Freeman v. Wells Fargo Bank, N.A. et al
Filing
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ORDER by Judge Richard Seeborg granting 21 Motion to Remand. (cl, COURT STAFF) (Filed on 8/31/2016)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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NEVA B. FREEMAN,
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Case No. 16-cv-03790-RS
Plaintiff,
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v.
ORDER GRANTING MOTION TO
REMAND
United States District Court
Northern District of California
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WELLS FARGO BANK, N.A., et al.,
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Defendants.
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I. INTRODUCTION
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Plaintiff Neva B. Freeman and defendants Wells Fargo Bank, N.A. (“Wells Fargo”) and
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Quality Loan Service Corporation (“Quality Loan”) are locked in dispute over four bi-weekly
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mortgage payments Freeman insists automatically deducted from her account. Frustrated but
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undeterred by the bank’s reluctance to see the light, Freeman sued in Sonoma County Superior
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Court. Wells Fargo then removed, asserting Quality Loan—who is non-diverse—fraudulently was
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joined to defeat jurisdiction. Drawing reasonable inferences in Freeman’s favor, Wells Fargo fails
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to carry its heavy burden to show she lacks a basis for her claims against Quality Loan. As
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complete diversity is lacking, Freeman’s motion to remand to the Sonoma County Superior Court
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must accordingly be granted. Pursuant to Civil Local Rule 7-1(b), this matter is suitable for
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disposition without oral argument, and the September 8, 2016, hearing will be vacated.1
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The hearings on plaintiff’s motion for a preliminary injunction and defendants’ motions to
dismiss will also be vacated.
II. FACTUAL BACKGROUND2
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On March 12, 2004, plaintiff Neva B. Freeman entered into a “Pick-A-Payment” (“PAP”)
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loan agreement with World Savings Bank, FSB (“World Savings”). The loan was memorialized
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in a promissory note, secured by a deed of trust, and afforded Freeman $380,000 for a property in
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Santa Rosa, California. Around 2007, World Savings changed its name to Wachovia Mortgage,
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FSB, and two years after the name change, Wachovia was acquired by Wells Fargo. See Not. of
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Removal, Exs. D, E.
Freeman’s note “instruct[s]” the lender “to withdraw the amount of each biweekly payment
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from the deposit account on each due date without any further instructions from [Freeman].” Pl.’s
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Request for Judicial Notice (“RJN”) Ex. 2. In accordance with this provision, on or around March
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United States District Court
Northern District of California
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2004, automatic clearinghouse (“ACH”) payments began deducting directly from Freeman’s
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checking account.
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In November 2011, Wachovia contacted Freeman asserting she had missed a few
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payments. As the automatic withdrawals had never ceased, Freeman obtained her bank records
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and faxed them to “Dwight” at Wachovia. Dwight assured Freeman he would check her records,
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cross-reference them against theirs, and get back to her on the status of the alleged missed
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payments. Dwight, unfortunately, never ended up getting back to Freeman, despite her efforts
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repeatedly to speak to or meet with someone from Wachovia.
Wachovia, and subsequently Wells Fargo, began sending Freeman regular notices of intent
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to foreclose, invoking the four missed payments Freeman insists they actually received.
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Meanwhile, Wells Fargo continued to process and receive bi-weekly ACH payments from
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Freeman’s checking account.
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The factual background is based on the averments in the complaint, which are assumed to be true
for the purpose of assessing whether joinder was proper. See Thomas v. Aetna Health of Cal.,
Inc., No. 1:10–cv–01906–AWI–SKO, 2011 WL 2173715, at *5 (E.D. Cal. June 2, 2011) (“In
ruling on a motion for remand where fraudulent joinder is alleged, a court must evaluate the
factual allegations in the light most favorable to the plaintiff, resolving all contested issues of fact
in favor of the plaintiff.”).
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CASE NO.
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In 2012, Freeman renewed her efforts to speak with someone in person and contacted
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Renee in Wells Fargo’s Research Department. She again obtained monthly statements from her
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bank showing all regular mortgage payments had been made, though two payments had to be
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“presented by ACH twice before money was taken from the account.” Compl. ¶ 29. Freeman
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faxed the records to Renee at her request, and Renee assured her she would research the
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discrepancy. Renee, however, did not call Freeman back, nor did anyone else at Wells Fargo. The
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delinquency notices and bi-monthly payments continued unabated, but the amount allegedly past
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due slowly increased as the lender kept adding additional late fees.3
The lenders began calling Freeman on a regular basis in 2011 using automatic dialers and
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voice mail messages. Every now and then, Freeman would explain the alleged error to a live
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United States District Court
Northern District of California
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representative and seek information as to whom she could speak or at which branch she could see
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someone in person. Freeman also requested her account records from Wells Fargo, sought to deal
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with a single consistent individual, and demanded, in vain, that the unwarranted collection calls be
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stopped.
In October 2015, Wells Fargo changed Freeman’s account number, stopped processing her
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ACH payments, and refused her offers to pay the bi-weekly amounts by check, credit card, or
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cashier’s check. Wells Fargo further demanded Freeman pay $7,036.97, an alleged erroneous
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“past due” amount, in addition to payments for the months the bank refused to accept her
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mortgage payments. When Freeman declined to heed these demands, Wells Fargo declared the
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entire loan balance due, an act Freeman now contends amounts to a breach of the loan agreement.
On February 1, 2016, defendant Quality Loan sent Freeman a notice indicating it
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“assumed” the valid amount of the debt to be $327,609. See Dkt. No. 7. It also told Freeman she
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had thirty days to dispute the debt’s validity, which she did later on in the month. On February 4,
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2016, Wells Fargo recorded a substitution of trustee, inserting Quality Loan in place of Golden
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Freeman avers Wachovia and Wells Fargo may have been applying current payments to amounts
they claimed were past due, rendering the current payments late so they allegedly could claim an
additional late fee.
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West Savings Association Service Company. Quality Loan then recorded a notice of default and
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election to sell, initiating non-judicial foreclosure of Freeman’s home.
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Freeman avers Martha Sanchez, a Quality Loan employee, robo-signed the notice of
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default, and failed to comply with California Civil Code sections 2923.55 and 2924.17. Freeman
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specifically contends Quality Loan spurned the requirements for personal contact before recording
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the notice, and relied on a three-year old declaration of compliance in preparing and serving the
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notice. Freeman further asserts she was never told she could request certain information from the
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defendants, including a copy of her deed of trust and her payment record with the bank.
Freeman contacted a Wells Fargo representative named Monica after receiving the notice
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of default, who took Freeman’s information and directed her to the Customer Care and Recovery
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United States District Court
Northern District of California
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Department. Freeman faxed the department a letter on February 29, 2016, detailing her personal
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hardships, and providing her bank records to dispel any claim she was delinquent or in default
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under her loan agreement. Monica advised Freeman the past due amount was $22,734.61, but
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could not tell Freeman how that amount had actually been calculated. Freeman asked to meet
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personally with a Wells Fargo representative to resolve the accounting issue. Monica apparently
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demurred and told Freeman she could not make any further payments on the loan.
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On March 2, 2016, a Wells Fargo Home Mortgage representative wrote to acknowledge
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Freeman’s inquiry, but indicated the lender needed some time to respond. Quality Loan was
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acting as Wells Fargo’s agent at this time, but allegedly failed to check in with Wells Fargo to
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learn of Freeman’s complaint or obtain the documents she forwarded. In April 2016, Wells Fargo
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responded to Freeman’s inquiry, sending an eight-page summary of her payments, and directing
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her to contact the Home Preservation Department. Freeman avers the response ratified her belief
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that both Wachovia and Wells Fargo had made errors.
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On May 9, 2016, Quality Loan recorded a notice of trustee’s sale, setting a date for the
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auction to proceed on June 6, 2016. Freeman avers Quality Loan failed independently to
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investigate the specific amount owed or to check with Wells Fargo to determine its state of
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communication with the borrower. Freeman insists if Wells Fargo properly credited her payments
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CASE NO.
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she would not in fact be deficient, and she is “ready to make payments that are properly in arrears
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and to participate in an accounting.” Compl. ¶ 49 (emphasis added). The notice of default and
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notice of trustee sale contain erroneous amounts in Freeman’s eyes, amounts she insists Quality
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Loan never investigated or verified, thereby violating the California Civil Code.
Freeman commenced suit in Sonoma County Superior Court on May 17, 2016, asserting
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claims for: (1) violation of the Homeowner’s Bill of Rights (“HBOR”), Cal. Civ. Code §§
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2923.55, 2923.7, 2924c, 2924.17; (2) declaratory relief; (3) injunctive relief; (4) an accounting; (5)
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breach of the covenant of good faith and fair dealing; (6) breach of contract; (7) negligence; (8)
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negligent infliction of emotional distress; and (9) violation of California’s Unfair Competition
Law (“UCL”),4 Cal. Bus. & Prof. Code § 17200 et seq. Quality Loan filed its declaration of non-
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United States District Court
Northern District of California
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monetary status on June 22, 2016, and served Freeman by mail on June 23, 2016. Freeman timely
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served objections to Quality Loan’s non-monetary status on July 7, 2016, and re-filed those
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objections after Wells Fargo removed this action on July 6, 2016.
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III. LEGAL STANDARD
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A defendant may remove to federal court “any civil action brought in a State court of
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which the district courts of the United States have original jurisdiction.” 28 U.S.C. § 1441(a).
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Accordingly, removal jurisdiction exists where a case filed in state court presents a federal
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question or involves diversity of citizenship and meets the statutory amount in controversy. See
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28 U.S.C. §§ 1331, 1332. Courts strictly construe the removal statute against finding federal
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subject matter jurisdiction, and the defendant bears the burden of establishing the basis for
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removal. Provincial Gov’t of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 (9th Cir.
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2009). Where doubt exists regarding the right to remove an action, it should be resolved in favor
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Freeman’s briefing indicates she no longer is pursuing the claims for declaratory relief, an
accounting, or negligent infliction of emotional of distress. Further, as to Quality Loan, she is
pursuing only the violations of California Civil Code sections 2923.55 and 2924.17, and the
derivative claims for injunctive relief and violation of the UCL. As to Wells Fargo, Freeman
presses only the claims for violation of the Homeowner’s Bill of Rights, an injunction, breach of
the covenant of good faith and fair dealing, breach of contract, negligence, and violation of the
UCL.
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of remand to state court. Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 1090 (9th
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Cir. 2003).
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Although complete diversity is required under § 1332, district courts may ignore the
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fraudulent joinder of non-diverse defendants in determining whether diversity jurisdiction exists.
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See Hunter v. Philip Morris USA, 582 F.3d 1039, 1043 (9th Cir. 2009). Fraudulent joinder “is a
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term of art” that “does not reflect on the integrity of plaintiff or counsel.” Lewis v. Time Inc., 83
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F.R.D. 455, 460 (E.D. Cal. 1979), aff’d, 710 F.2d 549 (9th Cir. 1983). Joinder is fraudulent “[i]f
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the plaintiff fails to state a claim against a resident defendant, and the failure is obvious according
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to the settled rules of the state.” Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998)
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United States District Court
Northern District of California
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(quoting McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987)).
In determining whether a removed claim is viable, courts typically “look only to a
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plaintiff’s pleadings.” Ritchey, 139 F.3d at 1318. When assessing whether joinder was proper,
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however, courts may go “somewhat further” by allowing a defendant to present additional facts
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demonstrating joinder was fraudulent. See Ritchey, 139 F.3d at 1318. “There is a presumption
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against finding fraudulent joinder,” and defendants who assert it “carry a heavy burden of
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persuasion.” Plute v. Roadway Package Sys., Inc., 141 F. Supp. 2d 1005, 1008 (N.D. Cal. 2001).
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“A claim of fraudulent joinder should be denied if there is any possibility that the plaintiff may
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prevail on the cause of action against the in-state defendant.” Knott v. Caliber Home Loans Inc.,
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No. CV 15–4752 PA (JPRx), 2015 WL 3932668, at *2 (C.D. Cal. June 26, 2015).
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IV. DISCUSSION
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Wells Fargo is a citizen of the state of South Dakota, but Quality Loan and Freeman hail
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from California. Complete diversity is therefore lacking unless Quality Loan can be ignored for
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the purpose of assessing jurisdiction. To that end, Wells Fargo insists Quality Loan is a nominal
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party fraudulently joined to defeat jurisdiction. Neither argument is availing.
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A. Quality Loan is Not a Nominal Party.
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Quality Loan filed a declaration of non-monetary status on June 22, 2016. Such filings are
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permitted where “the trustee maintains 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 omissions
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on its part in the performance of its duties as trustee.” Cal. Civ. Code § 2924l(a). If an objection
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is not served “within the 15-day objection period, the trustee shall not be required to participate
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any further.” Id. § 2924l(d).
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Here, Wells Fargo removed this action prior to expiration of the fifteen-day window. As
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non-monetary status was not perfected, Quality Loan cannot be considered a nominal party. See,
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e.g., Boggs v. Wells Fargo Bank, N.A., No. C 11–2346 SBA, 2012 WL 2357428, at *3 (N.D. Cal.
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June 14, 2012) (“Because the removal occurred less than fifteen days after Golden West filed its
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declaration of non-monetary status, Golden West had not yet been transmuted into a nominal party
at the time of removal.”). In any event, Freeman asserts claims targeting Quality Loan’s
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United States District Court
Northern District of California
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performance as trustee, and timely objected to Quality Loan’s declaration of non-monetary status.
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B. Wells Fargo Has Not Shown Quality Loan Was Fraudulently Joined.
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Wells Fargo insists the complaint “is directed entirely at Wells Fargo’s conduct” and fails
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to “identify anything Quality itself did or did not do that would support a cause of action.”
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Remand Opp’n at 4:15–19. Not so.
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Freeman avers Quality Loan violated sections 2923.55 and 2924.17 of the California Civil
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Code. Section 2923.55 provides mortgage servicers, mortgagees, trustees, beneficiaries, and
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authorized agents may not record a notice of default until they satisfy certain requirements. See
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Cal. Civ. Code § 2923.55(a). First, they must send the borrower “[a] statement that the borrower
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may request” copies of the “promissory note or other evidence of indebtedness,” the deed of trust
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or mortgage, any assignment of the borrower’s deed of trust, and “the borrower’s payment history
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since the borrower was last less than 60 days past due.” Id. § 2923.55(b)(1)(B)(i)-(iv). If the
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mortgage servicer satisfies the requirements of section 2923.55, they must wait 30 days after
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making initial contact with the borrower in accordance with section 2923.55(b)(2), or after
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satisfying the due diligence requirements designed to ensure servicers attempt to make contact
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with the borrower. Id. § 2923.55(a)(2), (f). Section 2924.17 provides “a declaration or affidavit
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filed in any court relative to a foreclosure proceeding shall be accurate and complete and
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supported by competent and reliable evidence.” Id. § 2924.17(a). It further provides a mortgage
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servicer, before filing a notice of default, “shall ensure that it has reviewed competent and reliable
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evidence to substantiate the borrower’s default and the right to foreclose, including the borrower’s
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loan status and loan information.” Id. § 2924.17(b).
Here, Freeman asserts she was never given notice she could request the above information.
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She further avers Quality Loan spurned the personal contact requirements, relied on a three-year
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old declaration of compliance in preparing and serving the notice, and failed independently to
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investigate the specific amount owed or to check with Wells Fargo to determine the state of the
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loan. Freeman may not ultimately prevail on her alleged HBOR violations, but “[t]he standard is
not whether plaintiffs will actually or even probably prevail on the merits.” Knott, 2015 WL
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United States District Court
Northern District of California
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3932668 at *2 (internal quotation mark omitted). Instead, joinder is proper where there is a
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“possibility” they will do so, and Freeman meets that standard here.
Wells Fargo’s lone rejoinder is to argue the conduct Freeman highlights is privileged under
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the California Civil Code. See Cal. Civ. Code § 2924. “[C]ourts ordinarily do not consider,”
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however, “a non-diverse defendant’s defenses on the merits in determining whether that
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defendant’s joinder was fraudulent.” Boggs v. Wells Fargo Bank, N.A., No. C 11–2346 SBA,
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2012 WL 2357428, at *2 (N.D. Cal. June 14, 2012) (internal quotation marks omitted). Indeed,
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where such defenses are invoked, “it cannot be said that the plaintiff’s failure to state a claim
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against the [non-diverse] defendant is obvious according to the settled rules of the state.”5 Moore
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v. Wells Fargo Bank, N.A., No. 2:16-566 WBS CKD, 2016 WL 3091087, at *6 (E.D. Cal. June 2,
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2016) (internal quotation marks omitted). At bottom, drawing all reasonable inferences in
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Freeman’s favor, Wells Fargo simply has not shown Quality Loan’s joinder was fraudulent.
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In any event, Freeman includes allegations directed to establishing malice, which theoretically
could defeat the asserted privilege. She specifically avers Quality Loan acted with reckless
disregard of her rights by using a dated and factually ineffective declaration of compliance.
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V. CONCLUSION
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Wells Fargo has failed to carry its heavy burden to show Quality Loan was fraudulently
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joined. Complete diversity is thus lacking and Freeman’s motion to remand must accordingly be
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granted.6 As Freeman is “ready to make payments that are properly in arrears and to participate in
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an accounting,” the parties are encouraged to explore their state court options for alternative
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dispute resolution.
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IT IS SO ORDERED.
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Dated: August 31, 2016
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RICHARD SEEBORG
United States District Judge
United States District Court
Northern District of California
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In light of this disposition, Freeman’s alternative argument regarding the amount-in-controversy
need not be reached. Additionally, since this Court lacks jurisdiction, Freeman’s motion for a
preliminary injunction and defendants’ motions to dismiss need not be addressed.
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