United States District Court, E.D. Virginia, Richmond Division
WILLIAM S. ALLAN, et al., Plaintiffs,
FEDERAL NATIONAL MORTGAGE ASSOCIATION, et al., Defendants.
E. Payne Senior United States District Judge
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.
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).
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).
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.
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
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").
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.
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.
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
[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 ...