Solomon v. Federal National Mortgage Association et al

Filing 84

ORDER remanding case to Clark County District Court. Case terminated. Signed by Chief Judge Gloria M. Navarro on 3/31/2017. (Copies have been distributed pursuant to the NEF, cc: Certified Docket Sheet to State Court - JM)

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1 UNITED STATES DISTRICT COURT 2 DISTRICT OF NEVADA 3 RICHARD SALOMON, 4 5 Plaintiff, vs. 6 7 8 9 10 FEDERAL NATIONAL MORTGAGE ASSOCIATION, et al., Defendants. ) ) ) ) ) ) ) ) ) ) Case No.: 2:15-cv-00332-GMN-VCF ORDER This case comes before the Court through the Petition for Removal, (ECF No. 1), filed 11 by Defendant Federal National Mortgage Association (“Fannie Mae”). Plaintiff Richard 12 Salomon (“Plaintiff”) first filed this action in state court on January 5, 2015, seeking to quiet 13 title to the real property located at 1150 N. Buffalo Dr., Unit 1055, Las Vegas, Nevada 89128. 14 (Compl., Ex. 1 to Pet. Removal, ECF No. 1-1). Fannie Mae removed the action pursuant to 28 15 U.S.C. § 1331, citing to the Ninth Circuit Court of Appeals’ decision in Lightfoot v. Cendant 16 Mortgage Corp., 769 F.3d 681, 683 (9th Cir. 2014). 17 On January 18, 2017, the Supreme Court overturned the Ninth Circuit, holding that 18 Fannie Mae’s authority to “sue and to be sued, and to complain and to defend in any court of 19 competent jurisdiction, State or Federal,” does not confer federal jurisdiction over all cases 20 involving Fannie Mae. Lightfoot v. Cendant Mortgage Corp., 137 S.Ct. 554, 558 (2017). 21 Rather, the Court found that Fannie Mae’s charter “permits suit in any [state or] federal court 22 already endowed with subject-matter jurisdiction over the suit.” Id. at 561 (emphasis added). 23 Thus, where removal is based solely on the “sue or be sued” clause in its charter, Fannie Mae 24 fails to establish that a federal district court has jurisdiction over the suit. Id. at 564-65. 25 On March 17, 2017, the Court issued an order to show cause requiring Fannie Mae to show why, in light of the Supreme Court’s decision, the case should not be remanded for lack Page 1 of 6 1 of jurisdiction. (ECF No. 80). Both Fannie Mae and Plaintiff responded. (ECF Nos. 81, 83). 2 For the reasons discussed herein, the Court finds that Fannie Mae has failed to provide a basis 3 for federal jurisdiction, and therefore the case will be remanded to the Clark County District 4 Court. 5 I. 6 LEGAL STANDARD Federal courts are courts of limited jurisdiction, possessing only those powers granted by 7 the Constitution and by statute. See United States v. Marks, 530 F.3d 799, 810 (9th Cir. 2008). 8 “If at any time before final judgment it appears that the district court lacks subject matter 9 jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c). Removal statutes are strictly 10 construed against removal jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). 11 “Federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first 12 instance.” Id. (citing Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir. 1979)). 13 In evaluating diversity jurisdiction, the defendant has the burden of overcoming the “strong 14 presumption” against removal. Gaus, 980 F.2d at 566. 15 Under 28 U.S.C. § 1332, a federal district court has original jurisdiction over all civil 16 actions between citizens of different states where the amount in controversy exceeds $75,000. 17 See 28 U.S.C. § 1332(a)(1). Section 1332 requires complete diversity among the parties; each 18 of the plaintiffs must be a citizen of a different state than each of the defendants. Morris v. 19 Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001). 20 Under 28 U.S.C. § 1331, a federal district court has original jurisdiction over all civil 21 actions arising under the laws of the United States. See 28 U.S.C. § 1331. “The presence or 22 absence of federal-question jurisdiction is governed by the ‘well-pleaded complaint rule,’ 23 which provides that federal jurisdiction exists only when a federal question is presented on the 24 face of the plaintiff’s properly pleaded complaint.” Caterpillar Inc. v. Williams, 482 U.S. 386, 25 Page 2 of 6 1 392 (1987). “[A] case may not be removed to federal court on the basis of a federal defense.” 2 Id. at 393. 3 II. DISCUSSION 4 Fannie Mae argues that even after Lightfoot, the Court retains jurisdiction because it had 5 independent valid justifications for jurisdiction at the time of removal. (Fannie Mae Resp. 2:9– 6 12, ECF No. 81). Specifically, Fannie Mae argues that: (1) federal question jurisdiction exists 7 under the coercive action doctrine; and (2) diversity jurisdiction exists because the non-diverse 8 defendants were fraudulently joined. (Id. 2:13–27). The Court addresses each argument in turn. 9 10 1. Federal Question Jurisdiction Generally, federal question jurisdiction turns on the face of the plaintiff’s well-pleaded 11 complaint. See Franchise Tax Bd. of State of Cal. v. Constr. Laborers Vacation Trust for S. 12 Cal., 463 U.S. 1, 9-10 (1983). A narrow exception to this rule exists, however, in the context 13 of certain “coercive” actions for declaratory judgment. Medtronic, Inc. v. Mirowski Family 14 Ventures, LLC, 134 S. Ct. 843, 848 (2014). In such instances, courts look to both the plaintiff’s 15 complaint and the “character of the threatened action” in considering federal question 16 jurisdiction. Id. “That is to say, they ask whether ‘a coercive action’ brought by ‘the 17 declaratory judgment defendant . . . would necessarily present a federal question.’” Id. (quoting 18 Franchise Tax Bd. of State of Cal., 463 U.S. at 19). 19 A common application of this doctrine occurs in suits between patent holders and 20 alleged patent infringers. See, e.g., Medtronic Inc., 134 S. Ct. at 843. In such suits, an alleged 21 infringer may file an action seeking a declaratory judgment that he is not violating any patents, 22 or that the patents at issue are invalid. Because this declaratory judgment is meant to defend 23 against an eventual claim against the plaintiff for patent infringement, federal courts have 24 consistently recognized jurisdiction on the theory that an infringement suit by the defendant 25 Page 3 of 6 1 would clearly raise a federal question. See Franchise Tax Bd. of State of Cal., 463 U.S. at 27 n. 2 19. 3 In this case, Fannie Mae argues that it—like the defendant in Medtronic—is a defendant 4 in a declaratory judgment suit who had a viable and related federal claim against Plaintiff. 5 Specifically, Fannie Mae argues that it “could have asserted quiet title and declaratory 6 judgment claims . . . seeking recognition that the HOA Sale did not extinguish the Deed of 7 Trust.” (Fannie Mae Resp. 5:25–27). According to Fannie Mae, these claims would have been 8 proper in federal court under 12 U.S.C. § 4617(j)(3) (the “Federal Foreclosure Bar”). (Id. 2:20– 9 23). The “threatened actions” that Fannie Mae identifies are distinguishable from the 10 11 “coercive action” framework detailed above. Declaratory actions, such as a claim for quiet 12 title, do not implicate the same considerations as coercive actions.1 See Medtronic Inc., 134 S. 13 Ct. at 848. Notably, the unique nature of declaratory actions (i.e. that they are often used to 14 establish a defense to an impending coercive suit) is what gave rise to the coercive action 15 doctrine in the first place. See Thunder Properties, Inc. v. Treadway, 2017 WL 899961, at *3 16 (D. Nev. Mar. 7, 2017). At its core, the doctrine emerged to prevent declaratory judgment 17 plaintiffs from litigating in federal court in order to establish defenses for state court. See 18 Wycoff, 344 U.S. at 248 (“Federal courts will not seize litigations from state courts merely 19 because one, normally a defendant, goes to federal court to begin his federal-law defense before 20 the state court begins the case under state law.”). The distinction between a coercive suit and a declaratory suit is a meaningful one: “In 21 22 the declaratory judgment context, whether a federal question exists is determined by reference 23 24 1 25 Fannie Mae points out, and the Court notes, that the Ninth Circuit has referred to quiet title actions as coercive in passing. Nonetheless, this does not change the declaratory nature of quiet title claims. See, e.g., Samuel C. Johnson 1988 Trust v. Bayfield County, Wis., 649 F.3d 799 (7th Cir. 2011) (“[Q]uiet title is functionally a form of declaratory-judgment action”). Page 4 of 6 1 to a hypothetical non-declaratory suit (i.e., a suit for coercive relief) between the same parties.” 2 Chase Bank USA, N.A. v. City of Cleveland, 695 F.3d 548, 554 (6th Cir. 2012) (emphasis 3 added); see also Koniag, Inc. v. Andrew Airways, Inc., 2014 WL 4926344, at *3 (D. Alaska 4 Sept. 30, 2014) (approvingly citing Chase Bank, and determining that declaratory actions are 5 distinct from coercive ones under the Medtronic framework). 6 Here, the face of Plaintiff’s complaint contains only claims based on state law, and 7 Fannie Mae has not convincingly shown an exception to the well-pleaded complaint rule. By 8 its own admission, Fannie Mae acknowledges that the Federal Foreclosure Bar does not create 9 an independent cause of action. (Fannie Mae Resp. 8:25–27). In this sense, the provision more 10 closely resembles the “settled law that a case may not be removed . . . on the basis of a federal 11 defense,” than the doctrine described in Medtronic, where a request for declaratory judgment is 12 closely related to a viable federal coercive claim. See Thunder Properties, Inc., 2017 WL 13 899961, at *3 (rejecting Fannie Mae’s argument that the coercive action doctrine establishes 14 federal jurisdiction in a similar case). Accordingly, the Court finds that Fannie Mae has failed 15 to establish federal question jurisdiction in this action. 16 2. Diversity Jurisdiction 17 To establish diversity jurisdiction, the removing party must generally demonstrate that 18 there was complete diversity among the parties at the time of removal. See Morris, 236 F.3d at 19 1067. “Nevertheless, one exception to the requirement for complete diversity is where a non- 20 diverse defendant has been ‘fraudulently joined.’” Id. “Although there is a general presumption 21 against fraudulent joinder, if the plaintiff fails to state a cause of action against a resident 22 defendant, and the failure is obvious according to the settled rules of the state, the joinder of the 23 resident defendant is fraudulent.” Hamilton Materials, Inc. v. Dow Chemical Corp., 494 F.3d 24 1203, 1206 (9th Cir. 2007) (internal citation and quotation marks omitted). “In such a case, the 25 Page 5 of 6 1 district court may ignore the presence of that defendant for purposes of establishing diversity.” 2 Hunter v. Philip Morris USA, 582 F.3d 1039, 1043 (9th Cir. 2009). 3 Fannie Mae argues that the non-diverse defendants—the Garcias (former owners of the 4 property at issue) and Bank of Nevada—were fraudulently joined. (Fannie Mae Resp. 9:11–14). 5 Specifically, Fannie Mae argues that Plaintiff failed to state a claim against these defendants, 6 and therefore the Court should disregard them for diversity jurisdiction purposes. (Id. 10:1–5). 7 The Ninth Circuit has already addressed the fraudulent joinder issue in the context of 8 Nevada foreclosure law. See Weeping Hollow Avenue Trust v. Spencer, 831 F.3d 1110 (9th Cir. 9 2016) (finding it was not fraudulent to name the prior owner as a defendant because “[the prior 10 owner] could still assert an interest in the property by challenging the HOA foreclosure sale on 11 equitable grounds.”). Moreover, even if fraudulent joinder were applicable, Fannie Mae cannot 12 now allege a new substantive basis for removal. See Arco Envtl. Remediation, LLC v. Dep’t of 13 Health & Envtl. Quality of Montant, 213 F.3d 1108, 1117 (9th Cir. 2000) (“[A]mendment may 14 be permitted . . . if the amendment corrects defective allegations of jurisdiction, but not to add a 15 new basis for removal jurisdiction.”). Accordingly, the Court finds that Fannie Mae has failed 16 to establish federal diversity jurisdiction in this action. 17 III. 18 19 CONCLUSION IT IS HEREBY ORDERED that this case is remanded to the Clark County District Court for lack of federal subject matter jurisdiction. 20 The Clerk of Court shall enter judgment accordingly. 21 31 DATED this ___ day of March, 2017. 22 23 24 ___________________________________ Gloria M. Navarro, Chief Judge United States District Court 25 Page 6 of 6

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