Tomlinson et al v. Deutsche Bank National Trust Company et al
Filing
32
FINDINGS AND RECOMMENDATION TO GRANT PLAINTIFFS' MOTION FOR REMAND, AND ORDER DENYING DEFENDANT'S MOTION TO SEVER CLAIMS AND DENYING AS MOOT DEFENDANT'S JOINDER IN MOTION TO SEVER CLAIMS re 10 , 15 , 17 - Signed by Judge BARRY M . KURREN on 1/29/2014. "The Court finds that neither the doctrine of fraudulent joinder nor fraudulent misjoinder permit the Court to ignore incomplete diversity in this case. Without complete diversity, this Court lacks jurisdic tion. Accordingly, the Court finds that remand to state court is proper and that the Court lacks jurisdiction to hear Deutsche Bank's Motion to Sever. Because the Court lacks jurisdiction to hear the Motion to Sever, US Bank's joinder in the motion is rendered moot. For the foregoing reasons, the Court FINDS and RECOMMENDS that Plaintiffs' Motion to Remand be GRANTED, and ORDERS that Defendant's Motion to Sever be DENIED for lack of jurisdiction, and Defendant's M otion for Joinder be TERMINATED as Moot." (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
JOHN C. TOMLINSON, ET AL.,
)
)
Plaintiffs,
)
)
vs.
)
)
DEUTSCHE BANK NATIONAL
)
TRUST COMPANY, ET AL.,
)
)
Defendants.
)
______________________________ )
CV 13-00554 SOM-BMK
FINDINGS AND
RECOMMENDATION TO GRANT
PLAINTIFFS’ MOTION FOR
REMAND, AND ORDER
DENYING DEFENDANT’S
MOTION TO SEVER CLAIMS
AND DENYING AS MOOT
DEFENDANT’S JOINDER IN
MOTION TO SEVER CLAIMS
FINDINGS AND RECOMMENDATION TO GRANT PLAINTIFFS’ MOTION
FOR REMAND, AND ORDER DENYING DEFENDANT’S MOTION TO
SEVER CLAIMS AND DENYING AS MOOT DEFENDANT’S JOINDER IN
MOTION TO SEVER CLAIMS
Before the Court are Plaintiffs JOHN C. TOMLINSON, SUSAN M.
TOMLINSON, and RHONDA L. SNYDER’S (collectively “Plaintiffs”) Motion to
Remand (Doc. 17), Defendant DEUTSCHE BANK NATIONAL TRUST
COMPANY’S (“Deutsche Bank”) Motion to Sever Claims (Doc. 10), and
Defendant U.S. BANK, N.A.’S (“US Bank”) Joinder in Deutsche Bank’s Motion
to Sever Claims (Doc. 15). The Court heard these Motions on January 17, 2014.
After careful consideration of the Motions, the supporting and opposing
memoranda, and the arguments of counsel, the Court recommends that Plaintiffs’
Motion to Remand be GRANTED, and the Court DENIES Deutsche Bank’s
Motion to Sever, and TERMINATES US Bank’s Joinder as Moot.
Defendants removed this case on the basis of diversity of citizenship.
Although, on the face of the complaint, complete diversity did not exist,
Defendants assert that under the doctrines of fraudulent joinder and/or fraudulent
misjoinder, removal was nonetheless proper. As discussed below, the Court finds
that neither doctrine permits the court to overlook incomplete diversity in this case.
FACTUAL BACKGROUND
On September 11, 2013, Plaintiffs filed suit in the Circuit Court of the
First Circuit for the State of Hawaii against Deutsche Bank and US Bank. (Doc. 11.) The Complaint alleges that Deutsche Bank and US Bank knowingly
participated in a false and deceptive scheme involving the fraudulent assignment of
mortgages and mortgage notes. (Doc. 1-1 at 12-13.) This alleged scheme entailed
the Defendants knowingly accepting the assignment of these instruments from
New Century Mortgage Corp. (“New Century”), where New Century purportedly
lacked an ownership interest in the instruments and thus lacked the lawful authority
to assign them.1 (Id.) Specifically, New Century assigned the Snyder mortgage to
1
New Century is in federal bankruptcy liquidation proceedings in Delaware, and
therefore is not a party to this lawsuit. (Doc. 17 at 5.)
2
US Bank, and the Tomlinson mortgage to Deutsche Bank. (Doc. 1-1 at 15-17.)
Plaintiffs assert that Defendants’ actions in connection with these assignments
constitute an “unfair and deceptive practice” under Hawaii Revised Statutes
(“HRS”) Chapter 480.2 (Id. at 13.)
Plaintiffs allege that this scheme culminated in the Defendants’
wrongful non-judicial foreclosure of Plaintiffs’ respective Hawaii properties. (Id.
at 13-14.) Specifically, Plaintiffs assert that Deutsche Bank unlawfully foreclosed
on the Tomlinson property (Doc. 1-1 at 15), and US Bank unlawfully foreclosed on
the Snyder property. (Doc. 1-1 at 17) The common denominator being that New
Century was the assignor of both mortgages. In addition to their unfair and
deceptive practice claim, Plaintiffs assert that the recordation of “forged and false
instruments” by the Defendants with the Hawaii Bureau of Conveyance constituted
a criminal act in violation of HRS § 708-852(1).3 (Id. at 14.)
2
HRS § 480-2(a) provides that, “Unfair methods of competition and unfair or deceptive
acts or practices in the conduct of any trade or commerce are unlawful.”
3
HRS § 708-852(1) provides in relevant part, “A person commits the offense of forgery
in the second degree if, with intent to defraud, the person falsely makes, completes, endorses, or
alters a written instrument, or utters a forged instrument . . . .which does or may evidence, create,
transfer, terminate, or otherwise affect a legal right, interest, obligation, or status.”
3
US Bank failed to timely respond to Plaintiffs’ Complaint. (Doc. 178.) Accordingly, the First Circuit Court for the State of Hawaii entered Default
against US Bank on October 23, 2013. (Id.) It appears, however, that no final
judgment of default was entered in state court.
On October 24, 2013, Deutsche Bank filed a Notice of Removal
asserting federal diversity jurisdiction under 28 U.S.C. § 1332(a)(1), and pursuant
to 28 U.S.C. § 1441 (a) and (b), “as the matter exceeds the sum or value of $75,000
. . . and is between citizens of different states.” (Doc. 1 at 3-4.) Although
Deutsche Bank and Snyder are both citizens of California, facially defeating
diversity jurisdiction, Deutsche Bank asserted that removal was nonetheless proper
because the Snyder claim against US Bank, and the Tomlinson claim against
Deutsche Bank were improperly joined. (Id. at 5.) According to Deutsche Bank,
the claims of Snyder and the Tomlinsons do not arise from “the same transaction,
occurrence, or series of transactions or occurrences,” as is required for joinder
under Federal Rules of Civil Procedure (“FRCP”) Rule 20(a). (Id.) Rather,
according to Deutsche Bank, they are two separate claims involving separate
property owners against two separate banks. Deutsche Bank’s Notice of Removal
asserted that the Plaintiffs should be severed, and that thereafter complete diversity
will exist to support removal. (Doc. 1 at 7-8.) Only after removing this case,
4
however, did Deutsche Bank file a Motion to Sever the claims of Snyder and the
Tomlinsons.4 (Doc. 10.)
On November 22, 2013, Plaintiffs filed the present Motion to
Remand. (Doc. 17.) Plaintiffs assert, first, that removal was improper because, at
the time of removal, the Plaintiffs’ claims had not been severed and complete
diversity did not exist. (Doc. 17 at 2.) The federal court, Plaintiffs argue, therefore
lacked jurisdiction to consider “the alleged misjoinder,” the very basis for
Deutsche Bank’s removal. (Id.) Impliedly, Deutsche Bank should have been
required to file a Motion to Sever in state court, and only if successful there, pursue
removal.
Second, Plaintiffs assert that “case law is clear that claims against
purported assignees of instruments from the same assignor may properly be joined
together where the putative assignor is alleged to have made the assignments as
part of a common scheme.” (Id.) Accordingly, Plaintiffs claim that even if the
federal court had jurisdiction to consider the propriety of joinder, joinder was
proper and complete diversity would therefore not exist to support removal.
4
US Bank subsequently filed a Motion to Join Deutsche Bank’s Motion to Sever. (Doc.
15.)
5
In opposing Plaintiffs’ Motion to Remand, Deutsche Bank and US
Bank now argue that this Court should apply the doctrines of fraudulent joinder
and/or fraudulent misjoinder to effectively sever Plaintiffs’ claims, thereby
establishing federal diversity jurisdiction. Both Defendants assert that because
Plaintiffs have failed to satisfy the joinder requirements of FRCP Rule 20, the
doctrine of fraudulent misjoinder permits the court to ignore the lack of complete
diversity for purposes of federal jurisdiction. (Doc. 25 at 1, Doc. 26 at 4-5.) US
Bank makes the additional argument, that because Snyder’s claim against US Bank
was filed after the statute of limitation for a claim for Unfair and Deceptive
Practices, it is fraudulently joined with the Tomlinsons’ claim against Deutsche
Bank, and may be ignored for purposes of diversity jurisdiction (Doc. 26 at 16.)
STANDARD OF REVIEW
“When an action is removed on the basis of diversity, the requisite
diversity must exist at the time the action is removed to federal court.” Miller v.
Grgurich, 763 F.2d 372, 373 (9th Cir. 1985). Moreover, “[t]he diversity upon
which removal is predicated must be complete.” Id.
Federal courts “strictly construe the removal statute against removal
jurisdiction,” such that “[f]ederal jurisdiction must be rejected if there is any doubt
as to the right of removal in the first instance.” Gaus v. Miles, Inc., 980 F.2d 564,
6
566 (9th Cir. 1992). “The party seeking removal has the burden of establishing
federal jurisdiction, and ‘[n]ormally, the existence of federal jurisdiction on
removal must be determined from the face of plaintiff[’s] complaint.’”
Westinghouse Elec. Corp. v. Newman & Holtzinger, P.C., 992 F.2d 932, 934 (9th
Cir. 1993).
DISCUSSION
The threshold issue in this case is jurisdictional. At the time
Defendants removed this action from state court, the Plaintiffs’ claims had not yet
been severed. Accordingly, complete diversity did not exist and removal was
improper, unless some exception empowers this Court to ignore the citizenship of
the non-diverse parties. Deutsche Bank and US Bank assert that fraudulent joinder
and fraudulent misjoinder, two distinct exceptions to the complete diversity rule,
each empower the Court to do just that. As discussed below, the Court finds that
neither doctrine, even if applicable in the Ninth Circuit, provides an avenue to
federal diversity jurisdiction under the circumstances of this case.
I.
FRAUDULENT JOINDER
Courts, including the Ninth Circuit, “have long recognized fraudulent
joinder as an exception to the complete diversity rule.” In re Prempro Products
Liability Litigation, 591 F.3d 613, 620 (8th Cir. 2010); see also Ritchey v. Upjohn
7
Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998) (“it is commonplace that
fraudulently joined defendants will not defeat removal on diversity grounds.”).
Fraudulent joinder “occurs when a plaintiff files a frivolous or illegitimate claim
against a non-diverse defendant solely to prevent removal.”5 Prempro, 591 F.3d at
620; see also Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001)
(“Joinder of a non-diverse defendant is deemed fraudulent, and . . . ignored for
purposes of determining diversity, ‘[i]f the plaintiff fails to state a cause of action
against a resident defendant, and the failure is obvious according to the settled
rules of the state.’”). “When determining if a party has been fraudulently joined, a
court considers whether there is any reasonable basis in fact or law to support a
claim against a nondiverse defendant.” Prempro, 591 F.3d at 620.
In California Dump Truck Owners Ass’n v. Cummins Engine Co.,
Inc., 24 Fed. Appx. 727 (9th Cir. 2001), for example, the manufacturer defendant
removed the case from California state court to federal court, claiming that the
court should ignore the citizenship of a non-diverse trucking company because the
company was fraudulently joined. Id. at 729. The district court denied the
plaintiffs’ motion to remand, apparently holding, in part, that the plaintiffs had
5
Fraudulent joinder is a term of art and does not necessarily involve “fraud” in some
legal sense. The Fifth Circuit has adopted the term “improper joinder” to make this point. See
Elam v. Kansas City Souther Ry. Co., 635 F.3d 796, 812 (5th Cir. 2011); see also Wright and
Miller, 13 F Fed. Prac. & Proc. Juris. § 3641.1 (3d ed.).
8
failed to state a valid cause of action against the non-diverse defendant because the
plaintiffs had not provided evidence of the non-diverse defendant’s connection to
California. Id.
The Ninth Circuit reversed and ordered the case remanded to state
court. Id. at 730. The Ninth Circuit held that fraudulent joinder may come into
play if there is “no possibility” that a plaintiff would be able to establish a cause of
action against a defendant in state court. Id. at 729. The plaintiffs’ failure to
provide evidence of a connection to California was not, however, sufficient to
show that there was “no possibility” of a valid claim, “given California’s liberal
rules on amendment of pleadings” and the likelihood that the plaintiffs would have
been granted leave to amend to address any deficiencies. Id. at 729-730.
Accordingly, the Court held that the defendants seeking removal had failed to meet
their burden of proving fraudulent joinder.
Fraudulent joinder did provide a basis for ignoring incomplete
diversity and denying remand in Ritchey v. Upjohn Drug Co., 139 F.3d 1313 (9th
Cir. 1998). The plaintiff first filed suit in federal court alleging injuries from use
of a drug manufactured by Upjohn. Id. at 1315. In this suit, the federal district
court granted summary judgment against the plaintiff due to his failure to file his
personal injury suit within California’s one-year statute of limitations. Id. The
9
plaintiff then filed suit in state court alleging essentially the same claims, but also
naming two non-diverse physician defendants. Upjohn then removed the case to
federal court asserting that the physicians were fraudulently joined, sham
defendants because both res judicata and the statute of limitations barred any action
against them. Id.
The Ninth Circuit observed that on the face of the complaint,
complete diversity did not exist. Id. at 1318. The court stated further, however,
that if a plaintiff “fails to state a cause of action against a resident defendant, and
the failure is obvious according to the settled rules of the state, the joinder of the
resident defendant is fraudulent.” Id. In making this determination, the court will
look to the complaint, but also permit the defendant an opportunity to show that
joined individuals “cannot be liable on any theory.” Id.
The court noted that it is “a slight anomaly” to view a statute of
limitations as grounds for dismissing a complaint for failure to state a cause of
action. Id. at 1320. In light of the prior dismissal of the plaintiff’s federal lawsuit,
however, the court nonetheless held that statute of limitations barred any claim
against the physician defendants. Id. Accordingly, for the purposes of removal,
they were “sham” defendants, and their fraudulent joinder was insufficient to bar
removal. Id. at 1320.
10
In the present case, US Bank asserts that Snyder’s claim against it for
unfair and deceptive trade practices is barred by Hawaii’s four-year statute of
limitations under HRS § 480-24(a).6 (Doc. at 26 at 16.) According to US Bank,
Snyder’s claim for Unfair and Deceptive Trade Practices arises from New
Century’s allegedly unlawful assignment of her mortgage to US Bank on January
19, 2009. (Id.) Snyder did not file her complaint in state court until September 11,
2013, more than four years after the allegedly unlawful transaction. Therefore, US
Bank asserts that Snyder fails to state a cause of action and is fraudulently joined to
the Tomlinsons’ suit.
In support of its argument, US Bank cites the recent dismissal of a
similar claim in Lowther v. US Bank, CV 13-235 LEK-BMK (D. Haw. September
4, 2013).7 As in the present case, Lowther asserted a claim for Unfair and
Deceptive Practices arising from New Century’s allegedly unlawful assignment of
Lowther’s mortgage to US Bank. Id. at 39. US Bank moved to dismiss Lowther’s
6
HRS § 480-24(a) provides that:
Any action to enforce a cause of action arising under this chapter
shall be barred unless commenced within four years after the cause
of action accrues, except as otherwise provided in subsection (b)
and section 480-22. For the purpose of this section, a cause of
action for a continuing violation is deemed to accrue at any time
during the period of the violation.
7
Lowther is represented by the same attorneys who represent Snyder and the
Tomlinsons in the present case.
11
UDAP claim as time-barred for failure to file her complaint within four-years of
the assignment. Id. at 40. Lowther argued that her claim was timely under the
“‘continuing violation’ provision of HRS § 480-24(a).” Id. at 41. Judge Leslie E.
Kobayashi found no continuing violation and granted the defendant’s motion to
dismiss Lowther’s UDAP claim with prejudice, “to the extent that” it is based on a
“continuing violation.” Id. at 46. Judge Kobayashi, however, also held that based
upon the equitable tolling doctrine of fraudulent concealment, Lowther’s UDAP
claim could “arguably be cured by amendment.” Id. at 47. Accordingly, to the
extent that the UDAP claim is based upon fraudulent concealment, it was
dismissed without prejudice. Id.
Assuming for the sake of argument that Lowther closely mirrors the
present case, the dismissal of Lowther’s UDAP claim does not, by itself, support a
finding that Snyder was fraudulently joined for purposes of diversity jurisdiction.
Under Ritchey, fraudulent joinder exists where a plaintiff “fails to state a cause of
action against a resident defendant, and the failure is obvious according to the
settled rules of the state.” Ritchey also held that the defendant seeking removal
bears the burden to show that it “cannot be liable on any theory.” See also
12
California Dump, 24 Fed. Appx. at 729 (requiring “no possibility” of a valid claim
to find fraudulent joinder).8
The “possibility” of a cause of action encompasses, as in California
Dump Truck, inquiry into the chance that a state court might permit an amendment
of a complaint to cure any deficiencies and that those deficiencies are curable.
Judge Kobayashi’s ruling that Lowther could arguably cure the deficiencies in her
complaint provides that the “possibility” of a cause of action exists even where the
statute of limitations appears to bar a claim. As in Lowther, this court must
presume here that any statute of limitations barrier to a UDAP claim might
eliminated by amended pleadings asserting exceptions to the rule. Moreover,
counsel for US Bank conceded at oral argument that Plaintiffs’ complaint stated
additional claims, other than UDAP. Therefore, any statute of limitations issue
with Snyder’s UDAP claim would not, by itself, eliminate Snyder from this suit.
8
In view of Ritchey and California Dump Truck, finding “no cause of action” for
purposes of fraudulent joinder appears to involve a heightened level of analysis from that
required for a motion to dismiss under FRCP Rule 12(b)(6). See also, Lizari v. CVS Pharmacy,
Inc., CV 10-10066 SVW, 2011 WL 2238806, *2 (C.D. Cal. 2011) (courts in the Ninth Circuit
apply fraudulent joinder only in cases where it is “undisputedly clear” that there is no cause of
action against a non-diverse defendant); see also Hartley v. CSX Transp., Inc., 187 F.3d 422, 426
(4th Cir. 1999) (once the court identifies a “glimmer of hope for the plaintiff,” the jurisdictional
inquiry ends). In contrast, the post Iqbal, standard for a 12(b)(6) motion does not require that it
appear “beyond a doubt” that a plaintiff does not state a claim, or that under “no-set-of-facts”
would a plaintiff be entitled to relief. See Ashcroft v. Iqbal, 556 U.S. 662, 670 (2009).
13
Accordingly, the Court does not find that Snyder fails to state a cause
of action for purposes of fraudulent joinder. US Bank has failed to meet its burden
of showing that it “cannot be liable on any theory.” Ritchey, 139 F.3d at 1318.
Thus, the doctrine of fraudulent joinder does permit the Court to ignore the lack of
complete diversity in this case for purposes of federal jurisdiction and removal.
II.
FRAUDULENT MISJOINDER
Fraudulent misjoinder, in contrast to fraudulent joinder, is a relatively
recent exception to the complete diversity rule. See In re Prempro Products
Liability Litigation, 591 F.3d 613, 620 (8th Cir. 2010). Fraudulent misjoinder
occurs when “a plaintiff sues a diverse defendant in state court and joins a viable
claim involving a nondiverse party, or a resident defendant, even though the
plaintiff has no reasonable procedural basis to join them in one action because the
claims bear no relation to each other.” Prempro, 591 F.3d at 620. Accordingly,
while fraudulent joinder attacks the legitimacy of a claim against a nondiverse
party, fraudulent misjoinder challenges the nexus or relationship between joined,
independently viable suits.
Unlike fraudulent joinder, fraudulent misjoinder has not been broadly
accepted by appellate courts. See Prempro, 591 F.3d at 620 n. 4. The Eleventh
Circuit, is the only federal appellate court to expressly adopt the doctrine of
14
fraudulent misjoinder. See Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353 (11th
Cir. 1996). The Fifth, Eighth, Ninth, and Tenth Circuits have acknowledged its
possible applicability, but have yet to expressly accept it or apply it in any case.
See In re Benjamin Moore & Co., 309 F.3d 296, 298 (5th Cir.2002) (citing
Tapscott, 77 F.3d at 1360) (“[I]t might be concluded that misjoinder of plaintiffs
should not be allowed to defeat diversity jurisdiction.”); California Dump Truck
Owners Ass'n v. Cummins Engine Co., Inc., 24 Fed.Appx. 727, 729 (9th Cir. 2001)
(“For purposes of discussion we will assume, without deciding, that this circuit
would accept the doctrines of fraudulent and egregious joinder as applied to
plaintiffs.”); Lafelier v. State Farm Fire and Cas. Co., 391 Fed. Appx. 732 (10th
Cir. 2012) (“There may be good reasons to adopt procedural misjoinder . . . . but
we need not decide that issue today.”); Prempro, 591 F.3d at 620 n.4.
“The Eleventh circuit first considered and adopted the fraudulent
misjoinder doctrine in Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353 (11th Cir.
1996).” Prempro, 591 F.3d at 620. In Tapscott, an initial complaint alleged fraud
arising from the sale of automobile service contracts. Tapscott, 77 F.3d at 1355.
Amended complaints brought in additional plaintiffs and defendants and alleged
fraud in the sale of extended service contracts for retail products. Id. In its final
incarnation, after joinder under FRCP Rule 20, the suit presented two distinct
15
groups of plaintiffs and defendants: the non-diverse “automobile class” and the
diverse “merchant class.” Defendant Lowe’s Homes Centers removed the case to
federal court and moved to sever the claims against it from the claims against the
automobile class defendants. Id. Plaintiffs sought remand based upon lack of
complete diversity. Id. The district court granted Lowe’s motion to sever and
denied plaintiffs’ motion to remand holding that “there was improper and
fraudulent joinder, bordering on a sham.” Id. at 1360.
Affirming the district court’s decision, the Eleventh Circuit observed
that diversity jurisdiction under 28 U.S.C. § 1332 required that every plaintiff must
be diverse from every defendant, but held that “an action may nevertheless be
removable if the joinder of non-diverse parties is fraudulent.” Tapscott, 77 F.3d at
1359. The Court “recognized two situations where joinder is fraudulent: (1) if
there is no possibility the plaintiff can prove a cause of action against the resident
defendant; or (2) if there has been outright fraud by the plaintiff in pleading
jurisdictional facts.” Id. at 1360 n.17. The Eleventh circuit held that Tapscott fell
into the later category of “outright fraud,” or fraudulent misjoinder. According to
the Court, there was “no real connection” between the two sets of alleged
transactions and the only similarity between the two classes was that they both
involved alleged violations of the same fraud provisions of the state code. Id. at
16
1360. Accordingly, joinder of these two groups of unrelated defendants was “so
egregious” as to constitute fraudulent misjoinder. Id. The Eleventh Circuit
cautioned, however, that fraudulent misjoinder, sufficient to justify an exception to
the complete diversity rule, is beyond “mere misjoinder.” Rather, the misjoinder
must be “egregious,” presumptively rising to the level of “outright fraud.” Id.
As the Eighth Circuit observed in Prempro, other “Courts’ reactions to
Tapscott have been mixed.” Prempro, 591 F.3d at 620. While some district courts
outside the Eleventh circuit have adopted the doctrine, see e.g., In re Diet Drugs,
No. 98-20478, 1999 WL 554584, at *3 (E.D. Pa. July 16, 1999) (unreported)
(explaining that plaintiffs’ egregious misjoinder “wrongfully deprives Defendants
of their right of removal.”); Reed v. American Medical Sec. Group, Inc., 324 F.
Supp. 2d 798, 805 (S.D. Miss. 2004) (adopting the fraudulent misjoinder doctrine
because “diverse defendants ought not be deprived of their right to a federal forum
by such a contrivance as this.”), “[o]ther courts have criticized Tapscott, arguing
that questions of joinder under state law do not implicate federal subject matter
jurisdiction, federal jurisdiction is to be narrowly construed, and the fraudulent
misjoinder doctrine has created an unpredictable and complex jurisdictional rule.”
Prempro, 591 F.3d at 621-622; see also Osborn v. Metropolitan Life Ins. Co., 341
F. Supp. 2d 1123, 1127 (E.D. Cal.2004) (rejecting fraudulent misjoinder because
17
“the last thing the federal courts need is more procedural complexity.”); Rutherford
v. Merck & Co., 428 F. Supp. 2d 842, 851 (S.D. Ill. 2006) (holding that Tapscott is
an improper expansion of federal diversity jurisdiction, and “whether viable
state-law claims have been misjoined-even ‘egregiously’ misjoined-is a matter to
be resolved by a state court.”); Geffen v. General Elec. Co., 575 F. Supp. 2d 865,
871 (N.D. Ohio 2008) (rejecting fraudulent misjoinder as a dubious doctrine
requiring the court to “wade into a thorny thicket of unsettled law.”);
In Prempro, the most recent appellate court case to consider fraudulent
misjoinder, three separate suits were filed in Minnesota state court by three
plaintiff groups representing a combined total of more than one hundred and fifty
women and their decedents. Prempro, 591 F.3d at 617. The various suits asserted
claims against more than eleven companies that manufactured, marketed, and sold
hormone replacement therapy (“HRT”) drugs. Id. The manufacturers removed all
three cases to federal district court, arguing in their removal petitions that the
individual claims within each case were fraudulently misjoined because they “did
not arise out of the same transaction or occurrence,” as required by FRCP Rule
20(a). Id. at 618. The plaintiffs filed motions to remand asserting a lack of
complete diversity. Id.
18
Relevant to our present case, the district court upheld the removal
concluding that the plaintiffs had failed to properly join under Rule 20 because
“[t]he only thing common among Plaintiffs is that they took an HRT drug—but not
necessarily the same HRT drug. Plaintiffs are residents of different states and were
prescribed different HRT drugs by different doctors, for different lengths of time,
in different amounts, and they suffered different injuries.” Id. at 618. Proceeding
in federal court, 116 plaintiffs were dropped from the litigation and their cases
dismissed. Id. at 619. On appeal, the dismissed plaintiffs argued that the district
court had erred in denying their motions to remand by applying a “discredited
theory” of fraudulent misjoinder. Id.
The Eighth Circuit reversed the district court’s decision and remanded
all the cases to state court for lack of diversity jurisdiction, but declined to “either
adopt or reject” the doctrine of fraudulent misjoinder, holding that “even if we
adopted the doctrine, the plaintiffs’ alleged misjoinder . . . is not so egregious as to
constitute fraudulent misjoinder.” Prempro, 591 F.3d at 622. Reading the
language of Rule 20 “as broadly as possible,” the Eighth Circuit held that “based
on the plaintiffs’ complaints, we cannot say that their claims have no ‘real
connection’ to each other such that they are egregiously misjoined.” Id. It was
sufficient that plaintiffs’ claims arose from a series of transactions between drug
19
manufacturers and individuals that had used the drug, that plaintiffs’ alleged claims
related to the use of the drug, and that the plaintiffs’ claims contained common
questions of law and fact. Id. at 623.
Notably, the Eighth Circuit’s inquiry was not whether joinder was
appropriate under Rule 20, but rather, whether the defendants had made a showing
that any misjoinder reflected an “egregious or bad faith intent” to “thwart
removal.” Id. at 623. Indeed, the Eighth Circuit recognized that the plaintiffs’
claims might be improperly joined under Rule 20, but that was beside the point,
because unless it is clear that joinder is “egregious and grossly improper,” “mere
misjoinder” is more appropriately raised in state court prior to removal. Id.
Accordingly, Rule 20 provided a baseline from which to measure the
egregiousness of misjoinder, not a rule to be satisfied in order to defeat removal.
In the present case, Plaintiffs assert that the claims against Defendants
arise out of a systematic pattern of events such that they may be considered to arise
out of the same transaction or transactions. Plaintiffs cite case law from the
Eleventh Circuit that found joinder to be proper where claims against an array of
financial institutions all arose from assignments by a single insolvent lender. See
Moore v. Comfed Sav. Bank, 908 F.2d 834, 839 (11th Cir. 1990) (permitting
joinder under Rule 20 of defendants that acquired loans from single insolvent
20
lender). Because Plaintiffs have pled at least plausible grounds for joinder, and
because “all doubts about federal jurisdiction should be resolved in favor of
remand to state court,” Prempro, 591 F.3d at 620, the Court does not find that
joinder of the parties in this case is “egregious” or “grossly improper.” The Court
“cannot say that their claims have no ‘real connection’ to each other such that they
are egregiously misjoined.” Id. at 623. Accordingly, the Court finds that complete
diversity is lacking and removal was improper.9
CONCLUSION
9
In opposition to Plaintiffs’ Motion to Remand and at oral argument, Defendants argued
that Visendi v. Bank of America, N.A., 733 F.3d 863 (9th Cir. 2013) is controlling precedent in
this case. The court disagrees.
In Visendi, 137 plaintiffs sued 25 financial institutions for unlawful mortgage practices
in state court. Id. at 866. The institutional defendants removed the case to federal court pursuant
to the Class Action Fairness Act (“CAFA”) that provides for federal jurisdiction over civil
actions “in which monetary relief claims of 100 or more persons are proposed to be tried jointly
on the ground that the plaintiff’s claims involve common questions of law or fact.” Id. at 867.
The Ninth Circuit held that the plaintiffs’ claims failed to present “any question of law
or fact common to all plaintiffs,” and were thus improperly joined under the permissive joinder
requirements of FRCP Rule 20(a). Defendants argue that just as the Ninth Circuit found
improper joinder in Visendi, so to should this court find improper joinder here.
The Court disagrees and distinguishes Visendi on two grounds. First, in Visendi,
federal jurisdiction arose under CAFA. Accordingly there was no question as to the court’s
jurisdiction to consider whether permissive joinder under Rule 20(a) was proper. Here, the
Court’s jurisdiction is in question. To find federal jurisdiction, defendants must demonstrate that
joinder was eggregious or grossly improper. This is a decidedly more stringent standard than that
applied under Rule 20 in Visendi.
Second, in Visendi, the Ninth Circuit held that nothing united the plaintiffs but “the
superficial similarity of their allegations and their common choice of counsel.” Id. at 870. Here
in contrast, Plaintiffs have alleged a common scheme arising from a common third-party
assignor. As stated in the body of these findings, under the heightened standards required to
defeat incomplete diversity, the Court cannot say that their claims have no “real connection” to
each other such that they are egregiously misjoined. The Court therefore, finds Visendi is not
controlling in this case.
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The Court finds that neither the doctrine of fraudulent joinder nor
fraudulent misjoinder permit the Court to ignore incomplete diversity in this case.
Without complete diversity, this Court lacks jurisdiction. Accordingly, the Court
finds that remand to state court is proper and that the Court lacks jurisdiction to
hear Deutsche Bank’s Motion to Sever. Because the Court lacks jurisdiction to
hear the Motion to Sever, US Bank’s joinder in the motion is rendered moot.
For the foregoing reasons, the Court FINDS and RECOMMENDS
that Plaintiffs’ Motion to Remand be GRANTED, and ORDERS that Defendant’s
Motion to Sever be DENIED for lack of jurisdiction, and Defendant’s Motion for
Joinder be TERMINATED as Moot.
DATED: Honolulu, Hawaii, January 29, 2014.
IT IS SO ORDERED.
/S/ Barry M. Kurren
Barry M. Kurren
United States Magistrate Judge
John C. Tomlinson, et al. v. Deutsche Bank National Trust Company, et al., CV 13-00554
SOM-BMK; FINDINGS AND RECOMMENDATION TO GRANT PLAINTIFFS’ MOTION
FOR REMAND, AND ORDER DENYING DEFENDANT’S MOTION TO SEVER CLAIMS
AND DENYING AS MOOT DEFENDANT’S JOINDER IN MOTION TO SEVER CLAIMS.
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