United Western Bank v. Banc of America Funding Corporation et al
ORDER. ORDERED that Plaintiffs Motion to Remand this Case to State Court [Docket No. 45] filed by plaintiff Federal Deposit Insurance Corporation is GRANTED in part. It is granted with respect to plaintiff's third, fourth, and fifth claims for relief. These claims are remanded to the District Court for the City and County of Denver, Colorado, where they were filed as part of Case No. 2014CV30170. It is denied with respect to plaintiff's first and second claims for relief by Judge Philip A. Brimmer on 02/24/15.(jhawk, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 14-cv-00418-PAB-MJW
FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for UNITED
MORGAN STANLEY CAPITAL I INC.;
MORGAN STANLEY & CO, LLC;
RBS ACCEPTANCE INC;
RBS SECURITIES, INC.; and
RBS HOLDINGS USA INC.,
This matter is before the Court on Plaintiff’s Motion to Remand this Case to State
Court [Docket No. 45] filed by plaintiff Federal Deposit Insurance Corporation (“FDIC”)
as receiver for United Western Bank (“United Western”). This matter arises out of
defendants’ sale of mortgage-backed securities to United Western.
The FDIC alleges that defendants made untrue or misleading statements about
a significant number of the mortgage loans that they bundled into securities (known as
“certificates”) and sold to United Western in the first half of 2006. Docket No. 1-1 at 4.
United Western purchased the certificates at issue in eight groups: (1) the first group
was issued by Wells Fargo Asset Securities Corp. and underwritten and sold by
defendant Morgan Stanley & Co. LLC (“Morgan Stanley & Co.”) to United Western on
February 28, 2006, Docket No. 1-1 at 37; (2) the second g roup was issued by
defendant Morgan Stanley Capital I Inc. (“Morgan Stanley Capital”) and underwritten
and sold to United Western by defendant Morgan Stanley & Co. on January 31, 2006,
Docket No. 1-1 at 44; (3) the third group was issued by Morgan Stanley Capital and
underwritten and sold by Morgan Stanley Co. to United Western on February 28, 2006,
Docket No. 1-1 at 50; (4) the fourth group was issued by Morgan Stanley Capital and
underwritten and sold by Morgan Stanley & Co. to United Western on April 28, 2006,
Docket No. 1-1 at 57; (5) the fifth group was issued by defendant Banc of America
Funding Corporation and underwritten and sold by defendant Merrill Lynch, Pierce,
Fenner & Smith Inc. (“Merrill Lynch”) to United Western on April 3, 2006, Docket No. 12 at 1; (6) the sixth group was issued by Banc of America Funding Corporation and
underwritten and sold to United Western by Merrill Lynch on May 31, 2006, Docket No.
1-2 at 7; (7) the seventh group was issued by defendant Banc of America Mortgage
Securities Inc. and underwritten and sold to United W estern by Merrill Lynch on
February 28, 2006, Docket No. 1-2 at 13; (8) the eighth group was issued by defendant
RBS Acceptance Inc. (“RBS Acceptance”) and underwritten and sold to United Western
by defendant RBS Securities, Inc. on August 15, 2006. Docket No. 1-2 at 21.
The FDIC alleges that defendants made false or misleading statements
regarding the credit quality of the loans backing the securities they sold United
Western, including the loan-to-value ratios, the extent to which the appraisals securing
the loans were compliant with professional standards, the number of loans secured by
non-owner-occupied properties, and the extent to which the loan originators
disregarded their own origination standards in making the loans. Docket No. 1-1 at 3,
Based on these factual allegations, the FDIC alleges that Morgan Stanley & Co.,
Morgan Stanley Capital, Merrill Lynch, RBS Securities Inc., Banc of America Funding
Corporation, Banc of America Mortgage Securities, Inc., and RBS Acceptance violated
the Colorado Securities Act (“CSA”), Colo. Rev. Stat. § 11-51-604(4). Docket No. 1-1 at
27-30, ¶¶ 110-34. The FDIC alleges that Morgan Stanley, Bank of America, N.A., Bank
of America Corporation, and RBS Holdings USA Inc. violated the CSA, Colo. Rev. Stat.
§ 11-51-604(5). Docket No. 1-1 at 30-31, ¶¶ 135-47. T he FDIC alleges that Morgan
Stanley & Co. and Morgan Stanley Capital violated § 12(a)(2) of the Securities Act of
1933 (the “1933 Act”), 15 U.S.C. § 77k(a)(2). Docket No. 1-1 at 31-32, ¶¶ 148-61. T he
FDIC alleges that Morgan Stanley & Co. and Morgan Stanley Capital violated § 11 of
the 1933 Act, 15 U.S.C. § 77j. Docket No. 1-1 at 32-33, ¶¶ 162-72. T he FDIC alleges
that Morgan Stanley is liable under § 15 of the 1933 Act, 15 U.S.C. § 77o. Docket No.
1-1 at 33, ¶¶ 173-76.
On January 15, 2014, the FDIC brought this case against defendants in the
District Court for the City and County of Denver, Colorado. Docket No. 1-1 at 2. On
February 14, 2014, defendants removed the case to this Court. Docket No. 1.
Defendants assert that the Court has subject matter jurisdiction pursuant to 28 U.S.C.
§§ 1331, 1349 and 12 U.S.C. § 1819(a) and that rem oval is proper under 28 U.S.C.
§ 1441(c). Docket No. 1 at 3-5, ¶¶ 6-12.
On March 14, 2014, the FDIC filed the instant motion to remand on the basis that
28 U.S.C. § 1441(c) bars removal because this case includes a claim made non3
removable by statute. Docket No. 45. Defendants oppose the motion to remand.
Docket Nos. 52-55.
Plaintiff argues that this case must be remanded in its entirety because the
claims brought pursuant to the CSA arise from the same nucleus of operative fact as
the non-removable claims brought under the 1933 Act. Docket No. 45. Def endants
contend that the Court must retain jurisdiction over the CSA claims according to the
amended language of 28 U.S.C. § 1441(c). Docket Nos. 52-55. In addition, Morgan
Stanley, Morgan Stanley Capital I, and Morgan Stanley & Co. (the “Morgan Stanley
defendants”) argue that the Court should dismiss the claims brought under the 1933
Securities Act because they are time-barred. Docket No. 52 at 5-10.
The federal removal statute provides that:
If a civil action includes-(A)
a claim arising under the Constitution, laws, or treaties of the
United States (within the meaning of section 1331 of this title),
a claim not within the original or supplemental jurisdiction of
the district court or a claim that has been made nonremovable
by statute, the entire action may be removed if the action
would be removable without the inclusion of the claim
described in subparagraph (B).
Upon removal of an action described in paragraph (1), the district
court shall sever from the action all claims described in paragraph
(1)(B) and shall remand the severed claims to the State court from
which the action was removed.
28 U.S.C. § 1441(c) (as amended by the Federal Courts Jurisdiction and Venue
Clarification Act of 2011, Pub. L. 112-63, 125 Stat. 759, T itle I, § 103(a) (Dec. 7, 2011)).
Claims related to domestic securities and brought under the 1933 Act, however, are not
removable. 15 U.S.C. § 77v(a).1
Before the 2011 amendments, § 1441(c) read:
Whenever a separate and independent claim or cause of action within the
jurisdiction conferred by section 1331 of this title is joined with one or more
otherwise non-removable claims or causes of action, the entire case may be
removed and the district court may determine all issues therein, or, in its
discretion, may remand all matters in which state law predominates.
See GBI Holding Co. v. City of Chelan, 2012 WL 1610093, at *3 (E.D. W ash. May 7,
2012). Under this version, the phrase “separate and independent” was understood to
refer to claims that did not arise under the same nucleus of operative fact as the
removable claims and thus fell outside of a court’s supplemental jurisdiction. See, e.g.,
Borough of West Mifflin v. Lancaster, 45 F.3d 780, 786 (3d Cir. 1995). This
interpretation led some courts to find that § 1441(c) permitted federal courts to exercise
jurisdiction beyond the scope of Article III. See, e.g., Life Skills Village, PLLC v. AutoOwners Ins. Co., 16 F. Supp. 3d 872, 873 (E.D. Mich. 2014) (“T his Court previously had
determined that § 1441(c) represented an unconstitutional ex ercise of subject matter
jurisdiction because it purports to give courts authority to decide state law claims for
which the Federal courts do not have original jurisdiction.”) (citing Salei v. Boardwalk
Regency Corp., 913 F. Supp. 993 (E.D. Mich. 1996)).
In its 2011 amendments to § 1441(c), Congress removed the phrase “separate
and independent.” See Federal Courts Jurisdiction and Venue Clarification Act of 2011,
Section 77v(a) of Title 15 provides that “no case arising under this subchapter and
brought in any State court of competent jurisdiction shall be removed to any court of the
Pub. L. No. 112-63, § 103, 125 Stat. 758, 759 (Dec. 7, 2011). Under the plain lang uage
of the revised statute, a defendant may remove a case comprising both removable and
non-removable claims. The court must remand the non-removable claims and retain
the claims that are properly subject to removal, regardless of the relationship between
the remanded and retained claims.
Courts have held that § 1441(c) should be applied as written and have remanded
claims made non-removable by statute even though the claims shared a common
nucleus of operative fact with claims over which the court retained jurisdiction. See
Miley v. Housing Authority of City of Bridgeport, 926 F. Supp. 2d 420, 429 (D. Conn.
2013) (“Because Miley’s workers’ compensation claim has been made nonremovable
by statute, the Court must sever it and remand it back to state court pursuant to
§ 1441(c)’s clear directive.”); Nicely v. Safeway, Inc., 2013 WL 6552084, at *4 (D. Md.
Dec. 12, 2013) (“courts have severed and remanded the state law claims without regard
to whether the state law claim is related to the federal claim”); Turbe v. Whirlpool Corp.,
2013 WL 5675958, at *2 (N.D. Okla. Oct. 18, 2013) (“The plain language of § 1441(c)
requires the Court to sever plaintiff’s nonremovable workers’ compensation retaliation
claim and to remand only that claim to state court for further proceedings. The statute
provides the Court no discretion to retain jurisdiction over the entire case or to remand
the entire case due to the presence of a nonremovable claim.”); Bivins v. Glanz, 2012
WL 3136115, at *2 (N.D. Okla. Aug. 1, 2012) (“Under the amendment, the Court has no
discretion to remand federal claims that are joined with a statutorily nonremovable claim
. . . . Instead, the Court must sever and remand the nonremovable claim and retain all
other removed claims that are within the Court’s original or supplemental jurisdiction.”).
Plaintiff cites a different line of cases in which courts have relied on legislative
history2 to read the excised “separate and independent” requirement back into the
statute. See, e.g., F.D.I.C. v. Citigroup Mortgage Loan Trust, Inc., 2013 WL 3967993,
at *3 (M.D. Ala. Aug. 1, 2013) (“Because the nonremovable claims are intimately related
to the removable ones, § 1441(c) does not authorize removal of this case.”); F.D.I.C. ex
rel. Colonial Bank v. Banc of America Funding Corp., 2013 WL 3968017 (M.D. Ala.
Aug. 1, 2013) (same); FDIC v. Ally Securities LLC, Case No. 1:12-CA-872-SS, Docket
No. 104, slip op. at 15 (W.D. Tex. Dec. 6, 2012) (“Although the plain language of the
amended statute no longer speaks of ‘separate and independent’ claims, the
amendments were not intended to substantively alter this aspect of § 1441(c). A House
Report clarifies the amended § 1441(c) still applies to ‘the adjudication of separate
Federal law claims that are joined with unrelated state law claims.’ H.R. Rep. No. 1122
A House Report on the bill that amended § 1441(c) states that “Section 103(a)(4) of
the bill would amend subsection 1441(c) to clarify the right of access to Federal court
upon removal for the adjudication of separate Federal law claims that are joined with
unrelated state law claims. Subsection 1441(c) presently authorizes a defendant to
remove the entire case whenever a ‘separate and independent’ Federal question claim
is joined with one or more non-removable claims. That subsection also states that,
following removal, the district court may either retain the whole case or remand all
matters in which state law predominates. Some Federal district courts have declared
the provision unconstitutional or raised constitutional concerns because, on its f ace,
subsection 1441(c) purports to give courts authority to decide state law claims for which
the Federal courts do not have original jurisdiction. Other courts have chosen simply to
remand the entire case to state court, thereby defeating access to Federal court. . . .
This section of the bill is intended to make changes to better serve the purpose for
which the statute was originally designed, namely to provide a Federal forum for the
resolution of Federal claims that fall within the original jurisdiction of the Federal courts.
The amendment to subsection 1441(c) would permit the removal of the case but require
that a district court remand unrelated state law matters. This sever-and-remand
approach is intended to cure any constitutional problems while preserving the
defendant’s right to remove claims arising under Federal law.” H.R. REP. NO. 112-10, §
10 at 12 (2011).”)).
Commentators have noted the potential inefficiencies introduced by the
amendments to § 1441(c). See Charles Alan Wright et al., 14B Fed. Prac. & Proc.
Juris. § 3722.3 (4th ed. 2014) (“Some duplication may result [from application of the
revised version of § 1441(c)]. The removing defendants will have chosen a federal
forum for some of the claims against them, knowing that they might have to defend a
second, somewhat duplicative case in state court. The plaintiff, who sued in state court
where all of its claims could be heard together . . . will be subjected to additional
litigation burdens unless it chooses to forego prosecution of the claims that Congress
has chosen to make nonremovable.”). This inefficiency, however, does not empower
courts to ignore the text of the statute, especially where there is no ambiguity in that text
which might permit recourse to legislative history. See United States v. Woods, 134 S.
Ct. 557, 567 n.5 (2013) (“Whether or not legislative history is ever relevant, it need not
be consulted when, as here, the statutory text is unambiguous.”). It may well be that
some or even all the members of Congress who voted for the 2011 amendments did
not intend to expand § 1441(c) to allow for the removal of cases that assert related
removable and non-removable claims. The Court, however, can give effect only to the
text of the law and not to the intent that some legislators may have harbored at the time
of enactment. See ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE
INTERPRETATION OF LEGAL TEXTS 375 (Thomson/West 2012) (“To be ‘a government of
laws, not of men’ is to be governed by what the laws say, and not by what the people
who drafted the laws intended.”) (emphasis in original).
The Court has jurisdiction over plaintiff’s CSA claims pursuant to 12 U.S.C.
§ 1819(b)(2)(A) (“all suits of a civil nature at common law or in equity to which the
[FDIC], in any capacity, is a party shall be deemed to arise under the laws of the United
States”). As these claims fall within the meaning of § 1441(c)(1)(A), the Court must
retain jurisdiction over them. Plaintiff’s claims under the 1933 Act, on the other hand,
have been made nonremovable by statute and therefore must be remanded. See 28
U.S.C. §§ 1441(c)(1)(B), (2).
The Morgan Stanley defendants urge the Court to dismiss plaintiff’s claims under
the 1933 Securities Act on the grounds that they are “baseless.” Docket No. 52 at 5.
This request was not made in a separate document as required by the Local Rules, see
D.C.COLO.LCivR 7.1(d) (“A motion shall not be included in a response or reply to the
original motion. A motion shall be made in a separate document.”), but instead
included in a response to plaintiff’s motion to remand. Accordingly, the Court will not
consider these arguments. See JAH IP Holdings, LLC v. Mascio, No. 13-cv-02195MSK-KLM, 2014 WL 2462545, at *1 (D. Colo. June 2, 2014) (disregarding portion of
brief filed in response to motion to amend an answer in which plaintiff moved the court
to dismiss defendant’s counterclaims).
Wherefore, it is
ORDERED that Plaintiff’s Motion to Remand this Case to State Court [Docket
No. 45] filed by plaintiff Federal Deposit Insurance Corporation is GRANTED in part. It
is granted with respect to plaintiff’s third, fourth, and fifth claims for relief. These claims
are remanded to the District Court for the City and County of Denver, Colorado, where
they were filed as part of Case No. 2014CV30170. It is denied with respect to plaintiff’s
first and second claims for relief.
DATED February 24, 2015.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge
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