De Mendonca v. West Coast Life Insurance Company
Filing
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ORDER ADOPTING FINDINGS AND RECOMMENDATION, AND REMANDING ACTION TO THE FIRST CIRCUIT COURT OF THE STATE OF HAWAII re: 40 . Signed by CHIEF U.S. DISTRICT JUDGE J. MICHAEL SEABRIGHT on 3/1/2016. (afc)MOTIONS terminate d: 32 MOTION to Dismiss Plaintiffs' Amended Complaint with Prejudice, filed by defendant West Coast Life Insurance Company and defendant Protective Life Insurance Company, and 37 MOTION to Dismiss the First Amended Complaint, filed by defendants ASB Hawaii, Inc., and American Savings Bank. 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
LUIZ CESAR DE MENDONCA, ET
AL.,
)
)
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Plaintiffs,
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vs.
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)
WEST COAST LIFE INSURANCE
)
COMPANY, ET AL.,
)
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Defendants.
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_______________________________ )
CIV. NO. 15-00359 JMS-RLP
ORDER ADOPTING FINDINGS
AND RECOMMENDATION, AND
REMANDING ACTION TO THE
FIRST CIRCUIT COURT OF THE
STATE OF HAWAII
ORDER ADOPTING FINDINGS AND RECOMMENDATION, AND
REMANDING ACTION TO THE FIRST CIRCUIT COURT OF THE
STATE OF HAWAII
I. INTRODUCTION
Defendants ASB Hawaii, Inc., and American Savings Bank
(collectively “ASB”) object under 28 U.S.C. § 636(b)(1) and Local Rule 72.4 to a
January 8, 2016 Findings and Recommendation of Magistrate Judge Richard
Puglisi to Grant Plaintiffs’ Motion to Remand, Doc. No. 40 (“the January 8, 2016
F&R”). See Doc. No. 41. The January 8, 2016 F&R recommended that the court
remand this action to the First Circuit Court, State of Hawaii (“State Court”) for
lack of subject matter jurisdiction. It determined that Plaintiffs’ state law claims
for breach of contract and violations of Hawaii Revised Statutes (“HRS”) § 480-2
against ASB did not present a federal question under the complete preemption
doctrine set forth in Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 63-64
(1987) and similar cases. Upon de novo review, the court agrees that the complete
preemption doctrine does not apply, and that the Amended Complaint does not
otherwise present a substantial federal question. Accordingly, the court
OVERRULES the objection, ADOPTS the January 8, 2016 F&R, and REMANDS
the action to State Court for lack of federal subject matter jurisdiction.
II. BACKGROUND
Plaintiffs’ original Complaint alleged that Defendants West Coast
Life Insurance Company and Protective Life Insurance Company (collectively,
“West Coast Defendants”) are liable for insurer bad faith, breach of contract, and
other state-law causes of action regarding a failure to pay benefits under a life
insurance policy issued to Sheri De Mendonca, who passed away in 2015. See
Doc. No. 1-2, Compl. The West Coast Defendants removed the original
Complaint from State Court based on diversity of citizenship. See Doc. No. 1,
Notice of Removal.
After removal, Plaintiffs filed a Motion seeking leave to file a First
Amended Complaint (“FAC”) that repeated the allegations against the West Coast
Defendants but also joined ASB -- corporate entities with the same citizenship as
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Plaintiffs -- as Defendants, asserting state-law claims against them for breach of
contract and violations of HRS § 480-2. Doc. No. 23. The motion to amend was
granted, and Plaintiffs filed the FAC on November 9, 2015. Doc. Nos. 22, 23.
Because this amendment destroyed diversity of citizenship, Plaintiffs moved to
remand the action under 28 U.S.C. §§ 1447(e).1 Doc. No. 29. The January 8,
2016 F&R recommended granting Plaintiffs’ Motion to Remand. Doc. No. 40.
ASB filed its Objection on January 22, 2016, Doc. No. 41, and Plaintiffs filed their
Response on February 5, 2016. Doc. No. 45.
As to ASB, the FAC challenges the manner in which ASB ceased
paying monthly premiums on Sheri De Mendonca’s life insurance policy.2 The
1
Section 1447(e) provides: “If after removal the plaintiff seeks to join additional
defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder,
or permit joinder and remand the action to the State court.”
Caselaw indicates that after a district court permits joinder of a non-diverse party, it must
remand -- it lacks power to take other actions. See, e.g., Cobb v. Delta Exports, Inc., 186 F.3d
675, 677 (5th Cir. 1999) (holding that, once such amendment was permitted, the district court
lacked power to deny remand even if it determined that the new non-diverse defendants were
fraudulently joined); Yniques v. Cabral, 985 F.2d 1031, 1035, 1036 (9th Cir. 1993) (holding that
the district court erred in dismissing a case for lack of jurisdiction -- rather than remanding under
§ 1447(e) -- after permitting an amendment that destroyed diversity of citizenship). But here,
although it is undisputed that joining ASB as Defendants destroyed diversity of citizenship, ASB
contends that the court otherwise has subject matter jurisdiction over the FAC under a complete
preemption or substantial federal question theory. Section 1447(e) speaks in terms of whether
joinder would destroy “subject matter jurisdiction,” not solely diversity jurisdiction. Essentially,
the argument is that § 1447(e) does not require remand because the FAC -- although destroying
diversity jurisdiction -- did not destroy subject matter jurisdiction where the FAC otherwise
added claims that are completely-preempted, or that necessarily raise significant federal issues.
2
The court focuses on the allegations against ASB given that ASB is objecting to the
(continued...)
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FAC alleges that, for nearly seven years, the premiums were being paid via
automatic deduction from Sheri De Mendonca’s ASB checking account. FAC at
2. It alleges that she had “overdraft protection,” whereby ASB was supposed to
make automatic payments (such as her life insurance premiums) even if the
account was overdrawn, subject to overdraft fees. Id. at 4; 11 ¶ 20. The West
Coast Defendants had cancelled the life insurance policy in September 2014
(allegedly without providing proper or sufficient notice) after a July 23, 2014
premium was not paid. Regarding that July 2014 premium, the FAC alleges:
[ASB] indicated a “subtraction” from her account on
July 23, 2014 in the amount of $43.68, payable to
“WEST COAST LIFE INS. PREM,” with the next entry
of “OVERDRAFT FEE Insufficient Funds.” However,
on the very next day [ASB] posted an addition of the
$43.68 back into Sheri’s account. [ASB] never sent any
notice to Sheri that it was declining West Coast Life
Insurance’s request for payment, even though in its
published representations regarding overdraft it had
represented that it would authorize and pay overdrafts
for “automatic bill payments.”
Id. at 4. It alleges the “[t]he July 23, 2014 posting of ‘OVERDRAFT FEE
Insufficient Funds’ with [a] subtraction of $30.00 in no way identified to what
specific transaction the overdraft fee applied, and directly followed the West Coast
2
(...continued)
F&R. That is, the court need not set forth the facts alleged against the West Coast Defendants,
who have not taken a position regarding ASB’s objection.
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Life ‘subtraction.’” Id. ¶ 36. And it claims that “Defendant ASB did not notify
[Plaintiffs] that [ASB] was now implementing a new policy whereby [ASB] would
decline their automatic bill payments when they had insufficient funds.” Id. ¶ 34.
It explains:
[ASB’s] false and deceptive representations regarding
courtesy overdraft, its confusing manner of posting
transactions, and failure to notify Sheri that it would
decline West Coast’s $45.68 request for payment after
apparently paying it, in conjunction with West Coast and
Protective Life’s wrongful revocation of the automatic
payment agreement and cancellation of Sheri’s policy, all
without proper notice, has given rise to a broad number
of harms to [Plaintiffs].
Id. at 5.
The FAC further alleges that “Neither [Plaintiff] authorized
Defendant ASB to decline any automatic bill payment request by the West Coast
Defendants, and they received no notice from Defendant ASB that the West Coast
automatic bill payment request had been declined for any reason.” Id. ¶ 41.
Claiming a breach of contract against ASB, the FAC alleges that
overdraft protection was an essential term of the ASB checking account. Id. ¶ 93.
Plaintiffs “relied to their detriment on Defendant ASB’s representations that ASB
would cover any automatic bill payments, even when their account was
overdrawn, subject to overdraft fees.” Id. ¶ 94. “Defendant ASB breached the
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checking account agreement with [Plaintiffs] when the bank unilaterally rescinded
the overdraft transaction to West Coast Life of July 23, 2014 and instituted an
‘addition’ to their overdrawn account the following day.” Id. ¶ 95.
In its HRS § 480-2 claim, the FAC alleges that “ASB made false and
deceptive representations regarding ASB’s authorization and payment of
automatic bill payments presented when a consumer’s account was overdrawn.”
Id. ¶ 102. In particular, it refers to an ASB publication titled “What You Need to
Know About Overdrafts and Overdraft Fees.” Id. ¶¶ 104-05. The § 480-2 claim,
however, is not limited to the wording of that publication. For example, it further
alleges that “[t]he manner in which Defendant ASB posts its overdraft fee
transactions, without any identifying information as to which transaction the
overdraft fee applies, is misleading, false and deceptive.” Id. ¶ 106. It claims that
“Defendant ASB engaged in a deliberate, fraudulent, and manipulative scheme in
which they offered Plaintiffs overdraft protection for a fee, took actions that made
it appear as if it had instituted that overdraft protection but on the following day
rescinded that overdraft transaction, resulting in the non-payment to West Coast
Life.” Id. ¶ 107.
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III. STANDARD OF REVIEW
When a party objects to a magistrate judge’s findings or
recommendations, the district court must review de novo those portions to which
the objections are made and “may accept, reject, or modify, in whole or in part, the
findings or recommendations made by the magistrate judge.” 28 U.S.C.
§ 636(b)(1); see also United States v. Raddatz, 447 U.S. 667, 673 (1980); United
States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc) (“[T]he
district judge must review the magistrate judge’s findings and recommendations
de novo if objection is made, but not otherwise.”).
Under a de novo standard, this court reviews “the matter anew, the
same as if it had not been heard before, and as if no decision previously had been
rendered.” Freeman v. DirecTV, Inc., 457 F.3d 1001, 1004 (9th Cir. 2006); United
States v. Silverman, 861 F.2d 571, 576 (9th Cir. 1988). The district court need not
hold a de novo hearing; however, it is the court’s obligation to arrive at its own
independent conclusion about those portions of the magistrate judge’s findings or
recommendation to which a party objects. United States v. Remsing, 874 F.2d
614, 618 (9th Cir. 1989).
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IV. DISCUSSION
ASB’s objection raises the complete preemption exception to the
well-pleaded complaint rule. Metropolitan Life Insurance Co. explains:
Federal pre-emption is ordinarily a federal defense to the
plaintiff’s suit. As a defense, it does not appear on the
face of a well-pleaded complaint, and, therefore, does
not authorize removal to federal court. One corollary of
the well-pleaded complaint rule developed in the case
law, however, is that Congress may so completely
pre-empt a particular area that any civil complaint raising
this select group of claims is necessarily federal in
character.
481 U.S. at 63-64 (internal citation omitted). ASB argues that the FAC is
completely preempted by the federal Home Owners’ Loan Act (“HOLA”), 12
U.S.C. § 1464, and its Office of Thrift Supervision (“OTS”) implementing
regulations that regulate deposit-related activities of federally-chartered savings
associations.3
Without repeating the analysis, however, the court -- having reviewed
the parties’ filings on the Motion to Remand and ASB’s objection, and analyzed
applicable caselaw -- agrees with the reasoning stated in substantial authority
3
The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111203, 124 Stat. 1376 (2010), among other things, replaced the OTS in 2011 with the Office of the
Comptroller of the Currency (“OCC”), which “explicitly disavowed full field preemption.”
Aguayo v. U.S. Bank, 653 F.3d 912, 922 (9th Cir. 2011). As noted in the January 8, 2016 F&R,
the court need not decide whether the FAC is governed by OTS or OCC regulations because the
court concludes that the FAC is not completely preempted under a more stringent OTS regime.
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within the Ninth Circuit and elsewhere rejecting this theory of complete
preemption. See, e.g., Bolden v. KB Home, 618 F. Supp. 2d 1196, 1204-05 (C.D.
Cal. 2008); Bazan v. U.S. Bancorp., 2011 WL 566804, at *4 (N.D. Cal. Feb. 14,
2011); Wilburn v. IndyMac Bank, F.S.B., 2011 WL 2174608, at *2 (E.D. Cal. June
2, 2011); Durazo v. Cal.-Western Reconveyance Corp., 2013 WL 3810706, at *2
(S.D. Cal. July 22, 2013); McKenzie v. Ocwen Fed. Savings Bank FSB, 306 F.
Supp. 2d 543, 545 (D. Md. 2004).
“Complete preemption . . . arises only in ‘extraordinary’ situations.”
Ansley v. Ameriquest Mortg. Co., 340 F.3d 858, 862 (9th Cir. 2003). It applies
“when Congress intends not merely to preempt a certain amount of state law, but
also intends to transfer jurisdiction of the subject matter from state to federal
court.” Wayne v. DHL Worldwide Express, 294 F.3d 1179, 1183 (9th Cir. 2002)
(citing Metro. Life Ins. Co., 481 U.S. at 65-66). “It is a narrow exception[.]”
Bazan, 2011 WL 566804, at *3. “Indeed, the Supreme Court has identified only
three federal statutes that have the ‘unusually powerful pre-emptive force’
required to completely preempt state law for purposes of removal jurisdiction.”
Id. (quoting Beneficial Nat’l. Bank v. Anderson, 539 U.S. 1, 6-7, 11 (2003) (some
editorial marks omitted). HOLA is not one of them.
And ASB has not demonstrated such an extraordinary situation here,
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particularly where -- as analyzed by Bazan and many other cases -- “the OTS
regulation includes an express savings clause that preserves broad categories of
state law from preemption.” Id. at *4. At best, ASB has identified a defense of
preemption, which differs from the complete preemption doctrine at issue in
Plaintiffs’ Motion to Remand. See, e.g., ARCO Envtl. Remediation, L.L.C. v.
Dep’t of Health & Envtl. Quality of Montana, 213 F.3d 1108, 1114 (9th Cir.
2000).
Nor does the FAC present a “substantial federal question.” Under
this doctrine, federal jurisdiction may arise when a state law claim “necessarily
raise[s] a stated federal issue, actually disputed and substantial, which a federal
forum may entertain without disturbing any congressionally approved balance of
federal and state judicial responsibilities.” Grable & Sons Metal Prods. v. Darue
Eng’g & Mfg., 545 U.S. 308, 314 (2005). But this is also a very limited exception
given “the long-settled understanding that the mere presence of a federal issue in a
state cause of action does not automatically confer federal-question jurisdiction.”
Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 813 (1986). The
exception is only for a “special and small category” of cases. Empire
Healthchoice Assurance v. McVeigh, 547 U.S. 677, 699 (2006). “[T]he fact that a
complaint references federal law, or that the same facts would provide a basis for a
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federal claim, without more, does not convert a state law claim into a federal
claim.” Bazan, 2011 WL 566804, at *5 (citations omitted).
Here, contrary to ASB’s arguments, the FAC is not restricted to
challenging the contents or form of a notice that might have been approved by the
OTS. For example, it challenges ASB’s “confusing manner of posting
transactions,” and ASB’s alleged “failure to notify Sheri that it would decline
West Coast’s $45.68 request for payment after apparently paying it.” FAC at 5. It
alleges that ASB failed to identify “to what specific transaction the [30 dollar]
overdraft fee applied.” Id. ¶ 36. In short, it alleges that ASB breached a contract
providing overdraft protection, and did not properly inform Plaintiffs that it was
no longer paying the life insurance premiums.4 Again, at best, ASB might have a
defense of preemption to some aspects of Plaintiffs’ claims for breach of contract
and violations of § 480-2. But federal law is not a necessary element of all aspects
of both claims, and so the substantial federal question doctrine does not apply.
See Nevada v. Bank of Am. Corp., 672 F.3d 661, 675 (9th Cir. 2012) (“When a
claim can be supported by alternative and independent theories -- one of which is a
4
The court thus rejects ASB’s argument that “[t]he lynchpin for all” of Plaintiffs’
allegations is their “underlying claim that ASB’s overdraft disclosure form (the ‘Disclosures’),
which are modeled on the Federal Reserve’s model disclosure form, was deceptive and unfair
and that ASB, in fact, breached the terms of its Disclosures[.]” Doc. No. 41, Obj. at 3. The form
may be part, but is certainly not all, of Plaintiffs’ allegations.
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state law theory and one of which is a federal law theory -- federal question
jurisdiction does not attach because federal law is not a necessary element of the
claim.”) (quoting Rains v. Criterion Sys., Inc., 80 F.3d 339, 346 (9th Cir. 1996)).
V. CONCLUSION
Based on the foregoing, the court ADOPTS the January 8, 2016
Findings and Recommendation to Grant Plaintiffs’ Motion to Remand. The
objection of Defendants ASB Hawaii, Inc., and American Savings Bank is
OVERRULED. The action is REMANDED forthwith to the First Circuit Court of
the State of Hawaii for lack of subject matter jurisdiction.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, March 1, 2016.
/s/ J. Michael Seabright
J. Michael Seabright
Chief United States District Judge
De Mendonca et al. v. West Coast Life Ins. Co., Civ. No. 15-00359 JMS-RLP, Order Adopting
Findings and Recommendation, and Remanding Action to the First Circuit Court of the State of
Hawaii
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