Deutsche Bank National Trust Company v. CB Equities, LLC,

Filing 101

ORDER by Judge Jeffrey S. White GRANTING 89 Motion to Intervene and DENYING 96 Motion for Default Judgment. (jswlc2S, COURT STAFF) (Filed on 1/27/2017)

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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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DEUTSCHE BANK NATIONAL TRUST
COMPANY,

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For the Northern District of California

United States District Court

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No. C 15-03809 JSW

Plaintiff,
v.

ORDER GRANTING MOTION TO
INTERVENE AND DENYING
PLAINTIFF’S MOTION FOR DEFAULT
JUDGMENT

CB EQUITIES LLC, et al.,

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Defendants.

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/

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Now before the Court is the motion to intervene filed by Kyle and Rachel Halliday (“the

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Hallidays”) as the current owners of the disputed property and the motion by Plaintiff Deutsche

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Bank National Trust Company (“Plaintiff”) for default judgment against Defendants, CB Equities,

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LLC and American Brokers Conduit Corporation (“Defendants”). The Court finds these motions

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suitable for disposition without oral argument. Accordingly, the hearing set for February 3, 2017 is

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HEREBY VACATED. See N.D. Cal. Civil L. R. 7-6. Having carefully reviewed the parties’ papers

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and considered their arguments and the relevant legal authority, and good cause appearing, the Court

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hereby GRANTS the Hallidays’ motion to intervene and DENIES Plaintiff’s motion for default

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judgment.

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BACKGROUND
According to the complaint and undisputed facts in the record, on January 22, 2007, non-

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party borrower Bill Williams took out a loan for property located at 223 Verde Mesa Drive,

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Danville, California 94526 (the “Property”). The loan was secured by a deed of trust in favor of

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American Brokers Conduit (“ABC”) and recorded in Contra Costa County on January 30, 2007

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(“2007 Deed of Trust”). Mortgage Electronic Registration Systems, Inc. (“MERS”) was the

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nominee beneficiary in the 2007 Deed of Trust and on July 5, 2012, MERS executed an assignment

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that the beneficial interest was transferred to Plaintiff, Deutsche Bank. This assignment was also

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recorded in Contra Costa County on August 13, 2012. After Williams failed to make his payments

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on the loan and foreclosure was initiated, Power Default Services, Inc. was substituted as trustee and

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recorded a Notice of Default. On October 17, 2012, Williams executed a Grant Deed purportedly

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transferring his interest in the Property to Defendant CB Equities, LLC (“CBE”). Although CBE did

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not assume Williams’ loan, Plaintiff alleges that the transfer of the Grant Deed was part of a

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For the Northern District of California

United States District Court

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fraudulent scheme designed to improperly and fraudulently extinguish the 2007 Deed of Trust.
Just five days after CBE obtained the Grant Deed, it filed an action before this Court seeking

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to cancel the 2007 Deed of Trust. CBE sued American Brokers Conduit Corporation (“ABCC”)

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which was not affiliated with the original lender on the loan, American Home Mortgage Holdings,

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Inc. d/b/a American Brokers Conduit (“ABC”). This prior action filed before Magistrate Judge

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Donna M. Ryu, CB Equities, LLC v. American Brokers Conduit Corporation, Case No. 12-cv-5449

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DMR (“Prior Federal Action”), did not name Plaintiff as a party. On November 15, 2012, Defendant

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CBE and ABCC entered into a Stipulated Judgment seeking to effectuate cancellation of the 2007

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Deed of Trust. On November 26, 2012, without any knowledge that the lawsuit in its entirety as

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well as Stipulated Judgment submitted by the parties were fraudulent, Magistrate Ryu signed the

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Stipulated Judgment, which was recorded on November 29, 2012.

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After Williams continued to fail to make payments on the outstanding loan, on November 26,

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2015, Plaintiff recorded a Rescission of the prior Notice of Default and filed a new Notice of

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Default.

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Subsequent to the entry of the Stipulated Judgment, the Property was deeded by CBE to

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Windeler Development Group, Inc., which then deeded it to the Hallidays. In this matter, Plaintiff

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alleges that when Defendants executed their stipulation to enter judgment in the Prior Federal

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Action, they had no right, title, claim or interest in the Property needed to expunge or extinguish the

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2007 Deed of Trust. In this action, Plaintiff seeks both to cancel the Stipulated Judgment and for a

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declaration by this Court that it is void.

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Plaintiff served Defendants in this matter by personal service but Defendants did not respond

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to the allegations in the complaint. On September 28, 2015, Plaintiff filed a motion for default

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judgment. When Defendants did not file a responsive pleadings or otherwise appear, the Clerk

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entered default against Defendants on September 30, 2015. After this matter was related to the Prior

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Federal Action before Magistrate Judge Ryu, and after holding a hearing on the pending motion for

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default judgment, Judge Ryu denied the motion without prejudice. On February 1, 2016, Plaintiff

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filed its First Amended Complaint alleging two distinct claims for relief: (1) cancellation of a written
instrument (the Stipulated Judgment) and (2) a declaration from the Court that the Stipulated

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For the Northern District of California

United States District Court

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Judgment is void and is without legal force and effect. Although Defendants were served, they

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again failed to respond and the Clerk entered default. Then, on February 25, 2016, Plaintiff moved

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for default judgment.

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On February 26, 2016, the Hallidays moved to intervene in this action. On November 14,

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2014, nine months prior to Plaintiff filing this action in federal court, the Hallidays had filed suit

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against Plaintiff in state court asserting causes of action for quiet title, slander of title, and

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declaratory relief. That case is currently pending in Contra Costa County Superior Court, Halliday

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v. Deutsche Bank National Trust Company, Case No. C14-1992 (“State Court Action”).

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On June 8, 2016, Robert Jacobsen, who has been indicted for wire fraud and money

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laundering for allegedly using Defendants as nominees in conducting a fraudulent scheme, also

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moved to intervene.

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On August 26, 2016, Magistrate Judge Ryu issued an order in the Prior Federal Action

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setting aside the Stipulated Judgment for fraud upon the court. The order specifically set out that it

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did not determine whether the Stipulated Judgment it set aside was void or voidable.

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After full briefing before Magistrate Judge Ryu on the issue whether this Court should grant

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default judgment (as well as the pending motions to intervene), on September 14, 2016, Judge Ryu

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issued a Report and Recommendation (“Report”) along with a Request for Reassignment. In the

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Report, Judge Ryu recommended that the first cause of action for cancellation of a written
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instrument (the Stipulated Judgment) be granted as it was rendered moot by the order setting aside

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the judgment in the Prior Federal Action. Further, with respect to the second claim seeking a

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declaration from the Court that the Stipulated Judgment is void and is without legal force and effect,

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the Report recommended that, due to prudential considerations, the Court should abstain from

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granting declaratory relief and deny the motion for default judgment as to that claim. The Report

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also recommended that the pending motions to intervene be denied as moot on the basis that both set

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of proposed intervenors sought to be heard only on the question whether the order setting aside the

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Stipulated Judgment was void or voidable. Finding that if the assigned court adopts its

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recommendation to deny Plaintiff’s motion for default judgment on this issue, the motions for
intervention to prevent entry of default judgment would be rendered moot and therefore should also

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For the Northern District of California

United States District Court

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be denied.

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Thereafter, this action was reassigned to the undersigned. Upon brief review of the complex

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history of these related matters, this Court declined to adopt the recommendation that the motion for

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default judgment should be denied and referred instead to the State Court for resolution.

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Accordingly, this Court denied the motion for default judgment and the two pending motions to

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intervene without prejudice to refiling the motions before the undersigned. The Hallidays refiled

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their motion to intervene and Plaintiff refiled its motion for default judgment. Jacobsen did not

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refile a motion to intervene.

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The Court shall address additional specific facts in the remainder of its order.

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ANALYSIS
A.

Motion to Intervene.

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Pursuant to Federal Rule of Civil Procedure 24(a), an applicant seeking to intervene in a

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pending lawsuit “as of right” must demonstrate that: “(1) it has a significant protectable interest

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relating to the property or transaction that is the subject matter of the action; (2) the disposition of

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the action may, as a practical matter, impair or impede the applicant’s ability to protect its interest;

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(3) the application is timely; and (4) the existing parties may not adequately represent the applicant’s

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interest.” United States v. City of Los Angeles, 288 F.3d 391, 397 (9th Cir. 2002) (internal citations

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omitted).
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In evaluating these requirements, courts “are guided primarily by practical and equitable

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considerations.” Donnelly v. Glickman, 159 F.3d 405, 409 (9th Cir. 1998). Courts generally

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construe conflicts in favor of intervention. United States ex rel. McGough v. Covington Techs. Co.,

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967 F.2d 1391, 1394 (9th Cir. 1992). “By allowing parties with a practical interest in the outcome

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of a particular case to intervene, we often prevent or simplify future litigation involving related

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issues; at the same time, we allow an additional interested party to express its views before the

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court.” Forest Conservation Council v. U.S. Forest Serv., 66 F.3d 1489, 1496 n.8 (9th Cir. 1995)

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(citation omitted).

demonstrated to the Court’s satisfaction that they meet the four requirements of Rule 24(a). The

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For the Northern District of California

Proposed intervenors, the Hallidays, are current owners of the disputed property and have

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United States District Court

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Hallidays have a significant protectable interest in the resolution of the status of proper title to the

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property. The Hallidays’ motion to intervene is timely: this litigation is in its early stages before this

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Court and intervention will not delay the case or prejudice the parties. Finally, because the

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Hallidays’ interests in the litigation are antagonistic to the current parties before the Court, the

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existing parties do not represent the Hallidays’ interests. Accordingly, the Court GRANTS the

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Hallidays’ motion to intervene as a matter of right pursuant to Federal Rule of Civil Procedure

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24(a)(2). See e.g., Arakaki v. Cayetano, 324 F.3d 1078, 1083 (9th Cir. 2003). The Court finds the

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Hallidays have properly appeared before the Court and their opposition to the pending motion for

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default judgment has been considered in its entirety.

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B.

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Motion for Default Judgment.
Upon careful and considerate attention to the filings made in this matter and the related Prior

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Federal Action, as well as the timing and scope of the State Court Action, this Court agrees that it

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should not exercise its discretion to grant the relief sought by Plaintiff as to its second cause of

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action for declaratory relief.1 Declaratory judgment is within the Court’s discretion and the Court

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declines to exercise such discretion here. See Leadsinger, Inc. v. BMG Music Pub., 512 F.3d 522,

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533 (9th Cir. 2008) (holding that the Declaratory Judgment Act gives authority to the court to

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The Court agrees with the Report and finds that the first cause of action for cancellation of
the Stipulated Judgment has already been rendered moot by the Court’s order dated August 26, 2016
setting aside the Stipulated Judgment in the Prior Federal Action.
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declare the rights and legal relations of interested parties, but not a duty to do so) (citing Wilton v.

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Seven Falls Co., 515 U.S. 277, 288 (1995)); 28 U.S.C. § 2201(a).

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“In considering whether to hear a claim for declaratory relief, courts consider two criteria:

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(1) if the judgment ‘will serve a useful purpose in clarifying and settling the legal relations in issue;’

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and (2) if ‘it will terminate and afford relief from the uncertainty, insecurity, and controversy giving

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rise to the proceeding.’ When the issues raised by the prayer for declaratory relief will be completely

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disposed of in other litigation, it may be appropriate to decline to hear the action.” Celador Int’l

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LTD v. The Walt Disney Co., 347 F. Supp. 2d 846, 857 (C.D. Cal 2004) (quoting McGraw-Edison

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Co v. Performed Line Prod. Co., 362 F.2d 339, 342 (9th Cir. 1966)). “Prudential guidance for
retention of the district court’s authority is found in Brillhart v. Excess Ins. Co. of America, 316 U.S.

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For the Northern District of California

United States District Court

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491 (1942), and its progeny.” Gov’t Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1223 (9th Cir. 1998).

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In Brillhart, the court established that a district court may, at its discretion, decline to exercise

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jurisdiction over a claim for declaratory relief where another suit between the same parties, on the

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same issues, not governed by federal law, is pending in state court. Brillhart, 316 U.S. at 495; see

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also Wilton, 515 U.S. at 289-90.

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Under Brillhart, the district court must undertake an analysis to determine whether it should

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exercise its discretionary jurisdiction by considering the following factors: (1) avoiding needless

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determination of state law issues; (2) discouraging litigants from filing declaratory actions as a

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means of forum shopping; and (3) avoiding duplicative litigation. Government Employees Ins. Co.

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v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998). The Court may consider several additional factors

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when considering whether to decline to hear a claim for declaratory relief. The factors are non-

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exclusive and include determining whether declining to hear the claim for declaratory relief will:

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avoid duplicative litigation; balance concerns of judicial administration, comity, and fairness to the

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litigants; settle all aspects of the controversy; whether the declaratory action will serve a useful

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purpose in clarifying the legal relations at issue; whether the declaratory action is being sought

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merely for the purposes of procedural fencing or to obtain a res judicata advantage; or whether the

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use of a declaratory action will result in entanglement between the federal and state court systems.

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Dizol, 133 F.3d at 1225 n.5 (citing Brillhart, 316 U.S. at 494-95). In addition, the court may
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consider the convenience of the parties and the availability of other remedies in determining whether

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to decline to hear a claim for declaratory judgment. Id.

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In this case, several factors weigh in favor of abstention. First, the State Court Action was

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initiated before this action by the Hallidays against Plaintiff to determine their respective rights to

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the Property under California law. Although Plaintiff filed suit here nine months later, the bank did

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not name the Hallidays nor provide them with notice of this action. Second, both the Plaintiff and

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the Hallidays agree that the legal issue at the root of this property dispute – who owns clear and

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proper title to the Property – is a matter that must be resolved under California law. Although

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federal law governs the setting aside of the judgment, this Court has already set it aside as induced
by fraud upon the Court. See Fed. R. Civ. P. 60(b)(3). The sole issue pending in the State Court

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For the Northern District of California

United States District Court

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Action is the legal effect on title, i.e., whether the Stipulated Judgment is void or voidable. By

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abstaining from exercising its discretionary declaratory jurisdiction here the Court will avoid making

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a needless determination of state law.

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The second factor the Court must consider is the avoidance of forum shopping. Although

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there is no evidence of forum shopping by either party, Plaintiff’s filing of this federal action after

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the State Court Action was already pending and without notice to the current property owners,

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weighs slightly in favor of abstention.

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The third factor weighing in favor of abstention is the avoidance of duplicative or piecemeal

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litigation. The order in the related Prior Federal Action explicitly reserved the question of whether

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the Stipulated Judgment was void or voidable. The same judge who set aside the fraudulently

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induced Stipulated Judgment has twice found that the legal question of its effect on the chain of title

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should be resolved by California law and before the Superior Court where the earlier-filed State

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Court Action is currently pending. Although this Court was hesitant to decline to exercise its

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jurisdiction to adjudicate the legal effect of the setting aside of the judgment, the undersigned, with

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the benefit of time and an exhaustive review of the related matters, finds that it should indeed

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abstain from the dispute over the legal ramifications under state law of the set aside judgment for

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prudential reasons. This federal court has determined to set aside the judgment in the Prior Federal

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Action based on the fact that it was procured by fraud on the court and not based on whether it is
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void, or legally erroneous from its inception. See Fed. R. Civ. P. 60(b)(3) and 60(b)(4).

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Accordingly, and with deference to this determination, the Court declines to exercise its jurisdiction

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and DENIES Plaintiff’s motion for default judgment as to its second cause of action for declaratory

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relief.

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CONCLUSION

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For the foregoing reasons, the Court GRANTS the Hallidays’ motion to intervene and

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DENIES the Plaintiff’s motion for default judgment.

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Dated: January 27, 2017
JEFFREY S. WHITE
UNITED STATES DISTRICT JUDGE

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For the Northern District of California

United States District Court

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IT IS SO ORDERED.

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