HESS et al v. BANK OF AMERICA HOME LOANS SERVICING, LP et al

Filing 41

CLOSED REMANDED - The Court determines that it does not have subject matter jurisdiction to adjudicate this lawsuit. Accordingly, this case is HEREBY REMANDED to the Brown Circuit Court. *** SEE ORDER ***. Signed by Judge Jane Magnus-Stinson on 5/24/2012. Copies mailed to Brown County Circuit Court via U.S. mail.(CKM)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

DAVID and CHERYL HESS,

)
)
Plaintiffs,
)
)
v.
) CASE NO. 1:12-CV-0088-JMS-DML
)
BANK OF AMERICA HOME LOANS
)
SERVICING, LP; MORTGAGE ELECTRONIC )
REGISTRATION SYSTEMS, INC.;
)
CENTRAL BANK OF JEFFERSON COUNTY, )
INC.; COUNTRYWIDE HOME LOANS, INC.;
)
COUNTRYWIDE BANK, N.A.; and
)
ACCELERATED MORTGAGE FUNDING, INC., )
)
Defendants.
)

Order of Remand
The Court has a duty to ensure it has subject matter jurisdiction. Hukic v. Aurora Loan
Services, 588 F.3d 420, 427 (7th Cir. 2009). The Court determines that it does not have subject
matter jurisdiction in this case and accordingly REMANDS it to the Brown Circuit Court.
On January 20, 2012, all defendants except Accelerated Mortgage Funding, Inc., a
defendant who apparently had not been served, removed this lawsuit from Brown Circuit Court
on the ground that this Court has federal question jurisdiction under 28 U.S.C. § 1331. See
Notice of Removal, Dkt. 1, ¶ 7.1 Their Notice asserts that the allegation in the plaintiffs’
complaint that defendant Jefferson County Bank violated 42 U.S.C. § 4012a and the plaintiffs’

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Under 28 U.S.C. § 1446(b)(2)(A), all defendants who have been properly joined and
served in the state court case must join in, or consent to, removal to federal court. The Notice of
Removal was filed by defendants who refer to themselves as the “Bank of America Defendants”
and who constitute all of the defendants except Central Bank of Jefferson County, Inc. (hereafter,
“Jefferson County Bank”) and Accelerated Mortgage Funding, Inc. Jefferson County Bank
consented to removal by the Bank of America Defendants. Notice of Removal, Dkt. 1, ¶ 9.

request for $1,000,000 in damages from all defendants gives rise to subject matter jurisdiction
under 28 U.S.C. § 1331 “because this action involves a claim for alleged violations of the
Federal Emergency Management Act and for damages thereof.” Id.
On April 24, 2012, the Court issued its Order to Show Cause why this case should not be
remanded for lack of subject matter jurisdiction. [Dkt. 35]. The Order stated, in part, that
although the plaintiffs’ complaint references a federal statute, it does not purport to bring a claim
under federal law but brings state law claims for negligence, unconscionability, promissory
estoppel, and to quiet title to real estate. The Court directed the parties’ attention to the
jurisdictional principle that a reference to a federal statute does not necessarily cause a claim to
arise under the laws of the United States for purposes of federal question jurisdiction under
section 1331.
I.

The defendants have not demonstrated that
the Court has federal question jurisdiction.
The Bank of America Defendants’ response to the Court’s Show Cause Order argues, as

they posited in their Notice of Removal, that it is the plaintiffs’ assertion “that co-defendant
[Jefferson County Bank] violated a federal statute, 42 U.S.C. §4012a, by making an improper
flood zone determination, then failed to require Plaintiffs to acquire flood insurance as allegedly
required by federal law,” along with the assertion that their damages are $1 million, that supplies
federal question jurisdiction. Jefferson County Bank, the sole defendant charged with violating
this federal statute, responded to the Court’s Show Cause Order by adopting the arguments made
by the Bank of America Defendants. [Dkt. 38].
The defendants remark that a complaint need not expressly assert a cause of action under
federal law for the suit to be within the Court’s original federal question jurisdiction. The Court
acknowledged that, of course, in its Show Cause Order. The Court directed the defendants to
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explain why—given that the plaintiffs have not asserted a federal cause of action—this is one of
those cases in which the assertion of state law causes of action nevertheless raises a sufficiently
substantial federal issue for which a federal forum is appropriate. The defendants’ responses do
not grapple with the relevant distinctions between cases that “arise under” the laws of the United
States for purposes of section 1331 and those that do not.
As the Supreme Court noted in Grable & Sons Metal Products, Inc. v. Darue Eng’g &
Mfg., 545 U.S. 308 (2005), it has “recognized for nearly 100 years” that in some cases federal
question jurisdiction exists to adjudicate cases asserting only state law claims. But the presence
of a federal law issue has never automatically opened the door to federal court. Id. at 314. The
Supreme Court’s “constant refrain” has been that the question of federal law embedded in the
state law claims must be a substantial one that is actually contested and disputed. Id. at 314. In
Grable, the Court emphasized another layer in the analysis: whether affording a federal forum
would upset a balance between federal and state courts inconsistent with congressional intent.
Federal question jurisdiction exists 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.” Id.
Grable was a state-law quiet title action. The defendant had purchased the subject real
estate at a federal tax sale. The plaintiff, which had owned the property, alleged that because the
IRS had not given it notice of the sale in the manner prescribed by federal tax law, the deed from
the IRS to the defendant tax-sale purchaser was invalid. The only disputed issue in the case was
whether the plaintiff had received notice of the tax sale from the IRS in a manner that complied
with a federal statute. The issue implicated strong federal interests—the responsibilities of
federal officials in providing notices of federal tax sales, the validity of a real estate deed from a

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federal agency, and the collection and potential refund of federal taxes—and exercising federal
jurisdiction over a state-law quiet title action that raised a disputed federal tax law was likely to
be a rare enough occurrence to not disturb federal-state judicial responsibilities. Id. at 315-16.
As Grable discussed, on the other side of the line are cases like Merrell Dow
Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804 (1986), in which the plaintiff claimed that the
drug company’s violation of federal statutory drug branding requirements made it negligent per
se under Ohio state law. Though the federal branding law would have to be interpreted and
applied to resolve the state law claim, the Court held that the claim did not “arise under” federal
law for purposes of section 1331. As Grable explained, Merrell Dow reflects the Court’s view
that there is no federal court welcome mat for a garden-variety state law negligence claim that
relies on a federal statute as the source of the duty and its violation as the breach. 545 U.S. at
318-19. Otherwise one could expect “an enormous shift of traditionally state cases into federal
court” inconsistent with the federal courts’ limited jurisdiction. Id. at 319.
In Empire Healthcare Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006), the Court further
stressed that Grable creates only a narrow opening to federal court for state law claims that
depend on federal law: “Grable emphasized that it takes more than a federal element “to open
the ‘arising under’ door. [Empire’s contract law claim] cannot be squeezed into the slim
category Grable exemplifies.” Id. at 701. See also Bennett v. Southwest Airlines, Inc., 484 F.3d
907 (7th Cir. 2007) (no federal question jurisdiction for state tort claims alleging that defendants’
violations of federal aviation laws underpinned aircraft accident).
The federal law issue in this case is not characteristically different from the one in
Merrell Dow. The plaintiffs merely allege a federal statute, the breach of which makes the
defendants negligent under state law and liable to the plaintiffs. The plaintiffs claim that under

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42 U.S.C. §4012a, their residential mortgage lender, Jefferson County Bank, was required to
notify and advise them to purchase flood insurance, that it didn’t, and that the plaintiffs suffered
extensive non-insured losses (of $1,000,000) from a flood because they had no insurance.2 This
is a garden-variety state law negligence claim, and no strong federal interests of the kind and
quality demanded under Grable are implicated. In fact, the Bank of America Defendants and
Jefferson County Bank do not identify any matters of special federal interest and importance as
integral to the adjudication of this case. They merely label this a case raising a “sufficiently
substantial federal issue” for federal question jurisdiction but do not explain why this is so.
The Bank of American Defendants and Jefferson County Bank had the burden to
demonstrate this Court’s jurisdiction. Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609,
617 (7th Cir. 2012) (“party invoking federal jurisdiction bears the burden of demonstrating its
existence”). They have not shown that the plaintiffs’ complaint, while asserting the violation of
a federal law as the basis for the plaintiffs’ state law causes of action, falls within the narrow
category of cases that can be brought to federal court under Grable.

2

In other filings, the Bank of America Defendants and Jefferson County Bank argue that
the plaintiffs’ claim that Jefferson County Bank negligently failed to advise the plaintiffs
regarding flood insurance is barred by Indiana’s two-year statute of limitations or is otherwise
deficient under Indiana substantive law and should be dismissed for those reasons. (See Dkt. 18
and Dtk. 17-1). If they are right, then a court need not ever decide the meaning of the federal
statute or its application to this case.
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II.

The defendants have not shown that
the Court can exercise diversity jurisdiction.
The defendants’ fall-back position on subject matter jurisdiction is that the Court may

have diversity jurisdiction. The notice of removal did not assert diversity jurisdiction, but the
Court could, under 28 U.S.C. §1653, permit amendment of the removal papers to assert diversity
jurisdiction. (“Defective allegations of jurisdiction may be amended, upon terms, in the trial or
appellate courts.”) See Harmon v. OKI Systems, 115 F.3d 477, 478 (7th Cir. 1997).
That relief is not appropriate in this case because the defendants could not demonstrate at
the time of removal, and have not shown now, that the plaintiffs are diverse in citizenship from
all defendants.
The Bank of America Defendants explain that their notice of removal did not rely on
diversity jurisdiction because their investigation revealed that defendant Accelerated Mortgage
Funding, Inc. could be an Indiana corporation. It would thus share citizenship with the plaintiffs.
In their response to the Show Cause Order, the Bank of America Defendants now say that maybe
Accelerated Mortgage is a Georgia corporation, based on information gathered from secretary of
state records in Georgia and nearby states of Alabama, Florida, and Mississippi. (See Dkt. 37 at
p.2). The Court notes that the Indiana Secretary of State lists a corporation named Accelerated
Mortgage Funding, Inc., with an address in Bloomington, Indiana, incorporated in Indiana on
December 13, 2004, and administratively dissolved on July 15, 2010. The Georgia Secretary of
State lists a corporation named Accelerated Mortgage Funding, Inc., with an address in Acworth,
Georgia, incorporated in Georgia on September 17, 1998. This information suggests the
existence of two different companies incorporated in different states with the same name, not
that the Georgia company is the defendant in this case. It is more reasonable to infer that the
Accelerated Mortgage Funding, Inc. named a defendant in this case is the one that had an address
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in a county adjacent to the Indiana county where the real estate that is the subject of this
litigation is located.3 In short, the defendants have not provided any basis for ignoring
Accelerated Funding’s citizenship and have not demonstrated that the Court could exercise
diversity jurisdiction. Appert, 673 F.3d at 617.
Finally, the defendants’ suggestion that the Court could exercise subject matter
jurisdiction “for the sake of judicial economy” is completely without merit. The authority they
cite, Norris v. Advanced Correctional Healthcare, Inc., 2012 WL 1232163 (S.D. Ind. April 12,
2012), does not support their argument. In Norris, the court had subject matter jurisdiction—
federal question jurisdiction because of a claim under 42 U.S.C. § 1983 and supplemental
jurisdiction over related state law claims under 28 U.S.C. § 1367. The issue in Norris was
whether the court should relinquish or retain its supplemental jurisdiction over the state law
claims once the court dismissed the federal claim that had triggered its original subject matter
jurisdiction. Neither Norris nor any other authority permits a federal court to exercise subject
matter jurisdiction “for the sake of judicial economy” when it otherwise does not have
jurisdiction.

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The fact that the Indiana corporation has been administratively dissolved does not make
its citizenship irrelevant for diversity purposes—or at least the defendants have not shown that it
does. Under the Indiana Business Corporation Law, an administratively dissolved company
“continues its corporate existence” and the authority of its registered agent for service of process
is not terminated by administrative dissolution. Ind. Code § 23-1-46-2. Thus, although the
company apparently has yet to be served by the plaintiffs, nothing appears to prevent the
plaintiffs from effecting service.
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Conclusion
For the foregoing reasons, the Court determines that it does not have subject matter
jurisdiction to adjudicate this lawsuit. Accordingly, this case is HEREBY REMANDED to the
Brown Circuit Court.
So ORDERED.
05/24/2012
Dated: __________________

_______________________________
Hon. Jane Magnus-Stinson, Judge
United States District Court
Southern District of Indiana

Distribution: All ECF-registered counsel of record.

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