Solano et al v. MidCountry Bank et al

Filing 8

ORDER: Plaintiffs' Motion to Remand (Doc. 4 ) is granted. MidCountry's (Doc. 2 ) motion is denied as moot. Pursuant to 28 U.S.C. Section 1447(c), this action shall be remanded for lack of subject-matter jurisdiction to the Superior Court of the State of California, County of San Diego, Central Division, where it was originally filed and assigned Case No. 37-2010-00091648-CU-BC-CTL. Signed by Judge William Q. Hayes on 8/25/2010. (All non-registered users served via U.S. Mail Service.) (mdc) Modified on 8/26/2010 to edit text including superior court case #; regenerated NEF. (mdc)

-POR Solano et al v. MidCountry Bank et al

Doc. 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HAYES, Judge: The matters before the Court are Defendant MidCountry Bank's Motion to Dismiss (Doc. # 4) and Plaintiffs' Motion to Remand to State Court (Doc. # 4). BACKGROUND On May 1, 2010, Plaintiffs initiated this action by filing their Complaint in the Superior Court of the State of California for the County of San Diego. See Doc. # 1 at 14. On June 17, 2010, Defendant MidCountry Bank ("MidCountry") filed its Notice of Removal removing the case to this Court. Id. at 1. The Complaint alleges only state law claims, however, MidCountry stated in its Notice of Removal that those claims are preempted by the Truth in
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA
VICTOR SOLANO; SANDRA MORENO SOLANO, vs. MIDCOUNTRY BANK; COBS HOMES, LLC; RELIABLE TRUST DEED SERVICES, INC.; HR RE HOLDINGS, LLC; EDGAR SILVA; HECTOR SILVA; ALL PERSONS UNKNOWN claiming any legal or equitable right, title, estate, lien, or interest in the property described in the complaint adverse to Plaintiffs' title thereto; DOES 1 through 100, inclusive, Plaintiffs, CASE NO. 10cv1297 WQH (POR) ORDER

Defendants.

Dockets.Justia.com

1 Lending Act ("TILA") 16 U.S.C. § 1601, et seq. The Notice of Removal cites to Paragraphs 2 24, 28, 46, 54 and 90 of the Complaint as the basis for this Court's jurisdiction. 3 4 ALLEGATIONS OF THE COMPLAINT Plaintiff Sandra Moreno Solano's mother transferred titled to a property known as Lot

5 24 in Block A of Wadsworth Olive Grove in San Diego, California, to Sandra Moreno Solano 6 on February 4, 2002. (Doc. # 1 at ¶ 14). Plaintiffs intended to build their own home on this 7 property. Id. at ¶ 15. Plaintiffs contracted with COBS Homes to assist Plaintiffs with planning 8 and managing construction of their home. Id. Through COBS, Plaintiffs obtained a 9 construction loan with the First Federal Bank of Minnesota in the amount of $333,700. Id. at 10 ¶ 16. The loan matured on July 9, 2005. Id. First Federal Bank of Minnesota assigned the 11 loan to MidCountry. Id. As construction progressed, under the terms of the loan, Plaintiffs 12 were to submit "draw requests" to MidCountry for release of loan proceeds. Id. at ¶ 17. 13 In support of their first cause of action for breach of contract, Plaintiffs allege they

14 obtained extensions on the loan. Id. at ¶ 19. In consideration for the extensions, MidCountry 15 charged Plaintiffs $8,180.00. Id. COBS abandoned Plaintiffs, leaving them to complete 16 construction without their services. Id. In October 2007, Plaintiffs made the first draw 17 request. Id. MidCountry refused to pay the disbursement. Id. Four months later, MidCountry 18 informed Plaintiffs that the money was instead applied to "expenses or fees or charges of some 19 sort that had been allowed to accrue by MidCountry." Id. Because MidCountry refused to 20 disburse the funds, Plaintiffs were unable to continue construction, which placed them in 21 default on the loan. Id. MidCountry foreclosed on the property. Id. 22 In support of their second cause of action for breach of the covenant of good faith and

23 fair dealing, Plaintiffs allege MidCountry "allowed unspecified fees and charges to accrue 24 without advising Plaintiffs." Id. at ¶ 24. MidCountry "unilaterally and secretly" applied the 25 funds from the draw request to these fees and charges instead of paying the money out to 26 Plaintiffs. Id. MidCountry's actions prevented Plaintiffs from completing construction on 27 their home when it was substantially complete, causing Plaintiffs to default under the terms of 28 the loan. Id. In support of their third cause of action for unfair business practices, Plaintiffs allege
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1 MidCountry "unfairly and wrongfully" withheld the money Plaintiffs requested without 2 informing Plaintiffs, resulting in default and foreclosure. Id. at ¶ 28. These acts were "unfair, 3 deceptive, and designed to deprive Plaintiffs of valuable property rights, of labor, and of the 4 benefit of the bargain" they entered with MidCountry. Id. at ¶ 29. 5 Plaintiffs' fourth and fifth causes of action are also for unfair business practices. See

6 id. at ¶¶ 35-41. MidCountry does not rely on these claims as a basis for jurisdiction. 7 In support of their fifth cause of action for fraud, Plaintiffs allege MidCountry entered

8 the loan with the intent to fail to provide the funds. Id. at ¶¶ 43-44. MidCountry withheld 9 disbursements in order to cause default. Id. MidCountry did not inform Plaintiffs that fees and 10 charges were accumulating on the loan and did not inform Plaintiffs that their draw request 11 would be used to pay these fees and charges instead of being paid out to fund construction. 12 Id. at ¶ 46. As a result, Plaintiffs were unable to continue construction and lost the property 13 to foreclosure. Id. 14 In support of their sixth cause of action for negligence, Plaintiffs allege MidCountry had

15 a duty to disburse funds promptly upon receipt of a valid draw request until the loan balance 16 was depleted. Id. at 54. MidCountry had a duty to keep Plaintiffs reasonably informed of the 17 status of their loan including how much had been disbursed. Id. 18 Plaintiffs' seventh through twelfth causes of action are state law causes of action against

19 other Defendants. Id. at ¶¶ 58-87. 20 In support of Plaintiffs' thirteenth cause of action for accounting, Plaintiffs allege that

21 they are entitled to an accounting of all money distributed by MidCountry and all fees charged 22 by MidCountry. Id. at ¶ 90. Plaintiffs allege that MidCountry charged interest on all of the 23 funds even before the money was disbursed in violation of the contract. Id. Plaintiffs allege 24 this charge was excessive, unwarranted, and illegal. Id. 25 26 I. 27 Motion to Remand Plaintiffs contend that the Complaint does not allege any federal causes of action. (Doc. ANALYSIS

28 # 4-1 at 1). Plaintiffs contend that this Court lacks jurisdiction over the action because it is not "founded on a claim or right arising under the Constitution, treaties or laws of the United
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1 States." Id. at 3. Plaintiffs contend that removal is strictly construed and doubts as to 2 removability are resolved in favor of remand. Id. at 4. Plaintiffs contend that the causes of 3 action plead in the Complaint are breach of contract, breach of the covenant of good faith and 4 fair dealing, unfair business practices pursuant to California law, fraud, and negligence. Id. 5 Plaintiff contends these claims do not rely on or raise any issues of federal law. Id. Plaintiffs 6 contend that MidCountry's jurisdictional allegations are speculative because MidCountry 7 stated "Plaintiffs appear to allege that Defendants did not properly make the disclosures 8 required pursuant to" TILA. Id. at 5. Plaintiffs contend that remand is therefore required. Id. 9 at 4. Plaintiffs contend that they are entitled to attorney's fees which they incurred as a result 10 of removal because there is no objectively reasonable basis for removing the case. Id. at 5. 11 MidCountry contends Plaintiffs are forum shopping and have "strip[ped] away any

12 reference to federal loan disclosure statutes while alleging various disclosure violations under 13 the omitted federal laws." (Doc. # 6 at 3). MidCountry contends there is a substantial question 14 of federal law because federal law violations are necessary elements of Plaintiff's state law 15 claims. Id. at 4-5. MidCountry contends TILA and the associated Regulation Z specifically 16 cover this loan and govern the disclosures given at the initiation of this loan. Id. at 6. 17 MidCountry contends Plaintiffs' claims are related to alleged failures to disclose fees and 18 charges associated with the loan. Id. MidCountry contends Plaintiffs are not entitled to 19 attorney's fees because an objectively reasonable basis for removal exists. Id. at 7-8. 20 Pursuant to 28 U.S.C. § 1441(a), a defendant may remove "any civil action brought in

21 a State court of which the district courts . . . have original jurisdiction" to district court. Unlike 22 state courts, federal courts are courts of limited jurisdiction. See U.S. Const. art. III, § 2. 23 Federal courts "possess only that power authorized by Constitution and statute." Kokkonen v. 24 Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). Therefore, the removal statute 25 provides: "If at any time before final judgment it appears that the district court lacks subject 26 matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c). As the party seeking 27 to invoke the jurisdiction of this court, MidCountry bears the burden of establishing the "actual 28 existence of subject matter jurisdiction." See Thompson v. McComb, 99 F.3d 352, 353 (9th Cir. 1996). The removal statute is to be strictly construed and doubts should be resolved in favor
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1 of remanding the action to state court. Matheson v. Progressive Specialty Ins. Co., 582 F.3d 2 1083, 1087 (9th Cir. 2003). 3 "The presence or absence of federal question jurisdiction is governed by the

4 `well-pleaded complaint rule,' which provides that federal jurisdiction exists only when a 5 federal question is presented on the face of the plaintiff's properly pleaded complaint." 6 California v. United States, 215 F.3d 1005, 1014 (9th Cir. 2000). In applying this rule, the 7 Court considers "what necessarily appears in the plaintiff's statement of his or her own claim 8 in the bill or declaration, unaided by anything alleged in anticipation of avoidance of defenses 9 which it is thought the defendant may interpose." Id. 10 Where the face of the complaint does not allege a federal cause of action, removal might

11 still be proper under the "artful pleading" doctrine. See Lippit v. Raymond James Fin. Servs., 12 340 F.3d 1033, 1041 (9th Cir. 2003). "The artful pleading doctrine is a corollary to the 13 well-pleaded complaint rule, and provides that although the plaintiff is master of his own 14 pleadings, he may not avoid federal jurisdiction by omitting from the complaint allegations of 15 federal law that are essential to the establishment of his claim." Hansen v. Blue Cross of Cal., 16 891 F.2d 1384, 1389 (9th Cir. 1989) (citation omitted). A state law claim presents a substantial 17 federal question if the claim if it "necessarily raise[s] a stated federal issue, actually disputed 18 and substantial, which a federal forum may entertain without disturbing any congressionally 19 approved balance of federal and state judicial responsibilities." Grable & Sons Metal Prods. 20 Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 314 (2005). However, even "[t]he invocation of 21 [a federal law] as a basis for establishing an element of a state law cause of action does not 22 confer federal question jurisdiction" where there is a state law basis for the same element. See 23 Rains v. Criterion Sys., 80 F.3d 339, 345 (9th Cir. 1996). 24 In support of jurisdictional allegations in its notice of removal, MidCountry cites to

25 Plaintiffs' allegations that: 26 (1) 27 28 MidCountry breached the covenant of good faith and fair dealing by allowed unspecified fees and charges to accrue without advising Plaintiffs, "unilaterally and secretly" applied the funds from the draw request to these fees and charges instead of paying the money out to Plaintiffs, resulting in Plaintiffs default on the loan;
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1 (2) 2 3 4 (3) 5 6 7 (4) 8 9 (5)

MidCountry violated California Civil Code § 17200 by engaging in unfair business practices, including unfairly and wrongfully withholding the money Plaintiffs requested without informing Plaintiffs, resulting in default and foreclosure; MidCountry committed fraud by failing to inform Plaintiffs that fees and charges were accumulating on the loan and that their draw request would be used to pay these fees and charges instead of being paid out to fund construction; MidCountry breached its contractual duty to disburse funds promptly and to keep Plaintiffs' informed about the status of the loan; Plaintiffs are entitled to an accounting.

10 (Doc. # 1 at 2, citing Compl., Doc. # 1, at ¶¶ 24, 28, 46, 54 and 90). Each of these claims is 11 a stand-alone state law cause of action which does not rely on violation of federal law as an 12 element of the claim. These claims do not "necessarily raise" a federal question. See Grable 13 & Sons, 545 U.S. at 345.1 MidCountry has failed to establish that Plaintiff's claims involve 14 a substantial federal question. 15 Although MidCountry initially referenced preemption in their Notice of Removal,

16 MidCountry did not assert that TILA preempts Plaintiffs' claims in its opposition to Plaintiffs' 17 Motion to Remand. The burden of establishing federal subject matter jurisdiction is on 18 MidCountry. Thompson v. McComb, 99 F.3d at 353. The Court finds that MidCountry has 19 failed to establish that Plaintiff's claims are preempted by federal law. 20 Plaintiffs' Motion to Remand is granted. Although the Court finds that MidCountry

21 failed to meet its burden of establishing subject matter jurisdiction, the Court will not award 22 attorney's fees to Plaintiffs because MidCountry had a objectively reasonable basis for seeking 23 removal. 24 II. 25 Motion to Dismiss MidCountry moved to dismiss Plaintiffs' claims for unfair business practices, fraud, and

26 accounting. (Doc. # 4). Because this Court has concluded that this case should be remanded 27 to state court for lack of jurisdiction, MidCountry's motion is denied as moot. 28 Indeed, the Court notes that MidCountry's Motion to Dismiss does not cite to TILA at all, nor does it reference any other federal statute.
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1

1 2

CONCLUSION IT IS HEREBY ORDERED that pursuant to 28 U.S.C. § 1447(c), this action shall be

3 REMANDED for lack of subject-matter jurisdiction to the Superior Court of the State of 4 California, County of San Diego, Central Division, where it was originally filed and assigned 5 Case No. 07-2010-00091648-CU-BC-CTL. 6 DATED: August 25, 2010 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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WILLIAM Q. HAYES United States District Judge