LN Management LLC Series 2543 Citrus Garden v. Gelgotas et al

Filing 99

ORDER remanding case; setting aside ECF No. 68 Order dismissing certain defendants; denying as moot ECF No. 95 Motion to Set Aside Order of Dismissal; directing Clerk to close case. Signed by Judge Miranda M. Du on 4/24/2017. (Certified copies of this order and the docket sheet mailed to Eighth Judicial.) (Copies have been distributed pursuant to the NEF - KR)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***

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LN MANAGEMENT LLC SERIES 2543
CITRUS GARDEN.,

Case No. 2:15-cv-00112-MMD-CWH

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Plaintiff,
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ORDER

v.

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FEDERAL NATIONAL MORTGAGE
ASSOCIATION,

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Defendant.
and

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FEDERAL HOUSING FINANCE
AGENCY

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Intervenor.

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I.

SUMMARY AND BACKGROUND

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This case comes before the Court through Defendant Federal National Mortgage

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Association’s (“Fannie Mae”) petition for removal. (ECF No. 1.) Plaintiff LN Management,

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LLC Series 2543 Citrus Garden (“LN Management”) filed this action on January 20,

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2014, in the Eight Judicial District Court in Clark County, Nevada, to quiet title to certain

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real property located at 2543 Citrus Garden Circle (“the Property”) in Henderson,

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Nevada. Fannie Mae removed the action pursuant to 28 U.S.C. § 1331, citing to the

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Ninth Circuit Court of Appeals’ decision in Lightfoot v. Cendant Mortgage Corp., 769

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F.3d 681, 683 (9th Cir. 2014), where the court construed the “sue and be sued” clause in

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Fannie Mae’s federal charter as a basis for conferring federal question jurisdiction. (ECF

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No. 1 at 2.)

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In a decision issued on January 18, 2017, the Supreme Court overturned the

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Ninth Circuit, holding that Fannie Mae’s authority “to sue and to be sued, and to

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complain and to defend in any court of competent jurisdiction, State or Federal,” 12

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U.S.C. § 1723a(a), does not confer federal jurisdiction over all cases involving Fannie

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Mae. Lightfoot v. Cendant Mortgage Corp., 137 S.Ct. 553, 558 (2017). Rather, the Court

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found that Fannie Mae’s charter “permits suit in any [state or] federal court already

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endowed with subject-matter jurisdiction over the suit.” Id. at 561 (emphasis added).

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Thus, where removal is based solely on the “sue or be sued” clause in its charter, Fannie

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Mae fails to establish that a federal district court has jurisdiction in the suit. Id. at 564-65.

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On January 20, 2017, the Court issued an order to show case requiring Fannie

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Mae to show why, after the Supreme Court’s decision, the case should not be remanded

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for lack of jurisdiction. (ECF No. 85.) Fannie Mae responded. (ECF No. 88) For the

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reasons discussed below, Fannie Mae has failed to provide a basis for federal

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jurisdiction, and therefore the case will be remanded to the Eighth Judicial District Court.

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The Court will set aside the order of dismissal under Rule 4(m) for lack of subject matter

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jurisdiction. (ECF No. 68)

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II.

LEGAL STANDARD

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Federal courts are courts of limited jurisdiction, having subject-matter jurisdiction

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only over matters authorized by the Constitution and Congress. U.S. Const. art. III, § 2,

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cl. 1; e.g., Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). A suit

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filed in state court may be removed to federal court if the federal court would have had

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original jurisdiction over the suit. 28 U.S.C. § 1441(a). However, courts strictly construe

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the removal statute against removal jurisdiction, and “[f]ederal jurisdiction must be

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rejected if there is any doubt as to the right of removal in the first instance.” Gaus v.

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Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). The party seeking removal bears the

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burden of establishing federal jurisdiction. Durham v. Lockheed Martin Corp., 445 F.3d

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1247, 1252 (9th Cir. 2006).

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Federal district courts have “original jurisdiction of all civil actions arising under

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the . . . laws . . . of the United States.” 28 U.S.C. § 1331. “The presence or absence of

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federal-question jurisdiction is governed by the ‘well-pleaded complaint rule,’ which

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provides that federal jurisdiction exists only when a federal question is presented on the

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face of the plaintiff's properly pleaded complaint.” Caterpillar Inc. v. Williams, 482 U.S.

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386, 392, (1987). But “a case may not be removed to federal court on the basis of a

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federal defense.” Id. at 393.

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III.

ANALYSIS

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Fannie Mae argues that even after Lightfoot, the Court retains jurisdiction

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because it had a separate valid justification for removal based on an alternate theory of

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federal question jurisdiction — namely that it falls under a doctrine unique to cases

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involving requests for declarative judgment. (ECF No. 88.) Fannie Mae additionally

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argues that because it identified federal question jurisdiction as its original basis for

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removal, and because the facts supporting its new theory were available to all of the

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parties at the time of removal, it can rely on its new theory of jurisdiction even if it did not

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specifically address it in its petition for removal. (Id.) However, even if the Court accepts

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Fannie Mae’s procedural and equitable arguments, the new theory it proposes does not

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support federal question jurisdiction in this case.

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Generally, federal question jurisdiction turns on the face of the plaintiff's well-

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pleaded complaint. See Franchise Tax Bd. of State of Cal. v. Constr. Laborers Vacation

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Trust for S. Cal., 463 U.S. 1, 9–10 (1983). There is, however, a small wrinkle in this rule

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in the context of actions for declaratory judgment. As Justice Jackson noted decades

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ago, suits involving declarative relief often flip the parties’ expected positions. Plaintiffs

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seeking declaratory judgment are frequently establishing a defense meant to head off

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another potential related suit. Pub. Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237,

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248 (1952). Therefore, when considering questions of federal question jurisdiction,

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courts look at both the plaintiff’s complaint and the “character of the threatened action.”

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Medtronic, Inc. v. Mirowski Family Ventures, LLC, 134 S. Ct. 843, 848 (2014) (quoting
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Wycoff, 344 U.S. at 248). “That is to say, they ask whether ‘a coercive action’ brought by

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‘the declaratory judgment defendant . . . would necessarily present a federal question.’”

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Id. (quoting Franchise Tax Bd. of State of Cal., 463 U.S. at 19). This pragmatic doctrine

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balances the unique nature of requests for declaratory judgment with the well-

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established rule that the Declaratory Judgment Act did not extend federal court

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jurisdiction beyond its previous bounds.

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A good example of this doctrine, and indeed a place where it often plays out, is in

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a suit between a patent holder and an alleged patent infringer. The alleged infringer may

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file an action seeking a declaratory judgment that she is not violating any patents, or that

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the patents at issue are invalid. Because a declaratory judgment in this type of case is

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meant to defend against an eventual claim against the plaintiff for patent infringement,

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federal courts have consistently recognized jurisdiction on the theory that an

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infringement suit by the defendant would clearly raise a federal question. See Franchise

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Tax Bd. of State of Cal., 463 U.S. at 27 n. 19.

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In this case, Fannie Mae argues that it, like the defendant in Medtronic, are

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defendants in a declaratory judgment suit who had a viable and related federal claim

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against the plaintiff. Fannie Mae argues that the obvious action it would have brought in

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relation to the declaratory relief is “a declaratory judgment claim against LN

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Management, seeking recognition that the HOA Sale did not extinguish the Deed of

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Trust.” (ECF No. 88 at 5.) This hypothetical claim, according to Fannie Mae, would have

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raised a substantial question of federal law based on 12 U.S.C. § 4617(j)(3) — the so

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called Federal Foreclosure Bar — and therefore supported federal question jurisdiction.

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(Id.) However, the action Fannie Mae identifies does not fit into the framework described

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above.

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The “threatened action” that Fannie Mae identifies is another declaratory claim,

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rather than “a coercive action.” Medtronic, Inc., 134 S. Ct. at 848. Another quiet title

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claim, like the one Fannie Mae suggests, does not implicate the same considerations as

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a coercive action, because the unique nature of a declaratory action — i.e., that is often
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used to establish a defense to an impending coercive suit — is what triggered the

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doctrine in the first place. In fact, the doctrine seems to have originally emerged to

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prevent declaratory judgment plaintiffs from litigating in federal court in order to establish

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defenses for state court. See Wycoff, 344 U.S. at 248 (“Federal courts will not seize

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litigations from state courts merely because one, normally a defendant, goes to federal

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court to begin his federal-law defense before the state court begins the case under state

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law.”) Indeed, courts have recognized that the distinction between a coercive suit and a

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declaratory suit is a meaningful one: “In the declaratory-judgment context, whether a

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federal question exists is determined by reference to a hypothetical non-declaratory suit

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(i.e., a suit for coercive relief) between the same parties.” Chase Bank USA, N.A. v. City

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of Cleveland, 695 F.3d 548, 554 (6th Cir. 2012) (emphasis added); see also Koniag, Inc.

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v. Andrew Airways, Inc., No. 3:13-CV-00051-SLG, 2014 WL 4926344, at *3 (D. Alaska

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Sept. 30, 2014) (approvingly citing Chase Bank, and determining that declaratory actions

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are distinct from coercive ones under the Medtronic framework).

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The face of LN Management’s complaint contains only claims based on state law

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(ECF No. 1-2), and Fannie Mae has not convincingly shown an exception to the well-

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pleaded complaint rule. The configuration of this case more closely resembles the

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“settled law that a case may not be removed . . . on the basis of a federal defense,”

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Caterpillar, 482 U.S. at 393, than the doctrine described in Medtronic, where a request

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for declaratory judgment is closely related to a viable coercive claim by the defendant.

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Therefore, the Court finds that Fannie Mae, who bears the burden of establishing federal

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jurisdiction, has failed to show cause why the case should not be remanded.

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IV.

CONCLUSION

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The Court notes that Fannie Mae made several arguments and cited to several

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cases not discussed above. The Court has reviewed these arguments and cases and

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determines that they do not warrant discussion as they do not affect the Court’s

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determination of subject matter jurisdiction.

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It is therefore ordered that this case be remanded consistent with this opinion.

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Because the Court lacks subject matter jurisdiction, the Court sets aside its April 8, 2016,

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Order dismissing certain defendants under Fed. R. Civ. P. 4(m) (ECF No. 68). LN

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Management’s motion to set aside order of dismissal (ECF No. 95) is denied as moot.

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The Clerk is instructed to close this case.

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DATED this 24th day of April 2017.

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MIRANDA DU
UNITED STATES DISTRICT JUDGE

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