie Mae filed its Notice of Removal, it filed a motion in this Court seeking to enter an order, formally adopting the Circuit Court's Letter Opinion. (Def.'s Partially Consented Mtn. to Enter Order Sustaining Demurrers in Part, Docket No. 4) ("Def.'s Mtn. to Enter").[2]

         On May 6, 2016, the Allans filed their Motion to Remand. (Docket No. 7) . The Allans assert four theories for remand: (1) the so-called involuntary-dismissal rule; (2) diversity does not yet exist because the Circuit Court has not formally dismissed Commonwealth or JCM; (3) JCM and Commonwealth were not fraudulently joined; and (4) if JCM and Commonwealth were fraudulently joined, then the thirty-day clock for Fannie Mae to file for removal ran from the date of service, not from the date of the Letter Opinion.

         LEGAL STANDARD

         An action is properly removed to this Court for diversity of citizenship if the amount in controversy exceeds $75, 000 and the parties are citizens of different States. 28 U.S.C. § 1332(a)(1). "Removal of civil cases to federal court is an infringement on state sovereignty." Adams v. Aero Servs. Int'l, Inc., 657 F.Supp. 519, 521 (E.D. Va. 1987). Therefore, "[t]he burden of demonstrating jurisdiction resides with 'the party seeking removal.'" Barbour v. Int'l Union, 594 F.3d 315, 326 (4th Cir.2010) (quoting Mulcahey v. Columbia Organic Chems. Co., 29 F.3d 148, 151 (4th Cir. 1994)). As a result of the "undergirding principle that federal courts, unlike most state courts, are courts of limited jurisdiction, " "a party seeking to adjudicate a matter in federal court must allege, and when challenged must demonstrate, the federal court's jurisdiction over the matter." Strawn v. AT & T Mobility, LLC, 530 F.3d 293, 296 (4th Cir. 2008) . Although a defendant is only required to allege federal jurisdiction in his notice of removal, "when removal is challenged, the removing party bear[s] the burden of demonstrating that removal jurisdiction is proper." Strawn, 530 F.3d at 297 (emphasis in original). However, "this burden is no greater than is required to establish federal jurisdiction as alleged in a complaint." Ellenburg v. Spartan Motors Chassis, Inc., 519 F.3d 192, 200 (4th Cir. 2008). Nevertheless, "if federal jurisdiction is doubtful, a remand is necessary." Mulcahey, 29 F.3d at 151.

         To establish that a defendant has been fraudulently joined, the removing party must prove either that "there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court" or that "there has been outright fraud in the plaintiff's pleading of jurisdictional facts." Marshall v. Manville Sales Corp., 6 F.3d 229, 232 (4th Cir. 1993); see also Beaudoin v. Sites, 886 F.Supp. 1300, 1302 (E.D. Va. 1995). Where, as here, the removing party argues that there is no possibility that the plaintiff will be able to state a claim against the non-diverse defendant,

[t]he burden on the defendant claiming fraudulent joinder is heavy: the defendant must show that the plaintiff cannot establish a claim against the nondiverse defendant even after resolving all issues ...

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