Reed v. Ohio Savings Bank et al
Filing
35
MINUTES (IN CHAMBERS) Order DENYING Plaintiff's Motion to Remand, RENDERING MOOT Defendant APs Motion to Dismiss, and GRANTING Defendant NYCB's Motion to Dismiss by Judge Philip S. Gutierrez finding as moot 11 MOTION to Dismiss; granti ng 12 MOTION to Dismiss Case; denying 15 MOTION to Remand Case to State Court: Given the above considerations, the Court DENIES Plaintiff John K. Reed's motion to remand and DISMISSES Defendant Aldridge Pite, LLP from this litigation as a fraudulently joined Defendant. Then, confident that it has diversity jurisdiction over the Complaint, the Court GRANTS Defendant NYCB's motion to dismiss WITHOUT LEAVE TO AMEND. This Order closes this case. MD JS-6. Case Terminated. (bm)
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
JS-6
CIVIL MINUTES - GENERAL
Case No.
CV 16-6610 PSG (JEMx)
Title
John K. Reed v. Ohio Savings Bank et al.
Present: The Honorable
Date
December 6, 2016
Philip S. Gutierrez, United States District Judge
Wendy Hernandez
Not Reported
Deputy Clerk
Court Reporter
Attorneys Present for Plaintiff(s):
Attorneys Present for Defendant(s):
Not Present
Not Present
Proceedings (In Chambers):
Order DENYING Plaintiff’s Motion to Remand, RENDERING
MOOT Defendant AP’s Motion to Dismiss, and GRANTING
Defendant NYCB’s Motion to Dismiss
Before the Court is Plaintiff John K. Reed’s motion to remand this action to state court.
Dkt. # 15. Also before the Court are Defendants New York Community Bank (“NYCB”) and
Aldridge Pite, LLC’s (“AP”) motions to dismiss. Dkts. # 11, 12. The Court finds the matters
appropriate for decision without oral argument. See Fed. R. Civ. P. 78; L.R. 7-15. After
considering the papers, the Court DENIES Plaintiff’s motion to remand and GRANTS
Defendant NYCB’s motion to dismiss WITH PREJUDICE. Defendant AP’s motion to dismiss
is RENDERED MOOT given the Court’s finding that AP was fraudulently joined to this
litigation to destroy diversity.
I.
Background
A.
The Loan, the Deed of Trust, and the Assignment
Plaintiff John K. Reed borrowed $999,990.00 from Defendant Ohio Savings Bank
(“OSB”) in December 2005. See Complaint (“Compl.”) ¶ 12; AP’s Opposition to Motion to
Remand (“AP Remand Opp.”) 2:19-25. Plaintiff secured the loan by a deed of trust on his Santa
CV-90 (10/08)
CIVIL MINUTES - GENERAL
Page 1 of 8
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 16-6610 PSG (JEMx)
Date
Title
December 6, 2016
John K. Reed v. Ohio Savings Bank et al.
Barbara home.1 See RJN, Ex. A (Deed of Trust); AP Remand Opp. 2:19-25. Nearly five years
later, Plaintiff defaulted on the loan payments. RJN, Ex. D.
In December 2009, the Office of Thrift Supervision took possession of all of OSB’s
property and appointed the FDIC as OSB’s receiver. AP Remand Opp. 3:19-28. On December
4, 2009, pursuant to a “Purchase and Assumption Agreement” signed by FDIC and NYCB,
Defendant NYCB acquired an interest in Plaintiff’s Note and Deed of Trust. Id. MERS, as
assignee for the FDIC, formally recorded NYCB’s interest in an assignment of the deed of trust,
filed with the Santa Barbara County Recorder’s Office on November 30, 2010 (“2010
Assignment”). See RJN, Ex. C. NYCB then commenced foreclosure proceedings by recording a
Notice of Trustee’s Sale on Plaintiff’s home in January 2011. See RJN, Ex. E.
B.
Plaintiff’s Earlier Litigation
Plaintiff attempted to stop NYCB’s trustee sale of the Santa Barbara property through
bankruptcy filings and various state court proceedings. For purposes of the motions now before
the Court, two of the bankruptcy cases are particularly relevant.
Plaintiff first filed for Chapter 7 bankruptcy on February 3, 2011, four days before NYCB
scheduled the first trustee’s sale. RJN, Ex. F. Because the bankruptcy proceeding automatically
stayed the sale, NYCB applied for relief from the stay. RJN, Ex. H. Plaintiff opposed the
motion, but the bankruptcy court ultimately held in favor of NYCB. See id. In so ruling, the
bankruptcy court specifically granted NYCB the right to exercise its state-law foreclosure
remedies. See id.
Plaintiff again filed for Chapter 13 bankruptcy on October 11, 2011. RJN, Ex. J. In
conjunction with the October 2011 bankruptcy filing, Plaintiff initiated an adversarial
proceeding against non-party Wells Fargo, the holder of a second deed of trust on Plaintiff’s
property. See RJN, Ex. M. Plaintiff urged the bankruptcy court to strip Wells Fargo’s deed of
trust from the property because the NYCB deed of trust was superior to the Wells Fargo deed of
Defendant NYCB asks the Court to take judicial notice of the deed of trust, the assignment
of the deed of trust, the notice of default and notice of trustee’s sale, and various bankruptcy
court filings. See NYCB’s Request for Judicial Notice (“RJN”), Dkt. # 13. Under Federal Rule
of Evidence 201(b)(2), the Court may “judicially notice a fact that is not subject to reasonable
dispute because it can be accurately and readily determined from sources whose accuracy cannot
reasonably be questioned.” All the documents attached to the Request for Judicial Notice are
public documents that can be verified through public sources. Moreover, the parties do not
question the accuracy of the documents. Thus, the Court GRANTS NYCB’s request for judicial
notice and takes these documents into consideration.
1
CV-90 (10/08)
CIVIL MINUTES - GENERAL
Page 2 of 8
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 16-6610 PSG (JEMx)
Date
Title
December 6, 2016
John K. Reed v. Ohio Savings Bank et al.
trust, and because the NYCB deed of trust already exceeded the value of the property. See id. In
reliance on Plaintiff’s representations, the bankruptcy court voided the Wells Fargo lien from the
property. See RJN, Ex. N, 2:1-20.
It was not until February 2016 that Plaintiff first alleged in state court that the 2010
Assignment was void and rendered the NYCB deed of trust unenforceable. See Remand Mot.
3:3-13; see also CV 16-0419 PSG (MRWx), Dkt. # 1, Ex. 1. In the February 2016 state court
filing, Plaintiff named only Defendants NYCB and OSC (not Defendant AP) and asserted causes
of action for wrongful foreclosure and cancellation of instruments. NYCB removed the action to
this Court in March 2016, citing diversity as a basis for jurisdiction, and in June 2016, Plaintiff
voluntarily dismissed the case without prejudice. See CV 16-0419 PSG (MRWx), Dkt. # 21.
C.
The Present Litigation
Plaintiff filed this litigation in Santa Barbara County Superior Court on July 29, 2016.
See Dkt. # 1, Ex. A. The only difference between the February 2016 Complaint and the July
2016 Complaint is that Plaintiff added AP as a defendant. Compare CV 16-0419 PSG (MRWx),
Dkt. # 1, Ex. 1; and CV 16-6610 PSG (MRWx), Dkt. # 1, Ex. 1. AP, a limited liability
company, has at least one member that is a citizen of California, so AP is a California citizen for
purposes of assessing diversity. Because Plaintiff is also a citizen of California, the parties in
this litigation are not completely diverse. Defendants assert that Plaintiff added AP to the
litigation only to destroy diversity. They point out that AP has occasionally represented NYCB
in matters related to title and foreclosure suits, but is not a party to the original deed of trust or
the 2010 Assignment. AP Remand Opp. 2:2-6. Despite the apparent lack of diversity among the
parties, Defendants again removed the action to federal court, and Plaintiff now moves to
remand.
Apart from the jurisdictional issue, Plaintiff raises three arguments in support of his
position that the Assignment from the FDIC to NYCB is invalid: (1) the Assignment is void
because OSB was already defunct by the time it was made, (2) the Assignment is void because it
was not executed contemporaneously with the loan, debt, or promissory note, and (3) the
Assignment is void because it was the subject of notary fraud at the time of execution. See
Compl. ¶¶ 29, 31, 33, 35. Defendants move to dismiss the Complaint in its entirety.
II.
Legal Standard
A.
CV-90 (10/08)
Motion to Remand
CIVIL MINUTES - GENERAL
Page 3 of 8
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 16-6610 PSG (JEMx)
Date
Title
December 6, 2016
John K. Reed v. Ohio Savings Bank et al.
Federal courts are courts of limited jurisdiction. See Gunn v. Minton, 133 S. Ct. 1059,
1064 (2013). Under 28 U.S.C. § 1441, a defendant may remove a civil action from state court to
federal district court only if the federal court has subject matter jurisdiction over the case. See
Chicago v. Int’l Coll. of Surgeons, 522 U.S. 156, 163 (1997) (“The propriety of removal thus
depends on whether the case originally could have been filed in federal court.”). The case shall
be remanded to state court if at any time before final judgment it appears a removing court lacks
subject matter jurisdiction. See 28 U.S.C. § 1447(c); Int’l Primate Prot. League v. Adm’rs of
Tulane Educ. Fund, 500 U.S. 72, 87 (1991). There is a strong presumption against removal
jurisdiction, so the party seeking removal always has the burden of establishing that removal is
proper. See Geographic Expeditions, Inc. v. Estate of Lhotka ex rel. Lhotka, 599 F.3d 1102,
1107 (9th Cir. 2010) (citing Gaus v. Miles, Inc., 980 F.2d 564, 567 (9th Cir. 1992)). Removal
must be rejected if there is any doubt as to the propriety of removal. See id. (citing Gaus, 980
F.2d at 566).
B.
Motion to Dismiss
A motion to dismiss under Rule 12(b)(6) tests whether the complaint “contain[s]
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)). When deciding a Rule 12(b)(6) motion, the court must accept the facts pleaded in
the complaint as true, and construe them in the light most favorable to the plaintiff. Faulkner v.
ADT Sec. Servs., Inc., 706 F.3d 1017, 1019 (9th Cir. 2013); Cousins v. Lockyer, 568 F.3d 1063,
1067-68 (9th Cir. 2009). The court, however, is not required to accept “legal conclusions . . .
cast in the form of factual allegations.” W. Mining Council v. Watt, 643 F.3d 618, 624 (9th Cir.
1981); see Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at 555.
After accepting all non-conclusory allegations as true and drawing all reasonable
inferences in favor of plaintiffs, the court must determine whether the complaint alleges a
plausible claim to relief. See Iqbal, 556 U.S. at 679-80. “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. . . . The plausibility standard is not akin to a
‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted
unlawfully.” Id. at 678.
III.
Discussion
Plaintiff moves to remand this action to state court and Defendants move to dismiss the
Complaint. Because the Court cannot reach the merits of the case before determining that it has
jurisdiction, the Court first turns to the motion to remand and the issue of whether AP is properly
CV-90 (10/08)
CIVIL MINUTES - GENERAL
Page 4 of 8
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 16-6610 PSG (JEMx)
Date
Title
December 6, 2016
John K. Reed v. Ohio Savings Bank et al.
joined. Ultimately agreeing with Defendants that AP is a sham defendant, the Court then turns
to the merits of NYCB’s 12(b)(6) motion.
A.
Motion to Remand
Under 28 U.S.C. § 1332, for the Court to properly have subject matter jurisdiction based
on the diversity of the parties, all plaintiffs must be from different states than all defendants and
the amount in controversy must exceed $75,000. See 28 U.S.C. § 1332. Plaintiff contends that
diversity jurisdiction is lacking because the parties are not completely diverse. Defendants, in
turn, argue that Defendant AP, a California citizen, is a sham Defendant and should not be
considered when the Court assesses the diversity among the parties.
The citizenship of a “sham” defendant may be disregarded for purposes of diversity
jurisdiction pursuant to the doctrine of fraudulent joinder. Ritchey v. Upjohn Drug Co., 139 F.3d
1313, 1318 (9th Cir. 1998); Archuleta v. Am. Airlines, Inc., No. CV 00-1286 MMM (SHx), 2000
WL 656808, at *4 (C.D. Cal. May 12, 2000). A defendant seeking removal to federal court may
present facts to show that joinder is fraudulent. McCabe v. Gen. Foods Corp., 811 F.2d 1336,
1339 (9th Cir. 1987). Joinder of a non-diverse defendant is fraudulent 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.” Mercado v. Allstate Ins. Co., 340 F.3d 824, 826 (9th Cir. 2003).
“Merely showing that an action is likely to be dismissed against the sham defendant does not
demonstrate fraudulent joinder.” Rico v. Jones Lang Lasalle Americas, Inc., No. 14-1322 GHK
(JEMx), 2014 WL 1512190, at *2 (C.D. Cal. Apr. 16, 2014); accord Hunter v. Philip Morris
USA, 582 F.3d 1039, 1044 (9th Cir. 2009). Rather, if there is a “possibility” that plaintiff might
assert a cause of action against the alleged “sham” defendant, the court should find that the
defendant is not fraudulently joined. Rico, 2014 WL 1512190, at *2. There is a general
presumption against fraudulent joinder and fraudulent joinder must be shown by clear and
convincing evidence. Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th
Cir. 2007).
Defendant AP alleges that it is a sham defendant because Plaintiff cannot state a claim
against it. AP is mentioned in the body of the Complaint only once, see Compl. ¶ 7, and in that
paragraph, Plaintiff describes only AP’s office location and does not specifically allege any facts
against it. AP is not a party to the deed of trust or the 2010 Assignment, and AP alleges that it
has no interest in the Santa Barbara property. AP Remand Opp. 6:17-27.
For his part, Plaintiff asserts that he can state a cause of action against AP because the law
firm is an “alter ego” of Clear Recon Corp., the substitute foreclosure trustee. Motion to
Remand (“Remand Mot.”) 5:24-27. Plaintiff alleges that AP and Clear Recon share a common
CV-90 (10/08)
CIVIL MINUTES - GENERAL
Page 5 of 8
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 16-6610 PSG (JEMx)
Date
Title
December 6, 2016
John K. Reed v. Ohio Savings Bank et al.
address and phone number, and that AP’s managing partner is also president of Clear Recon.
Remand Mot. 6:4-12. Plaintiff also argues that the California Supreme Court’s recent decision
in Yvanova v. New Century Mortgage Corp. allows Plaintiff to state a claim against AP. Id.
5:24-28 (citing 62 Cal. 4th 919, 923 (2016)).
Even if the Court were to accept Plaintiff’s allegation that AP and Clear Recon are alter
egos, however, Plaintiff cannot state a cause of action against AP. Neither AP nor its alleged
alter ego, Clear Recon, is a party to the deed of trust or the 2010 Assignment. Because all of
Plaintiff’s claims are predicated on the alleged invalid assignment, and neither AP nor Clear
Recon was a party to that Assignment, Plaintiff’s allegations against AP are implausible. Accord
United Computer Sys., Inc. v. AT&T Corp., 298 F.3d 756, 761 (9th Cir. 2002) (concluding that
defendant was fraudulently joined where it was not a party to the contract). It is telling,
moreover, that Plaintiff names only AP, and not its alleged alter ego, Clear Recon, in the
Complaint. If AP is liable for any unlawful conduct, according to Plaintiff, it is because its
“alter ego” Clear Recon violated the law. But Plaintiff does not even attempt to allege a cause of
action against Clear Recon, let alone mention Clear Recon by name in the Complaint.
Similarly, Yvanova does not provide Plaintiff any relief against AP. Yvanova granted
plaintiffs standing to challenge a void assignment. See 62 Cal. 4th at 923. It did not, however,
expand the class of defendants that could be sued for wrongful foreclosure. Nothing in Yvanova
supports Plaintiff’s claim that a bank’s law firm could be sued for wrongful foreclosure. So,
while Yvanova may have granted Plaintiff standing to challenge a void assignment, Yvanova
does not give Plaintiff standing to sue an entity that was not a party to the assignment in the first
place. Plaintiff’s reliance on Yvanova is thus equally unconvincing.
In light of the above, the Court finds that Defendant AP was fraudulently joined to
destroy diversity in this case. The Court therefore DISMISSES AP from this litigation. The
only remaining Defendants are OSB and NYCB. Because OSB is a defunct organization that
cannot be sued, the only remaining Defendant, for all practical purposes, is NYCB. Because
Defendant NYCB is from a different state than Plaintiff and the amount in controversy exceeds
$75,000, the Court has diversity jurisdiction over this case. Plaintiff’s motion to remand is
therefore DENIED. Defendant AP’s motion to dismiss is also RENDERED MOOT by the
Court’s finding that AP was fraudulently joined to destroy diversity.
B.
Motion to Dismiss
Defendant NYCB moves to dismiss the Complaint on grounds of judicial estoppel, res
judicata, the statute of limitations, and failure to state a claim. See generally NYCB Motion to
CV-90 (10/08)
CIVIL MINUTES - GENERAL
Page 6 of 8
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 16-6610 PSG (JEMx)
Date
Title
December 6, 2016
John K. Reed v. Ohio Savings Bank et al.
Dismiss (“NYCB Mot.”). Because judicial estoppel provides the clearest ground for dismissal of
the Complaint, the Court focuses on that argument here.
Judicial estoppel precludes a party from asserting a position in a current legal proceeding
that is contrary to the position that the party previously asserted in another judicial proceeding.
See Stevens Technical Servs., Inc. v. SS Brooklyn, 885 F.2d 584, 588 (9th Cir. 1988). Its purpose
is to protect the integrity of the judicial process by prohibiting parties from deliberately changing
positions according to the exigencies of the moment. See Ah Quin v. Cty. of Kauai Dep’t of
Transp., 733 F.3d 267, 270-71 (9th Cir. 2013) (citing New Hampshire v. Maine, 532 U.S. 742,
749-50 (2001)). When a party takes a position and persuades a court to grant relief based on that
position, judicial estoppel precludes that party from taking a clearly inconsistent position in
different litigation. See id. To establish judicial estoppel, courts consider three factors: “(1)
whether a party’s later position is ‘clearly inconsistent’ with its original position; (2) whether the
party has successfully persuaded the court of the earlier position; and (3) whether allowing the
inconsistent position would allow the party to ‘derive an unfair advantage or impose an unfair
detriment on the opposing party.’” See United States v. Ibrahim, 522 F.3d 1003, 1009 (9th Cir.
2008) (quoting New Hamphire, 532 U.S. at 750-51).
Plaintiff argues that his position in the bankruptcy proceedings is not clearly inconsistent
with his position in this litigation because “Plaintiff never affirmatively [took] a position on the
validity of the First Deed of Trust in in [sic] his pleadings seeking to strip the Second Deed of
Trust . . . .” Plaintiff’s Opposition to NYCB Mot. 6:27-28; see also id. 7:3-4 (“Attaching a copy
of the First Deed of Trust an [sic] Exhibit is not the making of an argument for validity, but
rather pointing to its existence.”). The Court disagrees entirely. To succeed in stripping the
Wells Fargo junior lien from the title of the property, Plaintiff had to convince the bankruptcy
court that the NYCB loan was valid. He had to identify superior liens, their value, and the value
of the encumbered property; as proof of the validity of the lien, Plaintiff even attached a copy of
NYCB deed of trust. See RJN, Ex. M. Although Plaintiff may not have expressly argued that
the first deed of trust was valid, Plaintiff’s bankruptcy filings—which asked the bankruptcy
court to void the second deed of trust on his home because of the existence of the NYCB deed of
trust—are premised on the foundation that the NYCB loan is valid and enforceable. It is thus
disingenuous and entirely inconsistent with earlier filings for Plaintiff to now argue that the
NYCB loan is, in fact, void and unenforceable. See NYCB Reply 6:21-7:11. The first element of
judicial estoppel is thus satisfied.
Plaintiff does not dispute that the second or third elements of judicial estoppel are also
satisfied here. As to the second, there is little doubt that Plaintiff successfully persuaded the
bankruptcy judge of his position—the bankruptcy judge found in Plaintiff’s favor and stripped
the second lien from the title of the home. See RJN, Ex. N. Similarly, as to the third element,
CV-90 (10/08)
CIVIL MINUTES - GENERAL
Page 7 of 8
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 16-6610 PSG (JEMx)
Date
Title
December 6, 2016
John K. Reed v. Ohio Savings Bank et al.
allowing Plaintiff to change his position now would grant him an unfair advantage because
NYCB has already established a right to foreclose and the bankruptcy court acted in reliance on
Plaintiff’s representations. Plaintiff also obtained a discharge of the second deed of trust
without allowing his creditors to learn of the purported invalidity of the first deed of trust. See
Ah Quin, 733 F.3d at 271. Because allowing Plaintiff to change his position now would be
unfair to NYCB and Plaintiff’s creditors, the Court declines to do so.
Plaintiff urges the Court to excuse the inconsistency in the filings because Plaintiff did
not know, in 2011, of the possibility of challenging the 2010 Assignment under Yvanova. See
Opp. 7:6-8 (“Plaintiff has no duty of clairvoyance as to claims he might have upon a change in
law he didn’t know would occur. He is not required to put into a bankruptcy petition nonexistent or speculative claims.”). However, the doctrine of judicial estoppel does not allow such
an escape hatch for developments in the law. Because Plaintiff was able to discharge the second
lien on his home only by arguing that the NYCB deed of trust was valid and enforceable,
Plaintiff cannot now argue that the NYCB deed of trust is invalid and unenforceable. See Ah
Quin, 733 F.3d at 271 (quoting New Hampshire, 532 U.S. at 749-50).
The Court therefore GRANTS Defendant NYCB’s motion to dismiss on the ground of
judicial estoppel. The Court also declines to grant leave to amend because, given the grounds
for dismissal, amendment would be futile.
IV.
Conclusion
Given the above considerations, the Court DENIES Plaintiff John K. Reed’s motion to
remand and DISMISSES Defendant Aldridge Pite, LLP from this litigation as a fraudulently
joined Defendant. Then, confident that it has diversity jurisdiction over the Complaint, the
Court GRANTS Defendant NYCB’s motion to dismiss WITHOUT LEAVE TO AMEND. This
Order closes this case.
IT IS SO ORDERED.
CV-90 (10/08)
CIVIL MINUTES - GENERAL
Page 8 of 8
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?