Opinion
Attorneys for Plaintiffs: Not Present.
Attorneys for Defendants: Not Present.
Honorable JOHN A. KRONSTADT, UNITED STATES DISTRICT JUDGE.
CIVIL MINUTES -- GENERAL
Proceedings: (IN CHAMBERS) ORDER RE DEFENDANT'S MOTION TO DISMISS (Dkt. 7) JS-6
I. Introduction
John Nance (" Plaintiff") filed this action on July 28, 2014 in Los Angeles Superior Court. He named the following defendants: Cal-Western Reconveyance Corporation (" Cal-Western"), Wells Fargo Bank, N.A. (" Wells Fargo"), and Worlds Savings Bank, FSB (" World Savings Bank"). Dkt. 1. Plaintiff, who is self-represented, advanced the following causes of action: (i) wrongful foreclosure; (ii) injunctive relief; (iii) fraud by concealment; (iv) fraud through inducement; (v) intentional infliction of emotional distress; (vi) slander of title; (vii) quiet title; (viii) recission; and (ix) declaratory relief. Compl., Dkt. 1., Ex. A.
Wells Fargo removed the action on October 14, 2014, pursuant to 28 U.S.C. § 1441(b) and § 1332. Dkt. 1. Wells Fargo acknowledges that Cal-Western is a non-diverse, California party whose presence could defeat diversity jurisdiction. However, Wells Fargo argues that, because Cal-Western has been fraudulently joined and is a nominal party, its citizenship should not be considered for purposes of determining diversity. Wells Fargo brought a motion to dismiss the complaint (the " Motion"). Dkt. 7. Plaintiff failed to file a timely opposition to the Motion. After this was brought to Plaintiff's attention, Plaintiff filed an " Answer" on December 29, 2014, requesting additional time to respond to the Motion in order to retain counsel. Dkt. 14. Plaintiff has not responded further to the Motion.
On December 23, 2014, an Order to Show Cause re Subject Matter Jurisdiction was issued because the Notice of Removal did not provide the basis for the claim that Cal-Western is a citizen of California. Dkt. 13. By that order Wells Fargo was directed to file additional evidence as to the citizenship of Cal-Western as well as any further, related argument in support of its claims as to Cal-Western in connection with the determination of diversity jurisdiction. On December 31, 2014, Wells Fargo filed evidence to support the position that Cal-Western was a citizen of California. No further arguments were advanced as to the fraudulent joinder of Cal-Western or its status as a nominal defendant. Dkt. 15. On January 6, 2015, the Court took the matter under submission without a hearing pursuant to Local Rule 7-15. Dkt. 18.
For the reasons stated in this Order, the Court lacks subject matter jurisdiction over this action. Accordingly, the Motion is MOOT and the action is remanded to the Los Angeles Superior Court.
II. Factual Background
On January 8, 2007, Plaintiff signed a promissory note with Worlds Savings Bank in the amount of $346, 500 (the " Note") and granted a security interest in the form of a Deed of Trust with respect to the associated real property (the " Property"). Compl. ¶ 13. The Complaint alleges that Wells Fargo unlawfully substituted Cal-Western as the trustee under the Deed of Trust in violation of Cal. Civ. Code § 2924 (a)(6). Compl. ¶ ¶ 21-22. The Complaint alleges conflicting dates for when this occurred. See id. Thus, it alleges that, on February 2, 2014, Cal-Western " conspired" with the other defendants unlawfully to publish the Notice of Trustee's Sale, knowing that it was not the holder of the Note. Id. ¶ 23. It is then alleged that, on March 31, 2014, Cal-Western " attempted and purported to sell the Property" to Wells Fargo, and then executed and delivered a trustee's deed upon sale to Wells Fargo as the " allegedly successful bidder at the sale." Id. ¶ 24. The Complaint alleges that Cal-Western and Wells Fargo" executed or caused to be executed forged or fraudulent real estate documents pertaining to Plaintiff's real property thereafter caused the unlawful non-judicial foreclosure of Plaintiff's home proximately resulting in Plaintiff's harm." Id. ¶ 25.
World Savings Bank became Wells Fargo Southwest, N.A., and merged into Wells Fargo, effective November 1, 2009. Id., Ex. E.
The Complaint next alleges that " even if the Note had been transferred to [Cal-Western] and [Wells Fargo]; the transaction is still void as the Deed of Trust was not properly or legally transferred." Id. ¶ 26. Further it alleges that " as of the date of the filing of his original Complaint, the Deed of Trust had not been legally assigned to any other party or entity." Id. ¶ 27. In addition, it is alleged that " no documents or records can be produced that demonstrate that prior to and during the closing date the Note was duly endorsed, transferred, and delivered to [Cal-Western] and [Wells Fargo], including all intervening transfers." Id. ¶ 28. Thus, Plaintiff claims that the defendants " lack standing to foreclose on Plaintiff's real property." Id. ¶ 33. The Complaint also alleges that the foreclosure was wrongful because Wells Fargo and Cal-Western failed to comply with Cal. Civ. Code § 2923.5, as well as other state and federal laws. See, e.g., id. ¶ ¶ 44-57. The Complaint alleges that " [n]one of the Defendants assessed Plaintiff's financial situation correctly or in good faith prior to filing the Notices of Default against the Subject Property in this action. Additionally, the declaration was executed on behalf of a corporation that was not in existence at the time of the declaration. Also, the declaration did not satisfy the requirements of Section 2923.5" Id. ¶ 52.
III. Analysis
A. Subject Matter Jurisdiction
A federal court is one of limited jurisdiction. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). Therefore, a determination of subject matter jurisdiction must be made before the merits of a case can be addressed. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). The party removing a case bears the burden of establishing federal jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).
1. Diversity Jurisdiction
District courts have original jurisdiction over cases in which there is complete diversity of citizenship between the adverse parties. See 28 U.S.C. § 1332(a). Citizenship for diversity purposes is determined by where a citizen of the United States is domiciled. Lew v. Moss, 797 F.2d 747, 749 (9th Cir. 1986). A natural person is domiciled in the state where he or she has " established a fixed habitation or abode in a particular place, and [intends] to remain there permanently or indefinitely." Id. at 749-50 (quotations omitted). Pursuant to 28 U.S.C. § 1348, a national banking association is a citizen of the state in which it is " located." " [A] national bank, for § 1348 purposes, is a citizen of the State in which its main office, as set forth in its articles of association, is located." Wachovia Bank v. Schmidt, 546 U.S. 303, 307, 126 S.Ct. 941, 163 L.Ed.2d 797 (2006). A corporation " shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c)(1). " Principal place of business" refers to the corporation's nerve center, the " place where the corporation's high level officers direct, control, and coordinate the corporation's activities." Hertz Corp. v. Friend, 559 U.S. 77, 81, 130 S.Ct. 1181, 175 L.Ed.2d 1029 (2010).
Courts also consider certain factors to determine domicile including: current residence, voting registration and practices, location of property and bank accounts, location of family, membership in organizations, place of employment, driver's license and automobile registration and payment of taxes. Lew, 797 F.2d at 749-50.
Plaintiff is a resident of California who is domiciled here. Compl. ¶ ¶ 1, 4. Wells Fargo is a national bank with its main office in South Dakota. Removal, Dkt. 1 at 3-4; see Ex. F. World Savings Bank changed its name to Wachovia Mortgage, FSB effective December 31, 2007. Dkt. 1, Ex. D. As noted, Wachovia Mortgage, FSB was converted to Wells Fargo Southwest, N.A., and merged into Wells Fargo effective November 1, 2009. Id., Ex. E. Cal-Western is a California citizen. Dkt. 15.
Wells Fargo asserts that, because Cal-Western is a nominal and fraudulently-joined party, its California citizenship is irrelevant to determining whether there is complete diversity in this action. Id.
a) Nominal Party Status
One exception to the complete diversity requirement is " nominal party" status. " Defendants who are nominal parties with nothing at stake may be disregarded in determining diversity, despite the propriety of their technical joinder." Strotek Corp. v. Air Transport Ass'n. of America, 300 F.3d 1129, 1133 (9th Cir.2002) (citing Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc., 204 F.3d 867, 873 (9th Cir.2000)). " Removing Defendants bear the burden of proving a defendant is a nominal party." Latino v. Wells Fargo Bank, N.A., 2011 WL 4928880, at *2 (E.D. Cal. Oct. 17, 2011).
In its Notice of Removal, Wells Fargo contends that Cal-Western is a nominal party because it is only a substituted trustee on the Deed of Trust. As such, Cal-Western's role in the underlying actions was limited to that of a stakeholder. However, others courts have held that " Cal--Western's status as trustee is not itself sufficient to render Cal--Western a nominal party." Latino, 2011 WL 4928880, at *3 (quoting Couture v. Wells Fargo Bank., N.A., 2011 WL 3489955, *3 (S.D. Cal. 2011)); see also Silva v. Wells Fargo Bank NA, 2011 WL 2437514, at *5 (C.D. Cal. June 16, 2011) (acknowledging that " the trustee on a deed of trust is often a nominal party" but finding that the complaint on its face adequately pleaded claims against Cal-Western as trustee).
The Complaint contains substantive allegations against Cal--Western and seeks to recover money damages or restitution from all Defendants, including Cal--Western. The Complaint alleges, among other things, that: Cal-Western " failed to lawfully assign and/or transfer Plaintiff's Note" to Wells Fargo, Compl. ¶ 14; Cal-Western " executed or caused to be executed forged and fraudulent real estate documents pertaining to Plaintiff's real property thereafter caused the unlawful non-judicial foreclosure of Plaintiff's home, id. ¶ 25; the Deed of Trust was not " duly assigned, transferred and delivered" to Cal-Western, id. ¶ 28; and any documents that purport to transfer any interest in the Note to Cal-Western are void as a matter of law, id. ¶ 29. Plaintiff alleges that Cal-Western's conduct violated the Truth in Lending Act, 15 U.S.C. § 1641; the Real Estate Procedure Act, Cal. Civ. Code § 2924(a)(6), and Cal. Civ. Code § 2923.5. See, e.g., id. ¶ ¶ 20, 36, 51-57. The Complaint alleges that Cal-Western did not have the legal authority to foreclose on the Property, id. ¶ 57, and that each Defendant was engaged in " conspiracy" with the others to cause the wrongful foreclosure of the Property. Id. ¶ 47.
Wells Fargo also relies on the statutory immunities set forth in Cal. Civ. Code § 2924(d) in support of its position that Cal-Western is a nominal party. District courts have rejected this position. See Latino, 2011 WL 4928880, at *3. Silva found that it was " unclear whether these provisions would also apply where, as here, the plaintiff alleges that the foreclosing trustee was not actually the trustee authorized to initiate non-judicial foreclosure proceedings." 2011 WL 2437514, at *5 (emphasis in original). The same reasoning applies here. Thus, Plaintiff has alleged that Cal-Western did not have the legal authority to initiate the foreclosure proceedings because it was not the actual trustee. In addition, statutory immunity under § 2924(d) is " not absolute; a finding of malice would permit Plaintiff's claims to proceed." Latino, 2011 WL 4928880, at *3 (citing Kachlon v. Markowitz, 168 Cal.App.4th 316, 341, 85 Cal.Rptr.3d 532 (2008)). " Malice requires a showing that a party acted with ill will or with reckless disregard for the truth." Id. (citing Kachlon, 168 Cal.App.4th at 336). Plaintiff has alleged that Cal-Western and Wells Fargo acted through a " conspiracy" to cause the wrongful foreclosure of the Property, and that Cal-Western lacked the authority to foreclose. Compl. ¶ 47, 57. The Complaint also alleges that Cal-Western knew that it was not the actual trustee, but nevertheless proceeded with the foreclosure of the Property. Id. ¶ 23. " Evidence of these actions may, through the course of the proceedings, show malice." Latino, 2011 WL 4928880, at *4.
Cal. Civ. Code § 2924(d) provides:
Nor does it appear that Cal--Western filed a declaration of non-monetary status under Cal. Civ. Code § 2924l in Superior Court before this action was removed. " Where a trustee has filed an unopposed § 2924l declaration in state court before an action's removal, district courts have treated the trustee as a nominal party and disregarded its citizenship for the purposes of diversity jurisdiction." Couture v. Wells Fargo Bank, N.A., 2011 WL 3489955, at *3 (S.D. Cal. Aug. 9, 2011) (Cal-Western's failure to file declaration of non-monetary status prior to removal supported court's conclusion that Cal-Western was not a nominal defendant). The failure to file such a declaration is inconsistent with the claim that Cal-Western is a nominal party.
Cal. Civ. Code § 2924l provides, in part, that
For all of these reasons, Wells Fargo has not shown that Cal-Western has been joined in a merely nominal capacity.
b) Fraudulent Joinder
" [O]ne exception to the requirement of complete diversity is where a non-diverse defendant has been 'fraudulently joined.'" Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001). Fraudulent joinder " is a term of art, " and it is present where " 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." Id. (quoting McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir.1987)). When a case has already been filed in a state court, " [t]he party seeking removal bears a heavy burden of proving that the joinder of the in-state party was improper." Hunter v. Philip Morris USA, 582 F.3d 1039, 1044 (9th Cir. 2009).
If there is " a non-fanciful possibility that plaintiff can state a claim under [state] law against the non-diverse defendants[, ] the court must remand." Mireles v. Wells Fargo Bank, N.A., 845 F.Supp.2d 1034, 1062 (C.D. Cal. 2012) (quoting Macey v. Allstate Property & Cas. Ins. Co., 220 F.Supp.2d 1116, 1117 (N.D. Cal. 2002)) (brackets in original). A party advancing a claim of fraudulent joinder must be able " to show that the individuals joined in the action cannot be liable on any theory." Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998). " A defendant will be deemed fraudulently joined only if, 'after all disputed questions of fact and all ambiguities in the controlling state law are resolved in plaintiff's favor, ' plaintiff could not recover against the non-diverse party." Calero v. Unisys Corp., 271 F.Supp.2d 1172, 1176 (N.D. Cal. 2003).
To demonstrate fraudulent joinder " the test is whether Plaintiff can state a claim in state court ." Wong v. Michaels Stores, Inc., 2012 WL 718646, at *5-6 (E.D. Cal. Mar. 5, 2012) (emphasis in original) (citing McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1338 (9th Cir. 1987)). Thus, in analyzing fraudulent joinder, district courts " have refused to apply the Twombly and Iqbal standards to determine whether a defendant was fraudulently joined." Id.; see Watson v. Gish, at *8 (N.D. Cal. May 31, 2011) (noting that in a post- Twombly decision, the Ninth Circuit adhered to the McCabe standard of fraudulent joinder without making any reference to Twombly) (citing Tofighbakhsh v. Wells Fargo & Co., 2010 WL 2486412, at *3 (N.D. Cal. June 16, 2010)) (rejecting contention that Twombly pleading standard is germane to fraudulent joinder analysis)). " Rather, courts employ the pre- Twombly 'no set of facts' standard of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) (" [A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.")." Id.; (citing Black Donuts, Inc. v. Sumitomo Corp. of Am., (C.D. Cal. Mar. 3, 2010) (internal quotations omitted)).
In its Notice of Removal, Wells Fargo argues that Cal-Western has been fraudulently joined. Wells Fargo argues that the duties of trustees are limited, and that they have narrow authority under a deed of trust. Further, Wells Fargo contends that a trustee is not an agent " in the general meaning of the term." See Pro Value Properties, Inc. v. Quality Loan Serv. Corp., 170 Cal.App.4th 579, 583, 88 Cal.Rptr.3d 381 (2009) (" The trustee in nonjudicial foreclosure is not a true trustee with fiduciary duties, but rather a common agent for the trustor and beneficiary.").
As noted, Plaintiff has alleged, among other things, that Cal-Western and Wells Fargo were members of a " conspiracy" to cause the wrongful foreclosure of the Property. Compl. ¶ 47. Plaintiff has also alleged that Cal-Western failed to comply with Cal. Civ. Code § 2923.5 in foreclosing on the Property. See id. ¶ ¶ 20, 36, 51-57. Cal. Civ. Code § 2923.5 sets forth procedures that a mortgagee, trustee, beneficiary, or authorized agent must follow before instituting non-judicial foreclosure proceedings. " Civil Code section 2923.5 precludes a trustee [] or mortgage servicer [] from recording a notice of default until 30 days after the loan servicer has made initial contact with the borrower to assess the borrower's financial situation and explore options for avoiding foreclosure, or has satisfied the due diligence requirements of the statute." Intengan v. BAC Home Loans Servicing LP, 214 Cal.App.4th 1047, 1056, 154 Cal.Rptr.3d 727 (2013). A plaintiff states a cause of action for wrongful foreclosure against a trustee " based on the purported failure to comply with Civil Code section 2923.5 before recordation of the notice of default." Id. at 1058 (demurrer in favor of trustee and mortgage servicer reversed because plaintiff had sufficiently stated a wrongful foreclosure cause of action against trustee and mortgage servicer where plaintiff alleged a failure to comply with Cal. Civ. Code § 2923.5). In support of Plaintiff's wrongful foreclosure cause of action the Complaint alleges that Cal-Western failed to comply with Cal. Civ. Code § 2923.5. Compl. ¶ ¶ 51-53. For these reasons, Plaintiff has asserted a viable cause of action against Cal-Western for purposes of the determination of jurisdiction. Thus, there is " non-fanciful possibility" that Plaintiff has stated claims against Cal-Western. See, e.g., Newman, 2013 WL 5708200, at *3 (" Because it is not obvious that Plaintiffs could not possibly recover against [trustee], [trustee] was not fraudulently joined").
This conclusion is consistent with the determinations made by other district courts. See Latino, 2011 WL 4928880, at *5 (no fraudulent joinder where plaintiff alleged that trustee " participated in a massive scheme intended to defraud Plaintiff out of his Property" and that trustee " failed to adhere to the requirements of California Civil Code § 2923.5 in foreclosing on the Property, "); Osorio v. Wells Fargo Bank, 2012 WL 2054997, at *2 (N.D. Cal. June 5, 2012) (Cal-Western not fraudulently joined where " the FAC asserts substantive claims against Cal--Western, alleging the company acted improperly as a trustee, colluded with Wells Fargo to defraud plaintiff, and benefitted from the joint conspiracy. The FAC also seeks monetary damages from Cal--Western."); Wise v. Suntrust Mortgage, Inc., 2011 WL 1466153, *3 (N.D. Cal. April 18, 2011) (" because Section 2923.5 imposes duties that may extend to the trustee, see Cal. Civ. Code § 2923.5(a), courts have found that it is not 'obvious' that a plaintiff alleging wrongful foreclosure cannot state a claim against the trustee; " thus, no fraudulent joinder of trustee); Cheng v. Wells Fargo Bank, N.A., 2010 WL 4923045, *1 (C.D. Cal. Dec. 2, 2010) (no fraudulent joinder where plaintiff alleged trustee violated § 2923.5); Raissian v. Quality Loan Serv. Corp., 2014 WL 6606802, at *4 (C.D. Cal. Nov. 19, 2014) (same); Newman v. Select Portfolio Servicing, Inc., 2013 WL 5708200, at *3 (N.D. Cal. Oct. 21, 2013) (same).
Wells Fargo relies on Nong v. Wells Fargo, N.A., (C.D. Cal. Nov. 22, 2010) to support its contrary position. There, the court found that a trustee had been fraudulently joined where the complaint alleged only that the trustee was acting as an agent, and not that the trustee was acting for its personal advantage. Wells Fargo also relies on Sherman v. Wells Fargo Bank, N.A., 2011 WL 1833090, at *2 (E.D. Cal. May 12, 2011). There, the plaintiff advanced causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing and fraudulent misrepresentation against Wells Fargo and Cal-Western. These claims were based on the alleged conduct of Wells Fargo in connection with plaintiff's requests for loan modifications and its failure to notify plaintiff regarding a trustee's sale. The court found Cal-Western was fraudulently joined because the " underlying complaint does not allege that Cal-Western violated any statutory or contractual duties it owed to plaintiffs, " and " [t]he only factual allegation against Cal--Western ... is that plaintiffs called Cal-Western and learned that the trustee's sale had been postponed." Id. at *2. Finally, Wells Fargo relies on Moreno v. Wells Fargo, 2011 WL 6372637, at *5 (N.D. Cal. Dec. 20, 2011). There, the court also found Cal-Western fraudulently joined, noting its limited role in the alleged wrongdoing. These cases are distinguishable for the reasons stated above. Thus, the Complaint asserts that Cal-Western participated in the alleged wrongdoing and failed to comply with Cal. Civ. Code § 2923.5.
* * *
Because Cal-Western is not a nominal party and was not fraudulently joined, its citizenship is considered in the determination of diversity jurisdiction. Because both Plaintiff and Cal-Western are citizens of California, there was no diversity jurisdiction over this action at the time of its removal. Consequently, the action must be remanded to the Superior Court and the Motion is MOOT.
IV. Conclusion
For the reasons stated in this Order, the Court lacks subject matter jurisdiction over this action. The Motion is MOOT. The matter is remanded to the Los Angeles Superior Court at its Stanley Mosk Courthouse.
IT IS SO ORDERED.
All of the following shall constitute privileged communications pursuant to Section 47: (1) The mailing, publication, and delivery of notices as required by this section. (2) Performance of the procedures set forth in this article. (3) Performance of the functions and procedures set forth in this article if those functions and procedures are necessary to carry out the duties described in Sections 729.040, 729.050, and 729.080 of the Code of Civil Procedure.
In the event that a trustee under a deed of trust is named in an action or proceeding in which that deed of trust is the subject, and in the event that the trustee maintains 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, then, at any time, the trustee may file a declaration of nonmonetary status.