Trail Dr LLC et al v. Silver Hill Financial LLC et al
ORDER granting defts' 10 Motion to Dismiss separate claims of Janofsky and O'Sullivan, without prejudice to the right of pltfs to file a motion to amend the complaint within 14 days; pltfs' 18 Motion to Dismiss separate deft Wachov ia Commercial Mortgage Inc is GRANTED; the parties' 17 Motion to Amend the Scheduling Order is GRANTED; Discovery due by 9/27/2011; Motions due by 10/4/2011; Wachovia Commercial Mortgage Inc terminated. Signed by Judge Susan Webber Wright on 8/31/11. (vjt)
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
TRAIL DR., LLC; AVIVA
and JOSEPH O’SULLIVAN
SILVER HILL FINANCIAL, LLC;
MANUFACTURERS AND TRADERS
TRUST COMPANY; BAYVIEW
LOAN SERVICING, LLC; and
NO: 4:11CV00173 SWW
Plaintiffs Trail Dr., LLC, Aviva Janofsky (“Janofsky”), and Joseph O’Sullivan
(“O’Sullivan”) filed this action in state court against Silver Hill Financial, LLC (“Silver Hill”),
Manufacturers and Traders Trust Company (“M&T”), Bayview Loan Servicing, LLC
(“Bayview”), and Wachovia Commercial Mortgage, Inc. (“Wachovia Commercial”), alleging
violations of state law. Defendants removed the case to federal court, asserting federal
jurisdiction on the basis of diversity of citizenship between the parties. The case is before the
Court on the issue of subject matter jurisdiction, which the Court raised sua sponte. After
careful consideration, and for reasons that follow, the Court finds that it has subject matter
Also before the Court are (1) Defendants’ motion to dismiss the claims asserted by
Separate Plaintiffs Janofsky and O’Sullivan (docket entry #10), Separate Plaintiffs’ response in
opposition (docket entry #13), and Defendants’ reply (docket entry #14); (2) Plaintiffs’
unopposed motion to dismiss claims against Wachovia Commercial (docket entry #18); and (3)
the parties’ joint motion to amend the final scheduling order (docket entry #17). After careful
consideration, and for reasons that follow, Defendants’ motion seeking dismissal of claims by
Separate Plaintiffs Janofsky and O’Sullivan will be granted. However, Plaintiffs will have up to
and including fourteen days from the entry date of this order in which to file a motion for leave
to amend the complaint, accompanied by a proposed amended complaint. If a motion to amend
is not filed within this time period, Separate Plaintiffs Janofsky and O’Sullivan will be dismissed
as parties. Finally, Plaintiffs’ motion to dismiss Wachovia Commercial and the parties’ joint
motion to amend the final scheduling order will be granted.
According to the complaint allegations, Plaintiff Trail Dr., LLC owns and operates a
mobile home park in Mabelvale, Arkansas, and Plaintiffs Janofsky and O’Sullivan are “signers”
of a promissory notes financing the purchase of a mobile home park in Mabelvale, Arkansas.
Plaintiffs report that on or about November 7, 2006, they and separate defendant Silver Hill
executed two adjustable rate promissory notes–one for the principal amount of $185,600 (“First
Note”) and a second for the principal amount of $23,200 (“Second Note”).
In the complaint, Plaintiffs allege that M&T and Bayview are the current “owners and/or
servicers” of the First Note, and Bayview and Wachovia Commercial are the current “owners
and/or servicers” of the Second Note. According to Plaintiffs, M&T prepared a payoff statement
dated December 18, 2009, showing a total $264,220.43 due on the First Note, and Bayview has
stated the total due on the Second Note is $33,949.20.
Plaintiffs allege that the loan charges for
the First Note exceed the principal balance by $81,978.95, nearly 45%, and loan charges for the
Second Note exceed the principal balance by $11,247.23, nearly 50%.
Plaintiffs sue each named defendant for charging usurious interest rates in violation of
the Arkansas Deceptive Trade Practices Act. Plaintiffs further charge that Silver Hill committed
fraud by inducing them to enter the First and Second Notes by misrepresenting that they would
pay an effective interest rate of 9.75%. Plaintiffs allege that they have suffered “usurious
interest paid, damage to their credit, damage to other business relationships, and damage due to
the inability to sell the collateral securing the First Note and Second Note.” Compl., ¶ 48.
Subject Matter Jurisdiction
Based on the complaint allegations, complete diversity of citizenship between the parties
is lacking because Janofsky and Wachovia Commercial are residents of California. However,
Defendants removed the case to federal court, asserting fraudulent joinder--that Plaintiffs joined
Janofsky as a plaintiff and named Wachovia Commercial as a defendant solely for the purpose of
defeating federal diversity jurisdiction.
Rather than file a motion for remand denying the charge of fraudulent joinder, Plaintiffs
filed a motion to voluntarily dismiss claims against Wachovia Commercial, the only non-diverse
defendant. In their motion to dismiss, Plaintiffs state: “Subsequent to the filing of the
complaint, additional facts became known to the Plaintiffs requiring additional time and research
and altering the matters to be put before the court with regard to Wachovia Commercial
Mortgage, Inc.” Docket entry #18.
By order entered July 1, 2011, the Court raised the issue of subject matter jurisdiction sua
sponte and requested briefs on the issue of fraudulent joinder.2 The parties have filed briefs as
requested (docket entries #22, #23), and the matter is ready for decision.
Under the fraudulent-joinder exception to the requirement that diversity of citizenship
must exist both when the state petition is filed and when the petition for removal is filed, a
plaintiff cannot defeat a defendant’s right of removal through fraudulent joinder of a “defendant
having no real connection with the controversy.” Chesapeake & O. R. Co. v. Cockrell, 232
U.S. 146, 152, 34 S.Ct. 278, 280 (1914).
Plaintiffs report that after they filed suit, Defendants represented that contrary to the
complaint allegations, Wachovia Commercial is not a lender or holder of the Second Note and
that Bayview alone is the holder of the First and Second Notes.
Apparently, Plaintiffs named
Wachovia Commercial as a defendant because O’Sullivan received a notice-of-default letter,
which states in part: “The undersigned is writing to you on behalf of Bayview Loan Servicing,
LLC as servicer for Wachovia Bank, NA as Indenture Trustee (the “Lender”).3 Docket entry #27,
For reasons explained in the order entered July 1, 2011, voluntary dismissal of claims
against a non-diverse defendant at this juncture will not satisfy the requirement that diversity
between the parties exist at the time of removal, and removal was proper only if Plaintiffs
attempted to defeat federal jurisdiction through fraudulent joinder.
The Court may look beyond the face of the complaint and may review evidentiary
material in considering whether there is any factual support for claims against Wachovia
Commercial Mortgage, Inc. See Hobbs v. Wyeth, Inc., No. 3:04CV0176 GTE, 2004 WL
6005569, *5 n.4 (E. D. Ark. July 13, 2004)(citing Sid Richardson Carbon & Gasoline Co. v.
Interenergy Resources, Ltd., 99 F.3d 746, 751 (5th Cir.1996)(“claims of fraudulent joinder
should be resolved by a summary judgment-like procedure whenever possible ... the district
court may “pierce the pleadings” to examine affidavits and other evidentiary material in
determining whether fraudulent joinder has occurred); United Food & Commercial Workers
Union v. Center Mark Properties, 30 F.3d 298, 301 (2d, Cir.1994)(examining the proof
presented and the record in determining whether jurisdiction existed on a motion to remand).
Ex. D(emphasis added).
Defendants note that the aforementioned notice does not reference Wachovia
Commercial Mortgage, Inc. Additionally, Defendants submit the affidavit of John D’errico, an
officer of Bayview, who testifies that the entity referenced in the notice, Wachovia Bank, NA, is
an entity completely separate from Wachovia Commercial Mortgage, Inc. Docket entry #22, Ex.
Defendants assert that although the notice might lead one to conclude that Wachovia Bank,
NA, a national bank association, has some connection to the loan referenced therein, it would not
be reasonable to conclude that Wachovia Commercial Mortgage, Inc. was the owner or servicer
of the loan referenced in the letter.
The Eighth Circuit has held that when diversity jurisdiction is lacking, “the [defendant]
may avoid remand–in the absence of a substantial federal questions--only by demonstrating that
the non-diverse party was fraudulently joined.” Fila v. Norfolk S. Ry. Co., 336 F.3d 806, 809 (8th
Cir. 2003)(citing Wiles v. Capitol Indemnity Corp., 280 F.3d 868, 871 (8th Cir. 2002)). The
Eighth Circuit has defined fraudulent joinder as “the filing of a frivolous or otherwise
illegitimate claim against a non-diverse defendant solely to prevent removal.” Fila v. Norfolk
S. Ry. Co., 336 F.3d 806, 809 (8th Cir. 2003).
In determining whether joinder is
fraudulent, “a proper review should give paramount consideration to the reasonableness of the
basis underlying the state claim.” Id. at 810. Joinder is fraudulent when there exists no
reasonable basis in fact and law supporting a claim against the resident defendants.” Id. (citing
Wiles v. Capitol Indemnity Corp., 280 F.3d 868. 870 (8th Cir. 2002)).
It is undisputed that Wachovia Commercial took no part in events giving rise to this
lawsuit, and the Court finds no factual or legal support for Plaintiffs’ claim against the nondiverse defendant. Accordingly, Wachovia Commercial’s residency is properly disregarded for
the purpose of determining diversity jurisdiction, and the Court finds that it has subject matter
jurisdiction over this dispute.
Defendants’ Motion to Dismiss Claims by Separate Plaintiffs Janofsky and O’Sullivan
Defendants assert that the separate claims of Janofsky and O’Sullivan must be dismissed
because Trail Dr., LLC alone executed the promissory notes, and neither Janofsky nor
O’Sullivan entered the agreement in their individual capacities. In support of their motion,
Defendants point to unsigned copies the First and Second Notes attached to the complaint, which
record “Trail Dr., LLC” as sole maker of promissory notes and the sole borrower of the
Although the unexecuted copies bear no signatures, they contain signature blocks for (1)
Borrower, Trail Dr., LLC “By Member/Manager Our AR Prop, LLC;” (2) Bekeme, Corp.,
Member/Manager of Our AR Prop., LLC, “By: Joseph O’Sullivan, President of Bekeme Corp.;”
and (3) Halixma Corp., Member/Manager of Our Prop., LLC, “By: Aviva Janofsky, President of
Halixma Corp.” Additionally, unexecuted acknowledgment forms attached to the complaint
state that Joseph O’Sullivan “is the President of Bekeme Corp., a Nevada corporation, a
member/manager of Our AR Prop., LLC, a Nevada limited liability company and is duly
authorized in his capacity to execute the forgoing instrument for an in the name and behalf of
said corporation.” Compl, Attach. A (emphasis added). A similar unexecuted acknowledgment
form states that Aviva Janofsky “is the President of Halixma Corp., a Nevada corporation, a
Member/Manager of Trail Dr., LLC, a Utah limited liability company and is duly authorized to
execute the foregoing instrument for an in the name and behalf of said corporation.” Compl.,
Attach. (emphasis added).
The capacity to sue or be sued is determined by the law of the state in which the district
court is held. See Fed. R. Civ. P. 17(b). Under Arkansas law, the officer of a corporation
cannot maintain a personal action against a third party for alleged wrongs inflicted on the
corporation unless he or she suffered individualized injury that is not derivative of injury alleged
to the corporation. See First Commercial Bank, N.A. v. Walker, 333 Ark. 100, 110-111, 969
S.W.2d 146, 151(1998). Pursuant to this rule, Defendants assert that O’Sullivan and Janofsky-officers of corporations that are member/managers of a limited liability company, which is in
turn a member/manager of Trail Dr., LLC--have no claims regarding Defendants’ alleged
misconduct in connection with promissory notes entered solely by Trail Dr., LLC.
Plaintiffs respond that the documents attached to the complaint are unexecuted copies of
promissory notes, “which make it difficult to ascertain in what capacities the signatures were
made.” Docket entry #13, ¶ 6. To the contrary, the documents appended to the complaint,4
which Plaintiffs have represented as “unsigned copies” of the actual promissory notes at issue in
this case, clearly identify Trail Dr., LLC as the sole maker and borrower and Janofsky and
O’Sullivan as signatories in their capacities as officers of entities that are members managers of
See Enervations, Inc. v. Minnesota Mining and Manufacturing Co., 380 F.3d 1066,
1069 (8th Cir.2004)(stating that although matters outside the pleading may not be considered in
deciding a Rule 12 motion to dismiss, documents necessarily embraced by the complaint are not
matters outside the pleading); see also Fed. R. Civ. P. 10(c)(stating that “[a] copy of a written
instrument that is an exhibit to a pleading is a part of the pleading for all purposes.”
Trail Dr., LLC.
According to Plaintiffs, “the individual plaintiffs [Janofsky and O’Sullivan] are claiming
damages to them individually, not just piggybacking on the injury of the corporate entity.”
Docket entry #13, ¶ 24. However, the complaint includes no allegations that Janofsky and
O’Sullivan suffered distinct injuries personal to them as a result of Defendants’ alleged
misconduct. The pleading states only that “Plaintiffs’ damages include but are not limited to
usurious interest paid, damage to their credit, damage to other business relationships, and
damage due to inability to sell the collateral securing the First Note and the Second Note.”
Compl., ¶ 48 (emphasis added). Plaintiffs do not allege in the complaint that Janofsky and
O’Sullivan contributed their own money toward payment of the First and Second Notes, nor do
they allege that Defendants have demanded that they do so.
Finally, Plaintiffs assert that under Arkansas law, a guarantor can sue in his individual
liability as a guarantor on a usurious note. However, Plaintiffs do not allege in the complaint
that they are guarantors, nor do they allege that Defendants have attempted to recover against
them as guarantors.
In a brief filed July 25, 2011, Plaintiffs state that they have confirmed that Janofsky and
O’Sullivan signed agreements guaranteeing payment of the notes at issue. Plaintiffs also report
that Defendants have taken action against Janofsky and O’Sullivan by reporting the alleged
default on their credit reports, and Plaintiffs present copies of letters to O’Sullivan from
Bayview, which state: “You are hereby notified that you, together with any applicable coborrowers and guarantors, are in default under the terms and conditions of the above-referenced
loan . . . ” Docket entry #27, Ex. D.
The new allegations and documents presented in opposition to Defendants’ motion to
dismiss may provide a basis for a motion to amend the complaint to include claims by Janofsky
and O’Sullivan. However, the original complaint is void of allegations showing that Janofsky
and O’Sullivan have suffered a personal and direct injury that is not derivative of the alleged
harm to Trail Dr., LLC.5
Accordingly, the Court finds that Defendants’ motion to dismiss the
separate claims of Janofsky and O’Sullivan should be granted, without prejudice to Plaintiffs’
right to file a motion to amend the complaint within fourteen (14) days from the entry date of
this order. If a motion to amend is not filed within this time period, the Court will dismiss
Janofsky and O’Sullivan as parties.
Motion to Dismiss Wachovia Commercial Mortgage, Inc.
With no objection from Defendants, Plaintiffs’ motion to dismiss claims against
Wachovia Commercial Mortgage, Inc., without prejudice, will be granted pursuant to Rule
41(a)(2) of the Federal Rules of Civil Procedure.
Joint Motion to Amend Scheduling Order
Before the Court held all proceedings in this case in abeyance pending a decision on
In reviewing a motion to dismiss under Rule 12(b)(6), the Court must accept as true all
factual allegations in the complaint, but is “not bound to accept as true a legal conclusion
couched as a factual allegation.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009) (quoting Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In deciding whether O’Sullivan and
Janofsky state a claim for relief, the Court must determine whether they have pleaded facts with
enough specificity “to raise a right to relief above the speculative level.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965 (2007) (citations omitted). A complaint cannot
simply “[leave] open the possibility that a plaintiff might later establish some ‘set of undisclosed
facts’ to support recovery.” Id. at 1968 (citation omitted). Rather, the facts set forth in the
complaint must be sufficient to “nudge the . . . claims across the line from conceivable to
plausible.” Id. at 1974.
subject matter jurisdiction, the parties moved for an amended scheduling order extending the
discovery deadline to September 27, 2011, the motions deadline to October 4, 2011. The Court
finds good cause to amend the scheduling order as requested.
IT IS THEREFORE ORDERED that:
(1) Defendants’ motion to dismiss the separate claims of Janofsky and O’Sullivan
(docket entry #10) is GRANTED, without prejudice to the right of Plaintiffs to file a motion to
amend the complaint. If a motion to amend is not filed within fourteen (14) days from the entry
date of this order, the Court will direct the Clerk to terminate Plaintiffs Janofsky and O’Sullivan
as parties to this action.
(2) Plaintiffs’ motion to dismiss Separate Defendant Wachovia Commercial Mortgage,
Inc. (docket entry #18) is GRANTED. Plaintiffs’ claim against Wachovia Commercial
Mortgage, Inc. is DISMISSED WITHOUT PREJUDICE, and Wachovia Commercial Mortgage,
Inc. is dismissed as a party to this action.
(3) The parties’ motion to amend the scheduling order (docket entry #17) is GRANTED.
The discovery deadline is extended up to and including September 27, 2011, and the motions
deadline is extended up to and including October 4, 2011.
IT IS SO ORDERED THIS 31ST DAY OF AUGUST, 2011.
/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE
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