DeLong v. Bank of America, N.A.

Filing 28

ORDER REMANDING CASE. Signed by Judge Lucy H. Koh on 4/27/2012. (lhklc2, COURT STAFF) (Filed on 4/27/2012)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

United States District Court
For the Northern District of California

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ANGELA DE LONG,
Plaintiff,
v.
BANK OF AMERICA, N.A., POLYMATHIC
PROPERTIES, INC., and DOES 1 TO 100,
inclusive,
Defendants.

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Case No.: 11-CV-06388-LHK
ORDER REMANDING CASE TO
SUPERIOR COURT

On January 23, 2012, “[a]fter reviewing the FAC, the notice of removal filed by Bank of

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America, and the supporting papers,” the Court issued an order to show cause why this case should

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not be remanded to state court. The Court indicated that it “has doubts regarding whether it has

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subject matter jurisdiction over this case and believes that remand to state court may be

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appropriate.” Order Denying Ex Parte Application for Temporary Restraining Order (“January 23

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Order”) at 5-6, ECF No. 17. Defendant was ordered to file a response to the show cause order by

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February 20, 2012, and Plaintiff was permitted to file a statement of her position on the issue by

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March 12, 2012. A hearing on the order to show cause was set for May 3, 2012. The parties have

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not responded to the order to show cause. The Court finds this matter appropriate for resolution

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without oral argument pursuant to Civil Local Rule 7–1(b) and VACATES the hearings currently

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set for May 3, 2012. Having considered the FAC, the notice of removal filed by Bank of America,

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Case No.: 11-CV-06388-LHK
ORDER REMANDING CASE TO STATE COURT

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and the supporting papers, and having received no guidance from the parties despite an order to

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brief the issue, the Court REMANDS this case to the Santa Clara County Superior Court.

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I.

BACKGROUND

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This case relates to a home mortgage loan in connection with the purchase of a

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condominium located at 108 Path Way, San Jose, California (“the condominium”). On November

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19, 2004, Plaintiff and her husband, Jamie Sandoval, entered into a home mortgage loan agreement

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with Defendant Bank of America, N.A. (“Bank of America”). First Amended Complaint (“FAC”),

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ECF No. 13. The principal amount of the loan was approximately $363,750.00. FAC ¶ 7. At

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some point in either June 2009 or early 2010, Plaintiff contacted Bank of America about the federal

United States District Court
For the Northern District of California

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Making Home Affordable Program seeking a loan modification. De Long Decl. in Support of

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Preliminary Injunction (“De Long Decl.”) ¶ 10, ECF No. 15-1; FAC ¶ 12. Plaintiff signed a Trial

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Period Plan under which she was to make three trial payments before Bank of America would

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determine if she qualified for a loan modification agreement. De Long Decl. ¶ 11. Under the

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terms of the Trial Period Plan, Plaintiff was required to make modified payments in September

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2009, October 2009, and November 2009.1 See De Long Decl. ¶ 12; Ex. A. Plaintiff maintains

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that she made the three2 trial payments as required pursuant to the terms of the Trial Period Plan

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Agreement. De Long Decl. ¶ 12. In November 2009, Plaintiff’s husband moved out of the

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condominium. De Long Decl. ¶ 8.

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In September 2010, Bank of America informed Plaintiff that she would not be approved for

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a loan modification because she had defaulted on the trial payments. De Long Decl. ¶ 14.

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Although Plaintiff was able to appeal Bank of America’s decision, she was required to reapply for

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the Trial Payment Plan. De Long Decl. ¶ 15-16. Through subsequent correspondence with Bank

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of America, De Long was informed that she was not eligible for loan modification, and the

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foreclosure sale of the property would no longer be on hold.3 De Long Decl. ¶¶ 19-25. On

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The FAC and Plaintiff’s Declaration and Exhibit A diverge significantly on this point. The FAC
indicates that De Long made trial payments of approximately $1,600 per month from April 2010 to
September 2010, while De Long’s Declaration, and Exhibit A, indicate that she made trial
payments of $1,782.50 in September 2009, October 2009, and November 2009.
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It is unclear based on De Long’s declaration whether she was required to make three or four trial
payments. De Long Decl. ¶¶ 12-13.
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Plaintiff has not indicated when the foreclosure proceedings were initiated.
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Case No.: 11-CV-06388-LHK
ORDER REMANDING CASE TO STATE COURT

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September 27, 2011, a trustee’s sale was held to foreclose on the deed of trust. FAC ¶ 27; FAC Ex.

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C. Bank of America purchased the condominium for $182,250.00. FAC Ex. C.

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On November 7, 2011, Plaintiff filed a state court action against Bank of America in Santa

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Clara County Superior Court. Plaintiff apparently4 brought seven state law claims against Bank of

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America arising out of the loan transaction related to the condominium. ECF No. 1. Bank of

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America removed the case to federal court based on diversity and federal question jurisdiction on

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December 16, 2011, and filed a motion to dismiss on December 22, 2011. ECF Nos. 1 & 7. On

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December 21, 2011, Bank of America executed a grant deed conveying title to the condominium to

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Polymathic Properties, Inc. See FAC Ex. D. On January 11, 2012, Plaintiff filed the FAC naming

United States District Court
For the Northern District of California

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Bank of America and Polymathic Properties as Defendants and alleging claims for breach of

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contract, breach of the implied covenant of good faith and fair dealing, negligence, cancellation of

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trustee’s deed upon sale, fraud, and fraudulent conveyance against Bank of America. The FAC

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also sought to impose a constructive trust on the condominium against Polymathic Properties as a

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result of the alleged fraudulent conveyance from Bank of America to Polymathic Properties. ECF

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No. 13. Plaintiff filed an ex parte TRO application and motion for a preliminary injunction on

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January 18, 2012 allowing Plaintiff to remain in possession of the condominium until resolution of

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the instant matter. See ECF Nos. 15 & 16.

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Plaintiff’s motion for a temporary restraining order and motion for a preliminary injunction

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were denied on January 23, 2012 (“January 23 Order”). See ECF No. 17. In the January 23 Order,

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the Court explained that “[a]fter reviewing the FAC, the notice of removal filed by Bank of

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America, and the supporting papers, the Court has doubts regarding whether it has subject matter

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jurisdiction over this case and believes that remand to state court may be appropriate.” January 23

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Order at 5-6. Defendant, as the party asserting federal jurisdiction, was ordered to file a brief by

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February 20, 2012, explaining why this case should not be remanded to state court for lack of

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subject matter jurisdiction. Plaintiff was permitted to file a response, indicating her position on the

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issue, by March 12, 2012. The parties have not responded to the Court’s order to show cause.

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Although the notice of removal references the original state court complaint, the original
complaint does not appear to have been properly filed in this case.
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Case No.: 11-CV-06388-LHK
ORDER REMANDING CASE TO STATE COURT

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Instead, Bank of America filed a motion to dismiss, which Defendant Polymathic Properties joined.

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See ECF No. 18, 23. Because the Court determines that it does not have subject matter

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jurisdiction, and remands this case to state court, the Court does not reach the merits of

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Defendants’ motion to dismiss.

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II.

DISCUSSION

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A federal court is obliged to raise issues concerning its subject matter jurisdiction sua

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sponte. Fiedler v. Clark, 714 F.2d 77, 78-79 (9th Cir. 1983); Chaganti v. I2 Phone Int’l, Inc., 635

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F. Supp. 2d 1065, 1070 (N.D. Cal. 2007) (Walker, J.) aff’d, 313 F. App’x 54 (9th Cir. 2009); see

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also Fed. R. Civ. P. 12(h)(3) (“If the court determines at any time that it lacks subject-matter

United States District Court
For the Northern District of California

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jurisdiction, the court must dismiss the action.”). Pursuant to 28 U.S.C. § 1447(c), “[i]f at any time

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before final judgment it appears that the district court lacks subject matter jurisdiction, the case

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shall be remanded.” In a removal action, “[t]he burden of establishing federal subject matter

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jurisdiction falls on the party invoking removal.” Marin Gen. Hosp. v. Modesto & Empire

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Traction Co., 581 F.3d 941, 944 (9th Cir. 2009).

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In this case, Bank of America’s basis for removal to federal court was pursuant to both 28

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U.S.C. § 1331 (federal question jurisdiction), and 28 U.S.C. § 1332 (diversity jurisdiction). See

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also 28 U.S.C. § 1441 (“any civil action brought in a State court of which the district courts of the

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United States have original jurisdiction may be removed by the defendant or the defendants.”).

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Therefore, the Court will consider each of the asserted jurisdictional bases in turn.

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A. Federal Question Jurisdiction

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Pursuant to 28 U.S.C. §1331, district courts have subject matter jurisdiction over civil

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actions “arising under the Constitution, laws, or treaties of the United States. “A case ‘arises

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under’ federal law within the meaning of § 1331 if ‘a well-pleaded complaint establishes either that

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federal law creates the cause of action or that the plaintiff’s right to relief necessarily depends on

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resolution of a substantial question of federal law.’” Proctor v. Vishay Intertech., Inc., 584 F.3d

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1208, 1219 (9th Cir. 2009) (citations omitted). Under limited circumstances, federal question

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jurisdiction is present when the resolution of a state law cause of action “depends upon the

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Case No.: 11-CV-06388-LHK
ORDER REMANDING CASE TO STATE COURT

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construction or application of [federal law].” Grable & Sons Metal Prods., Inc. v. Darue Eng’g &

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Mfg., 545 U.S. 308, 313 (2005) (citations omitted).

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The “mere presence of a federal issue in a state cause of action does not automatically

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confer federal-question jurisdiction.” Merrell Dow Pharm., Inc. v. Thompson, 478 U.S. 804, 813

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(1986); see Gully v. First Nat'l Bank, 299 U.S. 109, 115 (1936). Federal jurisdiction is proper only

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in those cases where “it appears that some substantial, disputed question of federal law is a

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necessary element of one of the well-pleaded state claims, or that . . . [a] claim is ‘really’ one of

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federal law.” Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 13 (1983). Such

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circumstances are a “special and small category.” Empire Healthchoice Assurance, Inc. v.

United States District Court
For the Northern District of California

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McVeigh, 547 U.S. 677, 699 (2006). “The strong presumption against removal jurisdiction means

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that the defendant always has the burden of establishing that removal is proper.” Gaus v. Miles,

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980 F.2d 564, 566 (9th Cir. 1992) (internal quotations omitted). Courts should resolve doubts as to

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removability in favor of remanding the case to state court. Id.

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Here, at the time of removal, the original complaint contained seven state law causes of

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action. See Sparta Surgical Corp. v. Nat’l Ass’n of Sec. Dealers, 159 F.3d 1209, 1213 (9th Cir.

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1998) (jurisdiction analyzed at the time of removal); Notice of Removal at 4. Although Defendant

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did not attach the original complaint to the notice of removal, and Bank of America has not since

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filed a copy, it appears that the basis of removal was that the state law causes of action arose out of

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a loan modification agreement between Bank of America and Plaintiff. This loan modification

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agreement was part of the government’s Home Affordability Modification Program (“HAMP”).

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Notice of Removal at 3. Accordingly, Defendant asserted that Plaintiffs’ claims require

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interpretation of federal law. Id. at 4-5. Bank of America indicates that the FAC is similar to the

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original complaint. Mot. to Dismiss the FAC at 1, ECF No. 18. The FAC also contains no federal

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cause of action and merely references the federal HAMP program.

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Other federal courts have held that state-law claims alleging violations of HAMP guidelines

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do not create federal question jurisdiction. See Brown v. Wells Fargo Bank, N.A., No. 2:11cv309,

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2011 WL 5593174, at *5 (E.D. Va. Nov. 15, 2011); Maxwell v. Aurora Loan Servs., LLC, No.

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4:11–CV–1264 CAS, 2011 WL 4014327, at *2 (E.D. Mo. Sept. 9, 2011); White v. Wells Fargo
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Case No.: 11-CV-06388-LHK
ORDER REMANDING CASE TO STATE COURT

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Home Mortg., No. 1:11–cv–408–MHT, 2011 WL 3666613, at *2 (M.D. Ala. Aug. 22, 2011); Ariz.

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ex rel. Horne v. Countrywide Fin. Corp., No. CV–11–131–PHX–FJM, 2011 WL 995963, at *4 (D.

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Ariz. Mar. 21, 2011); Preciado v. Ocwen Loan Servicing, No. CV 11–1487 CAS (VBKx), 2011

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WL 977819, at *1 (C.D. Cal. Mar. 18, 2011); Delgadillo v. Countrywide Home Loans, Inc., No.

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CV-09-7435 AHM, 2009 WL 5064943, at *2 (C.D. Cal. Dec. 23, 2009) (HAMP “does not mandate

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federal jurisdiction.”). Accordingly, Defendant has not met its burden of establishing that the

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claims presented are of the “small and special category” of cases which raise a substantial federal

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question though they are embedded in a state law claim. The mere fact that the loan modification

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in question arose out of a federal program and may implicate federal regulations is insufficient to

United States District Court
For the Northern District of California

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reach the level of substantiality to support the exercise of federal jurisdiction. See Grable, 545

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U.S. at 314 (“[T]he presence of a disputed federal issue and the ostensible importance of a federal

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forum are never necessarily dispositive; there must always be an assessment of any disruptive

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portent in exercising federal jurisdiction.”). Therefore, federal question jurisdiction was lacking at

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the time of removal.

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B. Diversity Jurisdiction
Federal district courts have jurisdiction over suits for more than $75,000 between “citizens

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of different States.” 28 U.S.C. § 1332(a)(1). Diversity jurisdiction exists only in cases in which

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the citizenship of each plaintiff is diverse from the citizenship of each defendant. Caterpillar, Inc.

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v. Lewis, 519 U.S. 61, 68 (1996). At the time of removal, it appears as though complete diversity

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between the parties existed because Bank of America, the sole original defendant, is a citizen of

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North Carolina, and Plaintiff is an individual of California. See Notice of Removal at 5-6, ECF

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No. 1. Moreover, the amount in controversy was met because Plaintiff sought to quiet title and to

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cancel the Trustee’s Deed upon sale for the property, which was valued at $214,000. Id. at 7.

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However when Plaintiff filed the FAC, Plaintiff named an additional defendant, Polymathic

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Properties. FAC ¶ 3. The addition of Polymathic Properties to the case destroyed complete

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diversity in this case because both defendant Polymathic Properties and Plaintiff are citizens of

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California. FAC ¶¶ 1 & 3. Even though Plaintiff was permitted under the Federal Rules to file the

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FAC as a matter of right, because the FAC was filed within 21 days of Bank of America’s motion
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Case No.: 11-CV-06388-LHK
ORDER REMANDING CASE TO STATE COURT

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to dismiss, this Court must still determine whether to permit joinder of Polymathic Properties. See

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Fed. R. Civ. P. 15(a)(1)(B); Clinco v. Roberts, 41 F. Supp. 2d 1080, 1086 (C.D. Cal. 1999); Mayes

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v. Rapoport, 198 F.3d 457, 462 n. 11 (4th Cir. 1999). Pursuant to 28 U.S.C. § 1447(e), “[i]f after

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removal the plaintiff seeks to join additional defendants whose joinder would destroy subject

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matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State

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court.” In these circumstances, “[t]he decision regarding joinder of a diversity destroying-

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defendant is left to the discretion of the district court.” Newcombe v. Adolf Coors Co., 157 F.3d

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686, 691 (9th Cir. 1998).

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In deciding whether to allow joinder of the newly added defendant, district courts have

United States District Court
For the Northern District of California

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considered a number of factors, including: (1) whether the new defendant is a necessary party; (2)

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whether any statute of limitations would preclude an original action against defendant in state

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court; (3) whether plaintiff has unjustifiably delayed seeking joinder; (4) whether joinder is

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intended solely to defeat federal jurisdiction; (5) whether the claims against the new defendant

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appear valid; and (6) whether denying joinder would prejudice plaintiff. Palestini v. Gen.

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Dynamics Corp., 193 F.R.D. 654, 658 (S.D. Cal. 2000); Boon v. Allstate Ins. Co., 229 F. Supp. 2d

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1016 (C.D. Cal. 2002). “Any of the factors might prove decisive, and none is an absolutely

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necessary condition for joinder.” Yang v. Swissport USA, Inc., No. 09-cv-03823 SI, 2010 WL

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2680800, at *3 (N.D. Cal. July 6, 2010) (Illston, J.)

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In this instance, the Court will exercise its discretion and allow joinder of Polymathic

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Properties. First, Polymathic Properties is a necessary party. In determining whether a defendant

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is a necessary party pursuant to 28 U.S.C. § 1447(e), courts generally look to Federal Rule of Civil

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Procedure 19(a). See Boon, 229 F. Supp. 2d at 1020. Rule 19(a) requires joinder of persons whose

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absence would preclude the grant of complete relief, impede their ability to protect their interests,

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or subject a party to the risk of incurring inconsistent obligations. Fed. R. Civ. P. 19(a); IBC

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Aviation Servs., Inc. v. Compania Mexicana de Aviacion, S.A. de C.V., 125 F. Supp. 2d 1008, 1011

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(N.D. Cal. 2000) (Conti, J.). A necessary party is one having an interest in the controversy, and

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who ought to be made party to the action to enable the court to do complete justice and adjudicate

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the rights of parties accordingly. IBC, 125 F. Supp. 2d at 1012 (citations omitted). Courts will
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Case No.: 11-CV-06388-LHK
ORDER REMANDING CASE TO STATE COURT

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prevent joinder of non-diverse defendants where the proposed defendants “are only tangentially

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related to the cause of action or would not prevent complete relief.” Id. at 1012 (citations omitted).

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In this case, Plaintiff joined Polymathic Properties because she seeks return of title to the property

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in which she resides. Prior to the transfer in title from Bank of America to Polymathic Properties,

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Plaintiff’s claims to recover title to the property were against the then-current title-holder, Bank of

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America. After the title was transferred, Plaintiff added the current title-holder under a theory of

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fraudulent transfer. Thus, in order to obtain the relief she seeks – return of title to the property

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from Polymathic Properties back to Plaintiff – joinder of the current title-holder is necessary. See

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FAC Prayer for Relief ¶¶ 13-14. Thus, this factor weighs in favor of allowing joinder of the newly

United States District Court
For the Northern District of California

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named defendant.
Second, Plaintiff’s claim against Polymathic would not be barred by the statute of

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limitations if brought in state court. The statute of limitations on a claim for a fraudulent transfer is

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four years. See Cal. Civ. Code § 3439.09(a)-(b). Bank of America conveyed the deed to

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Polymathic Properties in December 2011. Plaintiff’s claim would not be time barred if brought in

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state court. Thus, this factor does not weigh in favor of allowing joinder. See Boon, 229 F. Supp.

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2d at 1023.

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Third, Plaintiff has not unjustifiably delayed in amending her complaint. Plaintiff filed the

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FAC less than a month after the case was removed. Moreover, Plaintiff’s claim against Polymathic

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Properties did not arise until Bank of America transferred the property. Plaintiff filed the FAC less

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than a month after this claim arose. Thus, this factor weighs in favor of allowing joinder of

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Polymathic Properties. See id. (amendment less than a month after removal is timely); IBC, 125 F.

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Supp. 2d at 1012 (same).

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“Consideration of the final fourth and fifth factors is intertwined, since an assessment as to

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the strength of the claims against the proposed new defendant (fifth factor) would appear to bear

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directly on whether joinder is sought solely to defeat diversity and divest this Court of

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jurisdiction.” Larry O. Crother, Inc. v. Lexington Ins. Co., No. 11-cv-00138-MCE-GGH, 2011

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WL 2259113, at *5 (E.D. Cal. June 7, 2011). While Plaintiff’s claim against Polymathic Properties

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may not be particularly strong, it does not appear that Plaintiff added a frivolous claim against
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Case No.: 11-CV-06388-LHK
ORDER REMANDING CASE TO STATE COURT

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Polymathic Properties solely to defeat diversity jurisdiction. See Mayes, 198 F.3d at 463. Rather,

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it appears that Plaintiff added Polymathic so that Plaintiff could obtain the relief that she sought all

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along – return of the subject property after it was foreclosed upon.
Finally, it appears that Plaintiff will suffer prejudice if the Court does not allow her to file

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the FAC. Refusing to allow the amendment would require Plaintiff to either litigate in two forums

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or forego the claims against Polymathic Properties. See IBC, 125 F. Supp. 2d at 1013. Cf. Boon,

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229 F. Supp. 2d at 1025. Looking at the factors as a whole, the Court finds amendment is

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warranted on the grounds that joinder of Polymathic Properties is necessary for Plaintiff to obtain

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the relief that she seeks, Plaintiff’s amendment was not unreasonably delayed, and it does not

United States District Court
For the Northern District of California

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appear that the amendment was made to destroy diversity. Finally, it is worth noting that despite

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an invitation to do so, Bank of America has not indicated its position on this Court’s subject matter

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jurisdiction, contested the amendment to the complaint, or argued that remand is improper.

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Therefore, the Court presumes that Bank of America has no objection to joinder of Polymathic

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Properties, and would not be prejudiced by remand to state court.
The Court will exercise its discretion and allow joinder of Polymathic Properties. The

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joinder of the newly added defendant destroys diversity jurisdiction, and divests this Court of the

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remaining basis of subject matter jurisdiction. Accordingly, this case must be remanded to state

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court.

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III.

CONCLUSION

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For the foregoing reasons, the Court determines that it lacks subject matter jurisdiction and

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REMANDS this case to Santa Clara County Superior Court. The Clerk shall close the file.

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IT IS SO ORDERED.

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Dated: April 27, 2012

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_________________________________
LUCY H. KOH
United States District Judge

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Case No.: 11-CV-06388-LHK
ORDER REMANDING CASE TO STATE COURT