Natividad v. Ocwen Loan Servicing, LLC et al

Filing 31

ORDER signed by Chief Judge Morrison C. England, Jr. on 11/18/2014. Plaintiff's 12 Motion to Remand is GRANTED and defendant's 4 Motion to Dismiss is DENIED as MOOT. Action is REMANDED to Superior Court of State of California, County of San Joaquin. Copy of Remand Order sent and case is CLOSED. [cc: San Joaquin County Superior Court] (Marciel, M)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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JESUS NATIVIDAD,

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No. 2:14-cv-01670-MCE-DAD

Plaintiff,
v.

MEMORANDUM AND ORDER

OCWEN LOAN SERVICING, LLC;
RESIDENTIAL CREDIT SOLUTIONS,
INC.; MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.;
SAGE POINT LENDER SERVICES,
LLC AND U.S. BANK NATIONAL
ASSOCIATION, as Trustee, as
Successor in Interest to DEUTSCHE
BANK NATIONAL TRUST COMPANY,
as Trustee for MORTGAGEIT TRUST
2005-AR1, MORTGAGE PASSTHROUGH CERTIFICATES, SERIES
2005-AR1 and DOES 1-100 inclusive,
Defendants.

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On June 16, 2014, Plaintiff Jesus Natividad (“Plaintiff”) filed this lawsuit in

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San Joaquin County Superior Court against Ocwen Loan Servicing LLC, Residential

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Credit Solutions, Inc., Mortgage Electronic Registration Systems, Inc., Sage Point

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Lender Services, LLC, and U.S. Bank National Association, as Trustee, as Successor in

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Interest to Deutsche Bank National Trust Company, as Trustee for Mortgageit Trust

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2005-AR1, Mortgage Pass-Through Certificates, Series 2005-AR1 (collectively
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“Defendants”). On July 15, 2014, Defendants removed the action to this Court pursuant

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to 28 U.S.C. § 1441(b) and subsequently filed a Motion to Dismiss (ECF No. 4). On

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August 14, 2014, Plaintiff filed a Motion to Remand, arguing that this Court lacks

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jurisdiction to hear the case. For the following reasons, Plaintiff’s Motion to Remand

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(ECF No. 12) is GRANTED, and Defendants’ Motion to Dismiss is DENIED as moot.1

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BACKGROUND

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On June 16, 2014, Plaintiff initiated this lawsuit by filing a verified complaint in

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San Joaquin Superior Court. ECF No. 1-2. The Complaint asserts state law causes of

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action for declaratory relief, violation of Cal. Civil Code section 2923.6(c) and (d),

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violation of Cal. Civil Code section 2923.7, violation of Bus. & Profs. Code section 17200

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et seq., negligence, fraud, unjust enrichment, and intentional/negligent infliction of

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emotional distress. Id. Plaintiff contends that none of the named Defendants have

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standing to sell his house in foreclosure or to collect monthly mortgage payments from

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him. Id. at 3. In addition, Plaintiff alleges that Defendants unlawfully participated in

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“dual-tracking” by pursuing loan modifications with Plaintiff and simultaneously pursuing

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foreclosure activity. Id.

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On June 20, 2014, while the case was still pending in San Joaquin Superior

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Court, Defendant Sage Point Lender Services, LLC (“Sage Point”) filed a Declaration of

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non-Monetary Status (“DNMS”) pursuant to Cal. Civil Code section 2924l. See ECF

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No. 1-3. In the DNMS, Defendant Sage Point contended it had been named in the state

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court action solely in its capacity as Trustee. Id. at 3. On July 9, 2014, Plaintiff filed an

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Opposition to the DNMS. ECF No. 1-4. Subsequently, on July 15, 2014, Defendants

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removed the action to this Court pursuant to 28 U.S.C. § 1441(b), asserting diversity

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jurisdiction. Plaintiff filed his Motion to Remand on August 14, 2014, arguing that

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Because oral argument would not be of material assistance, the Court ordered this matter
submitted on the briefs. E.D. Cal. Local Rule 230(g).

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complete diversity does not exist because Defendant Sage Point and Plaintiff are both

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citizens of California. ECF No. 12 at 11. Plaintiff’s Motion to Remand is GRANTED.

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STANDARD

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When a case “of which the district courts of the United States have original

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jurisdiction” is initially brought in state court, the defendant may remove it to federal court

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“embracing the place where such action is pending.” 28 U.S.C. § 1441(a). There are

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two bases for federal subject matter jurisdiction: (1) federal question jurisdiction under

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28 U.S.C. § 1331; and (2) diversity jurisdiction under 28 U.S.C. § 1332. A district court

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has federal question jurisdiction in “all civil actions arising under the Constitution, laws,

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or treaties of the United States.” Id. § 1331. A district court has diversity jurisdiction

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“where the matter in controversy exceeds the sum or value of $75,000, . . . and is

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between citizens of different states, or citizens of a State and citizens or subjects of a

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foreign state . . . .” Id. § 1332(a)(1)-(2). Diversity jurisdiction requires complete diversity

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of citizenship, with each plaintiff being a citizen of a different state from each defendant.

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Id.; Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68 (1996) (stating that complete diversity of

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citizenship is required).

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A defendant may remove any civil action from state court to federal district court if

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the district court has original jurisdiction over the matter. 28 U.S.C. § 1441(a). “The

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party invoking the removal statute bears the burden of establishing federal jurisdiction.”

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Ethridge v. Harbor House Rest., 861 F.2d 1389, 1393 (9th Cir. 1988) (citing Williams v.

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Caterpillar Tractor Co., 786 F.2d 928, 940 (9th Cir. 1986)). Courts “strictly construe the

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removal statute against removal jurisdiction.” Gaus v. Miles, Inc., 980 F.2d 564, 566

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(9th Cir. 1992) (internal citations omitted). “[I]f there is any doubt as to the right of

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removal in the first instance,” the motion for remand must be granted. Id. Therefore, “[i]f

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at any time before final judgment it appears that the district court lacks subject matter

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jurisdiction, the case shall be remanded” to state court. 28 U.S.C. § 1447(c).
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ANALYSIS

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Plaintiff brings his motion to remand on the grounds that he and Defendant Sage

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Point are both citizens of California and that consequently diversity of citizenship is

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lacking. Defendants disagree, taking the position that Defendant Sage Point’s filing of

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the DNMS in state court means that Sage Point’s citizenship should be disregarded in

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determining diversity. Alternatively, according to Defendants, Sage Point was added as

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a sham or fraudulent defendant in any event, with its citizenship properly disregarded on

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that basis as well. In response, Plaintiff argues that Sage Point’s DNMS should be

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ignored because, rather than being sued solely in its capacity as a trustee, Sage Point is

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instead being sued directly for its own misconduct. ECF No. 12 at 7. Plaintiff therefore

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contends that Sage Point’s inclusion as a defendant was neither a sham nor fraudulent.

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As set forth below, Plaintiff offers the more persuasive argument.

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A.

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Under California Civil Code section 2924l, a party may file a DNMS in state court

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if the party is a trustee under a deed of trust, if the party has been named in an action in

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which the deed of trust is the subject, and if the party reasonably believes that it has

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been named solely in its capacity as trustee. Cal. Civ. Code § 2924l. Any party who

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opposes the declaration has 15 days to object, and if there is no timely objection, then

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the trustee shall be deemed a “nominal” party. Id. In assessing diversity, “federal

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court[s] must disregard “nominal” or formal parties and rest jurisdiction only upon the

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citizenship of real parties to the controversy.” Kuntz v. Lamar Corp., 385 F.3d 1177,

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1183 (9th Cir.2004) (quoting Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461, 100 S. Ct.

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1779, 64 L. Ed. 2d 425 (1980)).

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DNMS

Plaintiff initially argues that, even apart from whether it confers nominal party

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status in state court, Sage Point’s DNMS has no bearing on determining diversity in this

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matter because it was filed pursuant to a state procedural mechanism, not a substantive

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state law. ECF No. 12 at 5. Defendant, on the other hand, argues that, since Plaintiff
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did not timely file an opposition to the DNMS, Sage Point automatically became a

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nominal party in the superior court and so remains one here. ECF No. 14 at 17.

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Consequently, according to Defendants, Sage Point’s citizenship should not be taken

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into account for the purpose of determining diversity jurisdiction. Id.

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Because California Civil Code section 2924l’s directive with regard to the impact

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of a DNMS on nominal party status is a state procedural mechanism for establishing

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nominal party status, approaches to its application by federal courts vary. Some federal

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courts have recognized nominal party status when a DNMA has been filed in state court

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by the party at issue and has not been opposed. See Pardo v. Sage Point Lender

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Servs. LLC, 14–CV–305, 2014 WL 3503095, at *2 (S.D. Cal. July 14, 2014) (explaining

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that “several district courts in California have disregarded a trustee defendant's

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citizenship as being that of a ‘nominal’ defendant when that trustee defendant has

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properly filed a Declaration of Non–Monetary Status in state court prior to removal”).

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However, when a party attempts to initially file a DNMS in federal court, district courts

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tend to refuse to automatically deem that defendant a nominal party. See Tran v.

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Washington Mut. Bank, No. CIV S-09-3277 LKK/DA, 2010 WL 520878, at *1 (E.D. Cal.

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Feb. 11, 2010). Other district courts have concluded that the filing of a DNMS, even in

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state court, is not dispositive of nonmonetary status and that an independent evaluation

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of the party’s status is required. See Segura v. Wells Fargo Bank, N.A., CV-14-04195-

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MWF AJWX, 2014 WL 4798890 (C.D. Cal. Sept. 26, 2014); Lawrence v. Aurora Loan

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Servs. LLC, 109CV01598LJODLB, 2010 WL 449734 (E.D. Cal. Feb. 8, 2010); Hershcu

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v. Wells Fargo Bank, N.A., 12–CV–00096, 2012 WL 439698, at *2 (S.D. Cal. Feb.10,

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2012) (refusing to view Cal–Western's DNMS as conclusive of nominal party status);

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Kendall v. Wells Fargo, No. CV 12–7229–DSF (PJWx), 2012 WL 10649162, at * 1 (C.D.

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Cal. Aug. 30, 2012) (denying trustees nominal party status on the basis of a DNMS

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because no actual showing had been made that they were nominal parties).

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This Court agrees with the latter decisions, which evaluate a party’s status under
federal law as opposed to state procedural rules, and therefore finds that the filing of a
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DNMS is a state procedural requirement not controlling for purposes of determining

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diversity.2 Indeed, “[a] DNMS under California Civil Code section 2924l has no corollary

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in federal law, and does not result in a substantive finding by a court that a trustee is a

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nominal party. Filing a DNMS requires no showing by the filing party and only represents

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that the party has a ‘reasonable belief’ that it ‘has been named in the action or

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proceeding solely in its capacity as trustee, and not arising out of any wrongful acts or

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omissions on its part in the performance of its duties as trustee.’” Segura, 2014 WL

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4798890 at *3. This Court thus “understands a DNMS to be a California procedural

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device more than a matter of substantive California law” and “under Erie R. Co. v.

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Tompkins, 304 U.S. 64 (1938), [t]is not bound by the mechanism.” Id. Accordingly,

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Sage Point will not be considered a nominal Defendant based solely on the filing of a

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DNMS.

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B.

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Defendants alternatively argue that, even aside from its DNMS argument set forth

Sage Point as Nominal and/or Fraudulently Joined Party

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above, Sage Point must still be considered a sham and/or fraudulent defendant in this

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action because Plaintiff has not alleged any facts that demonstrate wrongdoing sufficient

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to support an actionable claim. ECF No. 14 at 7. Plaintiff, of course, disagrees and

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contends that the Complaint contains numerous allegations of wrongdoing by Sage

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Point. ECF No. 12 at 7.

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As indicated above, “federal court[s] must disregard nominal or formal parties and

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rest jurisdiction only upon the citizenship of real parties to the controversy.” Kuntz v.

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Lamar Corp., 385 F.3d at 1183. Indeed, “[c]ircuit law teaches that courts should ‘ignore

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the citizenship of nominal or formal parties who have no interest in the action, and are

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merely joined to perform the ministerial act of conveying the title if adjudged to the

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Since the Court will not consider the DNMS, it is irrelevant that Plaintiff’s objections were
untimely. Moreover, even if a Plaintiff fails to timely oppose a DNMS, the state procedural rules permit a
Plaintiff to file a motion to force a defendant who has filed a declaration to nonetheless participate in the
action. Cal. Civ. Code § 2924l(e). Accordingly, even assuming the state court rules governing nonmonetary status applied here, Plaintiff should be given the chance to raise arguments as to why Sage
Point is not a nominal party, which he has done in his Motion to Remand.

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complainant.’” Silva v. v. Wells Fargo Bank, NA, 2011 WL 2437514, *3 (C.D. Cal.)

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(quoting Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc., 304 F.3d 867, 873

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(9th Cir. 2000)). Removing Defendants bear the burden of proving a defendant is a

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nominal party. Id. (internal quotations and citations omitted). Defendants have not met

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their burden here.

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Defendants first contend that Sage Point is a nominal defendant because it was

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simply the trustee on the DOT. ECF No. 14 at 8. However, Sage Point’s status as a

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trustee is not itself sufficient to render it a nominal party. Couture v. Wells Fargo Bank.,

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N.A., 2011 WL 3489955, *3 (S.D. Cal.).

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Defendants next argue that Sage Point’s statutory immunities provide a sufficient

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basis for finding that Sage Point is a nominal party. ECF No. 14 at 8-9. However, “such

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statutory immunity is not absolute; a finding of malice would permit Plaintiff’s claims to

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proceed.” Latino v. Wells Fargo Bank, N.A., 2:11-CV-02037-MCE, 2011 WL 4928880

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(E.D. Cal. Oct. 17, 2011). In the complaint, Plaintiff alleges, among other things, that

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Sage Point “was notified that Plaintiff submitted a complete loan modification application

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to Ocwen before Sage Point filed the June 20, 2014 NOD . . . .” ECF No. 1-2 at 33.

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Such allegations, among others, support claims for wrongdoing against Sage Point such

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that its citizenship should not be disregarded.

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Finally, Defendants contend that Sage Point has been fraudulently joined by

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Plaintiff solely to destroy diversity. “Joinder of a non-diverse defendant is deemed

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fraudulent, and the defendant's presence in the lawsuit is ignored for purposes of

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determining diversity, ‘[i]f the plaintiff fails to state a cause of action against a resident

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defendant, and the failure is obvious according to the settled rules of the state.’” Morris

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v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001) (quoting McCabe v.

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General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987)). In this circuit, there is a

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“general presumption against fraudulent joinder,” and defendant's burden of proof is

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“heavy.” Hunter v. Philip Morris USA, 582 F.3d 1039, 1046 (9th Cir. 2009). Simply

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alleging that Plaintiff has failed to state a claim pursuant to the Federal Rules of Civil
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Procedure is not enough. See Watson v. Gish, 2011 WL 2160924, *3 (N.D. Cal.).

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Instead, “[i]n the Ninth Circuit, a non-diverse defendant is deemed to be fraudulently

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joined [only] if, after all disputed questions of fact and all ambiguities in the controlling

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state law are resolved in the plaintiff's favor, the plaintiff could not possibly recover

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against the party whose joinder is questioned.” Sun v. Bank of American Corp., 2010

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WL 454720, *3 (C.D. Cal.) (citing Kruso v. Int'l Tel. & Tel. Corp., 872 F.2d 1416, 1426

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(9th Cir. 1989)).

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“A court may look beyond the pleadings to determine if a defendant is fraudulently
joined, but a plaintiff need only have one potentially valid claim against a non-diverse

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defendant to survive a fraudulent joinder challenge.” Id. (internal citations and

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quotations omitted). “Accordingly, a defendant seeking removal based on an alleged

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fraudulent joinder must do more than show that the complaint at the time of removal fails

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to state a claim against the non-diverse defendant.” Id. To the contrary, “[r]emand must

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be granted unless the defendant shows that the plaintiff would not be afforded leave to

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amend his complaint to cure [the] purported deficiency.” Id. (internal quotations and

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citations omitted).

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Defendants in this case thus bear the burden of showing that it is “obvious” that

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Plaintiff cannot possibly state a claim against Sage Point. On balance, Defendants

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cannot meet this burden. Plaintiff’s allegations that Sage Point was on notice of

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Plaintiff’s loan modification process, and that Defendants acted “fraudulently” and

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knowingly, and “with oppression, fraud and malice” toward Plaintiff, support claims for

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wrongdoing against Sage Point. See ECF No. 1-2 at 28. Since Defendants have failed

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to meet their burden of showing there is no possibility Plaintiff could establish a cause of

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action against Sage Point, they have not shown that Sage Point’s joinder was fraudulent.

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Accordingly, because Defendants have failed to show that Plaintiff and Sage Point are

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non-diverse, Plaintiff's Motion to Remand is GRANTED.

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CONCLUSION

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For the reasons just stated, Plaintiff’s Motion to Remand (ECF No. 12) is

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GRANTED. Defendant’s Motion to Dismiss (ECF No. 4) is DENIED as moot. The Clerk

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of the Court is directed to remand this case to the originating state court, the Superior

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Court of the State of California in and for the County of San Joaquin, for final

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adjudication and to close this case.

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IT IS SO ORDERED.

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Dated: November 18, 2014

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